<PAGE>
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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. 1
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
--------------------------------------------------------------------
$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.<PAGE>
<PAGE>2
INTRODUCTORY STATEMENT
This Amendment No. 1 to the Transaction Statement on
Schedule 13E-3 (this "Amendment No. 1") 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.
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. 1 relates to a solicitation of
proxies by the Board of Directors of Pacific Telecom in
connection with an Annual Meeting of the shareholders of
Pacific Telecom (the "Annual Meeting"), currently scheduled to
be held in June, 1995. At the Annual Meeting, shareholders
will be asked to vote upon proposals (i) to approve the Merger
Agreement and (ii) to elect a slate of ten directors.
The cross-reference sheet below is being supplied
pursuant to General Instruction F to Schedule 13E-3 and shows
the location of the information required to be included in
response to the Items of Schedule 13E-3 in the revised
preliminary proxy statement of Pacific Telecom (the "Revised
Preliminary Proxy Statement") which is included as Exhibit (d)
to this Statement. All cross-references below are to captions
and subcaptions in the text of, or appendices to, the Revised
Preliminary Proxy Statement without reference to the Form of
Proxy, Letter to Shareholders or Notice of Meeting. The
information in the Revised Preliminary Proxy Statement is
hereby expressly incorporated by reference, each cross-
reference below being deemed to be an incorporation by
reference of the portions of the Revised Preliminary Proxy
Statement referred to and the response to each Item being
qualified in its entirety by the provisions of the Revised
Preliminary Proxy Statement.
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE
TRANSACTION.
(a) See "Meeting Information--Introduction" and "--
Solicitation, Revocation and Use of Proxies."
(b) See "Meeting Information--Voting Information."
(c)-(d) See "Market Price and Dividend Information for
PTI Common Stock."
(e) Not applicable.
(f) See "Certain Transactions in PTI Common Stock."
<PAGE>
<PAGE>3
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. 1.
(a)-(d), (g) See "Information Concerning Holdings and
PacifiCorp and Their Directors and Executive Officers."
(e)-(f) None.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a) (1) See "Special Factors--Background of the Merger"
and "Certain Transactions With Management and Others."
(2) See "Special Factors--Background of the Merger"
and "--Reasons of PacifiCorp and Holdings for the Merger."
(b) See "Special Factors--Background of the Merger" and
"Certain Transactions in PTI Common Stock."
ITEM 4. TERMS OF THE TRANSACTION.
(a) See "The Merger Agreement."
(b) See "The Merger Agreement" and "Special Factors--
Interests of Certain Persons in the Merger; Conflicts of
Interest."
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(g) See "Special Factors--Certain Effects of the
Merger," "--Conduct of Business After the Merger" and "--
Financing the Merger."
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) See "Special Factors--Financing the Merger."
(b) See "Special Factors--Expenses of the Transactions."
(c) See "Special Factors--Financing the Merger."
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)-(d) See "Special Factors--Background of the Merger,"
"--Reasons of PacifiCorp and Holdings for the Merger,"
"--Certain Effects of the Merger," "--Interests of Certain
Persons in the Merger; Conflicts of Interest" and
"--Certain Federal Income Tax Consequences."
<PAGE>
<PAGE>4
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(f) See "Special Factors--Background of the Merger,"
"--Recommendations of the Board of Directors of Pacific Telecom
and the Special Committee," "--Opinions of Smith Barney and CS
First Boston" and "--Reasons of PacifiCorp and Holdings for the
Merger." See also "The Merger Agreement--Conditions to the
Merger."
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN
NEGOTIATIONS.
(a)-(b) See "Special Factors--Background of the Merger,"
"--Recommendations of the Board of Directors of Pacific Telecom
and the Special Committee," "--Opinions of Smith Barney and CS
First Boston," "--Reasons of PacifiCorp and Holdings for the
Merger" and "--Opinion of Financial Advisor to PacifiCorp."
(c) See "Special Factors--Background of the Merger,"
"--Opinions of Smith Barney and CS First Boston" and "Opinion
of Financial Advisor to PacifiCorp."
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) See "Security Ownership of Certain Beneficial Owners
and Management" and "Information Concerning Holdings and
PacifiCorp and Their Directors and Executive Officers."
(b) See "Certain Transactions in PTI Common Stock."
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH
RESPECT TO THE ISSUER'S SECURITIES.
See "Special Factors--Interests of Certain Persons in
the Merger; Conflicts of Interest" and "Executive
Compensation."
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN
PERSONS WITH REGARD TO THE TRANSACTION.
(a)-(b) See "Meeting Information--Voting Information" and
"Special Factors--Recommendations of the Board of Directors of
Pacific Telecom and the Special Committee."
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) See "Special Factors--Rights of Dissenting
Shareholders."
(b)-(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) See "Selected Financial Data; Pro Forma Financial
Information" and "Incorporation of Certain Documents by
Reference."
(b) Not applicable.<PAGE>
<PAGE>5
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a)-(b) See "Meeting Information--Solicitation,
Revocation and Use of Proxies" and "Special Factors--Interests
of Certain Persons in the Merger; Conflicts of Interest."
ITEM 16. ADDITIONAL INFORMATION.
Any additional information is set forth in the Proxy
Statement.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit Number Description
-------------- -----------
(a) Credit Agreement dated as of April 27,
1995 among PacifiCorp Holdings, Inc.,
and the banks listed therein and
Morgan Guaranty Trust Company of New
York, as agent
*(b)(1) Opinion of Smith Barney Inc.--see
Exhibit C to the Proxy Statement
*(b)(2) Presentation Materials of Smith Barney
Inc. dated February 13, 1995
*(b)(3) Presentation Materials of Smith Barney
Inc. dated February 15, 1995
*(b)(4) Presentation Materials of Smith Barney
Inc. dated March 8, 1995
*(b)(5) Opinion of CS First Boston
Corporation--see Exhibit D to the
Proxy Statement
*(b)(6) Presentation Materials of CS First
Boston Corporation dated March 8, 1995
*(b)(7) Opinion of Salomon Brothers Inc--see
Exhibit E to the Proxy Statement
(b)(8) Presentation Materials of Edgar, Dunn
& Company dated November 17, 1993
(b)(9) Presentation Materials of SRI
International dated April 25, 1994
__________________
* Document was previously filed as an exhibit to
Schedule 13E-3
<PAGE>
<PAGE>6
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)
(d) Revised Preliminary Proxy Statement
dated __________, 1995, together with
Form of Proxy, Letter to Shareholders
and Notice of Meeting
*(e) Sections 23B.13.010 through 23B.13.310
of the Washington Business Corporation
Act - see Exhibit B to the Proxy
Statement (previously filed)
__________________
* Document was previously filed as an exhibit to
Schedule 13E-3
<PAGE>
<PAGE>7
SIGNATURES
After due inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
Dated: May 19, 1995
PACIFIC TELECOM, INC.
By JAMES H. HUESGEN
----------------------------
James H. Huesgen
Executive Vice President
and Chief Financial
Officer
<PAGE>
<PAGE>8
SIGNATURES
After due inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
Dated: May 19, 1995
PACIFICORP HOLDINGS, INC.
By RICHARD T. O'BRIEN
----------------------------
Richard T. O'Brien
Senior Vice President
<PAGE>
<PAGE>9
SIGNATURES
After due inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
Dated: May 19, 1995
PXYZ CORPORATION
By RICHARD T. O'BRIEN
----------------------------
Richard T. O'Brien
President<PAGE>
<PAGE>10
SIGNATURES
After due inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
Dated: May 19, 1995
PACIFICORP
By RICHARD T. O'BRIEN
----------------------------
Richard T. O'Brien
Vice President
<PAGE>
<PAGE>11
EXHIBIT INDEX
Sequentially
Exhibit Numbered
No. Description Page
------- ----------- -----------
(a) Credit Agreement dated as of April 27,
1995 among PacifiCorp Holdings, Inc., the
Banks listed therein and Morgan Guaranty
Trust Company of New York, as agent
*(b)(1) Opinion of Smith Barney Inc. - see
Exhibit C to the Proxy Statement
*(b)(2) Presentation Materials of Smith Barney
Inc. dated February 13, 1995
*(b)(3) Presentation Materials of Smith Barney
Inc. dated February 15, 1995
*(b)(4) Presentation Materials of Smith Barney
Inc. dated March 8, 1995
*(b)(5) Opinion of CS First Boston Corporation -
see Exhibit D to the Proxy Statement
*(b)(6) Presentation Materials of CS First Boston
Corporation dated March 8, 1995
*(b)(7) Opinion of Salomon Brothers Inc - see
Exhibit E to the Proxy Statement
(b)(8) Presentation Materials of Edgar, Dunn &
Company dated November 17, 1993
(b)(9) Presentation Materials of SRI
International dated April 25, 1994
(b)(10) Presentation Materials of Edgar, Dunn &
Company dated November 1, 1994
__________________
* Document was previously filed as an exhibit to
Schedule 13E-3
<PAGE>
<PAGE>12
Sequentially
Exhibit Numbered
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)
(d) Revised Preliminary Proxy Statement dated
____________, 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
<PAGE>
EXHIBIT (a)
$350,000,000
CREDIT AGREEMENT
dated as of
April 27, 1995
among
PacifiCorp Holdings, Inc.,
The Banks Listed Herein
and
Morgan Guaranty Trust Company of New York,
as Agent
<PAGE>
<PAGE>i
TABLE OF CONTENTS*
Page
----
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . 1
SECTION 1.02. Accounting Terms and
Determinations. . . . . . . . . . . . . . 24
SECTION 1.03. Types of Borrowings . . . . . . . . . . . 25
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend . . . . . . . . . . . 25
SECTION 2.02. Notice of Committed Borrowing . . . . . . 26
SECTION 2.03. Money Market Borrowings . . . . . . . . . 26
SECTION 2.04. Notice to Banks; Funding of Loans . . . . 31
SECTION 2.05. Notes . . . . . . . . . . . . . . . . . . 32
SECTION 2.06. Maturity of Loans . . . . . . . . . . . . 33
SECTION 2.07. Interest Rates. . . . . . . . . . . . . . 33
SECTION 2.08. Fees. . . . . . . . . . . . . . . . . . . 37
SECTION 2.09. Optional Termination or Reduction
of Commitments. . . . . . . . . . . . . . 38
SECTION 2.10. Mandatory Termination of
Commitments . . . . . . . . . . . . . . . 38
SECTION 2.11. Optional Prepayments. . . . . . . . . . . 38
SECTION 2.12. General Provisions as to Payments . . . . 39
SECTION 2.13. Funding Losses. . . . . . . . . . . . . . 39
SECTION 2.14. Computation of Interest and Fees. . . . . 40
ARTICLE III
CONDITIONS
SECTION 3.01. Borrowings. . . . . . . . . . . . . . . . 40
SECTION 3.02. Conditions to Effectiveness . . . . . . . 41
SECTION 3.03. Termination of Existing
Commitments; Release of Collateral. . . . 42
____________________
*The Table of Contents is not a part of this Agreement.
<PAGE>
<PAGE>ii
Page
----
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Corporate Existence and Power . . . . . . 43
SECTION 4.02. Corporate and Governmental
Authorization; No Contravention . . . . . 43
SECTION 4.03. Binding Effect. . . . . . . . . . . . . . 44
SECTION 4.04. Financial Information . . . . . . . . . . 44
SECTION 4.05. Litigation. . . . . . . . . . . . . . . . 45
SECTION 4.06. Compliance with ERISA . . . . . . . . . . 45
SECTION 4.07. Taxes . . . . . . . . . . . . . . . . . . 45
SECTION 4.08. Subsidiaries. . . . . . . . . . . . . . . 45
SECTION 4.09. Regulation. . . . . . . . . . . . . . . . 46
SECTION 4.10. Environmental Matters . . . . . . . . . . 46
SECTION 4.11. Spring Creek Documents. . . . . . . . . . 46
ARTICLE V
COVENANTS
SECTION 5.01. Information . . . . . . . . . . . . . . . 47
SECTION 5.02. Adjusted Consolidated Debt. . . . . . . . 50
SECTION 5.03. Interest Coverage . . . . . . . . . . . . 50
SECTION 5.04. Negative Pledge . . . . . . . . . . . . . 50
SECTION 5.05. Consolidations, Mergers and Sales
of Assets . . . . . . . . . . . . . . . . 50
SECTION 5.06. Restricted Stock Payments and
Restricted Dividends. . . . . . . . . . . 51
SECTION 5.07. Use of Proceeds . . . . . . . . . . . . . 52
SECTION 5.08. Debt of Restricted Subsidiaries . . . . . 52
SECTION 5.09. Guarantees of Certain Hedging
Agreements. . . . . . . . . . . . . . . . 53
SECTION 5.10. Compliance with Laws. . . . . . . . . . . . 53
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default . . . . . . . . . . . . 53
SECTION 6.02. Notice of Default . . . . . . . . . . . . 57
ARTICLE VII<PAGE>
<PAGE>iii
Page
----
THE AGENT
SECTION 7.01. Appointment and Authorization . . . . . . 57
SECTION 7.02. Agent and Affiliates. . . . . . . . . . . 57
SECTION 7.03. Action by Agent . . . . . . . . . . . . . 58
SECTION 7.04. Consultation with Experts . . . . . . . . 58
SECTION 7.05. Liability of Agent. . . . . . . . . . . . 58
SECTION 7.06. Indemnification . . . . . . . . . . . . . 58
SECTION 7.07. Credit Decision . . . . . . . . . . . . . 59
SECTION 7.08. Successor Agent . . . . . . . . . . . . . 59
SECTION 7.09. Agent's Fees. . . . . . . . . . . . . . . 59
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate
Inadequate or Unfair. . . . . . . . . . . 60
SECTION 8.02. Illegality. . . . . . . . . . . . . . . . 60
SECTION 8.03. Increased Cost and Reduced Return . . . . 61
SECTION 8.04. Taxes . . . . . . . . . . . . . . . . . . 62
SECTION 8.05. Base Rate Loans Substituted for
Affected Fixed Rate Loans . . . . . . . . 64
SECTION 8.06. Substitution of Bank. . . . . . . . . . . 65
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices . . . . . . . . . . . . . . . . . 66
SECTION 9.02. No Waivers. . . . . . . . . . . . . . . . 66
SECTION 9.03. Expenses; Indemnification . . . . . . . . 66
SECTION 9.04. Sharing of Set-Offs . . . . . . . . . . . 67
SECTION 9.05. Amendments and Waivers. . . . . . . . . . 68
SECTION 9.06. Successors and Assigns. . . . . . . . . . 68
SECTION 9.07. Confidentiality . . . . . . . . . . . . . 70
SECTION 9.08. Governing Law; Submission to
Jurisdiction. . . . . . . . . . . . . . . 71
SECTION 9.09. Counterparts; Integration . . . . . . . . 71
<PAGE>
<PAGE>iv
Pricing Schedule
Exhibit A - Note
Exhibit B - Money Market Quote Request
Exhibit C - Invitation for Money Market Quotes
Exhibit D - Money Market Quote
Exhibit E - Assignment and Assumption Agreement
Exhibit F - Opinion of Counsel for the Borrower
Exhibit G - Opinion of Special Counsel for
the Agent
Exhibit H - Form of Special Tax Allocation Agreement
<PAGE>
<PAGE>
CREDIT AGREEMENT
AGREEMENT dated as of April 27, 1995 among
PACIFICORP HOLDINGS, INC., the BANKS party hereto and MORGAN
GUARANTY TRUST COMPANY OF NEW YORK, as Agent.
WHEREAS, the Borrower, the Banks party thereto,
Bank of America National Trust and Savings Association, as
co-agent and Morgan Guaranty Trust Company of New York, as
agent, are parties to the Existing Credit Agreement;
WHEREAS, the Borrower desires to replace the
Existing Credit Agreement with this Agreement under which
the Borrower desires to have available to it a revolving
credit facility in the aggregate amount of $350,000,000
pursuant to which it may borrow funds for its general
corporate purposes, including acquiring the outstanding
shares of capital stock of PTI not owned by it on the date
hereof; and
WHEREAS, the Banks are willing to make loans to
the Borrower for such purposes on the terms and conditions
set forth herein;
NOW, THEREFORE, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms,
as used herein, have the following meanings:
"Absolute Rate Auction" means a solicitation of
Money Market Quotes setting forth Money Market Absolute
Rates pursuant to Section 2.03.
"Adjusted Available Cash Income" means Available
Cash Income less any amounts described in clause (iv) of the
definition thereof.
"Adjusted CD Rate" has the meaning set forth in
Section 2.07(b).
"Adjusted Consolidated Debt" means at any date,
without duplication and after intercompany eliminations
among the Borrower and each of its Subsidiaries, the sum of
(i) the Debt of the Borrower (other than Excluded ESOP <PAGE>
<PAGE>2
Debt), (ii) the Borrower's Share of the Debt of each of its
Restricted Subsidiaries (other than (a) PFS Affordable
Housing Debt not exceeding $85,000,000 in aggregate
outstanding principal amount and (b) Excluded ESOP Debt) and
(iii) the aggregate Termination Value of all Hedging
Agreements guaranteed by the Borrower or any of its
Restricted Subsidiaries pursuant to clause (ii) of the
proviso in Section 5.09, all determined as of such date.
"Adjusted London Interbank Offered Rate" has the
meaning set forth in Section 2.07(c).
"Adjusted Pro Forma Interest Expense (After Tax)"
means at any date when (i) the Borrower ceases to own at
least 51% of the outstanding common stock of PFS or PGC or
(ii) PFS or PGC consolidates or merges with or into (or
transfers all or substantially all its assets to) a
corporation that is not a Subsidiary of the Borrower, Pro
Forma Interest Expense (After Tax) as calculated as of the
end of the then most recently ended Fiscal Quarter adjusted,
if any Debt of the Borrower is to be repaid in connection
with such transaction, to eliminate (a) the interest expense
(including related commitment fees, facility fees and
similar fees) originally estimated to accrue after the date
of such repayment with respect to such Debt of the Borrower
to be repaid and (b) the corresponding portion of the
related Estimated Tax Benefit.
"Adjusted Stockholder's Equity" means, at any
date, the stockholder's equity of the Borrower less the book
value of all equity investments of the Borrower and of its
Restricted Subsidiaries in Excluded Subsidiaries, all
determined as of such date.
"Administrative Questionnaire" means, with respect
to each Bank, an administrative questionnaire in the form
prepared by the Agent, duly completed by such Bank and
submitted to the Agent (with a copy to the Borrower).
"Affiliate" of any Person means any other Person
directly or indirectly controlling, controlled by or under
direct or indirect common control with such Person. A
Person shall be deemed to control another Person if such
first Person possesses directly or indirectly the power to
direct, or cause the direction of, the management and
policies of the second Person, whether through the ownership
of voting securities, by contract or otherwise.
"Agent" means Morgan Guaranty Trust Company of New
York, in its capacity as agent for the Banks under this
Agreement, and its successors in such capacity.
<PAGE>
<PAGE>3
"Applicable Lending Office" means, with respect to
any Bank, (i) in the case of its Domestic Loans, its
Domestic Lending Office, (ii) in the case of its Euro-Dollar
Loans, its Euro-Dollar Lending Office and (iii) in the case
of its Money Market Loans, its Money Market Lending Office.
"Approved Securities" means any of the following
types of instruments if they have remaining terms to
maturity not exceeding 90 days from the date of acquisition:
(i) U.S. treasury securities; (ii) certificates of deposit
of, or bankers' acceptances issued by, any depository
institution or trust company as long as the commercial
paper, if any, and the long-term debt obligations (other
than such obligations whose rating is based on the credit of
a Person other than such institution or trust company) of
such depository institution or trust company (or, in the
case of the principal depository institution in a holding
company system, the commercial paper, if any, and the
long-term debt obligations of such holding company), at the
time of investment or contractual commitment providing for
such investment, have a credit rating from S&P or Moody's of
at least A-2 or P-2, respectively, in the case of commercial
paper and a rating of at least A- or A3, respectively, in
the case of long-term debt obligations; and (iii) commercial
paper having a credit rating from S&P or Moody's of at least
A-2 or P-2, respectively.
"Assessment Rate" has the meaning set forth in
Section 2.07(b).
"Assignee" has the meaning set forth in Section
9.06(c).
"Available Cash Income" means, for any period, the
sum of:
(i) the aggregate amount of cash dividends
actually received by the Borrower during such period on
common stock of its First Tier Subsidiaries (except
Qualified Investment Subsidiaries);
(ii) the aggregate amount of payments actually
received by the Borrower during such period with
respect to the Borrower's Interest in Spring Creek
Obligations, net of income taxes applicable thereto
calculated at the Net Effective Tax Rate for such
period;
(iii) the aggregate amount of any interest payments
actually received by the Borrower during such period
with respect to Debt owing to the Borrower under the
Intercompany Loan Agreements and with respect to any<PAGE>
<PAGE>4
other intercompany loans or advances, net of income
taxes applicable thereto calculated at the Net
Effective Tax Rate for such period;
(iv) the aggregate amount of cash equity Invest-
ments made by the Parent in the Borrower during such
period less any Excluded Dividends declared during such
period; and
(v) Qualified Investment Subsidiary Income for
such period.
For purposes of clause (iv) of this definition, a cash
equity investment made by the Parent in the Borrower within
30 days after the end of any Fiscal Quarter shall be deemed
to have been made during such Fiscal Quarter (and not during
the following Fiscal Quarter) if the Borrower so elects by
giving written notice of such election to the Agent within
said 30-day period.
"Bank" means each bank listed on the signature
pages hereof, each Assignee which becomes a Bank pursuant to
Section 9.06(c), and their respective successors.
"Base Rate" means, for any day, a rate per annum
equal to the higher of (i) the Prime Rate for such day and
(ii) the sum of 1/2 of 1% plus the Federal Funds Rate for
such day.
"Base Rate Loan" means a Committed Loan to be made
by a Bank as a Base Rate Loan in accordance with the
applicable Notice of Committed Borrowing or Article VIII.
"Borrower" means PacifiCorp Holdings, Inc., a
Delaware corporation, and its successors.
"Borrower's Interest in Spring Creek Obligations"
means the Borrower's undivided 99% ownership interest in (i)
the Spring Creek Obligations and (ii) all rights of the
Borrower and PCI under the Spring Creek Loan Documents
except rights under Section 6.4(d) of the Spring Creek Loan
Agreement.
"Borrower's Share" means on any date, with respect
to any Restricted Subsidiary, the quotient (expressed as a
decimal) obtained by dividing (i) the aggregate number of
outstanding shares of common stock of such Restricted
Subsidiary owned, directly or indirectly, by the Borrower by
(ii) the aggregate number of outstanding shares of common
stock of such Restricted Subsidiary, all determined as of
such date.
<PAGE>
<PAGE>5
"Borrowing" has the meaning set forth in Section
1.03.
"CD Base Rate" has the meaning set forth in
Section 2.07(b).
"CD Loan" means a Committed Loan to be made by a
Bank as a CD Loan in accordance with the applicable Notice
of Committed Borrowing.
"CD Margin" means a rate per annum determined in
accordance with the Pricing Schedule.
"CD Reference Banks" means Bank of America
National Trust and Savings Association, The Bank of New
York, Chemical Bank, CIBC Inc. and Morgan Guaranty Trust
Company of New York and each such other Bank as may be
appointed pursuant to Section 9.06(f).
"Change in Law" after any specified date means the
adoption after such date of any applicable law, rule or
regulation, or any change after such date in any applicable
law, rule or regulation, or any change after such date in
the interpretation or administration thereof by any
governmental authority (including, without limitation, any
court or other judicial or quasi-judicial body), central
bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its
Applicable Lending Office) with any request or directive
(whether or not having the force of law) promulgated after
such date by any such authority, central bank or comparable
agency.
"Collateral" has the meaning set forth in Section
1 of the Existing Security Agreement.
"Collateral Agent" means Chemical Bank, in its
capacity as collateral agent for the Secured Parties under
the Existing Security Agreement.
"Commitment" means (i) with respect to any Bank
listed on the signature pages hereof, the amount set forth
opposite its name on the signature pages hereof as its
Commitment or (ii) with respect to any Assignee, the amount
of the transferor Bank's Commitment assigned to such
Assignee pursuant to Section 9.06(c), in each case as such
amount may be reduced from time to time pursuant to Section
2.09 or changed as a result of an assignment pursuant to
Section 9.06(c).
"Commitment Fee Rate" means a rate per annum
determined in accordance with the Pricing Schedule.<PAGE>
<PAGE>6
"Committed Loan" means a loan made by a Bank
pursuant to Section 2.01.
"Consolidated Capitalization" means, at any date,
the sum of Adjusted Consolidated Debt plus Adjusted
Stockholder's Equity, all determined as of such date.
"Consolidated Subsidiary" means, with respect to
any Person at any date, any corporation or other entity the
accounts of which would be consolidated with those of such
Person in its consolidated financial statements if such
statements were prepared as of such date.
"Debt" of any Person means at any date, without
duplication, (i) all obligations of such Person for borrowed
money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments,
secured or unsecured, (iii) all obligations of such Person
to pay the deferred purchase price of property or services,
except trade accounts payable arising in the ordinary course
of business, (iv) all obligations of such Person as lessee
under capital leases, (v) all non-contingent reimbursement,
indemnity or similar obligations of such Person in respect
of amounts paid under letters of credit, surety bonds or
similar instruments, (vi) all Debt (of the kind described
in, and subject to the proviso at the end of, this
definition) of others secured by a Lien on any asset of such
Person, whether or not such Debt is assumed by such Person,
and (vii) all Debt (of the kind described in, and subject to
the proviso at the end of, this definition) of others which
is Guaranteed by such Person; provided that (a) with respect
to the Debt of a joint venture or partnership, such Debt
shall be deemed to be Debt of each Person participating
therein in an amount equal to such Person's pro rata
interest in such joint venture or partnership and (b) Debt
shall not include obligations arising under any agreement or
arrangement (in a form substantially similar to Exhibit I
hereto) between members of a group consolidated or combined
for purposes of computing income tax liability requiring a
member to make capital contributions or cash payments based
upon assumed tax benefits.
"Default" means any condition or event which
constitutes an Event of Default or which with the giving of
notice or lapse of time or both would, unless cured or
waived, become an Event of Default.
"Domestic Business Day" means any day except a
Saturday, Sunday or other day on which commercial banks in
New York City are authorized by law to close.
<PAGE>
<PAGE>7
"Domestic Lending Office" means, as to each Bank,
its office located at its address set forth in its Admini-
strative Questionnaire (or identified in its Administrative
Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic
Lending Office by notice to the Borrower and the Agent;
provided that any Bank may from time to time by notice to
the Borrower and the Agent designate separate Domestic
Lending Offices for its Base Rate Loans, on the one hand,
and its CD Loans, on the other hand, in which case all
references herein to the Domestic Lending Office of such
Bank shall be deemed to refer to either or both of such
offices, as the context may require.
"Domestic Loans" means CD Loans or Base Rate
Loans or both.
"Domestic Reserve Percentage" has the meaning set
forth in Section 2.07(b).
"Effective Date" means the date on which this
Agreement becomes effective pursuant to Section 3.02.
"Eligible ESOP Debt" means Debt of an ESOP that is
guaranteed by the Borrower or a First Tier Subsidiary;
provided that the aggregate original principal amount of all
Eligible ESOP Debt issued after April 27, 1995 (excluding
Eligible ESOP Debt issued to refinance an equal or greater
outstanding principal amount of Eligible ESOP Debt) shall
not exceed $100,000,000 and provided, further, that an issue
of Debt of an ESOP shall constitute "Eligible ESOP Debt"
only if (i) such Debt is secured by a pledge of all
unallocated shares of capital stock of the Parent purchased
with the proceeds of such Debt and held in the ESOP, (ii)
the lender or lenders of such Debt agree that, if such Debt
is accelerated, they will first attempt in good faith to
satisfy such Debt by disposing of such pledged shares, (iii)
neither the Borrower nor any First Tier Subsidiary shall be
obligated to pay such Debt pursuant to its Guaranty thereof,
except to the extent that such lender or lenders are not
able to satisfy such Debt in full through such good faith
attempts within a specified period (not less than six
Domestic Business Days) after such Debt has been accelerated
and (iv) the provisions of the relevant documentation
implementing the foregoing clauses (i), (ii) and (iii) shall
not be less favorable to the guarantor of such Debt, in any
material respect, than the provisions of (a) the Stock
Pledge and Security Agreement, dated as of October 19, 1990,
between Harris Trust and Savings Bank, as trustee under a
trust established under the PacifiCorp K Plus Employee
Savings and Stock Ownership Trust Agreement and The Bank of
New York, as agent and (b) the Guaranty Agreement dated as<PAGE>
<PAGE>8
of October 19, 1990, as amended and restated as of September
30, 1993, between the Borrower, the banks listed therein and
The Bank of New York, as agent, relating to the Debt of the
Borrower's current ESOP outstanding on March 31, 1995.
"Environmental Laws" means, with respect to any
Person, any and all federal, state, local and foreign
statutes, laws and ordinances, and all rules and regulations
lawfully promulgated thereunder and judicial decisions with
respect thereto, as applicable to such Person; all
judgments, orders, decrees, injunctions issued to or against
such Person or to which such Person is subject; all
concessions, grants, franchises, licenses and agreements
held or entered into by such Person; and all other
governmental restrictions on such Person; all as the
foregoing relate to the environment, or to the effect of the
environment on human health, or to emissions, discharges or
releases of pollutants, contaminants, toxic, hazardous,
corrosive or radioactive substances or wastes into the
environment (including, without limitation, ambient air,
surface water, groundwater and land), or to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, toxic,
hazardous, corrosive or radioactive substances or wastes, or
to the cleanup or other remediation thereof.
"ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, or any successor statute.
"ERISA Group" means the Borrower, any First Tier
Significant Subsidiary and all members of a controlled group
of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the
Borrower or any First Tier Significant Subsidiary, are
treated as a single employer under Section 414 of the
Internal Revenue Code.
"ESOP" means, as the context may require, (i) an
employee stock ownership plan (as defined by the Internal
Revenue Code) adopted by the Borrower, (ii) a trust created
under any such plan or (iii) the trustee of any such trust.
"Estimated Interest Expense" means, for any period
of four consecutive Fiscal Quarters, the interest expense
(including related commitment fees, facility fees and
similar fees) estimated to accrue during such period in
respect of Debt of the Borrower, calculated on the basis of
the following assumptions: (i) the principal amount of Debt
of the Borrower outstanding at all times during such period
shall be the principal amount thereof outstanding at the
beginning of such period, reduced by scheduled amortization
of long-term Debt during such period, (ii) the rate of<PAGE>
<PAGE>9
interest on any Debt which fluctuates in relation to market
rates of interest shall be the rate in effect on the last
day of the Fiscal Quarter immediately preceding such period,
(iii) interest expense in respect of Debt of the Borrower
outstanding under the Intercompany Loan Agreements shall be
estimated net of (A) estimated interest payments to be
received by the Borrower thereunder and/or under other
interest-bearing securities and (B) estimated dividend
payments to be received by the Borrower on preferred stocks,
in each case held by the Borrower as of the first day of
such period (calculated in accordance with clauses (i) and
(ii) above), provided that such amount shall not be less
than zero for purposes of determining Estimated Interest
Expense for such period, and (iv) interest expense in
respect of Debt Guaranteed by the Borrower shall include
only such portion of such interest expense as is estimated
by the Borrower to be payable by the Borrower under its
Guarantees during such period.
"Estimated Tax Benefit" means, for any period of
four consecutive Fiscal Quarters, the product of (i) the
Estimated Interest Expense for such period times (ii) the
Net Effective Tax Rate for the period of four consecutive
Fiscal Quarters ended immediately prior to such period.
"Euro-Dollar Business Day" means any Domestic
Business Day on which commercial banks are open for
international business (including dealings in dollar
deposits) in London.
"Euro-Dollar Lending Office" means, as to each
Bank, its office, branch or affiliate located at its address
set forth in its Administrative Questionnaire (or identified
in its Administrative Questionnaire as its Euro-Dollar
Lending Office) or such other office, branch or affiliate of
such Bank as it may hereafter designate as its Euro-Dollar
Lending Office by notice to the Borrower and the Agent.
"Euro-Dollar Loan" means a Committed Loan to be
made by a Bank as a Euro-Dollar Loan in accordance with the
applicable Notice of Committed Borrowing.
"Euro-Dollar Margin" means a rate per annum
determined in accordance with the Pricing Schedule.
"Euro-Dollar Reference Banks" means the principal
London offices of ABN AMRO Bank N.V., Bank of America
National Trust and Savings Association, CIBC Inc., Credit
Suisse and Morgan Guaranty Trust Company of New York and
each such other Bank as may be appointed pursuant to Section
9.06(f).
<PAGE>
<PAGE>10
"Euro-Dollar Reserve Percentage" has the meaning
set forth in Section 2.07(c).
"Event of Default" has the meaning set forth in
Section 6.01.
"Excluded Dividend" means a dividend on shares of
the Borrower's capital stock which is designated, in a
notice signed by a Responsible Officer and delivered to the
Agent within 10 Domestic Business Days after such dividend
is declared, as an Excluded Dividend pursuant to one or both
of the following clauses of this definition:
(i) the Borrower may designate a dividend as an
Excluded Dividend pursuant to this clause if,
immediately after the declaration thereof, the
aggregate amount of all dividends designated as
Excluded Dividends pursuant to this clause would not
exceed the aggregate amount of all cash equity
Investments made by the Parent in the Borrower after
September 30, 1994, other than (a) any portion of such
equity Investments used as a basis for designating
dividends as Excluded Dividends pursuant to clause (ii)
below and (b) any cash equity Investment made by the
Parent in the Borrower after September 30, 1994 that,
if not received by the Borrower, would have resulted in
a default under Section 5.03; and
(ii) the Borrower may designate a dividend as an
Excluded Dividend pursuant to this clause if such
dividend does not exceed the amount of a cash equity
Investment that the Borrower expects to receive from
the Parent within three Domestic Business Days after
such dividend is declared, provided that, if the
Borrower fails to receive such expected equity
Investment within said three Domestic Business Days,
then such dividend shall be designated as an Excluded
Dividend pursuant to this clause only to the extent of
the portion (if any) of such expected equity Investment
actually received by the Borrower within said three
Domestic Business Days.
"Excluded ESOP Debt" means, with respect to each
issue of Eligible ESOP Debt at any time, the lesser of (i)
the aggregate principal amount of such Eligible ESOP Debt
then outstanding or (ii) 75% of the then current fair market
value of any unallocated shares of capital stock of the
Parent held in the relevant ESOP and pledged to secure such
issue of Eligible ESOP Debt.
"Excluded Subsidiary" means:
<PAGE>
<PAGE>11
(i) any Subsidiary (other than PTI), if both
(a) the Borrower shall have elected, by notice to the
Agent (which notice may be rescinded by the Borrower at
its election at any time), to treat such Subsidiary as
an Excluded Subsidiary for the purposes of this
Agreement and (b) when the Agent receives such notice
(and after giving effect thereto), no Default shall
have occurred and be continuing, and
(ii) any Subsidiary of any Excluded Subsidiary
described in the foregoing clause (i).
"Existing Commitments" means the "Commitments", as
such term is defined in the Existing Credit Agreement.
"Existing Credit Agreement" means the Credit
Agreement dated as of September 30, 1993 among the Borrower,
the banks party thereto, Bank of America National Trust and
Savings Association, as co-agent and Morgan Guaranty Trust
Company of New York, as agent.
"Existing Hedging Support Agreements" means:
(i) the Support Agreement dated as of May 8, 1991
by and between the Borrower and PFS relating to the
Interest Rate Swap Agreement dated as of May 8, 1991
between PFS and The Bank of Nova Scotia ($12.463
million notional amount) and
(ii) the Support Agreement dated as of September
15, 1992 by and between the Borrower and PFS relating
to the Interest Rate and Currency Exchange Agreement
dated as of May 16, 1989 between PFS and Canadian
Imperial Bank of Commerce ($16.029 million and $21.231
million notional amounts).
"Existing Secured Parties" means the "Secured
Parties", as such term is defined in Section 1 of the
Existing Security Agreement.
"Existing Security Agreement" means the Security
Agreement dated as of September 30, 1993 between the
Borrower and the Collateral Agent.
"Facility Fee Rate" means a rate per annum
determined in accordance with the Pricing Schedule.
"Federal Funds Rate" means, for any day, the rate
per annum (rounded upward, if necessary, to the nearest
1/100 of 1%) equal to the weighted average of the rates on
overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on<PAGE>
<PAGE>12
such day, as published by the Federal Reserve Bank of New
York on the Domestic Business Day next succeeding such day,
provided that (i) if such day is not a Domestic Business
Day, the Federal Funds Rate for such day shall be such rate
on such transactions on the next preceding Domestic Business
Day as so published on the next succeeding Domestic Business
Day, and (ii) if no such rate is so published on such next
succeeding Domestic Business Day, the Federal Funds Rate for
such day shall be the average rate quoted to Morgan Guaranty
Trust Company of New York on such day for such transactions
as determined by the Agent.
"First Tier Significant Subsidiary" means any
First Tier Subsidiary which is a Significant Subsidiary;
provided that the term First Tier Significant Subsidiary
shall in any event include PTI and PFS and their respective
successors so long as they are Subsidiaries of the Borrower.
"First Tier Subsidiary" means any Subsidiary of
the Borrower the majority of whose Voting Stock is directly
owned by the Borrower.
"Fiscal Quarter" means a fiscal quarter of the
Borrower.
"Fiscal Year" means a fiscal year of the Borrower.
"Fixed Rate Loans" means CD Loans or Euro-Dollar
Loans or Money Market Loans (excluding Money Market LIBOR
Loans bearing interest at the Base Rate pursuant to Section
8.01(a)) or any combination of the foregoing.
"Guarantee" by any Person means any obligation,
contingent or otherwise, of such Person directly or
indirectly guaranteeing any Debt of any other Person and,
without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Debt (whether
arising by virtue of partnership arrangements, by agreement
to keep-well, to purchase assets, goods, securities or
services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such
Debt of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part),
provided that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary
course of business. The terms "Guarantor" used as a noun
and "Guarantee" used as a verb have corresponding meanings.
<PAGE>
<PAGE>13
"Hedging Agreement" means any rate swap
transaction, basis swap, forward rate transaction, commodity
swap, commodity option, equity or equity index swap, equity
to equity index option, bond option, interest rate option,
foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction,
cross-currency rate swap transaction, currency option or any
other similar transaction (including any option with respect
to any of these transactions).
"Indemnitee" has the meaning set forth in Section
9.03(b).
"Intercompany Loan Agreements" means (i) the
Umbrella Loan Agreement dated as of April 4, 1983 between
the Parent and certain of its Subsidiaries, as in effect on
April 1, 1995, (ii) the Intercompany Borrowing Agreement
dated as of April 1, 1991 between the Borrower and certain
of its Subsidiaries and Affiliates, as in effect on April 1,
1995 and (iii) any additional or substitute intercompany
lending agreement, or amendment thereto, among substantially
the same parties and on substantially the terms and
conditions (other than rates of interest) as any agreement
described in clause (i) or (ii) of this definition.
"Interest Expense" means, for any period of four
consecutive Fiscal Quarters, the interest expense (including
related commitment fees, facility fees and similar fees)
accrued during such period in respect of Debt of the
Borrower; provided that interest expense in respect of Debt
Guaranteed by the Borrower shall be included only to the
extent actually paid by the Borrower.
"Interest Period" means: (1) with respect to each
Euro-Dollar Borrowing, the period commencing on the date of
such Borrowing and ending one, two, three or six months
thereafter, as the Borrower may elect in the applicable
Notice of Committed Borrowing; provided that:
(a) any Interest Period which would otherwise end
on a day which is not a Euro-Dollar Business Day shall
be extended to the next succeeding Euro-Dollar Business
Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest
Period shall end on the next preceding Euro-Dollar
Business Day;
(b) any Interest Period which begins on the last
Euro-Dollar Business Day of a calendar month (or on a
day for which there is no numerically corresponding day
in the calendar month at the end of such Interest<PAGE>
<PAGE>14
Period) shall, subject to clause (c) below, end on the
last Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end
after the Termination Date shall end on the Termination
Date.
(2) with respect to each CD Borrowing, the period
commencing on the date of such Borrowing and ending 30, 60,
90 or 180 days thereafter, as the Borrower may elect in the
applicable Notice of Committed Borrowing; provided that:
(a) any Interest Period which would otherwise end
on a day which is not a Euro-Dollar Business Day shall
be extended to the next succeeding Euro-Dollar Business
Day; and
(b) any Interest Period which would otherwise end
after the Termination Date shall end on the Termination
Date.
(3) with respect to each Base Rate Borrowing, the period
commencing on the date of such Borrowing and ending 30 days
thereafter; provided that:
(a) any Interest Period which would otherwise end
on a day which is not a Euro-Dollar Business Day shall
be extended to the next succeeding Euro-Dollar Business
Day; and
(b) any Interest Period which would otherwise end
after the Termination Date shall end on the Termination
Date.
(4) with respect to each Money Market LIBOR Borrowing, the
period commencing on the date of such Borrowing and ending
not less than 7 days thereafter, as the Borrower may elect
in accordance with Section 2.03; provided that:
(a) any Interest Period which would otherwise end
on a day which is not a Euro-Dollar Business Day shall
be extended to the next succeeding Euro-Dollar Business
Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest
Period shall end on the next preceding Euro-Dollar
Business Day;
(b) any Interest Period which begins on the last
Euro-Dollar Business Day of a calendar month (or on a
day for which there is no numerically corresponding day
in the calendar month at the end of such Interest<PAGE>
<PAGE>15
Period) shall, subject to clause (c) below, end on the
last Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end
after the Termination Date shall end on the Termination
Date.
(5) with respect to each Money Market Absolute Rate
Borrowing, the period commencing on the date of such
Borrowing and ending not less than 7 days thereafter, as the
Borrower may elect in accordance with Section 2.03; provided
that:
(a) any Interest Period which would otherwise end
on a day which is not a Euro-Dollar Business Day shall
be extended to the next succeeding Euro-Dollar Business
Day; and
(b) any Interest Period which would otherwise end
after the Termination Date shall end on the Termination
Date.
"Internal Revenue Code" means the Internal Revenue
Code of 1986, as amended, or any successor statute.
"Investment" by any Person means (i) any
investment by such Person in any other Person, whether by
means of share purchase, capital contribution, loan
(including a non-recourse loan), advance, time deposit or
otherwise and (ii) any acquisition by such Person of
equipment or other assets (or interests therein) to be
leased to any other Person; provided that the term
"Investment" shall not include any capital contribution or
cash payment made under any agreement or arrangement (in a
form substantially similar to Exhibit I hereto) between
members of a group consolidated or combined for purposes of
computing income tax liability requiring a member to make
capital contributions or cash payments based upon assumed
tax benefits.
"Invitation for Money Market Quotes" has the
meaning set forth in Section 2.03(c).
"LIBOR Auction" means a solicitation of Money
Market Quotes setting forth Money Market Margins based on
the London Interbank Offered Rate pursuant to Section 2.03.
"Lien" means, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, or any other type of preferential
arrangement that has substantially the same practical effect
as a security interest, in respect of such asset. For the<PAGE>
<PAGE>16
purposes of this Agreement, the Borrower or any Subsidiary
shall be deemed to own subject to a Lien any asset which it
has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease
or other title retention agreement relating to such asset.
"Loan" means a Domestic Loan or a Euro-Dollar Loan
or a Money Market Loan and "Loans" means Domestic Loans or
Euro-Dollar Loans or Money Market Loans or any combination
of the foregoing.
"London Interbank Offered Rate" has the meaning
set forth in Section 2.07(c).
"Material Debt" means Debt arising under a single
or series of related instruments or other agreements in a
principal amount exceeding $10,000,000; provided that Non-
Recourse Debt of Excluded Subsidiaries shall not constitute
"Material Debt".
"Material Plan" means at any time a Plan or Plans
having aggregate Unfunded Liabilities in excess of
$50,000,000.
"Money Market Absolute Rate" has the meaning set
forth in Section 2.03(d).
"Money Market Absolute Rate Loan" means a loan to
be made by a Bank pursuant to an Absolute Rate Auction.
"Money Market Lending Office" means, as to each
Bank, its Domestic Lending Office or such other office,
branch or affiliate of such Bank as it may hereafter
designate as its Money Market Lending Office by notice to
the Borrower and the Agent; provided that any Bank may from
time to time by notice to the Borrower and the Agent
designate separate Money Market Lending Offices for its
Money Market LIBOR Loans, on the one hand, and its Money
Market Absolute Rate Loans, on the other hand, in which case
all references herein to the Money Market Lending Office of
such Bank shall be deemed to refer to either or both of such
offices, as the context may require.
"Money Market LIBOR Loan" means a loan to be made
by a Bank pursuant to a LIBOR Auction (including such a loan
bearing interest at the Base Rate pursuant to Section
8.01(a)).
"Money Market Loan" means a Money Market LIBOR
Loan or a Money Market Absolute Rate Loan.
<PAGE>
<PAGE>17
"Money Market Margin" has the meaning set forth in
Section 2.03(d).
"Money Market Quote" means an offer by a Bank to
make a Money Market Loan in accordance with Section 2.03.
"Money Market Quote Request" has the meaning set
forth in Section 2.03(b).
"Moody's" means Moody's Investors Service, Inc., a
Delaware corporation, and its successors or, if such
corporation shall be dissolved or liquidated or shall no
longer perform the functions of a securities rating agency,
"Moody's" shall be deemed to refer to any other nationally
recognized securities rating agency designated by the
Required Banks, with the approval of the Borrower, by notice
to the Agent and the Borrower.
"Multiemployer Plan" means at any time an employee
pension benefit plan within the meaning of Section
4001(a)(3) of ERISA to which any member of the ERISA Group
is then making or accruing an obligation to make
contributions or has within the preceding five plan years
made contributions, including for these purposes any Person
which ceased to be a member of the ERISA Group during such
five year period.
"Net Effective Tax Rate" means, for any period,
the net effective book rate of federal and state income tax
recorded for such period by the consolidated group of which
the Borrower was a member.
"Non-Recourse Debt" of any Person means at any
time Debt secured by a Lien in or upon one or more assets of
such Person where the rights and remedies of the holder of
such Debt in respect of such Debt do not extend to any other
assets of such Person. Notwithstanding the foregoing, Debt
of any Person shall not fail to constitute Non-Recourse Debt
by reason of the inclusion in any document evidencing,
governing, securing or otherwise relating to such Debt of
provisions to the effect that such Person shall be liable,
beyond the assets securing such Debt, for (i) misapplied
moneys, including insurance and condemnation proceeds and
security deposits, (ii) indemnification by such Person in
favor of holders of such Debt and their affiliates in
respect of liabilities to third parties, including
environmental liabilities, (iii) breaches of customary
representations and warranties given to the holders of such
Debt and (iv) such other similar obligations as are
customarily excluded from the provisions that otherwise
limit the recourse of commercial lenders making so-called
"non-recourse" loans to institutional borrowers.<PAGE>
<PAGE>18
"Notes" means promissory notes of the Borrower,
substantially in the form of Exhibit A hereto, evidencing
the obligation of the Borrower to repay the Loans, and
"Note" means any one of such promissory notes issued
hereunder.
"Notice of Borrowing" means a Notice of Committed
Borrowing (as defined in Section 2.02) or a Notice of Money
Market Borrowing (as defined in Section 2.03(f)).
"Parent" means PacifiCorp, an Oregon corporation,
and its successors.
"Participant" has the meaning set forth in Section
9.06(b).
"PBGC" means the Pension Benefit Guaranty
Corporation or any entity succeeding to any or all of its
functions under ERISA.
"PCI" means PacifiCorp Credit, Inc., an Oregon
corporation, and its successors.
"Percentage" means, with respect to each Bank, the
percentage that such Bank's Commitment constitutes of the
aggregate amount of the Commitments.
"Permitted Liens" means the following:
(i) Liens for taxes or other governmental charges
either not yet delinquent or nonpayment of which is at the
time being contested in good faith by appropriate
proceedings;
(ii) statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics and materialmen or other
like Liens incurred in the ordinary course of business for
sums not yet due or the payment of which is at the time
being contested in good faith by appropriate proceedings;
(iii) Liens incurred or deposits made in the
ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of
social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids,
leases, government contracts, and reclamation, performance
and return-of-money bonds (in each case, not constituting
Debt);
(iv) Liens created by or relating to any legal
proceeding which at the time is being contested in good
faith by appropriate proceedings; provided that, in the case<PAGE>
<PAGE>19
of a Lien consisting of an attachment or judgment Lien, the
judgment it secures shall, within 60 days of entry thereof,
have been discharged or execution thereof stayed pending
appeal, or discharged within 60 days after the expiration of
any such stay;
(v) any Lien on any asset securing Debt incurred
or assumed for the purpose of financing all or any part of
the cost of acquiring such asset, provided that such Lien
attaches to such asset concurrently with or within 90 days
after the acquisition thereof;
(vi) any Lien on any asset of any corporation
existing at the time such corporation is merged or
consolidated with or into the Borrower and not created in
contemplation of such event;
(vii) any Lien existing on any asset prior to the
acquisition thereof by the Borrower and not created in
contemplation of such acquisition;
(viii) any Lien arising out of the refinancing,
extension, renewal or refunding of any Debt secured by any
Lien permitted by any of the foregoing clauses (v), (vi) and
(vii), provided that such Debt is not increased and is not
secured by any additional assets;
(ix) any Lien securing Non-Recourse Debt of the
Borrower;
(x) any Lien on (i) the proceeds of sale of
commercial paper issued by the Borrower or (ii) the
Borrower's right to receive such proceeds, securing the
Borrower's obligation to reimburse the issuer of a letter of
credit for drawings to repay commercial paper previously
issued by the Borrower; and
(xi) any Lien incidental to the conduct of the
Borrower's business or the ownership of its assets which (x)
does not secure Debt and (y) does not secure any single
obligation, or any class or series of related obligations,
in an amount exceeding $75,000,000.
"Person" means an individual, a corporation, a
partnership, an association, a trust or any other entity or
organization, including a government or political
subdivision or an agency or instrumentality thereof.
"PFS" means PacifiCorp Financial Services, Inc.,
an Oregon corporation, and its successors.
<PAGE>
<PAGE>20
"PFS Affordable Housing" means Non-Recourse Debt
of PFS which is secured by a Lien in or upon one or more
affordable housing projects and assets related thereto, and
is not secured by a Lien on any other assets of PFS.
"PGC" means Pacific Generation Company, an Oregon
corporation, and its successors.
"Plan" means at any time an employee pension
benefit plan (other than a Multiemployer Plan) which is
covered by Title IV of ERISA or subject to the minimum
funding standards under Section 412 of the Internal Revenue
Code and either (i) is maintained, or contributed to, by any
member of the ERISA Group for employees of any member of the
ERISA Group or (ii) has at any time within the preceding
five years been maintained, or contributed to, by any Person
which was at such time a member of the ERISA Group for
employees of any Person which was at such time a member of
the ERISA Group.
"Pricing Schedule" means the Pricing Schedule
attached hereto.
"Prime Rate" means the rate of interest publicly
announced by Morgan Guaranty Trust Company of New York in
New York City from time to time as its Prime Rate.
"Pro Forma Available Cash Income", when used with
reference to a time when (i) the Borrower ceases to own at
least 51% of the outstanding common stock of PFS or PGC or
(ii) PFS or PGC consolidates or merges with or into, or
transfers all or substantially all its assets to, a
corporation that is not a Subsidiary of the Borrower, means
Available Cash Income for the period of four consecutive
Fiscal Quarters then most recently ended, adjusted to
eliminate all cash dividends received by the Borrower during
such period from PFS or PGC, as the case may be.
"Pro Forma Interest Expense (After Tax)" means, at
the end of any Fiscal Quarter, an amount equal to (i)
Estimated Interest Expense for the period of four consecu-
tive Fiscal Quarters immediately following such Fiscal
Quarter minus (ii) Estimated Tax Benefits for such period.
"PTI" means Pacific Telecom, Inc., a Washington
corporation, and its successors.
"Qualified Investment Subsidiary" means any
Subsidiary of the Borrower, so long as (i) it has no Debt,
(ii) it engages in no business other than investing in
securities and holding securities for investment and (iii)
the Borrower owns directly 100% of its capital stock.<PAGE>
<PAGE>21
"Qualified Investment Subsidiary Income" means,
for any period, the aggregate amount of dividends and
interest actually received by Qualified Investment Subsidi-
aries during such period, less (i) any portion thereof which
could not be paid to the Borrower as dividends during such
period without violating any legal or contractual restric-
tion applicable to the relevant Qualified Investment
Subsidiary and (ii) the amount of any taxes or other
liabilities that would be payable by the Borrower or its
Qualified Investment Subsidiaries if said aggregate amount
were paid to the Borrower as dividends during such period.
"Rating Agency" means S&P or Moody's.
"Reference Banks" means the CD Reference Banks or
the Euro-Dollar Reference Banks, as the context may require,
and "Reference Bank" means any one of such Reference Banks.
"Refunding Borrowing" means a Committed Borrowing
which, after application of the proceeds thereof, results in
no net increase in the aggregate outstanding principal
amount of Committed Loans made by any Bank.
"Regulation U" means Regulation U of the Board of
Governors of the Federal Reserve System, as in effect from
time to time.
"Required Banks" means at any time Banks having at
least 60% of the aggregate amount of the Commitments or, if
the Commitments shall have been terminated, holding Notes
evidencing at least 60% of the aggregate unpaid principal
amount of the Loans.
"Responsible Officer" means the Chairman of the
Board, the President, any Vice President, the Treasurer or
the Controller of the Borrower.
"Restricted Dividend" means any dividend or other
distribution on any shares of the Borrower's capital stock,
except (i) dividends payable solely in shares of its capital
stock and (ii) Excluded Dividends.
"Restricted Stock Payment" means any payment on
account of the purchase, redemption, retirement or
acquisition of (i) any shares of the Borrower's capital
stock or (ii) any option, warrant or other right to acquire
shares of the Borrower's capital stock.
"Restricted Subsidiary" means any Consolidated
Subsidiary of the Borrower which is not an Excluded
Subsidiary.
<PAGE>
<PAGE>22
"S&P" means Standard & Poor's Ratings Group or, if
Standard & Poor's Ratings Group shall no longer perform the
functions of a securities rating agency, "S&P" shall be
deemed to refer to any other nationally recognized
securities rating agency designated by the Required Banks,
with the approval of the Borrower, by notice to the Agent
and the Borrower.
"Short-Term Debt Rating" means a rating of the
Borrower's short-term debt which is not secured or supported
by a guarantee, letter of credit or other form of credit
enhancement. If a Short-Term Debt Rating by a Rating Agency
is required to be at or above a specified level and such
Rating Agency shall have changed its system of
classifications after the date hereof, the requirement will
be met if the Short-Term Debt Rating by such Rating Agency
is at or above the new rating which most closely corresponds
to the specified level under the old rating system.
"Significant Subsidiary" means at any time any
Subsidiary of the Borrower which as of such time meets the
definition of a "significant subsidiary" contained as of
April 1, 1995 in Regulation S-X of the Securities and
Exchange Commission; provided that in any event the term
Significant Subsidiary shall (i) include PTI, (ii) include
PFS so long as it is a Subsidiary of the Borrower, (iii)
include PCI so long as it is a Subsidiary of the Borrower
and holds any legal or beneficial interest in any of the
Spring Creek Obligations or any rights under the Spring
Creek Loan Documents and (iv) not include Color Spot, Inc.,
an Oregon corporation, Comdial Corporation, a Delaware
corporation, or Alascom, Inc., an Alaska corporation.
"Spring Creek" means Spring Creek Coal Company, a
Montana corporation, and its successors.
"Spring Creek Coal Supply Contract" means the Coal
Supply Agreement dated June 2, 1978 between Spring Creek and
Utility Fuels, Inc., as amended from time to time.
"Spring Creek Loan Agreement" means the Loan
Commitment and Agreement dated as of June 2, 1993 between
Spring Creek and the Borrower (under which the Borrower
designated PCI as the affiliate to make the initial loan of
$225,000,000 to Spring Creek), as such agreement may be
amended from time to time.
"Spring Creek Loan Documents" means the "Loan
Documents" (as such term is defined in Section 1.1 of the
Spring Creek Loan Agreement as in effect on the date
hereof), as such Loan Documents may be amended from time to
time.<PAGE>
<PAGE>23
"Spring Creek Note" means the promissory note
issued by Spring Creek to PCI pursuant to the Spring Creek
Loan Agreement, as such note may be amended from time to
time.
"Spring Creek Obligations" means the obligations
under the Spring Creek Loan Documents of Spring Creek,
Spring Creek's affiliates and each issuer of a Letter of
Credit (as defined in Section 1.1 of the Spring Creek Loan
Agreement as in effect on the date hereof), in each case
whether now existing or hereafter issued or arising.
"Spring Creek Participation Agreement" means the
Amended and Restated Participation Agreement dated as of
June 2, 1993 between PCI and the Borrower (under which the
Borrower purchased the Borrower's Interest in Spring Creek
Obligations from PCI), as such agreement may be amended from
time to time.
"Subsidiary" means, with respect to any Person,
any corporation or other entity of which securities or other
ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons
performing similar functions are at the time directly or
indirectly owned by such Person.
"Termination Date" means April 27, 2000, or, if
such day is not a Euro-Dollar Business Day, the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar
Business Day falls in another calendar month, in which case
the Termination Date shall be the next preceding Euro-Dollar
Business Day.
"Termination Value" means, with respect to any
Hedging Agreement guaranteed by the Borrower or any of its
Restricted Subsidiaries, the amount that the party whose
obligations are so guaranteed would have to pay if such
Hedging Agreement were terminated by reason of a default by
or other termination event relating to such party, such
amount to be determined on the basis of an estimate made by
the other party to such Hedging Agreement and accepted by
the Borrower in good faith. The Termination Value of any
such Hedging Agreement at any date shall be determined (i)
as the end of the most recent Fiscal Quarter ended on or
prior to such date if such Hedging Agreement was then
outstanding or (ii) as of the date such Hedging Agreement is
entered into if it is entered into after the end of such
Fiscal Quarter.
"Unfunded Liabilities" means, with respect to any
Plan at any time, the amount (if any) by which (i) the value
of all benefit liabilities under such Plan, determined on a <PAGE>
<PAGE>24
plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds
(ii) the fair market value of all Plan assets allocable to
such liabilities under Title IV of ERISA (excluding any
accrued but unpaid contributions), all determined as of the
then most recent valuation date for such Plan, but only to
the extent that such excess represents a potential liability
of a member of the ERISA Group to the PBGC or any other
Person under Title IV of ERISA.
"United States" means the United States of
America, including the States and the District of Columbia,
but excluding its territories and possessions.
"Voting Stock" of any corporation means stock that
has ordinary voting power to vote for the election of one or
more directors of such corporation.
SECTION 1.02. Accounting Terms and
Determinations. Unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder
shall be prepared in accordance with generally accepted
accounting principles as in effect from time to time,
applied on a basis consistent (except for changes concurred
in by the Borrower's independent public accountants) with
the most recent audited consolidated financial statements of
the Borrower and its Consolidated Subsidiaries delivered to
the Banks; provided that, if the Borrower notifies the Agent
that the Borrower wishes to amend any provision of this
Agreement to eliminate the effect of any change in generally
accepted accounting principles on the operation of such
provision (or if the Agent notifies the Borrower that the
Required Banks wish to amend any provision hereof for such
purpose), then the Borrower's compliance with such provision
shall be determined on the basis of generally accepted
accounting principles in effect immediately before the
relevant change in generally accepted accounting principles
became effective, until either such notice is withdrawn or
such provision is amended in a manner satisfactory to the
Borrower and the Required Banks.
SECTION 1.03. Types of Borrowings. The term
"Borrowing" denotes the aggregation of Loans of one or more
Banks to be made to the Borrower pursuant to Article II on a
single date and for a single Interest Period. Borrowings
are classified for purposes of this Agreement either by
reference to the pricing of Loans comprising such Borrowing
(e.g., a "Euro-Dollar Borrowing" is a Borrowing comprised of
Euro-Dollar Loans) or by reference to the provisions of
Article II under which participation therein is determined <PAGE>
<PAGE>25
(i.e., a "Committed Borrowing" is a Borrowing under Section
2.01 in which all Banks participate in proportion to their
Commitments, while a "Money Market Borrowing" is a Borrowing
under Section 2.03 in which the Bank participants are deter-
mined on the basis of their bids in accordance therewith).
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend. Each Bank
severally agrees, on the terms and conditions set forth in
this Agreement, to make loans to the Borrower pursuant to
this Section from time to time prior to the Termination
Date; provided that, immediately after each such Loan is
made, the aggregate outstanding principal amount of
Committed Loans made by such Bank shall not exceed the
amount of its Commitment. Each Borrowing under this Section
shall be in an aggregate principal amount of $10,000,000 or
any larger integral multiple of $1,000,000 (except that any
such Borrowing may be in the aggregate amount available in
accordance with Section 3.01(b)) and shall be made from the
several Banks ratably in accordance with their respective
Percentages. Within the foregoing limits, the Borrower may
borrow, repay, or to the extent permitted by Section 2.11,
prepay Loans and reborrow at any time prior to the
Termination Date.
SECTION 2.02. Notice of Committed Borrowing. (a)
The Borrower shall give the Agent notice (a "Notice of
Committed Borrowing") not later than 12:00 Noon (New York
City time) on (x) the date of each Base Rate Borrowing,
(y) the second Domestic Business Day before each CD
Borrowing and (z) the third Euro-Dollar Business Day before
each Euro-Dollar Borrowing, specifying:
(i) the date of such Borrowing, which shall be a
Domestic Business Day in the case of a Domestic
Borrowing or a Euro-Dollar Business Day in the case of
a Euro-Dollar Borrowing,
(ii) the aggregate amount of such Borrowing,
(iii) whether the Loans comprising such Borrowing
are to be CD Loans, Base Rate Loans or Euro-Dollar
Loans, and
(iv) in the case of a Fixed Rate Borrowing, the
duration of the Interest Period applicable thereto, <PAGE>
<PAGE>26
subject to the provisions of the definition of Interest
Period.
(b) The provisions of subsection (a) above
notwithstanding, if the Borrower shall not have given a
Notice of Committed Borrowing at least two Domestic Business
Days before the last day of the Interest Period applicable
to an outstanding Committed Borrowing, then, unless the
Borrower notifies the Agent at least two Domestic Business
Days before such date that it elects not to borrow on such
date, the Agent shall be deemed to have received a Notice of
Committed Borrowing specifying that (i) the date of the
proposed Borrowing shall be the last day of the Interest
Period applicable to such outstanding Committed Borrowing,
(ii) the aggregate amount of the proposed Borrowing shall be
the amount of such outstanding Committed Borrowing (reduced
to the extent necessary to reflect any reduction of the
Commitments on or prior to the date of the proposed
Borrowing), and (iii) the Loans comprising the proposed
Borrowing shall be Base Rate Loans.
SECTION 2.03. Money Market Borrowings. (a) The
Money Market Option. In addition to Committed Borrowings
pursuant to Section 2.01, the Borrower may, as set forth in
this Section, request the Banks to make offers to make Money
Market Loans to the Borrower from time to time prior to the
Termination Date; provided that no such request shall be
made on any day unless on such day (i) Pricing Level I,
Pricing Level II, Pricing Level III or Pricing Level IV (as
each of such terms is defined in the Pricing Schedule)
applies or (ii) the Borrower has a Short-Term Debt Rating at
or above the level of A-2 from S&P or P-2 from Moody's. Any
Bank may, but shall have no obligation to, make such offers
and the Borrower may, but shall have no obligation to,
accept any such offers in the manner set forth in this
Section.
(b) Money Market Quote Request. When the
Borrower wishes to request offers to make Money Market Loans
under this Section, it shall transmit to the Agent by telex
or facsimile transmission a Money Market Quote Request
substantially in the form of Exhibit B hereto (a "Money
Market Quote Request") so as to be received no later than
12:00 Noon (New York City time) on (x) the fifth Euro-Dollar
Business Day prior to the date of Borrowing proposed
therein, in the case of a LIBOR Auction or (y) the Domestic
Business Day next preceding the date of Borrowing proposed
therein, in the case of an Absolute Rate Auction (or, in
either case, such other time or date as the Borrower and the
Agent shall have agreed upon and the Agent shall have
specified in a notice given to the Banks not later than the
date of the Money Market Quote Request for the first LIBOR <PAGE>
<PAGE>27
Auction or Absolute Rate Auction for which such change is to
be effective) specifying:
(i) the proposed date of Borrowing, which shall
be a Euro-Dollar Business Day in the case of a LIBOR
Auction or a Domestic Business Day in the case of an
Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which
shall be $10,000,000 or a larger integral multiple of
$1,000,000 (except that any such Borrowing may be in
the aggregate amount available in accordance with
Section 3.01(b)),
(iii) the duration of the Interest Period
applicable thereto, subject to the provisions of the
definition of Interest Period, and
(iv) whether the Money Market Quotes requested
are to set forth a Money Market Margin or a Money
Market Absolute Rate.
The Borrower may request offers to make Money Market Loans
for up to five Interest Periods in a single Money Market
Quote Request. No Money Market Quote Request shall be given
within five Euro-Dollar Business Days (or such other number
of days as the Borrower and the Agent may agree) of any
other Money Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly
upon receipt of a Money Market Quote Request, the Agent
shall send to the Banks by telex or facsimile transmission
an Invitation for Money Market Quotes substantially in the
form of Exhibit C hereto (an "Invitation for Money Market
Quotes"), which shall constitute an invitation by the
Borrower to each Bank to submit Money Market Quotes offering
to make the Money Market Loans to which such Money Market
Quote Request relates in accordance with this Section.
(d) Submission and Contents of Money Market
Quotes. (i) Each Bank may submit a Money Market Quote
containing an offer or offers to make Money Market Loans in
response to any Invitation for Money Market Quotes. Each
Money Market Quote must comply with the requirements of this
subsection (d) and must be submitted to the Agent by telex
or facsimile transmission at its offices specified in or
pursuant to Section 9.01 not later than (x) 2:00 P.M. (New
York City time) on the fourth Euro-Dollar Business Day prior
to the proposed date of Borrowing, in the case of a LIBOR
Auction or (y) 9:30 A.M. (New York City time) on the
proposed date of Borrowing, in the case of an Absolute Rate
Auction (or, in either case, such other time or date as <PAGE>
<PAGE>28
shall be agreed upon by the Borrower and the Agent and
specified in the Invitation for Money Market Quotes);
provided that Money Market Quotes submitted by the Agent (or
any affiliate of the Agent) in the capacity of a Bank may be
submitted, and may only be submitted, if the Agent or such
affiliate notifies the Borrower of the terms of the offer or
offers contained therein not later than (x) one hour prior
to the deadline for the other Banks, in the case of a LIBOR
Auction or (y) 15 minutes prior to the deadline for the
other Banks, in the case of an Absolute Rate Auction.
Subject to Articles III and VI, any Quote so made shall be
irrevocable except with the written consent of the Agent
given on the instructions of the Borrower.
(ii) Each Money Market Quote shall be in
substantially the form of Exhibit D hereto and shall in any
case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Money Market Loan
for which each such offer is being made, which
principal amount (w) may be greater than, equal to or
less than the Commitment of the quoting Bank, (x) must
be $1,000,000 or a larger integral multiple thereof,
(y) may not exceed the principal amount of Money Market
Loans for which offers were requested in the related
Money Market Quote Request, and (z) may be subject to a
limitation as to the aggregate principal amount of
Money Market Loans for which offers being made by such
quoting Bank may be accepted,
(C) in the case of a LIBOR Auction, the margin
above or below the applicable London Interbank Offered
Rate (the "Money Market Margin"), if any, offered for
each such Money Market Loan, expressed as a percentage
(specified to the nearest 1/10,000 of 1%) to be added
to or subtracted from such base rate,
(D) in the case of an Absolute Rate Auction, the
rate of interest per annum (specified to the nearest
1/10,000 of 1%) (the "Money Market Absolute Rate")
offered for each such Money Market Loan, and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate
offers by the quoting Bank with respect to each
Interest Period specified in the related Invitation for
Money Market Quotes.
<PAGE>
<PAGE>29
(iii) Any Money Market Quote shall be disregarded
if it:
(A) is not substantially in conformity with
Exhibit D hereto or does not specify all of the
information required by subsection (d)(ii);
(B) contains qualifying, conditional or similar
language;
(C) proposes terms other than or in addition to
those set forth in the applicable Invitation for Money
Market Quotes; or
(D) arrives after the time set forth in
subsection (d)(i).
(e) Notice to Borrower. The Agent shall promptly
notify the Borrower of the terms (x) of any Money Market
Quote submitted by a Bank that is in accordance with
subsection (d) and (y) of any Money Market Quote that
amends, modifies or is otherwise inconsistent with a
previous Money Market Quote submitted by such Bank with
respect to the same Money Market Quote Request. Any such
subsequent Money Market Quote shall be disregarded by the
Agent unless such subsequent Money Market Quote is submitted
solely to correct a manifest error in such former Money
Market Quote. The Agent's notice to the Borrower shall
specify (A) the aggregate principal amount of Money Market
Loans for which offers have been received for each Interest
Period specified in the related Money Market Quote Request
(B) the respective principal amounts and Money Market
Margins or Money Market Absolute Rates, as the case may be,
so offered and (C) if applicable, limitations on the
aggregate principal amount of Money Market Loans for which
offers in any single Money Market Quote may be accepted.
(f) Acceptance and Notice by Borrower. Not later
than (x) 12:00 Noon (New York City time) on the third
Euro-Dollar Business Day prior to the proposed date of
Borrowing, in the case of a LIBOR Auction or (y) 10:30 A.M.
(New York City time) on the proposed date of Borrowing, in
the case of an Absolute Rate Auction (or, in either case,
such other time or date as the Borrower and the Agent shall
have agreed upon and the Agent shall have specified in a
notice given to the Banks not later than the date of the
Money Market Quote Request for the first LIBOR Auction or
Absolute Rate Auction for which such change is to be
effective), the Borrower shall notify the Agent of its
acceptance or non-acceptance of the offers so notified to it
pursuant to subsection (e). In the case of acceptance, such
notice (a "Notice of Money Market Borrowing") shall specify <PAGE>
<PAGE>30
the aggregate principal amount of offers for each Interest
Period that are accepted. The Borrower may accept any Money
Market Quote in whole or in part; provided that:
(i) the aggregate principal amount of each Money
Market Borrowing may not exceed the applicable amount
set forth in the related Money Market Quote Request,
(ii) immediately after giving effect to such Money
Market Borrowing, the condition set forth in Section
3.01(b) would be satisfied,
(iii) the principal amount of each Money Market
Borrowing must be $10,000,000 or a larger integral
multiple of $1,000,000 (except that any such Borrowing
may be in the aggregate amount available in accordance
with Section 3.01(b)),
(iv) acceptance of offers for a given Interest
Period may only be made on the basis of ascending Money
Market Margins or Money Market Absolute Rates, as the
case may be;
(v) the Borrower may not accept any offer that is
described in subsection (d)(iii) or that otherwise
fails to comply with the requirements of this
Agreement; and
(vi) on the date of the acceptance of such Money
Market Borrowing either (A) Pricing Level I, Pricing
Level II, Pricing Level III or Pricing Level IV (as
each of such terms is defined in the Pricing Schedule)
applies or (B) the Borrower has a Short-Term Debt
Rating at or above the level of A-2 from S&P or P-2
from Moody's.
(g) Allocation by Agent. If offers are made by
two or more Banks with the same Money Market Margins or
Money Market Absolute Rates, as the case may be, for a
greater aggregate principal amount than the amount in
respect of which such offers are accepted for the related
Interest Period, the principal amount of Money Market Loans
in respect of which such offers are accepted shall be
allocated by the Agent among such Banks as nearly as
possible (in integral multiples of such amount not greater
than $1,000,000 as the Agent may deem appropriate) in
proportion to the aggregate principal amounts of such
offers. Determinations by the Agent of the amounts of Money
Market Loans shall be conclusive in the absence of manifest
error.
<PAGE>
<PAGE>31
SECTION 2.04. Notice to Banks; Funding of Loans.
(a) Upon receipt of a Notice of Borrowing, the
Agent shall promptly notify each Bank of the contents
thereof and of such Bank's share (if any) of such Borrowing
and such Notice of Borrowing shall not thereafter be
revocable by the Borrower.
(b) Not later than (x) 12:00 Noon (New York City
time) on the date of each Borrowing other than a Base Rate
Borrowing and (y) 3:00 P.M. (New York City time) on the date
of each Base Rate Borrowing, each Bank participating therein
shall (except as provided in subsection (c) of this Section)
make available its share of such Borrowing, in Federal or
other funds immediately available in New York City, to the
Agent at its address specified in or pursuant to Section
9.01. Unless the Agent determines that any applicable
condition specified in Article III has not been satisfied or
waived, the Agent will, promptly upon receipt thereof, make
the funds so received from the Banks available to the
Borrower in immediately available funds at the Agent's
aforesaid address.
(c) If any Bank makes a new Loan hereunder on a
day on which the Borrower is to repay all or any part of an
outstanding Loan from such Bank, such Bank shall apply the
proceeds of its new Loan to make such repayment and only an
amount equal to the difference (if any) between the amount
being borrowed and the amount being repaid shall be made
available by such Bank to the Agent as provided in
subsection (b), or remitted by the Borrower to the Agent as
provided in Section 2.12, as the case may be.
(d) Unless the Agent shall have received notice
from a Bank prior to the date of any Borrowing that such
Bank will not make available to the Agent such Bank's share
of such Borrowing, the Agent may assume that such Bank has
made such share available to the Agent on the date of such
Borrowing in accordance with subsections (b) and (c) of this
Section 2.04 and the Agent may, in reliance upon such
assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank
shall not have so made such share available to the Agent,
such Bank and the Borrower severally agree to repay to the
Agent, within one Domestic Business Day after demand, such
corresponding amount together with interest thereon, for
each day from the date such amount is made available to the
Borrower until the date such amount is repaid to the Agent,
at (i) in the case of the Borrower, a rate per annum equal
to the higher of the Federal Funds Rate and the interest
rate applicable to the Loans included in such Borrowing
pursuant to Section 2.07 and (ii) in the case of such Bank, <PAGE>
<PAGE>32
the Federal Funds Rate. If such Bank shall repay to the
Agent such corresponding amount, such amount so repaid shall
constitute such Bank's Loan included in such Borrowing for
purposes of this Agreement.
SECTION 2.05. Notes. (a) The Loans of each Bank
shall be evidenced by a single Note payable to the order of
such Bank for the account of its Applicable Lending Office
in an amount equal to the aggregate unpaid principal amount
of such Bank's Loans.
(b) Each Bank may, by notice to the Borrower and
the Agent, request that its Loans of a particular type be
evidenced by a separate Note in an amount equal to the
aggregate unpaid principal amount of such Loans. Each such
Note shall be in substantially the form of Exhibit A hereto
with appropriate modifications to reflect the fact that it
evidences solely Loans of the relevant type. Each reference
in this Agreement to the "Note" of such Bank shall be deemed
to refer to and include any or all of such Notes, as the
context may require.
(c) Upon receipt of each Bank's Note pursuant to
Section 3.02(b), the Agent shall forward such Note to such
Bank. Each Bank shall record the date, amount, type and
maturity of each Loan made by it and the date and amount of
each payment of principal made by the Borrower with respect
thereto, and may, if such Bank so elects in connection with
any transfer or enforcement of its Note, endorse on the
schedule forming a part thereof appropriate notations to
evidence the foregoing information with respect to each such
Loan then outstanding; provided that the failure of any Bank
to make any such recordation or endorsement, or any error in
the making thereof, shall not affect the obligations of the
Borrower hereunder or under the Notes. Each Bank is hereby
irrevocably authorized by the Borrower so to endorse its
Note and to attach to and make a part of its Note a
continuation of any such schedule as and when required.
SECTION 2.06. Maturity of Loans. Each Loan
included in any Borrowing shall mature, and the principal
amount thereof shall be due and payable, on the last day of
the Interest Period applicable to such Borrowing.
SECTION 2.07. Interest Rates.
(a) Each Base Rate Loan shall bear interest on
the outstanding principal amount thereof, for each day from
the date such Loan is made until it becomes due, at a rate
per annum equal to the Base Rate for such day. Such
interest shall be payable for each Interest Period on the
last day thereof. Any overdue principal of and overdue <PAGE>
<PAGE>33
interest on any Base Rate Loan shall bear interest, payable
on demand, for each day until paid at a rate per annum equal
to the sum of (i) 1% plus (ii) the Base Rate for such day.
(b) Each CD Loan shall bear interest on the
outstanding principal amount thereof, for the Interest
Period applicable thereto, at a rate per annum equal to the
sum of the CD Margin plus the applicable Adjusted CD Rate;
provided that if any CD Loan or any portion thereof shall,
as a result of clause (2)(b) of the definition of Interest
Period, have an Interest Period of less than 30 days, such
CD Loan or portion thereof shall bear interest for each day
during such Interest Period at a rate per annum equal to the
Base Rate for such day. Such interest shall be payable for
each Interest Period on the last day thereof and, if such
Interest Period is longer than 90 days, 90 days after the
first day thereof. Any overdue principal of and overdue
interest on any CD Loan shall bear interest, payable on
demand, for each day until paid at a rate per annum equal to
the sum of 1% plus the higher of (i) the sum of the CD
Margin plus the Adjusted CD Rate applicable to such Loan and
(ii) the Base Rate for such day.
The "Adjusted CD Rate" applicable to any Interest
Period means a rate per annum determined pursuant to the
following formula:
[ CDBR ]*
ACDR = [ ---------- ] + AR
[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
__________
* The amount in brackets being rounded upward, if
necessary, to the next higher 1/100 of 1%
The "CD Base Rate" applicable to any Interest
Period is the rate of interest determined by the Agent to be
the arithmetic average (rounded upward, if necessary, to the
next higher 1/100 of 1%) of the prevailing rates per annum
bid at 10:00 A.M. (New York City time) (or as soon there-
after as practicable) on the first day of such Interest
Period by two or more New York certificate of deposit
dealers of recognized standing for the purchase at face
value from each CD Reference Bank (except as provided in
subsection (h) of this Section) of its certificates of
deposit in an amount comparable to the unpaid principal <PAGE>
<PAGE>34
amount of the CD Loan of such CD Reference Bank to which
such Interest Period applies and having a maturity
comparable to such Interest Period.
"Domestic Reserve Percentage" means for any day
that percentage (expressed as a decimal) which is in effect
on such day, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor) for determining
the maximum reserve requirement (including without limita-
tion any basic, supplemental or emergency reserves) for a
member bank of the Federal Reserve System in New York City
with deposits exceeding five billion dollars in respect of
new non-personal time deposits in dollars in New York City
having a maturity comparable to the related Interest Period
and in an amount of $100,000 or more. The Adjusted CD Rate
shall be adjusted automatically on and as of the effective
date of any change in the Domestic Reserve Percentage.
"Assessment Rate" means for any day the annual
assessment rate in effect on such day which is payable by a
member of the Bank Insurance Fund classified as adequately
capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within
the meaning of 12 C.F.R. Section 327.4(a) (or any successor
provision) to the Federal Deposit Insurance Corporation (or
any successor) for such Corporation's (or such successor's)
insuring time deposits at offices of such institution in the
United States. The Adjusted CD Rate shall be adjusted
automatically on and as of the effective date of any change
in the Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on
the outstanding principal amount thereof, for each day
during the Interest Period applicable thereto, at a rate per
annum equal to the sum of the Euro-Dollar Margin for such
day plus the applicable Adjusted London Interbank Offered
Rate. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period
is longer than three months, three months after the first
day thereof.
The "Adjusted London Interbank Offered Rate"
applicable to any Interest Period means a rate per annum
equal to the quotient obtained (rounded upward, if
necessary, to the next higher 1/100 of 1%) by dividing (i)
the applicable London Interbank Offered Rate by (ii) 1.00
minus the Euro-Dollar Reserve Percentage.
The "London Interbank Offered Rate" applicable to
any Interest Period means the average (rounded upward, if
necessary, to the next higher 1/16 of 1%) of the respective
rates per annum at which deposits in dollars are offered to <PAGE>
<PAGE>35
each of the Euro-Dollar Reference Banks (except as provided
in subsection (h) of this Section) in the London interbank
market at approximately 11:00 A.M. (London time) two
Euro-Dollar Business Days before the first day of such
Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Euro-Dollar
Reference Bank to which such Interest Period is to apply and
for a period of time comparable to such Interest Period.
"Euro-Dollar Reserve Percentage" means for any day
that percentage (expressed as a decimal) which is in effect
on such day, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor) for determining
the maximum reserve requirement for a member bank of the
Federal Reserve System in New York City with deposits
exceeding five billion dollars in respect of "Eurocurrency
liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which
the interest rate on Euro-Dollar Loans is determined or any
category of extensions of credit or other assets which
includes loans by a non-United States office of any Bank to
United States residents). The Adjusted London Interbank
Offered Rate shall be adjusted automatically on and as of
the effective date of any change in the Euro-Dollar Reserve
Percentage.
(d) Any overdue principal of and overdue interest
on any Euro-Dollar Loan shall bear interest, payable on
demand, for each day from and including the date payment
thereof was due to but excluding the date of actual payment,
at a rate per annum equal to the sum of 1% plus the
Euro-Dollar Margin plus the higher of (i) the Adjusted
London Interbank Offered Rate applicable to such Loan and
(ii) the quotient obtained (rounded upward, if necessary, to
the next higher 1/100 of 1%) by dividing (x) the average
(rounded upward, if necessary, to the next higher 1/16 of
1%) of the respective rates per annum at which one day (or,
if such amount due remains unpaid more than three
Euro-Dollar Business Days, then for such other period of
time not longer than three months as the Agent may select)
deposits in dollars in an amount approximately equal to such
overdue payment due to each of the Euro-Dollar Reference
Banks are offered to such Euro-Dollar Reference Bank in the
London interbank market for the applicable period determined
as provided above by (y) 1.00 minus the Euro-Dollar Reserve
Percentage (or, if the circumstances described in clause (a)
or (b) of Section 8.01 shall exist, at a rate per annum
equal to the sum of 1% plus the Base Rate for such day).
(e) Subject to Section 8.01(a), each Money Market
LIBOR Loan shall bear interest on the outstanding principal
amount thereof, for the Interest Period applicable thereto, <PAGE>
<PAGE>36
at a rate per annum equal to the sum of the London Interbank
Offered Rate for such Interest Period (determined in
accordance with Section 2.07(c) as if the related Money
Market LIBOR Borrowing were a Committed Euro-Dollar
Borrowing) plus (or minus) the Money Market Margin quoted by
the Bank making such Loan in accordance with Section 2.03.
Each Money Market Absolute Rate Loan shall bear interest on
the outstanding principal amount thereof, for the Interest
Period applicable thereto, at a rate per annum equal to the
Money Market Absolute Rate quoted by the Bank making such
Loan in accordance with Section 2.03. Such interest shall
be payable for each Interest Period on the last day thereof
and, if such Interest Period is longer than three months, at
intervals of three months after the first day thereof. Any
overdue principal of and overdue interest on any Money
Market Loan shall bear interest, payable on demand, for each
day until paid at a rate per annum equal to the sum of 1%
plus the Base Rate for such day.
(f) The Agent shall determine each interest rate
applicable to the Loans hereunder. The Agent shall give
prompt notice to the Borrower and the participating Banks of
each rate of interest so determined, and its determination
thereof shall be conclusive in the absence of manifest
error.
(g) Each Reference Bank agrees to use its best
efforts to furnish quotations to the Agent as contemplated
by this Section. If any Reference Bank does not furnish a
timely quotation, the Agent shall determine the relevant
interest rate on the basis of the quotation or quotations
furnished by the remaining Reference Bank or Banks or, if
none of such quotations is available on a timely basis, the
provisions of Section 8.01 shall apply.
(h) If all five Reference Banks furnish timely
quotations for an Interest Period, the highest quotation (or
one of the highest quotations if two or more Reference Banks
furnish the same highest quotation) and the lowest quotation
(or one of the lowest quotations if two or more Reference
Banks furnish the same lowest quotation) shall be
disregarded and the interest rate applicable to such
Interest Period shall be determined on the basis of the
remaining three quotations.
SECTION 2.08. Fees.
(a) Commitment Fee. The Borrower shall pay to
the Agent, for the account of the Banks, ratably in
accordance with their respective Percentages, a commitment
fee at the Commitment Fee Rate. Such commitment fee shall
accrue for each day from and including the Effective Date to
<PAGE>
<PAGE>37
but excluding the Termination Date (or earlier date of
termination of the Commitments in their entirety) on the
amount by which the aggregate amount of the Commitments
exceeds the aggregate outstanding principal amount of the
Loans on such day.
(b) Facility Fee. The Borrower shall pay to the
Agent, for the account of the Banks, ratably in accordance
with their respective Percentages, a facility fee at the
Facility Fee Rate. Such facility fee shall accrue for each
day (i) from and including the Effective Date to but
excluding the Termination Date (or earlier date of
termination of the Commitments in their entirety), on the
aggregate amount of the Commitments (whether used or unused)
on such day and (ii) if any Committed Loans remain
outstanding after the Commitments terminate in their
entirety, then from and including the date on which the
Commitments terminate in their entirety to but excluding the
first day thereafter on which no Committed Loans remain
outstanding, on the aggregate outstanding amount of the
Committed Loans on such day.
(c) Payments. Fees accrued under subsections (a)
and (b) above shall be payable quarterly in arrears on each
March 31, June 30, September 30 and December 31 or, if
earlier, the date of termination of the Commitments in their
entirety (and, if later, the first day thereafter on which
no Committed Loans remain outstanding).
SECTION 2.09. Optional Termination or Reduction
of Commitments. The Borrower may, upon at least three
Domestic Business Days' notice to the Agent, (i) terminate
the Commitments at any time, if no Loans are outstanding at
such time, or (ii) ratably reduce from time to time, by an
aggregate amount of $10,000,000 or any larger integral
multiple of $1,000,000, the aggregate amount of the
Commitments in excess of the aggregate outstanding principal
amount of the Loans.
SECTION 2.10. Mandatory Termination of
Commitments. The Commitments shall terminate on the
Termination Date, and any Loans then outstanding (together
with accrued interest thereon) shall be due and payable on
such date.
SECTION 2.11. Optional Prepayments. (a) The
Borrower may, upon at least one Domestic Business Day's
notice to the Agent, prepay any Base Rate Borrowing (or any
Money Market Borrowing bearing interest at the Base Rate
pursuant to Section 8.01(a)) in whole at any time, or from
time to time in part in amounts aggregating $5,000,000 or
any larger integral multiple of $1,000,000, by paying the <PAGE>
<PAGE>38
principal amount to be prepaid together with interest
accrued thereon to the date of prepayment. Each such
optional prepayment shall be applied to prepay ratably the
Loans of the several Banks included in such Borrowing.
(b) Subject to the provisions of Section 2.13,
the Borrower may, upon at least three Domestic Business
Days' notice to the Agent in the case of any CD Borrowing or
at least three Euro-Dollar Business Days' notice to the
Agent in the case of any Euro-Dollar Borrowing, prepay such
Committed Borrowing in whole at any time by paying the
principal amount to be prepaid together with interest
accrued thereon to the date of prepayment.
(c) The Borrower may not prepay all or any
portion of any Money Market Loan (except a Money Market Loan
bearing interest at the Base Rate pursuant to Section
8.01(a)) prior to the maturity thereof, except with the
consent of the relevant lending Bank.
(d) Upon receipt of a notice of prepayment
pursuant to this Section, the Agent shall promptly notify
each Bank of the contents thereof and of such Bank's ratable
share (if any) of such prepayment and such notice shall not
thereafter be revocable by the Borrower.
SECTION 2.12. General Provisions as to Payments.
(a) The Borrower shall make each payment of principal of,
and interest on, the Loans and of fees hereunder, not later
than 12:00 Noon (New York City time) on the date when due,
in Federal or other funds immediately available in New York
City, to the Agent at its address referred to in Section
9.01. The Agent will promptly distribute to each Bank its
ratable share (if any) of each such payment received by the
Agent for the account of the Banks. Whenever any payment of
principal of, or interest on, the Domestic Loans or of fees
shall be due on a day which is not a Domestic Business Day,
the date for payment thereof shall be extended to the next
succeeding Domestic Business Day. Whenever any payment of
principal of, or interest on, the Euro-Dollar Loans shall be
due on a day which is not a Euro-Dollar Business Day, the
date for payment thereof shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar
Business Day falls in another calendar month, in which case
the date for payment thereof shall be the next preceding
Euro-Dollar Business Day. Whenever any payment of principal
of, or interest on, the Money Market Loans shall be due on a
day which is not a Euro-Dollar Business Day, the date for
payment thereof shall be extended to the next succeeding
Euro-Dollar Business Day. If the date for any payment of
principal is extended in accordance with this Section 2.12, <PAGE>
<PAGE>39
by operation of law or otherwise, interest thereon shall be
payable for such extended time.
(b) Unless the Agent shall have received notice
from the Borrower prior to the date on which any payment is
due to the Banks hereunder that the Borrower will not make
such payment in full, the Agent may assume that the Borrower
has made such payment in full to the Agent on such date and
the Agent may, in reliance upon such assumption, cause to be
distributed to each Bank on such due date an amount equal to
the amount then due such Bank. If and to the extent that
the Borrower shall not have so made such payment, each Bank
shall repay to the Agent forthwith on demand such amount
distributed to such Bank together with interest thereon, for
each day from the date such amount is distributed to such
Bank until the date such Bank repays such amount to the
Agent, at the Federal Funds Rate.
SECTION 2.13. Funding Losses. If the Borrower
makes any payment of principal with respect to any Fixed
Rate Loan (pursuant to Section 2.11(b) or Article VI or VIII
or otherwise) on any day other than the last day of the
Interest Period applicable thereto, or the last day of an
applicable period fixed pursuant to Section 2.07(d), or if
the Borrower fails to borrow or prepay any Fixed Rate Loans
after notice has been given to any Bank in accordance with
Section 2.04(a) or 2.11(c), the Borrower shall reimburse
each Bank within 15 days after demand for any resulting loss
or expense incurred by it (or by an existing or prospective
Participant in the related Loan), including (without
limitation) any loss incurred in obtaining, liquidating or
employing deposits from third parties, but excluding loss of
margin for the period after any such payment or failure to
borrow, provided that such Bank shall have delivered to the
Borrower a certificate as to the amount of such loss or
expense, which certificate shall be conclusive in the
absence of manifest error.
SECTION 2.14. Computation of Interest and Fees.
Interest based on the Prime Rate hereunder shall be computed
on the basis of a year of 365 days (or 366 days in a leap
year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All
other interest, commitment fees and facility fees shall be
computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but
excluding the last day).
ARTICLE III
CONDITIONS
<PAGE>
<PAGE>40
SECTION 3.01. Borrowings. The obligation of each
Bank to make a Loan on the occasion of each Borrowing is
subject to the satisfaction of the following conditions:
(a) receipt by the Agent of notice of such
Borrowing as required by Section 2.02 or 2.03;
(b) the fact that, immediately after giving
effect to such Borrowing, the aggregate outstanding
principal amount of the Loans will not exceed the
aggregate amount of the Commitments;
(c) the fact that, immediately before and after
such Borrowing: (i) in the case of a Refunding
Borrowing, no Event of Default and no Default under
clause (a) or (b) of Section 6.01 and (ii) in the case
of any other Borrowing, no Default shall have occurred
and be continuing; and
(d) the fact that the representations and
warranties of the Borrower contained in this Agreement
shall be true on and as of the date of such Borrowing;
provided that this clause (d) shall not apply (i) in
the case of a Refunding Borrowing, to the
representations and warranties set forth in Sections
4.04(c), 4.05, 4.06, 4.10 and clause (ii) of Section
4.08 and (ii) in the case of all Borrowings after the
Effective Date, to the representations and warranties
set forth in Section 4.11.
Each Borrowing hereunder shall be deemed to be a
representation and warranty by the Borrower on the date of
such Borrowing as to the facts specified in clauses (b), (c)
and (d) of this Section.
SECTION 3.02. Conditions to Effectiveness. This
Agreement shall become effective and binding upon the
parties hereto on the date on which each of the following
conditions shall have been satisfied (or waived in
accordance with Section 9.05):
(a) receipt by the Agent of counterparts of this
Agreement signed by each of the parties listed on the
signature pages hereof (or, in the case of any such
party as to which an executed counterpart shall not
have been received, receipt by the Agent in form
satisfactory to it of facsimile or other written
confirmation from such party of its execution of a
counterpart of this Agreement);
<PAGE>
<PAGE>41
(b) receipt by the Agent of a duly executed Note
for the account of each Bank dated on or before the
Effective Date complying with the provisions of Section
2.05;
(c) evidence satisfactory to the Agent that (i)
the Existing Commitments have been terminated, (ii) no
loans or letters of credit are outstanding under the
Existing Credit Agreement and (iii) all interest and
fees accrued thereunder to but excluding the Effective
Date have been paid or the Borrower has made
arrangements satisfactory to the Agent to pay such
amounts in full on the Effective Date;
(d) evidence satisfactory to the Agent that
(i) the security interests created by the Existing
Security Agreement have been released, (ii) termination
statements have been filed or delivered for filing
under the Uniform Commercial Code as required to
evidence the termination of such security interests and
(iii) all stock certificates and other instruments
pledged under the Existing Security Agreement have been
returned to the Borrower or PCI, as appropriate;
(e) receipt by the Agent of an opinion dated the
Effective Date of Stoel Rives Boley Jones & Grey,
counsel for the Borrower, substantially in the form of
Exhibit F hereto and covering such additional matters
relating to the transactions contemplated hereby as the
Required Banks may reasonably request;
(f) receipt by the Agent of an opinion dated the
Effective Date of Davis Polk & Wardwell, special
counsel for the Agent, substantially in the form of
Exhibit G hereto and covering such additional matters
relating to the transactions contemplated hereby as the
Required Banks may reasonably request;
(g) receipt by each Bank (or the Agent on its
behalf) of a purpose statement on Form FR U-1 completed
in conformity with the requirements of Regulation U,
together with such other information or documents as
may be requested by such Bank in order to determine or
establish compliance with Regulation U with respect to
any Loans to be made by it hereunder; and
(h) receipt by the Agent of all documents it may
reasonably request relating to the existence of the
Borrower, the corporate authority for and the validity
of this Agreement and the Notes, all in form and
substance satisfactory to the Agent;
<PAGE>
<PAGE>42
provided that this Agreement shall not become effective or
be binding on any party hereto unless all of the foregoing
conditions are satisfied or waived not later than May 15,
1995. The Agent shall promptly notify the other parties
hereto of the Effective Date, and such notice shall be
conclusive and binding on all parties hereto.
SECTION 3.03. Termination of Existing
Commitments; Release of Collateral. (a) The Borrower and
each Bank which is a party to the Existing Credit Agreement
agree that the Existing Commitments shall terminate, without
further action of any party thereto, on the date on which
all conditions to the effectiveness of this Agreement
(except the conditions set forth in clauses (c)(i) and (d)
of Section 3.02) are satisfied, and that any loans
outstanding thereunder on such date may be prepaid on such
date, all without any prior notice of such termination or
prepayment. Any note delivered to any Bank under the
Existing Credit Agreement (an "Old Note") shall become void
upon payment of the amounts referred to in clause (c)(iii)
of Section 3.02 and, upon receiving its share of such
payments, each such Bank will cancel its Old Note and return
it to the Borrower. No failure of a Bank so to cancel and
return its Old Note shall affect the validity of its new
Note. If any loans are outstanding under the Existing
Credit Agreement and are prepaid on the Effective Date of
this Agreement, the Borrower shall compensate the relevant
banks for any related funding losses as provided in Section
2.13 of the Existing Credit Agreement.
(b) Each party hereto which is an Existing
Secured Party also consents to the release of the Collateral
and waives all requirements in the Existing Security
Agreement that prior notice of such release be given to the
Collateral Agent; provided that, prior to or concurrently
with such release, all conditions to the effectiveness of
this Agreement specified in Section 3.02 hereof (except the
condition set forth in clause (d) of Section 3.02) are
satisfied. Each such party authorizes the Collateral Agent,
concurrently with such release, to deliver all securities
included in the Collateral to the Borrower or PCI, as
appropriate.
<PAGE>
<PAGE>43
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.01. Corporate Existence and Power. The
Borrower is a corporation duly incorporated, validly exist-
ing and in good standing under the laws of its jurisdiction
of incorporation, and has all corporate powers and all
material governmental licenses, authorizations, consents and
approvals required to carry on its business as now
conducted.
SECTION 4.02. Corporate and Governmental
Authorization; No Contravention. The execution and delivery
by the Borrower of this Agreement and the Notes and the
performance by the Borrower of its obligations hereunder and
thereunder are within the Borrower's corporate powers and
have been duly authorized by all necessary corporate action.
This Agreement has been duly executed and delivered by the
Borrower. No registration, recordation or filing with or
consent, approval or other action by any regulatory or other
governmental body, agency or official is required in
connection with the execution or delivery of this Agreement
and the Notes by the Borrower or is necessary for the
validity or enforceability hereof or thereof, and the
execution, delivery, performance and enforcement of this
Agreement and the Notes do not and will not contravene, or
constitute a default under, any provision of applicable law
or regulation, or of the certificate of incorporation or
by-laws of the Borrower or any of its Subsidiaries or of any
agreement, judgment, injunction, order, decree or other
instrument binding upon the Borrower or result in the
creation or imposition of any Lien upon any asset of the
Borrower or any of its Subsidiaries.
SECTION 4.03. Binding Effect. This Agreement
constitutes a valid and binding agreement of the Borrower
and the Notes constitute valid and binding obligations of
the Borrower, in each case enforceable in accordance with
its terms, except as the foregoing may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, or other similar laws affecting the rights of
creditors generally and by general principles of equity,
including those limiting the availability of specific
performance, injunctive relief, and other equitable remedies
and those providing for defenses based on fairness and
reasonableness, regardless of whether considered in a
proceeding in equity or at law.
<PAGE>
<PAGE>44
SECTION 4.04. Financial Information.
(a) The consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of
December 31, 1994 and the related statements of consolidated
income and retained earnings and of consolidated cash flows
for the Fiscal Year then ended, reported on by Deloitte &
Touche LLP, copies of which have been delivered to each of
the Banks, present fairly, in all material respects, the
consolidated financial position of the Borrower and its
Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such
Fiscal Year, in conformity with generally accepted
accounting principles.
(b) The consolidated balance sheet of each First
Tier Significant Subsidiary and its Consolidated Subsidi-
aries as of December 31, 1994 and the related consolidated
statements of income and retained earnings and of cash flows
for the fiscal year then ended, reported on by Deloitte &
Touche LLP, copies of which have been delivered to each of
the Banks, present fairly, in all material respects, the
consolidated financial position of such First Tier
Significant Subsidiary and its Consolidated Subsidiaries as
of such date and their consolidated results of operations
and cash flows for such fiscal year, in conformity with
general accepted accounting principles.
(c) Since December 31, 1994 there has been no
change in the business, financial position, results of
operations or prospects of (i) the Borrower and its
Consolidated Subsidiaries, considered as a whole, or
(ii) PTI and its Consolidated Subsidiaries, considered as a
whole, which, in any such case, would materially and
adversely affect the ability of the Borrower to perform its
obligations hereunder.
SECTION 4.05. Litigation. Except as disclosed in
(i) PTI's annual report on Form 10-K for 1994 and (ii) PFS's
annual report on Form 10-K for 1994, there is no action,
suit or proceeding pending against, or to the knowledge of
the Borrower threatened against or affecting, the Borrower
or any of its Subsidiaries before any court or arbitrator or
any governmental body, agency or official in which there is
a reasonable possibility of an adverse decision which would
materially and adversely affect the ability of the Borrower
to perform its obligations under this Agreement or which in
any manner draws into question the validity of this
Agreement or the Notes.
SECTION 4.06. Compliance with ERISA. Each member
of the ERISA Group has fulfilled its obligations under the <PAGE>
<PAGE>45
minimum funding standards of ERISA and the Internal Revenue
Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions
of ERISA and the Internal Revenue Code with respect to each
Plan. No member of the ERISA Group has (i) sought a waiver
of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to
make any contribution or payment to any Plan or Multiem-
ployer Plan or made any amendment to any Plan which has
resulted or could result in the imposition of a Lien or the
posting of a bond or other security under ERISA or the
Internal Revenue Code or (iii) incurred any material
liability under Title IV of ERISA other than a liability to
the PBGC for premiums under Section 4007 of ERISA.
SECTION 4.07. Taxes. The charges, accruals and
reserves on the books of the Borrower and its Subsidiaries
in respect of taxes or other governmental charges are, in
the opinion of the Borrower, adequate.
SECTION 4.08. Subsidiaries. Each of the First
Tier Significant Subsidiaries, PGC and PCI (i) is a
corporation duly incorporated and validly existing under the
laws of its jurisdiction of incorporation, (ii) has paid all
franchise taxes (or other similar taxes) heretofore required
to be paid and has filed all reports heretofore required to
be filed to maintain its existence under the laws of its
jurisdiction of incorporation and (iii) has all corporate
powers and all material governmental licenses, authoriza-
tions, consents and approvals required to carry on its
business as now conducted; provided that each of PGC and PCI
shall be excluded from the foregoing representation and
warranty if and whenever it is made (or deemed made)
pursuant to Section 3.01 at a time when PGC or PCI, as the
case may be, is not a Significant Subsidiary.
SECTION 4.09. Regulation. The Borrower is not
subject to regulation under the Public Utility Holding
Company Act of 1935, the Investment Company Act of 1940, the
Interstate Commerce Act or any other law or regulation which
limits the incurrence by the Borrower of Debt, including,
but not limited to, laws relating to common or contract
carriers or the sale of electricity, gas, steam, water or
other public utility services.
SECTION 4.10. Environmental Matters. Each of PTI
and PGC conducts in the ordinary course of its business a
review of the effect of applicable Environmental Laws on its
business, operations and properties, and as a result thereof
the Borrower has reasonably concluded that such Environmen-
tal Laws are unlikely to have a material adverse effect on
the Borrower's ability to perform its obligations under this
<PAGE>
<PAGE>46
Agreement; provided that PGC shall be excluded from the
foregoing representation and warranty if and whenever it is
made (or deemed made) pursuant to Section 3.01 at a time
when PGC is an Excluded Subsidiary.
SECTION 4.11. Spring Creek Documents. Each of
the Spring Creek Loan Agreement, the Spring Creek Note and
the Spring Creek Participation Agreement is a valid and
binding agreement or obligation of the parties thereto and
is in full force and effect. The execution, delivery and
performance of the Spring Creek Loan Agreement, the Spring
Creek Note and the Spring Creek Participation Agreement did
not and will not contravene, or constitute a default under,
any provision of the Spring Creek Coal Supply Contract.
ARTICLE V
COVENANTS
The Borrower agrees that, so long as any Bank has
any Commitment hereunder or any amount payable under any
Note remains unpaid:
SECTION 5.01. Information. The Borrower will
deliver to each of the Banks:
(a) as soon as available and in any event within
120 days after the end of each Fiscal Year, a
consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of the end of such Fiscal
Year and the related consolidated statements of income
and retained earnings and of cash flows for such Fiscal
Year, in each case setting forth the figures for the
previous Fiscal Year, all reported on by Deloitte &
Touche LLP or other independent public accountants of
nationally recognized standing;
(b) as soon as available and in any event within
60 days after the end of each of the first three
quarters of each Fiscal Year, a consolidated balance
sheet of the Borrower and its Consolidated Subsidiaries
as of the end of such quarter (setting forth in
comparative form the figures for the end of the
previous Fiscal Year) and the related consolidated
statement of income and retained earnings for such
quarter and the portion of the Fiscal Year then ended
and the related statement of cash flows for the portion
of the Fiscal Year then ended, setting forth in each
case in comparative form the figures for the
corresponding quarter and the corresponding portion of <PAGE>
<PAGE>47
the previous Fiscal Year, all certified (subject to
normal year-end adjustments) as to fairness of
presentation and consistency by a Responsible Officer;
(c) simultaneously with the delivery of each set
of financial statements referred to in clauses (a) and
(b) above, (i) a consolidated balance sheet of each
First Tier Significant Subsidiary and its Subsidiaries
as of the end of the relevant fiscal period and the
related consolidated statements of income and retained
earnings and of cash flows for the period or periods
specified in clause (a) or (b), as the case may be,
setting forth in each case in comparative form the
figures for the corresponding period or periods in the
previous Fiscal Year, all certified (subject, in the
case of statements delivered with respect to each of
the first three quarters of each Fiscal Year, to normal
year-end adjustments) as to fairness of presentation
and consistency by a Responsible Officer, provided that
footnotes may be omitted from such financial statements
and the Responsible Officer's certification thereof may
be qualified by a reference to the omission of such
footnotes; (ii) consolidating financial information
substantially similar to that provided to the Banks in
connection with the Existing Credit Agreement; and
(iii) a certificate of a Responsible Officer
(A) setting forth in detail satisfactory to the Agent
the calculations required to establish whether the
Borrower was in compliance with the requirements of
Sections 5.02, 5.03, 5.06(a) and 5.08 on the date of
such financial statements and, in the case of Section
5.06(a), identifying any Excluded Dividends declared or
paid by the Borrower and (B) stating whether any
Default exists on the date of such certificate and, if
any Default then exists, setting forth the details
thereof and the action which the Borrower is taking or
proposes to take with respect thereto;
(d) simultaneously with the delivery of each set
of financial statements referred to in clause (a)
above, a statement of the firm of independent public
accountants which reported on such statements
(i) whether anything has come to their attention to
cause them to believe that any Default existed on the
date of such statements and (ii) confirming the
calculations set forth in the officer's certificate
delivered simultaneously therewith pursuant to clause
(c) above, it being understood that such public
accountants shall not be liable, directly or
indirectly, for any failure to obtain knowledge of any
Default, unless such public accountants should have <PAGE>
<PAGE>48
obtained knowledge thereof in making an audit in
accordance with generally accepted auditing standards;
(e) forthwith upon the occurrence of any Default,
a certificate of a Responsible Officer setting forth
the details thereof and the action which the Borrower
is taking or proposes to take with respect thereto;
(f) promptly upon the mailing thereof to the
shareholders of the Borrower or any First Tier
Significant Subsidiary generally, copies of all
financial statements, reports and proxy statements so
mailed;
(g) promptly upon the filing thereof, copies of
all registration statements (other than the exhibits
thereto and any registration statements on Form S-8 or
its equivalent) and annual, quarterly or other reports
which the Borrower or any First Tier Significant
Subsidiary shall have filed with the Securities and
Exchange Commission;
(h) if and when any member of the ERISA Group (i)
is required to give notice to the PBGC under Section
4043(b)(3) of ERISA with respect to any Plan or would
be required to give notice under such Section with
respect to any Plan but for the provisions of Section
4043(b)(2) of ERISA, notice to that effect, (ii) gives
or is required to give notice to the PBGC of any
"reportable event" (as defined in Section 4043 of
ERISA) for which the requirement of notice to the PBGC
within 30 days has not been waived, with respect to any
Plan which might constitute grounds for a termination
of such Plan under Title IV of ERISA, or knows that the
plan administrator of any Plan has given or is required
to give any such notice of any such reportable event, a
copy of the notice of such reportable event given or
required to be given to the PBGC; (iii) receives notice
of complete or partial withdrawal liability under Title
IV of ERISA in excess of $1,000,000 or notice that any
Multiemployer Plan is in reorganization, is insolvent
or has been terminated (which event or condition causes
or could cause one or more members of the ERISA Group
to have a current payment obligation in excess of
$1,000,000), a copy of such notice; (iv) receives
notice from the PBGC under Title IV of ERISA of an
intent to terminate, impose liability (other than for
premiums under Section 4007 of ERISA) in respect of, or
appoint a trustee to administer any Plan, a copy of
such notice; (v) applies for a waiver of the minimum
funding standard under Section 412 of the Internal
Revenue Code, a copy of such application; (vi) gives <PAGE>
<PAGE>49
notice of intent to terminate any Plan under Section
4041(c) of ERISA, a copy of such notice and other
information filed with the PBGC; (vii) gives notice of
withdrawal from any Plan pursuant to Section 4063 of
ERISA (which event or condition causes or could cause
one or more members of the ERISA Group to have a
current payment obligation in excess of $1,000,000), a
copy of such notice; or (viii) fails to make any
payment or contribution to any Plan or Multiemployer
Plan or makes any amendment to any Plan which has
resulted or could result in the imposition of a Lien or
the posting of a bond or other security, a certificate
of a Responsible Officer setting forth details as to
such occurrence and action, if any, which the Borrower
or applicable member of the ERISA Group is required or
proposes to take;
(i) promptly upon receipt by the Borrower of
written notice (which term shall include a press
release) of a change in any Debt Rating (as such term
is defined in the Pricing Schedule) or Short-Term Debt
Rating, a copy of such written notice; and
(j) from time to time such additional information
regarding the financial position or business of the
Borrower or any Significant Subsidiary as the Agent, at
the request of any Bank, may reasonably request.
SECTION 5.02. Adjusted Consolidated Debt.
Adjusted Consolidated Debt shall not exceed 70% of
Consolidated Capitalization at any time.
SECTION 5.03. Interest Coverage. At the end of
each Fiscal Quarter ending after December 31, 1994,
Available Cash Income for the period of four consecutive
Fiscal Quarters then ended shall not be less than 300% of
Pro Forma Interest Expense (After Tax) for the next
succeeding period of four consecutive Fiscal Quarters.
SECTION 5.04. Negative Pledge. The Borrower will
not create, assume or suffer to exist any Lien on any asset
(other than the Borrower's Interest in Spring Creek
Obligations) now owned or hereafter acquired by it, other
than (i) inchoate tax liens and (ii) Permitted Liens;
provided that the Borrower may at any time secure its
obligations to another creditor or group of creditors (each
an "Other Creditor") by creating a Lien on cash or Approved
Securities (such Other Creditor's "Collateral"), but only
if, when any such Lien is created and thereafter so long as
any such Lien remains in effect, the Borrower's obligations
outstanding hereunder are secured by an equivalent Lien on
cash or Approved Securities (the "Banks' Collateral"). A <PAGE>
<PAGE>50
Lien shall be considered "equivalent" for purposes of the
foregoing proviso only if (i) the value of the Banks'
Collateral, expressed as a percentage of the aggregate
amount of the Borrower's obligations outstanding hereunder
from time to time, is not materially less than the value of
any Other Creditor's Collateral, expressed as a percentage
of the obligations (including contingent obligations)
secured by it, and (ii) the documentation creating such Lien
on the Banks' Collateral is not materially less favorable to
the Banks than the documentation creating a Lien on any
Other Creditor's Collateral is to such Other Creditor.
SECTION 5.05. Consolidations, Mergers and Sales
of Assets. The Borrower will not (i) consolidate or merge
with or into any other Person, (ii) transfer any shares of
PTI or PFS directly or indirectly to any Subsidiary or
Affiliate or (iii) sell, lease or otherwise transfer all or
substantially all of its assets to any other Person;
provided that (i) the Borrower may merge with another Person
if (x) the corporation surviving such merger is (A) the
Borrower or (B) a wholly-owned Subsidiary of the Parent
formed solely for the purpose of reincorporating the
Borrower in the State of Oregon and (y) immediately after
giving effect to such merger, no Default shall have occurred
and be continuing and (ii) the Borrower may transfer shares
of PFS if, immediately after giving effect to such transfer,
no Default shall have occurred and be continuing. In the
case of a merger permitted under the first sentence of this
Section for the purpose of reincorporating the Borrower in
the State of Oregon, the corporation surviving such merger
shall assume the obligations of the Borrower under this
Agreement and the Notes by an assumption agreement
satisfactory in form and substance to the Agent, and the
Borrower shall provide to the Agent, no later than 10
Domestic Business Days following the consummation of such
merger, an opinion of counsel, satisfactory to the Agent, to
the effect that: (x) the surviving corporation has been
duly incorporated and is validly existing under the laws of
Oregon; (y) the foregoing assumption agreement has been duly
authorized, executed and delivered by such surviving
corporation and is a valid and binding agreement of the
surviving corporation enforceable in accordance with its
terms; and (z) this Agreement constitutes a valid and
binding agreement of the surviving corporation enforceable
in accordance with its terms and the Notes constitute valid
and binding obligations of the surviving corporation
enforceable in accordance with their terms.
SECTION 5.06. Restricted Stock Payments and
Restricted Dividends. (a) The Borrower will not declare
any Restricted Dividend or make any Restricted Stock Payment
during any Fiscal Quarter (the "Current Fiscal Quarter") <PAGE>
<PAGE>51
unless, immediately after giving effect to the declaration
of such Restricted Dividend or the making of such Restricted
Stock Payment, either:
(i) Adjusted Available Cash Income for the
immediately preceding four Fiscal Quarters shall be at
least 105% of the sum of (x) Interest Expense for said
four preceding Fiscal Quarters, net of related tax
benefits calculated at the Net Effective Tax Rate for
said four preceding Fiscal Quarters, and (y) the
aggregate amount of all Restricted Dividends declared
and Restricted Stock Payments made during the Current
Fiscal Quarter and the three immediately preceding
Fiscal Quarters (excluding any such Restricted
Dividends and Restricted Stock Payments that were
permitted solely by reason of clause (ii) of this
Section) or
(ii) the aggregate amount of all Restricted
Dividends declared and Restricted Stock Payments made
after December 31, 1994 that were not permitted by
clause (i) shall not exceed $70,000,000.
(b) The Borrower will not declare any Restricted
Dividend or make any Restricted Stock Payment at a time when
a Default shall have occurred and be continuing; provided
that in determining, for purposes of this subsection (b),
whether any Default shall have occurred and be continuing
under Section 5.03, there shall be excluded from the
calculation of Available Cash Income any cash equity
Investments made by the Parent in the Borrower that, if not
received by the Borrower, would have resulted in one or more
Defaults under Section 5.03, except that the first such
equity Investment made after December 31, 1994 and required
to avoid one or more such Defaults shall not be so excluded.
(c) The Borrower will not permit any of its
Subsidiaries to make any Restricted Stock Payment.
SECTION 5.07. Use of Proceeds. The proceeds of
the Loans made under this Agreement will be used by the
Borrower for its general corporate purposes, including
acquiring the outstanding shares of capital stock of PTI not
owned by it on the date hereof.
SECTION 5.08. Debt of Restricted Subsidiaries.
The Borrower will not permit any Restricted Subsidiary to
incur or otherwise become or remain liable with respect to
any Debt, except:
(i) in the case of PTI, any Debt of PTI;
<PAGE>
<PAGE>52
(ii) in the case of each of PFS or PGC, Debt in an
aggregate outstanding principal amount not exceeding
the aggregate principal amount of its Debt outstanding
at December 31, 1994;
(iii) in the case of any Subsidiary acquired by the
Borrower after December 31, 1994, any Debt existing
when such Subsidiary was acquired by the Borrower and
not incurred in contemplation of such event;
(iv) in the case of any Restricted Subsidiary,
Debt owed to the Borrower; and
(v) any other Debt of Restricted Subsidiaries
(other than PTI); provided that, immediately after such
Debt is incurred, the aggregate outstanding principal
amount of all Debt of Restricted Subsidiaries permitted
by clause (iii) above and this clause (v) shall not
exceed 10% of Adjusted Stockholder's Equity.
SECTION 5.09. Guarantees of Certain Hedging
Agreements. Neither the Borrower nor any of its Restricted
Subsidiaries will guarantee any obligation of any Excluded
Subsidiary under any Hedging Agreement; provided that this
Section 5.09 shall not apply to (i) the Existing Hedging
Support Agreements insofar as they guarantee obligations of
PFS under the Interest Rate Swap Agreement and the Interest
Rate and Currency Exchange Agreement referred to therein as
in effect on the Effective Date (but not any extensions
thereof or replacements therefor) or (ii) any other
guarantee of a Hedging Agreement if, immediately after such
guarantee is given, the sum of the Termination Values of all
Hedging Agreements of Excluded Subsidiaries guaranteed by
the Borrower or any of its Restricted Subsidiaries pursuant
to this clause (ii) does not exceed $75,000,000.
SECTION 5.10. Compliance with Laws. The Borrower
will comply in all respects with all applicable laws,
ordinances, rules, regulations and requirements of
governmental authorities (including, without limitation,
Environmental Laws and ERISA and the rules and regulations
thereunder) except where the necessity of compliance
therewith is contested in good faith by appropriate
proceedings or where non-compliance therewith would not have
a material adverse effect on the ability of the Borrower to
meet its commitments hereunder.
<PAGE>
<PAGE>53
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default. If one or more
of the following events ("Events of Default") shall have
occurred and be continuing:
(a) the Borrower shall fail to pay when due any
principal of any Loan, or shall fail to pay within five
days of the due date thereof any interest, commitment
fee or facility fee payable hereunder;
(b) the Borrower shall fail to pay any other
amount claimed by one or more Banks under this Agreement
within five days of the due date thereof, unless (i) such
claim is disputed in good faith by the Borrower, (ii) such
unpaid claimed amount does not exceed $100,000 and (iii) the
aggregate of all such unpaid claimed amounts does not exceed
$300,000;
(c) the Borrower shall fail to observe or perform
any covenant contained in Sections 5.02 to 5.08,
inclusive;
(d) the Borrower shall fail to observe or perform
any covenant or agreement contained in this Agreement
(other than those covered by clause (a), (b) or (c)
above) for 15 days after written notice thereof has
been given to the Borrower by the Agent at the request
of any Bank;
(e) any representation, warranty, certification
or statement made by the Borrower in this Agreement or
in any certificate, financial statement or other
document delivered pursuant to this Agreement shall
prove to have been incorrect in any material respect
when made (or deemed made);
(f) the Borrower and/or one or more Significant
Subsidiaries shall fail to make any payment in respect
of any Material Debt (other than the Notes) when due or
within any applicable grace period;
(g) any event or condition shall occur which
results in the acceleration of the maturity of any
Material Debt of the Borrower and/or one or more
Significant Subsidiaries or enables the holder of such
Debt or any Person acting on such holder's behalf to
accelerate the maturity thereof; provided that this
clause (g) shall not apply to Debt of a Person (other <PAGE>
<PAGE>54
than the Borrower or any of its Significant Subsidi-
aries) which is Guaranteed by the Borrower and/or one
or more Significant Subsidiaries unless the Borrower or
any such Significant Subsidiary shall have failed to
duly perform its respective obligations under such
Guarantees;
(h) the Borrower or any Significant Subsidiary
(or any group of Subsidiaries of the Borrower which, if
considered in the aggregate as a single Subsidiary,
would constitute a Significant Subsidiary) shall
commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar
official of it or any substantial part of its property,
or shall consent to any such relief or to the appoint-
ment of or taking possession by any such official in an
involuntary case or other proceeding commenced against
it, or shall make a general assignment for the benefit
of creditors, or shall fail generally to pay its debts
as they become due, or shall take any corporate action
to authorize any of the foregoing;
(i) an involuntary case or other proceeding shall
be commenced against the Borrower or any Significant
Subsidiary (or any group of Subsidiaries of the
Borrower which, if considered in the aggregate as a
single Subsidiary, would constitute a Significant
Subsidiary) seeking liquidation, reorganization or
other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its
property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of
60 days; or an order for relief shall be entered
against the Borrower or any such Significant Subsidiary
or group of Subsidiaries under the federal bankruptcy
laws as now or hereafter in effect;
(j) any member of the ERISA Group shall fail to
pay when due an amount or amounts aggregating in excess
of $10,000,000 which it shall have become liable to pay
under Title IV of ERISA; or notice of intent to
terminate a Material Plan shall be filed under Title IV
of ERISA by any member of the ERISA Group, any plan
administrator or any combination of the foregoing; or
the PBGC shall institute proceedings under Title IV of <PAGE>
<PAGE>55
ERISA to terminate, to impose liability in excess of
$10,000,000 (other than for premiums under Section 4007
of ERISA) in respect of, or to cause a trustee to be
appointed to administer any Material Plan; or a
condition shall exist by reason of which the PBGC would
be entitled to obtain a decree adjudicating that any
Material Plan must be terminated; or there shall occur
a complete or partial withdrawal from, or a default,
within the meaning of Section 4219(c)(5) of ERISA, with
respect to, one or more Multiemployer Plans which could
cause one or more members of the ERISA Group to incur a
current payment obligation in excess of $25,000,000;
(k) the Parent shall cease to own 100% of the
Voting Stock of the Borrower;
(l) a final judgment or order for the payment of
money in excess of $5,000,000 shall be rendered against
the Borrower or any Significant Subsidiary and such
judgment or order shall continue unsatisfied and
unstayed for a period of 30 days;
(m) the Borrower shall cease to own, directly or
indirectly, at least 51% of the outstanding common
stock of each corporation which is a Significant
Subsidiary immediately before such ownership declines
below 51%, except that (i) the Borrower may cease to
own at least 51% of the outstanding common stock of
such a corporation if the existence of such corporation
is terminated by merger, consolidation or liquidation
and the Borrower shall own, directly or indirectly, at
least 51% of the outstanding common stock of the
corporation into which such corporation is merged or
consolidated or to which a majority of its net assets
are transferred upon its liquidation and (ii) the
Borrower may cease to own at least 51% of the
outstanding common stock of PFS or PGC if, immediately
after such ownership declines below 51%, (A) no Default
shall have occurred and be continuing and (B) Pro Forma
Available Cash Income is not less than 300% of Adjusted
Pro Forma Interest Expense (After Tax);
(n) any Subsidiary of the Borrower shall create,
assume or suffer to exist any Lien (other than inchoate
tax liens) on any equity security of any corporate
Significant Subsidiary of the Borrower now owned or
hereafter acquired by such Subsidiary, and such Lien
shall continue to exist for 15 days after written
notice requesting the removal of such Lien has been
given to the Borrower by the Agent at the request of
any Bank; or
<PAGE>
<PAGE>56
(o) any corporate Significant Subsidiary of the
Borrower shall consolidate or merge with or into, or
transfer all or substantially all of its assets to, any
Person other than the Borrower, except that (i) any
corporate Significant Subsidiary of the Borrower may
consolidate or merge with or into, or transfer all or
substantially all of its assets to, any Person other
than the Borrower if the corporation surviving such
consolidation or merger or the transferee of such
assets is a Significant Subsidiary of the Borrower,
(ii) PCI may transfer all or any part of the Spring
Creek Obligations and its rights under the Spring Creek
Loan Agreement to a Person other than the Borrower if
no Default shall have occurred and be continuing
immediately after such transfer, and (iii) PFS or PGC
may consolidate or merge with or into, or transfer all
or substantially all of its assets to, any Person other
than the Borrower if immediately after giving effect
thereto (A) no Default shall have occurred and be
continuing and (B) Pro Forma Available Cash Income is
not less than 300% of Adjusted Pro Forma Interest
Expense (After Tax);
then, and in every such event, the Agent shall (i) if
requested by the Required Banks, by notice to the Borrower
terminate the Commitments and they shall thereupon
terminate, and (ii) if requested by Banks holding Notes
evidencing at least 60% in aggregate principal amount of the
Loans outstanding, by notice to the Borrower declare the
Notes (together with accrued interest thereon) to be, and
the Notes shall thereupon become, immediately due and
payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Borrower;
provided that if any Event of Default specified in clause
(h) or (i) above occurs with respect to the Borrower, then
without any notice to the Borrower or any other act by the
Agent or the Banks, the Commitments shall thereupon
terminate and the Notes (together with accrued interest
thereon) shall become immediately due and payable without
presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower.
SECTION 6.02. Notice of Default. The Agent shall
give notice to the Borrower under subsection (d) or (n) of
Section 6.01 promptly upon being requested to do so by any
Bank and shall thereupon notify all the Banks thereof.
<PAGE>
<PAGE>57
ARTICLE VII
THE AGENT
SECTION 7.01. Appointment and Authorization.
Each Bank irrevocably appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such
powers under this Agreement and the Notes as are delegated
to the Agent by the terms hereof or thereof, together with
all such powers as are reasonably incidental thereto.
SECTION 7.02. Agent and Affiliates. Morgan
Guaranty Trust Company of New York shall have the same
rights and powers under this Agreement as any other Bank and
may exercise or refrain from exercising the same as though
it were not the Agent, and Morgan Guaranty Trust Company of
New York and its affiliates may accept deposits from, lend
money to, and generally engage in any kind of business with
the Borrower or any Subsidiary or affiliate of the Borrower
as if it were not the Agent hereunder.
SECTION 7.03. Action by Agent. The obligations
of the Agent hereunder are only those expressly set forth
herein. Without limiting the generality of the foregoing,
the Agent shall not be required to take any action with
respect to any Default, except as expressly provided in
Article VI.
SECTION 7.04. Consultation with Experts. The
Agent may consult with legal counsel (who may be counsel for
the Borrower), independent public accountants and other
experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in
accordance with the advice of such counsel, accountants or
experts.
SECTION 7.05. Liability of Agent. Neither the
Agent nor any of its affiliates nor any of their respective
directors, officers, agents or employees shall be liable for
any action taken or not taken by it in connection herewith
(i) with the consent or at the request of the Required Banks
or (ii) in the absence of its own gross negligence or will-
ful misconduct. Neither the Agent nor any of its affiliates
nor any of their respective directors, officers, agents or
employees shall be responsible for or have any duty to
ascertain, inquire into or verify (i) any statement,
warranty or representation made in connection with this
Agreement or any borrowing hereunder; (ii) the performance
or observance of any of the covenants or agreements of the
Borrower in this Agreement; (iii) the satisfaction of any <PAGE>
<PAGE>58
condition specified in Article III, except receipt of items
required to be delivered to the Agent or (iv) the validity,
effectiveness or genuineness of this Agreement or the Notes
or any other instrument or writing furnished in connection
herewith. The Agent shall not incur any liability by acting
in reliance upon any notice, consent, certificate,
statement, or other writing (which may be a bank wire,
facsimile transmission, telex or similar writing) believed
by it to be genuine or to be signed by the proper party or
parties.
SECTION 7.06. Indemnification. Each Bank shall,
ratably in accordance with its Percentage, indemnify the
Agent, its affiliates and their respective directors,
officers, agents and employees (to the extent not reimbursed
by the Borrower) against any cost, expense (including
counsel fees and disbursements), claim, demand, action, loss
or liability (except such as result from such indemnitees'
gross negligence or willful misconduct) that such indemni-
tees may suffer or incur in connection with this Agreement
or any action taken or omitted by such indemnitees
hereunder.
SECTION 7.07. Credit Decision. Each Bank
acknowledges that it has, independently and without reliance
upon the Agent or any other Bank, and based on such docu-
ments and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this
Agreement. Each Bank also acknowledges that it will,
independently and without reliance upon the Agent or any
other Bank, and based on such documents and information as
it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking any action
under this Agreement.
SECTION 7.08. Successor Agent. The Agent may
resign at any time by giving written notice thereof to the
Banks and the Borrower. Upon any such resignation, the
Required Banks, with the consent of the Borrower (which
consent shall not be unreasonably withheld), shall have the
right to appoint another Bank as successor Agent. If no
successor Agent shall have been so appointed by the Required
Banks, and shall have accepted such appointment, within 10
days after the retiring Agent gives notice of resignation,
then the retiring Agent may, on behalf of the Banks, appoint
a successor Agent, which shall be one of the Banks or shall
be a commercial bank organized or licensed under the laws of
the United States of America or of any State thereof and
having a combined capital and surplus of at least
$500,000,000. Upon the acceptance of its appointment as
Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the <PAGE>
<PAGE>59
rights and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation hereunder
as Agent, the provisions of this Article shall inure to its
benefit as to any actions taken or omitted to be taken by it
while it was Agent.
SECTION 7.09. Agent's Fees. The Borrower shall
pay to the Agent for its own account fees in the amounts and
at the times previously agreed upon between the Borrower and
the Agent.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate
Inadequate or Unfair. If on or prior to the first day of
any Interest Period for any Fixed Rate Borrowing:
(a) the Agent is advised by the Reference Banks
that deposits in dollars (in the applicable amounts)
are not being offered to the Reference Banks in the
relevant market for such Interest Period, or
(b) Banks having 60% or more of the aggregate
amount of the Commitments advise the Agent that the
Adjusted CD Rate or the Adjusted London Interbank
Offered Rate, as the case may be, as determined by the
Agent will not adequately and fairly reflect the cost
to such Banks of funding their CD Loans or Euro-Dollar
Loans, as the case may be, for such Interest Period,
the Agent shall forthwith give notice thereof to the
Borrower and the Banks, whereupon until the Agent notifies
the Borrower that the circumstances giving rise to such
suspension no longer exist, the obligations of the Banks to
make CD Loans or Euro-Dollar Loans, as the case may be,
shall be suspended. Unless the Borrower notifies the Agent
at least two Domestic Business Days before the date of any
Fixed Rate Borrowing for which a Notice of Borrowing has
previously been given that it elects not to borrow on such
date, (i) if such Fixed Rate Borrowing is a Committed
Borrowing, such Borrowing shall instead be made as a Base
Rate Borrowing and (ii) if such Fixed Rate Borrowing is a
Money Market LIBOR Borrowing, the Money Market LIBOR Loans
comprising such Borrowing shall bear interest for each day
from and including the first day to but excluding the last
day of the Interest Period applicable thereto at the Base
Rate for such day.
<PAGE>
<PAGE>60
SECTION 8.02. Illegality. If, on or after the
date of this Agreement, any Change in Law shall make it
unlawful or impossible for any Bank (or its Euro-Dollar
Lending Office) to make, maintain or fund its Euro-Dollar
Loans and such Bank shall so notify the Agent, the Agent
shall forthwith give notice thereof to the other Banks and
the Borrower, whereupon until such Bank notifies the
Borrower and the Agent that the circumstances giving rise to
such suspension no longer exist, the obligation of such Bank
to make Euro-Dollar Loans shall be suspended. Before giving
any notice to the Agent pursuant to this Section, such Bank
shall designate a different Euro-Dollar Lending Office if
such designation will avoid the need for giving such notice
and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. If such Bank shall determine
that it may not lawfully continue to maintain and fund any
of its outstanding Euro-Dollar Loans to maturity and shall
so specify in such notice, the Borrower shall immediately
prepay in full the then outstanding principal amount of each
such Euro-Dollar Loan, together with accrued interest
thereon. Concurrently with prepaying each such Euro-Dollar
Loan, the Borrower shall borrow a Base Rate Loan in an equal
principal amount from such Bank (on which interest and
principal shall be payable contemporaneously with the
related Euro-Dollar Loans of the other Banks), and such Bank
shall make such a Base Rate Loan.
SECTION 8.03. Increased Cost and Reduced Return.
(a) If on or after (x) the date of this Agreement, in the
case of any Committed Loan or any obligation to make
Committed Loans, or (y) the date of the related Money Market
Quote, in the case of any Money Market Loan, any Change in
Law shall impose, modify or deem applicable any reserve
(including, without limitation, any such requirement imposed
by the Board of Governors of the Federal Reserve System, but
excluding (i) with respect to any CD Loan any such
requirement included in an applicable Domestic Reserve
Percentage and (ii) with respect to any Euro-Dollar Loan any
such requirement included in an applicable Euro-Dollar
Reserve Percentage), special deposit, insurance assessment
(excluding, with respect to any CD Loan, any such
requirement reflected in an applicable Assessment Rate) or
similar requirement against assets of, deposits with or for
the account of, or credit extended by, any Bank (or its
Applicable Lending Office) or shall impose on any Bank (or
its Applicable Lending Office) or on the United States
market for certificates of deposit or the London interbank
market any other condition affecting its Fixed Rate Loans,
its Note or its obligation to make Fixed Rate Loans and the
result of any of the foregoing is to increase the cost to
such Bank (or its Applicable Lending Office) of making or
maintaining any Fixed Rate Loan, or to reduce the amount of <PAGE>
<PAGE>61
any sum received or receivable by such Bank (or its
Applicable Lending Office) under this Agreement or under its
Note with respect thereto, by an amount deemed by such Bank
to be material, then, within 15 days after demand by such
Bank (with a copy to the Agent), the Borrower shall pay to
such Bank such additional amount or amounts as will
compensate such Bank for such increased cost or reduction,
provided that the Borrower's obligation to pay such Bank
shall be limited to the cost or reduction that is
attributable to the period commencing 90 days prior to the
date on which such Bank gave notice to the Borrower pursuant
to Section 8.03(c) of the event entitling such Bank to such
compensation.
(b) If any Bank shall have determined that, after
the date of this Agreement, any Change in Law regarding
capital adequacy has or would have the effect of reducing
the rate of return on capital of such Bank (or its Parent)
as a consequence of such Bank's obligations hereunder to a
level below that which such Bank (or its Parent) could have
achieved but for such Change in Law (taking into
consideration its policies with respect to capital adequacy)
by an amount deemed by such Bank to be material, then from
time to time, within 15 days after demand by such Bank (with
a copy to the Agent), the Borrower shall pay to such Bank
such additional amount or amounts as will compensate such
Bank (or its Parent) for such reduction, provided that the
Borrower's obligation to pay such Bank (or its Parent) shall
be limited to the reduction that is attributable to the
period commencing 90 days prior to the date on which such
Bank gave notice to the Borrower pursuant to Section 8.03(c)
of the event entitling such Bank (or its Parent) to such
compensation.
(c) Each Bank will promptly notify the Borrower
and the Agent of any event of which it has knowledge,
occurring after the date of this Agreement, which will
entitle such Bank (or its Parent) to compensation pursuant
to this Section and will designate a different Applicable
Lending Office if such designation will avoid the need for,
or reduce the amount of, such compensation and will not, in
the judgment of such Bank, be otherwise disadvantageous to
such Bank. A certificate of any Bank claiming compensation
under this Section and setting forth the additional amount
or amounts to be paid to it hereunder shall be conclusive in
the absence of manifest error. In determining such amount,
such Bank may use any reasonable averaging and attribution
methods.
SECTION 8.04. Taxes. (a) If, as a result of a
Change in Law after the date of this Agreement (or the date
of the related Money Market Quote, in the case of payments <PAGE>
<PAGE>62
with respect to any Money Market Loan), any Tax (as defined
below) is imposed on any payment by the Borrower to or for
the account of any Bank or the Agent hereunder or under any
Note (a "Payment"), or the amount of any such Tax is
increased, and as a result thereof the aggregate amount of
Taxes payable with respect to Payments to or for the account
of such Bank or the Agent is increased (the amount by which
such Taxes are increased as a result of such Change in Law
being herein called "Additional Tax"), the Borrower shall
indemnify such Bank or the Agent (as the case may be) for
such Additional Tax and otherwise make payments in respect
thereof as provided in this Section 8.04. As used herein,
the term "Tax" means any tax, duty, levy, import, deduction,
charge or withholding, or any liability with respect
thereto, excluding, in the case of each Bank and the Agent,
taxes imposed on its income, and franchise taxes imposed on
it, by the jurisdiction under the laws of which such Bank or
the Agent (as the case may be) is organized or managed or
any political subdivision thereof and, in the case of each
Bank, taxes imposed on its income, and franchise or similar
taxes imposed on it, by the jurisdiction of such Bank's
Applicable Lending Office or any political subdivision
thereof.
(b) To the extent permitted by applicable law,
the Borrower shall make all Payments free and clear of, and
without deduction for, Taxes. If the Borrower shall be
required by applicable law to deduct any Taxes from or in
respect of any Payment to any Bank or the Agent, (i) the sum
payable shall be increased as necessary so that after making
all required deductions (including deductions applicable to
additional sums payable under this Section 8.04) such Bank
or the Agent (as the case may be) receives an amount equal
to the sum it would have received had no such deductions
been made with respect to any Additional Taxes, (ii) the
Borrower shall make all deductions required by applicable
law, (iii) the Borrower shall pay the full amount deducted
to the relevant taxation authority or other authority in
accordance with applicable law and (iv) the Borrower shall
furnish to the Agent, at its address referred to in Section
9.01, the original or a certified copy of a receipt
evidencing payment thereof.
(c) In addition, the Borrower agrees to pay any
present or future stamp or documentary taxes and any other
excise or property taxes, or charges or similar levies which
arise from any payment made hereunder or under any Note or
from the execution or delivery of, or otherwise with respect
to, this Agreement or any Note (hereinafter referred to as
"Other Taxes").
<PAGE>
<PAGE>63
(d) The Borrower agrees to indemnify each Bank
and the Agent for the full amount of Additional Taxes or
Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section 8.04) paid by such Bank
or the Agent (as the case may be) and any liability
(including penalties, additions to tax, interest and
expenses) arising therefrom or with respect thereto. This
indemnification shall be made within 30 days from the date
such Bank or the Agent (as the case may be) makes demand
therefor.
(e) Each Bank organized under the laws of a
jurisdiction outside the United States, on or prior to the
date of its execution and delivery of this Agreement in the
case of each Bank listed on the signature pages hereof and
on or prior to the date on which it becomes a Bank in the
case of each other Bank, and from time to time thereafter if
requested in writing by the Borrower or the Agent (but only
so long as such Bank remains lawfully able to do so), shall
provide each of the Borrower and the Agent with Internal
Revenue Service form 1001 or 4224 and form W-8 or W-9, as
appropriate, or any successor forms prescribed by the
Internal Revenue Service, certifying that such Bank is
entitled to benefits under an income tax treaty to which the
United States is a party which reduces the rate of
withholding tax on payments of interest or certifying that
the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or
business in the United States.
(f) For any period with respect to which a Bank
has failed to provide the Borrower with the appropriate form
pursuant to Section 8.04(e) (unless such form can no longer
be provided due to a Change in Law after the date on which a
form originally was required to be provided by such Bank),
such Bank shall not, except to the extent that such failure
can be cured without prejudice to the Borrower, be entitled
to indemnification under Section 8.04(a) with respect to
Taxes imposed by the United States; provided that should a
Bank which is otherwise exempt from or subject to a reduced
rate of withholding tax, become subject to Taxes because of
its failure to deliver a form required hereunder, the
Borrower shall take such steps as such Bank shall reasonably
request to assist such Bank to recover such Taxes.
(g) If the Borrower is required to pay additional
amounts to or for the account of any Bank pursuant to this
Section 8.04, then such Bank will change the jurisdiction of
its Applicable Lending Office so as to eliminate or reduce
any such additional payment which may thereafter accrue if <PAGE>
<PAGE>64
such change, in the judgment of such Bank, is not otherwise
disadvantageous to such Bank.
SECTION 8.05. Base Rate Loans Substituted for
Affected Fixed Rate Loans. (a) If (i) the obligation of
any Bank to make Euro-Dollar Loans has been suspended
pursuant to Section 8.02 or (ii) any Bank has demanded
compensation under Section 8.03(a) or 8.04 with respect to
its CD Loans or Euro-Dollar Loans and the Borrower shall, by
at least five Euro-Dollar Business Days' prior notice to
such Bank through the Agent, have elected that the provi-
sions of this Section 8.05(a) shall apply to such Bank,
then, unless and until such Bank notifies the Borrower that
the circumstances giving rise to such suspension or demand
for compensation no longer apply:
(x) all Loans which would otherwise be made by
such Bank as CD Loans or Euro-Dollar Loans, as the case
may be, shall be made instead as Base Rate Loans (on
which interest and principal shall be payable
contemporaneously with the related Fixed Rate Loans of
the other Banks), and
(y) after each of its CD Loans or Euro-Dollar
Loans, as the case may be, has been repaid, all
payments of principal which would otherwise be applied
to repay such Fixed Rate Loans shall be applied to
repay its Base Rate Loans instead.
(b) If (i) any Bank has demanded compensation
under Section 8.03 with respect to its CD Loans or Euro-
Dollar Loans or (ii) the Borrower has become obligated to
pay any Taxes or other amounts to or for the account of any
Bank pursuant to Section 8.04, and the Borrower shall, by at
least five Euro-Dollar Business Days' prior notice to the
Banks through the Agent, have elected that the provisions of
this Section 8.05(b) shall apply to all of the Banks, then
the Borrower shall, on the fifth Euro-Dollar Business Day
following such notice, prepay in full the then outstanding
principal amount of each outstanding Euro-Dollar Loan or CD
Loan, as the case may be, of each Bank, together with
accrued interest thereon.
SECTION 8.06. Substitution of Bank. If (i) the
obligation of any Bank to make Euro-Dollar Loans has been
suspended pursuant to Section 8.02 or (ii) any Bank has
given notice of an event entitling such Bank (or its Parent)
to compensation under Section 8.03 or 8.04, the Borrower
shall have the right, with the assistance of the Agent, to
seek a mutually satisfactory substitute bank or banks (which
may be one or more of the Banks) to purchase the Note and
assume the Commitment of such Bank.
<PAGE>
<PAGE>65
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and
other communications to any party hereunder shall be in
writing (including bank wire, telex, facsimile transmission
or similar writing) and shall be given to such party: (x)
in the case of the Borrower or the Agent, at its address,
facsimile number or telex number set forth on the signature
pages hereof, (y) in the case of any Bank, at its address,
facsimile number or telex number set forth in its
Administrative Questionnaire or (z) in the case of any
party, at such other address, facsimile number or telex
number as such party may hereafter specify for the purpose
by notice to the Agent and the Borrower. Each such notice,
request or other communication shall be effective (i) if
given by telex, when such telex is transmitted to the telex
number specified in this Section and the appropriate
answerback is received, (ii) if given by mail, three
Domestic Business Days after such communication is deposited
in the mails with first class postage prepaid, addressed as
aforesaid, (iii) if given by facsimile transmission, when
such facsimile is transmitted to the facsimile number
specified in or pursuant to this Section and the sender
thereof requests and receives confirmation of transmission
or (iv) if given by any other means, when delivered at the
address specified in this Section; provided that notices to
the Agent under Article II or Article VIII shall not be
effective until received.
SECTION 9.02. No Waivers. No failure or delay by
the Agent or any Bank in exercising any right, power or
privilege hereunder or under any Note shall operate as a
waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The
rights and remedies provided herein shall be cumulative and
not exclusive of any rights or remedies provided by law.
SECTION 9.03. Expenses; Indemnification. (a)
The Borrower shall pay (i) all reasonable out-of-pocket
expenses of the Agent, including fees and disbursements of
one firm of special counsel for the Agent, in connection
with the preparation of this Agreement, any waiver or
consent hereunder or any amendment hereof or any Default or
any event or condition reasonably alleged by any Bank to be
a possible Default hereunder and (ii) if an Event of Default
occurs, all reasonable out-of-pocket expenses incurred by
the Agent or any Bank, including fees and disbursements of <PAGE>
<PAGE>66
counsel (including allocated costs of internal counsel and
disbursements of internal counsel), in connection with such
Event of Default and collection, bankruptcy, insolvency and
other enforcement proceedings resulting therefrom.
(b) The Borrower shall indemnify the Agent and
each Bank, their respective affiliates and the respective
directors, officers, agents and employees of the foregoing
(each an "Indemnitee") and hold each Indemnitee harmless
from and against any and all liabilities, losses, damages,
costs and expenses of any kind (including, without
limitation, the reasonable fees and disbursements of counsel
for any Bank (including allocated costs of internal counsel
and disbursements of internal counsel) and settlement costs
in connection with any investigative, administrative or
judicial proceeding, whether or not such Indemnitee shall be
designated a party thereto), relating to or arising out of
any actual or proposed use of proceeds of Loans hereunder
for the purpose of acquiring equity securities of any other
Person; provided that (i) no Indemnitee shall have the right
to be indemnified hereunder for such Indemnitee's own gross
negligence or willful misconduct as finally determined by a
court of competent jurisdiction and (ii) the Borrower shall
not be liable for any settlement of any such proceeding
effected without its consent, which consent shall not be
unreasonably withheld.
(c) If any proceeding shall be brought or, to the
knowledge of any Indemnitee threatened, against such
Indemnitee by reason of or in connection with which such
Indemnitee may claim indemnification pursuant to this
Section 9.03, such Indemnitee shall promptly notify the
Borrower thereof in writing. Such Indemnitee shall have the
right to employ its own counsel and to determine its own
defense in such proceeding, but the reasonable fees and
expenses thereof (including allocated costs of internal
counsel and disbursements of internal counsel) shall be paid
by the Borrower. Nothing in this Section 9.03 is intended
to limit the obligations of the Borrower under any other
provision of this Agreement.
SECTION 9.04. Sharing of Set-Offs. Each Bank
agrees that if it shall, by exercising any right of set-off
or counterclaim or otherwise, receive (i) payment of a
proportion of the aggregate amount of principal and interest
due with respect to any Note held by it which is greater
than the proportion received by any other Bank in respect of
the aggregate amount of principal and interest due with
respect to any Note held by such other Bank, the Bank
receiving such proportionately greater payment shall
purchase such participations in the Notes held by the other
Banks, and such other adjustments shall be made, as may be <PAGE>
<PAGE>67
required so that all such payments of principal and interest
with respect to the Notes held by the Banks shall be shared
by the Banks pro rata; provided that nothing in this Section
shall impair the right of any Bank to exercise any right of
set-off or counterclaim it may have and to apply the amount
subject to such exercise to the payment of indebtedness of
the Borrower other than its indebtedness under the Notes.
The Borrower agrees, to the fullest extent it may effec-
tively do so under applicable law, that any holder of a
participation in a Note, whether or not acquired pursuant to
the foregoing arrangements, may exercise rights of set-off
or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation
were a direct creditor of the Borrower in the amount of such
participation.
SECTION 9.05. Amendments and Waivers. Any
provision of this Agreement or the Notes may be amended or
waived if, but only if, such amendment or waiver is in
writing and is signed by the Borrower and the Required Banks
(and, if the rights or duties of the Agent are affected
thereby, by the Agent); provided that no such amendment or
waiver shall, unless signed by all the Banks, (i) increase
or decrease the Commitment of any Bank (except for a ratable
decrease in the Commitments of all Banks) or subject any
Bank to any additional obligation, (ii) reduce the principal
of or rate of interest on any Loan or any fees hereunder,
(iii) postpone the date fixed for any payment of principal
of or interest on any Loan or any fees hereunder or for the
termination of any Commitment or (iv) change the percentage
of the Commitments or of the aggregate unpaid principal
amount of the Loans, or the number of Banks, which shall be
required for the Banks or any of them to take any action
under this Section or any other provision of this Agreement.
SECTION 9.06. Successors and Assigns. (a) The
provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective
successors and assigns, except that the Borrower shall not
assign or otherwise transfer any of its rights under this
Agreement (except pursuant to a merger permitted by Section
5.05 for the purpose of reincorporating the Borrower in the
State of Oregon) without the prior written consent of all
the Banks.
(b) Any Bank may at any time grant to one or more
banks or other institutions (each a "Participant") partici-
pating interests in its Commitment or any or all of its
Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon
notice to the Borrower and the Agent, such Bank shall remain
responsible for the performance of its obligations <PAGE>
<PAGE>68
hereunder, and the Borrower and the Agent shall continue to
deal solely and directly with such Bank in connection with
such Bank's rights and obligations under this Agreement.
Any agreement pursuant to which any Bank may grant such a
participating interest shall provide that such Bank shall
retain the sole right and responsibility to enforce the
obligations of the Borrower under this Agreement including,
without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement;
provided that such participation agreement may provide that
such Bank will not agree to any amendment, modification or
waiver of this Agreement described in clause (i), (ii) or
(iii) of Section 9.05 without the consent of the
Participant. Promptly after any Bank grants any such
participating interest (except a participating interest in
one or more Money Market Loans), such Bank shall inform the
Borrower of the identity of the Participant and the amount
of such participating interest. The Borrower agrees that
each Participant shall, to the extent provided in its
participation agreement, be entitled to the benefits of
Article VIII with respect to its participating interest. An
assignment or other transfer which is not permitted by
subsection (c) or (d) below shall be given effect for
purposes of this Agreement only to the extent of a
participating interest granted in accordance with this
subsection (b).
(c) Any Bank may at any time assign to one or
more banks or other institutions (each an "Assignee") all,
or a proportionate part of all, of its rights and
obligations under this Agreement and the Notes, and such
Assignee shall assume such rights and obligations, pursuant
to an Assignment and Assumption Agreement in substantially
the form of Exhibit E hereto (an "Assignment and Assumption
Agreement") executed by such Assignee and such transferor
Bank, with (and subject to) the subscribed consent of the
Borrower and the Agent (which consents shall not be
unreasonably withheld); provided that (i) if an Assignee is
another Bank or is an Affiliate of such transferor Bank, no
such consent shall be required and (ii) any such assignment
may, but need not, exclude rights of the transferor Bank in
respect of outstanding Money Market Loans. No assignment of
a proportionate part of the rights and obligations of a Bank
under this Agreement and the Notes may be made unless the
"Assigned Amount" set forth in the related Assignment and
Assumption Agreement equals or exceeds $5,000,000. Upon
execution and delivery of an Assignment and Assumption
Agreement and payment by such Assignee to such transferor
Bank of an amount equal to the purchase price agreed between
such transferor Bank and such Assignee, such Assignee shall
be a Bank party to this Agreement and shall have all the
rights and obligations of a Bank with a Commitment as set <PAGE>
<PAGE>69
forth in such Assignment and Assumption Agreement, and the
transferor Bank shall be released from its obligations
hereunder to a corresponding extent, and no further consent
or action by any party shall be required. Upon the
consummation of any assignment pursuant to this subsection
(c), the transferor Bank, the Agent and the Borrower shall
make appropriate arrangements so that, if required, a new
Note is issued to the Assignee. In connection with any such
assignment, the transferor Bank shall pay to the Agent an
administrative fee for processing such assignment in the
amount of $2,500. If the Assignee is not incorporated under
the laws of the United States of America or a state thereof,
it shall deliver to the Borrower and the Agent certification
as to whether and to what extent it is exempt from deduction
or withholding of United States federal income taxes, as
required by Section 8.04.
(d) Any Bank may at any time assign all or any
portion of its rights under this Agreement and its Note to a
Federal Reserve Bank. No such assignment shall release the
transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee
of any Bank's rights shall be entitled to receive any
greater payment under Section 8.03 or 8.04 than such Bank
would have been entitled to receive with respect to the
rights transferred, unless such transfer is made with the
Borrower's prior written consent or by reason of the
provisions of Section 8.02, 8.03 or 8.04 requiring such Bank
to designate a different Applicable Lending Office under
certain circumstances or at a time when the circumstances
giving rise to such greater payment did not exist.
(f) If any Reference Bank assigns its Note to an
unaffiliated institution, the Agent shall, with the consent
of the Borrower and the Required Banks, appoint another Bank
to act as a Reference Bank hereunder.
SECTION 9.07. Confidentiality. Each of the Agent
and the Banks agrees to exercise all reasonable efforts to
keep any proprietary or financial information delivered or
made available to it by the Borrower confidential from
anyone other than (x) the officers, directors and employees
of the Agent, any Bank or any of their respective Affiliates
who have a need to know such information in accordance with
customary banking practices and (y) agents of, or persons
retained by, the Agent or any Bank who are or are expected
to become engaged in evaluating, approving, structuring or
administering the Loans, and who, in the case of (x) and
(y), receive such information having been made aware of the
restrictions set forth in this Section; provided that
nothing herein shall prevent the Agent or any Bank from <PAGE>
<PAGE>70
disclosing such information (i) to the Agent or any Bank in
connection with the transactions contemplated by this
Agreement, (ii) upon the order of any court or
administrative agency or otherwise pursuant to subpoena or
similar procedure or in accordance with law, (iii) upon the
request or demand of any regulatory agency or authority
having jurisdiction over the Agent or any Bank, (iv) which
has been publicly disclosed, (v) to the extent reasonably
required in connection with any litigation to which the
Agent, any Bank or their respective Affiliates may be a
party, (vi) to the Agent's or any Bank's legal counsel and
independent auditors, (vii) to any actual or proposed
Participant or Assignee of all or part of such Bank's rights
hereunder which has agreed in writing to be bound by the
provisions of this Section 9.07, (viii) in connection with
the exercise of any remedy hereunder or (ix) with the prior
written consent of the Borrower. The Agent and each Bank
shall attempt in good faith, to the extent permitted by
applicable law, (i) to notify the Borrower of any disclosure
of such information referred to in clause (ii) of the
preceding sentence and (ii) upon a reasonable and timely
request by the Borrower, apply (at the Borrower's expense)
for an appropriate protective order to preserve the
confidentiality of such information or limit the disclosure
thereof.
SECTION 9.08. Governing Law; Submission to
Jurisdiction. This Agreement and each Note shall be
governed by and construed in accordance with the laws of the
State of New York. The Borrower hereby submits to the
nonexclusive jurisdiction of the United States District
Court for the Southern District of New York and of any New
York State court sitting in New York City for purposes of
all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. The
Borrower irrevocably waives, to the fullest extent permitted
by law, any objection which it may now or hereafter have to
the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought
in such a court has been brought in an inconvenient forum.
SECTION 9.09. Counterparts; Integration. This
Agreement may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement
and understanding among the parties hereto and supersedes
any and all prior agreements and understandings, oral or
written, relating to the subject matter hereof.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the undersigned parties hereto
have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first
above written.
PACIFICORP HOLDINGS, INC.
By W.E. PERESSINI
-------------------------------
Name:
Title:
700 N.E. Multnomah, Suite 1600
Portland, Oregon 97232-4116
Facsimile number: 503-731-2092
Commitments
-----------
$29,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By CARL J. MEHLDAU, JR.
-------------------------------
Name: Carl J. Mehldau, Jr.
Title: Associate
$29,000,000 ABN AMRO BANK N.V.
SEATTLE BRANCH
By LEIF W. OLSSON
-------------------------------
Name: Leif W. Olsson
Title: Group Vice President
By J.J. RICE
-------------------------------
Name: J.J. Rice
Title: Vice President
$29,000,000 CIBC INC.
By PETER SAGGAN
-------------------------------
Name: Peter Saggan
Title: VP<PAGE>
<PAGE>
$29,000,000 FIRST INTERSTATE BANK
OF OREGON, N.A.
By
-------------------------------
Name:
Title:
$29,000,000 UNITED STATES NATIONAL BANK
OF OREGON
By JANICE T. THEDE
-------------------------------
Name: Janice T. Thede
Title: Vice President
$17,500,000 THE BANK OF NEW YORK
By DANIEL T. GATES
-------------------------------
Name: Daniel T. Gates
Title: Vice President
$17,500,000 CREDIT SUISSE
By DAVID J. WORTHINGTON
-------------------------------
Name: David J. Worthington
Title: Member of Senior
Management
By MARILOU PALENZUELA
-------------------------------
Name: Marilou Palenzuela
Title: Member of Senior
Management
$17,500,000 THE FUJI BANK, LIMITED
By KAZUO KAMIO
-------------------------------
Name: Kazuo Kamio
Title: General Manager,
San Francisco Office<PAGE>
<PAGE>
$17,500,000 THE INDUSTRIAL BANK OF JAPAN,
LIMITED, SAN FRANCISCO AGENCY
By YOH NAKAHARA
-------------------------------
Name: Yoh Nakahara
Title: General Manager
$15,000,000 BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By STEVEN F. STERLING
-------------------------------
Name: Steven F. Sterling
Title: Vice President
$15,000,000 BANK OF HAWAII
By MARCY E. FLEMING
-------------------------------
Name: Marcy E. Fleming
Title: Vice President
$15,000,000 THE BANK OF NOVA SCOTIA
By ERRETT E. HUMMEL
-------------------------------
Name: Errett E. Hummel
Title: Relationship Manager
$15,000,000 THE BANK OF TOKYO, LTD.,
PORTLAND BRANCH
By M.W. KRINGLEN
-------------------------------
Name: M.W. Kringlen
Title: Vice President
<PAGE>
<PAGE>
$15,000,000 CHEMICAL BANK
By JOHN F. GEHEBE
-------------------------------
Name: John F. Gehebe
Title: Assistant Vice President
$15,000,000 CITIBANK, N.A.
By ANITA J. BRICKELL
-------------------------------
Name: Anita J. Brickell
Title: Vice President
$15,000,000 THE LONG-TERM CREDIT BANK
OF JAPAN, LTD.
By MIKE THIEME
-------------------------------
Name: Mike Thieme
Title: Deputy General Manager
$15,000,000 NATIONAL WESTMINSTER BANK PLC
By MICHAEL E. KEATING
-------------------------------
Name: Michael E. Keating
Title: Vice President
$15,000,000 THE SUMITOMO BANK, LIMITED
By HIROSHI AMANO
-------------------------------
Name: Hiroshi Amano
Title: General Manager
Total Commitments
------------
$350,000,000
============<PAGE>
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By CARL J. MEHLDAU, JR.
-------------------------------
Name: Carl J. Mehldau, Jr.
Title: Associate
60 Wall Street
New York, New York 10260
Attention: Loan Department
Telex number: 177615
<PAGE>
<PAGE>
PRICING SCHEDULE
Each of the terms "Euro-Dollar Margin", "CD
Margin", "Commitment Fee Rate" and "Facility Fee Rate"
means, for any day, the rate per annum set forth below in
the row opposite such term and in the column corresponding
to the Pricing Level that applies on such day:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Pricing Level Level I Level II Level III Level IV Level V
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CD Margin 0.3500% 0.4000% 0.4250% 0.4750% 0.6875%
--------------------------------------------------------------------
Euro-Dollar 0.2250% 0.2750% 0.3000% 0.3500% 0.5625%
Margin
--------------------------------------------------------------------
Commitment Fee 0% 0.0250% 0.0250% 0.0250% 0.0625%
Rate
--------------------------------------------------------------------
Facility Fee
Rate 0.1000% 0.1000% 0.1250% 0.1500% 0.1875%
--------------------------------------------------------------------
</TABLE>
For purposes of this Pricing Schedule, the following
terms have the following meanings:
"Debt Rating" means a credit rating assigned by a Rating
Agency to the senior unsecured long-term debt securities of the
Borrower without third-party credit enhancement. For purposes of
this Pricing Schedule, any rating assigned to any other debt
security of the Borrower shall be disregarded. The Debt Rating
in effect on any day is that in effect at the close of business
on such day. If a Rating Agency shall have changed its system of
classifications after April 27, 1995, the requirement that the
Debt Rating be at or above the specified levels set forth in this
Pricing Schedule will be met if the Debt Rating by such Rating
Agency is at or above the new rating which most closely
corresponds to the specified level under the old rating system.
"Pricing Level" refers to the determination of which
Pricing Level I, Pricing Level II, Pricing Level III, Pricing
Level IV or Pricing Level V applies on any day.
"Pricing Level I" applies on any day if, on such day, the
Borrower has a Debt Rating of A- or higher by S&P and A3 or
higher by Moody's.
"Pricing Level II" applies on any day if, on such day,
(i) the Borrower has a Debt Rating of BBB+ or higher by S&P and <PAGE>
<PAGE>2
Baa1 or higher by Moody's and (ii) Pricing Level I does not
apply.
"Pricing Level III" applies on any day if, on such day,
(i) the Borrower has a Debt Rating of BBB or higher by S&P and
Baa2 or higher by Moody's and (ii) neither Pricing Level I nor
Pricing Level II applies.
"Pricing Level IV" applies on any day if, on such day,
(i) the Borrower has a Debt Rating of BBB- or higher by S&P and
Baa3 or higher by Moody's and (ii) none of Pricing Level I,
Pricing Level II and Pricing Level III applies.
"Pricing Level V" applies on any day if, on such day, no
other Pricing Level applies.
<PAGE>
<PAGE>A-1
EXHIBIT A
NOTE
New York, New York
__________, 199_
For value received, PACIFICORP HOLDINGS, INC., a Delaware
corporation (the "Borrower"), promises to pay to the order of
__________ (the "Bank"), for the account of its Applicable
Lending Office, the unpaid principal amount of each Loan made by
the Bank to the Borrower pursuant to the Credit Agreement
referred to below on the last day of the Interest Period relating
to such Loan. The Borrower promises to pay interest on the
unpaid principal amount of each such Loan on the dates and at the
rate or rates provided for in the Credit Agreement. All such
payments of principal and interest shall be made in lawful money
of the United States in Federal or other immediately available
funds at the office of Morgan Guaranty Trust Company of New York,
60 Wall Street, New York, New York.
All Loans made by the Bank, the respective types and
maturities thereof and all repayments of the principal thereof
shall be recorded by the Bank and, if the Bank so elects in
connection with any transfer or enforcement hereof, appropriate
notations to evidence the foregoing information with respect to
each such Loan then outstanding may be endorsed by the Bank on
the schedule attached hereto, or on a continuation of such
schedule attached to and made a part hereof; provided that the
failure of the Bank to make any such recordation or endorsement,
or any error in the making thereof, shall not affect the
obligations of the Borrower hereunder or under the Credit
Agreement.
This note is one of the Notes referred to in the Credit
Agreement dated as of April 27, 1995 among the Borrower, the
banks party thereto and Morgan Guaranty Trust Company of New
York, as Agent (as the same may be amended from time to time, the
"Credit Agreement"). Terms defined in the Credit Agreement are
used herein with the same meanings. Reference is made to the
Credit Agreement for provisions for the prepayment hereof and the
acceleration of the maturity hereof.<PAGE>
<PAGE>A-2
PACIFICORP HOLDINGS, INC.
By
---------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE>
Note (Con't)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Amount of
Amount Type Principal Maturity Notation
Date of Loan of Loan Repaid Date Made By
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
/TABLE
<PAGE>
<PAGE>B-1
EXHIBIT B
Form of Money Market Quote Request
[Date]
To: Morgan Guaranty Trust Company of New York
(the "Agent")
From: PacifiCorp Holdings, Inc.
Re: Credit Agreement (the "Credit Agreement") dated as
of April 27, 1995 among the Borrower, the Banks
party thereto and the Agent
We hereby give notice pursuant to Section 2.03 of
the Credit Agreement that we request Money Market Quotes for
the following proposed Money Market Borrowing(s):
Date of Borrowing: __________________
Principal Amount* Interest Period**
$
Such Money Market Quotes should offer a Money Market
[Margin] [Absolute Rate]. [The applicable base rate is the
London Interbank Offered Rate.]
Terms used herein have the meanings assigned to them
in the Credit Agreement.
PACIFICORP HOLDINGS, INC.
By _____________________________
Title:
---------------
*Amount must be $10,000,000 or a larger integral multiple
of $1,000,000.
**Not less than 7 days (LIBOR Auction or Absolute Rate
Auction), subject to the provisions of the definition of
Interest Period.<PAGE>
<PAGE>C-1
EXHIBIT C
Form of Invitation for Money Market Quotes
To: [Name of Bank]
Re: Invitation for Money Market Quotes to PacifiCorp
Holdings, Inc. (the "Borrower")
Pursuant to Section 2.03 of the Credit Agreement
dated as of April 27, 1995 among the Borrower, the Banks
party thereto and the undersigned, as Agent, we are pleased
on behalf of the Borrower to invite you to submit Money
Market Quotes to the Borrower for the following proposed
Money Market Borrowing(s):
Date of Borrowing: __________________
Principal Amount Interest Period
$
Such Money Market Quotes should offer a Money
Market [Margin] [Absolute Rate]. [The applicable base rate
is the London Interbank Offered Rate.]
Please respond to this invitation by no later than
[2:00 P.M.] [9:30 A.M.] (New York City time) on [date].
The Borrower may accept your Quotes until (but not
after) [12:00 Noon] [10:30 A.M.] (New York City time) on
[date].
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By __________________________
Authorized Officer
<PAGE>
<PAGE>D-1
EXHIBIT D
Form of Money Market Quote
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
60 Wall Street
New York, New York 10260
Attention:
Re: Money Market Quote to PacifiCorp Holdings, Inc.
(the "Borrower")
In response to your invitation on behalf of the
Borrower dated _____________, 19__, we hereby make the
following Money Market Quote on the following terms:
1. Quoting Bank: ________________________________
2. Person to contact at Quoting Bank:
_____________________________
3. Date of Borrowing: ____________________*
4. We hereby offer to make Money Market Loan(s) in the
following principal amounts, for the following Interest
Periods and at the following rates:
---------------
* As specified in the related Invitation.<PAGE>
<PAGE>D-2
Principal Interest Money Market [Absolute
Amount* Period** [Margin***] Rate****]
$
$
$
[Provided that the aggregate principal amount of Money Market
Loans for which the above offers may be accepted shall not
exceed $ .]**
We understand and agree that the offer(s) set forth
above, subject to the satisfaction of the applicable
conditions set forth in the Credit Agreement dated as of April
27, 1995 among the Borrower, the Banks party thereto and
yourselves, as Agent, irrevocably obligates us to make the
Money Market Loan(s) for which any offer(s) are accepted, in
whole or in part.
Very truly yours,
[NAME OF BANK]
Dated:_______________ By:__________________________
Authorized Officer
---------------
* Principal amount bid for each Interest Period may not
exceed principal amount requested. Bids must be made for
$1,000,000 or larger multiples of $1,000,000.
** Not less than 7 days (LIBOR Auction or Absolute Rate
Auction), as specified in the related Invitation. No more
than five bids are permitted for each Interest Period.
*** Margin over or under the London Interbank Offered
Rate determined for the applicable Interest Period. Specify
percentage (to the nearest 1/10,000 of 1%) and specify whether
"PLUS" or "MINUS".
**** Specify rate of interest per annum (rounded to the
nearest 1/10,000 of 1%).<PAGE>
<PAGE>E-1
EXHIBIT E
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _________, 19__ among
[ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee"),
PACIFICORP HOLDINGS, INC. (the "Borrower"), and MORGAN
GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent").
W I T N E S E T H
WHEREAS, this Assignment and Assumption Agreement
(the "Agreement") relates to the Credit Agreement dated as
of April 27, 1995 among the Borrower, the Assignor and the
other Banks party thereto, as Banks, and the Agent (the
"Credit Agreement");
WHEREAS, as provided under the Credit Agreement,
the Assignor has a Commitment to make Loans to the Borrower
up to an aggregate principal amount at any time outstanding
not to exceed $__________;
WHEREAS, Committed Loans made to the Borrower by
the Assignor under the Credit Agreement are outstanding on
the date hereof in the aggregate principal amount of
$________; and
WHEREAS, the Assignor proposes to assign to the
Assignee all of the rights of the Assignor under the Credit
Agreement in respect of a portion of its Commitment
thereunder in an amount equal to $__________ (the "Assigned
Amount"), together with a corresponding portion of its
outstanding Committed Loans, and the Assignee proposes to
accept assignment of such rights and assume the correspond-
ing obligations from the Assignor on such terms;
NOW, THEREFORE, in consideration of the foregoing
and the mutual agreements contained herein, the parties
hereto agree as follows:
SECTION 1. Definitions. All capitalized terms not
otherwise defined herein have the respective meanings set
forth in the Credit Agreement.<PAGE>
<PAGE>E-2
SECTION 2. Assignment. The Assignor hereby
assigns and sells to the Assignee all of the rights of the
Assignor under the Credit Agreement to the extent of the
Assigned Amount, and the Assignee hereby accepts such
assignment from the Assignor and assumes all of the
obligations of the Assignor under the Credit Agreement to
the extent of the Assigned Amount, including the purchase
from the Assignor of the corresponding portion of the
principal amount of each of the Committed Loans made by the
Assignor outstanding at the date hereof. Upon the execution
and delivery hereof by the Assignor, the Assignee, the
Borrower and the Agent and the payment of the amounts
specified in Section 3 required to be paid on the date
hereof (i) the Assignee shall, as of the date hereof,
succeed to the rights and be obligated to perform the
obligations of a Bank under the Credit Agreement with a
Commitment in an amount equal to the Assigned Amount,
holding Committed Loans in amounts corresponding to the
Assigned Amount, and (ii) the Commitment and Committed Loans
of the Assignor shall, as of the date hereof, be reduced by
a like amount and the Assignor released from its obligations
under the Credit Agreement to the extent such obligations
have been assumed by the Assignee. The assignment provided
for herein shall be without recourse to the Assignor.
SECTION 3. Payments. As consideration for the
assignment and sale contemplated in Section 2 hereof, the
Assignee shall pay to the Assignor on the date hereof in
Federal funds the amount heretofore agreed between them.*
It is understood that commitment and/or facility fees
accrued with respect to the Assigned Amount (or the unused
portion thereof) to the date hereof are for the account of
the Assignor and such fees accruing from and including the
date hereof are for the account of the Assignee. Each of
the Assignor and the Assignee hereby agrees that if it
receives any amount under the Credit Agreement which is for
the account of the other party hereto, it shall receive the
same for the account of such other party to the extent of
such other party's interest therein and shall promptly pay
the same to such other party.
SECTION 4. Consent of the Borrower and the
Agent. This Agreement is conditioned upon the consent of
the Borrower and the Agent pursuant to Section 9.06(c) of
---------------
* Amount should combine principal together with accrued
interest and breakage compensation, if any, to be paid by
the Assignee, net of any portion of any upfront fee to be
paid by the Assignor to the Assignee.<PAGE>
<PAGE>E-3
the Credit Agreement. The execution of this Agreement by
the Borrower and the Agent is evidence of this consent.
Pursuant to Section 9.06(c) of the Credit Agreement, the
Borrower agrees to execute and deliver a Note payable to the
order of the Assignee to evidence the assignment and
assumption provided for herein.
SECTION 5. Non-Reliance on Assignor. The
Assignor makes no representation or warranty in connection
with, and shall have no responsibility with respect to, the
solvency, financial condition, or statements of the
Borrower, or the validity and enforceability of the
obligations of the Borrower under the Credit Agreement or
any Note. The Assignee acknowledges that it has,
independently and without reliance on the Assignor, and
based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to
enter into this Agreement and will continue to be
responsible for making its own independent appraisal of the
business, affairs and financial condition of the Borrower.
SECTION 6. Governing Law. This Agreement shall
be governed by and construed in accordance with the laws of
the State of New York.
SECTION 7. Counterparts. This Agreement may be
signed in any number of counterparts, each of which shall be
an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed and delivered by their duly
authorized officers as of the date first above written.
[ASSIGNOR]
By_________________________
Title:
[ASSIGNEE]
By__________________________
Title:
<PAGE>
<PAGE>E-4
PACIFICORP HOLDINGS, INC.
By__________________________
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, AS AGENT
By__________________________
Title:
<PAGE>
<PAGE>F-1
EXHIBIT F
OPINION OF
COUNSEL FOR THE BORROWER
_________ __, 1995
To the Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have acted as counsel for PacifiCorp Holdings,
Inc. (the "Borrower") in connection with the Credit
Agreement dated as of April 27, 1995 (the "Credit
Agreement") among the Borrower, the banks listed on the
signature pages thereof and Morgan Guaranty Trust Company of
New York, as Agent. Capitalized terms used herein have the
respective meanings set forth in the Credit Agreement unless
otherwise defined herein.
This opinion is furnished to you pursuant to
Section 3.02(e) of the Credit Agreement. In connection with
this opinion, we have examined and are familiar with (a) the
Credit Agreement and (b) the certificates of incorporation
and bylaws of the Borrower and PCI. We have also examined
or caused to be examined such corporate documents and
records of the Borrower and PCI and such certificates of
public officials and other documents and have satisfied
ourselves as to such other matters as we have deemed
necessary in order to render this opinion.
In rendering this opinion, we have assumed the
genuineness of all signatures, the authenticity of all
documents provided to us as originals, and the conformity to
authentic original documents of all documents provided to us
as certified, conformed or photostatic copies. As to
questions of fact material to the following opinions, when
relevant facts were not independently established, we have
relied upon representations of the Borrower within the
Credit Agreement, certificates of officers and representa-
tives of the Borrower and its Subsidiaries and certificates
of public officials.
<PAGE>
<PAGE>F-2
Based upon the foregoing and subject to the
qualifications below, we are of the opinion that:
(i) The Borrower is a corporation duly
incorporated, validly existing and in good standing
under the laws of Delaware, and has all corporate
powers required to own its properties and to carry on
its business as now conducted.
(ii) PCI is a corporation duly incorporated and
validly existing under the laws of Oregon.
(iii) The execution and delivery by the Borrower of
the Credit Agreement and the Notes and the performance
by the Borrower of its obligations thereunder are
within the Borrower's corporate powers and have been
duly authorized by all necessary corporate action. The
Credit Agreement and the Notes have been duly executed
and delivered by the Borrower. No registration,
recordation or filing with or consent, approval or
other action by any regulatory or other governmental
body, agency or official is required in connection with
the execution or delivery of the Credit Agreement and
the Notes by the Borrower or is necessary for the
validity or enforceability thereof, and the execution,
delivery, performance and enforcement of the Credit
Agreement and the Notes do not and will not contravene,
or constitute a default under, any provision of (a)
applicable law or regulation, (b) the certificate of
incorporation or by-laws of the Borrower as currently
in effect, or (c) to the best of our knowledge after
due inquiry, any existing agreement, judgment,
injunction, order, decree or other instrument binding
upon the Borrower or, to the best of our knowledge
after due inquiry, result in the creation or imposition
of any Lien upon any asset of the Borrower or any of
its Subsidiaries.
(iv) The execution and delivery by PCI of the
Spring Creek Participation Agreement and the
performance by PCI of its obligations thereunder are
within PCI's corporate powers and have been duly
authorized by all necessary corporate action. The
Spring Creek Participation Agreement has been duly
executed and delivered by PCI. No registration,
recordation or filing with or consent, approval or
other action by any regulatory or other governmental
body, agency or official is required in connection with
the execution or delivery of the Spring Creek
Participation Agreement by PCI or is necessary for the
validity or enforceability thereof.<PAGE>
<PAGE>F-3
(v) The Credit Agreement constitutes a valid and
binding agreement of the Borrower, the Notes constitute
valid and binding obligations of the Borrower and the
Spring Creek Participation Agreement constitutes a
valid and binding agreement of PCI, all enforceable in
accordance with their respective terms, except as the
foregoing may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, or
other similar laws affecting the rights of creditors
generally and by general principles of equity,
including those limiting the availability of specific
performance, injunctive relief and other equitable
remedies and those that may under some circumstances
provide for defenses based on lack of good faith,
fairness or reasonableness, regardless of whether
considered in a proceeding in equity or at law. We
also advise you that a court might not permit the
exercise of certain remedies provided for in Section
6.01 of the Credit Agreement if the court finds that
there has not been a material breach of a material
provision thereof.
(vi) Each of the First Tier Significant
Subsidiaries and PGC is a corporation validly existing
under the laws of its jurisdiction of incorporation.
(vii) To the best of our knowledge after due
investigation, except as disclosed in (i) PTI's annual
report on Form 10-K for 1994 and (ii) PFS' annual
report on Form 10-K for 1994, there is no action, suit
or proceeding pending against, or to the best of our
knowledge threatened against or affecting, the Borrower
or any of its Subsidiaries before any court or
arbitrator or any governmental body, agency or
official, in which there is a reasonable possibility of
an adverse decision which would materially and
adversely affect the ability of the Borrower to perform
its obligations under the Credit Agreement or which in
any manner draws into question the validity of the
Credit Agreement or the Notes.
The opinions herein expressed are limited to the
matters governed by the laws of the United States of America
and the State of Oregon and, as to the opinions expressed in
paragraphs (i) and (iii) above, the General Corporation Law
of the State of Delaware, and, as to the opinions expressed
in paragraph (vi) above, the Washington Business Corporation
Act, in each case as they exist at the date hereof, and we
express no opinion as to the law of any other jurisdiction.
In rendering the opinions set forth in paragraph (v) above,
we have assumed that the laws of the State of Oregon would
apply despite selection of New York law under Section 9.08<PAGE>
<PAGE>F-4
of the Credit Agreement. In making the foregoing assumption
we do not intend to imply that an Oregon court would not
give effect to such selection of New York law and we note
that, in a separate opinion being delivered to you today,
Davis Polk & Wardwell is expressing, under New York law,
substantially the same opinions with respect to the Borrower
as are set forth in paragraph (v) above.
In connection with the foregoing opinions, we have
reviewed the Spring Creek Coal Supply Contract. Such
contract provides that it is governed by the laws of the
State of Montana and, as indicated above, we are not
expressing any opinion (by implication in paragraph (v)
above or otherwise) as to Montana law. However, if such
contract were governed by the laws of the State of Oregon,
we believe that, while there is no controlling precedent
directly on point, an Oregon court would conclude, in a
properly presented case, that the execution, delivery and
performance of the Spring Creek Loan Documents and the
Spring Creek Participation Agreement do not and will not
contravene, or constitute a default under, any provision of
such contract.
In giving the foregoing opinions, we express no
opinions as to the effect (if any) of any law of any
jurisdiction in which any Bank is located which limits the
rate of interest that such Bank may charge or collect or as
to the enforceability of provisions in the Credit Agreement
providing for the payment of interest on overdue interest.
This opinion is addressed solely to you and is not
to be relied upon by any other person nor is it to be used,
circulated, quoted or otherwise referred to in connection
with any transaction other than those contemplated by the
Credit Agreement.
Very truly yours,
<PAGE>
<PAGE>G-1
EXHIBIT G
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE AGENT
_________ __, 1995
To the Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have participated in the preparation of the
Credit Agreement (the "Credit Agreement") dated as of April
27, 1995 among PacifiCorp Holdings, Inc., a Delaware
corporation (the "Borrower"), the banks listed on the
signature pages thereof (the "Banks") and Morgan Guaranty
Trust Company of New York, as Agent (the "Agent"), and have
acted as special counsel for the Agent for the purpose of
rendering this opinion pursuant to Section 3.02(f) of the
Credit Agreement. Terms defined in the Credit Agreement are
used herein as therein defined.
We have examined originals or copies, certified or
otherwise identified to our satisfaction, of such documents,
corporate records, certificates of public officials and
other instruments and have conducted such other investiga-
tions of fact and law as we have deemed necessary or
advisable for purposes of this opinion.
Upon the basis of the foregoing, we are of the
opinion that:
1. The execution, delivery and performance by the
Borrower of the Credit Agreement and the Notes are within
the Borrower's corporate powers and have been duly
authorized by all necessary corporate action.
2. The Credit Agreement constitutes a valid and
binding agreement of the Borrower and the Notes constitute
valid and binding obligations of the Borrower, enforceable
in accordance with their respective terms, except as the<PAGE>
<PAGE>G-2
foregoing may be limited by (a) bankruptcy, insolvency or
similar laws affecting creditor's rights generally and (b)
equitable principles of general applicability.
The opinions expressed herein are limited to
matters governed by the laws of the United States of America
and the State of New York, and the General Corporation Law
of the State of Delaware.
In giving the foregoing opinion, we express no
opinion as to the effect (if any) of any law of any
jurisdiction (except the State of New York) in which any
Bank is located which limits the rate of interest that such
Bank may charge or collect.
This opinion is rendered solely to you in
connection with the above matter. This opinion may not be
relied upon by you for any other purpose or relied upon by
any other person without our prior written consent.
Very truly yours,
<PAGE>
<PAGE>H-1
EXHIBIT H
SPECIAL TAX ALLOCATION AGREEMENT
<PAGE>1
EXHIBIT (b)(8)
PRESENTATION TO PACIFICORP BOARD OF DIRECTORS
-------------------------------------------------------------------------
COMPETITIVE RISKS FACING
PACIFIC TELECOM, INC. IN THE 90'S
November 17, 1993
EDGAR, DUNN & COMPANY<PAGE>
<PAGE>2
AGENDA
-------------------------------------------------------------------------
-- INTRODUCTION
-- EXTERNAL ENVIRONMENT
-- TECHNOLOGY OPTIONS AND COSTS
-- COMPETITIVE RISKS ASSESSMENT
-- CONCLUSIONS AND IMPLICATIONS<PAGE>
<PAGE>3
AGENDA
-------------------------------------------------------------------------
-- INTRODUCTION
-- External Environment
-- Technology Options and Costs
-- Competitive Risks Assessment
-- Conclusions and Implications<PAGE>
<PAGE>4
INTRODUCTION - BACKGROUND
-------------------------------------------------------------------------
WILL CHANGES IN THE INDUSTRY SIGNIFICANTLY IMPACT PTI'S STRATEGIC
DIRECTION?
-- THE SITUATION
- PTI's focus on expanding the LEC business, particularly in the
rural areas
- In 1992, PTI access line growth (without acquisitions) was 5.3%,
well above the national average (2.8%)
- PTI evolved an advanced network without stranded investment,
well positioned for the future
- Digital switches throughout the network
- Remote units and concentrators widely deployed
- Fiber optic cable between host switches and remotes; fiber
optic rings to follow
- SS7 capability, throughout most services areas, supporting
supply of enhanced/innovative services (e.g., CLASS)<PAGE>
<PAGE>5
INTRODUCTION - BACKGROUND
-------------------------------------------------------------------------
WILL CHANGES IN THE INDUSTRY SIGNIFICANTLY IMPACT PTI'S STRATEGIC
DIRECTION?
-- THE POTENTIAL COMPLICATION
- PTI's LEC business is threatened by competition:
- Expected removal of barriers to competitive entry
- IXC pressure to reduce local access costs
- CATV industry diversifying into local telco markets
- Emergence of alternative local-network technologies
- Basic voice service becoming a shrinking part of overall
telecommunications traffic
-- THE QUESTION
AS COMPETITION INTENSIFIES, WHAT RISKS WILL PTI'S SHAREHOLDERS FACE
THROUGHOUT THE REST OF THIS DECADE, AND WHAT MEASURES SHOULD MANAGEMENT
TAKE TO FORESTALL OR CONTAIN COMPETITIVE THREATS?<PAGE>
<PAGE>6
INTRODUCTION - STUDY SCOPE AND OBJECTIVES
-------------------------------------------------------------------------
EDC WAS ASKED TO ADDRESS THIS QUESTION BY...
-- EXAMINING THE FOLLOWING ISSUES:
- What will be PTI's external environment in the '90s?
- Which technologies are likely to impact PTI the most?
- Who will be the main PTI competitors?
- What technologies will they deploy, and how will rural entry fit
in their overall competitive strategies?
- What are the strategic implications for PTI and its shareholders,
and what initiatives should it mount to forestall or contain the
resulting competitive risks?<PAGE>
<PAGE>7
INTRODUCTION - STUDY SCOPE AND OBJECTIVES
-------------------------------------------------------------------------
A PART OF THE BROADER CORPORATE EFFORT
-- THE STUDY CAN SERVE AS A POINT OF DEPARTURE TO:
- Create and analyze business cases for particular competitive
entries
- Explore in depth specific competitive responses by PTI
- Examine potentially related corporate-level issues
- Balancing capital structure and portfolio mix
- Other questions of overall strategy
- Financial market reaction to competitive threats
- Assess new business opportunities for PTI in a changing
marketplace, such as aggressive diversification into
- the CATV market
- PCS market, starting with bids for frequency licenses<PAGE>
<PAGE>8
INTRODUCTION - THE STUDY TEAM
-------------------------------------------------------------------------
THE PRINCIPAL EDC TEAM MEMBERS HAVE EXTENSIVE PTI AND
TELECOMMUNICATIONS-INDUSTRY EXPERIENCE
-- ROBERT WHITE
Project leader. A general management consultant for over 15 years
with a primary focus on rate-regulated companies. Worked with PTI and
PacifiCorp since 1979, mainly in business planning for the long lines
and exchange businesses
-- GEORGE MANDANIS
Formerly head of strategic planning for AT&T Technologies (American
Bell, Westerns Electric, ATTI, AMP, and Bell Labs).
Telecommunications consultant for over 25 years specializing in
technology trends assessment, technology audits, network cost
modeling, demand forecasting, entry-strategy development
-- STEVE CZARNECKI
Over 30 years of experience in telecom research, engineering, and
technology development (voice, data, and video). Director of
technology and advanced systems planning for GTE<PAGE>
<PAGE>9
INTRODUCTION - APPROACH
-------------------------------------------------------------------------
EDC ASSESSED KEY INDUSTRY TRENDS AND THEIR IMPACTS ON PTI, GIVEN
THE UNIQUENESS OF ITS SERVICE TERRITORIES
[Graphic diagram of assessment of trends and impacts on PTI]<PAGE>
<PAGE>10
INTRODUCTION - APPROACH
-------------------------------------------------------------------------
EDC TOOK STEPS TO ENSURE THE GENERAL APPLICABILITY OF STUDY RESULTS
-- THE FOUR PTI "STUDY COMPANIES" ACCOUNT FOR 21% OF PTI'S ACCESS LINES
-- THEY REPRESENT A BROAD RANGE OF COMPETITIVE SITUATIONS:
----------------------------------------------------
SEGMENT STUDY COMPANY
----------------------------------------------------
Small urban Juneau, Montana (Kalispell)
----------------------------------------------------
Rural community Thorp
----------------------------------------------------
Rural farm TU of Oregon
----------------------------------------------------<PAGE>
<PAGE>11
INTRODUCTION - TERMINOLOGY
-------------------------------------------------------------------------
TERMS, USED TODAY, THAT YOU MAY NOT KNOW...
-- IXC: interexchange carrier (e.g., AT&T)
-- LEC: local exchange carrier (e.g., a PTI company)
-- Access fee: the payment by the IXCs to the LECs in exchange for
providing access to their customers
-- Access line: the circuit that connects a user location with a
switching center
-- CAP: competitive access provider
-- CATV: community antenna television (cable TV)
-- Cellular: low-power radio telephone
-- CLASS: custom local area signaling service (enhanced service)
-- IMM: Interactive multimedia
-- LATA: local access and transport area
-- LEO: low earth orbit
-- Local loop: access line
-- PCS/PCN: personal communication system/personal communication network
-- POTS: plain old telephone service
-- RBOC: regional Bell operating company
-- SMR: specialized mobile radio
-- SS7: Signaling System 7 (advanced network control system)
-- Wireless CATV: wireless television<PAGE>
<PAGE>12
AGENDA
-------------------------------------------------------------------------
-- Introduction
-- External Environment
-- Technology Options and Costs
-- Competitive Risks Assessment
-- Conclusions and Implications<PAGE>
<PAGE>13
EXTERNAL ENVIRONMENT - THE KEY DRIVERS OF CHANGE
-------------------------------------------------------------------------
FOUR FACTORS WILL DETERMINE THE SCOPE, TIMING AND INTENSITY OF COMPETITION
[Graphic diagram of change 1994-2000]<PAGE>
<PAGE>14
EXTERNAL ENVIRONMENT - TECHNOLOGY TRENDS
-------------------------------------------------------------------------
COMPETITION IN LOCAL MARKETS BETWEEN AND
AMONG WIRELESS AND WIRELINE TECHNOLOGIES WILL
INTENSIFY
[Graphic diagram of Transmission Technologies]<PAGE>
<PAGE>15
EXTERNAL ENVIRONMENT - TECHNOLOGY TRENDS
-------------------------------------------------------------------------
NUMEROUS TECHNOLOGICAL ADVANCES COULD POTENTIALLY IMPACT
PTI. EXAMPLES INCLUDE...
-- CONVERSION OF ANALOG TO DIGITAL (E.G., CELLULAR)
-- GREATLY IMPROVED WIRELESS TECHNOLOGY
- Expands capacity of allocated spectrum (3 to 20 times)
- Allows more regions of the spectrum to be used commercially (from
0.2HGz now to 1.7GHz of total spectrum space by 2000)
- Reduces investment and operating costs of telecom systems
-- NEW COMPRESSION TECHNOLOGY ALLOWING VIDEO SIGNALS TO BE CARRIED OVER
TWISTED-PAIR TELEPHONE LINES
-- MICROELECTRONICS PRODUCTION TECHNOLOGIES THAT REDUCE THE SIZE,
INCREASE THE FUNCTIONALITY AND LOWER THE COST OF TELECOM SUBSCRIBER
EQUIPMENT<PAGE>
<PAGE>16
EXTERNAL ENVIRONMENT - REGULATORY TRENDS
-------------------------------------------------------------------------
BY THE YEAR 2000, REGULATION WILL UNDERGO DRAMATIC CHANGE
-- LOCAL MARKETS WILL BE OPEN TO ENTRY
-- COST SUPPORT MECHANISMS WILL BE USED SPARINGLY
- Cost support flows from business to residential customers, from
long distance to local service, and from urban to rural areas
- Cost pools have provided significant financial assistance to PTI
and other high-cost jurisdictions. In 1992, PTI received
- $30 million from USF (78% of PTI's access lines received USF
support)
- $12 million from National Exchange Carriers Association
(NECA); this represents approximately 33% of the revenue
required for the associated costs<PAGE>
<PAGE>17
EXTERNAL ENVIRONMENT - REGULATORY TRENDS
-------------------------------------------------------------------------
By the year 2000, regulation will undergo dramatic change
-- Cost support mechanisms will be used more sparingly
- IXCs and others are pressing regulators hard to cap/even reduce
cost support
- IXCs object to being compelled to supply most of funds for this
public financial assistance program
- Universal service has been achieved, IXCs say
- Others claim they can serve local users at below cost-supported
rates
-- BY THE YEAR 2000, EFFICIENCY INCENTIVES WILL HAVE WIDELY REPLACED
RATE-BASE, RATE-OF-RETURN REGULATION, PASSING ON AN INCREASING PORTION
OF THE COSTS TO THE SUBSCRIBERS CAUSING THEM<PAGE>
<PAGE>18
EXTERNAL ENVIRONMENT - REGULATORY TRENDS
-------------------------------------------------------------------------
By the year 2000, regulation will undergo dramatic change
-- THE FOLLOWING -- ALL FAVORABLE TO NEW MARKET ENTRANTS -- WILL BE
MANDATED BY THE REGULATORS (OR THE COURTS):
- Unbundled interconnection of all networks
- Equal access to telephone numbers
- Access to customer proprietary network information (CPNI)
- More open access to rights-of-way<PAGE>
<PAGE>19
EXTERNAL ENVIRONMENT - REGULATORY TRENDS
-------------------------------------------------------------------------
DEREGULATION IS ALREADY PROCEEDING AT A HIGH PACE, AS ILLUSTRATED BY THE
ALLIANCES/MERGERS THAT HAVE BEEN ALLOWED BETWEEN THE TELEPHONE AND CATV
INDUSTRIES
-- LECS ARE PROHIBITED FROM PROVIDING VIDEO PROGRAMMING; BUT THIS
RESTRICTION WAS SUCCESSFULLY CHALLENGED IN 1993 (BY BELL ATLANTIC)
-- LECS ARE PROHIBITED FROM PROVIDING LD ACCESS ACROSS LATA BOUNDARIES;
BUT THIS RESTRICTION WILL BE PARTIALLY WAIVED
-- LECS ARE PROHIBITED FROM OWING CABLE COMPANIES IN THEIR SERVICE AREAS
- Restriction waived for communities of 10,000 or less
- Bell Atlantic plans to swap or sell the TCI properties in its
service areas<PAGE>
<PAGE>20
PTI'S EXTERNAL ENVIRONMENT - REGULATORY TRENDS
-------------------------------------------------------------------------
THE SCOPE AND TIMING OF PRO-COMPETITION RULINGS BY REGULATORS AND THE
COURTS WILL HAVE A MAJOR IMPACT ON THE TIMING AND SCOPE OF COMPETITION IN
PTI SERVICE AREAS
-- NOW:
- Oregon: Competitive zones
- Washington: Exclusive franchises challenged
- Montana: No exclusivity
- Alaska: Exclusivity maintained
- Wisconsin: Exclusivity maintained
- Cable exclusivity broadly challenged
-- BY THE YEAR 2000:
- No exclusive franchises
- No other barriers to entry
- Market forces rule, in general
- More narrowly targeted cost support<PAGE>
<PAGE>21
EXTERNAL ENVIRONMENT - CUSTOMER DEMAND TRENDS
-------------------------------------------------------------------------
THE MARKET IS GROWING; SOURCES OF SUPPLY ARE EXPANDING
--------------------------------------------------------------------------
SERVICE 1980S 1990S
--------------------------------------------------------------------------
Basic Voice LECs, IXCs LECs, IXCs, CAPs, CATV
-------------------------------------------------------------------------
One way video CATV, Brdcst TV CATV, Brdcst TV, LECs, CAPs,
wireless CATV
-------------------------------------------------------------------------
Wireless voice Cellular, SMR Cellular, SMR, PCS, wireless CATV,
CT2
-------------------------------------------------------------------------
Wireless data SMR, paging SMR, 2-way paging, satellite data
-------------------------------------------------------------------------
Messaging E-Mail Voice mail, E-mail, bulletin
boards
-------------------------------------------------------------------------
Int've Multimedia CATV, LECs, information services
(Prodigy)
-------------------------------------------------------------------------<PAGE>
<PAGE>22
EXTERNAL ENVIRONMENT - CUSTOMER DEMAND TRENDS
-------------------------------------------------------------------------
DEMAND FOR BASIC SERVICE IS THREATENED BY MANY SUBSTITUTES
-- MOST VOICE TRAFFIC IS ONLY INCIDENTALLY TWO-WAY
- The caller wants to convey a message
- Basically, the called party only has to acknowledge
-- TWO-WAY FIXED VOICE HAS BUILT-IN LIMITATIONS
- Designed to be real-time
- Therefore, expensive
- Stationary
-- SUBSTITUTES GAINING FAST
- Electronic mail: fast, inexpensive, non-real-time, 1-way, mobile
- Voice messaging
- Newer forms of electronic messaging: PDAs, portable PCs.
Already, lap-top computers can be attached to wallet-sized
wireless modems<PAGE>
<PAGE>23
EXTERNAL ENVIRONMENT - CUSTOMER DEMAND TRENDS
-------------------------------------------------------------------------
TELECOMMUNICATIONS SERVICES WILL BE ONE OF THE HIGHEST GROWTH-RATE SECTORS
OF THE ECONOMY. SOME OF THE REASONS...
-- U.S. DEMAND FOR CELLULAR WILL CONTINUE TO GROW AT VERY HIGH RATES
- About 40 million employees now work away from the office for
lengthy periods
- Only 2% of the 9.4 million sq. km within America's borders is
within four rings of the telephone
- Demand is now 13 times what it was just a decade ago
-- PHONE IN EVERY POCKET? PCS ENTHUSIASTS THINK SO
-- INTERACTIVE MULTIMEDIA (IMM) IN EVERY HOME? MANY IN THE INFORMATION
INDUSTRY ARE "BANKING ON IT"
-- PRICE ELASTICITY OF VOICE DEMAND -- A KEY DEMAND DRIVER<PAGE>
<PAGE>24
EXTERNAL ENVIRONMENT - CUSTOMER DEMAND TRENDS
-------------------------------------------------------------------------
CUSTOMER PRESSURE FOR ALTERNATIVE LOCAL SERVICE SUPPLIERS WILL INTENSIFY
-- IN 1992, IXCS PAID OVER $19 BILLION IN ACCESS FEES
- ACCESS FEES ACCOUNT FOR 40% TO 50% OF AN IXC'S OPERATING COSTS
- PTI'S ACCESS REVENUES: $175 MILLION (57% OF TOTAL)
- IXCs promoting deployment of alternative local telephone networks
- IXCs are pressuring regulators and Congress to open local
telephone markets to competition
- Interexchange services -- a commodity market
- Lowering access fees the only path to competitive
differentiation
-- IF DEMAND FOR IMM EXPLODES, MOVEMENT TO ALTERNATIVE LOCAL NETWORKS
WILL GAIN MOMENTUM
- Local voice a subset of a broader market
- New entrants could provide voice service at very low incremental
cost<PAGE>
<PAGE>25
EXTERNAL ENVIRONMENT - INDUSTRY DYNAMICS
-------------------------------------------------------------------------
DIVERSE ENTITIES ARE ACTIVELY ADDRESSING THE LOCAL TELEPHONE MARKET
-- CATV OPERATORS AND WIRELESS CABLE ARE (SEPARATELY) UPGRADING FOR
SWITCHED TWO-WAY VOICE AND DATA
-- IXCS ARE GETTING CLOSER TO END USERS, AND SUPPORTING LOCAL MARKET
ENTRIES BY OTHERS
- MCI's consortium, funded heavily by British Telephone
- AT&T's acquisition of McCaw, at a very high cost per POP
- Sprint's merger with cellular-heavy Centel
-- CAPS ARE RAPIDLY EXPANDING OPERATIONS
-- EVERYBODY IS TALKING ABOUT WIRELESS LOCAL BYPASS (E.G., BYPASS USING
CELLULAR OR PCS SYSTEMS)<PAGE>
<PAGE>26
<TABLE>
<CAPTION>
EXTERNAL ENVIRONMENT - INDUSTRY DYNAMICS
--------------------------------------------------------------------------------------------------
LECS, IN A RAPIDLY EXPANDING ARENA, ARE BECOMING A MUCH SMALLER SLICE OF BIGGER PIE; CORE BUSINESS
REVENUES OF RBOCS ARE STAGNANT
CONTENT TECHNOLOGY
GENERATORS TRANSPORTERS PROVIDERS
-------------------------------- ------------------------------- ----------------------------
<S> <C> <C>
TV, radio and cable networks LOCAL EXCHANGE CARRIERS (LECS) Wired and wireless telecom
network systems, equipment
Movie studios, TV production Long-distance carriers (IXCs) and software (OSS) suppliers
houses
Cable TV network operators Telecom enduser equipment
Amusement and gaming firms vendors (wired and wireless)
TV and radio broadcasters
Sports events syndicators Data compression system
Cellular phone carriers, PCS suppliers
Home shopping; catalog retailers suppliers, SMRs, other wireless
companies Computer manufacturers
Video game vendors (mainframes, minis,
Competitive access providers micros/PCS)
Educational and training
software developers International carriers Computer component
(semiconductor, storage, etc.)
Newspaper, magazine and book Value-added service suppliers manufacturers
publishers
Enhanced service suppliers Software developers
Greeting and trading card
companies Carrier consortia Consumer electronics vendors
End users
/TABLE
<PAGE>
<PAGE>27
EXTERNAL ENVIRONMENT - INDUSTRY DYNAMICS
-------------------------------------------------------------------------
TO FIND GROWTH, RBOCS AND LARGE INDEPENDENTS ARE DIVERSIFYING -- THE BELL
ATLANTIC EXAMPLE....
[Graphic diagram of Most Recent Moves of Bell Atlantic]<PAGE>
<PAGE>28
EXTERNAL ENVIRONMENT - INDUSTRY DYNAMICS
-------------------------------------------------------------------------
THESE DIVERSIFICATION FORCES ARE BRINGING PROFOUND CHANGES THROUGHOUT THE
INDUSTRY
-- HORIZONTAL AND VERTICAL INTEGRATION OF THE MAJOR PLAYERS
-- PROLIFERATION OF STRATEGIC ALLIANCES, OFTEN CONFLICTING
-- MERGING OF MESSAGE AND MEDIUM ON AN UNPRECEDENTED SCALE, RESULTING IN
GIANT CONGLOMERATES OF CONTENT GENERATORS, TRANSPORTERS, AND
TECHNOLOGY PROVIDERS<PAGE>
<PAGE>29
AGENDA
-------------------------------------------------------------------------
-- Introduction
-- External Environment
-- Technology Options and Costs
-- Competitive Risks Assessment
-- Conclusions and Implications<PAGE>
<PAGE>30
TECHNOLOGY OPTIONS AND COSTS -- TECHNOLOGIES CONSIDERED
-------------------------------------------------------------------------
FIVE COMPETITIVE TECHNOLOGY ALTERNATIVES WERE CONSIDERED FOR THE PROVISION
OF LOCAL AND ACCESS SERVICES
-- PCS/DIGITAL CELLULAR NETWORKS (MOBILE WIRELESS)
-- LEO SATELLITE NETWORKS
-- EXISTING FIBER/COAXIAL CABLE TV NETWORKS ENHANCED FOR TWO-WAY VOICE
AND DATA
-- WIRELESS CATV SYSTEMS ENHANCED FOR (FIXED) TWO-WAY VOICE AND DATA
-- NEW "WIRELESS POTS" WITH FIBER BACKBONE (FIXED WIRELESS)<PAGE>
<PAGE>31
TECHNOLOGY OPTIONS AND COSTS -- TECHNOLOGIES REJECTED
-------------------------------------------------------------------------
PCS/PCN AND DIGITAL CELLULAR WERE FOUND TO BE UNSUITABLE SUBSTITUTES FOR
FIXED LOCAL TELEPHONY
-- THESE SYSTEMS ARE ADDRESSING SPECIALIZED APPLICATIONS
- High-density
- Mobility
- Universal addressability (e.g., MobiLink -- the huge
U.S./Canadian consortium covering 83% of North America)
-- INVESTMENT COSTS PER SUBSCRIBER ARE HIGH
- $1,250 to $1,400
- Higher in lower densities<PAGE>
<PAGE>32
TECHNOLOGY OPTIONS AND COSTS -- TECHNOLOGIES REJECTED
-------------------------------------------------------------------------
LEO SATELLITES, TOO, WERE RULED AS UNSUITABLE
-- THESE SYSTEMS ADDRESS SPECIALIZED MARKETS
- Very remote areas
- Emergency uses
- Data transmission
-- THEY ARE TOO COSTLY FOR THIS APPLICATION
- $3,000 for subscriber unit
- $3 per minute
-- THEY FACE SIGNIFICANT QUALITY ISSUES
- Discontinuous coverage
- Transmission delays
-- THEY WILL NOT BE AVAILABLE UNTIL THE LATE '90S
- Motorola's Iridium, ahead of the pack but still far off -- '98+
<PAGE>
<PAGE>33
TECHNOLOGY OPTIONS AND COSTS -- TECHNOLOGIES RETAINED
-------------------------------------------------------------------------
-- PCS/DIGITAL CELLULAR
-- LEO SATELLITES
-- EXISTING FIBER/COAXIAL CABLE TV ENHANCED FOR VOICE AND DATA
-- WIRELESS CATV SYSTEMS ENHANCED FOR VOICE AND DATA
-- NEW "WIRELESS POTS" WITH FIBER BACKBONE<PAGE>
<PAGE>34
TECHNOLOGY OPTIONS AND COSTS -- TECHNOLOGIES RETAINED
-------------------------------------------------------------------------
FIBER/COAX CATV CAN BE DESIGNED TO BE FUNCTIONALLY EQUIVALENT WITH
CONVENTIONAL LOCAL TELEPHONE NETWORKS
[Graphic diagram of Conventional Local Network]
[Graphic diagram of Fiber/coax CATV Add-on]<PAGE>
<PAGE>35
TECHNOLOGY OPTIONS AND COSTS -- TECHNOLOGIES RETAINED
-------------------------------------------------------------------------
SO CAN WIRELESS CATV ADD-ON
[Graphic diagram of Conventional Local Network]
[Graphic diagram of Wireless CATV Add-on]<PAGE>
<PAGE>36
TECHNOLOGY OPTIONS AND COSTS -- TECHNOLOGIES RETAINED
-------------------------------------------------------------------------
AND SO CAN FIXED WIRELESS ("WPOTS")
[Graphic diagram of Conventional Local Network]
[Graphic diagram of Fixed Wireless Network]<PAGE>
<PAGE>37
TECHNOLOGY OPTIONS AND COSTS -- STUDY FOCUS AND ASSUMPTIONS
-------------------------------------------------------------------------
THE THREE TECHNOLOGIES RETAINED WERE COMPARED WITH PTI'S NETWORKS USING
WELL-TESTED MODELS
-- USING THE TECHNOLOGIES RETAINED, ALTERNATIVE LOCAL NETWORKS WERE
CONFIGURED TO MATCH TO THE DENSITY CONTOURS OF THE SERVICE AREAS OF
THE FOUR STUDY COMPANIES
-- THE "FIRST-ORDER" CRITERION IN COST COMPARISONS: INVESTMENT COST PER
ACCESS LINE
-- KEY ASSUMPTION: COMPETITOR MARKET PENETRATION OF 15% TO 30%<PAGE>
<PAGE>38
TECHNOLOGY OPTIONS AND COSTS -- INVESTMENT COSTS: PTI VS COMPETITION
-------------------------------------------------------------------------
15% PENETRATION -- COMPETITIVE INVESTMENT COSTS/ACCESS LINE ARE LOWER THAN
PTI's
[Bar graph comparing PTI, WPOTS, Wireless CATV and Fiber/coax CATV for
Juneau, Montana, Thorp and Oregon]<PAGE>
<PAGE>39
TECHNOLOGY OPTIONS AND COSTS -- PRELIMINARY FINDING
-------------------------------------------------------------------------
THE DEGREE TO WHICH PTI IS AT RISK WILL BE DETERMINED BY ITS PRESENT COST
STRUCTURE RELATIVE TO COMPETITION AND ITS ABILITY, IN THE FUTURE, TO (1)
MAINTAIN COST SUPPORT AND (2) REDUCE COSTS THROUGH NETWORK MIGRATION
-------------------------------------------------------------------------
ALTERNATIVE
ITEM NETWORK PTI NETWORK
-------------------------------------------------------------------------
Investment cost Lower than Possibly able to (1) accelerate
per subscriber current PTI depreciation and (2) modify
gross investment network plans to achieve lower
costs
-------------------------------------------------------------------------
Cost support None Receives protection now; may be
capped or reduced in the future
-------------------------------------------------------------------------
Annual cost Not as yet Possible long-term cost reduction
per subscriber established opportunities
-------------------------------------------------------------------------<PAGE>
<PAGE>40
AGENDA
-------------------------------------------------------------------------
-- Introduction
-- External Environment
-- Technology Options and Costs
-- COMPETITIVE RISKS ASSESSMENT
-- Conclusions and Implications<PAGE>
<PAGE>41
<TABLE>
<CAPTION>
COMPETITIVE RISKS ASSESSMENT -- ENTRY SCENARIOS
--------------------------------------------------------------------------------------------------------------------------
SEVERAL SCENARIOS WERE DEVELOPED TO EXPLORE HOW COMPETITORS COULD ENTER PTI MARKETS
SCENARIO 2: MCI CONSORTIUM SCENARIO 3: CELLULAR-
SCENARIO 1: MCI ENTERS ENTER KALISPELL WITH VISION ENTER THORP WITH
JUNEAU USING PRE-EXISTING FIXED WIRELESS NETWORK WIRELESS CATV AND
CABLE TV NETWORK WITH FPN (WPOTS) WPOTS
------------------------------------------------------------------------------------------------------
MCI MCI LOCAL FRANCHISEE OF CELLULAR-
PLAYERS ALASKAN CABLE NETWORK LOCAL FRANCHISEE VISION TECHNOLOGY
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- Cellular Vision: franchise
- MCI: lower access fees - MCI: lower access fees fees and program cuts
MOTIVATION - ACN: local telephone and - Franchisee: local telephone - Franchisee: revenues from
enhanced service revenues and enhanced service entertainment program,
revenues access fees, local service
--------------------------------------------------------------------------------------------------------------------------
- Open entry for access and
REGULATORY local service - Same as in Scenario 1 - Same as in Scenario 2
CONDITIONS - No franchise exclusivity - No spectrum scarcity
- Level playing field
--------------------------------------------------------------------------------------------------------------------------
- Juneau specifically targeted - Part of regional strategy
KEY ACTIVITIES - Contest subsidies - Contest subsidies - Same as in Scenario 2
- Offer universal service - Offer universal service
--------------------------------------------------------------------------------------------------------------------------
- National, innovative image - Franchisee: Ameritech identity
MARKETING - Aggressive telemarketing - Same as in Scenario 1 - Otherwise same as Scenario 1
TACTICS - Promos and tie-ins
--------------------------------------------------------------------------------------------------------------------------
/TABLE
<PAGE>
<PAGE>42
<TABLE>
<CAPTION>
COMPETITIVE RISKS ASSESSMENT -- SCENARIO OUTCOMES
--------------------------------------------------------------------------------------------------
ASSUMING PTI MAINTAINS STATUS QUO, COMPETITIVE MARKET ENTRIES MAY OCCUR IN SMALL URBAN AREAS SERVED
BY PTI AS EARLY AS 1997; THREATS TO RURAL AREAS ARE PROBABLY AT LEAST 5 TO 10 YEARS AWAY
ACCESS SERVICE EXCHANGE SERVICE
ENTRY BY ENTRY BY
TECHNOLOGY YEAR 2000? TECHNOLOGY YEAR 2000?
<S> <C> <C> <C> <C>
SMALL URBAN CATV Probable CATV Maybe
RURAL TOWN Wireless CATV Maybe Wireless CATV Unlikely
and WPOTS and WPOTS
RURAL FARM Wireless CATV Unlikely Wireless CATV Unlikely
and WPOTS and WPOTS
/TABLE
<PAGE>
<PAGE>43
AGENDA
-------------------------------------------------------------------------
-- Introduction
-- External Environment
-- Technology Options and Costs
-- Competitive Risks Assessment
-- CONCLUSIONS AND IMPLICATIONS<PAGE>
<PAGE>44
CONCLUSIONS AND IMPLICATIONS
-------------------------------------------------------------------------
TECHNOLOGY, REGULATORY AND DEMAND TRENDS, AND THE RESULTING DYNAMICS IN THE
TELECOM INDUSTRY ALL INDICATE INCREASING POTENTIAL COMPETITION FOR PTI
-- OVER THE NEXT 5 TO 15 YEARS, PTI LECS WILL BE FACING INTENSIFYING
COMPETITION
-- TIMING OF SPECIFIC MARKET ENTRIES DEPENDS ON AN LEC'S LOCATION AND THE
REGULATORY AGENDA IN THE BALANCE OF THE '90S
- High-density urban areas are the likeliest among the earlier
targets
- But rural markets are also vulnerable, under some conditions
- "Guerrilla" style competitors may elect to target rural
areas if they face less competition there
- The cost advantage of competitive technology may become high
enough to encourage national roll-out by major players
- Cost support may be reduced faster than expected (price
umbrella weakens or disappears earlier)<PAGE>
<PAGE>45
CONCLUSIONS AND IMPLICATIONS
-------------------------------------------------------------------------
Technology, regulatory and demand trends...
-- THE MOST THREATENING TECHNOLOGIES ARE READY TO REACH COMMERCIALIZATION
-- VOICE OVER CATV -- THE BIGGEST THREAT WHERE CATV NETWORKS PRE-EXIST
-- WIRELESS TECHNOLOGIES ARE A POTENTIAL THREAT (DURING THE STUDY TIME
HORIZON) BUT IN FORMS NOT YET WIDELY ADOPTED IN THE INDUSTRY
-- MERGERS AND STRATEGIC ALLIANCES WILL ENHANCE ROBUSTNESS (TECHNICAL,
FINANCIAL, MANAGERIAL) OF PROSPECTIVE NEW ENTRANTS<PAGE>
<PAGE>46
CONCLUSIONS AND IMPLICATIONS
-------------------------------------------------------------------------
PTI'S HAS AN ADEQUATE "WINDOW" TO COUNTER COMPETITIVE THREATS AND TO TAKE
ADVANTAGE OF FUTURE GROWTH IN VOICE, DATA AND VIDEO MARKETS, BUT PTI MUST
BEGIN PLANNING ITS COMPETITIVE RESPONSES AS SOON AS POSSIBLE
-- AVENUES POTENTIALLY OPEN TO PTI:
- Maintain the cost support mechanisms through company and industry
initiatives
- Reduce investment costs (e.g., through wider use of wireless
technology in fixed applications)
- Reduce operating costs (e.g., by greater exploitation of
economies of scale and scope)
- Deploy the very technologies to-be competitors would use, as both
defensive and offensive measures
- Start marketing programs to retain customers over extended
periods, maximizing cash from present operations
- Form alliances with RBOCs/CATV for competitive leverage<PAGE>
<PAGE>47
NEXT STEPS
-------------------------------------------------------------------------
PTI SHOULD DEVELOP A COMPETITIVE STRATEGY TAILORED TO THE UNIQUE
CHARACTERISTICS OF SERVICE TERRITORIES
-- ACTIONS:
- Conduct definitive assessments of threats
- Analyze alternative investment strategies, such as
(1) Minimize future investments in existing networks
(2) Migrate to more cost-effective network technologies
(3) Acquire CATV/PCS assets collocated with PTI LECs
- Assess opportunities for cost reduction and customer retention
- Develop regulatory strategies to delay/stop new market entries
- Evaluate opportunities for potential alliances
- Monitor competitive entries (e.g., CellularVision in the U.S.,
FPN in the UK)
- Examine corporate-level implications of both risks and growth
opportunities in the telecom market arena (e.g., possible need to
re-optimize business portfolio to increase value to shareholders)<PAGE>
<PAGE>48
SUM UP
-------------------------------------------------------------------------
-- IS THE "END OF THE LINE" FOR WIRELINE LOCAL NETWORKS ALREADY WITH US
OR RAPIDLY APPROACHING?
-- NO, ACCORDING TO OUR FINDINGS FOR PTI, PARTICULARLY FOR THE CASE OF
MOST RURAL TELCOS
<PAGE>
<PAGE>
APPENDIX 1
GLOSSARY
<PAGE>
<PAGE>1-1
GLOSSARY
Access fee: the payment by the IXCs to the LECs for providing access to
their customers
Access line: the circuit that connects a user location with a switching
center
ADSL: asymmetric digital subscriber line
ATM: asynchronous transfer mode, a high speed switching
technology
Bandwidth: the relative range of frequencies that can be passed
without distortion by a transmission medium
BETR: basic exchange telecommunications radio
CAP: competitive access provider
CATV: community antenna television
Cellular: low-power radio telephone
CDMA: code division multiple access, a method of digital
transmission
CLASS: customer local area signaling service, enhancements to
basic service
IMM: interactive multimedia
IMTS: improved mobile telephone service
ISDN: integrated services digital network
IXC: interexchange carrier (e.g., AT&T)
LATA: local access and transport area
LEC: local exchange company (e.g., PTIC)
LEO: low earth orbit
<PAGE>
<PAGE>1-2
LIDB: line information database
LMDS: local multipoint distribution service
Local loop: access line
MFJ: modification of Final Judgement (ruling breaking-up AT&T)
MMDS: multichannel multipoint distribution service
MSO: multiple service operator (operator of multiple CATV
properties)
PCS/PCN: personal communication system/personal communication
network
POTS: plain old telephone service
POP: persons of population (cellular); point of presence
(physical location)
RBOC: regional Bell operating company
SMDS: switched multimegabit data service
SMR: specialized mobile radio
SONET: synchronous optical network standard
SS7: signaling system 7 (advanced network control system)
T-1: a type of digital carrier system at 1.544 Mbps
TDMA: time division multiple access, a method of digital
transmission
Trunk: a telephone circuit with a switch at both ends
Wireless CATV: wireless television
<PAGE>
<PAGE>
APPENDIX 2
REGULATORY SCENARIO: YEAR 2000
<PAGE>
<PAGE>2-1
REGULATORY SCENARIO FOR THE
LOCAL EXCHANGE CARRIER MARKET, YEAR 2000
As the telephone, television, and computer industries converge to form a
new structure, regulators at all jurisdictional levels are being confronted
with problems making the old rules fit. It is likely that most of the old
rules will soon be discarded: increased competition will obviate the need
for many of them; for the remaining areas that require some form of
oversight, regulators will cooperate in devising simpler rules. In many
cases, federal and state agency oversight will give way to judicial
oversight. Presented below is a perspective of the regulatory picture
governing the local service market in year 2000. Some current events and
bellwether jurisdictions that indicate the future regulatory picture are
also presented.
<PAGE>
<PAGE>2-2
SCENARIO 1. THE LOCAL SERVICES MARKET WILL BE OPEN TO ALL TYPES OF
COMPETITION
=======================================================================
TRENDS
-- No constraints on access, basic exchange, intra-LATA toll entry
-- Competitors include cable TV, SMR, cellular, PCS, satellite, IXC,
and LEC entities as well as consortia consisting of combinations
of these entities
-- RBOCs allowed to offer both in- and out-of-area inter-LATA
service
-- RBOCs allowed to expand to additional services out of area
- Cross-ownership of cable systems allowed
- Content constraints removed, enabling provision of video
programming, interactive and information services
- RBOC/competitors form alliances, consortia
-- One-stop shopping available to users of all types and sizes
-- Selectivity from various providers also available to users of all
types and sizes
CURRENT EVENTS
-- The FCC, DOJ, and NTIA favor elimination of cross-ownership,
programming restrictions on LECs
-- RBOCs press for Rand McNally major trading areas (MTAs) as
wireless service areas, propose to provide inter-LATA wireless
service, and offer a new model for equal access
<PAGE>
<PAGE>2-3
-- MFS Intelenet, Inc. has been authorized as a "co-carrier" by the
New York Public Service Commission; positioning itself as a
full-service provider of integrated local, long distance, and
facilities management services aimed exclusively at small and
medium-sized businesses having from 5-200 stations, the new firm
launched its first one-stop shopping local and long distance
service in New York; plans to roll out in 60-70 cities within
five years--all of its current CAP cities and locations where
demand and state regulations are favorable
-- Kiewit (MFS) acquires control of C-TEC Corporation, which offers
local and interexchange, cellular and paging, and cable TV
services; member of MCI PCS consortium; partner in company
building toll road in California
-- Teleport joins MCl PCS consortium; has indicated that it intends
to interconnect with small- to medium-sized LECs in rural areas
for DS-1 service
-- Ameritech proposes opening core intra- and interstate markets to
competition in exchange for relief from constraints
-- Rochester Telephone restructuring into dial-tone wholesaler and
retail service reseller; in Rochester's territory, FiberNet, Inc.
provides competitive access service and Time Warner (owner of
local MSO) has petitioned the PSC for authorization to provide
all forms of local and interexchange service
-- Pacific Telesis spinning off wireless and international
businesses into separate corporation
-- US West buys into Time Warner, will together provide full service
network services in Orlando trial, others planned
-- Time Warner AxS (the telecommunications arm of the partnership
with US West) requests authority to provide all intrastate
services (including local residential exchange) in Rochester and
Albany, NY
-- Southwestern Bell has received decree court waiver to purchase
two Hauser cable TV systems in Bell Atlantic territory
<PAGE>
<PAGE>2-4
-- BellSouth buys into Prime Management Co, manager of five cable
systems including those in Anchorage and Las Vegas, where as
Community Cable Television of Las Vegas, it offers competitive
access services
-- Nynex buys share of Viacom, 12th largest MSO, with operations in
Oregon and Wisconsin, among other states
-- Citing AT&T/McCaw, RBOCs file additional requests for FCC to
address inter-LATA entry (note that RBOCs pursued entry into
information services via the FCC, not the decree court)
-- Wyoming independent seeks authority to terminate interexchange
calls via its cellular facilities in Wyoming; later, will seek
authority in Utah and Colorado
-- Senate Bill 1086 proposes eliminating barriers to entry in the
market for local services; backers say they are promoting
"universal service and universal competition"
-- Utilities Telecommunications Council (UTC) taking steps to ensure
that legislative and regulatory bodies allow utilities to
participate in local exchange competition
<PAGE>
<PAGE>2-5
SCENARIO 2. EFFICIENCY INCENTIVES WILL HAVE REPLACED RATE REGULATION
=======================================================================
TRENDS
-- Cost-based pricing for noncompetitive services
-- Market-based pricing for competitive services; for example,
- Call origination pricing for cellular customers
- Postalized pricing for intra-LATA toll
- Centrex
- Contract pricing for service menus
CURRENT EVENTS
-- Legislative council made up of 2500 state legislators and 300
private-sector members (including RBOC/LEC members) draft model
bill to guide states in moving to incentive regulation
-- Initial efficiency incentive regulation options being adopted for
small LECs
<PAGE>
<PAGE>2-6
SCENARIO 3. SUPPORT MECHANISMS WILL BE SPARINGLY USED AND TARGETED
=======================================================================
TRENDS
-- Direct to customer
-- Third party administers funding by all participants in various
areas
-- Possibly within time frame, to be replaced by tax levy
CURRENT EVENTS
-- All sides pressing for reduction, or even elimination, of
subsidies
-- Large LECs are pressuring both state and federal regulators for
relief from rate-averaging requirements; Ohio PUC allows Ohio
Bell to de-average intra-LATA-toll rates
-- With AT&T/McCaw merger, additional threats of wireless bypass,
RBOCs want access charge reform
-- IXCs want simplified separations rules
-- Nynex, GTE plan to offer switched access rate discounts based on
usage
-- IXCs pressing for changes in separations procedures to reflect
actual costs
-- IXCs, some RBOCs, and CAPS protest rising cost of universal
service fund, seek review of structure, eligibility, funding
levels, funding sources; FCC intends to limit growth of fund as
an interim measure to long-term reform of process
-- IXCs request rulemaking on waivers of rules governing study area
boundary changes involving sales of exchanges, particularly
high-cost exchanges
<PAGE>
<PAGE>2-7
-- REA loans will mandate modernization plans that enable video
transmission, meet other improved infrastructure objectives; also
2% interest loans will be eliminated and 5% interest loans will
be restricted (if the president signs H.R. 3123)
-- Time Warner suggests allowing competitors to bid for right to
provide service at lower cost to high-cost customers and
exchanges, including the amount of support contribution required
<PAGE>
<PAGE>2-8
SCENARIO 4. INTERCONNECTION TO ALL TYPES OF NETWORKS WILL BE
MANDATED AND EASILY ACCOMPLISHED; UNBUNDLED SERVICES WILL BE
THE NORM
=======================================================================
TRENDS
-- Collocation extended to all competitors at both federal and state
levels
-- Competitors access LEC switches to provide AIN services
-- Cost-based pricing of network elements
-- Both wholesale and retail customers can select service elements
-- Presubscription to local exchange carrier (or two or three)
CURRENT EVENTS
-- FCC has adopted rules for switched transport interconnection,
including those for microwave facilities
-- FCC has mandated physical collocation for special access in
states that authorize local access competition
-- USTA study of 6818 switching locations, representing about 33 %
of total, shows that if CAPs collocated in 14% of the locations,
they could address 80% of all access traffic; in on-third of
these study locations, CAPs either are already collocating, have
requested collocation, or a customer has expressed interest in
collocation
-- Responding to IXCs, information providers, FCC proposes to
require mediated access to advanced intelligent networks
-- Spokesperson indicates number of utility companies will offer
information services networks when they can gain
nondiscriminatory access to LEC networks
<PAGE>
<PAGE>2-9
-- Illinois commission authorizes Teleport to provide Centrex
-- Oregon adopted ONA rule requiring telcos to provide physical and
virtual collocation for special and switched access services by
EOY 1994; telcos having fewer than 15,000 lines exempted from
unbundling but not from collocation
-- Oregon's new ONA rules require that any service or service
element to be sold to any customer
-- FCC authorizes LECs to offer wireless cable in their serving
areas
<PAGE>
<PAGE>2-10
SCENARIO 5. LECS WILL NO LONGER CONTROL TELEPHONE NUMBERS
=======================================================================
TRENDS
-- Third-party administrator, likely reflecting global interest
-- Portability for wireline, wireless services
-- Customer-controlled access
CURRENT EVENTS
-- Bellcore bows to pressure to withdraw as administrator of
numbering system
-- Various standards bodies and user groups demand global
participation in decisions on new numbering systems
-- FCC has required telcos to offer billing name and address
information on a nondiscriminatory tariffed basis, is
implementing some privacy measures
-- MFS and Teleport request assignment of their own central office
codes
<PAGE>
<PAGE>2-11
SCENARIO 6. RIGHTS OF WAY ARE WIDELY AVAILABLE
=======================================================================
TRENDS
-- Exclusive franchise dropped
-- Competitors own rights--MSOs, CAPs, utilities
-- Radio spectrum not constrained
- Technology advancements increase both amount of usable
frequency and suitability of various frequencies for certain
types of services--regulatory oversight decreases
- Auctions, trades, leases replace lengthy licensing
proceedings
- Focus of regulation moves from stipulating rules for
services to resolving technical problems
- LECs' cellular assignments may be up for grabs
CURRENT EVENTS
-- Electric Lightwave, Inc. (partially owned by Citizen Utilities)
and Digital Direct (Teleport affiliate) ask Washington supreme
court to decide whether telephone companies are guaranteed
monopoly local service franchise
-- Illinois supreme court rules against local governments imposing
franchise fee on AT&T, which planned a fiber net that passed
through 6 communities; observers believe decision may set
precedent
-- Congress mandates spectrum auctions for PCS
-- Teleport to joint venture with 11 MSOs (including its four
owners) to expand into suburban areas and industrial parks
<PAGE>
<PAGE>2-12
SCENARIO 7. CUSTOMER-PROPRIETARY NETWORK INFORMATION (CPNI) NO
LONGER CONTROLLED BY LECS
=======================================================================
TRENDS
-- Customers exert certain privacy rights
-- Competitors access LEC databases
CURRENT EVENTS
-- RBOCs concerned that AT&T/McCaw merger will enable McCaw access
to AT&T's information on Bell cellular customers
-- Congress considering bills to protect privacy of customer
privacy, particularly to address small business and residential
customers not now covered by FCC rules on CPNI
-- Information Technology Association of America supports
legislative oversight of LEC use of CPNI, citing the phone
companies competitive advantage
-- IXCs, including Sprint, GCI, others, protest LEC tariff rates for
billing name and address (BNA) subscriber information
<PAGE>
<PAGE>2-13
SCENARIO 8. WORLDWIDE CONSTITUENCIES TAKE PROACTIVE ROLES IN
DETERMINING OUTCOMES OF CERTAIN BROAD POLICY ISSUES
======================================================================
TRENDS
-- Technical standards
-- Environmental concerns
CURRENT EVENTS
-- Exchange Carriers Standards Association (ECSA) opens membership
to anyone owning a switched network that transports
telecommunication services; MFS is first such member
-- Committee T1 (U.S. telecommunications standards-making body)
develops letter-ballot procedures to speed up process; Bellcore
has developed streamlined procedures; ATM, SMDS, etc. users
groups working on agreements and interoperability specifications
to implement new standards faster
-- Cellular Telecommunications Industry Association (CTIA) open
membership to PCS, enhanced specialized mobile radio (ESMR),
mobile satellite service (MSS) providers; Nextel is the first to
join
-- Numerous computer telephony hardware, software companies working
to define application processor interfaces (APIs) to enable
faster deployment of new products
-- ICA concerned that LECs control standards bodies, asks broader
representation, quicker resolution
-- Motorola working with Telecommunications Industry Association
(TIA) standards group to develop standard for switched
service/base station interconnection
<PAGE>
<PAGE>2-14
-- PCS applicants for experimental licenses want standards developed
in current FCC proceeding
-- Cable and consumer electronics industries establish accord on
potential standards for decoder interfaces, including digital
cable-ready sets with tuner and transmission specifications
<PAGE>
<PAGE>
APPENDIX 3
ALTERNATIVE NETWORK CONFIGURATIONS
<PAGE>
<PAGE>3-1
WPOTS MICROCELL NETWORK
=======================================================================
[Graphic diagram of WPOTS Microcell Network]
<PAGE>
<PAGE>3-2
WIRELESS POTS MICROCELL BLOCK DIAGRAM
=======================================================================
[Graphic diagram of Wireless POTS MicroCell Block Diagram]
<PAGE>
<PAGE>3-3
WPOTS REMOTE UNIT EQUIPMENT
=======================================================================
[Graphic diagram of WPOTS Remote Unit Equipment]
<PAGE>
<PAGE>3-4
WPOTS CPE (SUBSCRIBER EQUIPMENT)
=======================================================================
[Graphic diagram of WPOTS CPE (Subscriber equipment)]
<PAGE>
<PAGE>3-5
WPOTS CELL CHARACTERISTICS
=======================================================================
-- Cell radius up to 10 miles (Omni-directional antenna provides for up
to 314 sq. mi area coverage)
-- Digital transmission technology (patterned on PCS and cellular)
provides very efficient bandwidth utilization and economy of scale in
equipment costs
-- Fully equipped cell accommodates over 6,000 subscribers (depending on
traffic)
-- Switching capabilities provided within the cell
-- Trunk connections from each cell to tandem switches and/or other cells
<PAGE>
<PAGE>3-6
WPOTS - WIRELINE NETWORK COMPARISON
=======================================================================
[Graphic diagram of WPOTS - Wireline Network Comparison]
<PAGE>
<PAGE>3-7
WPOTS - WIRELINE NETWORK COMPARISON
=======================================================================
WIRELINE vs. WPOTS
- One switch appearance per line - Demand-assigned radio channels
- Maintenance- and capital-intensive - No distribution plant
distribution and drop plant
- Feeder and distribution plant - Feeder plant sized for
assigned on channel-per-line trunk ports (not lines)
basis
- Traditional end-office switching - Cell-site connects directly to
hierarchy tandem switch, eliminating
local-switch tier in hierarchy
- Not always ISDN capable - ISDN capable
- Analog - Digital
<PAGE>
<PAGE>3-8
WPOTS NETWORK OPERATING CHARACTERISTICS
=======================================================================
-- Like wireline telephony. WPOTS is designed to be functionally
equivalent to basic telephony (as perceived by subscriber).
- transmission-quality equivalent to 32 Kbps ADPCM
- engineerable grade of service
- available features: call waiting, call forward on busy/no
answer, three-way calling
-- Addressable markets. WPOTS supports single-line POTS and PBX service
in a full range of density tiers
-- PCN compatibility. WPOTS establishes a network and equipment platform
for future migration to universally addressable PCN and cellular
networks.
<PAGE>
<PAGE>3-9
WPOTS NETWORK OPERATING CHARACTERISTICS
=======================================================================
-- Subscriber apparatus. A fixed unit to access the cell site with
connections to existing premise wiring
- a high gain directional antenna assures optimum transmissions
- for subscribers wishing to continue using their existing CPE, the
fixed unit can be plugged into a jack that activates the interior
wiring
-- System bandwidth requirements. At maximum cell size, 20 MHz to 40 MHz
depending on modulation used (CDMA Or TDMA). Small cells require
1.25MHz (CDMA). Adjacent cell protection is achieved by directional
antennas and/or polarization (vertical/horizontal); absence of
handover requirement allows adjacent cells to use full spectrum
complement.
-- Capacity. Up to 672 voice circuits per large cell site; 60 voice
circuits per small cell. Over 6,000 subscribers per large cell; over
600 subscribers per small cell.
-- Connections. The cell functions as a concentration and as a switching
stage
<PAGE>
<PAGE>3-10
WPOTS Poised for Rapid, Early Deployment
=======================================================================
-- Off-the-shelf technologies
- microcell employs demand-assigned channels (based on cellular and
PCS developments); local switching capabilities, local database
and DS-1 or higher trunk- type interfaces to a tandem switch
(based on existing PBX technologies)
- subscriber unit - based on existing cellular and PCS technologies
- existing transmission terminals
-- Market coverage potential
- economically and operationally feasible at various density tiers
-- Rapidly deployable
- can piggyback existing fiber backbones (long distance carriers,
cable TV)
- small, low-power antennas
- key interconnect issues already addressed
<PAGE>
<PAGE>3-11
POTS OVER FIBER/COAX CATV PLANT
=======================================================================
[Graphic diagram of POTS over Fiber/Coax CATV plant]
<PAGE>
<PAGE>3-12
POTS OVER WIRELESS CATV
=======================================================================
[Graphic diagram of POTS over Wireless CATV]
<PAGE>
<PAGE>3-13
POSSIBLE PROVIDERS OF WPOTS SYSTEMS
=======================================================================
COMPONENT TECHNOLOGY ALREADY RESIDENT AT:
Cell switching, trunk interfaces, PBX manufacturers (AT&T, Northern
& Encoder/Decoder Interface Telecom, Ericsson, Siemens,
Fujitsu, etc.)
Cell Encoder/Decoder & RF Cellular & PCS equipment
equipment manufacturers (Qualcomm, Nokia,
AT&T, Northern Telecom, Novatel,
Hughes, Motorola, etc.)
Subscriber Premise (CPE) Cellular & PCS handset
equipment manufacturers (Qualcomm, Nokia,
AT&T, Northern Telecom, Novatel,
Hughes, Motorola, etc.)
GENERAL COMMENTS: WPOTS already planned for the U. K. and for Finland;
Motorola actively marketing (in the international
arena) their existing analog cellular modified for
fixed (non-mobile) service
<PAGE>
<PAGE>3-14
POTS OVER FIBER/COAX CATV SYSTEMS
=======================================================================
Both First Pacific Networks and AT&T have current
equipment offerings for telephony service over the coax
CATV systems. These are being commercially deployed in
the U.K. and on field trial experiments at select test
sites in the U.S.
CATV converter box manufacturers (Scientific Atlanta)
are actively involved in the design of CATV/telephony
set-top converters.
<PAGE>
<PAGE>3-15
POTS OVER WIRELESS CATV SYSTEMS
=======================================================================
-- Wireless CATV systems are already in service, competing with
established coax CATV systems (Tucson, San Antonio, Chicago).
- utilize the MMDS frequencies (approximately 2GHz)
- currently limited to approximately 30 channels due to available
bandwidth limitation and analog transmission
- are planning to change to digital transmission along with
compression, to increase the channel content about six-to-ten
fold (Tucson in `94)
-- Wireless CATV system in the planning stage (Suite 12, using LMDS at
approximately 28 GHz with 2 GHz of bandwidth)
- promises future add-on of upstream voice capabilities.
-- Either of the systems (once bandwidth is available), can use the "coax
CATV system" adapters for telephony add-on
- only the send and receive frequency changes are needed on these
adapters for use on the wireless system
<PAGE>
<PAGE>
APPENDIX 4
ALTERNATIVE NETWORK COSTS
<PAGE>
<PAGE>4-1
JUNEAU (WPOTS): PTI investment (Hardware & facilities) = $33,978,586
Total lines = 18,943
PTI investment = $33,978,586/18,943 = 1,794/line
15% PENETRATION = 2,841 SUBS
[Graphic diagram of remotes and partial cell]
1 PARTIAL CELL = $312K
3 REMOTES = $201.6K
60 MI OF FIBER = $1,320K
COMMON TRKS = $185K
TOTAL = $2018.6K
PER SUBSCRIBER COSTS:
$2018.6K/2.84K SUBS +
$159.5/SUB.CPE = $870/SUBS
<PAGE>
<PAGE>4-2
JUNEAU (WPOTS):
30% PENETRATION = 5,683 SUBS.
[Graphic diagram of remotes and full cell]
(ADDED REMOTE TO FACILITATE ENG. & SUBS. ADD-ON)
1 FULL CELL = $426K
4 REMOTES = $268.8K
80 MI OF FIBER = $1,760K
COMMON TRKS = $185K
TOTAL = $2,639.8K
PER SUBSCRIBER COSTS:
$2,639.8K/5.683K SUBS +
$159.5/SUB.CPE = $624/SUBS
<PAGE>
<PAGE>4-3
KALISPELL (WPOTS): PTI investment (Hardware & facilities) = $63,154,206
Total lines = 42,714
PTI investment = $63,154,206/42,714 = 1,479/line
15% PENETRATION = 6,407 SUBS
[Graphic diagram of remotes, FOTs, full cell, partial cell and subs]
1 FULL CELL = $426K
1 PARTIAL CELL = $312K
7 REMOTES = $470.4K
160 MI OF FIBER = $3,520K
2 FOTs = $30K
COMMON TRKS = $185K
TOTAL = $4,943.4K
PER SUBSCRIBER COSTS:
$4,943.4K/6.407K SUBS +
$159.5/SUB.CPE = $931/SUBS
<PAGE>
<PAGE>4-4
KALISPELL (WPOTS):
30% PENETRATION = 12,814 SUBS
[Graphic diagram of remotes, FOTs, full cell and subs]
3 FULL CELLS = $1,278K
7 REMOTES = $470.4K
160 MI OF FIBER = $3,520K
4 FOTs = $60K
COMMON TRKS = $185K
TOTAL = $5,513.4K
PER SUBSCRIBER COSTS:
$5,513.4K/12.814K SUBS +
$159.5/SUB.CPE = $590/SUBS
<PAGE>
<PAGE>4-5
THORP (WPOTS): PTI investment (Hardware & facilities) = $2,663,333
Total lines = 1,954
PTI investment = $2,663,333/1,954 = 1,363/line
15% PENETRATION = 293 SUBS 30% PENETRATION = 586 SUBS
SMALL CELL (48) SMALL CELL (72)
1 SMALL CELL (48) = $116.4K 1 SMALL CELL (72) = $126K
COMMON TRKS = $65K COMMON TRKS = $65K
TOTAL = $181.4.4K TOTAL = $191K
PER SUBSCRIBER COSTS: PER SUBSCRIBER COSTS:
$181.4K/0.293K SUBS + $191K/0.586K SUBS +
$159/SUB.CPE = $778/SUBS $159.5/SUB.CPE = $486/SUBS
<PAGE>
<PAGE>4-6
WPOTS
COMMON EQUIPMENT - $147.5/CPE + $12/LINE FOR DATA BASE
TRUNKS TO WIRELINE CARRIER AND IXC
(ASSUMPTION: 50% TRAFFIC LOCAL, 25% WIRELINE CARRIER (WLC), 25% IXC)
JUNEAU:
15%: 2,841x3ccs=8523, 8523x.25=2,131ccs; approximately 70trks to WLC & 70
to IXC
30% approximately 140 trks to each
KALISPELL:
15%: 6,407x3ccs=19,221, 19,221x.25=4,805ccs; approximately 157trks to WLC &
157 to IXC
30% approximately 314 trks to each
THORP:
15%: 293x3ccs=879, 879x.25=220ccs; approximately 8 trks to WLC & 8 to IXC
30% approximately 15 trks to each
<PAGE>
<PAGE>4-7
WPOTS - COMMON EQUIP
OC-1 ADM PROVIDES 672 TRKS; FOR JUNEAU AND KALISPELL USE 3 OCMs & 5mi of
F.O.:
[Graphic diagram of Cell, OC-1 ADMs]
3 OC-1 ADMs = $75K
5 MI F.O. = $110K
FOR THORP, USE DS-1 MICROWAVE:
[Graphic diagram of WLC, Thorp and IXC]
<PAGE>
<PAGE>4-8
EAST OREGON (DESCHUTES) (WPOTS):
PTI Investment (Hardware & facilities) = $33,978,586
Total lines = 18,943
PTI investment = $33,978,586/18,943=1,794/line
ABOVE IS FOR THE TOTAL STATE. INDIVIDUAL BREAK-OUT NOT
AVAILABLE.
15% PENETRATION = 168 SUBS
[Graphic diagram of remotes and minicell]
<PAGE>
<PAGE>4-9
JUNEAU - 15% PENETRATION CATV-fiber/coax POTS add-on
[Graphic diagram of ADMs, Nodes and Switch]
7 NIUs REQUIRED @ approximately 406 subs/NIU
TRAFFIC=50%LOC, 25%IXC, 25%LEC
TRAFFIC=2,841 LINES x 3CCs/LINE = 8524 CCS=237E
237E - approximately 275 TRKS; USE OC-1 ADM
IXC=59E, LEC=59E, REQS 70 TRKS IXC, 70 TRKS LEC (10x2/node)
LOC = 237E; each node 34E (tot)-17E (LEC&IXC)=17E loc,
symmetrical nodes, assume 1/3 internal node, 2/3 switch
destined traffic. Therefore, approximately 77E to switch, or 90 TRKS
Tot TRKS=230
FOTs=OC-1 ADM AT EACH NODE, 2 AT HUB (SWITCH AT HUB),
1@IXC AND 1@LEC
<PAGE>
<PAGE>4-10
JUNEAU - 15% PENETRATION CATV-fiber/coax POTS add-on
7 NIU = $189K
TAND. SW. = $250K PER SUBSCRIBER COSTS:
TRKS = $57.5K $646.5K/2.841K SUBS + $210
ADM FOT = $150K =$437.56
TOT. = 646.5K
JUNEAU = 30% PENETRATION
PER CATV CABLE LAYOUT, 7 NODES
TRAFFIC =3 x 5683 = 17,0499 CCS
= 474E, OR 85 TRKS/NODE
7 X 85 = 595; OC-1 ADMs CAN PER SUBSCRIBER
STILL BE USED (672 TRK CAP). COSTS:
EQUIPMENT SAME AS 15%, EXCEPT $704K/5.683K+210
DOUBLE THE TRUNKS =$333.88
= $646.5K+$57.5K=$704K
<PAGE>
<PAGE>4-11
MONTANA CATV-fiber/coax POTS add-on
[Graphic diagram of Switch and NIUs]
Columbia Falls 58 trks 2 @ Columbia Falls = 605
Polson 58 trks 2 @ Polson = 610
Whitefish 86 trks 1 @ Elmo = 103
Kalispell 300 trks 1 @ Finley Point = 78
All others: 1 @ Lakeside = 148
DS-1 = 264 TRKS 1 @ McGregor Lake = 16
LEC & IXC=340 1 @ Olney = 15
TOTAL=1,106 1 @ Somers = 108
1 @ Swan Lake = 26
1 @ Yellow Bay = 42
<PAGE>
<PAGE>4-12
MONTANA CATV-fiber/coax POTS add-on
TRAFFIC=50%LOC, 25%IXC, 25%LEC
TRAFFIC=6,407 LINES x 3.1CCS/LINE = 20,782 CCS = 577E
577E; approximately 679 TRKS; Therefore use OC-3 ADM. & all traffic via
switch.
IXC=144E, LEC=144E, REQS 170 TRKS IXC, 170 TRKS LEC
FOTs=OC-3 ADM AT EACH NODE, 3 AT HEADEND (SWITCH AT
HEADEND), 1@IXC AND 1@LEC = 27
22 NIU = $594K
TAND. SW. = $250K PER SUBSCRIBER COSTS:
TRKS = $276.5K $2,200.5K/6.407K SUBS
ADM FOT = $1080K +$210
TOT. = $2,200.5K =$553.45
<PAGE>
<PAGE>4-13
MONTANA CATV-fiber/coax POTS add-on
12,814 subs
9 @ KALISPELL ADMs=30+5=35
3 @ WHITEFISH TRKS: 680 LEC & IXC,
3 @ COLUMBIA FALLS 1,004 (DOUBLE 15%),
3 @ POLSON 240 DS-1,
2 @ BIG FORK 60 BIG FORK
10 @ 1 EACH, TOT. OF 30 =1,984
30 NIU = $810K
TAND. SW. = $250K PER SUBSCRIBER COSTS:
TRKS = $496K $2,956K/12.814K SUBS
ADM FOT = $1,400K +$210
TOT. = $2,956K =$440.685
<PAGE>
<PAGE>4-14
THORP @ 15%: 293 SUBS CATV-fiber/coax POTS add-on
1 NIU + MICROWAVE TRKS AS IN WPOTS
= $27K+$65K=$92K
$92K/.293K SUBS = $210 = $523.99/SUB
THORP @ 30%: 586 SUBS
1 NIU + MICROWAVE TRKS AS IN WPOTS
= $27K+$65K=$92K
$92K/.586K SUBS = $210 = $366.99/SUB
OREGON (DESCHUTES)
4 NIUs, Common Trk,=$108K+$65K=$173K
@15%, $173K/.164 SUBS + $210=$1,264.88
@30%, $173K/.328 SUBS + $210=$737.44
<PAGE>
<PAGE>4-15
JUNEAU: Wireless CATV POTS add-on
15% PENETRATION. 2,841 SUBS
6 XMT CELLS, TAND. SW, F.O.T. LINKS USING EXIST. F.O. CABLE
(SAME RUN AS LINKING CELLS TO HEADEND)
6 XMT = $234K PER SUBSCRIBER COSTS:
SWITCH = $250K $691.5K/2.841 SUBS+$270=$513.40
FOTS = $150K
TRKS = 57.5K
TOT = $691.5K
30% PENETRATION. 5,683 SUBS
7 XMT CELLS, TAND. SW, F.O.T. LINKS USING EXIST. F.O. CABLE
(SAME RUN AS LINKING CELLS TO HEADEND)
7 XMT = $273K PER SUBSCRIBER COSTS:
SWITCH = $250K $803K/5.683 SUBS+$270=$411.30
FOTS = $165K
TRKS = 115K
TOT = $803K
<PAGE>
<PAGE>4-16
MONTANA: Wireless CATV POTS add-on
15% PENETRATION. 6,407 SUBS
SAME AS COAX WITH 22 XMT CELLS, TAND. SW, F.O.T. LINKS
USING EXIST. F.O. CABLE (SAME RUN AS LINKING CELLS TO
HEADEND)
22 XMT CELLS AT PER SUBSCRIBER COSTS:
$12K EACH MORE $2,464.5K/6.407 SUBS
THAN COAX, = +$270=$654.66
$264K+$2,200.5K.
TOT =$2,464.5K
30% PENETRATION. 12,814 SUBS
SAME AS COAX WITH 30 XMT CELLS, TAND. SW, F.O.T. LINKS
USING EXIST. F.O. CABLE (SAME RUN AS LINKING CELLS TO
HEADEND)
30 XMT CELLS AT PER SUBSCRIBER COSTS:
$12K EACH MORE $3.316K/12.814 SUBS
THAN COAX,= +$270=$528.78
$360K+2956K.
TOT = $3,316K
<PAGE>
<PAGE>
APPENDIX 5
COMPARATIVE INVESTMENT COSTS
<PAGE>
<PAGE>5-1
PTI-SELECTED OPERATING AREAS - TECHNOLOGY COST COMPARISONS
------------------------------------------------------------------------
JUNEAU 18,943 lines
--------------------------------------
ITEM INVESTMENT ANN FACTOR ANN/LINE
------------------------------------------------------------------------
CO switch w/o line equip $6,730,190 0.384 $136.43
Line equipment $3,698,185 0.384 $74.97
Trunk Terminations $962,238 0.362 $18.39
DLC $2,745,555 0.318 $46.09
Subscriber facilities $18,437,308 0.318 $309.51
Trunk facilities $1,371,957 0.362 $26.22
DLC to CO facilities $33,153 0.362 $0.63
TOTAL $33,978,586 0.341321632 $612.24
------------------------------------------------------------------------
PER LINE COST
PTI $1,794
WPOTS @ 15% penetration $870
WPOTS @ 30% penetration $624
Fiber/coax CATV adder @ 15% $438
Fiber/coax CATV adder @ 30% $334
Wireless CATV adder @ 15% $513
Wireless CATV adder @ 30% $411
------------------------------------------------------------------------
<PAGE>
<PAGE>5-2
PTI-SELECTED OPERATING AREAS - TECHNOLOGY COST COMPARISONS
------------------------------------------------------------------------
MONTANA 42,714 lines
--------------------------------------
ITEM INVESTMENT ANN FACTOR ANN/LINE
------------------------------------------------------------------------
CO switch w/o line equip $9,225,189 0.415 $89.63
Line equipment $7,342,707 0.415 $71.34
Trunk Terminations $4,653,634 0.412 $44.89
DLC $5,272,371 0.367 $45.30
Subscriber facilities $31,114,433 0.367 $267.34
Trunk facilities $4,711,368 0.412 $45.44
DLC to CO facilities $834,504 0.412 $8.05
TOTAL $63,154,206 0.386859909 $571.99
------------------------------------------------------------------------
PER LINE COST
PTI $1,479
WPOTS @ 15% penetration $932
WPOTS @ 30% penetration $590
Fiber/coax CATV adder @ 15% $553
Fiber/coax CATV adder @ 30% $441
Wireless CATV adder @ 15% $655
Wireless CATV adder @ 30% $529
------------------------------------------------------------------------
<PAGE>
<PAGE>5-3
PTI-SELECTED OPERATING AREAS - TECHNOLOGY COST COMPARISONS
------------------------------------------------------------------------
THORP 1,954 lines
--------------------------------------
ITEM INVESTMENT ANN FACTOR ANN/LINE
------------------------------------------------------------------------
CO switch w/o line equip $298,013 0.67 $102.18
Line equipment $457,724 0.67 $156.95
Trunk Terminations $94,548 0.7 $33.87
DLC $91,270 0.2733 $12.77
Subscriber facilities $1,678,285 0.2733 $234.74
Trunk facilities $34,493 0.7 $12.36
DLC to CO facilities $0 0.7 $0.00
TOTAL $2,654,333 0.40699184 $552.86
------------------------------------------------------------------------
PER LINE COST
PTI $1,358
WPOTS @ 15% penetration $778
WPOTS @ 30% penetration $486
Fiber/coax CATV adder @ 15% $524
Fiber/coax CATV adder @ 30% $367
Wireless CATV adder @ 15% $625
Wireless CATV adder @ 30% $447
------------------------------------------------------------------------
<PAGE>
<PAGE>5-4
PTI-SELECTED OPERATING AREAS - TECHNOLOGY COST COMPARISONS
------------------------------------------------------------------------
OREGON 44,213 lines
--------------------------------------
ITEM INVESTMENT ANN FACTOR ANN/LINE
------------------------------------------------------------------------
CO switch w/o line equip $12,940,103 0.376 $110.05
Line equipment $10,374,259 0.376 $88.23
Trunk Terminations $6,048,179 0.437 $59.78
DLC $10,102,728 0.288 $65.81
Subscriber facilities $58,436,765 0.288 $380.65
Trunk facilities $5,224,989 0.437 $51.64
DLC to CO facilities $543,865 0.437 $5.38
TOTAL $103,670,888 0.324774082 $761.53
------------------------------------------------------------------------
Assume Deschutes is 20% more
PER LINE COST than Oregon average:
PTI $2,814
WPOTS @ 15% penetration $2,578
WPOTS @ 30% penetration $1,393
Fiber/coax CATV adder @ 15% $1,265
Fiber/coax CATV adder @ 30% $737
Wireless CATV adder @ 15% $1,618
Wireless CATV adder @ 30% $944
------------------------------------------------------------------------
<PAGE>
<PAGE>
APPENDIX 6
COMPETITOR PROFILES
<PAGE>
<PAGE>6-1
COMPETITOR PROFILES
AMERICAN TELECASTING, INC.
PRINCIPAL PRODUCTS/SERVICES
-- Multichannel multipoint distribution services (MMDS) (wireless
cable television distribution)
FINANCIAL RESOURCES
-- Small
- Growing interest of financial community, however
-- Recent public offering made to finance construction, possible
acquisitions, repay debt
-- Fifteen percent owned by CFW, and Botetourt Communications Inc.
- Partners in ValleyNet, regional fiber-based long distance
carrier's carrier; earlier fiber network, Southernet sold to
MCI
- Partners in Metrotel Inc., CAP in Richmond area
- FCC authorized Botetourt Communications to build MMDS system
in its telephone serving area, ruling that 1984
cross-ownership ban did not apply to wireless cable (the FCC
made this ruling, even though Botetourt qualifies for the
rural exemption to the cross-ownership prohibition)
<PAGE>
<PAGE>6-2
0THER RESOURCES
-- Programmers developing news, special interest services for
distribution to PCs via wireless cable
-- Availability of digital compression soon
-- Access to complete programming authorized by the Cable Act of
1992
-- Up-front expenses small for wireless cable systems
-- Investment in Wireless Cable Labs R&D
POSSIBLE ENTRY TARGETS IN PTI AREAS
-- Video distribution
LIKELY PTI TARGET OPERATING AREAS
-- Kalispell; currently operates system in Billings
LIKELY TECHNOLOGY(IES) FOR ENTRY
-- MMDS system
KEY MARKETING AND SERVICE STRENGTHS
-- Emphasizes customer service, lower prices than cable
-- Expertise in telephone, cable, cellular operations via CFW and
Botetourt
<PAGE>
<PAGE>6-3
PRINCIPAL MOTIVATION
-- Expand to additional areas; initially targets areas not served by
cable TV, later competes with existing systems
KEY ALLIANCES
-- With Zenith and Conifer, testing interactive wireless equipment
- First such involving wireless systems, demonstrated at
recent wireless cable association convention
- Pay-per-view order processing, bypassing phone lines, using
Zenith's Z-view ordering system and Conifer's transconverter
- Digital transmission to increase channel capacity or to
provide HDTV
<PAGE>
<PAGE>6-4
AT&T
PRINCIPAL PRODUCTS/SERVICES (OF INTEREST TO THE STUDY)
-- Ubiquitous long distance (interexchange) service
-- Intra-LATA service in 19 states
-- Equipment, including switches and network equipment for both
wireline and wireless services
FINANCIAL RESOURCES
-- High
-- Leasing operations of AT&T Capital
OTHER RESOURCES
-- PCS experimental test at 6 GHz using its previously allotted
spectrum
-- McCaw's experimental PCS license
POSSIBLE ENTRY TARGETS IN PTI AREAS
-- PCS
-- Intra-LATA toll service
LIKELY PTI TARGET OPERATING AREAS
-- Oregon, Washington
<PAGE>
<PAGE>6-5
LIKELY TECHNOLOGY(IES) FOR ENTRY
-- Wireline
-- PCS
KEY MARKETING AND SERVICE STRENGTHS
-- Reputation for technical, service quality
-- Has set up multimedia products and services group
-- Expertise in cellular via McCaw
-- Time Warner purchasing ATM switches for its full service network
PRINCIPAL MOTIVATION
-- Has articulated interest in providing "national hosting network";
"vision" based on providing global network; providing service
"anywhere, anytime"
-- It is impossible to "define and divide" wireless opportunities
from other opportunities...; wireless is "absolutely central" to
its strategy and "key" to the growth of its profitability
KEY ALLIANCES
-- Merger with McCaw
- McCaw: 20% of cellular market; serves 2.2 m customers in 100
cities
- McCaw/TCI experimental PCS license; testing low-cost
service, connection to other carriers outside of area
-- With US West and TCI, testing video on demand in Denver
<PAGE>
<PAGE>6-6
-- Investments in EO and GO, to develop personal communicator
-- Alliances aimed at multimedia and interactive applications
include those with Viacom, Sega, Sierra on-Line, and 3D-O
- With Viacom, Sega, and CUC International Inc., to test video
on demand, pay per view, and interactive shopping services
in Castro Valley, CA
- With Sega, introducing platform enabling video game players
to speak and play with each other
- Investment in Sierra, developer of on-line interactive games
- Investment in 3D-O, developer of interactive multimedia
player
-- With US west and TCI joint venture TeleWest in the UK, to test
telephone service using AT&T's new loop carrier distribution
system
-- Investor in General Magic, consortium formed by Apple to develop
software for wireless communications
-- With Zenith, developing HDTV
-- Purchased Shaye Communications, UK manufacturer of
next-generation digital cordless phones
<PAGE>
<PAGE>6-7
CELLULAR, INC.
PRINCIPAL PRODUCTS/SERVICES
-- Manages, finances wireline cellular operations
-- Serves rural customers in 800,000 square-mile area of 3.7 m pops
-- Has 48,000 customers in 600 communities in eight states
FINANCIAL RESOURCES
-- Medium
-- Stable, long-term funding
POSSIBLE ENTRY TARGETS IN PTI AREAS
-- New segments, including health, safety, security
-- Additional RSAs
LIKELY PTI TARGET OPERATING AREAS
-- Kalispell
LIKELY TECHNOLOGY(IES) FOR ENTRY
-- Cellular voice, data
-- PCS (?)
<PAGE>
<PAGE>6-8
KEY MARKETING AND SERVICE STRENGTHS
-- Low acquisition costs
-- High operating efficiencies
-- Largest operator of contiguous markets, targets surrounding
isolated areas
-- Largest provider of rural cellular services; expertise in serving
rural customers
-- Markets under single brand--Commnet 2000
-- Favorable pricing, including roaming arrangements
-- Churn = 1.8 vs. 2.4 industry average
PRINCIPAL MOTIVATION
-- Acquire new customers; introduce new applications
KEY ALLIANCES
-- With US West, roaming agreements
-- Member of MobilLink consortium
-- With Cellular Data, Inc., provides mobile data (as competitor to
Ardis, RAM, Skytel)
-- With TVI, provides visual alarm system
<PAGE>
<PAGE>6-9
ELECTRIC LIGHTWAVE, INC.
PRINCIPAL PRODUCTS/SERVICES
-- Alternative access provider (CAP) in Portland, Seattle, Phoenix,
Sacramento, Salt Lake
FINANCIAL RESOURCES:
-- Moderate
OTHER RESOURCES:
-- Citizens Utilities owns 80%
- Citizens' cable TV subsidiary, Century Communications,
deploying compression technology, in major markets first
- Century Communications owns cable systems in Washington and
Wisconsin
POSSIBLE ENTRY TARGETS IN PTI AREAS
-- Telephone service in 2nd tier cities, fiber nets between 2nd and
3rd tier cities
-- PCS
LIKELY PTI TARGET OPERATING AREAS
-- Lebanon, other Oregon areas
-- Washington
-- Wisconsin
<PAGE>
<PAGE>6-10
LIKELY TECHNOLOGY(IES) FOR ENTRY
-- Fiber
-- PCS
KEY MARKETING AND SERVICE STRENGTHS
-- LEC, IXC, cable TV, and cellular expertise via owners
PRINCIPAL MOTIVATION
-- Desires to enter local exchange business
-- "We've got to constantly engage in the development of new
services"
-- Opportunity to employ suburban fiber rings for IXC access
KEY ALLIANCES
-- Expected with new PCS builder/manager John Warta (former ELI CEO)
<PAGE>
<PAGE>6-11
HUGHES COMMUNICATIONS
PRINCIPAL PRODUCTS/SERVICES (OF INTEREST TO THE STUDY)
-- Satellite services for video distribution, business
communications, digital cellular handsets and satellite via
HughesNetwork Systems and GM Hughes Electronics
-- Direct broadcast satellite video service and programming via
DirecTV
FINANCIAL RESOURCES
-- Large
OTHER RESOURCES
-- PCS experimental license
-- Starsys Global Positioning Inc., little LEO system
POSSIBLE ENTRY TARGETS IN PTI AREAS
-- Video distribution
LIKELY PTI TARGET OPERATING AREAS
-- All rural areas, beginning with Midwest regions
LIKELY TECHNOLOGY(IES) FOR ENTRY
-- Satellite
<PAGE>
<PAGE>6-12
KEY MARKETING AND SERVICE STRENGTHS
-- Expertise of partners
-- Experience in deployment, marketing of C-band satellite services
PRINCIPAL MOTIVATION
-- Supply television to rural users, including packages of broadcast
and cable programming, extensive pay-per-view programming (50
channels planned), and 24-hour special interest programming
KEY ALLIANCES
-- With McCaw, provides airphone service for Southwest and Alaska
Airlines via Claircom Communications
-- With Hubbard Broadcasting Corporation, RCA, DEC, Cincinnati Bell
others to offer DBS in 1994
- National Rural Telecommunications Cooperative (NRTC) (250
rural telephone and electric companies, serving 2.5 m
households, has agreed to offer the service
- Twenty channels initially, to expand to 150-200
- Programming agreements with cable programmers and movie
studios
- Potentially, distribution agreements with cable, MMDS, SMATV
operators
<PAGE>
<PAGE>6-13
MCI
PRINCIPAL PRODUCTS/SERVICES
-- Long distance (interexchange) service
FINANCIAL RESOURCES
-- High
OTHER RESOURCES
-- PCS test with American Personal Communications, holder of
pioneer's preference license; potential joint venture
-- Founder of nationwide PCS consortium made up of cable companies,
LECs, IXCs
- Members total more than 100
- MCI to manage network services, technical standards,
marketing
POSSIBLE ENTRY TARGETS IN PTI AREAS
-- Intra-LATA toll
-- PCS
LIKELY PTI TARGET OPERATING AREAS
-- All intra-LATA markets
-- All for PCS
<PAGE>
<PAGE>6-14
LIKELY TECHNOLOGY(IES) FOR ENTRY
-- PCS
KEY MARKETING AND SERVICE STRENGTHS
-- Entrepreneurial culture
-- Marketing expertise
-- Capability of leveraging intelligent network technology to roll
out advanced services ahead of competitors
-- Large federal contracts
PRINCIPAL MOTIVATION
-- Aims to be "one of the five or six leading global communications
companies in the world"; goal to "move forward to build our
business domestically, compete more aggressively on a global
scale and pursue emerging opportunities such as PCS and
multimedia
-- Desire to compete with AT&T in all available markets
KEY ALLIANCES
-- British Telecom (BT) investment of $4.3 B
-- Stentor, consortium composed of Bell Canada and eight other
Canadian telephone companies, created to develop a seamless
cross-border intelligent network platform
-- Thirty percent interest in GCI, provider of both interstate and
intrastate services in Alaska
-- Partner in long distance competitors Clear Communications of New
Zealand and AAP in Australia
<PAGE>
<PAGE>6-15
MOTOROLA
PRINCIPAL PRODUCTS/SERVICES (OF INTEREST TO THE STUDY)
-- Via Motorola Satellite Services, Inc., Iridium: low earth orbit
satellite service scheduled for operation in 1998 to offer
switched voice, data, messaging
-- Mobile infrastructure equipment, handsets
FINANCIAL RESOURCES
-- High
OTHER RESOURCES
-- Specialized mobile radio (SMR) frequencies nationwide, some
recently sold to SMR consortium planning nationwide digital
service (led by Nextel)
-- PCS experimental license
-- In foreign markets, owner of SMR, paging, cellular, frequencies;
paging operator; owner of cellular systems
POSSIBLE ENTRY TARGETS IN PTI AREAS
-- Despite uncertainties concerning the viability of LEO service,
some FCC spokesmen believe the service will be competitive in
high-cost rural areas
LIKELY PTI TARGET OPERATING AREAS
-- All
<PAGE>
<PAGE>6-16
LIKELY TECHNOLOGY(IES) FOR ENTRY
-- Low-earth orbit satellite
KEY MARKETING AND SERVICE STRENGTHS
-- Motorola's expertise, reputation, and partnerships in the
development, manufacture, and deployment of mobile equipment,
services
- Its communications arena accounts for more than 50% of
revenues
- World's largest supplier of equipment for wireless
applications
-- Deployment of fixed wireless local loop system WiLL in Sri Lanka,
Russia
PRINCIPAL MOTIVATION
-- Initial target is the mobile business user; additionally plans to
target all rural users, particularly those in isolated areas as
usage volume increases and prices can be dropped
KEY ALLIANCES
-- For Iridium, Sony, Mitsubishi, other Japanese investors; Sprint;
Bell Canada; Raytheon, Lockheed; and others
-- With IBM, ARDIS mobile data network
-- With Apple and IBM, developed PowerPC, RISC chip
-- Partner with Skytel paging operation in UK (Skytel is paging
subsidiary of Mtel; it has frequency for nationwide paging
network and has been awarded the only narrowband PCS pioneer's
preference award)
-- With Apple, AT&T, Matsushita, and Sony, investor in Apple's
software spin-off General Magic
<PAGE>
<PAGE>6-17
-- With Sagem, supplies GSM infrastructure equipment in France
-- Equity stake in Cellular Tokyo
-- GSM/PCN cross-licensing agreement with Siemens, Alcatel, Philips
-- Supplier of digital mobile handsets to NEC
-- With Ungermann-Bass, suppliers wireless LAN and smart hub
equipment
<PAGE>
<PAGE>6-18
NEXTEL
PRINCIPAL PRODUCTS/SERVICES
-- Specialized mobile radio (SMR) service
FINANCIAL RESOURCES
-- Medium
-- Funding from Comcast Corporation, Matsushita Communications,
Motorola, and Northern Telecom
OTHER RESOURCES
-- Largest operator of SMR systems
-- Aggressively acquiring, merging with additional systems to
consolidate licenses
-- In conjunction with CenCall Communications, Inc. and Dial Page,
purchased 42% of Motorola's SMR licenses
-- In sum, these activities have resulted in nearly nationwide
coverage; markets include 115-130m POPS
<PAGE>
<PAGE>6-19
-- Via the Digital Mobile Network Roaming Consortium with other
operators, plans to offer cellular-quality voice communications
along with transparent nationwide roaming
- Offerings also include wireless data, paging, two-way
messaging, usage-sensitive billing
- Licenses cover 24 top metropolitan statistical areas
- Nextel has already turned up its digital service in Southern
California
-- FCC considering ways to encourage development of services in
900 MHz band
POSSIBLE ENTRY TARGETS IN PTI AREAS
-- Mobile voice
-- Paging
-- Eventually, PCS
LIKELY PTI TARGET OPERATING AREAS
-- Via CenCall merger, Washington, Oregon
-- Via acquisition of Motorola frequencies with CenCall, Washington,
Oregon, Montana
-- Eventually, all
LIKELY TECHNOLOGY(IES) FOR ENTRY
-- Enhanced SMR (ESMR) employs Motorola's TDMA technology, GSM
switching equipment, Octel voice messaging equipment
-- Consortium likely to choose single long distance provider
<PAGE>
<PAGE>6-20
KEY MARKETING AND SERVICE STRENGTHS
-- Leader in developing digital system and nationwide consortium
-- Capability for raising capital, making deals with other operators
PRINCIPAL MOTIVATION
-- Aims to deploy nationwide digital network in advance of cellular
operators; target will continue to be business customers who use
more than one form of mobile communication
-- Will attempt to migrate its current analog customers first, then
address mass cellular market
KEY ALLIANCES
-- Consortium members: Dispatch Communications, Inc., Transit
Communications, Inc., American Mobile Systems, Inc., CenCall,
Inc., PowerFone, Inc., Questar Telecom, Inc., Advanced
MobileComm, Inc.
-- Interests in CenCall, Dial Page, Questar, Advanced MobileComm,
among others
<PAGE>
<PAGE>6-21
TELECOMMUNICATIONS, INC. (TCI)
PRINCIPAL PRODUCTS/SERVICES
-- Multiple service operator (MSO); cable program distributor; owner
of Liberty Media programming company; interest in cable
advertising; investor in movie production companies; interest in
direct broadcast satellite venture; interest in alternative
access providers (CAPs), UK cable/telephony systems; part owner
of Ireland's second largest cable and multichannel multipoint
distributor system (MMDS)
FINANCIAL RESOURCES
-- High
-- Largest MSO
-- Donaldson, Lufkin, Jennrette calls it the "Tiffany of cable
systems"
OTHER RESOURCES
-- Via Bell Atlantic, partner in CellularVision, 28 MHz wireless
cable operator, holder of pioneer's preference license for New
York and Los Angeles
POSSIBLE ENTRY TARGETS IN PTI AREAS
-- Telephony/video
-- PCS
-- DBS via interest in Prime Star
<PAGE>
<PAGE>6-22
LIKELY PTI TARGET OPERATING AREAS
-- Kalispell
-- Lebanon, OR
-- Portland area
-- Via Bell Atlantic, eventually, all
LIKELY TECHNOLOGY(IES) FOR ENTRY
-- Cable
-- PCS
-- Fiber rings
KEY MARKETING AND SERVICE STRENGTHS
-- Serves 49 states--strongholds are small towns and rural areas
-- Management includes sophisticated players in entertainment
programming
-- Four testbed trials of interactive video, video on demand,
improved customer service
-- Testing LAN access to Internet for telecommuting and education
usage
PRINCIPAL MOTIVATION
-- "We're prepared to become an integral, and we hope a significant,
player in a national broadband switched network
-- "Bell Atlantic is excellent at providing POTS, and it will do
well in locations where the incumbent is underserving the POTS
market" (Teleport spokesman)
<PAGE>
<PAGE>6-23
KEY ALLIANCES
-- Bell Atlantic purchased, 10/93
-- With AT&T and US West, conducting video on demand test using
hardware, software developed in conjunction with Time Warner
-- With US West, eight cable systems in the UK, others in France,
Hungary, Sweden, Norway (Time Warner participant in Hungary,
Norway)
-- Owns 30% of Teleport; owner of Digital Direct, a CAP serving
Oregon and Washington
-- With McCaw, conducting PCS test in Ashland OR; features low-cost
service offering connecting to larger cellular network outside of
Ashland
-- Twenty percent owner in DBS consortium, with five MSOs and GE
-- Investor in Interactive Network, developer of interactive TV
platform
-- With Time Warner and Sega, developing interactive game channel
<PAGE>
<PAGE>6-24
US WEST
PRINCIPAL PRODUCTS/SERVICES
-- Local exchange , cellular, and paging service; cable TV in UK
FINANCIAL RESOURCES
-- High; recent sales of paging division, rural exchange operations
OTHER RESOURCES
-- 10th largest U.S. cellular operator; markets cover 25.5 m pops;
US West share is 17.9 m
-- Constructing broadband networks throughout 14-state region; first
test scheduled for Omaha in 1994
-- Time Warner partner is second-largest multiple systems operator
(MSO)
-- Both U.S. West and Time Warner PCS trials
POSSIBLE ENTRY TARGETS IN PTI AREAS
-- PCS
-- CAP services in 2nd, 3rd tier markets with Time Warner
<PAGE>
<PAGE>6-25
LIKELY PTI TARGET OPERATING AREAS
-- Oregon, Washington
-- Montana
-- Wisconsin, via Time Warner (in Eau Claire and Milwaukee, where
New Media Cable provides private line data service)
LIKELY TECHNOLOGY(IES) FOR ENTRY
-- Fiber
-- PCS
KEY MARKETING AND SERVICE STRENGTHS
-- Groundbreaking construction of cellular networks and
international gateways in Eastern Europe, cable/telephony
networks in the UK
-- Expertise in cable TV, particularly in complex billing, etc.,
gained through UK ventures
-- Telco expertise in customer service for consumers
-- Via Time Warner, access to programming
-- To trial video on demand in Omaha
<PAGE>
<PAGE>6-26
PRINCIPAL MOTIVATION
-- Plans to turn its 14-state area into a broadband highway for both
consumers and businesses
-- Stated intention to offer "connections" for all providers,
services
-- "Going forward, we intend to place more emphasis on two-way voice
and data technologies, including cellular and personal
communications services" (explanation of reason for selling
paging division)
KEY ALLIANCES
-- Twenty-five percent stake in Time Warner Entertainment L.P.
(cable and entertainment operations)
- Formed alternative access company, AxS; requested authority
to offer local residential/business, intra-/intercity,
switched/nonswitched service in Rochester and Albany
- To develop full service networks in serving areas of both
parents
-- To manage development of full service networks outside its area
in conjunction with other partners via its new unit Multimedia
Communications Group
-- With Telecommunications, Inc. (TCI) and AT&T, testing video on
demand in Denver
-- With TCI, 17 cable TV/telephony franchises in the UK via TeleWest
-- With Cable & Wireless, operator of PCS service in UK--"the
world's first commercial personal communications network";
offering includes custom calling features, voice messaging,
itemized billing at no extra charge
-- Possible interest in acquiring Cablevision (New York), holder of
PCS license
<PAGE>1
EXHIBIT (b)(9)
CLIENT PRIVATE
PROSPECTS FOR PTI'S RURAL
EXCHANGE BUSINESS
Draft Final Report
For
PACIFIC TELECOM, INC.
April 25, 1994
Prepared by
SRI INTERNATIONAL
<PAGE>
<PAGE>
PROSPECTS FOR PTI'S RURAL EXCHANGE BUSINESS 1
OBJECTIVES 3
EXECUTIVE SUMMARY 4
Findings 4
Conclusions 5
Recommendations 6
METHODOLOGY--Framework For This Study 7
PTI'S MIDWEST REGION RURAL LEC BUSINESS 8
The Business 8
PTI's Wisconsin Customer Base Has Depth 9
Midwest Business Customers Do Not Dominate 10
PTI's Objects/Business Philosophy 11
PTI's Platform: Status & Plans 13
Summary of PTI's Competitive Position 17
Conclusions: PTI's Competitive Position 19
MAJOR PERCEIVED THREATS AND ISSUES 20
Perceived Technical Threats 20
Perceived Regulatory/Competitive Threats 21
Threat Analysis Summary For Rural LECs 22
Bypass 23
New Technology: PCS 25
PCS: Likely Implementation Timeline 27
The Likely Roll-Out For PCS: Conclusions 28
New Technology: Cable TV 30
Video Dialtone: Likely Implementation Timeline 31
The Likely Roll-Out For Video Dial Tone: Conclusions 32
New Technology: Cellular 33
New Technology: Wireless POTS 34
New Technology: Wireless Cable TV 35
New Technology: Satellite 36
Updated Economic Analysis 37
Updated Economic Analysis For Thorp 39
Updated Economic Analysis For Juneau 40
Updated Economic Analysis For Kalispell 41
Economic Analysis: Cellular and PCS 42
Regulatory Threats 43
Competitive Threats 44
Summary of Real threats to PTI 45
BARRIERS TO ENTRY 47
OPPORTUNITIES FOR PTI 49
Opportunities 49
Assets For Partnering 50
RECOMMENDATIONS 53
<PAGE>
<PAGE>2
TABLE OF CONTENTS
* Project Objectives
* Executive Summary
* Study Framework - Methodology
* PTI's Midwest Region Rural LEC Business
* Major Perceived Threats and Issues
* Barriers to Entry into PTI's Rural LEC Business
* Opportunities for PTI
* Recommendations
<PAGE>
<PAGE>3
OBJECTIVES
PROJECT OBJECTIVES
Provide an independent assessment of the prospects for PTI's Rural LEC
Business:
* Is PTI's rural exchange business a viable growth opportunity for
continuing investment, or is further prudent investment precluded
because of significant threats, represented by:
- New technologies
- New competitors
- Changing regulatory environment
* What is the future for this business and where is it likely to go
as a result of the likely impacts of these threats?
<PAGE>
<PAGE>4
EXECUTIVE SUMMARY
FINDINGS
* There appear to be no serious threats to the Midwest Region's
business at this time
* PTI's Midwest Region platform and business--current and planned-
-position the company well to deal with new competition and
technologies
* The new technologies--especially Cellular, Cable TV and PCS--
constitute emerging opportunities for PTI to expand its revenues
* The bypass threat via existing or new technologies could erode
portions of PTI's LEC business over the longer term--but only if
PTI adopts a do-nothing, "siege" mentality
<PAGE>
<PAGE>5
EXECUTIVE SUMMARY
CONCLUSIONS
* The Midwest Region constitutes an excellent model by which PTI can
manage and expand its rural local exchange business in an increasingly
competitive environment
* PTI has the time and resources to plan/position the company for long
term development
* The Midwest Region has valuable assets which should prove attractive
for growth through strategic alliances
<PAGE>
<PAGE>6
EXECUTIVE SUMMARY
RECOMMENDATIONS
* Continue to identify specific bypass targets and incursions; develop
models that quantify probable revenue impact
* Benchmark PTI's remaining two rural exchange regions against the
Midwest Region to determine vulnerabilities to competition and new
technologies
* Develop individual action plans for the rural exchange businesses
* Develop an overall strategic plan--including strategic alliances--for
the corporation
<PAGE>
<PAGE>7
METHODOLOGY
FRAMEWORK FOR THIS STUDY
* Focused 4-week effort--to present results at the April 25 meeting of
PTI's Executive Steering Committee
--> Input to upcoming PTI and PacifiCorp Board Meetings
* Recent Edgar, Dunn study (November, 1993)--the starting point for
SRI's analysis
--> Useful existing information, database and analyses
--> Preliminary cost models, assessed and refined by SRI
* PTI's Midwest Region--the model for the Rural LEC Business
--> A reasonable platform for assessing company capabilities and
direction
--> A likely profile of the type of LEC to buy
<PAGE>
<PAGE>8
PTI'S MIDWEST REGION RURAL LEC BUSINESS
THE BUSINESS
* 110,000 access lines
* 8 operating companies, approximately 52 exchanges--primarily
in rural Wisconsin
* Midwest Region primarily serves small communities
* No account represents more than about $20,000 in monthly billings
* Two of the largest accounts are universities, not businesses:
-- University of Wisconsin, Platteville
-- Ripon College, Ripon
* All properties combined provide a diversified economic base: vacation
resort areas, small businesses, working communities, bedroom
communities--with a strong agricultural component
<PAGE>
<PAGE>9
PTI'S MIDWEST REGION RURAL LEC BUSINESS
PTI'S WISCONSIN CUSTOMER BASE HAS DEPTH
[BAR GRAPH CHART -- TOP 25 WISCONSIN SUBSCRIBERS RANKED BY MONTHLY BILL]
<PAGE>
<PAGE>10
PTI'S MIDWEST REGION RURAL LEC BUSINESS
MIDWEST BUSINESS CUSTOMERS DO NOT DOMINATE
[PIE CHART -- RESIDENTIAL/BUSINESS SPLIT: LINES]
[PIE CHART -- RESIDENTIAL/BUSINESS SPLIT: BILLINGS]
<PAGE>
<PAGE>11
PTI'S MIDWEST REGION RURAL LEC BUSINESS
PTI'S OBJECTIVES/BUSINESS PHILOSOPHY
* Focus on providing services, not owning equipment
* Be the lowest-cost provider, not necessarily the lowest-priced
provider
* PTI to be the customers' first choice provider
* Interexchange Carriers are key customers for PTI, not competitors
* PTI infrastructure to be the switching/pipeline platform of choice for
everyone to enable them to get what they need:
-- Offer new services: AIN, PCS, broadband, etc.
-- Leverage PTI's complementary services--e.g., Cellular, Cable TV
-- Focus on optimizing revenue sharing/retention
<PAGE>
<PAGE>12
PTI'S MIDWEST REGION RURAL LEC BUSINESS
PTI'S OBJECTIVES/BUSINESS PHILOSOPHY, END
* Use strategic alliances (Joint ventures, partnerships, etc.) to
exploit and fund new business opportunities
* Control capital expenditures--don't spend to build the rate base; do
spend to enhance capabilities
* Strive to meet customer-requested due dates--Residential, Business and
IXC
* Price services to be cost-based for local transport and access--to
improve immunity to competitive threats
<PAGE>
<PAGE>13
PTI'S MIDWEST REGION RURAL LEC BUSINESS
PTI'S PLATFORM: STATUS & PLANS
I. PLANT
* Infrastructure is 100% digital, 100% single-party now
* Fiber on all inter-exchange routes and to all remotes by 2000
* Copper loop lengths no more than 9 - 12 Kft. by 1998 for ADSL; 18 Kft.
for ISDN (70% of lines today meet the ADSL requirement)
* Upgrading copper plant to add ADSL when needed
* Installing digital loop carrier and remotes with interfaces into
switches--allows replacement of copper with fiber, increases
capabilities
* Upgrading to host/remotes to concentrate/reduce billing and software
expenses
<PAGE>
<PAGE>14
PTI'S MIDWEST REGION RURAL LEC BUSINESS
PTI'S PLATFORM: STATUS & PLANS
II. CUSTOMER SERVICES
* Enhanced Universal Service coverage: Group 3 Fax and 9600 baud data
service already 98% available; the rest installable
* Equal-Access: 100% equipped
* Extended Community Calling recently implemented
* Lifeline service implemented in 1994
* Offer video/broadband services--all 8 companies in 8 years via fiber,
ADSL, T-1, T-2, etc.
* Mandatory measured service in 5 years desired by PTI/WPUC: More
attractive access line rates, reduces opportunities for competition
<PAGE>
<PAGE>15
PTI'S MIDWEST REGION RURAL LEC BUSINESS
PTI'S PLATFORM: STATUS & PLANS, CONTINUED
II. CUSTOMER SERVICES, CONT'D
* ISDN: Switches not yet upgraded; offer Ameritech ISDN on resale,
as-needed basis--for now
* Planning evolutionary additions to switches/services: CLASS,
voicemail, directory services for extended-service calling areas
* Cost-based services will reduce the need for subsidies and transfer
payments--e.g., access fees, USF requirements,
<PAGE>
<PAGE>16
PTI'S MIDWEST REGION RURAL LEC BUSINESS
PTI'S PLATFORM: STATUS & PLANS, CONCLUDED
III. NETWORK SERVICES & OPERATIONS
* All customers now on-line to any PTI business office
* All end-offices SS7 capable by YE 1995
* Installing remote testing to reduce customer reports of troubles:
-- 0.9 by 1996
-- Zero by 2000 --> Fixes Before Failures
* 24 hours/day, 7 day/week operation for trouble reporting and service
orders--by mid-1996
* Plant utilization is high (approximately 90%); lines/employee has
increased.
<PAGE>
<PAGE>17
PTI'S MIDWEST REGION RURAL LEC BUSINESS
SUMMARY OF PTI'S COMPETITIVE POSITION
* PTI current service offering constitutes an upgraded level for
Universal Service coverage and quality for the needs of most
residential and business customers:
-- Group 3 Fax and 9600 baud data service
-- Extended Community Calling
* Due in 1994:
-- Lifeline Service - a further improvement in service quality
-- Digital Loop Carrier/remote switches
* Due in 1995: New AIN-based services that will enable Caller-ID; ISDN
D-Channel; special 800-number facilities
<PAGE>
<PAGE>18
PTI'S MIDWEST REGION RURAL LEC BUSINESS
SUMMARY OF PTI'S COMPETITIVE POSITION, CONCL.
* Due in 1995-1996: Capability to offer advanced voice and data
services or video dial tone, via ISDN, T-1, T-2, ADSL, etc.
* Due in 1996: Remote testing to further improve user perceptions of
service and quality, and to reduce internal labor costs further
* Due by 2000-2002: Ability to compete with largest CATV operators for
video/broadband services
<PAGE>
<PAGE>19
PTI'S MIDWEST REGION RURAL LEC BUSINESS
CONCLUSIONS: PTI'S COMPETITIVE POSITION
* From a platform perspective, PTI appears to be prepared for wireline
competition in almost any form and will be positioned to interface to
any wireless provider
* Plant improvements and upgraded customer services appear to position
PTI well to be the "partner of choice" for transport services
--> New revenue opportunities and revenue streams
* PTI appears to be well-poised for NII initiatives. Owning access to
the end-user customer will facilitate partnering.
* Focus on cost reduction raises barriers to entry
* Ample time for PTI to consider PCS and Cable TV as part of its
arsenal--as opportunities for revenue growth
* Bypass appears to be the most serious threat, but PTI's broad customer
base minimizes vulnerability to these incursions
<PAGE>
<PAGE>20
MAJOR PERCEIVED THREATS AND ISSUES
PERCEIVED TECHNICAL THREATS
[GRAPHIC REPRESENTATIONS OF OUTSIDE THREATS]
<PAGE>
<PAGE>21
MAJOR PERCEIVED THREATS AND ISSUES
PERCEIVED REGULATORY/COMPETITIVE THREATS
[GRAPHIC REPRESENTATION OF REGULATORY/COMPETITIVE THREATS]
<PAGE>
<PAGE>22
MAJOR PERCEIVED THREATS AND ISSUES
THREAT ANALYSIS SUMMARY FOR RURAL LECs
THREAT THREAT POTENTIAL WHEN?
---------------------------- ---------------- -----
* Bypass 2: High [graphic] Now
* New Technology
- PCS 3: Moderate [graphic] 2000
- Cable TV 3: Moderate [graphic] 1998
- Cellular 4: Low [graphic] Now
- Wireless POTS 4: Low [graphic] Now
- Wireless Cable TV 5: None [graphic] 1998
- Satellite (LEOs, etc.) 5: None [graphic] 1996
* Regulatory changes 3: Moderate [graphic] 1995
* Competitive Inroads 3: Moderate [graphic] 1996
<PAGE>
<PAGE>23
MAJOR PERCEIVED THREATS AND ISSUES
BYPASS
HIGH THREAT POTENTIAL: [GRAPHIC] NOW
Bypass poses a significant threat. Each time it happens, the LEC loses its
transfer payments for switched access. For example:
* AT&T can provide its "Megacom" service directly to a key PTI account
-- With PTI providing the local pipe (e.g., T-1), or
-- With a competitor providing the local pipe
* MCI has announced a strategy of "moving closer to the customer" via
wireless (e.g., Nextel) or other means
* In general, the IXCs would like to reduce their perceived
transfer-payment burden
<PAGE>
<PAGE>24
MAJOR PERCEIVED THREATS AND ISSUES
BYPASS, CONCL.
However, for PTI, most of this threat is more "bark" than "bite"--
especially for its Midwest platform
* In general, PTI's broad customer base prevents such "raids" from
causing serious damage--although certain exchanges (e.g., Juneau,
Alaska) are far more vulnerable than others
* Most IXC incursions are targeted for urban, not rural
* For the Midwest Region, bypass has been a rare event thus far
* Bypass can be largely averted if PTI sets prices flexibly and
dynamically
--> At worst, bypass could seriously erode revenues for a small set of
targeted and vulnerable PTI exchanges--but it does not have the
potential to undermine PTI's entire LEC business
<PAGE>
<PAGE>25
MAJOR PERCEIVED THREATS AND ISSUES
NEW TECHNOLOGY: PCS
MODERATE THREAT POTENTIAL: [GRAPHIC] YEAR 2000
Microcellular PCS is not a critical threat to rural LECs today, nor will it
be for quite some time
* Full implementation is many years away. Its birth is chaotic:
there are numerous competing standards, and many procedural
hurdles remain
* It will have to compete with cellular and ESMR
* Infrastructure and spectrum costs are uncertain; estimates vary
widely
Overlay PCS is not intended or targeted to replace rural LEC plant
* It is designed for urban canyons and suburban sprawls, not for
open country
* Costs would be prohibitive--for the many micro cell-sites and
their interconnection
<PAGE>
<PAGE>26
MAJOR PERCEIVED THREATS AND ISSUES
NEW TECHNOLOGY: PCS
Niche PCS could be far more of a threat, since it can be targeted for a
particular "pocket" (e.g., as a wireless PABX serving an office building or
campus), with the traffic piped out
* However, this is just another form of bypass
* Other bypass technologies (e.g., based on copper or fiber) are
here now, and their threat is more imminent
No single entity has the capabilities to offer PCS alone.
* Bellcore's PCS proposal is based on leveraging existing LEC plant
--> a PTI opportunity
<PAGE>
<PAGE>27
PCS: LIKELY IMPLEMENTATION TIMELINE
[GRAPHIC TIMELINE - 1992-2006]
<PAGE>
<PAGE>28
MAJOR PERCEIVED THREATS AND ISSUES
THE LIKELY ROLL-OUT FOR PCS: CONCLUSIONS
* PCS will happen, but the way is tortured:
- 16 candidate technologies in the queue
- Licensing is up for discussion - parameters undefined
- Existing licensees have up to 2 years to negotiate with
current spectrum users
* PCS licensees will be looking for:
- Rapid deployment
- Customer access
- Back-room services: billing, etc.
<PAGE>
<PAGE>29
MAJOR PERCEIVED THREATS AND ISSUES
THE LIKELY ROLL-OUT FOR PCS: CONCLUSIONS,
COMPLETED
* PCS licensees will be looking for:
- Inter-system roaming --> will need ties to the LECs
- Opportunities to offer new services: ANI, Voice-mail, etc.
* For PTI, PCS constitutes more of an opportunity than a threat--
especially if PTI establishes joint venture(s) with credible
operators
<PAGE>
<PAGE>30
MAJOR PERCEIVED THREATS AND ISSUES
NEW TECHNOLOGY: CABLE TV
MODERATE THREAT POTENTIAL: [GRAPHIC] 1998
Providing telephony via existing Cable TV infrastructures is technically
feasible, but is still unproven. Many problems remain, including:
* Converting one-way plant to two-way operation
* Channelizing the coax or fiber (FDMA, TDMA)
* Designing and standardizing low-cost subscriber equipment
* Adding switch functionality
* Combining traffic at the head-end; interfacing with the telcos
* Offering a full-service complement--billing, E911, SS7, AIN, etc.
--> While cable TV plant is used now to transport trunked traffic in major
metro areas, using it to offer competitive LEC services will be a
major leap, burdening cable operators with further debt. It will all
take time...
<PAGE>
<PAGE>31
VIDEO DIALTONE: LIKELY IMPLEMENTATION TIMELINE
[GRAPHIC TIMELINE -- 1992-2006]
<PAGE>
<PAGE>32
MAJOR PERCEIVED THREATS AND ISSUES
THE LIKELY ROLL-OUT FOR VIDEO DIAL TONE:
CONCLUSIONS
* The CATV industry suffers from:
- Severe overcapacity/trunks
- Severe rate return limits
- Fragmented audiences
- And poor to nonexistent profitability
* CATV operators will be looking for additional sources of revenues and
customers --> they constitute good candidates for joint venture
discussions with LECs
* However, CATV operators have control of programming content
* This industry also appears more of an opportunity than threat.
<PAGE>
<PAGE>33
MAJOR PERCEIVED THREATS AND ISSUES
NEW TECHNOLOGY: CELLULAR
LOW THREAT POTENTIAL: [GRAPHIC] NOW
Cellular is currently targeted for mobile, not fixed users
* It is priced significantly higher than equivalent LEC services
and does not now constitute a threat
* As such, it complements, rather than competes
However, at 5% penetration (per-capita), it is now poised for the mass
market. It could also be used for "wireless POTS" bypass
Costs for the fixed plant have remained relatively high (approximately
$1000 per subscriber), but incremental costs continue to decline slowly
* Sectorizing and use of mini-cell extensions have helped
* "Going digital" may eventually yield further economies for urban
--> In the future, cellular could pose a bypass threat for fixed, niche
applications--where it might also compete with PCS
<PAGE>
<PAGE>34
MAJOR PERCEIVED THREATS AND ISSUES
NEW TECHNOLOGY: WIRELESS POTS
LOW THREAT POTENTIAL: [GRAPHIC] NOW
There are two types of "wireless POTS" that might compete with LEC
copper/fiber plant:
* BETRS: Basic Exchange Telecommunications Radio Service--a fixed
wireless alternative for rural local loops that operates in the
450 MHz band (94 RF channels), as authorized by the FCC. An
example is IDC's "Ultraphone". In brief, BETRS:
- Is expensive, but cost-effective for very long rural loops
- Suffers performance limitations at maximum capacity
- Has been used by several LECs (e.g., PTI; Texas telcos)
* Fixed cellular: modeled by the Edgar, Dunn study as a less
costly variant of mobile cellular--to assess its bypass potential
--> In SRI's opinion, these two technologies represent more of an
opportunity than a threat.
<PAGE>
<PAGE>35
MAJOR PERCEIVED THREATS AND ISSUES
NEW TECHNOLOGY: WIRELESS CABLE TV
NO THREAT POTENTIAL: [GRAPHIC] 1998
One-way wireless cable television in the 2 GHz band is currently being
offered in metro (e.g., NYC) and some unserved areas
* Priced at approximately $10/month for approximately 30 channels
* Uses conventional analog modulation and is incapable of two-way
wireless operation
Two-way wireless systems are being proposed in the 28 GHz band (FCC NPRMs
of 1/93 and 1/94; Pioneer's Preference awarded to "Suite 12" for NYC) and
could offer telephony, interactive TV, multimedia, etc., but:
* Range is limited to 3-6 miles
* Initial proposals are still based on analog transmission
* Complaints were filed by 28 GHz users (e.g., NASA's ACTS)
--> Two-way Wireless Cable TV will be slow to develop, is targeted for
urban, and poses no threat to rural LECs
<PAGE>
<PAGE>36
MAJOR PERCEIVED THREATS AND ISSUES
NEW TECHNOLOGY: SATELLITE
NO THREAT POTENTIAL: [GRAPHIC] 1996
There are three satcom technologies to consider:
* Geosynchronous. AMSC's Mobilsat, due for launch soon, will use
high-powered transponders at L-band to offer rural cellular--primarily
to vehicular mobiles, not portables. Hop-delay will be severe,
capacity will be limited, and airtime will be priced higher than
cellular.
* Low-Orbit LEOs. A number of L-band systems have been proposed,
including Motorola's Iridium, TRW's Odyssey, Loral's Globalstar.
Telephony services will be priced high (approximately $3 per
call-minute) and are targeted for global rural cellular fill-in, not
for LEC overlay.
* VSAT--dedicated private networks using small earth stations and
geosats at C- and Ku-bands. Used in lieu of expensive telco leased
lines; if there are any rural LEC impacts, they have already happened.
--> Satellite technologies pose no additional threats to rural LECs
<PAGE>
<PAGE>37
MAJOR PERCEIVED THREATS AND ISSUES
UPDATED ECONOMIC ANALYSIS
SRI was asked to review and assess the economic analysis performed by
Edgar, Dunn (e.g., p. 38 of their November, 1993 Report) and to update it
as necessary. Our refinements included:
* Separating costs into plant categories (switch, outside plant,
subscriber equipment)
* Re-examining the assumptions used (e.g., regarding architecture,
plant sizing, costs) and adjusting them as appropriate
* Re-visiting alternatives initially dismissed by the Dunn Report
(e.g., PCS, cellular), and dismissing others considered by Dunn
(e.g., wireless cable TV; the Oregon scenario)
<PAGE>
<PAGE>38
MAJOR PERCEIVED THREATS AND ISSUES
UPDATED ECONOMIC ANALYSIS, CONT'D
Our analysis was limited by a number of factors. For example:
* Competing technologies were compared in terms of their capital costs
(investment per line); total annualized operating costs were not
considered
* The comparisons are based on purchase costs, not installed costs
* SRI has not yet visited the sites profiled (Thorp, Juneau, Kalispell).
Results are summarized on the following 4 pages. Within the limitations
stated above, they suggest that PTI's current LEC platform is competitive.
<PAGE>
<PAGE>39
MAJOR PERCEIVED THREATS AND ISSUES
UPDATED ECONOMIC ANALYSIS FOR THORP
[BAR GRAPH ANALYSIS OF INVESTMENT PER LINE]
<PAGE>
<PAGE>40
MAJOR PERCEIVED THREATS AND ISSUES
UPDATED ECONOMIC ANALYSIS FOR JUNEAU
[BAR GRAPH ANALYSIS OF INVESTMENT PER LINE]
<PAGE>
<PAGE>41
MAJOR PERCEIVED THREATS AND ISSUES
UPDATED ECONOMIC ANALYSIS FOR KALISPELL
[BAR GRAPH ANALYSIS OF INVESTMENT PER LINE]
<PAGE>
<PAGE>42
MAJOR PERCEIVED THREATS AND ISSUES
ECONOMIC ANALYSIS: CELLULAR AND PCS
[BAR GRAPH SHOWING INVESTMENT PER LINE: MIDWEST PLATFORM, CELLULAR,
AND PCS]
<PAGE>
<PAGE>43
MAJOR PERCEIVED THREATS AND ISSUES
REGULATORY THREATS
MODERATE THREAT POTENTIAL: [GRAPHIC] 1995
Local Competition. This is highly unlikely for the rural LEC properties
owned or targeted by PTI. Whether it is allowed at all depends on the
stance of the individual state PUCs.
USF Pullout. If payments from the Universal Service Fund had disappeared
in 1993, the bottom-line impact on PTI's Midwest Region after taxes would
have been approximately $1.8 million--about 3-5% if PTI's Midwest revenues,
and 20-25% of net income. Payments from the fund are declining, as is
PTI's dependence on them.
Access charges. These are by far the largest portion of PTI's revenues
that depend on regulatory arrangements--approximately 50% of PTI's Midwest
revenues. No changes appear imminent.
--> For PTI's LEC business as a whole, the impacts of local competition
and USF pullout are expected to be moderate--but be alert for any
changes in switched access revenues
<PAGE>
<PAGE>44
MAJOR PERCEIVED THREATS AND ISSUES
COMPETITIVE THREATS
MODERATE THREAT POTENTIAL: [GRAPHIC] 1996
Increased Bypass. This is the most serious threat, but PTI's broad
customer base minimizes vulnerability. Flexible pricing is the key; being
tied to NECA rates is the burden.
IXC Incursion. Urban and suburban markets are the target; rural incursions
are extremely unlikely
Overlay of LEC territory. Many states (e.g., WI) still preclude
competition for switched local access via parallel new plant. In any case,
such overlays are improbable for rural
--> Competitive threats are expected to be moderate. Most of them are
avoidable--if PTI can price its products flexibly.
<PAGE>
<PAGE>45
MAJOR PERCEIVED THREATS AND ISSUES
SUMMARY OF THE REAL THREATS TO PTI
Bypass represents the most significant real threat to PTI's revenue stream
because of the potential loss of transfer payments for switched access.
Bypass can be implemented by:
* Copper--today
* Fiber--today
* PCS--but not for a number of years to come
* Cable TV-but design, capabilities, and costs are still unknown
* Cellular--could easily be done at any time--but only if priced
low enough for fixed applications
<PAGE>
<PAGE>46
MAJOR PERCEIVED THREATS AND ISSUES
SUMMARY OF THE REAL THREATS TO PTI
Thus, the new technologies do not appear to increase the risk of bypass to
any substantial degree--at least for the foreseeable future
Moreover, the emergence of a second or third "overlay LEC" in any PTI
territory is extremely unlikely within the next 5 years.
--> In SRI's opinion, there are no real threats to PTI that could
catastrophically undermine its LEC business--especially as represented
by the Midwest platform.
<PAGE>
<PAGE>47
BARRIERS TO ENTRY
BARRIERS TO ENTRY ARE SUBSTANTIAL
Whenever a market is dominated by an entrenched player, new entrants face
serious obstacles in their uphill battle to gain market share. These
barriers to entry, which are all in PTI's favor, include:
* Customer loyalty and goodwill; PTI's historical presence
* PTI's knowledge of its customers and their needs
* PTI's "ownership" of the telephone number-customers do not like
to be assigned new ones
* PTI's assets--its dominant infrastructure, the talents of its
people, its access to capital
* PTI's familiarity with the business--the entrant must invest in
duplicative plant and will not be sure of its viability for some
time
<PAGE>
<PAGE>48
BARRIERS TO ENTRY
BARRIERS TO ENTRY ARE SUBSTANTIAL, CONCL.
* PTI's network advantages--ubiquity and interconnection
* PTI's economies of scale--the advantages of being big
* PTI's economies of scope--the advantages of vertical integration
* PTI's flexibility--its ability to respond to competitive threats
-- by pricing dynamically
-- by modernizing
-- by improving efficiency and reducing costs
-- by forging alliances
--> These barriers to entry make it more difficult for a new player to
compete; and they tend to make PTI a more formidable opponent--or a
more valuable partner
<PAGE>
<PAGE>49
OPPORTUNITIES FOR PTI
OPPORTUNITIES
Based on the detailed analysis presented above, we conclude that these new
technologies and trends represent opportunities for PTI, more than they
represent threats.
To exploit these opportunities, PTI can:
* Employ some or all of the new technologies--e.g., buy additional
cellular and cable TV properties; provide wireless PABX services
* Forge strategic alliances with potential competitors--e.g., by
renting PTI plant out or renting other plant in; by leveraging
other PTI capabilities
Our review of PTI's Midwest platform indicates that PTI has many valuable
assets. We have arrayed and evaluated these assets from a partnering
perspective on the next two pages
<PAGE>
<PAGE>50
OPPORTUNITIES FOR PTI
ASSETS FOR PARTNERING
[GRAPHIC DIAGRAM DEPICTING SUBSCRIBER ASSETS AND ASSET VALUE]
<PAGE>
<PAGE>51
OPPORTUNITIES FOR PTI
ASSETS FOR PARTNERING
[GRAPHIC DIAGRAM DEPICTING SUBSCRIBER ASSETS AND ASSET VALUE]
<PAGE>
<PAGE>52
OPPORTUNITIES FOR PTI
OPPORTUNITIES, CONCL.
Based on this preliminary analysis, it is clear that PTI has a wide array
of valuable assets to "bring to the table". Possible actions and
partnering arrangements to consider include:
* Providing trunking for Cellular and PCS site-interconnection at
competitive rates
* Forging alliances with PCS licensees--e.g., providing marketing,
billing in exchange for a piece of the new business
* Exploring joint plant use to provide new services--e.g., via
cable TV plant owned by PTI or others
* Partnering with bulk-resellers and "aggregators"--e.g., who want
to sell Centrex at a discount to small businesses
* Establish relationships with all key players--IXCs, RBOCs,
Cellular operators, PCS startups, Cable TV operators, CAPs, etc.
<PAGE>
<PAGE>53
RECOMMENDATIONS
RECOMMENDATIONS
* Continue to identify specific bypass targets and incursions;
develop models that quantify probable revenue impact
* Benchmark PTI's remaining two rural exchange regions against the
Midwest Region to determine vulnerabilities to competition and
new technologies
* Develop individual action plans for the rural exchange businesses
* Develop an overall strategic plan--including strategic alliances-
-for the corporation, based on an analysis of PTI's assets and
strengths
<PAGE>
EXHIBIT (b)(10)
COMPETITIVE RISKS FACING PACIFIC TELECOM, INC.
IN THE '90S
REVIEW OF PRIOR WORK
November 1, 1994
EDGAR, DUNN & COMPANY<PAGE>
<PAGE>1
EDC'S CHARTER
=======================================================================
* In the Fall of 1993, EDC was asked to address the following
questions...
- As alternative technologies become available, what risks
will PTI's shareholders face throughout the rest of this
decade?
- Are those risks manageable?
* EDC was to assess technology-based competitive risks in light
of...
- Technology cost(s)
- The regulatory environment
- Changes in customer demand
- The dynamics of the industry's structure
<PAGE>
<PAGE>2
EDC UNDERTOOK THE FOLLOWING STEPS TO ASSESS THOSE QUESTIONS...
=======================================================================
* Selected four PTI study companies, accounting for 21% of access
lines, to ensure broad applicability of study results
- Small urban: Juneau, Kalispell
- Rural community: Thorp
- Rural farm: TU of Oregon
* Assessed the external environment:
- Technology options (e.g., coaxial and fiber-optic cable,
wireless)
- Regulation (e.g., universal service safeguards, barriers to
entry)
- Customer demand (e.g., growth in cellular)
- Industry dynamics (e.g., diversification of major players
and mergers)
<PAGE>
<PAGE>3
EDC UNDERTOOK THE FOLLOWING STEPS TO ASSESS THOSE QUESTIONS... (CONT.)
=======================================================================
* Evaluated the relative cost position of PTI's installed wireline
facilities vis-a-vis:
- PCS/digital cellular (i.e. mobile wireless)
- LEO satellite
- Fiber/coaxial cable TV networks
- "Wireless cable" TV
- Fixed wireless
<PAGE>
<PAGE>4
BASED ON OUR ANALYSIS, WE CAME TO THE FOLLOWING CONCLUSIONS...
=======================================================================
* Over the next 5 to 15 years, PTI will likely be exposed to
increased competition
-- Relatively high density urban areas are the most likely to
face competition
-- Rural areas are vulnerable under some conditions, e.g.,
- A major reduction in cost support
- Significantly decreasing technology costs
* With appropriate planning, PTI has an adequate window to...
-- Counter competitive threats
-- Take advantage of future growth in telecommunications
service markets
<PAGE>
<PAGE>5
BASED ON OUR ANALYSIS, WE CAME TO THE FOLLOWING CONCLUSIONS... (cont.)
=======================================================================
* PTI should develop a competitive strategy tailored to the unique
characteristics of its service territories
* The "end of the line" for PTI and other rural telcos is neither
with us nor rapidly approaching
<PAGE>
<PAGE>6
THE BOARD MEETING IN NOVEMBER 1993 CONCLUDED WITH THE FOLLOWING MAJOR
COMMENTS REGARDING OUR CONCLUSIONS...
=======================================================================
* PTI is a valuable asset
* PTI appears to be well positioned
* PTI appears to have adequate time to plan an appropriate response
to potential competitive threats and take advantage of new
opportunities
* Mounting a successful effort may require substantial resources in
terms of...
-- Managerial and technical expertise
-- Financial support for strategic repositioning (e.g., new
acquisitions), as needed
<PAGE>7
SRI CHARTER
=======================================================================
* In the spring of 1994, PTI hired SRI to evaluate the "Prospects
For PTI's Rural Exchange Business"
* This study was to address the following questions...
-- Is PTI's rural exchange business a viable growth opportunity
for continuing investment, or is further prudent investment
precluded because of significant threats, represented by:
- New technologies?
- New competitors?
- Changing regulatory environment?
* What is the future for this business and where is it likely to go
as a result of the likely impacts of these threats?
<PAGE>8
SRI FOCUSED ON THE MIDWEST REGION. THEY FOUND NO SERIOUS THREATS TO THE
MIDWEST REGION'S BUSINESS AT THAT TIME...
=======================================================================
"In SRI's opinion, there are no real threats to PTI that could
catastrophically undermine its LEC business, specifically as
represented by the Midwest platform
"From a platform perspective, PTI appears to be prepared for
wireline competition in almost any form and will be positioned to
Interface with any wireless provider
"There are substantial barriers to entry, all in PTI's favor
(e.g., market knowledge, ownership of the phone number, dominant
imbedded infrastructure) that make it a formidable opponent---or
a more valuable partner"
<PAGE>9
SRI FOCUSED ON THE MIDWEST REGION. THEY FOUND NO SERIOUS THREATS TO THE
MIDWEST REGION'S BUSINESS AT THAT TIME... (cont.)
=======================================================================
"The new technologies--specifically Cellular, Cable TV and PCS--
constitute emerging opportunities for PTI to expand its revenues
"Ample time for PTI to consider PCS and Cable TV as part of its
arsenal--as opportunities for revenue growth
"For PTI, PCS constitutes more of an opportunity than a threat,
especially If PTI establishes joint venture(s) with credible
operators
"CATV also appears more of an opportunity than a threat"
"The bypass threat via existing or new technologies could erode
portions of PTI's LEC business over the longer term--but only if PTI
adopts a do-nothing, siege mentality
"At worst, bypass could seriously erode revenues for a small set
of targeted and vulnerable PTI exchanges--but it does not have
the potential to undermine PTI's entire LEC business"
<PAGE>9
BASED ON THOSE FINDINGS, SRI CONCLUDED...
=======================================================================
"The Midwest Region constitutes an excellent model by which PTI can
manage and expand its rural local exchange business in an increasingly
competitive environment"
"PTI had the time and resources to plan/position the company for
long-term development"
"The Midwest Region has valuable assets that should prove attractive
for growth through strategic alliances"
<PAGE>Slide Number 1
PRESENTATION TO PACIFICORP BOARD OF DIRECTORS
=======================================================================
UPDATED ASSESSMENT OF
COMPETITIVE RISKS FACING
PACIFIC TELECOM, INC. IN THE '90S
NOVEMBER 1, 1994
EDGAR, DUNN & COMPANY
<PAGE>Slide Number 2
INTRODUCTION
=======================================================================
* Summarizing EDC's 1993 message:
-- Over the next 5-15 years, PTI will be faced with increased
competition
-- This is no cause for panic
- To the contrary, ongoing changes make PTI's telco assets
more valuable
- But to preserve and enhance their value, PTI must continue
its planning to meet competition, on an ongoing basis
* How has the competitive picture changed?
-- As before, we tried to discern the answer from trends in, and the
joint impacts of, customer demand, technology, network costs,
regulation, and industry dynamics
-- Only selected highlights are presented
<PAGE>Slide Number 3
VIDEO REVOLUTION*
=======================================================================
* The upcoming surge in video demand is the driver of the majors in the
industry
* Illustrative evidence of the video revolution
-- All seven Bells are building interactive video networks, and have
alliances with the movie industry (Disney, Creative Artists)
-- Through alliances and removal of regulatory barriers, several of
these networks will reach every part of the country
-- Reliable projections show that both video traffic volumes and
revenues will dwarf those of voice and data
- The total IMM market is estimated at $120 billion/year
- Bell Atlantic, alone, projects 8 million video customers by
YE 2000
- Video will substitute for travel in many ways; already does
through video conferencing, telebusiness centers, etc.
- Distributed information networks have taken off; Internet,
alone, has 2.2 million hosts
* See Appendix A for expansions
<PAGE>Slide Number 4
THE NEW LINEUP IN THE INDUSTRY*
=======================================================================
* The services sector is on the verge of the most dramatic change since
the breakup of the Bell System
* The timing, scope and composition of the alignments are driven by
-- The desire to diversify into related, existing markets, e.g.,
- IXCs and cable TV companies want to get into local phone
services
- LECs into cable TV
-- Preemptive moves to forestall loss of market position, e.g.,
- Baby Bells entering each-others' local exchange markets
(through converted cable and wireless subsidiaries) to
forestall entries by others
-- Attractiveness of major new markets, such as IMM
* See Appendix B for details
<PAGE>Slide Number 5
THE NEW LINEUP IN THE INDUSTRY
=======================================================================
TARGETS OF LOCAL TELEPHONE COMPETITORS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Local Service Access Intra-LATA toll
Type of --------------------------------------------------------------
Competitor Today Future Today Future Today Future
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
IXC -- Full -- Full Full Full
---------------------------------------------------------------------------
CAP Selective Full Selective Full -- Potential
---------------------------------------------------------------------------
Cable TV -- Full -- Full -- Potential
---------------------------------------------------------------------------
Wireless Full Full Full Full Full Full
---------------------------------------------------------------------------
</TABLE>
<PAGE>Slide Number 6
THE NEW LINEUP IN THE INDUSTRY
=======================================================================
* Other key events
-- The principal players in the industry have been making major
moves to obtain PCS licenses with which to mount entries in the
local phone markets
-- MCI Metro applied to provide local exchange services in Illinois,
Maryland, Michigan, Pennsylvania, and Washington. It plans to
install fiber-optic ring networks in Seattle, Chicago, Detroit,
Philadelphia, Pittsburgh, and Washington. (Already has such
service authority in N.Y. and Mass.)
-- Teleport*, with TCI and Motorola, started a six-month test of the
delivery of telephony services over a cable network. At least
three other major CAPs have mounted similar efforts.
-- Time Warner entered into 5-year agreement with AT&T to purchase
telephone equipment; it has targeted 26 telco markets in which it
has major cable operations (in Rochester first).
-- The Wireless Cable (WC) industry, now operating in at least 23 of
the top 25 and many other TV markets, is preparing to offer
wireless phone services, in parallel with video distribution
* TCI owns 30% of Teleport, ComCast and Cox 15%, and Sprint 40%
(just acquired)
<PAGE>Slide Number 7
REGULATORY OUTLOOK*
=======================================================================
OPENING OF REGULATORY BARRIERS TO LOCAL TELEPHONE MARKETS
THE NARUC STATE-BY-STATE SURVEY
------------------------------------------------------------------------
States allowing
competition in local Connecticut, Illinois, Iowa, Maryland
exchange services, Massachusetts, Michigan, Montana, New York
including basic switched and Washington
services (in some)
------------------------------------------------------------------------
States allowing "partial", California, Colorado, Florida, Indiana,
or limited, competition in Missouri, New Jersey, Oregon, and
local services Pennsylvania
------------------------------------------------------------------------
(1) same interconnection terms as those
between telcos, including signaling, CLASS
What new entrants features and functions for handling IX
want and often get traffic; (2) fair reciprocal compensation
arrangements; (3) equal access to telephone
numbers and same number portability
provisions
-------------------------------------------------------------------------
* See Appendix C for more
<PAGE>Slide Number 8
REGULATORY OUTLOOK
=======================================================================
* Key events
-- Separate House and Senate* bills would allow
- Cable TV operators into local telephony
- RBOCs into long distance and manufacturing
-- Several RBOCs have requested waivers to provide out-of-region
local-exchange and long-distance service
-- Rochester Tel's Open Market Plan (approved) promotes facilities-
based as well as services-only competition in exchange for in-
region, long-distance authorization
-- Ameritech's Advanced Universal Access Plan allows facilities-
based competitive carriers to interconnect at its central offices
-- NARUC and NTIA state that new entrants in the local phone market
must participate in cost support to maintain universality of
basic service
-- Four RBOC's filed suit to have MFJ set aside
* Not passed. It will likely be re-submitted in 1995.
<PAGE>Slide Number 9
CONCLUSIONS AND IMPLICATIONS
=======================================================================
* Although the industry remains fluid, we are now far more sure as to
the sources and drivers of LEC competition
* Potential competition facing PTI LEC's remains, as to its timing and
scope, essentially as projected in EDC's 1993 study (4 to 15 years
out), and continues to be manageable
* Nothing is likely to happen near-term to reduce the value of PIT's LEC
franchises. PTI needs to continue, periodically (e.g., annually), to:
-- Explicitly review changes in the industry and their potential
impacts on PTI's local-telephone properties
-- Explore and evaluate ways for taking advantage of selected,
technology-driven, growth opportunities
<PAGE>Slide Number 12
APPENDICES
=======================================================================
* Appendix A. Video Revolution
* Appendix B. The New Lineup in the Industry
* Appendix C. Regulatory Outlook
<PAGE>Slide Number 13
<TABLE>
<CAPTION>
APPENDIX A. VIDEO REVOLUTION
==================================================================================================
EVIDENCE COMPETITIVE
TREND (ILLUSTRATIVE) IMPACTS
--------------------------------------------------------------------------------------------------
<S> <C> <C>
meet interactive video networks. New video networks to also
multimedia carry voice and data. Video
demand* Bell Atlantic, Nynex and Pacific Telesis traffic volumes and revenues
pact with Creative Artists Agency (Ovitz). to dwarf voice and data.
* See IMM demand Ameritech, BellSouth and SBC pact with
estimates at Walt Disney. National coverage. Reaching
the end of this all achieved by erosion of
appendix. Bell Atlantic's 32,000 sq-ft, $200 million regulatory barriers and
center. 8 million customers by YE 2000 strategic restructuring
(alliances, M&A, divestiture)
--------------------------------------------------------------------------------------------------
Video $50,000 video conf. systems bypassed by Distance barriers reduced.
conferencing PC-video systems ($6,000 per desktop) Potential to transform how
changing business is conducted.
business Offered now by AT&T, Intel, PictureTel
Overcoming technical glitches.
End-to-end digital lines needed,
now rare. The new interactive
networks will supply.
--------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>Slide Number 14
<TABLE>
<CAPTION>
APPENDIX A. VIDEO REVOLUTION
==================================================================================================
EVIDENCE COMPETITIVE
TREND (ILLUSTRATIVE) IMPACTS
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Telecom- Rise of distributed networking (Internet: IMM is potentially a huge business.
munications 2,200,000 hosts! Many others--e.g. The telephone companies will play
substituting financial services) a key role in the IMM services
for paper- market. This requires configuring
based Time Inc. starts interactive version of their networks and their marketing
information some of its magazines; and so do others organizations to meet the challenge,
distribution which the large telcos are doing.
Catalog companies say they will do so
when video networks arrive.
Interactive video distance-learning
systems introduced in schools and
colleges in Maine and elsewhere (market
growing 30-40%/year)
--------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>Slide Number 15
<TABLE>
<CAPTION>
APPENDIX A. VIDEO REVOLUTION
==================================================================================================
EVIDENCE COMPETITIVE
TREND (ILLUSTRATIVE) IMPACTS
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Video $50,000 video conferencing systems Distance barriers reduced. To
conference bypassed by PC-video systems costing transform how business is conducted.
calls $6,000/desktop. Offered now by AT&T, Beyond simply cutting expenses,
changing Intel, PictureTel could allow companies forge work
business teams able to overcome barriers of
------------------------------------------------------------- distance and time.
Seven million US workers (6% of labor
Tele- force; 21.5% of salaried employees) Overcoming technical glitches.
commuting telecommuted at least part time in 1993. Require end-to-end digital phone
Fifty million projected for 2010. lines, now rare, to be supplied by
------------------------------------------------------------- the all-digital networks planned by
Tele- Fully-equipped telework centers near the BBs for video entertainmen and
business residential areas and public and myriad other applications.
centers transportation.
--------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>Slide Number 16
<TABLE>
<CAPTION>
APPENDIX A. VIDEO REVOLUTION
==========================================================================
ESTIMATE OF ANNUAL REVENUE POTENTIAL FOR INTERACTIVE MULTIMEDIA*
(SERVICES, SOFTWARE, AND PROGRAMMING PROVIDERS)
-------------------------------------------------------------------------
BUSINESSES REVENUE ($ billions)
-------------------------------------------------------------------------
<S> <C>
Catalog shopping 51
Broadcast advertising 27
Home video 12
Information services 9
Records, tapes, CDs 8
Movie theatres 5
Video games 5
Cable advertising 2
Electronic messages 1
TOTAL 120
-------------------------------------------------------------------------
<FN>
* Source: Bozell Worldwide
</TABLE>
<PAGE>Slide Number 17
APPENDIX B. THE NEW LINEUP IN THE INDUSTRY
=======================================================================
COMPETITION FOR CAPS AND CABLE TV OPERATORS*
* The cable TV industry is powerful enough to succeed in the local
telephone market
---------------------------------------------------
CABLE INDUSTRY'S POWER IN 1993
---------------------------------------------------
92.9 million homes (96% of TV households) passed by
cable
57.4 million homes, or about 60% of TV households,
subscribing to cable
Nearly $23 billion in revenues
Investing billions to retrofit its networks to supply
local telephone (voice and data) services in parallel
with video
---------------------------------------------------
* They are grouped because of their many, and
growing, ties (cross-ownerships, alliances, etc.)
<PAGE>Slide Number 18
<TABLE>
<CAPTION>
APPENDIX B. THE NEW LINEUP IN THE INDUSTRY
====================================================================================================
COMPETITION FOR CAPS AND CABLE TV OPERATORS
--------------------------------------------------------------------------------------------------
KEY EVENTS IMPLICATIONS
--------------------------------------------------------------------------------------------------
<S> <C>
Time Warner Communications' large-scale This is just the start. Time Warner plans to
purchase of telephone equipment*. Under install similar systems in 25 other cities
a 5-year agreement, AT&T Network Systems where it has major cable operations.
would serve as its primary supplier and
systems integrator of SONET and telephone But this and the other cable companies pressing
switching equipment. The first of these for open entry in the local telephone markets
systems will be installed in Rochester, have to overcome major hurdles. In addition to
N.Y. where Time Warner will offer money constraints (burdened by huge debt), they
competitive local telephone service to face tough regulatory battles. Without legislative
residential and business customers. reforms by Congress, it will take them several
years to become major players in these markets.
* Six major cable companies (TCI,
Comcast, Cox, Time Warner, Viacom, and
Continental Cablevision) said they will
spend $2 billion in phone network gear.
--------------------------------------------------------------------------------------------------
Other local market entries by CAPS. Having already gained market entry in five states
Other CAPs active in penetrating local (Illinois, Maryland, Michigan, Pennsylvania, and
phone markets include MFS Communications, Washington) provides these entities with momentum for
Electric Lightwave, and US Signal Corp. entries elsewhere. Current efforts for such
All have received authority to supply additional entries have been mounted in California,
switched services in several states. Florida, Texas and elsewhere.
--------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>Slide Number 19
<TABLE>
<CAPTION>
APPENDIX B. THE NEW LINEUP IN THE INDUSTRY
====================================================================================================
COMPETITION FOR CAPS AND CABLE TV OPERATORS
--------------------------------------------------------------------------------------------------
KEY EVENTS IMPLICATIONS
--------------------------------------------------------------------------------------------------
<S> <C>
Teleport's local service trial with TCI TCI, the nation's largest cable company with
and Motorola. This is a six-month test systems in 48 states, would use its cable lines
of the delivery of telephony services to offer local phone service. It already has about
over a cable network. If successful, 200,000 cable lines in Chicago-area households.
Teleport plans to provide competitive
local exchange services in the Chicago This is the first step in implementing the grand
area. This trial will be the first national strategy of TCI and the other Teleport
application of Motorola's CableCommm investors to diversify into the local phone markets.
technology, consisting of CPE and a (See, also, discussion of this group's alliance
control unit placed at TCI's cable with Sprint, under Mixed competition.)
head-end. Voice messages will "ride"
TCI's hybrid fiber/coaxial local loops.
--------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>Slide Number 20
<TABLE>
<CAPTION>
APPENDIX B. THE NEW LINEUP IN THE INDUSTRY
====================================================================================================
COMPETITION FOR CAPS AND CABLE TV OPERATORS
--------------------------------------------------------------------------------------------------
KEY EVENTS IMPLICATIONS
--------------------------------------------------------------------------------------------------
<S> <C>
Teleport's local service trial with TCI Such local entries would enable competitive
and Motorola (cont.). As now envisioned, supply of telephone services to residential
telephone service would be piped over the customers end-to-end.
cable lines of TCI, Motorola would provide
phone equipment, and Teleport would supply Trial adds impetus toward widespread entry of
the switching facilities to link customers cable companies into the local telephone
with long-distance carriers. Local calls services market. Terrence Barnich, formerly
in the Chicago area would come into Illinois's top regulator, said that these
Teleport's facilities and then routed over plans "offer evidence that the local telephone
Ameritech lines for completion. business is going to be wide open to competition
in the very near future."
Teleport has been certified to provide
local phone service in Chicago, but had But not overnight. Even the cable industry
not attempted market entry until now. projects only a 20% to 30% penetration in
seven to eight years. In cooperation with the
IXCs, the industry aspires to provide eventually
a nationwide, seamless service. (See Sprint.)
--------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>Slide Number 21
<TABLE>
<CAPTION>
APPENDIX B. THE NEW LINEUP IN THE INDUSTRY
====================================================================================================
COMPETITION FOR CAPS AND CABLE TV OPERATORS
--------------------------------------------------------------------------------------------------
KEY EVENTS IMPLICATIONS
--------------------------------------------------------------------------------------------------
<S> <C>
SBC Communications (Southwestern Bell) Waiver approval would allow SBC Comm., and
seeking IX decree waiver. Waiver would eventually the other Baby Bells, to provide
exempt its provision of out-of-region both local exchange and long distance
telecom services from the interLATA telephone services in competition with the
service restrictions and allow it to existing, out-of-region carriers (e.g., IXCs
convert its existing cable TV (and and other BOCs) using wireless and cable
wireless) systems into local exchange facilities.
networks.
--------------------------------------------------------------------------------------------------
Application by SBC Media Ventures. SBC Is this the start of local-exchange competition
Media Ventures, a subsidiary of SBC among the telcos themselves? (See, also, above.)
Communications (one of the Baby Bells)
applied to provide local residential
phone service over its cable TV network
in Maryland.
--------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>Slide Number 22
APPENDIX B. THE NEW LINEUP IN THE INDUSTRY
===========================================================================
COMPETITION FROM WIRELESS SYSTEMS
* In the 1993 study, EDC showed that wireless networks can compete very
effectively with wireline telco networks
* Since then, the industry has been making major moves, oftentimes
frantically, toward deploying local networks using wireless
technology, and interconnecting them into seamless, national wireless
networks. The main players:
-- The major IXCs (AT&T, MCI, Sprint)
-- The main cable TV operators
-- The major telcos, through their cable TV and wireless
subsidiaries
* The new, but rapidly growing "Wireless Cable" (WC) industry is also
mobilizing its assets to mount entries in the local telephone markets
* Potentially, so will Nextel and other SMR operators
<PAGE>Slide Number 23
APPENDIX B. THE NEW LINEUP IN THE INDUSTRY
===========================================================================
COMPETITION FROM WIRELESS SYSTEMS
* Mega-alliances are rapidly put together in efforts to establish
national wireless networks (see main body)
* Examples
-- National, end-to-end telephone networks in which a major IXC
supplies the intercity network and one or more wireless cable TV
companies supply the call originating and terminating local
networks
-- Inter-regional and national wireless networks
- One type is composed of several existing cellular networks
augmented with PCS facilities
- Another involves (parallel or sequential) reliance on cable
TV and cellular/PCS networks
- Potentially, another may be based on interconnected SMR
networks converted to supply wireless telephone services (as
opposed to dispatch services they supply now)--e.g., Nextel
<PAGE>Slide Number 24
APPENDIX B. THE NEW LINEUP IN THE INDUSTRY
===========================================================================
COMPETITION FROM WIRELESS SYSTEMS
* Formation of wireless alliances has accelerated...
-- ... As the major players are frantically positioning themselves
to obtain Personal Communications Services (PCS) spectrum
licenses from the FCC
- PCS is intended to be ubiquitous, and, by design, a
substitute for wireline local networks.
- The next round of bidding for licenses starts on December 5
- The FCC requires that, before that time, all partnerships
among the PCS bidders be identified
-- ... Since DOJ's approval of the AT&T/McCaw Cellular
Communications merger
-- ... After Nextel managed to steal nearly all the SMR marbles
<PAGE>Slide Number 25
APPENDIX B. THE NEW LINEUP IN THE INDUSTRY
===========================================================================
COMPETITION FROM WIRELESS SYSTEMS
Industry excitement about wireless is hardly surprising
* 75% of professional workers are mobile (20% or more of their time
spent away from normal areas of work)
* U.S. cellular growing 40% per year; 12 million users, growing by
nearly 10,000 per day
* 19.5 million pagers now in use; projected to grow to 70 million by
2004
* Already 15 million users of relatively new wireless mobile data
services
* The next major expansion opportunity for wireless: the local
telephone services market
<PAGE>Slide Number 26
<TABLE>
<CAPTION>
APPENDIX B. THE NEW LINEUP IN THE INDUSTRY
==================================================================================================
COMPETITION FROM WIRELESS SYSTEMS
--------------------------------------------------------------------------------------------------
KEY EVENTS IMPLICATIONS
--------------------------------------------------------------------------------------------------
<S> <C>
Cable TV group's alliance with Sprint. Movement toward IXC/Cable TV provider alliances,
A group of the biggest cable companies* in the form of mergers, acquisitions, and other
has reached agreement with Sprint to major business deals, will intensify. Their
collaborate on a nationwide wireless business interests are complementary. (Sprint's
network. Sprint already owns a big and MCI's recent abandonment of wireless-alliance
collection of cellular telephone discussions with the Bells is further evidence of
properties as a result of its acquisition this trend.)
of Centel Cellular in 1992**. Sprint,
like AT&T and MCI, is edging back into Expansion of Sprint's business is important to
the local markets to bypass the telcos France Telecom and Deutsche Telekom which plan
and their hefty access charges for to invest $4.2 billion in Sprint, receiving a
originating and terminating calls. combined 20% stake in the company.
* TCI, Cox, and Comcast
** Sprint is one of the fastest growing
cellular services providers: 882,000
customers in 1993, with nearly 71,000
added in that year.
--------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>Slide Number 27
<TABLE>
<CAPTION>
APPENDIX B. THE NEW LINEUP IN THE INDUSTRY
==================================================================================================
COMPETITION FROM WIRELESS SYSTEMS
--------------------------------------------------------------------------------------------------
KEY EVENTS IMPLICATIONS
--------------------------------------------------------------------------------------------------
<S> <C>
GTE rolling out Tele-Go Service. In a This is a potentially major step toward
bid to make wireless telephone service implementing fixed/limited mobility local
more attractive to residential users, wireless networks as complements to, and
GTE has enhanced its Tele-Go Phone eventually substitutes for, wireline telco
Service allowing users to connect networks. (In the earlier EDC study for
(when they are at home) to the wireline PacifiCorp, we labeled these networks
network using their wireless handset. "wireless POTS".)
GTE offers cordless phone service in
the home and regular cellular service
away from home through its new "home
cell site". The cordless home service
is offered for a flat rate ranging
from $15 to $25.
--------------------------------------------------------------------------------------------------
Motorola's introduction of TeleDensity.* Motorola is convinced TeleDensity will
This new produce, operating in the new radically change the way the world
PCS band, allows rapid installation by communicates. Both private and public
phone companies of low-cost, high-quality local telephone exchanges can interface
wireless voice and data service in urban directly with TeleDensity allowing rapid,
and suburban markets. economical deployment of wireless equipment
to expand local-loop capacity incrementally.
* Preliminary announcement reported in
the trade press on 10/10/94.
--------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>Slide Number 28
<TABLE>
<CAPTION>
APPENDIX B. THE NEW LINEUP IN THE INDUSTRY
==================================================================================================
COMPETITION FROM WIRELESS SYSTEMS
--------------------------------------------------------------------------------------------------
KEY EVENTS IMPLICATIONS
--------------------------------------------------------------------------------------------------
<S> <C>
The take-off of the wireless cable (WC) Our studies show that, for 300+ channel
industry. In existence since 1982, the video (only) service, WC is competitive with
WC industry took off late in 1992, helped cable TV for 20% to 25% of U.S. households.
by FCC rulings promoting entry in the But when such systems supply video plus
video distribution market. WC (analog MMDS) two-way services, this figure increases to
operations are in (at least) 23 of the top 70%-75%! This provides WC operators with a
25 U.S. TV markets (50% of households), and very strong incentive to enter the local
in numerous smaller markets. Digital MMDS phone markets in the areas where they also
with two-way capability, when deployed, is supply video services.
a highly competitive alternative to local
phone networks. Such systems could supply The leading WC firms are planning to do
video and two-way switched voice and data just that.
services in parallel. WC customers (0.4
million by year-end 1993) are projected
to exceed 3.5 million by 2001.
--------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>Slide Number 29
<TABLE>
<CAPTION>
APPENDIX B. THE NEW LINEUP IN THE INDUSTRY
==================================================================================================
COMPETITION FROM IXCs*
--------------------------------------------------------------------------------------------------
KEY EVENTS IMPLICATIONS
--------------------------------------------------------------------------------------------------
<S> <C>
MCI Metro's recent applications to provide MCI's moves, as those of others, into the local
local switched service in five states. phone markets are timed to exploit favorable
MCI Metro, a wholly owned MCI subsidiary, regulatory climates as they develop. MCI has
filed for authority to provide switched plotted a $20 billion effort to invade the
local exchange services in Illinois, Maryland, local monopolies of the Baby Bells; $2 billion
Michigan, Pennsylvania, and Washington. If has been already allocated for investment. It
its applications are approved, MCI plans to is targeting the top 30 local markets for
install fiber-optic ring networks in Seattle, first-round entries.
Chicago, Detroit, Philadelphia, Pittsburgh,
and Baltimore. It already has switched By seeking "technical and operational co-carrier
service authority in New York and Massachusetts. status" with the incumbent telco, MCI is pushing
for full parity with the established local
carriers.
--------------------------------------------------------------------------------------------------
<FN>
* See also competition from wireless systems and the cable TV industry, described elsewhere
in this presentation.
</TABLE>
<PAGE>Slide Number 30
<TABLE>
<CAPTION>
APPENDIX B. THE NEW LINEUP IN THE INDUSTRY
==================================================================================================
MIXED COMPETITION
--------------------------------------------------------------------------------------------------
KEY EVENTS IMPLICATIONS
--------------------------------------------------------------------------------------------------
<S> <C>
Sprint's Phone-cable Venture. Sprint This very potent venture will accelerate the
Corporation's multibillion dollar venture process of making local phone, as well as
with three major cable TV companies (see interexchange, markets more competitive.
Competition from wireless systems) plans
a three-pronged offensive on the local However, as all other entities aspiring
phone companies: to compete in the local phone markets, the
group faces serious obstacles:
* Push into the local phone market
using cable's powerful wires to * Only six states now allow competitive
the home [1] and new wireless supply of local phone services (no
(PCS) phone services [2] matter what technology is used)
* Combine these local offerings * The Baby Bells, GTE and the other
with long-distance services, telcos will mount huge efforts to
over its own fiber-optic network, maintain the regulatory barriers
marketing them as a single-stop,
end-to-end services supplier * Barring new federal legislation that
under the well-known Sprint would form a national plan for local
brand name [3] competition, the Sprint alliance will
have to go state by state to plead
The primary vehicle for entering the local its case
markets will be Teleport (see, also,
Competition from CAPs and cable TV * Also, the venture must meet or exceed
operators), which will be 40%-owned by the telcos' service quality standards
Sprint, 30% by TCI and 15% by Comcast and and offer users price incentives to
Cox. An early objective of the venture is switch
to bring more cable TV players into the group.
--------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>Slide Number 31
APPENDIX C. REGULATORY OUTLOOK
===========================================================================
Opening of regulatory barriers
According to a recent survey*, nearly half of the states now
allow competition in the local phone services market (23 of 50
states have certified one or more local competitors, and the
number is growing); 14 of 27 jurisdictions in the eastern half of
the country have certified facilities-based competitive access
providers (CAPs) or others to provide such services. Eight of
the 23 states west of Miss. have done so.
*Telco Business Report, Vol. II, No.13, July 5, 1994
<PAGE>Slide Number 32
APPENDIX C. REGULATORY OUTLOOK
===========================================================================
* PRINCIPAL DRIVERS OF LOCAL ENTRY
-- IXCs' business interests and strategic position
>> Potentially huge financial benefits from LEC bypass. But
access alone may not always supply the savings needed to
justify IXC investment in alternative local networks
>> IXCs viewing the Baby Bells as strategic competitors
-- Cable TV companies and wireless operators viewing the local phone
market as a major diversification opportunity. They possess the
technologies needed to deploy very competitive local-service
networks
-- Clinton Administration's prodding the states to take the
initiative in opening up the local loop to competition. This
pressure has intensified since the failure of Congress to rewrite
the Communications Act of 1934, laying out a consistent national
plan for opening local phone markets to competition
<PAGE>Slide Number 33
APPENDIX C. REGULATORY OUTLOOK
===========================================================================
* PRINCIPAL DRIVERS OF LOCAL ENTRY
-- Projected huge local demand for new telecommunications-dependent
service/product markets, such as interactive multimedia (IMM)
communications
-- Regulatory concerns that incentive ("self-regulation") schemes
have not spurred LEC infrastructure improvement
* PRINCIPAL DRIVERS TO MAINTAIN REGULATORY BARRIERS
-- Concerns about the adverse impacts of accelerated depreciation of
old telco plan forced by lower-cost competitive networks (mainly,
wireless and retrofitted fiber/coaxial cable systems of the types
EDC analyzed in the earlier study)
>> Legislative and regulatory concerns about adverse impacts on
residential users, e.g., perceived threats to universal
basic-service access
>> Telco fears of potentially huge financial losses
<PAGE>Slide Number 34
<TABLE>
<CAPTION>
APPENDIX C. REGULATORY OUTLOOK
===========================================================================
-------------------------------------------------------------------------
KEY EVENTS IMPLICATIONS
-------------------------------------------------------------------------
<S> <C>
Senate bill flops. S.1822, Until a re-submitted federal bill
calling for legislative overhaul passes, cable and (non-telco owned)
of the telecom industry, died in wireless companies will have to take
the Senate in September. The FCC on the regulatory barriers to the
Chairman stated that, in its next local phone markets one state at a
session, Congress should address time.
"critical" issues including:
(1) guarantee of, and coordinated
approach to, open entry in the
local phone markets, letting telcos
compete fairly with cable and
other providers; (2) a uniform
approach to increasing inter-
exchange (IX) competition
-------------------------------------------------------------------------
FCC's authorization of telcos to A major victory for the telcos, paving
rebuild their networks to carry the way for them to spend billions of
video programming. Telcos must dollars to upgrade their networks with
get FCC approval for network fiber-optic coaxial cable and high-
construction plans and then speed switches needed for video
obtain clearance for rates. distribution. The 27 telco applica-
tions, waiting for approval since
Many questions were left 1992, would now be acted upon. (Only
unanswered one, Bell Atlantic's, has been
approved so far.)
-------------------------------------------------------------------------
</TABLE>
<PAGE>Slide Number 35
<TABLE>
<CAPTION>
APPENDIX C. REGULATORY OUTLOOK
===========================================================================
-------------------------------------------------------------------------
KEY EVENTS IMPLICATIONS
-------------------------------------------------------------------------
<S> <C>
Rochester Tel's Open Market Plan, Underscores ability of state-level
allowing full interconnection with regulators to move toward more
competing local service providers. competitive local telco markets
It calls for local-service unbund- without having to wait for federal
ling, sets rules for affiliate initiatives
transactions and service quality
standards, and deals with cross- Reaction to the plan presages broad
subsidization concerns. The acceptance of such plans by other
agreement was signed by several state regulatory bodies as well as
other parties including Time many in the industry.
Warner Communications, which plans
to offer local services under the The plan makes Rochester Tel the
plan (as does the ACC Corporation). first LEC to escape ROR regulation
in NY.
-------------------------------------------------------------------------
</TABLE>
<PAGE>Slide Number 36
<TABLE>
<CAPTION>
APPENDIX C. REGULATORY OUTLOOK
===========================================================================
-------------------------------------------------------------------------
KEY EVENTS IMPLICATIONS
-------------------------------------------------------------------------
<S> <C>
Ameritech Corporation's proposed Not as significant in terms of
Advanced Universal Access Plan. setting precedent for competitive
Though distinctly different from entry as Rochester's Open Market
the Rochester Tel plan, it, too, Plan. For example, it does not
is designed to allow competitors allow unbundling and resale of
to interconnect with telco net- telco services.
works. Would limit interconnection
to facilities-based providers at
Ameritech telcos' central offices,
whereas Rochester's plan would
allow it at any level.
-------------------------------------------------------------------------
Ending of SMR "wireline ban." The Probably, because of their very
FCC is seeking to eliminate the limited prior involvement with this
outmoded wireline ban now prohi- market, most telcos, large and
biting wireline carriers from small, may not take much advantage
holding SMR licenses to serve of this opportunity
dispatch service users
-------------------------------------------------------------------------
</TABLE>
<PAGE>Slide Number 37
<TABLE>
<CAPTION>
APPENDIX C. REGULATORY OUTLOOK
===========================================================================
-------------------------------------------------------------------------
KEY EVENTS IMPLICATIONS
-------------------------------------------------------------------------
<S> <C>
NARUC's resolution on maintenance NARUC's move adds pressure for a
of universal service*. Recommends concerted examination of the policy
that the Joint Board, FCC, and issues arising from local phone
Congress examine all methods of services competition.
supporting universal service
benefits: (1) taxing new entrants Many proceedings for addressing
in local phone service markets, universal service and other issues
(2) revamping separations/cost in dealing with local competition,
allocation procedures to make such as that by the N.Y. PSC, are
subsidies explicit, and (3) using sure to follow.
the communications excise tax as a
source of subsidy ($3.3 billion
collected by the U.S. Treasury in
1993), among others.
*NARUC's principles include these:
(1) universal service (US) must be
maintained, (2) affordability must
remain a fundamental precept in
considering the expansion of the US
concept, (3) definition of service
universality should be continuously
updated, (4) services falling within
the US definition should be offered
on a common-carrier basis.
-------------------------------------------------------------------------
</TABLE>
<PAGE>Slide Number 38
<TABLE>
<CAPTION>
APPENDIX C. REGULATORY OUTLOOK
====================================================================================================
--------------------------------------------------------------------------------------------------
KEY EVENTS IMPLICATIONS
--------------------------------------------------------------------------------------------------
<S> <C>
NTIA's public hearings on local competition. In its The way these issues are resolved, and the
report, "America Speaks Out", it states that time it takes to do so, will be the principal
determinant of how fast and where local
--Government has an important role to play competition will be allowed.
in ensuring that the US goals are achieved
in a multi-provider environment* The difficulties involved are illustrated by
the disparity in recent estimates of relevant
--The traditional US (POTS) goal has not been costs:
fully achieved
--Traditional funding mechanisms for US may not
be adequate**. All service providers must -------------------------------------------
contribute but that support should be targeted Estimate Estimate
(only) to those truly in need ITEM by MCI by USTA
-------------------------------------------
--Several issues (e.g., interconnection and US subsidy $3.7 billion $20 billion
interoperability) must be resolved before -------------------------------------------
open access can be assured Nationwide $22.50
average cost (average rate
*But important players in the industry think that US per residen- estimated at $33.25
is an idea whose time is past. It focuses on tial access $18; subsidy
affordability by the customer rather than on the line at $3.50)
supplier's profit, which is the proper measure of
success in a competitive market.
**Telcos may well consider proposing to the FCC/
Congress to use funds earned from spectrum
auctions for US subsidies. From PCS auctions
alone FCC expects to collect $10 billion to
$12 billion. This new source of funds may get
larger as FCC's auctioning authority is expanded.
--------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT (b)(11)
PROJECT HOURGLASS
PRELIMINARY DISCUSSION MATERIALS
AUGUST 1994
SALOMON BROTHERS INC
<PAGE>2
Outline of Presentation
--------------------------------------------------------------------------
Tab
---
Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . A
Overview of SubCo Investment . . . . . . . . . . . . . . . . . . . . B
Illustrative Valuation Parameters of SubCo Segments. . . . . . . . . C
Telephone . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Cellular. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Long Distance . . . . . . . . . . . . . . . . . . . . . . . . . 3
Cable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Discounted Cash Flow. . . . . . . . . . . . . . . . . . . . . . 5
Premium Examples . . . . . . . . . . . . . . . . . . . . . . . . . . D
Structural Alternatives. . . . . . . . . . . . . . . . . . . . . . . E
Potential Forms of Consideration . . . . . . . . . . . . . . . . . . F
Potential Transaction Process. . . . . . . . . . . . . . . . . . . . G
<PAGE>3
EXECUTIVE SUMMARY
<PAGE>4
EXECUTIVE SUMMARY
---------------------------------------------------------------------------
ParentCo is considering a range of alternatives with respect to its
investment in SubCo
* Maintain status quo
* Acquire public interest in SubCo
* Sell all of SubCo to a strategic buyer
* Form joint venture or undertake merger-of-equals with SubCo
* Spin-off ParentCo's interest in SubCo
* Sell additional shares in SubCo to increase float
* Reposition SubCo through active acquisition or divestiture
program
Today's presentation will focus on the potential acquisition by
ParentCo of the public's interest in SubCo
<PAGE>5
EXECUTIVE SUMMARY
---------------------------------------------------------------------------
Strategic Rationale -- Benefits to ParentCo of Potential Going Private
Transaction
* Increased control and elimination of concerns about the fairness
of transactions to a public minority
* Elimination of certain SubCo public company expenses
* Greater potential for eliminating redundant functions and
reducing costs
* Increased flexibility to manage capital raising and capital
allocation between corporations
* Facilitates complete capture of future free cash flow from SubCo
* Easier to execute future strategic priorities involving SubCo
(e.g., joint ventures, strategic alliances)
<PAGE>6
EXECUTIVE SUMMARY
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
($ in millions)
SubCo Contribution to ParentCo
CAGR (94-98)
----------------------
CAGR With Without
1991 1992 1993 (91-93) Alascom Alascom
---- ---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
ParentCo Revenue $3,168 $3,252 $3,412 3.8% -- --
SubCo Revenue 724 705 709 (1.1%) 3.4% (0.2%)
% Contribution 22.9% 21.7% 20.8% NM -- --
ParentCo EBIT (a) $941 $819 $916 (1.4%) -- --
SubCo EBIT 160 139 141 (6.1%) 15.3% 13.8%
% Contribution 17.0% 17.0% 15.4% NM -- --
ParentCo Assets 11,910 11,257 11,959 0.2% -- --
SubCo Assets 1,749 1,607 1,486 (7.8%) 6.6% 9.6%
% Contribution 14.7% 14.3% 12.4% NM -- --
------------------------
<FN>
(a) Includes financial services' interest expense. 1992 EBIT has been adjusted for special charges
in connection with credit rating downgrades.
</TABLE>
<PAGE>7
OVERVIEW OF SUBCO
INVESTMENT
<PAGE>8
OVERVIEW OF SUBCO INVESTMENT
---------------------------------------------------------------------------
[BAR/LINE GRAPH: SUBCO
WEEKLY DATA -- 8/18/91 THROUGH 8/19/94
SHOWING PRICE AND VOLUME]
<PAGE>9
OVERVIEW OF SUBCO INVESTMENT
---------------------------------------------------------------------------
[BAR/LINE GRAPH: SUBCO
WEEKLY DATA -- 12/31/93 THROUGH 8/24/94
SHOWING PRICE AND VOLUME]
<PAGE>10
OVERVIEW OF SUBCO INVESTMENT
---------------------------------------------------------------------------
[LINE GRAPH: WEEKLY DATA -- 8/18/91 THROUGH 8/19/94
SHOWING PRICE AS A PERCENT OF BASE PERIOD]
<PAGE>11
OVERVIEW OF SUBCO INVESTMENT
---------------------------------------------------------------------------
[LINE GRAPH: DIVIDEND YIELD PROFILE
WEEKLY DATA -- 8/18/91 THROUGH 8/19/94
SHOWING YIELD]
<PAGE>12
OVERVIEW OF SUBCO INVESTMENT
---------------------------------------------------------------------------
[LINE GRAPH: PRICE/EARNINGS PROFILE
WEEKLY DATA -- 8/18/91 THROUGH 8/19/94
SHOWING PRICE/EARNINGS]
<PAGE>13
<TABLE>
<CAPTION>
OVERVIEW OF SUBCO INVESTMENT(a)(b)(c)
----------------------------------------------------------------------------------------------------
SubCo's total returns to shareholders have been mixed
Average Annual Total Return(a)
----------------------------------------------------------------------
Index Returns
----------------------------------------
Time Period(b) SubCo ParentCo Telco(c) RHCs Utility S&P
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 year (3.3%) (5.8%) (7.0%) 1.2% (24.4%) 1.4%
2 years 1.0 (7.1) 12.1 13.9 (7.3) 7.3
5 years 3.9 3.0 2.8 9.4 1.1 10.3
10 years 9.8 11.8 15.9 18.8 6.3 15.0
-----------------------------------------------------------------------------------------------
* Limited SubCo trading volume
- Limited research coverage
- Average daily volume over the past 12 months of 13,100 shares(d)
------------------------
<FN>
(a) Total return with dividends reinvested (assumes no taxes)
(b) Through June 30, 1994
(c) Telco index includes the following independent telephone companies: AT, CSN, CTL LTEC, RTC,
SNG and TDS
(d) August 24, 1993 through August 24, 1994
</TABLE>
<PAGE>14
<TABLE>
<CAPTION>
OVERVIEW OF SUBCO INVESTMENT
----------------------------------------------------------------------------------------------------
(Shares in thousands)
Shareholder Profile
SubCo ParentCo
------------------------- ------------------------------
Shares % of Float Shares % of Float
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Top 20 Institutions 2,781 53% 63,601 23%
Other Institutions 357 6 43,415 15
------ --- ------- ---
Total Institutions 3,138 59% 107,016 38%
Management 136 3% 409 0%
Retail 2,013 38 175,704 62
----- ---- ------- ----
Public Float 5,287 100% 283,129 100%
ParentCo 34,325 NA 0 NA
------- ----- ------- ----
Shares Outstanding 39,612 NA 283,129 NA
</TABLE>
<PAGE>15
<TABLE>
<CAPTION>
OVERVIEW OF SUBCO INVESTMENT
---------------------------------------------------------------------------
Significant overlap exists between the shareholder base of SubCo and
ParentCo
Thousands of Shares held in
------------------------------------
SubCo ParentCo
Top 20 Institutions ------------ -------------
<S> <C> <C>
State Street Boston Corp 468 2,996
College Retire Equities 467 2,173
Harris Bankcorp Inc. 445 4,270
Morgan JP & Co. 269 25
Wells Fargo Inst. Tr NA 192 6,167
Wilshire Assoc Inc. 184 729
Calif State Teachers Ret 132 1,244
Mellon Bank Corporation 122 3,780
Associated Banc-Corp. 107 32
American Nat'l B&T/Chicago 61 658
Crawford Invt Counsel 52 ---
Arnold & S. Bleichroeder 49 ---
Oppenheimer & Co., L.P. 41 22
Keycorp 31 40
DSI Intl Management, Inc. 30 23
Gabelli Funds, Inc. 28 90
Composite Res. & Mgmt. 28 ---
Panagora Asset Mgmt. Inc. 26 33
Travelers Inc. 25 2,038
New York St. Teachers Ret. 24 1,576
-------- --------
Total -- Top 20 Institutions 2,781 25,896
Percent of Public Float 53% 9%
</TABLE>
<PAGE>16
ILLUSTRATIVE VALUATION
PARAMETERS OF SUBCO
SEGMENTS
<PAGE>17
<TABLE>
<CAPTION>
ILLUSTRATIVE VALUATION PARAMETERS OF SUBCO SEGMENTS(a)
----------------------------------------------------------------------------------------------------
($ in millions, except per access line amounts)
SubCo Per Share Price
------------------------------------
Component $22.75 $25.00 $30.00 $35.00 Comment
--------------------- ------ ------ ------ ------ ------------------------------
<S> <C> <C> <C> <C> <C>
Firm Value $ 1,373 $ 1,462 $ 1,660 $ 1,858 Total Asset Value
Non-Telephone Segments
Cellular MSAs $142 $142 $142 $142 $140 Per POP (midpoint in
range of $120-$160 per POP)
Cellular RSAs 45 45 45 45 $45 Per POP (midpoint in range
of $40-$50 per POP)
Alascom 265 265 265 265 After-tax value (DCF-range of
$210-$260)
Cable Inventory 65 65 65 65 Present value of inventory
(midpoint in range of $50-
$80)
Cable Maintenance 75 75 75 75 Maintenance contracts
(midpoint in range of $50-
$100)
IntelCom Shares 10 10 10 10 1.2 MM shares at $13.75 less
------- ------- ------- ------- taxes
Total Other Value $ 602 $ 602 $ 602 $ 602
Telephone Firm Value $ 771 $ 860 $1,058 $1,256
FV/Access Lines(a) $1,890 $2,108 $2,593 $3,079 Source of Access Lines:
ParentCo (6/30/94)
FV/Telephone Revenue 2.4x 2.7x 3.3x 3.9x Source of Telephone Revenue:
ParentCo (12/31/93)
FV/Telephone EBDIAT 5.5x 6.2x 7.5 8.9 Source of Telephone EBDIAT:
ParentCo (12/31/93)
------------------------
<FN>
(a) Assumes 407,946 lines at 6/30/94 (excludes the acquisition of 85,500 lines from U S WEST)
</TABLE>
<PAGE>18
TELEPHONE
<PAGE>19
<TABLE>
<CAPTION>
ILLUSTRATIVE VALUATION PARAMETERS OF SUBCO SEGMENTS
----------------------------------------------------------------------------------------------------------------------------------
($ in millions; except ratios)
Operating Statistics - Telephone Operations
Per Access Line(a) 1991-1993 CAGR LTM Margins(a)
------------------------------------ ------------------------------ -------------------
INDEPENDENT TELCOS(a) LTM Telco Sales LTM Telco EBDIAT Telco Sales Access Lines EBDIAT EBIT
--------------------- --------------- ---------------- ----------- ------------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
ALLTEL $758 $397 6.8% 4.7% 52.3% 34.5%
Cincinnati Bell 662 236 (2.7) 2.4 35.7 17.4
Lincoln Telecommunications 687 376 4.8 2.6 54.7 36.7
Rochester Tel 656 297 9.2 3.6 45.3 28.5
SNET 747 324 1.7 1.1 43.4 24.3
----------------------------------------------------------------------------------------------------------------------------------
Median $687 $324 4.8% 2.6% 45.3% 28.5%
Average $702 $326 4.0% 2.9% 46.3% 28.3%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Per Access Line(b) 1991-1993 CAGR LTM Margins(b)
------------------------------------ ------------------------------ -------------------
RBOC's(b) Telco Sales Telco EBDIAT Telco Sales Access Lines EBDIAT EBIT
--------------------- --------------- ---------------- ----------- ------------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
Ameritech Corporation $586 $242 2.8% 2.2% 41.2 23.1
Bell Atlantic Corporation 623 271 11.6 2.0 43.4 24.0
BellSouth Corporation 714 346 3.1 3.5 48.5 27.2
NYNEX Corporation 749 291 1.8 1.4 38.9 19.8
Pacific Telesis Group, Inc. 517 264 0.0 2.4 51.2 28.6
Southwestern Bell Corporation 620 269 4.3 2.8 43.5 22.4
U S WEST, Inc. 637 276 3.0 3.1 43.3 22.4
----------------------------------------------------------------------------------------------------------------------------------
Median $623 $271 3.0% 2.4% 43.4% 23.1%
Average $635 $280 3.8% 2.5% 44.3% 23.9%
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
SubCo(c) $825(b) $362(b) NA 5.7%(c) 43.8%(b) NA
----------------------------------------------------------------------------------------------------------------------------------
------------------------
<FN>
(a) As of June 30, 1994
(b) As of December 31, 1993
</TABLE>
<PAGE>20
<TABLE>
<CAPTION>
ILLUSTRATIVE VALUATION PARAMETERS OF SUBCO SEGMENTS
----------------------------------------------------------------------------------------------------
($ in millions; except ratios)
Public Trading Value - Telephone Operations
Telco Firm Value as a Multiple of Telco
Access Telco ------------------------------------------
Lines(000) Firm Value Sales EBDIAT EBIT Access Line
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALLTEL 1,617 $3,554 3.2x 6.1x 9.2x $2,198
Cincinnati Bell 865 1,695 3.0 8.4 17.3 1,960
Lincoln Telecommunication 259 481 2.8 5.2 7.8 1,859
Rochester Tel 920 1,229 2.0 4.5 7.1 1,335
SNET 1,984 2,392 1.6 3.8 6.7 1,206
----------------------------------------------------------------------------------------------------
Median 2.8x 5.2x 7.8x $1,859
Average 2.5x 5.7x 9.6x $1,712
----------------------------------------------------------------------------------------------------
------------------------
<FN>
(c) SubCo experienced internal access line growth of 4.8%, 6.2% and 5.0% in 1993, 1992 and 1991,
respectively. U.S. access lines grew 3.1% from 1991 to 1992 (source: ITU)
</TABLE>
<PAGE>21
<TABLE>
<CAPTION>
ILLUSTRATIVE VALUATION PARAMETERS OF SUBCO SEGMENTS
----------------------------------------------------------------------------------------------------
Other Transaction Value - Telephone Operations
Firm Value to:
Date --------------------------------------------------
Transaction Announced Access Lines Revenues EBDIAT EBIT
------------------------- --------- ------------ -------- ------ ----
<S> <C> <C> <C> <C> <C>
Citizens/GTE 5/20/93 $2,200 2.8x NA NA
ALLTEL/GTE(a) 2/03/93 2,316 3.0 6.2x 11.2x
Sprint/Centel(b) 5/27/92 1,300 2.3 6.0 11.1
Century/Centel Ohio 11/21/91 2,153 3.4 10.5 17.7
Rochester/Centel (IA, MN) 1/10/91 1,670 3.1 8.0 15.1
Median $2,153 3.1x 7.1x 13.2x
</TABLE>
<TABLE>
<CAPTION>
Per Access Line Margin
----------------------------------- ------------------------------
Transaction Revenues EBDIAT EBIT EBDIAT EBIT
----------- -------- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Citizens/GTE $794 NA NA NA NA
ALLTEL/GTE 787 383 209 48.6 26.6
Sprint/Centel 562 216 118 38.4 20.9
Century/Centel Ohio 633 205 122 32.4 19.2
Rochester/Centel (IA, MN) 539 209 111 38.8 20.5
Median $633 $213 $120 38.6% 20.7%
------------------------
<FN>
(a) Value of 95,000 access lines exchanged by ALLTEL is estimated
(b) Excludes estimated value of non-telephone business segments
</TABLE>
<PAGE>22
CELLULAR
<PAGE>23
<TABLE>
<CAPTION>
ILLUSTRATION VALUATION PARAMETERS OF SUBCO SEGMENTS
----------------------------------------------------------------------------------------------------------------------------------
Public Trading Value - Cellular(a)(b)
Firm Value as a multiple of:
-------------------------------------------------------------------------------------
Pops Subs LTM Sales LTM EBDIAT 1994 EBDIAT(a) 1995 EBDIAT(a)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cellular Communications, Inc. $303 $9,041 10.2x 29.9x 21.8x 17.1x
LIN Broadcasting Corp. 310 9,736 11.3 24.8 19.2 13.6
McCaw w/out LIN 223 6,580 8.5 18.6 14.1 10.4
AirTouch Communications 231 7,134 8.1 19.1 15.6 12.4
Vanguard Cellular Systems, Inc. 197 8,539 9.5 40.9 30.9 19.7
Centennial Cellular 134 9,384 10.3 21.6 22.6 16.4
Contel Cellular Inc. 157 6,695 9.1 32.6 29.2 21.7
United States Cellular Corp. 120 9,285 10.0 43.6 33.3 18.2
----------------------------------------------------------------------------------------------------------------------------------
Total MEDIAN $210 $8,790 9.8x 27.4x 22.2x 16.8x
Total AVERAGE 209 8,299 9.6 28.9 23.3 16.2
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
Selected Median (b) $134 $9,285 10.0x 32.6x 29.2x 18.2x
Selected Average (b) 137 8,455 9.8 32.6 28.4 18.8
----------------------------------------------------------------------------------------------------------------------------------
------------------------
<FN>
(a) Source: Salomon Brothers Inc Research
(b) Includes Centennial, Contel and U.S. Cellular
</TABLE>
<PAGE>24
ILLUSTRATIVE VALUATION PARAMETERS OF SUBCO SEGMENTS
---------------------------------------------------------------------------
Other Transaction Value - Cellular
[BAR CHART: "PER POP" PRICE ACQUISITION ANALYSIS OF SELECTED
CELLULAR TELEPHONE COMPANIES AND PROPERTIES
SHOWING "PER POP" ACQUISITION PRICES]
<PAGE>25
<TABLE>
<CAPTION>
ILLUSTRATIVE VALUATION PARAMETERS OF SUBCO SEGMENTS
----------------------------------------------------------------------------------------------------
($ in millions, except per pop value)
Demographic Analysis - Cellular(a)
MSA
------------------------------------------------------------------
Demographic Comparable Implied SubCo SubCo Firm
Company Index POP Value Per POP Value (MM)
------------------- -------------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Centennial Cellular 3.9 $134 $141 $143
Contel Cellular 4.9 157 131 132
United States Cellular 2.9 120 170 172
-------------------------------------------------------------------
Median MSA $141 $143
-------------------------------------------------------------------
RSA
------------------------------------------------------------------
Demographic Comparable Implied SubCo SubCo Firm
Company Index POP Value Per POP Value (MM)
------------------- -------------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Centennial Cellular 3.9 $134 $41 $41
Contel Cellular 4.9 157 38 38
United States Cellular 2.9 120 50 50
-------------------------------------------------------------------
Median RSA $41 $41
-------------------------------------------------------------------
-------------------------------------------------------------------
SubCo Cellular Firm Value $184
------------------------
<FN>
(a) Based on 1.0 million Net POPs in 10 MSAs and 1.0 million Net POPs in 22 RSAs. The Per POP
values are adjusted to reflect the relative attractiveness of the markets in which SubCo
operates as well as the MSA/RSA and ownership mix.
</TABLE>
<PAGE>26
LONG DISTANCE
<PAGE>27
<TABLE>
<CAPTION>
ILLUSTRATIVE VALUATION PARAMETERS OF SUBCO SEGMENTS
----------------------------------------------------------------------------------------------------
($ in millions)
Public Trading Values - Long Distance
Firm Value as a Multiple of
Firm LTM -----------------------------
Selected Comparable Companies Value P/E Ratio Revenue EBDIAT EBIT
--------------------------------------- ----- --------- ------- ------ ----
<S> <C> <C> <C> <C> <C>
AT&T $91,046 16.5x 1.3x 8.2x 12.1x
ALC (ALLNET) 1,352 26.8 2.9 14.6 17.2
LCI International, Inc. 738 19.3 2.0 10.2 19.3
LDDS Communications 4,195 27.1 3.1 12.5 17.6
MCI Communications 15,686 20.2 1.3 6.8 12.4
-------------------------------------------------------
High 27.1x 3.1x 14.6x 19.3x
Low 16.5 1.3 6.8 12.1
-------------------------------------------------------
Median 20.2 2.0x 10.2 17.2
-------------------------------------------------------
Net Inc. Revenue EBDIAT EBIT
----------------------------------------------------------------------------------------------------
1993 Alascom Financials $ 38 $ 239 $ 94 $ 58
----------------------------------------------------------------------------------------------------
Implied Firm Value of Alascom -------------------------------------------------------
High $ 1,042 $ 741 $1,372 $1,119
Low 639 311 639 702
-------------------------------------------------------
Median $ 780 $ 478 $ 959 $ 998
-------------------------------------------------------
</TABLE>
<PAGE>28
<TABLE>
<CAPTION>
ILLUSTRATIVE VALUATION PARAMETERS OF SUBCO SEGMENTS
----------------------------------------------------------------------------------------------------------------------------------
($ in millions)
Other Transaction Value - Long Distance
Firm Value as a Multiple of:
Date Implied -------------------------------
Announced Acquiror Target Firm Value Revenue EBDIAT EBIT
--------- -------------------------------- --------------------------- ---------- ------- ------ ----
<S> <C> <C> <C> <C> <C> <C>
08/22/94 LDDS Communications Wiltel Network Services $ 2,500 NA NA NA
06/15/94 France Telecom/Deutsche Telekom Sprint Corporation 21,114 1.8x 7.1x 13.1x
06/02/93 British Telecom PLC MCI Communications 22,258 2.0 10.0 17.2
11/01/92 BCE Mercury Communications 3,635 2.6 7.0 15.5
06/04/92 LDDS Communications Advanced Telecommunications (ATC) 771 2.1 10.0 15.8
01/03/92 Sprint GTE 3,319 0.6 3.8 11.3
04/09/90 MCI Communications Telecom USA 1,328 1.9 11.6 20.8
-------------------------------------------
High 2.6x 11.6x 20.8x
Low 0.6 3.8 11.3
-------------------------------------------
Median 2.0x 8.6x 15.7x
-------------------------------------------
Revenue EBDIAT EBIT
---------------------------------------------------------------------------------------------------------------------------
1993 Alascom Financials $ 239 $ 94 $ 58
---------------------------------------------------------------------------------------------------------------------------
Implied Firm Value of Alascom -------------------------------------------
High $ 621 $1,090 $1,206
Low 143 357 655
-------------------------------------------
Median $ 478 $ 808 $ 911
-------------------------------------------
</TABLE>
<PAGE>29
<TABLE>
<CAPTION>
ILLUSTRATIVE VALUATION PARAMETERS OF SUBCO SEGMENTS
----------------------------------------------------------------------------------------------------------------------------------
($ in millions)
Financial Summary -- Alascom
Management Estimates
----------------------------------------------------------------- (98-02)
1993 1994 1995 1996 1997 1998 2002 CAGR
------ ------ ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement
Revenues $ 239 $ 302 $294 $173 $164 $153 $161 1.3%
EBDIAT 94 166 163 52 45 39 31 (5.2%)
* Margin 39.4% 55.1% 55.5% 29.9% 27.3% 25.3% 19.4% --
EBIT $ 58 $ 57 $ 55 $ 47 $ 39 $ 31 $ 20 (10.0%)
* Margin 24.1% 18.8% 18.7% 27.1% 24.1% 20.1% 12.5% --
Net Income $ 38 $ 39 $ 33 $ 28 $ 24 $ 18 $ 12 (10.3%)
Balance Sheet
Debt $ 18 $ 12 $ 6 -- -- -- -- NM
Equity 245 208 149 $154 $155 $153 $139 (2.4%)
Cash Flow Statement
Depreciation & Amortization $ 36 $ 110 $ 108 $ 5 $ 5 $ 8 $ 11 8.6%
Capital Expenditures 21 29 11 11 11 36 11 (26.4%)
</TABLE>
<PAGE>30
<TABLE>
<CAPTION>
ILLUSTRATIVE VALUATION PARAMETERS OF SUBCO SEGMENTS
---------------------------------------------------------------------------
($ in millions)
Discounted Cash Flow Analysis - Alascom
Perpetuity Growth Rate (Year 2002)
----------------------------------------
(2.0%) (1.0%) 0.0% 1.0% 2.0%
----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
11.0% $238 $242 $247 $253 $261
Discount 12.0 228 231 236 240 246
Rate 13.0 220 222 226 230 234
14.0 212 214 217 220 224
</TABLE>
<PAGE>31
CABLE
<PAGE>32
<TABLE>
<CAPTION>
ILLUSTRATIVE VALUATION PARAMETERS OF SUBCO SEGMENTS
----------------------------------------------------------------------------------------------------
($ in millions)
Cable Inventory and Other Cable Related Values
Historical Sales
--------------------------------------------------------------------------------
Year % Sold Sales DS 3's
----------------------- ---------------- ------------------ ---------------
<S> <C> <C> <C>
1990 31% $83 NA
1991 10 31 NA
1992 4 11 NA
1993 1 5 NA
---------------- ------------------ ---------------
Total 46% $130 12.6
TRT 5% NA 1.4
---------------- ------------------ ---------------
Adjusted Total 51% $130 14.0
</TABLE>
<TABLE>
<CAPTION>
Cable Value Total(a) PV at 10%(a) PV at 15%(a)
---------------------------------- ------------------ ------------ ------------
<S> <C> <C> <C>
Percent Remaining 49% 49% 49%
1993 DS 3 Inventory 13.5 13.5 13.5
Estimated Avg. Historical Price/DS 3 $9.27 $9.27 $9.27
Implied Value of Inventory 122 93 83
Projected 1994 Price/DS 3 $6.60 $6.60 $6.60
Implied Value of Inventory 86 65 58
Projected 1998 Price/DS 3 $6.30 $6.30 $6.30
Implied Value of Inventory 82 62 55
------------------------
<FN>
(a) Present value at 6/30/94; assumes sales of 2 DS-3's per year and $2.6 million in 1994 sales
through 6/30/94
</TABLE>
<PAGE>33
<TABLE>
<CAPTION>
ILLUSTRATIVE VALUATION PARAMETERS OF SUBCO SEGMENTS(a)
----------------------------------------------------------------------------------------------------
($ in millions)
Other Cable Related Revenues
Projected Results(a) 1993 1994 1995 1996 1997 1998
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maintenance $10.6 $ 9.4 $10.8 $12.3 $14.3 $16.4
Restoration 2.6 2.2 2.6 3.0 3.3 3.5
Backhaul 1.9 1.9 2.0 2.1 2.2 2.3
-----------------------------------------------------------------
Total $15.1 $13.5 $15.4 $17.4 $19.8 $22.2
Growth (Mgmt Fee) (10.6%) 14.1% 13.0% 13.8% 12.1%
Growth (DS3) 14.3% 12.5% 11.1% 10.0% 9.1%
Implied Value at 6/30/94
------------------------------------
Margins
------------------------------------
25.0% 50.0% 75.0% 100.0%
------------------------------------
10.0% $32 $65 $97 $130
11.0 29 59 88 118
WACC 12.0 27 54 81 108
13.0 25 50 74 99
14.0 23 46 69 82
15.0 21 43 64 86
------------------------
<FN>
(a) Based on SubCo Management forecasts (assumes half the 1994 revenue was already earned)
</TABLE>
<PAGE>34
CONSOLIDATED DISCOUNTED CASH FLOW
<PAGE>35
<TABLE>
<CAPTION>
ILLUSTRATIVE VALUATION PARAMETERS OF SUBCO SEGMENTS
----------------------------------------------------------------------------------------------------------------------------------
($ in millions; except %)
SubCo Projections -- With Alascom
----------------------------------------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $709 $775 $892 $782 $806 $887
EBDIAT 257 331 414 345 360 414
* Margin 36.2% 42.7% 46.4% 44.2% 44.6% 46.7%
EBIT $141 $142 $194 $215 $222 $250
* Margin 19.9% 18.3% 21.7% 27.5% 27.6% 28.3%
Capital Expenditures $106 $123 $132 $137 $128 $180
----------------------------------------------------------------------------------------------------------------------------------
SubCo Projections - Without Alascom
----------------------------------------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998
-------------- -------------- -------------- -------------- -------------- --------------
Revenues $709 $715 $503 $601 $639 $710
EBDIAT 257 255 246 315 340 389
* Margin 36.2% 35.6% 48.9% 52.4% 53.3% 54.9%
EBIT $141 $137 $134 $180 $199 $229
* Margin 19.9% 19.1% 26.7% 29.9% 31.1% 32.3%
Capital Expenditures $106 $123 $121 $143 $128 $139
----------------------------------------------------------------------------------------------------------------------------------
Delta - SubCo with Alascom less SubCo Without Alascom
----------------------------------------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998
-------------- -------------- -------------- -------------- -------------- --------------
Revenues -- $ 61 $390 $181 $168 $177
EBDIAT -- 77 168 31 19 25
EBIT -- 5 60 35 23 21
Capital Expenditures -- -- 11 (7) (1) 41
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>36
<TABLE>
<CAPTION>
ILLUSTRATIVE VALUATION PARAMETERS OF SUBCO SEGMENTS(a)(b)
----------------------------------------------------------------------------------------------------------------------------------
Discounted Cash Flow Analysis - Consolidated Company
With Alascom Without Alascom
---------------------------------------------------------------- ---------------------------------------------------------------
Equity Value/Share(a) Equity Value/Share(b)
------------------------------------------------- ------------------------------------------------
Terminal Value Multiples of EBIT Terminal Value Multiples of EBIT
------------------------------------------------- ------------------------------------------------
9.0x 9.5x 10.0x 10.5x 11.0x 9.0x 9.5x 10.0x 10.5x 11.0x
------------------------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10.0% $26.76 $29.02 $31.29 $33.55 $35.82 10.0% $23.47 $25.55 $27.62 $29.69 $31.76
WACC 11.0% 25.41 27.60 29.79 31.99 34.18 WACC 11.0% 22.24 24.25 26.26 28.26 30.27
12.0% 24.11 26.23 28.36 30.49 32.61 12.0% 21.06 23.01 24.95 26.90 28.84
13.0% 22.86 24.92 26.98 29.04 31.10 13.0% 19.93 21.81 23.70 25.58 27.47
Equity Value/Share(a) Equity Value/Share(b)
------------------------------------------------- ------------------------------------------------
Terminal Value Multiples of EBDIAT Terminal Value Multiples of EBDIAT
------------------------------------------------- ------------------------------------------------
5.0x 5.5x 6.0x 6.5x 7.0x 5.0x 5.5x 6.0x 6.5x 7.0x
------------------------------------------------- ------------------------------------------------
10.0% $23.44 $27.18 $30.93 $34.67 $38.42 10.0% $21.40 $24.92 $28.44 $31.96 $35.49
WACC 11.0% 22.19 25.82 29.45 33.07 36.70 WACC 11.0% 20.24 23.65 27.06 30.47 33.88
12.0% 20.99 24.51 28.02 31.54 35.05 12.0% 19.12 22.42 25.73 29.03 32.34
13.0% 19.84 23.24 26.65 30.06 33.47 13.0% 18.04 21.25 24.45 27.66 30.86
Equity Value/Share(a) Equity Value/Share(b)
------------------------------------------------- ------------------------------------------------
Terminal Value Multiples of Book Terminal Value Multiples of Book
------------------------------------------------- ------------------------------------------------
1.50x 1.75x 2.00x 2.25x 2.50x 1.50x 1.75x 2.00x 2.25x 2.50x
------------------------------------------------- ------------------------------------------------
10.0% $25.15 $29.01 $33.87 $36.73 $40.58 10.0% $24.47 $28.24 $32.01 $35.78 $39.55
WACC 11.0% 23.85 27.59 31.32 35.06 38.80 WACC 11.0% 23.21 26.86 30.51 34.16 37.82
12.0% 22.60 26.22 29.84 33.46 37.09 12.0% 21.99 25.53 29.07 32.61 36.15
13.0% 21.39 24.90 28.42 31.93 35.44 13.0% 20.83 24.26 27.69 31.13 34.56
------------------------
<FN>
(a) Present value as of 1/1/95 assuming $601 MM in net debt, $17 MM in minority interest and 39.6 MM shares outstanding
(b) Present value as of 1/1/95 assuming $364 MM in net debt, $17 MM in minority interest and 39.6 MM shares outstanding
</TABLE>
<PAGE>37
PREMIUM EXAMPLES
<PAGE>38
<TABLE>
<CAPTION>
PREMIUM EXAMPLES
----------------------------------------------------------------------------------------------------
($ in millions)
Multiples of LTM Operating Results and Projected EPS
8/24/94
Price Illustrative Share Price Scenarios
(a)(b) -------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SubCo Share Price $22.75 $25.00 $27.50 $30.00 $32.50 $35.00
Premium 9.9% 20.9% 31.9% 42.9% 53.8%
Market Capitalization $901 $990 $1,089 $1,188 $1,287 $1,386
Net Debt 472 472 472 472 472 472
------- ------ ------ ------ ------ ------
Firm Value $1,373 $1,462 $1,561 $1,660 $1,759 $1,858
FV/LTM Revenue 2.0x 2.1x 2.2x 2.4x 2.5x 2.6x
FV/LTM EBDIAT 5.3x 5.6x 6.0x 6.4x 6.7x 7.1x
FV/1994 EBDIAT(a) 4.1 4.4 4.7 5.0 5.3 5.6
FV/1995 EBDIAT(a) 3.3 3.5 3.8 4.0 4.3 4.5
FV/LTM EBIT 9.6x 10.2x 10.9x 11.6x 12.3x 13.0x
FV/1994 EBIT(a) 9.7 10.3 11.0 11.7 12.4 13.1
FV/1995 EBIT(a) 7.1 7.6 8.1 8.6 9.1 9.6
LTM P/E 14.6x 16.1x 17.7x 19.3x 20.9x 22.5x
1994 P/E(a)(b) 13.3 14.6 16.0 17.5 19.0 20.4
1995 P/E(a)(b) 9.7 10.6 11.7 12.8 13.8 14.9
------------------------
<FN>
(a) Source: SubCo management projections (with Alascom)
(b) Note: IBES-estimates (8/18/94): 1994 EPS=$1.60, 1995 EPS=$1.65
</TABLE>
<PAGE>39
<TABLE>
<CAPTION>
PREMIUM EXAMPLES
----------------------------------------------------------------------------------------------------
Premiums Paid to Non-Control Public Interest in a Going Private Transaction(a)
Stock Transactions Cash Transactions Combined
--------------------------- --------------------------- ---------------------------
One Month One Day One Month One Day One Month One Day
Before Offer Before Offer Before Offer Before Offer Before Offer Before Offer
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Low (6.2%) (1.6%) (5.3%) (18.6%) (6.2%) (18.6%)
High 78.1 54.9 97.0 96.0 97.0 96.0
Mean 30.0 23.4 39.2 35.3 35.8 30.8
Median 23.7 23.4 38.0 34.1 35.0 28.8
------------------------
<FN>
(a) Based on an analysis of 58 transactions between September 1985 and June 1994
Premiums are indexed to price movements in the S&P 500 over the same time periods
</TABLE>
<PAGE>40
<TABLE>
<CAPTION>
PREMIUM EXAMPLES
----------------------------------------------------------------------------------------------------
Overview of Premiums Paid: Cash-for-Stock Acquisitions
Indexed Premium to Market(a)
Acquiror's -----------------------------------
Holdings at Number of One Month One Day
Time of Offer Transactions Before Offer Before Offer
--------------------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C>
50% to 60% 11 Mean 32.5% 38.6%
Median 30.2 33.3
60% to 70% 7 Mean 45.9 44.8
Median 38.8 43.1
70% to 80% 8 Mean 43.2 38.9
Median 44.0 34.0
80% and up 10 Mean 38.8 22.2
Median 45.3 25.9
------------------------------------------------------------------------------------------
All Transactions 36 Mean 39.2% 35.3%
Median 38.0 34.1
------------------------------------------------------------------------------------------
------------------------
<FN>
(a) Premiums are indexed to price movements in the S&P 500 over the same time periods
</TABLE>
<PAGE>41
<TABLE>
<CAPTION>
PREMIUM EXAMPLES
----------------------------------------------------------------------------------------------------
Overview of Premiums Paid: Stock-for-Stock Acquisitions
Indexed Premium to Market(a)
Acquiror's -----------------------------------
Holdings at Number of One Month One Day
Time of Offer Transactions Before Offer Before Offer
--------------------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C>
50% to 60% 5 Mean 33.2% 17.8%
Median 23.6 11.7
60% to 70% 8 Mean 6.8 19.4
Median 16.9 19.5
70% to 80% 7 Mean 42.1 33.1
Median 41.6 29.4
80% and up 2 Mean 45.6 18.9
Median 45.6 18.9
------------------------------------------------------------------------------------------
All Transactions 22 Mean 30.0% 23.4%
Median 23.7 23.4
------------------------------------------------------------------------------------------
------------------------
<FN>
(a) Premiums are indexed to price movements in the S&P 500 over the same time periods
</TABLE>
<PAGE>42
STRUCTURAL ALTERNATIVES
<PAGE>43
STRUCTURAL ALTERNATIVES
---------------------------------------------------------------------------
Potential Transaction Considerations
* Merger versus tender offer/exchange offer
* Approach to SubCo Board versus direct unnegotiated approach to
SubCo shareholders
* Independent committee
* Disclosure issues
* SubCo shareholder vote
* Potential for competing proposals
* Accounting/tax implications
* Cash versus stock as consideration to public SubCo shareholders
<PAGE>44
ILLUSTRATIVE VALUATION PARAMETERS OF SUBCO SEGMENTS
---------------------------------------------------------------------------
The Form of Transaction Can Be Either a Merger or Exchange/Tender Offer
* A merger for either stock or cash raises a number of issues
- Can be completed as a one-step transaction
- Negotiation would be with one entity (i.e., independent
committee)
- Perceived as more friendly transaction
- Stock transaction will require an additional 60 to 90 days
to complete
- All-stock transaction exempt from going private rules
(13(e)3)
* An unnegotiated exchange offer (stock) or a tender offer (cash)
raises other issues
- Would need to be followed by merger to get all shares
- Public disclosure of the number of shares tendered in offer
- "Negotiation" will be with public shareholders
- Appears more aggressive
- Higher litigation risk
<PAGE>45
ILLUSTRATIVE VALUATION PARAMETERS OF SUBCO SEGMENTS
---------------------------------------------------------------------------
Strategy of Approach/Offer
* ParentCo can initiate discussions directly with SubCo Board
- SubCo will form an independent committee
- Likely immediate disclosure of discussions and potential
terms
- Exploratory discussions possible but also raise disclosure
issues
* Although ParentCo can launch a public exchange/tender offer
directly to shareholders, it is unlikely to be the most
attractive tactic
- Attempt to negotiate definitive agreement
- Consensus on terms results in merger
<PAGE>46
STRUCTURAL ALTERNATIVES
---------------------------------------------------------------------------
[GRAPHIC DEPICTION OF PROPOSED STRUCTURAL ALTERNATIVES]
<PAGE>47
STRUCTURAL ALTERNATIVES
---------------------------------------------------------------------------
[GRAPHIC DEPICTION OF PROPOSED STRUCTURAL ALTERNATIVES]
<PAGE>48
ILLUSTRATIVE VALUATION PARAMETERS OF SUBCO SEGMENTS
---------------------------------------------------------------------------
SubCo Advisors/Board
* Independent committee will select outside legal and financial
advisors
- ParentCo should not make suggestions
- Traditional advisors of ParentCo should be avoided by
independent committee
Potential Independent Committee Members
<TABLE>
<CAPTION>
Director
Name Background Since
---------------------------- ------------------------------ ----------
<S> <C> <C>
Joyce E. Galleher (64) Secretary-Treasurer of JODI 1982
(real estate, equipment
leasing)
Roy M. Huhndorf (53) President and Chief Executive 1991
Officer of Cook Inlet Region,
Inc. (native regional corporation)
Donald L. Mellish (66) Director and Chairman of the 1992
Executive Committee of the
National Bank of Alaska
Sidney R. Snyder (67) President, Sid's Super Market, 1973
Inc.; Washington State Senator
</TABLE>
<PAGE>49
STRUCTURAL ALTERNATIVES
---------------------------------------------------------------------------
SubCo Disclosure Obligations
* Firm proposal from ParentCo would likely result in public
disclosure
* Exploratory discussions would likely result in public disclosure
(13(d) on file), unless undertaken as extremely preliminary
discussion and prior to ParentCo forming an intention on a
transaction
* Even preliminary exploratory discussions could result in
disclosure based upon legal advice to the independent committee
* Execution of definitive agreement prior to public disclosure is
unlikely
<PAGE>50
<TABLE>
<CAPTION>
STRUCTURAL ALTERNATIVES
---------------------------------------------------------------------------
Other Considerations
Issue Comments
-------------------------------- ----------------------------------------
<S> <C>
Merger Vote (SubCo shareholders) * ParentCo could effect the merger by
voting all of its shares in favor
- Recommended route assuming
independent committee support
and SubCo Board approval
- High confidence level in
completion
* ParentCo could agree to vote its
shares in proportion to the public
- Additional legal protection
- Uncertainty of completion
Third Party Proposals * Unlikely that a third party would
surface with an offer for either
ParentCo or the public's interest
in SubCo
- Very few, if any, interested
buyers of large minority
positions
- Foreign buyers are prohibited
from owning more than 25% of
SubCo
Accounting/Tax * ParentCo would account for the
acquisition of SubCo shares in a
manner similar to purchase
accounting
- Excess of cost over pro rata
book value is amortized
* ParentCo would not recognize a gain
or loss
* Shareholder taxes dependent on the
consideration
ParentCo Approval Process * ParentCo Holdings versus ParentCo
Board
* Protocol
* Advice of Company Counsel
</TABLE>
<PAGE>51
POTENTIAL FORMS OF CONSIDERATION
<PAGE>52
POTENTIAL FORMS OF CONSIDERATION
---------------------------------------------------------------------------
Cash Versus Stock as Consideration
* Stock provides a number of advantages relative to cash
- Tax free to SubCo shareholders
- Dividend pick-up
- Strengthens capital structure
- Provides partial carried interest
- Pricing for stock deals generally reflects the continued
potential for upside participation
- Exempt from going private rules (13(e)3)
* Disadvantages of stock versus cash
- EPS dilution is created/increases with the use of stock
- Increased dividend outlay
- Depending on exchange mechanism (fixed price versus fixed
exchange ratio, collared or uncollared) a stock offer will
contain some element of uncertainty for either ParentCo or
SubCo shareholders
- A stock transaction will likely take 60-90 days longer to
complete
<PAGE>53
<TABLE>
<CAPTION>
POTENTIAL FORMS OF CONSIDERATION (1)(2)(3)(4)
----------------------------------------------------------------------------------------------------
($ in millions)
Illustrative Financial Impact of Cash Versus Stock(a)
ParentCo
----------------------------------------
<S> <C>
1995 EPS - With Alascom(b) $1.50
1995 P/E - With Alascom(b) 11.5x
1995 EPS - Without Alascom(b) $1.39
1995 P/E - Without Alascom(b) 12.4x
ParentCo Shares Outstanding (MM) 283.13
Equity/Total Cap(b) 44.7%
----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
With Alascom Without Alascom
---------------------------- ---------------------------
SubCo Acquisition Price $25.00 $30.00 $35.00 $25.00 $30.00 $35.00
------ ------ ------ ------ ------ ------
Premium to Market(c) 10% 32% 54% 10% 32% 54%
<S> <C> <C> <C> <C> <C> <C>
Consideration-ParentCo Common
1995 EPS dilution (0.1%) (0.7%) (1.4%) (1.0%) (1.7%) (2.4%)
Equity/Total Cap(d) 45.5% 45.7% 45.9% 45.5% 45.7% 45.9%
ParentCo Shares Issued (MM) 7.66 9.19 10.73 7.66 9.19 10.73
Pro Forma Public Interest in
ParentCo 2.6% 3.1% 3.7% 2.6% 3.1% 3.7%
Consideration - Cash
1995 EPS Dilution 1.4% 1.0% 0.6% 0.4% (0.1%) (0.5%)
Equity/Total Cap(d) 44.0% 43.9% 43.7% 44.0% 43.9% 43.7%
Debt Incurred $132 $159 $185 $132 $159 $185
------------------------
<FN>
(a) Analysis excludes fees
(b) Source: July 1994 I/B/E/S estimate (reflects ParentCo stock price of $17.25 on 8/24/94);
"Without Alascom" EPS reflects the reduction of the I/B/E/S estimate by 87% of the change in
SubCo's net income
(c) Based on SubCo price of $22.75 as of 8/24/94
(d) As of 6/30/94 (debt includes redeemable preferred)
</TABLE>
<PAGE>54
POTENTIAL FORMS OF CONSIDERATION
---------------------------------------------------------------------------
Historical Exchange Ratio
[LINE GRAPH: WEEKLY DATA -- 8/18/91 THROUGH 8/19/94
SHOWING EXCHANGE RATIO]
<PAGE>55
<TABLE>
<CAPTION>
POTENTIAL FORMS OF CONSIDERATION
---------------------------------------------------------------------------
Exchange Ratio Matrix
* Exchange mechanism can fix the exchange ratio at the time of the
offer or fix the dollar value delivered at the time of closing
(floating exchange ratio)
SubCo Stock Price
-------------------------------------
$20 $25 $30 $35
-------------------------------------
<S> <C> <C> <C> <C> <C>
$15 1.33x 1.67x 2.00x 2.33x
ParentCo 16 1.25 1.56 1.88 2.19
Stock Price 17 1.18 1.47 1.76 2.06
18 1.11 1.39 1.67 1.94
19 1.05 1.32 1.58 1.84
</TABLE>
<PAGE>56
<TABLE>
<CAPTION>
POTENTIAL FORMS OF CONSIDERATION(a)(b)(c)(d)
----------------------------------------------------------------------------------------------------
Illustrative Contribution Analysis - Acquisition for ParentCo Common(a)
Net
Revenue EBDIAT EBIT Income Dividend
------- ------ ---- ------ --------
<S> <C> <C> <C> <C> <C>
SubCo Actual ($ in mm) $ 702 $ 261 $ 143 $ 62 $ 52
SubCo Per Share(b) 17.72 6.59 3.62 1.56 1.32
Pro Forma ParentCo ($ in mm)(c) $3,446 $1,407 $ 922 $ 394 $ 1.08
Per 1.45 ParentCo Shares(d) $17.38 $ 7.10 $ 4.65 $ 1.99 $ 1.57
SubCo Pick-up Per Share (0.33) 0.51 1.04 0.43 0.25
Per ParentCo Share(d) 12.00 4.90 3.21 1.37 1.08
ParentCo Pick-up Per Share (0.33) (0.13) (0.09) (0.01) 0.00
Per 1.74 ParentCo Shares(d) $20.75 $ 8.47 $ 5.55 $ 2.37 $ 1.89
SubCo Pick-up Per Share 3.03 1.88 1.94 0.82 0.57
Per ParentCo Share(d) 11.93 4.87 3.19 1.36 1.08
ParentCo Pick-up Per Share (0.39) (0.16) (0.11) (0.02) 0.00
Per 2.03 ParentCo Shares(d) $24.08 $ 9.83 $ 6.44 $ 2.75 $ 2.20
SubCo Pick-up Per Share 6.36 3.24 2.83 1.20 0.88
Per ParentCo Share(d) 11.87 4.85 3.18 1.36 1.08
ParentCo Pick-up Per Share (0.46) (0.19) (0.13) (0.03) 0.00
------------------------
<FN>
(a) Based on LTM 6/30/94 results
(b) Based on 39.6 million weighted average shares outstanding
(c) Net income includes SubCo minority interest and $1 million of goodwill; EBIT includes $1
million of goodwill; dividends per share shown
(d) Based on 279.6 million weighted average shares outstanding plus the issuance of shares in the
transaction
</TABLE>
<PAGE>57
POTENTIAL FORMS OF CONSIDERATION
---------------------------------------------------------------------------
In a Stock Transaction the Issue of Price Protection Method Must be
Addressed
* Fixed Exchange Ratio
- Favorable to ParentCo if ParentCo price falls
- Disadvantageous to ParentCo if ParentCo price rises
* Fixed Dollar Amount and Fluctuating Exchange Ratio
- Locks in dollar price paid
- Favorable to ParentCo if ParentCo price rises
- Disadvantageous to ParentCo if price falls
* Collars for either of above pricing techniques
- Typically set at approximately 10% above and below acquiror
current stock price
- If ParentCo's share price lands outside the collar:
i) Automatic termination of transaction;
ii) Either party can terminate transaction; or
iii) Exchange mechanism changes
<PAGE>58
POTENTIAL TRANSACTION PROCESS
<PAGE>59
<TABLE>
<CAPTION>
POTENTIAL TRANSACTION PROCESS
---------------------------------------------------------------------------
USW Case Study - Background
Date Event
----------------- -------------------------------------------------------
<S> <C>
10/89-Summer 90 * Waves and Wires (intercompany transaction/
conflicts)
8/20/90 & 9/14/90 * Salomon meets with U S WEST ("USW") regarding the
acquisition of the public interest in NewVector
("USWNA")
* Common directors of USW & USWNA to be excluded
from the discussions
10/5/90 * Management raises the possibility of an offer with
the USW Board
11/11/90 * Special meeting of USW Board to approve 0.95x
fixed exchange ratio merger offer which is equal
to $36.10 per USWNA share based on $38.00 per USW
share (the offer is subject to the Independent
Committee's approval)
11/14/90 * USWNA selects 2 person Independent Committee
11/21/91 * Independent Committee retains Sullivan & Cromwell
("S&C")
12/4/90 * Independent Committee retains Lazard
1/14/91 * Lazard and S&C meet with lead counsel for the
plaintiffs in the shareholder litigation
("Plaintiffs Group")
1/15/91 * Lazard and S&C meet with the Independent Committee
to present a "preliminary valuation analysis"
1/21/91 * Lazard forwards copies of its presentation to the
Plaintiffs Group
1/25/91 * Special Committee meets with Plaintiffs Group and
three institutional investors
* Lazard authorized to discuss methodology with
Salomon
</TABLE>
<PAGE>60
<TABLE>
<CAPTION>
POTENTIAL TRANSACTION PROCESS
---------------------------------------------------------------------------
USW Case Study - Negotiation
Date Event
----------------- -------------------------------------------------------
<S> <C>
2/19/91 * USW and Salomon present valuations to the
Independent Committee (discusses four sets of
USWNA management projections)
3/7/91 * Special Committee authorizes Lazard to begin
negotiating a price (seeking a price in excess of
$50 per share)
* BellSouth/GTE announced
3/14/91 * Lazard presents final analysis of Bell South/GTE
to Independent Committee ($132-$137 per POP or
$38.00-$39.00 per USWNA share)
3/11/91 * Salomon and Lazard meet (Salomon indicates USW is
willing to raise its bid)
3/18/91 * Lazard proposes $44 per USWNA share with a
floating exchange ratio and a collar of 1.05x to
1.15x
3/20/91 * Salomon responds with $44 per USWNA share and a
fixed exchange ratio of 1.113x or $43.50 per USWNA
share with a floating exchange ratio and a collar
of 1.05x to 1.15x
3/21/91 * Treasurer of USW meets with the Independent
Committee
* Parties agree to a transaction at $44 per USWNA
share (1.11x exchange ratio) with a collar at
1.08x to 1.14x (USW conditions its offer upon
settlement of the shareholder litigation)
3/22/91 * Signing of the merger agreement
6/13/91 * S-4 effective
7/11/91 * Shareholder meeting
</TABLE>
<PAGE>61
POTENTIAL TRANSACTION PROCESS
---------------------------------------------------------------------------
U S WEST Case Study - Stock Price Performance
[LINE GRAPH: WEEKLY DATA -- 11/11/89 THROUGH 7/12/91
SHOWING PRICE (AS A PERCENT OF BASE PERIOD)]
<PAGE>62
<TABLE>
<CAPTION>
POTENTIAL TRANSACTION PROCESS
---------------------------------------------------------------------------
Hypothetical Time Line
Weeks Required Actions
-------------- ---------------------------------------------
<S> <C>
-- * Internal approvals/approach to SubCo Board
2-3 * Independent committee formed
* Legal and financial advisors selected
5-8 * Due diligence by independent committee
advisors
* Response to ParentCo
3-4 * Negotiate with ParentCo
* Reach definitive agreement
* File merger proxy with SEC
5-6 * Proxy approved by SEC
* Mail proxy to shareholders
4-5 * Shareholder vote
* Consummation of transaction
</TABLE>
<PAGE>
EXHIBIT (b)(12)
PROJECT HOURGLASS
BOARD PRESENTATION
OCTOBER 1994
SALOMON BROTHERS INC
<PAGE>1
Salomon Brothers Assignment
--------------------------------------------------------------------------
* We have been asked to derive the value of SubCo.
* We have relied upon various valuation methodologies along with
our knowledge of SubCo, the equity markets and our experience in
telecommunications M&A.
<PAGE>2
Stock Market Valuation of SubCo
--------------------------------------------------------------------------
* The common equity of SubCo has traded in the $21-$28 range over
the past three years, and $22-$26 more recently. SubCo's stock
price performance has generally lagged that of the other
independent telephone companies. It has been suggested that the
stock price has suffered for a number of reasons, including:
(1) small public float (5.3 mm shares), (2) lack of equity
research coverage, and (3) inconsistent operating performance.
[Graphic line charts showing weekly price data and daily price
data]
<PAGE>3
SubCo's Operating Performance (a)(b)
--------------------------------------------------------------------------
* A review of SubCo's stock price performance suggests that it has
lagged the comparable independent telephone companies due to its
historical operating results.
* In nine of the past ten years SubCo's ROE has trailed the median
ROE of an index of independent telephone companies. In addition,
SubCo's total annual return outperformed the index in only three
of the last ten years.
[Graphic line charts showing Return on Average Shareholders
Equity and Total Return to Shareholders]
_______________
(a) With dividends reinvested
(b) Independents include AT, CSN, LTEC, ATC and SNG
<PAGE>5
Comparative Valuation of SubCo's Access Lines
--------------------------------------------------------------------------
* SubCo's relatively high "per access line value" versus its
comparables, is consistent with SubCo's telephone revenue, cash
flow and access line growth.
* On these bases, SubCo compares favorably to other independent
telephone companies. It is worth noting that SubCo's telephone
EBDIAT margin is not higher than that of the independents,
suggesting the cost structure is proportionately high.
Average of
SubCo Independents
---------- ------------
Revenues per Access Line $826 $707
EBDIAT per Access Line 365 319
Access Line Growth 5.7% 2.9%
EBDIAT Margin 44% 45%
* The higher revenue, cash flow and growth characteristics are consistent
with the current access line valuation.
<PAGE>6
Intrinsic Valuation of SubCo
--------------------------------------------------------------------------
* Lastly, we have calculated the underlying intrinsic value of
SubCo.
* Our computations are based on SubCo's five year projected
operating results.
* We believe the appropriate ranges of terminal value multiples
include:
-- Multiples of EBDIAT of 5.75x to 6.25x.
-- Multiples of EBIT of 9.5x to 10.5x
* In addition, we believe the appropriate weighted average cost of
capital range is from 10% to 11%.
* Our analysis, which is based on the assumptions listed above as
well as our knowledge of SubCo and the telecommunications
industry, suggests a purchase price of $27-$28 per share, which
is an 8%-12% premium to a $25 market price.
<PAGE>7
Purchase Price Analysis of SubCo
--------------------------------------------------------------------------
* We have also analyzed the purchase prices for the pending
U S WEST acquisitions versus the trading levels of other
independent telephone companies and SubCo.
<TABLE>
<CAPTION>
US WEST
SubCo Acquisitions(a)
Average of ----------------- -----------------
Independents $25 $28 CO OR/WA
------------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Access Line Value $1,681 $2,159 $2,450 $3,819 $4,633
Access Line Value/Revenue 2.4x 2.7x 3.1x 3.6x(b) 3.6x(c)
Access Line Value/EBDIAT 5.4x 6.2x 7.0x 6.1x(d) 5.1x(e)
Access Line Value/EBIT 9.1x 10.9x 12.4x 12.5x(f) 8.8x(g)
* We believe the closing of these transactions will not materially affect the
trading range of SubCo. The future value of these properties is included in
our intrinsic value analysis.
<FN>
_______________
(a) Estimated 1995 multiples, unless otherwise indicated.
(b) 1995 revenues in CO of $53.9 mm, including USF support of $13.0 mm and
excluding directory revenues of $0.8 mm.
(c) 1995 revenues in OR/WA of $47.0 mm, including 1997 USF support of $13.6 mm.
The multiple for OR/WA increases to 5.1x if the 1997 USF support is
removed.
(d) 1995 EBDIAT in CO of $31.6 mm, including USF support.
(e) 1995 EBDIAT in OR/WA of $33.4 mm, including 1997 USF support. The multiple
for WA/OR increases to 8.6x if the 1997 USF support is removed.
(f) 1995 EBIT in CO of $15.5 mm, including USF support. The multiple decreases
to 10.0x if amortization is excluded.
(g) 1995 EBIT in OR/WA of $22.1 mm, including 1997 USF support. The multiple
for WA/OR increases to 31.0x if the 1997 USF support is removed, and
decreases to 7.6x if amortization is excluded.
</TABLE>
<PAGE>7
Concluding Analysis of SubCo Purchase Price
--------------------------------------------------------------------------
* SubCo's current trading value of $25.00 per share implies a 6.2x
multiple of telephone EBDIAT. This, and other analyses, suggest
that SubCo is not trading at a discount to other independent
telephone companies.
* A purchase of outstanding SubCo shares at the current trading
price suggests a valuation per access line which, on the surface,
appears high, though is consistent with the revenue, cash and
growth characteristics of SubCo's access lines.
* A purchase of outstanding SubCo shares at a slight premium to the
current trading price is not inconsistent with telephone industry
practice. Although there are a limited number of data points and
each situation is unique, a survey of completed publicly
announced deals shows that telephone properties have been
purchased in private transactions at a median multiple of EBDIAT
of approximately 7.0x.
* Applying a 7.0x multiple to the EBDIAT of SubCo's access lines
implies a telephone value of $995 mm(a) which when added to the
value of the non-access line businesses ($581 mm), supports a
purchase price of $27-$28 per share.
_______________
(a) Assuming 1993 Telephone EBDIAT of $142 mm
<PAGE>
EXHIBIT (b)(13)
CONFIDENTIAL
------------------------------------------------------------------------
Pacific Telecom, Inc.
Meeting with Salomon Brothers
January 25, 1995
Smith Barney Inc.
------------------------------------------------------------------------
<PAGE>1
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Table of Contents
Tab
---
Introduction and Summary Observations
-------------------------------------
Timing of PacifiCorp Offer . . . . . . . . . . . . . . . . . . . . . 1
Pacific Telecom's Five Year Financial and Strategic Plan . . . . . . 2
Pacific Telecom's Stock Price Performance. . . . . . . . . . . . . . 3
-- Historical
-- Projected Near-Term
-- Projected Long-Term
Valuation Analysis
------------------
Summary Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . 4
-- Summary of Results
-- Observations
Valuation Methodologies Using Long-Term Projections
-- Discounted Cash Flow Analysis. . . . . . . . . . . . . . . 5
-- Present Value of Future Stock Price. . . . . . . . . . . . 6
Valuation Methodologies Using Near-Term Projections
-- Component Valuation Analysis . . . . . . . . . . . . . . . 7
Other Issues to Consider . . . . . . . . . . . . . . . . . . . . . . 8
<PAGE>2
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Table of Contents
Tab
---
Exhibits
--------
Pacific Telecom's Five Year Projections. . . . . . . . . . . . . . . 9
Pro Forma Financial Impact to PacifiCorp . . . . . . . . . . . . . . 10
Analysis of Pacific Telecom's Historical
Non-Recurring Gains and Losses . . . . . . . . . . . . . . . . . . 11
<PAGE>3
------------------------------------
Timing of PacifiCorp Offer
------------------------------------
<PAGE>4
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Timing of PacifiCorp Offer
[Graphic Timeline for Timing of PacifiCorp Offer]
<PAGE>5
--------------------------------------------------------------------------
Pacific Telecom's Five Year Financial
and Strategic Plan
--------------------------------------------------------------------------
<PAGE>6
<TABLE>
<CAPTION>
Pacific Telecom's Five Year Financial and Strategic Plan Pacific Telecom, Inc.
--------------------------------------------------------------------------------------------------------------------------------
PTI's Historical and Projected Financial Information by Lines of Business
(Dollars in Millions) 1994 1995E 1996E 1997E 1998E 1999E
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
EBITDA
Existing Locals $138.2 $152.6 $167.6 $180.3 $190.7 $200.9
US WEST Acquisitions 0.0 47.5 69.2 70.1 71.6 72.6
------ ------ ------ ------ ------ ------
Total LEC-Pre Generic $138.2 $200.1 $236.8 $250.4 $262.3 $273.5
Generic Acquisitions 0.0 0.0 50.5 53.2 85.6 87.3
------ ------ ------ ------ ------ ------
Total LECs $138.2 $200.1 $287.3 $303.6 $347.9 $360.8
Cellular 7.0 11.1 18.1 24.1 31.3 38.0
------ ------ ------ ------ ------ ------
Total LECs and Cellular $145.2 $211.2 $305.4 $327.7 $379.2 $398.8
Alascom 114.7 37.6 0.0 0.0 0.0 0.0
PT Cable 4.4 4.3 5.6 7.2 9.4 11.2
Parent and Other 1.0 0.4 2.2 2.4 2.6 2.8
------ ------ ------ ------ ------ ------
Total $265.3 $253.5 $313.2 $337.3 $391.2 $412.8
% Contribution to EBITDA
Existing Locals 52.1% 60.2% 53.5% 53.5% 48.7% 48.7%
US WEST Acquisitions 18.7% 22.1% 20.8% 18.3% 17.6%
Generic Acquisitions 16.1% 15.8% 21.9% 21.1%
Cellular 2.6% 4.4% 5.8% 7.1% 8.0% 9.2%
Alascom 43.2% 14.8%
PT Cable 1.7% 1.7% 1.8% 2.1% 2.4% 2.7%
Parent and Other 0.4% 0.2% 0.7% 0.7% 0.7% 0.7%
Net Income Available to Common $81,325 $138,532 $72,465 $84,839 $100,792 $114,297
Net Income from Continuing Operations $81,325 $64,532 $72,465 $84,839 $100,792 $114,297
EPS from Continuing Operations $2.05 $1.63 $1.83 $2.14 $2.54 $2.88
Dividends Per Share $1.32 $1.32 $1.34 $1.38 $1.42 $1.46
</TABLE>
<PAGE>7
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Pacific Telecom's Five Year Financial and Strategic Plan
The primary components of PTI's financial and strategic plan are
redeploying the Alascom divestiture proceeds and utilizing the Company's
available leverage to acquire rural LEC properties. Successful deployment
of Pacific Telecom's capital in rural LEC acquisitions is an important
contributing factor to the Company's projected growth.
[Graphic pie charts of 1995 EBITDA (excluding Alascom) and 1999 EBITDA]
<PAGE>8
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Pacific Telecom's Five Year Financial and Strategic Plan
After the Alascom divestiture and the US WEST acquisitions are completed,
PTI will have roughly the same leverage but will be under leveraged
relative to comparable companies...
----------------------------------------------------------------------
Debt to
PTI Capitalization
--------------
-- Pre US WEST and Alascom Transactions (1) 38.6%
------------------------------------------------------------
-- Post US WEST and Alascom Transactions (2) 40.6%
------------------------------------------------------------
Selected Comparables
-- Frontier 37.2%
-- SNET 51.4%
-- TDS(3) 60.3%
-- Lincoln 26.6%
-- AllTel 52.9%
-- Century Telephone 53.1%
-- Cincinnati Bell 52.4%
------------------------------------------------------------
Mean: 47.7%
------------------------------------------------------------
(1) As of 9/30/94
(2) As of 12/31/95 after the acquisition of the US WEST
properties, and the sale of Alascom, but prior to
completion of 1995 generic acquisitions
(3) Excludes US Cellular
----------------------------------------------------------------------
<PAGE>9
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Pacific Telecom's Five Year Financial and Strategic Plan
However, PTI's leverage ratios will increase over time with the LEC
acquisition program.
-------------------------------------------------------------------------
Debt to
PTI Capitalization
--------------
-- 1995(1) 40.6%
------------------------------------------------------------
-- 1999 46.4%
------------------------------------------------------------
Selected Comparables
-- Frontier 37.2%
-- SNET 51.4%
-- TDS(2) 60.3%
-- Lincoln 26.6%
-- AllTel 52.9%
-- Century Telephone 53.1%
-- Cincinnati Bell 52.4%
------------------------------------------------------------
Mean: 47.7%
------------------------------------------------------------
(1) As of 12/31/95 after the acquisition of the US WEST
properties and the sale of Alascom, but prior to
completion of 1995 generic acquisitions
(2) Excludes US Cellular
-------------------------------------------------------------------------
<PAGE>10
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Pacific Telecom's Five Year Financial and Strategic Plan
Access line acquisition opportunities should continue to be available due
to RBOCs "moving down the curve" as well as other factors.
Known Access Line Acquisition Opportunities
(in thousands)
-------------------------------------------------------------------------
Independent
Telco
State US WEST GTE Properties Others(1) Total
----------- ------- ----- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Minnesota 26 110 225 22 383
Iowa 22 150 172
Nebraska 12 12
Wisconsin 9 150 8 167
Alaska 14 69 181 264
Washington 6 42 48
Oregon 2 81 83
N. California 20 20
Colorado 18 18
------ ----- ------ ------ ------
Total 60 161 735 211 1,167
-------------------------------------------------------------------------
</TABLE>
<PAGE>11
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Pacific Telecom's Five Year Financial and Strategic Plan
The aggregate size and financial impact of PTI's anticipated acquisition
program is significant.
Size of Pacific Telecom's Generic Acquisition Program
(Dollars in Millions)
-------------------------------------------------------------------------
12/31/95 12/31/97 Total
-------- -------- ------
Generic LEC Acquisitions $268.0 $165.5 $433.5
-------------------------------------------------------------------------
Purchase Price Assumptions
-------------------------------------------------------------------------
12/31/95 12/31/97
-------- --------
Multiple of Forward EBITDA(1) 6.1x 6.1x
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
Marginal Financial Impact of Generic Acquisitions
-------------------------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue $0.0 $73.0 $76.0 $122.9 $125.3
EBITDA 0.0 50.5 53.2 85.6 87.3
Net Income 0.0 2.8 4.3 8.3 10.4
-------------------------------------------------------------------------
<FN>
(1) Forward EBITDA excludes reserves for USF support and operating
efficiencies on the $190 mm transaction.
</TABLE>
<PAGE>12
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Pacific Telecom's Five Year Financial and Strategic Plan
PTI has been able to achieve purchase price multiples consistent with the
generic LEC acquisition assumptions used in its financial projections.(1)
-------------------------------------------------------------------------
Actual Purchase Price Multiples Achieved(2)
Forward EBITDA Multiple of
Multiple Book Value
--------------- ---------------
US WEST Oregon 5.5x 1.5x
US WEST Washington 6.1 1.6
US WEST Colorado 5.8 1.6
-------------------------------------------------------------------------
Projected Purchase Price Multiples Assumed
-------------------------------------------------------------------------
Forward EBITDA Multiple of
Multiple(3) Book Value(4)
--------------- ---------------
12/31/95 Generic LEC
Acquisition 6.1x 1.7x
12/31/97 Generic LEC
acquisition 6.1 1.7
-------------------------------------------------------------------------
---------------------
(1) The purchase price multiples used in the generic LEC acquisition
assumptions are modeled on the Iowa, Minnesota and Nebraska
opportunity.
(2) Multiples provided by Pacific Telecom, Inc. Figures exclude reserve
for USF support.
(3) Forward EBITDA excludes reserve for USF support and operating
efficiencies on the $190mm transaction.
(4) Book value = Net Plant.
<PAGE>13
--------------------------------------------------------
Pacific Telecom's Stock Price Performance - Historical
--------------------------------------------------------
<PAGE>14
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Pacific Telecom's Stock Price Performance - Historical
In 1991, the senior management of Pacific Telecom initiated a strategic
restructuring of the Company that is now substantially complete.
[Graphic depiction of Pacific Telecom's Stock Price Performance]
<PAGE>15
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Pacific Telecom's Stock Price Performance - Historical
This restructuring has caused Pacific Telecom to incur a significant number
of gains, charges, and other non-recurring items.(1)
[Graphic bar chart of Non-Recurring Gains and Losses]
(1) See Tab 11, "Analysis of PTI's Historical Non-recurring Gains and
Losses" for supporting detail.
<PAGE>16
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Pacific Telecom's Stock Price Performance - Historical
These non-recurring items have caused Pacific Telecom's financial
performance to fluctuate significantly and, due to the absence of segment
reporting, has created difficulties in determining the "true" financial
performance and growth prospects of PTI's core businesses.
[Graphic line chart showing Pacific Telecom's Historical Net Income]
(1) Net Income available to common shareholders.
<PAGE>17
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Pacific Telecom's Stock Price Performance - Historical
As a result of these and other factors, Pacific Telecom has historically
traded on the basis of current returns.
[Graphic line charts showing Pacific Telecom's Stock Price and Dividend
Yield]
<PAGE>18
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Pacific Telecom's Stock Price Performance - Historical
PTI historically has traded at a multiple discount to its two closest
comparables - Lincoln and Frontier.
[Graphic line charts showing Historical P/E Multiples and Historical EBITDA
Multiples]
<PAGE>19
--------------------------------------------------------
Pacific Telecom's Stock Price Performance
Projected Near-Term
--------------------------------------------------------
<PAGE>20
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Pacific Telecom's Stock Price Performance - Projected Near-Term
In the near-term, the restructuring of Pacific Telecom will continue to
cause volatility to the Company's financial results, creating difficulty in
year-over-year financial comparisons. The primary causes of this
volatility are the mid-year closing of the US WEST acquisitions, the time
to "relever" PTI to a 50% debt capitalization ratio . . .
[Graphic line chart showing Near-Term Projected Net Income and EBITDA]
1994 1995(1) 1996
---- ---- ----
Debt to Capitalization 37.7% 40.6% 52.0%
Contribution from US WEST acquisitions
- EBITDA ($ millions) $0.0 $47.5 $69.2
-------------------------
(1) Prior to completion of 1995 generic LEC acquisition
<PAGE>21
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Pacific Telecom's Stock Price Performance - Projected Near-Term
. . . and the near-term earnings dilution due to the Alascom transaction.
[Graphic line chart showing Net Income With and Without Alascom
Divestiture]
-------------------------------------------------------------------------
1994 1995 1996
---- ---- ----
EPS dilution due to the Alascom
divestiture(1) 0% (38.3%) (25.0%)
-------------------------------------------------------------------------
(1) 1997 and 1998 figures are (18%) and (12.5%), respectively.
<PAGE>22
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Pacific Telecom's Stock Price Performance - Projected Near-Term
During this transition period, PTI will likely continue to trade as a
current return stock, with the current dividend providing "floor
protection" for PTI's stock price.
[Graphic bar chart showing Pacific Telecom's Stock Price Performance -
Projected Near Term]
<PAGE>23
--------------------------------------------------------
Pacific Telecom's Stock Price Performance --
Projected Long-Term
--------------------------------------------------------
<PAGE>24
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Pacific Telecom's Stock Price Performance -- Projected Long-Term
Over the long-term, as Pacific Telecom completes the restructuring and
"relevers" the Company with acquisitions of rural LEC properties, the
Company's financial performance will reflect consistent, steady growth.
Once this consistent financial performance is demonstrated, PTI should
transition from a current return stock to a total return stock.
[Graphic line chart showing Long-Term Projected Net Income and EBITDA]
<PAGE>25
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Pacific Telecom's Stock Price Performance -- Projected Long-Term
Although PTI has less liquidity and research coverage versus other
independent telcos...
[Graphic bar chart showing PTI Comparable Liquidity and PTI Comparable
Research Coverage]
<PAGE>26
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Pacific Telecom's Stock Price Performance -- Projected Long-Term
... PTI has greater growth prospects.
Comparison of PTI to Frontier and Lincoln
----------------------------------------------------------------------------
Historical Internal Cellular Leverage
Five Year Projected Access Line Factor
E.P.S. Growth Rate Growth Rate(1) (POPs/Access Lines)
------------------- ------------------- ------------------
<S> <C> <C> <C>
PTI 15.4% 6.2% 5.0x
Lincoln 7.8% 2.3% 2.1
Frontier 12.3% NA 2.2
--------------------------------------------------------------------------
</TABLE>
Accordingly, if PTI achieves its financial plan, it should trade "in line"
with its two most comparable companies, Lincoln and Frontier.
Potential 1999 Stock Price Trading Multiples
--------------------------------------------------------------------------
Comparable Companies
--------------------------
PTI Lincoln Frontier
--------------- ------- --------
EPS 15.0x to 17.0x 16.2x 16.0x
EBITDA 5.50x to 6.25x 6.2x 5.5x
--------------------------------------------------------------------------
<PAGE>27
Pacific Telecom, Inc.
-------------------------------------------------------------------------
Pacific Telecom's Stock Price Performance -- Projected Long-Term
Transitioning from a current return to a total return stock, coupled with a
successful implementation of the Company's financial plan, will create
stock price appreciation potential for PTI's shareholders over the long-
term.
[Graphic depictions of Stock Price and Growth Rate]
(1) Mean of most comparable companies is 16.1x.
(2) Mean of most comparable companies is 5.8x.
(3) PTI's dividend yield has historically ranged between 4.5% and 5.5%.
<PAGE>28
--------------------------
SUMMARY VALUATION
---------------------------
<PAGE>29
Pacific Telecom, Inc.
-------------------------------------------------------------------------
SUMMARY VALUATION
Discussion of Valuation Methodologies
---------------------------------------------------------------
Methodologies Using Long-Term Projections
-----------------------------------------
-- Discounted Cash Flow Analysis (See Tab 5)
-- Present Value of Future Stock Price (See Tab 6)
Methodologies Using Near-Term Projections
-----------------------------------------
-- Component Valuation Analysis (See Tab 7)
---------------------------------------------------------------
<PAGE>30
Pacific Telecom, Inc.
-------------------------------------------------------------------------
VALUATION METHODOLOGIES USING LONG-TERM PROJECTIONS(1)
[Graphic depiction of Present Value of Future Stock Price and Discounted
Cash Flow Analysis]
<PAGE>31
Pacific Telecom, Inc.
-------------------------------------------------------------------------
VALUATION METHODOLOGIES USING NEAR-TERM PROJECTIONS(1)
[Graphic depiction of Component Valuation Analysis]
<PAGE>32
Pacific Telecom, Inc.
-------------------------------------------------------------------------
SUMMARY VALUATION
[Graphic depiction of Comparison of PTI's public market value to its pre-
announcement stock price]
<PAGE>33
Pacific Telecom, Inc.
-------------------------------------------------------------------------
SUMMARY VALUATION
[Graphic depiction of Comparison of PTI's PUBLIC MARKET VALUE to
PacifiCorp's PRIVATE MARKET PROPOSAL]
<PAGE>34
Pacific Telecom, Inc.
-------------------------------------------------------------------------
SUMMARY VALUATION
[Graphic depiction of Comparison of PacifiCorp's Offer to PTI's Private
Market Value]
<PAGE>35
------------------------------------
DISCOUNTED CASH FLOW ANALYSIS
------------------------------------
<PAGE>36
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS - PUBLIC MARKET VALUE
(dollars in thousands)
Projected
-------------------------------------------------------------------
1995 1996 1997 1998 1999
------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
EBIT $147,321 $183,379 $201,040 $234,030 $248,686
Less: Income taxes (1) 56,680 71,182 78,584 92,311 98,681
------------- ----------- ---------- ----------- ----------
Unlevered After-tax Income 90,641 112,197 122,456 141,719 150,005
Plus: Depreciation & Amortization 106,152 129,754 134,330 157,136 164,043
Less: Capital Expenditures (127,496) (153,821) (115,925) (142,798) (118,965)
Less: Cost of Businesses Acquired (625,728) 0 (165,500) 0 0
Plus: Other Cash Flow Items (12,089) (1,143) 2,824 (4,579) (6,044)
------------- ----------- ---------- ----------- ----------
Free Cash Flow ($568,520) $86,987 ($21,815) $151,478 $189,039
============= =========== ========== =========== ==========
---------------------------------------------- --------------------------------------------------------------
DISCOUNTED FREE CASH FLOWS DISCOUNTED TERMINAL VALUE
Discount PV of Terminal Multiple of 1999 EBITDA
Rate Cash Flows --------------------------------------------------------------
---------- ---------- 5.5x 5.75x 6.0x 6.25x
------------ ------------ ----------- ------------
8.0% ($229,151) $1,544,930 $1,615,154 $1,685,379 $1,755,603
9.0% ($235,035) 1,475,350 1,542,412 1,609,473 1,676,535
10.0% ($240,497) 1,409,497 1,473,565 1,537,633 1,601,701
---------------------------------------------- --------------------------------------------------------------
--------------------------------------------------------------
Adjustments: 12/31/94 EQUITY VALUE(2)
------------ ---------
Less: Debt ($413,214) $1,179,037 $1,249,261 $1,319,485 $1,389,709
Plus: Cash 8,920 1,103,572 1,170,633 1,237,695 1,304,756
Plus: Alascom Divestiture 255,551 1,032,257 1,096,325 1,160,393 1,224,461
Proceeds --------------------------------------------------------------
Plus: Debt assumed by AT&T 12,000 --------------------------------------------------------------
---------- EQUITY VALUE PER SHARE
Net Debt ($136,743)
$29.76 $31.53 $33.30 $35.08
27.85 29.55 31.24 32.93
26.05 27.67 29.29 30.91
--------------------------------------------------------------
<FN>
(1) Effective tax rate applied for each year.
(2) Equity Value = PV(Free Cash Flows) + PV(Terminal Value) - Net Debt.
</TABLE>
<PAGE>37
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS - PRIVATE MARKET VALUE
(dollars in thousands)
Projected
-------------------------------------------------------------------
1995 1996 1997 1998 1999
------------ ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
EBIT $147,321 $183,379 $201,040 $234,030 $248,686
Less: Income taxes (1) 56,680 71,182 78,584 92,311 98,681
------------ ---------- --------- ----------- ----------
Unlevered After-tax Income 90,641 112,197 122,456 141,719 150,005
Plus: Depreciation & Amortization 106,152 129,754 134,330 157,136 164,043
Less: Capital Expenditures (127,496) (153,821) (115,925) (142,798) (118,965)
Less: Cost of Businesses Acquired (625,728) 0 (165,500) 0 0
Plus: Other Cash Flow Items (12,089) (1,143) 2,824 (4,579) (6,044)
------------ ---------- --------- ----------- ----------
Free Cash Flow ($568,520) $86,987 ($21,815) $151,478 $189,039
============ ========== ========= =========== ==========
---------------------------------------------- --------------------------------------------------------------
DISCOUNTED FREE CASH FLOWS DISCOUNTED TERMINAL VALUE
Discount PV of Terminal Multiple of 1999 EBITDA
Rate Cash Flows --------------------------------------------------------------
---------- ---------- 7.0x 7.5x 8.0x 8.5x
------------ ------------ ----------- -----------
8.0% ($229,151) $1,966,275 $2,106,723 $2,247,171 $2,387,620
9.0% ($235,035) 1,877,719 2,011,841 2,145,964 2,280,087
10.0% ($240,497) 1,793,906 1,922,042 2,050,178 2,178,314
---------------------------------------------- --------------------------------------------------------------
--------------------------------------------------------------
Adjustments: 12/31/94 EQUITY VALUE(2)
------------ ---------
Less: Debt ($413,214) $1,600,381 $1,740,830 $1,881,278 $2,021,726
Plus: Cash 8,920 1,505,940 1,640,063 1,774,186 1,908,309
Plus: Alascom Divestiture 255,551 1,416,666 1,544,802 1,672,938 1,801,074
Proceeds --------------------------------------------------------------
Plus: Debt assumed by AT&T 12,000 --------------------------------------------------------------
---------- EQUITY VALUE PER SHARE
Net Debt ($136,743)
$40.39 $43.93 $47.48 $51.03
38.01 41.40 44.78 48.17
35.76 38.99 42.22 45.46
--------------------------------------------------------------
<FN>
(1) Effective tax rate applied for each year.
(2) Equity Value = PV(Free Cash Flows) + PV(Terminal Value) - Net Debt.
</TABLE>
<PAGE>38
----------------------------------
PRESENT VALUE OF FUTURE
STOCK PRICE
----------------------------------
<PAGE>39
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
PRESENT VALUE OF FUTURE STOCK PRICE
----------------------------------------------------
1999 Projected Earnings per Share $2.88
----------------------------------------------------
--------------------------------------------------------------------------------------------------
PRESENT VALUE OF STOCK PRICE
Multiple of 1999 Projected Earnings per Share
Discount -------------------------------------------------------------------------
Rate 15.0x 15.5x 16.0x 16.5x 17.0x
----------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
11.5% $25.11 $25.95 $26.78 $27.62 $28.46
12.5% 24.01 24.81 25.61 26.41 27.22
13.5% 22.97 23.74 24.51 25.27 26.04
--------------------------------------------------------------------------------------------------
PRESENT VALUE OF DIVIDENDS
---------------------------------------------------------------------------------------------------------------
Discount PV of
Rate Dividends 1995 1996 1997 1998 1999
----------- ----------- ----------- --------- --------- --------- ----------
11.5% $5.02 $1.32 $1.34 $1.38 $1.42 $1.46
12.5% $4.90
13.5% $4.78
---------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
TOTAL VALUE PER SHARE
Discount Multiple of 1999 Projected Earnings per Share
Rate -------------------------------------------------------------------------
----------- 15.0x 15.5x 16.0x 16.5x 17.0x
------- ------- ------- ------- -------
11.5% $30.13 $30.97 $31.81 $32.64 $33.48
12.5% 28.91 29.71 30.51 31.31 32.11
13.5% 27.75 28.52 29.28 30.05 30.82
--------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>40
-----------------------------------
COMPONENT VALUATION ANALYSIS
-----------------------------------
<PAGE>41
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
COMPONENT VALUATION ANALYSIS - PUBLIC MARKET VALUE
(dollars in thousands)
---------- ----------
Local Exchange Properties(1) Low High
---------------------------- ---------- ----------
<S> <C> <C>
1996 EBITDA (2) $236,787 $236,787
Multiple 5.0x 5.5x
---------- ----------
Aggregate Value $1,183,935 - $1,302,329
Cellular Properties (3)
----------------------- Value per POP
------------------
POPS Low High
---- --- ----
Majority MSAs 603,214 $150 $175 $90,482 $105,562
Minority MSAs 384,300 100 125 38,430 48,038
Majority RSAs 587,538 75 100 44,065 58,754
Minority RSAs 437,735 40 60 17,509 26,264
------- --- --- ----------- ----------
Total 2,012,787 $95 $119 $190,487 - $238,618
Plus: Cellular net PP&E 24,721 24,721
----------- ----------
Aggregate Cellular Value $215,208 $263,339
North Pacific Cable (80%-100% of Book Value as of 12/31/94) $40,035 - $50,044
-------------------
TOTAL AGGREGATE VALUE $1,439,178 - $1,615,711
Less: Debt as of December 31, 1994 (413,214) (413,214)
Less: US WEST Acquisition Costs (365,728) (365,728)
Plus: Cash as of December 31, 1994 8,920 8,920
Plus: Alascom Divestiture Proceeds 255,551 255,551
Plus: Debt Assumed by AT&T 12,000 12,000
Equity Value $936,707 - $1,113,240
-----------------------------------------------------------------------------------------------------
EQUITY VALUE PER SHARE $23.64 - $28.10
-----------------------------------------------------------------------------------------------------
<FN>
(1) Includes Existing Local Exchange Companies, US WEST Acquisitions, but excludes generic acquisitions.
(2) 1996 figures are used in order to obtain the full-year impact of the US WEST transaction.
(3) No value has been assigned to managed properties.
</TABLE>
<PAGE>42
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
COMPONENT VALUATION ANALYSIS - PRIVATE MARKET VALUE
(dollars in thousands)
---------- ----------
Local Exchange Properties(1) Low High
---------------------------- ---------- ----------
<S> <C> <C>
1996 EBITDA (2) $236,787 $236,787
Multiple 6.5x 7.5x
---------- ----------
Aggregate Value $1,539,116 - $1,775,903
Cellular Properties (3) Value per POP
------------------
POPS Low High
---- --- ----
Majority MSAs 603,214 $175 $225 $105,562 $135,723
Minority MSAs 384,300 125 150 48,038 57,645
Majority RSAs 587,538 100 125 58,754 73,442
Minority RSAs 437,735 60 80 26,264 35,019
------- --- --- ----------- ----------
Total 2,012,787 $119 $150 $238,618 - $301,829
Plus: Cellular net PP&E 24,721 24,721
----------- ----------
Aggregate Cellular Value $263,339 $326,550
North Pacific Cable (80%-100% of Book Value as of 12/31/94) $40,035 - $50,044
-------------------
TOTAL AGGREGATE VALUE $1,842,490 - $2,152,497
Less: Debt as of December 31, 1994 (413,214) (413,214)
Less: US WEST Acquisition Costs (365,728) (365,728)
Plus: Cash as of December 31, 1994 8,920 8,920
Plus: Alascom Divestiture Proceeds 255,551 255,551
Plus: Debt Assumed by AT&T 12,000 12,000
Equity Value $1,340,019 - $1,650,026
-----------------------------------------------------------------------------------------------------
EQUITY VALUE PER SHARE $33.82 - $41.65
-----------------------------------------------------------------------------------------------------
<FN>
(1) Includes Existing Local Exchange Companies, US WEST Acquisitions, but excludes generic acquisitions.
(2) 1996 figures are used in order to obtain the full-year impact of the US WEST transaction.
(3) No value has been assigned to managed properties.
</TABLE>
<PAGE>43
------------------------------
OTHER ISSUES TO CONSIDER
------------------------------
<PAGE>44
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
OTHER ISSUES TO CONSIDER
PacifiCorp's Offer only has a slight dilutive impact on its EPS given the size of the transaction. Stock is a more "expensive"
acquisition currency for PacifiCorp, and cash is accretive even at values well in excess of the $28.00 offer.(1)
EPS Accretion/(Dilution)
--------------------------------------------------------------------------------------------------
Potential Purchase Cash Purchase Debt/ Stock Purchase Debt/
------------------------------ -------------------------------
Price per Share 1995 1996 1997 1998 Capitalization 1995 1996 1997 1998 Capitalization
------------------ ------ ------ ------ ------ -------------- ------ ------ ------ ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$28.00 0.0% 0.3% 0.7% 1.1% 53.1% -0.5% -1.0% -0.7% -0.4% 51.4%
30.00 -0.0% 0.1% 0.5% 0.9% 53.2% -0.7% -1.2% -0.9% -0.6% 51.3%
32.00 -0.1% -0.0% 0.3% 0.7% 53.2% -0.8% -1.5% -1.2% -0.9% 51.3%
34.00 -0.2% -0.2% 0.2% 0.6% 53.3% -0.9% -1.7% -1.4% -1.1% 51.2%
36.00 -0.3% -0.4% -0.0% 0.4% 53.4% -1.0% -2.0% -1.7% -1.4% 51.1%
38.00 -0.4% -0.6% -0.2% 0.3% 53.4% -1.2% -2.2% -2.0% -1.6% 51.1%
40.00 -0.5% -0.7% -0.4% 0.1% 53.5% -1.3% -2.5% -2.2% -1.9% 51.0%
<FN>
--------------------
(1) See Tab 10 for supporting details.
</TABLE>
<PAGE>45
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
OTHER ISSUES TO CONSIDER
In PTI's DCF valuation analyses, the Company uses a cost of equity of 15%. this discount rate is conservative -- it is in excess
of the equity returns required by PTI shareholders specifically, and industry investors generally.
-------------------------------------------------------------------------------------------------
Equity Return
-------------
<S> <C>
Cost of Equity used by PTI to value rural LEC acquisitions 15.0%
Cost of Equity "required" by PTI shareholders 11.8%
Cost of Equity "required" by industry investors 12.8%
-------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>46
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
PACIFIC TELECOM CONSOLIDATED INCOME STATEMENTS
(dollars in thousands)
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues
Alascom $135,135 $0 $0 $0 $0
Local Operating Companies 337,820 353,866 370,046 387,594 405,480
Generic Locals (1) 0 73,025 76,017 122,911 125,320
Pacific Telecom Cable 22,702 24,886 27,209 29,898 32,471
PTI Cellular 32,649 41,504 50,617 59,648 68,152
US WEST Acquisitions 79,005 110,941 112,655 114,812 115,201
Parent and Others 2,196 2,570 2,764 2,962 3,189
-------- -------- -------- -------- --------
Total Revenues 609,507 606,792 639,308 717,825 749,813
EBITDA
Alascom 37,572 0 0 0 0
Local Operating Companies 152,625 167,627 180,349 190,689 200,887
Generic Locals 0 50,473 53,221 85,600 87,280
Pacific Telecom Cable 4,291 5,564 7,223 9,403 11,221
PTI Cellular 11,061 18,123 24,079 31,264 37,984
US WEST Acquisitions 47,492 69,160 70,126 71,632 72,552
Parent and Others 432 2,186 2,380 2,578 2,805
-------- -------- -------- -------- --------
Total EBITDA 253,473 313,133 337,378 391,166 412,729
EBIT
Alascom 23,840 0 0 0 0
Local Operating Companies 88,556 95,537 103,629 109,482 115,072
Generic Locals 0 30,027 32,370 51,885 53,177
Pacific Telecom Cable 3,287 4,340 5,796 7,843 9,349
PTI Cellular 4,541 11,029 16,155 22,365 28,154
US WEST Acquisitions 27,241 40,836 41,286 40,453 40,705
Parent and Others (144) 1,610 1,804 2,002 2,229
-------- -------- -------- -------- --------
Total EBIT 147,321 183,379 201,040 234,030 248,686
Interest expense, net (38,226) (58,626) (57,108) (65,002) (60,003)
Other (4,210) (6,313) (4,649) (2,583) 805
-------- -------- -------- -------- --------
Pre-tax 104,885 118,440 139,283 166,445 189,488
Taxes 40,353 45,975 54,444 65,653 75,191
-------- -------- -------- -------- --------
NET INCOME 64,532 72,465 84,839 100,792 114,297
======== ======== ======== ======== ========
Shares outstanding 39,620 39,620 39,620 39,620 39,620
E.P.S. 1.63 1.83 2.14 2.54 2.88
Dividend/Share $1.32 $1.34 $1.38 $1.42 $1.46
</TABLE>
<PAGE>47
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
PACIFIC TELECOM CONSOLIDATED CASH FLOW STATEMENTS
(dollars in thousands)
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income from Continuing Operations $64,532 $72,465 $84,839 $100,792 $114,297
Depreciation and Amortization - Tax Deductible 106,152 129,754 134,330 157,136 164,043
Depreciation and Amortization - Non-Tax Deductible 7,333 7,215 9,223 6,563 6,564
Less:
Capital Expenditures - Maintenance 127,496 153,821 115,925 142,798 118,965
Capital Expenditures - Acquisitions 625,728 0 165,500 0 0
Other Cash Flow Items 243,462 (1,143) 2,824 (4,579) (6,044)
-------- -------- -------- -------- --------
Total Cash Flow before Dividends
and Debt Repayment (331,745) 54,470 (50,209) 117,114 159,895
Dividend 52,300 53,091 54,676 56,260 57,845
-------- -------- -------- -------- --------
Cash flow before Debt Repayment (384,045) 1,379 (104,885) 60,854 102,050
Debt (Repayment) Borrowing 381,609 (1,379) 104,885 (60,854) (102,019)
-------- -------- -------- -------- --------
Increase/(Decrease) Cash (2,436) 0 0 0 31
======== ======== ======== ======== ========
</TABLE>
<PAGE>48
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
PACIFIC TELECOM CONSOLIDATED BALANCE SHEETS AND RATIOS
(dollars in thousands)
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total Debt $794,810 $793,431 $898,316 $837,462 $735,443
Total Equity 753,931 773,305 803,468 848,000 904,452
Ratios
Debt to Capitalization (1) 51.3% 50.6% 52.8% 49.7% 44.8%
Debt/EBITDA 3.1 x 2.5 x 2.7 x 2.1 x 1.8 x
EBITDA/Interest 6.6 x 5.3 x 5.9 x 6.0 x 6.9 x
Interest Rate 4.8% 7.4% 6.4% 7.8% 8.2%
Tax Rate 38.5% 38.8% 39.1% 39.4% 39.7%
<FN>
(1) Capitalization is defined as total debt plus total equity.
</TABLE>
<PAGE>49
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
LOCAL EXCHANGE OPERATIONS
(dollars in thousands)
1992 1993 1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $307,805 $321,332 $314,313 $337,820 $353,866 $370,046 $387,594 $405,480
EBITDA 134,317 142,178 138,156 152,625 167,627 180,349 190,689 200,887
EBIT 76,676 80,855 79,439 88,556 95,537 103,629 109,482 115,072
Capital Expenditures - Maintenance 69,130 73,690 87,451 73,843 89,641 83,162 87,060 83,046
Capital Expenditures - Acquisitions (483) (152) 0 0 0 0 0 0
Other Cash Flow Items (1,449) (10,366) 5,032 (12,231) (3,487) (4,275) (5,100) (6,454)
</TABLE>
<PAGE>50
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
GENERIC LOCALS (1)
(dollars in thousands)
1992 1993 1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $0 $0 $0 $0 $73,025 $76,017 $122,911 $125,320
EBITDA 0 0 0 0 50,473 53,221 85,600 87,280
EBIT 0 0 0 0 30,027 32,370 51,885 53,177
Capital Expenditures - Maintenance 0 0 0 0 36,708 7,235 30,658 13,120
Capital Expenditures - Acquisitions 0 0 0 268,000 0 165,500 0 0
Other Cash Flow Items 0 0 0 0 (1,352) 5,981 5,037 7,783
<FN>
(1) 1992 and 1993 figures for local operating companies and generic locals are lumped together under local operating companies
</TABLE>
<PAGE>51
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
PACIFIC TELECOM CABLE
(dollars in thousands)
1992 1993 1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $23,149 $20,476 $20,269 $22,702 $24,886 $27,209 $29,898 $32,471
EBITDA 2,007 4,001 4,389 4,291 5,564 7,223 9,403 11,221
EBIT 1,712 3,221 3,812 3,287 4,340 5,796 7,843 9,349
Capital Expenditures - Maintenance 51 0 0 837 200 200 200 200
Capital Expenditures - Acquisitions 0 0 0 0 0 0 0 0
Other Cash Flow Items 6,030 (2,143) 30,135 12,533 5,352 5,098 4,723 4,689
</TABLE>
<PAGE>52
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
PACIFIC TELECOM CELLULAR
(dollars in thousands)
1992 1993 1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $10,169 $16,056 $23,447 $32,649 $41,504 $50,617 $59,648 $68,152
EBITDA 1,330 2,595 6,994 11,061 18,123 24,079 31,264 37,984
EBIT (1,518) (1,433) 1,528 4,541 11,029 16,155 22,365 28,154
Capital Expenditures - Maintenance 9,595 7,454 8,032 8,475 5,025 7,095 6,560 6,475
Capital Expenditures - Acquisitions 918 0 0 0 0 0 0 0
Other Cash Flow Items (1,558) (4,357) (5,036) (6,111) (5,211) (3,515) (7,906) (12,206)
</TABLE>
<PAGE>53
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
US WEST ACQUISITIONS (1)
(dollars in thousands)
1992 1993 1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues 0 0 0 $79,005 $110,941 $112,655 $114,812 $115,201
EBITDA 0 0 0 47,492 69,160 70,126 71,632 72,552
EBIT 0 0 0 27,241 40,836 41,286 40,453 40,705
Capital Expenditures - Maintenance 0 0 0 34,869 19,847 15,833 15,920 13,724
Capital Expenditures - Acquisitions 0 0 0 365,728 0 0 0 0
Other Cash Flow Items 0 0 0 (7,720) 6,613 675 28 1,150
<FN>
(1) Includes the acquisitions of Colorado, Washington and Oregon
</TABLE>
<PAGE>54
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
PARENT AND OTHER
(dollars in thousands)
1992 1993 1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $16,836 $13,352 $981 $2,196 $2,570 $2,764 $2,962 $3,189
EBITDA 6,862 2,950 1,017 432 2,186 2,380 2,578 2,805
EBIT 1,706 (1,280) (49) (144) 1,610 1,804 2,002 2,229
Capital Expenditures - Maintenance 8,242 3,527 6,491 2,400 2,400 2,400 2,400 2,400
Capital Expenditures - Acquisitions 16,271 15,688 0 (8,000) 0 0 0 0
Other Cash Flow Items (70,295) 185,751 27,749 2,894 (3,058) (1,140) (1,361) (1,006)
</TABLE>
<PAGE>55
----------------------------------------
PRO FORMA FINANCIAL IMPACT TO PACIFICORP
----------------------------------------
<PAGE>56
------------------------------
STOCK PURCHASE
------------------------------
<PAGE>57
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
PRO FORMA FINANCIAL IMPACT TO PACIFICORP
ACCRETION/(DILUTION) ANALYSIS: PURCHASE ACCOUNTING
($ in millions)
EPS Accretion/(Dilution)
-----------------------------------------------------------------------------------------------------
Cash Purchase Stock Purchase
Potential Purchase ------------------------------- Debt/ ------------------------------- Debt/
Price per Share 1995 1996 1997 1998 Capitalization 1995 1996 1997 1998 Capitalization
------------------ ---- ---- ---- ---- -------------- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$28.00 0.0% 0.3% 0.7% 1.1% 53.1% -0.5% -1.0% -0.7% -0.4% 51.4%
30.00 -0.0% 0.1% 0.5% 0.9% 53.2% -0.7% -1.2% -0.9% -0.6% 51.3%
32.00 -0.1% -0.0% 0.3% 0.7% 53.2% -0.8% -1.5% -1.2% -0.9% 51.3%
34.00 -0.2% -0.2% 0.2% 0.6% 53.3% -0.9% -1.7% -1.4% -1.1% 51.2%
36.00 -0.3% -0.4% -0.0% 0.4% 53.4% -1.0% -2.0% -1.7% -1.4% 51.1%
38.00 -0.4% -0.6% -0.2% 0.3% 53.4% -1.2% -2.2% -2.0% -1.6% 51.1%
40.00 -0.5% -0.7% -0.4% 0.1% 53.5% -1.3% -2.5% -2.2% -1.9% 51.0%
Pre-Tax Synergies Required for EPS Break-Even
------------------------------------------------------------------------------------
Cash Purchase Stock Purchase
------------------------------- -------------------------------
1995 1996 1997 1998 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ----
$28.00 ($0.2) ($1.5) ($3.2) ($5.1) $2.6 $4.7 $3.3 $1.8
30.00 0.2 (0.7) (2.4) (4.3) 3.2 6.0 4.5 3.0
32.00 0.6 0.1 (1.6) (3.5) 3.8 7.2 5.8 4.3
34.00 1.1 1.0 (0.8) (2.8) 4.4 8.5 7.0 5.5
36.00 1.5 1.8 0.1 (2.0) 5.1 9.7 8.3 6.7
38.00 1.9 2.6 0.9 (1.2) 5.7 11.0 9.5 8.0
40.00 2.3 3.5 1.7 (0.5) 6.3 12.2 10.8 9.2
</TABLE>
<PAGE>58
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
PRO FORMA FINANCIAL IMPACT TO PACIFICORP
PRO FORMA BALANCE SHEET
($ in millions)
PacifiCorp Pro Forma PacifiCorp
Stand Alone Adjustments Pro Forma
----------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $21.2 $21.2
Other Current assets 829.8 829.8
---------- ---------
Total Currents Assets 851.0 851.0
Net Property, Plant, & Equipment 8,395.1 8,395.1
Other Assets 2,623.1 2,623.1
Transaction Goodwill 0 43.7 43.7
---------- ---------
Total Assets $11,869.2 $11,912.9
========== =========
LIABILITIES & STOCKHOLDER'S EQUITY
Current Liabilities:
Long Term Debt and Capital Lease Obligations Currently Maturing $105.0 $105.0
Notes Payable and Commercial Paper 477.9 477.9
Other Current Liabilities 740.3 740.3
---------- ---------
Total Current Liabilities $1,323.2 $1,323.2
Assumed Minority Interest - PTI 104.9 (104.9) 0.0
Other Minority Interest 2.3 2.3
Long Term Debt 3,800.0 0.0 3,800.0
Deferred Credits 2,641.2 2,641.2
Preferred Stock 586.4 586.4
Total Common Equity 3,411.2 148.7 3,559.9
---------- ---------
Total Capitalization & Equity $11,869.2 $11,912.9
========== =========
TOTAL DEBT/TOTAL CAPITALIZATION 52.3% 51.4%
</TABLE>
<PAGE>59
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
PRO FORMA FINANCIAL IMPACT TO PACIFICORP
EARNINGS PER SHARE IMPACT
($ in millions)
1995 1996 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PacifiCorp Stand Alone EPS
PacifiCorp Net Income $426.8 $456.5 $470.4 $496.5
PacifiCorp Shares Outstanding 284.4 284.4 284.4 284.4
--------- --------- --------- ---------
Earnings Per Share $1.50 $1.61 $1.65 $1.75
Pacific Telecom Net Income $64.5 $72.5 $84.8 $100.8
Transaction Adjustments
Interest Expense on Debt 0.0 0.0 0.0 0.0
Goodwill Amortization (1.1) (1.1) (1.1) (1.1)
Synergies (after tax) 0.0 0.0 0.0 0.0
13% of PTI Net Income 8.6 9.7 11.4 13.5
Incremental Investment Income 0.0 (0.1) (0.1) (0.1)
--------- --------- --------- ---------
Total Transaction Adjustments $7.6 $8.5 $10.2 $12.3
Pro Forma Net Income $434.4 $465.0 $480.6 $508.8
Total Shares Outstanding 292.5 292.5 292.5 292.5
Pro Forma EPS 1.48 1.59 1.64 1.74
Stand Alone EPS 1.50 1.61 1.65 1.75
Accretion/(Dilution) - Full Year Impact -1.06% -0.96% -0.67% -0.36%
Accretion/(Dilution) - 1/2 Year Impact in 1995,
Full Year Impact Thereafter -0.53% -0.96% -0.67% -0.36%
-------------------------------------------------
Tax Rate 40.0%
Int. Rate on Debt 8.0%
Amortization of Goodwill 40 yrs.
PacifiCorp Acquisition Price $28.00
Form of Purchase Stock Purchase
-------------------------------------------------
</TABLE>
<PAGE>60
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
PRO FORMA FINANCIAL IMPACT TO PACIFICORP
INCREMENTAL CASH FLOW
($ in millions)
1995 1996 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PacifiCorp After-tax Interest Expense 0.0 0.0 0.0 0.0
Pacific Telecom Dividends Avoided 7.0 7.1 7.3 7.5
PacifiCorp Dividends on Shares Issued (8.8) (8.9) (9.1) (9.3)
Synergies 0.0 0.0 0.0 0.0
Interest on Incremental Cash Flow 0.0 (0.1) (0.2) (0.2)
--------- --------- --------- ---------
Incremental Cash Flow ($1.8) ($2.0) ($2.0) ($1.9)
Cumulative Cash Flow (1.8) (3.7) (5.7) (7.6)
Interest Rate on Incremental Cash Flow 8.0% 8.0% 8.0% 8.0%
--------- --------- --------- ---------
Incremental Cash Flow Before Taxes 0.0 (0.2) (0.2) (0.2)
Tax Rate 40.0% 40.0% 40.0% 40.0%
--------- --------- --------- ---------
After Tax Incremental Cash Flow $0.0 ($0.1) ($0.1) ($0.1)
</TABLE>
<PAGE>61
--------------------------
CASH PURCHASE
--------------------------
<PAGE>62
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
PRO FORMA FINANCIAL IMPACT TO PACIFICORP
PRO FORMA BALANCE SHEET
($ in millions)
PacifiCorp Pro Forma PacifiCorp
Stand Alone Adjustments Pro Forma
----------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $21.2 $21.2
Other Current Assets 829.8 829.8
----------- ----------
Total Current Assets 851.0 851.0
Net Property, Plant & Equipment 8,395.1 8,395.1
Other Assets 2,623.1 2,623.1
Transaction Goodwill 0 43.7 0
----------- ----------
Total Assets $11,869.2 $11,869.2
=========== ==========
LIABILITIES & STOCKHOLDER'S EQUITY
Current Liabilities:
Long Term Debt and Capital Lease Obligations Currently Maturing $105.0 $105.0
Notes Payable and Commercial Paper 477.9 477.9
Other Current Liabilities 740.3 740.3
----------- ----------
Total Current Liabilities $1,323.2 $1,323.2
Assumed Minority Interest - PTI 104.9 (104.9) 0.0
Other Minority Interest 2.3 2.3
Long Term Debt 3,800.0 148.7 3,948.7
Deferred Credits 2,641.2 2,641.2
Preferred Stock 586.4 586.4
Total Common Equity 3,411.2 0.0 3,411.2
----------- ----------
Total Capitalization & Equity $11,869.2 $11,912.9
=========== ==========
----------- ----------
TOTAL DEBT/TOTAL CAPITALIZATION 52.3% 53.1%
</TABLE>
<PAGE>63
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
PRO FORMA FINANCIAL IMPACT TO PACIFICORP
EARNINGS PER SHARE IMPACT
($ in millions)
1995 1996 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PacifiCorp Stand Alone EPS
PacifiCorp Net Income $426.8 $456.5 $470.4 $496.5
PacifiCorp Shares Outstanding 284.4 284.4 284.4 284.4
--------- --------- --------- ---------
Earnings Per Share $1.50 $1.61 $1.65 $1.75
Pacific Telecom Net Income $64.5 $72.5 $84.8 $100.8
Transaction Adjustments
Interest Expense on Debt (7.1) (7.1) (7.1) (7.1)
Goodwill Amortization (1.1) (1.1) (1.1) (1.1)
Synergies (after tax) 0.0 0.0 0.0 0.0
13% of PTI Net Income 8.6 9.7 11.4 13.5
Incremental Investment Income 0.0 (0.0) 0.0 0.0
--------- --------- --------- ---------
Total Transaction Adjustments $0.4 $1.5 $3.1 $5.3
Pro Forma Net Income $427.2 $458.0 $473.5 $501.8
Total Shares Outstanding 284.4 284.4 284.4 284.4
Pro Forma EPS 1.50 1.61 1.67 1.76
Stand Alone EPS 1.50 1.61 1.65 1.75
Accretion/(Dilution) - Full Year Impact -0.10% -0.32% -0.67% -1.07%
Accretion/(Dilution) - 1/2 Year Impact in 1995,
Full Year Impact Thereafter -0.05% -0.32% -0.67% -1.07%
-------------------------------------------------
Tax Rate 40.0%
Int. Rate on Debt 8.0%
Amortization of Goodwill 40 years
PacifiCorp Acquisition Price $28.00
Form of Purchase Cash Purchase
-------------------------------------------------
</TABLE>
<PAGE>64
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
-------------------------------------------------------------------------------------------------------------------------------
PRO FORMA FINANCIAL IMPACT TO PACIFICORP
INCREMENTAL CASH FLOW
($ in millions)
1995 1996 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PacifiCorp After-tax Interest Expense (7.1) (7.1) (7.1) (7.1)
Pacific Telecom Dividends Avoided 7.0 7.1 7.3 7.5
PacifiCorp Dividends on Shares Issued 0.0 0.0 0.0 0.0
Synergies 0.0 0.0 0.0 0.0
Interest on Incremental Cash Flow 0.0 (0.0) (0.0) 0.0
--------- --------- --------- ---------
Incremental Cash Flow ($0.1) ($0.0) $0.2 $0.4
Cumulative Cash Flow (0.1) (0.2) 0.0 0.4
Interest Rate on Incremental Cash Flow 8.0% 8.0% 8.0% 8.0%
--------- --------- --------- ---------
Incremental Cash Flow Before Taxes 0.0 (0.0) 0.0 0.0
Tax Rate 40.0% 40.0% 40.0% 40.0%
--------- --------- --------- ---------
After Tax Incremental Cash Flow $0.0 ($0.0) $0.0 $0.0
</TABLE>
<PAGE>65
---------------------------------------------------
ANALYSIS OF PACIFIC TELECOM'S HISTORICAL
NON-RECURRING GAINS AND LOSSES
---------------------------------------------------
<PAGE>66
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
--------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF PTI'S HISTORICAL NON-RECURRING GAINS AND LOSSES
DATE EVENT FINANCIAL STATEMENT IMPACT (1)
-------------------- --------------------------------------------- -----------------------------------------------
<S> <C> <C>
August 1989 Sold a 14.9% interest in ICH to FCR ICH is presented as a discontinued operation
Holdings, Inc. in FY 1989, resulting in a net loss of
approximately $1.6MM
February 15, 1990 Sold Petroleum Communications, Inc. Recognized an after-tax gain of $13.8MM in 1990
1990 ICH is presented as a discontinued operation Recognized a net loss of approximately $5.2MM
for financial statement reporting purposes.
Sale of North Pacific Cable capacity Recognized revenues of $83.2MM
January 31, 1991 Signed agreements to sell 85.1% ownership PTI did not anticipate recognizing a
interest in ICH to Cable and Wireless North significant gain or loss as a result of
America, Inc. transaction
September 10, 1991 Sold wholly-owned subsidiary, TU Recognized a $17.4MM after-tax gain on
International to BellSouth Enterprises, Inc. the sale
November 29, 1991 Terminated agreement to sell 85.1%
ownership interest in ICH to Cable and
Wireless North America, Inc.
December 30, 1991 PTI and its wholly-owned subsidiaries, AT&T was to pay Alascom a total of
Alascom and Telephone Utilities of Alaska, $330MM over five years, including $75MM
signed an agreement with AT&T to transfer for 2/3 capacity of North Pacific Cable
the provision of interstate and international
message toll service and wide area telephone
service in Alaska from Alascom to AT&T
and to provide for the sale of 2/3 of the
capacity of North Pacific Cable to AT&T
Sold wholly-owned cellular subsidiary in Recognized $3.7MM after-tax gain
Colorado and concluded a cellular ownership
exchange in Idaho
</TABLE>
<PAGE>67
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
--------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF PTI'S HISTORICAL NON-RECURRING GAINS AND LOSSES
DATE EVENT FINANCIAL STATEMENT IMPACT (1)
-------------------- --------------------------------------------- -----------------------------------------------
<S> <C> <C>
December 30, 1991 ICH is presented as a discontinued operation Recognized an $8.4MM after-tax valuation
for financial statement reporting purposes adjustment for the discontinued operations of
ICH, including net loss
Sale of North Pacific Cable capacity Recognized revenues of $30.9MM
March 1992 Sold minority ownership interest in Catalina Recognized an after-tax gain of
Marketing Corporation approximately $13.5MM on the sale
October 30, 1992 Executed a modification to the 12/30/91
agreement with AT&T extending the
termination date of the original agreement
to January 15, 1993
December 1992 Sold several cellular properties Transactions resulted in after-tax gains of
about $4.3MM
ICH has $10.4MM in operating losses Recorded an after-tax loss from discontinued
operations of approximately $45.7MM
Valuation adjustment of $35.3MM resulting
from the agreement with IDB's prospective
purchase of TRT
Sale of North Pacific Cable capacity Recognized revenues of $10.8MM
January 25, 1993 Signed an agreement to sell TRT to IDB Recorded losses in FY 1992
March 31, 1993 AT&T petitioned the FCC to terminate the Income statement impact is uncertain.
JSA with Alascom and to grant AT&T
authority to create and operate its own
network for the provision of interstate
service directly to and from Alaska
<FN>
--------------------
(1) Pacific Telecom 10Ks and 8Ks
</TABLE>
<PAGE>68
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
--------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF PTI'S HISTORICAL NON-RECURRING GAINS AND LOSSES
DATE EVENT FINANCIAL STATEMENT IMPACT (1)
-------------------- --------------------------------------------- -----------------------------------------------
<S> <C> <C>
September 23, 1993 Completed the sale of TRT and a smaller Based on the market value of IDB stock at
subsidiary to IDB closing (which increased during 1993), PTI
recognized an after-tax gain from
discontinued operations of $60.4MM
October 5, 1993 Agreed to sell PTI Harbor Bay and Upsouth Based on market conditions at time of
Corporation to IntelCom Group agreement, PTI expected to recognize a gain
on the transaction, although the amount of
any gain would not be determined until closing
December 1993 Sale of North Pacific Cable capacity Recognized revenues of $4.9MM
April 15, 1993 Alascom filed with the FCC a preliminary Approximately 49% or $346.6MM of PTI's
response to AT&T's petition on 3/31/93 consolidated operating revenues were
contributed by Alascom and of this amount
$135.3MM was derived by Alascom through
settlements with AT&T under the JSA
April 29, 1994 Completed the sale of PTI Harbor Bay and Based on trading value of IntelCom stock on
Upsouth Corporation to IntelCom Group April 29, 1994, PTI recognized an after-tax
gain of $1.6MM
September 30, 1994 Closing price of IntelCom stock was An unrealized net loss of $.2MM was
significantly lower than recorded originally recorded directly to retained earnings
October 17, 1994 Sold IntelCom stock An after-tax loss of $.5MM will be
recognized in October
<FN>
--------------------
(1) Pacific Telecom 10Ks and 8Ks
</TABLE>
<PAGE>69
<TABLE>
<CAPTION>
Pacific Telecom, Inc.
--------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF PTI'S HISTORICAL NON-RECURRING GAINS AND LOSSES
DATE EVENT FINANCIAL STATEMENT IMPACT (1)
-------------------- --------------------------------------------- -----------------------------------------------
<S> <C> <C>
October 17, 1994 Signed an agreement to sell the stock of Sale stated to result in an after-tax gain of
Alascom to AT&T, subject to meeting $78MM at closing
certain closing conditions
<FN>
--------------------
(1) Pacific Telecom 10Ks and 8Ks
</TABLE>
<PAGE>
EXHIBIT (b)(14)
PACIFIC TELECOM, INC.
SPECIAL COMMITTEE PRESENTATION
FEBRUARY 1995
SALOMON BROTHERS INC
<PAGE>1
TRADING ANALYSIS - THREE YEAR HISTORY
----------------------------------------------------------------------
[LINE GRAPH: PACIFIC TELECOM, INC.
WEEKLY DATA: 02/14/92 THROUGH 02/10/95
SHOWING CLOSING PRICE AND VOLUME]
<PAGE>2
TRADING ANALYSIS - ONE YEAR HISTORY
----------------------------------------------------------------------
[LINE GRAPH: PACIFIC TELECOM, INC.
DAILY DATA: 02/10/94 THROUGH 02/10/95
SHOWING CLOSING PRICE AND VOLUME]
<PAGE>3
TRADING HISTORY - SINCE THE PACIFICORP OFFER
----------------------------------------------------------------------
[LINE GRAPH: PACIFIC TELECOM, INC.
DAILY DATA: 11/03/94 THROUGH 02/10/95
SHOWING CLOSING PRICE AND VOLUME]
<PAGE>4
SHARE PRICE HISTOGRAM
----------------------------------------------------------------------
[BAR GRAPH: PACIFIC TELECOM, INC.
FOR PERIOD 2/14/92 THROUGH 2/10/95
SHOWING VOLUME OF SHARES TRADED]
<PAGE>5
<TABLE>
<CAPTION>
SALOMON BROTHERS VALUATION
----------------------------------------------------------------------------------------------------
($ in million, except per share amounts)
Valuation Summary
<S> <C> <C> <C>
PTI Stock Price $22.00 $25.00 $28.00
Market Capitalization 871 990 1,109
Total Net Debt (12/31/94) 404 404 404
Minority Interest 16 16 16
-------- ------ ------
Firm Value $1,292 $1,411 $1,530
Segment Values
------------------------------
Cellular MSA 142 142 142
Cellular RSA 45 45 45
Alascom Consideration 269 269 269
Cable 45 45 45
US WEST Cap. Ex. 34 34 34
Minority Interest 16 16 16
-------- -------- --------
Segment Total $551 $551 $551
-------- -------- --------
Firm Value of Telco $741 $860 $979
======== ======== ========
FV/1994 Access Lines $1,773 $2,057 $2,341
FV/1994 Telco Revenue 2.4x 2.7x 3.1x
FV/1994 Telco EBITDA 5.4 6.2 7.1
FV/1994 Telco EBIT 9.3 10.8 12.3
</TABLE>
<PAGE>6
<TABLE>
<CAPTION>
SALOMON BROTHERS VALUATION
---------------------------------------------------------------------------------------------------------------------------------
($ in millions; except ratios)
Implied Telco Trading Values
Telco Firm Value as a Multiple of Telco
Access Telco ---------------------------------------------------------
Lines (000) Firm Value Sales EBITDA EBIT Access Line
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALLTEL 1,633 $3,090 2.7x 5.3x 7.8x $1,893
Cincinnati Bell 871 898 1.6 4.7 9.8 1,031
Lincoln Telecommunications 266 412 2.4 4.8 7.4 1,546
Frontier Communications 914 870 1.4 3.1 4.9 952
SNET 1,997 2,436 1.7 3.8 7.1 1,220
TDS 385 573 2.0 3.8 6.7 1,488
---------------------------------------------------------------------------------------------------------------------------------
Median 1.9x 4.3x 7.3x $1,354
Average 2.0x 4.3x 7.3x $1,355
---------------------------------------------------------------------------------------------------------------------------------
Pacific Telesis 14,955 $17,187 1.9x 4.4x 7.9x $1,149
---------------------------------------------------------------------------------------------------------------------------------
Pacific Telecom 418 979(a) 3.1 7.1 12.3 2,341
---------------------------------------------------------------------------------------------------------------------------------
------------------------
<FN>
(a) $28.00 per share offer assuming: $187 million of cellular value ($140/POP for MSAs and $45/POP for RSAs), $269 million of
after-tax Alascom consideration (the present value of such consideration), $45 million of cable value, $34 million of
Colorado capital expenditures and $16 million of minority interest
</TABLE>
<PAGE>7
<TABLE>
<CAPTION>
SALOMON BROTHERS VALUATION
----------------------------------------------------------------------------------------------------------------------------------
($ in millions, except ratios)
Per Access Line (a) 1991-1993 CAGR LTM Margins(a)
------------------------------------ -------------------------------- --------------------
INDEPENDENT TELCOS (a) LTM Telco Sales LTM Telco EBITDA Telco Sales Access Lines EBITDA EBIT
---------------------------- --------------- ---------------- ----------- ------------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
ALLTEL $726 $363 6.8% 4.1% 50.0% 34.3%
Cincinnati Bell 658 222 (3.3) 2.4 33.8 16.3
Lincoln Telecommunications 665 334 4.8 0.9 50.2 32.4
Frontier Communications 658 304 9.2 3.6 46.2 29.4
SNET 745 321 1.7 1.1 43.1 23.2
TDS 787 409 12.7 8.3(b) 51.9 29.3
----------------------------------------------------------------------------------------------------------------------------------
Median $696 $328 5.8% 3.0% 48.1% 29.4%
Average $707 $326 5.3% 3.4% 45.9% 27.5%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Per Access Line(c) 1991-1993 CAGR LTM Margins(c)
------------------------------- -------------------------------- --------------
RBOC's(c) Telco Sales Telco EBITDA Telco Sales Access Lines EBITDA EBIT
--------------------------------- ----------- ------------ ----------- ------------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
Ameritech Corporation $586 $242 2.8% 2.9% 41.2 23.1
Bell Atlantic Corporation 623 271 NM 2.5 43.4 24.0
BellSouth Corporation 715 347 3.1 3.5 48.5 27.2
NYNEX Corporation 749 291 1.8 2.3 38.9 19.8
Pacific Telesis Group, Inc. 512 262 0.0 2.1 51.2 28.6
Southwestern Bell Corporation 620 269 4.3 3.3 43.5 22.4
U S WEST, Inc. 637 276 3.0 3.5 43.3 22.4
----------------------------------------------------------------------------------------------------------------------------------
Median $623 $271 2.9% 2.9% 43.4% 23.1%
Average $635 $280 2.5% 2.9% 44.3% 23.9%
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
Pacific Telecom(d) $770(f) $338(f) NA 5.7%(d)(e) 44.0%(f) 25.3%(f)
----------------------------------------------------------------------------------------------------------------------------------
------------------------
<FN>
(a) As of September 30, 1994
(b) Reflects 4.5% internal growth in 1992 and 1993
(c) As of December 31, 1993
(d) Pacific Telecom experienced internal access line growth of 4.8%, 6.2% and 5.0% in 1993, 1992 and 1991, respectively. U.S.
access lines grew 3.1% from 1991 to 1992 (source: ITU)
(e) Pacific Telecom forecasted approximately 5.0% access line growth on the existing local exchange business, 2.1% access line
growth on the U S WEST acquisitions and 2.5% access line growth on the generic assumptions
(f) As of December 31, 1994
</TABLE>
<PAGE>8
<TABLE>
<CAPTION>
SALOMON BROTHERS VALUATION
----------------------------------------------------------------------
Value of Existing Local Exchange Business
* At $28.00 per share the Firm Value of the existing telecom assets
is $979 million
Implied Firm Value(a)
Terminal Value Multiple of EBITDA
===================================================
WACC 5.25x 5.50x 5.75x 6.00x 6.25x
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
10.0% $840 $871 $902 $933 $965
11.0% 806 835 865 895 925
12.0% 773 802 830 859 887
13.0% 742 770 797 824 851
------------------------
<FN>
(a) Terminal Value constitutes 77% - 81% of these Firm Values.
</TABLE>
<PAGE>9
<TABLE>
<CAPTION>
SALOMON BROTHERS VALUATION
----------------------------------------------------------------------------------------------------------------------------------
Terminal Value Multiples of Existing Local Exchange Business
<S> <C> <C> <C> <C> <C>
Terminal Multiple of EBITDA 5.25x 5.50x 5.75x 6.00x 6.25x
1999 EBITDA 201 201 201 201 201
----------------------------------------------------------------------
Terminal Value 1,055 1,105 1,155 1,205 1,256
1999 Revenues 405 405 405 405 405
Terminal Value/1999 Revenues 2.6x 2.7x 2.8x 3.0x 3.1x
1999 EBIT 115 115 115 115 115
Terminal Value/1999 EBIT 9.2x 9.6x 10.0x 10.5x 10.9x
1999 Unlevered Net Income 71 71 71 71 71
Terminal Value/1999 Unlevered Net Income 14.8x 15.5x 16.2x 16.9x 17.6x
1999 Levered Net Income(a) 51 51 51 51 51
Terminal Equity Value/1999 Levered Net Income 12.9x 13.9x 14.9x 15.9x 16.9x
Implied Perpetuity Growth @ 10.0% (Based on Unlev FCF) 3.4% 3.7% 3.9% 4.2% 4.4%
Implied Perpetuity Growth @ 11.0% (Based on Unlev FCF) 4.3 4.6 4.9 5.1 5.3
Implied Perpetuity Growth @ 12.0% (Based on Unlev FCF) 5.3 5.6 5.8 6.1 6.3
------------------------
<FN>
(a) Assumes $400 million of leverage on the Telco business at 8.6%
</TABLE>
<PAGE>10
<TABLE>
<CAPTION>
IMPACT OF GENERIC ACQUISITIONS
----------------------------------------------------------------------------------------------------------------------------------
Valuation without Generic Acquisitions:
Firm Value Implied Price per Share
Terminal Value Multiple of EBITDA Terminal Value Multiple of EBITDA
============================================ ================================================
WACC 5.25x 5.50x 5.75x 6.00x 6.25x WACC 5.25x 5.50x 5.75x 6.00x 6.25x
------------------------------------------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10.0% $1,449 $1,499 $1,550 $1,600 $1,651 10.0% $23.87 $25.15 $26.42 $27.70 $28.97
11.0% 1,391 1,439 1,487 1,536 1,584 11.0% 22.42 23.64 24.85 26.07 27.29
12.0% 1,336 1,382 1,428 1,474 1,521 12.0% 21.03 22.20 23.36 24.53 25.70
13.0% 1,284 1,328 1,372 1,416 1,460 13.0% 19.72 20.84 21.95 23.06 24.18
</TABLE>
<TABLE>
<CAPTION>
Normalized Free Cash Flow
Implied Perpetuity Growth Rates Implied Perpetuity Growth Rates
Terminal Value Multiple of EBITDA Terminal Value Multiple of EBITDA
============================================= =============================================
WACC 5.25x 5.50x 5.75x 6.00x 6.25x WACC 5.25x 5.50x 5.75x 6.00x 6.25x
------------------------------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10.0% 1.8% 2.1% 2.4% 2.7% 3.0% 10.0% 3.0% 3.3% 3.6% 3.8% 4.1%
11.0% 2.7 3.0 3.4 3.7 3.9 11.0% 3.9 4.2 4.5 4.8 5.0
12.0% 3.6 4.0 4.3 4.6 4.9 12.0% 4.9 5.2 5.5 5.7 5.9
13.0% 4.5 4.9 5.2 5.5 5.8 13.0% 5.8 6.1 6.4 6.7 6.9
</TABLE>
<PAGE>11
CONCLUSION
---------------------------------------------------------------------------
Smith Barney's valuation (prior to the application of a third party,
private market premium) is consistent with PacifiCorp's offer of
$28.00 per share
* "Fair Value" is the appropriate valuation standard for the
acquisition of publicly held shares by a controlling
shareholder
- No change of control occurs
* PacifiCorp has stated that it is not currently contemplating
a sale of PTI
* PacifiCorp and its legal counsel do not believe that private
market value is the correct standard
<TABLE>
<CAPTION>
Smith Barney Value Per Share
-------------------------------------------------
Smith Barney Methodology Low Midpoint High
------------------------------------ ------------- ------------ ---------
<S> <C> <C> <C>
PV of Future Stock Price $27.75 $30.62 $33.48
Discounted Cash Flow 26.05 30.57 35.08
Component Valuation 23.64 25.87 28.10
------ ------ ------
Mean (Low, Midpoint, High) $25.81 $29.02 $32.22
====== ====== ======
</TABLE>
<PAGE>
EXHIBIT (b)(15)
PACIFIC TELECOM, INC.
VALUATION
FEBRUARY 1995
SALOMON BROTHERS INC
<PAGE>1
OUTLINE OF PRESENTATION
-------------------------------------------------------------------------
Tab
---
Introduction A
Discount Rates B
Impact of Generic Acquisitions C
Control Premium D
Salomon Brothers Valuation E
<PAGE>2
INTRODUCTION
<PAGE>3
INTRODUCTION
-------------------------------------------------------------------------
Salomon Brothers, at PacifiCorp's request, will present its views on
valuation.
* Salomon Brothers has not yet received certain additional materials
which have been requested, including: 1) Historical financial
information by business segment; and 2) Historical and projected
financials for the consolidated and unconsolidated cellular markets
(by market).
Based on our initial review, Salomon Brothers wishes to identify and
discuss certain concerns with the analysis presented by Smith Barney.
* Discount rates applied
* Inclusion of "generic acquisitions"
* Inclusion of "control premium"
<PAGE>4
DISCOUNT RATES
<PAGE>5
DISCOUNT RATES
-------------------------------------------------------------------------
Market Weightings
Smith Barney calculated a weighted average cost of capital based on the Ke
and the after-tax cost of debt
* Smith Barney assumed 50/50 capitalization based on book accounting
* Overwhelming academic support for market value weightings(a)
The impact of market weighting the Debt/Total Capitalization Ratio is
detailed below:
<TABLE>
<CAPTION>
Smith Barney Adjusted Smith Barney
------------ ---------------------
<S> <C> <C>
Beta .67 .67
Risk Premium 5.7% 5.7%
--------- ---------
Adjusted Risk Premium 3.9% 3.9%
Risk Free Rate 7.9% 7.9%
--------- ---------
Cost of Equity 11.8% 11.8%
Cost of Debt 8.6% 8.6%
Debt/Cap. 50.0% 30.9%(b)
------------------------------------------------------
Implied WACC 8.5% 9.7%
------------------------
<FN>
(a) Brealey & Myers, Copeland, Koller & Murrin
(b) Assumes a 27.8% current market debt/total capitalization which is
adjusted for incremental leverage incurred due to the U S WEST
acquisitions (net of the after-tax Alascom consideration)
</TABLE>
<PAGE>6
DISCOUNT RATES
--------------------------------------------------------------------------
Betas - Pacific Telecom
* Five year monthly results provide the most reliable estimate of
Pacific Telecom's historical Beta
- The median R2 of comparable company Betas is 19.0%
-----------------------------------------------------
<TABLE>
<CAPTION>
Pacific Telecom
Beta R2
-------- ------
<S> <C> <C>
2-Year Observation
-weekly .65 1.4%
-monthly .31 .05%
3-Year Observation
-weekly .65 1.7%
-monthly .23 .43%
5-Year Observation
-weekly .78 6.4%
-monthly .97 17.9%
-----------------------------------------------------
</TABLE>
<PAGE>7
DISCOUNT RATES
---------------------------------------------------------------------------
Betas - Pacific Telecom Comparables
* Salomon estimate of Pacific Telecom Equity Beta of .97 is comparable
to the independent telco industry median
<TABLE>
<CAPTION>
Consolidated Consolidated
Equity Asset Debt/Total
Company Beta(a) Beta Capitalization(b) R2
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALLTEL 0.97 0.81 24.4% 27.4%
Cincinnati Bell 0.92 0.71 33.0 19.0
Lincoln Tel 0.84 0.77 13.3 10.5
Frontier 0.71 0.59 26.0 8.9
SNET 0.74 0.58 31.3 20.0
-------------------------------------------------------------------
MEDIAN 0.84 0.71 26.0% 19.0%
-------------------------------------------------------------------
TDS 1.59 1.37 20.9 43.5
Pacific Telecom 0.97 0.76 30.9(c) 17.9
------------------------
<FN>
(a) Based on monthly data
(b) Market weightings
(c) Assumes a 27.8% current market debt/total capitalization which is
adjusted for incremental leverage incurred due to the U S WEST
acquisitions (net of the after-tax Alascom consideration)
</TABLE>
<PAGE>8
DISCOUNT RATES
---------------------------------------------------------------------------
Betas - Historical Risk Profile Versus Future Risk Profile
* Financial risk increasing
- Increase in leverage
* Change in business risk
- Divestiture of more competitive Alascom business
- Acquisition of LECs
- Increasing LEC regulatory risk and future competition
- Closing risk on acquisitions/divestitures
* Smith Barney's analysis was based on Barra predicted Betas
- Despite conflicting changes in the business and financial risk,
Barra reports a significantly lower predicted Beta (.67) versus
Barra's historical result of 1.04
- Barra relies on a series of unpublished adjustments including
accounting-based benchmarks
<PAGE>9
DISCOUNT RATES
---------------------------------------------------------------------------
Betas/Market Weightings - Adjusted Smith Barney Analysis
The impact of adjusting the Beta and market weightings is as follows:
<TABLE>
<CAPTION>
Smith Barney Adjusted Smith Barney
---------------- ---------------------
<S> <C> <C>
Beta .67 .84 - .97
Risk Premium 5.7% 5.7% - 5.7%
---------------- ---------------------
Adjusted Risk Premium 3.9% 4.8% - 5.5%
Risk Free Rate 7.9% 7.9% - 7.9%
---------------- ---------------------
Cost of Equity 11.8% 12.7% - 13.4%
Cost of Debt 8.6% 8.6% - 8.6%
Debt/Cap. 50.0% 30.9% - 30.9%(a)
------------------------------------------------------------------
Implied WACC 8.5% 10.4% - 10.9%
------------------------------------------------------------------
------------------------
<FN>
(a) Assumes a 27.8% current market debt/total capitalization which is
adjusted for the incremental leverage incurred due to the U S WEST
acquisitions (net of the after-tax Alascom consideration)
</TABLE>
<PAGE>10
DISCOUNT RATES
---------------------------------------------------------------------------
Market Risk Premium
* Smith Barney used a 5.7% Market Risk Premium based on 30 years of
Ibbotson data
* Smith Barney chose a data point at the low end of the Ibbotson range
of risk premiums
----------------------------------------------------------
Risk Premium:
10 Years (1985-1994) 6.7%
15 Years (1980-1994) 5.9%
20 Years (1975-1994) 6.3%
Entire Data Source (1926-1994) 7.0%
----------------------------------------------------------
<PAGE>11
DISCOUNT RATES
---------------------------------------------------------------------------
Weighted Average Cost of Capital - Adjusting for the Beta, market
weightings and risk premiums
<TABLE>
<CAPTION>
Comments
--------------------------------
<S> <C> <C>
PTCM Beta 0.97 Monthly basis over 5-year
period
Risk Premium 7.0% Arithmetic average 1926 - 1994
----------
Adjusted Risk Premium 6.8%
Risk-Free Rate 7.9% 30-Year Treasury Rate
----------
Cost of Equity 14.7% PTI uses 15% in its internal
analyses on access line
acquisitions
Cost of Debt 8.6% Pre-tax cost of debt; spread over
treasury
Market Debt/Cap. 30.9% Existing Capital Structure(a)
----------------------------------
Implied WACC 11.8%
----------------------------------
------------------------
<FN>
(a) Assumes a 27.8% current market debt/total capitalization which is
adjusted for incremental leverage incurred due to the U S WEST
acquisitions (net of the after-tax Alascom consideration)
</TABLE>
<PAGE>12
DISCOUNT RATES
---------------------------------------------------------------------------
Smith Barney Valuation Adjusted for Revised Discount Rates
<TABLE>
<CAPTION>
Discount Rate Discounted Cash
Source WACC Flow Analysis (a)
----------------- ------------ ------------------------
<S> <C> <C>
Smith Barney 8.0% $33.30
9.0 31.24
10.0 29.29
Adjusted 11.0% $27.45
Smith Barney 12.0 25.70
13.0 24.05
</TABLE>
<TABLE>
<CAPTION>
Discount Rate Present Value of
Source Cost of Equity Future Stock Prices(b)
------------------- ----------------- ----------------------
<S> <C> <C>
Smith Barney 11.5% $31.81
12.5 30.51
13.5 29.28
Adjusted 14.0% $28.70
Smith Barney 15.0 27.56
16.0 26.48
------------------------
<FN>
(a) Based on midpoint of Smith Barney's range (6.0x EBITDA)
(b) Based on midpoint of Smith Barney's range (16.0x P/E)
</TABLE>
<PAGE>13
IMPACT OF GENERIC ACQUISITIONS
<PAGE>14
IMPACT OF GENERIC ACQUISITIONS
---------------------------------------------------------------------------
Overview
* Usually, the acquiror is not expected to pay for value created by
unidentified future acquisitions
* Concerns regarding the generic acquisition assumptions include:
- Recent acquisitions opportunities (such as those in Minnesota,
Nebraska and Iowa) appear very competitive, making future
acquisition prices highly uncertain
- Operating projections are unknowable and difficult to estimate
on unknown properties
* Management track record in acquiring businesses appears mixed
- Recent loss of key internal M&A professional
<PAGE>15
IMPACT OF GENERIC ACQUISITIONS
---------------------------------------------------------------------------
Pacific Telecom's Total Returns To Shareholders appear Mixed
<TABLE>
<CAPTION>
Average Annual Total Return(a)
-------------------------------------------
Index Returns
--------------------------------
Time Period(b) PTCM Telco(c) RHC's Utility S&P
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year (0.7%) (4.4%) (6.3%) (16.4%) 1.3%
2 years 7.9 6.2 5.4 (3.9) 5.57
5 years 6.4 1.8 4.0 4.3 8.63
10 years 11.1 13.6 15.6 5.3 14.31
---------------------------------------------------------------
------------------------
<FN>
(a) Total return with dividends reinvested (assumes no taxes)
(b) Through September 30, 1994
(c) Telco index includes the following independent telephone companies:
AT, CSN, FRO, LTEC and SNG
</TABLE>
<PAGE>16
<TABLE>
<CAPTION>
IMPACT OF GENERIC ACQUISITIONS
Valuation without Generic Acquisitions:
Firm Value Implied Price per Share
Terminal Value Multiple of EBITDA Terminal Value Multiple of EBITDA
====================================== =======================================
WACC 5.25x 5.50x 5.75x 6.00x 6.25x WACC 5.25x 5.50x 5.75x 6.00x 6.25x
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10.0% $1,449 $1,499 $1,550 $1,600 $1,651 10.0% $23.87 $25.15 $26.42 $27.70 $28.97
11.0% 1,391 1,439 1,487 1,536 1,584 11.0% 22.42 23.64 24.85 26.07 27.29
12.0% 1,336 1,382 1,428 1,474 1,521 12.0% 21.03 22.20 23.36 24.53 25.70
13.0% 1,284 1,328 1,372 1,416 1,460 13.0% 19.72 20.84 21.95 23.06 24.18
</TABLE>
<TABLE>
<CAPTION>
Normalized Free Cash Flow
Implied Perpetuity Growth Rates Implied Perpetuity Growth Rates
Terminal Value Multiple of EBITDA Terminal Value Multiple of EBITDA
====================================== =======================================
WACC 5.25x 5.50x 5.75x 6.00x 6.25x WACC 5.25x 5.50x 5.75x 6.00x 6.25x
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10.0% 1.8% 2.1% 2.4% 2.7% 3.0% 10.0% 3.0% 3.3% 3.6% 3.8% 4.1%
11.0% 2.7 3.0 3.4 3.7 3.9 11.0% 3.9 4.2 4.5 4.8 5.0
12.0% 3.6 4.0 4.3 4.6 4.9 12.0% 4.9 5.2 5.5 5.7 5.9
13.0% 4.5 4.9 5.2 5.5 5.8 13.0% 5.8 6.1 6.4 6.7 6.9
</TABLE>
<PAGE>17
IMPACT OF GENERIC ACQUISITIONS
---------------------------------------------------------------------------
Value Impact Per Share
<TABLE>
<CAPTION>
Implied Impact per Share
Terminal Value Multiple of EBITDA
===============================================
WACC 5.25x 5.50x 5.75x 6.00x 6.25x
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
10.0% $0.10 $0.44 $0.79 $1.13 $1.47
11.0% (0.16) 0.17 0.50 0.82 1.15
12.0% (0.40) (0.09) 0.23 0.54 0.85
13.0% (0.63) (0.33) (0.03) 0.27 0.57
</TABLE>
<PAGE>18
CONTROL PREMIUM
<PAGE>19
CONTROL PREMIUM
---------------------------------------------------------------------------
Overview
* "Fair Value" is the appropriate valuation standard for the
acquisition of publicly held shares by a controlling shareholder
- No change of control occurs
* PacifiCorp has stated that it is not currently contemplating a sale
of PTI
* PacifiCorp and its legal counsel do not believe that private market
value is the correct standard
* Furthermore, we do not believe that Smith Barney's methodology
results in an accurate assessment of third party, private market
value
- Premiums applied incorporate "double counting" (44% premium is
based on unaffected actual trading levels)
- Terminal multiples appear significantly higher than those
observed in actual M&A transactions
- Use of extremely low discount rates compounds the valuation
inaccuracy
- Centel auction resulted in no premium
- Premium is an output, not an input
<PAGE>20
<TABLE>
<CAPTION>
PREMIUM ANALYSIS
-----------------------------------------------------------------------------------
Implied Multiples Based on Smith Barney's Assessment of Private Market Value
-----------------------------------------------------------------------------------
Smith Barney Private- $33.82 $35.00 $40.00 $45.00 $51.03
Market Prices
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Market Value of Equity $1,340 $1,386 $1,584 $1,782 $2,021
P/E Multiple LTM(a) 17.08x 17.68x 20.20x 22.73x 25.77x
Firm Val./EBITDA `94E(b) 9.91x 10.22x 11.53x 12.85x 14.44x
Firm Val./EBITDA `95E(b) 8.85x 9.13x 10.31x 11.48x 12.90x
Firm Val./EBIT `94E(c) 17.60x 18.15x 20.49x 22.82x 25.64x
Firm Val./EBIT `95E(c) 15.50x 15.99x 18.04x 20.10x 22.58x
------------------------
<FN>
(a) Based on LTM 9/30/94 EPS
(b) Firm Value reflects $413 million of 1994 Debt, $16 million of minority interests, $9 million
of cash and $269 million of Alascom consideration (the present value of such consideration).
Alascom and U S WEST EBITDA are excluded from the consolidated EBITDA figures
(c) Firm Value reflects $413 million of 1994 Debt, $16 million of minority interests, $9 million
of cash and $269 million of Alascom consideration (the present value of such consideration).
Alascom and U S WEST EBIT are excluded from the consolidated EBIT figures.
<PAGE>21
</TABLE>
<TABLE>
<CAPTION>
CONTROL PREMIUM
---------------------------------------------------------------------------
Telephone Acquisitions
Firm Value to:
Date --------------------------------------
Transaction Announced Access Lines Revenues EBITDA EBIT
------------------------- --------- ------------ -------- ------ ----
<S> <C> <C> <C> <C> <C>
Citizens/GTE 5/20/93 $2,200 2.8x NA NA
ALLTEL/GTE (a) 2/03/93 2,316 3.0 6.2x 11.2x
Sprint/Centel (b) 5/27/92 1,300 2.3 6.0 11.1(c)
Century/Centel Ohio 11/21/91 2,153 3.4 10.5 17.7
Rochester/Centel (IA, MN) 1/10/91 1,670 3.1 8.0 15.1
GTE/Contel 7/12/90 2,275 2.4 5.6 9.3(c)
Median $2,177 2.9x 6.2x 11.2x
</TABLE>
<TABLE>
<CAPTION>
Per Access Line Margin
----------------------------------- --------------------
Transaction Revenues EBITDA EBIT EBITDA EBIT
--------------------- ------------ ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C>
Citizens/GTE $794 NA NA NA NA
ALLTEL/GTE 787 383 209 48.6 26.6
Sprint/Centel 562 216 118 38.4 20.9
Century/Centel Ohio 633 205 122 32.4 19.2
Rochester/Centel (IA, MN) 539 209 111 38.8 20.5
GTE/Contel 880 415 259 42.9 25.8
Median $710 $216 $118 38.8% 20.9%
------------------------
<FN>
(a) Value of 95,000 access lines exchanged by ALLTEL is estimated
(b) Excludes estimated value of non-telephone business segments
(c) Represents premium of 36.3% for Contel and 4.9% premium for Centel, based on the stock price
one month prior to the first transaction-related announcement
</TABLE>
<PAGE>22
SALOMON BROTHERS VALUATION
<PAGE>23
<TABLE>
<CAPTION>
SALOMON BROTHERS VALUATION
--------------------------------------------------------------------------------------------
Consolidated Independent Comparables
Firm Value/LTM 9/30/94 P/E
----------------------------------- -----------------------------------
Revenues EBITDA EBIT LTM 9/30/94 1994(a) 1995(a)
---------- -------- ------ -------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
ALLTEL 2.7x 8.0x 12.4x 19.5x 18.8x 16.7
Cincinnati Bell 1.5 6.3 13.1 27.1 16.6 15.1
Frontier 1.8 5.3 8.2 14.5 14.7 13.0
Lincoln 2.9 6.1 9.2 13.9 13.7 12.7
SNET 1.8 4.5 8.6 12.6 12.3 12.0
--------------------------------------------------------------------------------------------
Median 1.8x 6.1x 9.2x 14.5x 14.7x 13.0x
Average 2.1 6.0 10.3 17.5 15.2 13.9
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Pacific Telecom(b) 2.2x 5.8x 9.3x 14.2x 13.7x 17.1x
Pacific Telecom(c) 3.5 8.4 14.9 NA NA NA
--------------------------------------------------------------------------------------------
TDS 5.1x 13.4x 30.2x 52.1x 48.3x 36.4x
------------------------
<FN>
(a) Based on I/B/E/S
(b) $28.00 per share offer; based on year-end 1994E results
(c) $28.00 per share offer; operating results exclude Alascom and firm value excludes the present
value of the after-tax Alascom consideration ($269 million)
</TABLE>
<PAGE>24
SALOMON BROTHERS VALUATION
----------------------------------------------------------------------------
($ in million, except per share amounts)
Valuation Summary
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PTI Stock Price $22.00 $24.00 $26.00 $28.00
Market Capitalization 871 951 1,030 1,109
Total Net Debt (12/31/94) 404 404 404 404
Minority Interest 16 16 16 16
------- ------ ------ ------
Firm Value $1,292 $1,371 $1,451 $1,530
Segment Values
Cellular MSA 142 142 142 142
Cellular RSA 45 45 45 45
Alascom Consideration 269 269 269 269
Cable 45 45 45 45
U S WEST Cap.Ex. 34 34 34 34
Minority Interest 16 16 16 16
------- ------ ------ ------
Segment Total $551 $551 $551 $551
------- ------ ------ ------
Firm Value of Telco $741 $820 $900 $979
FV/1994 Access Lines $1,773 $1,962 $2,152 $2,341
FV/1994 Telco Revenue 2.4x 2.6x 2.9x 3.1x
FV/1994 Telco EBITDA 5.4 5.9 6.5 7.1
FV/1994 Telco EBIT 9.3 10.3 11.3 12.3
</TABLE>
<PAGE>25
<TABLE>
<CAPTION>
SALOMON BROTHERS VALUATION
----------------------------------------------------------------------------------------------------
($ in millions; except ratios)
Implied Telco Trading Values
Telco Firm Value as a Multiple of Telco
Access Telco -------------------------------------------------
Lines (000) Firm Value Sales EBITDA EBIT Access Line
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALLTEL 1,633 $3,090 2.7x 5.3x 7.8x $1,893
Cincinnati Bell 871 898 1.6 4.7 9.8 1,031
Lincoln Telecommunications 266 412 2.4 4.8 7.4 1,546
Frontier Communications 914 870 1.4 3.1 4.9 952
SNET 1,997 2,436 1.7 3.8 7.1 1,220
TDS 385 573 2.0 3.8 6.7 1,488
----------------------------------------------------------------------------------------------------
Median 1.9x 4.3x 7.3x $1,354
Average 2.0x 4.3x 7.3x $1,355
----------------------------------------------------------------------------------------------------
Pacific Telesis 14,955 $17,187 1.9x 4.4x 7.9x $1,149
----------------------------------------------------------------------------------------------------
Pacific Telecom 418 979(a) 3.1 7.1 12.3 2,341
----------------------------------------------------------------------------------------------------
------------------------
<FN>
(a) $28.00 per share offer assuming: $187 million of cellular value ($140/POP for MSAs and
$45/POP for RSAs), $269 million of after-tax Alascom consideration (the present value of such
consideration), $45 million of cable value, $34 million of Colorado capital expenditures and
$16 million of minority interest
</TABLE>
<PAGE>26
<TABLE>
<CAPTION>
SALOMON BROTHERS VALUATION
-------------------------------------------------------------------------------------------------------
($ in millions, except ratios)
Per Access Line(a) 1991-1993 CAGR LTM Margins(a)
--------------------------------- -------------------------- --------------
INDEPENDENT TELCOS(a) LTM Telco Sales LTM Telco EBITDA Telco Sales Access Lines EBITDA EBIT
--------------------- --------------- ---------------- ----------- ------------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
ALLTEL $726 $363 6.8% 4.1% 50.0% 34.3%
Cincinnati Bell 658 222 (3.3) 2.4 33.8 16.3
Lincoln Telecommunications 665 334 4.8 0.9 50.2 32.4
Frontier Communications 658 304 9.2 3.6 46.2 29.4
SNET 745 321 1.7 1.1 43.1 23.2
TDS 787 409 12.7 8.3(b) 51.9 29.3
--------------------------------------------------------------------------------------------------------
Median $696 $328 5.8% 3.0% 48.1% 29.4%
Average $707 $326 5.3% 3.4% 45.9% 27.5%
--------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Per Access Line(c) 1991-1993 CAGR LTM Margins(c)
-------------------------------- ------------------------- ----------------
RBOC's(c) Telco Sales Telco EBITDA Telco Sales Access Lines EBITDA EBIT
------------------------ ------------- -------------- ----------- ------------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
Ameritech Corporation $586 $242 2.8% 2.9% 41.2 23.1
Bell Atlantic Corporation 623 271 NM 2.5 43.4 24.0
BellSouth Corporation 715 347 3.1 3.5 48.5 27.2
NYNEX Corporation 749 291 1.8 2.3 38.9 19.8
Pacific Telesis Group, Inc. 512 262 0.0 2.1 51.2 28.6
Southwestern Bell Corporation 620 269 4.3 3.3 43.5 22.4
U S WEST, Inc. 637 276 3.0 3.5 43.3 22.4
----------------------------------------------------------------------------------------------------------
Median $623 $271 2.9% 2.9% 43.4% 23.1%
Average $635 $280 2.5% 2.9% 44.3% 23.9%
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
Pacific Telecom(d) $770(e) $338(e) NA 5.7%(d) 44.0%(e) 25.3%(e)
------------------------
<FN>
(a) As of September 30, 1994
(b) Reflects 4.5% internal growth in 1992 and 1993
(c) As of December 31, 1993
(d) Pacific Telecom experienced internal access line growth of 4.8%, 6.2% and 5.0% in 1993, 1992 and 1991,
respectively. U.S. access lines grew 3.1% from 1991 to 1992 (source: ITU)
(e) As of December 31, 1994
</TABLE>
<PAGE>27
SALOMON BROTHERS VALUATION
---------------------------------------------------------------------------
Value of Existing Local Exchange Business
<TABLE>
<CAPTION>
Implied Firm Value
Terminal Value Multiple of EBITDA
==================================================
WACC 5.25x 5.50x 5.75x 6.00x 6.25x
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
10.0% $840 $871 $902 $933 $965
11.0% 806 835 865 895 925
12.0% 773 802 830 859 887
13.0% 742 770 797 824 851
</TABLE>
<PAGE>28
<TABLE>
<CAPTION>
SALOMON BROTHERS VALUATION
----------------------------------------------------------------------------------------------------
Terminal Value Multiples of Existing Local Exchange Business
<S> <C> <C> <C> <C> <C>
Terminal Multiple of EBITDA 5.25x 5.50x 5.75x 6.00x 6.25x
1999 EBITDA 201 201 201 201 201
-------------------------------------------
Terminal Value 1,055 1,105 1,155 1,205 1,256
1999 Revenues 405 405 405 405 405
Terminal Value/1999 Revenues 2.6x 2.7x 2.8x 3.0x 3.1x
1999 EBIT 115 115 115 115 115
Terminal Value/1999 EBIT 9.2x 9.6x 10.0x 10.5x 10.9x
1999 Unlevered Net Income 71 71 71 71 71
Terminal Value/1999 Unlevered Net Income 14.8x 15.5x 16.2x 16.9x 17.6x
1999 Levered Net Income (a) 51 51 51 51 51
Terminal Equity Value/1999 Levered Net Income 12.9x 13.9x 14.9x 15.9x 16.9x
Implied Perpetuity Growth @ 10.0% (Based on Unlev FCF) 3.4% 3.7% 3.9% 4.2% 4.4%
Implied Perpetuity Growth @ 11.0% (Based on Unlev FCF) 4.3 4.6 4.9 5.1 5.3
Implied Perpetuity Growth @ 12.0% (Based on Unlev FCF) 5.3 5.6 5.8 6.1 6.3
------------------------
<FN>
(a) Assumes $400 million of leverage on the Telco business at 8.6%
</TABLE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
PACIFIC TELECOM, INC.
--------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
--------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3)
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
1) Title of each class of securities to which transaction applies:
Common Stock, no par value
-------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
5,290,942
-------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
$30.00
-------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$158,728,260
-------------------------------------------------------------------
5) Total fee paid:
$31,745.65
-------------------------------------------------------------------
<PAGE>
/ / Fee paid previously with preliminary materials
* Set forth the amount on which the filing fee is calculated and state
how it was determined.
/X/ Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
1) Amount Previously Paid:
$31,745.65
-------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
Schedule 13E-3
-------------------------------------------------------------------
3) Filing Party:
PacifiCorp, PacifiCorp Holdings, Inc., Pacific Telecom, Inc.,
PXYZ Corporation
-------------------------------------------------------------------
4) Date Filed:
April 7, 1995
-------------------------------------------------------------------
<PAGE>
PACIFIC TELECOM, INC.
805 Broadway
Vancouver, Washington 98668
_________________, 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 _______________,
1995 at ______________________________________________________,
commencing at ____________________ Pacific Time (the "Annual
Meeting").
At the Annual Meeting, you will be asked to consider
and vote upon a proposal to approve the merger (the "Merger")
of Pacific Telecom with a newly formed wholly owned subsidiary
of PacifiCorp Holdings, Inc. ("Holdings"), the owner of
approximately 86.6 percent of the outstanding common stock of
Pacific Telecom ("PTI Common Stock"), pursuant to which Pacific
Telecom will become a wholly owned subsidiary of Holdings and
shareholders other than Holdings ("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 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 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
nominated 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 and directors or officers of PacifiCorp or Holdings.
THE BOARD OF DIRECTORS OF PACIFIC TELECOM RECOMMENDS
THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AND FOR
THE ELECTION OF THE NOMINEES FOR DIRECTOR.
It is important that your shares be represented at
the Annual Meeting. WHETHER OR NOT YOU PLAN TO ATTEND THE
ANNUAL MEETING, WE URGE YOU TO SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD AT YOUR EARLIEST CONVENIENCE IN THE
ENCLOSED POSTAGE-PREPAID ENVELOPE. Your shares of PTI Common
Stock will be voted in accordance with the instructions you
have given in your proxy. If you attend the Annual Meeting,
you may vote in person if you wish, even though you have
previously returned your proxy card. Your prompt cooperation
will be greatly appreciated.
Very truly yours,
Charles E. Robinson
Chairman of the Board
<PAGE>1
PACIFIC TELECOM, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
_______________, 1995
To the Shareholders of Pacific Telecom, Inc.:
NOTICE IS HEREBY GIVEN that the 1995 Annual Meeting
of Shareholders of PACIFIC TELECOM, INC. ("Pacific Telecom")
will be held at ___________________________________________
_____________________________________ at _______________ on
_______________, 1995 for the following purposes:
(1) to consider and vote upon a proposal to approve
an Agreement and Plan of Merger, pursuant to which (a) PXYZ
Corporation ("Merger Sub"), a Washington corporation and a
wholly owned subsidiary of PacifiCorp Holdings, Inc., a
Delaware corporation ("Holdings"), will be merged with and into
Pacific Telecom (the "Merger") and (b) each outstanding share
of Pacific Telecom's common stock ("PTI Common Stock") owned by
Holdings shall be cancelled, each outstanding share of PTI
Common Stock owned by shareholders other than Holdings
("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
nominated 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 May 19, 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
Minority Shareholders is necessary to approve the Merger.
As the record and beneficial owner of approximately
86.6 percent of the issued and outstanding shares of PTI Common
Stock, Holdings will have the ability to cause the election of
at least nine of the directors nominated for election.
Holdings has advised Pacific Telecom that it intends to vote
its shares of PTI Common Stock equally in favor of the election
of each of the nominees.
<PAGE>2
Holders of PTI Common Stock who comply with the
requirements of Sections 23B.13.010 through 23B.13.310 of the
Washington Business Corporation Act (the "WBCA") are entitled
to assert dissenters' rights with respect to the proposed
Merger and to obtain payment of the fair value of their shares
if the proposed Merger is consummated. A copy of
Sections 23B.13.010 through 23B.13.310 of the WBCA is attached
as Exhibit B to the proxy statement that accompanies this
Notice. See "The Merger--Rights of Dissenting Shareholders" in
the proxy statement.
All shareholders are cordially invited to attend the
meeting in person.
Whether or not you plan to attend, please sign and
return the accompanying form of proxy in the enclosed stamped
envelope. If no instructions are given on the accompanying
form of proxy, the shares represented by the proxy will be
voted at the Annual Meeting FOR approval of the Merger
Agreement, FOR election of the nominees for director and in
accordance with this Proxy Statement on any other business that
may properly come before the Annual Meeting and any
postponement or adjournment thereof. If you do not return the
accompanying form of proxy, your shares will not be voted in
favor of approval of the Merger Agreement and will not be voted
in favor of election of the nominees for director. If you are
present at the Annual Meeting, you may withdraw your proxy and
vote in person. We appreciate your giving this matter your
prompt attention.
By Order of the Board of Directors
Donn T. Wonnell
Vice President and Corporate
Secretary
Vancouver, Washington
_______________, 1995
<PAGE>1
PACIFIC TELECOM, INC.
805 BROADWAY
VANCOUVER, WASHINGTON 98668
_______________
PROXY STATEMENT
_______________
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD _______________, 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 _______________, 1995 at
____________________ Pacific Time, at _________________________
_______________________________________________________. The
accompanying proxy is being solicited by Pacific Telecom's
Board of Directors and is to be voted at the Annual Meeting and
at any adjournments or postponements thereof.
At the Annual Meeting, holders of shares of common
stock of Pacific Telecom ("PTI Common Stock") will consider and
vote upon (i) a proposal to approve an Agreement and Plan of
Merger, dated as of March 9, 1995 (together with the exhibits
thereto, the "Merger Agreement"), by and among Pacific Telecom,
PacifiCorp Holdings, Inc., a Delaware corporation ("Holdings"),
and PXYZ Corporation, a Washington corporation and a wholly
owned subsidiary of Holdings ("Merger Sub"), and (ii) the
election of ten directors, consisting of the six current
directors and four additional directors nominated 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 made
certain representations and warranties and agreed to undertake
certain obligations with respect to the Merger. A copy of the
Merger Agreement (which includes the PacifiCorp Agreement as an
exhibit) is attached to this Proxy Statement as Exhibit A.
HOLDERS OF PTI COMMON STOCK WHO COMPLY WITH THE
REQUIREMENTS OF SECTIONS 23B.13.010 THROUGH 23B.13.310 OF THE
WASHINGTON BUSINESS CORPORATION ACT (THE "WBCA") ARE ENTITLED
TO ASSERT DISSENTERS' RIGHTS WITH RESPECT TO THE PROPOSED
MERGER AND TO OBTAIN PAYMENT OF THE FAIR VALUE OF THEIR SHARES
IF THE PROPOSED MERGER IS CONSUMMATED. A COPY OF
SECTIONS 23B.13.010 THROUGH 23B.13.310 OF THE WBCA IS ATTACHED
TO THE PROXY STATEMENT AS EXHIBIT B. SEE "THE MERGER--RIGHTS
OF DISSENTING SHAREHOLDERS."
_______________
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION
NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT.
ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
<PAGE>2
The Merger Agreement provides that Merger Sub will be
merged with and into Pacific Telecom (the "Merger"), with
Pacific Telecom being the surviving corporation after the
Merger. In the Merger, each outstanding share of PTI Common
Stock owned by Holdings will be cancelled, each outstanding
share of PTI Common Stock owned by shareholders other than
Holdings (the "Minority Shareholders") (other than shares as to
which dissenters' rights are perfected) will be converted into
the right to receive a cash payment of $30.00 (the "Merger
Consideration"), and each outstanding share of Merger Sub
common stock ("Merger Sub Stock") will be converted into one
share of PTI Common Stock. Thus, as a result of the Merger,
Pacific Telecom will become a wholly owned subsidiary of
Holdings and the Minority Shareholders will receive the Merger
Consideration, without interest, in exchange for their shares.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY PACIFIC TELECOM. THIS PROXY STATEMENT DOES
NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION
TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH
SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF THIS PROXY
STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
PACIFIC TELECOM SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF. PACIFIC TELECOM UNDERTAKES NO OBLIGATION TO UPDATE THE
INFORMATION CONTAINED HEREIN SUBSEQUENT TO THE DATE HEREOF.
On May ___, 1995, the high and low sales prices for PTI
Common Stock as reported on the Nasdaq National Market were ____
and ____, respectively, and the last reported sale price was ____
per share.
The approximate date on which this Proxy Statement
and the accompanying proxy are first being mailed to
shareholders is _______________, 1995.
THE DATE OF THIS PROXY STATEMENT IS _______________, 1995.
<PAGE>i
TABLE OF CONTENTS
Page
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . 1
MEETING INFORMATION. . . . . . . . . . . . . . . . . . . . 9
Introduction. . . . . . . . . . . . . . . . . . . . . 9
Matters To Be Considered at the Meeting . . . . . . . 9
Voting Information. . . . . . . . . . . . . . . . . . 9
Solicitation, Revocation and Use of Proxies . . . . .10
SPECIAL FACTORS. . . . . . . . . . . . . . . . . . . . . .11
Background of the Merger. . . . . . . . . . . . . . .11
Recommendations of the Board of Directors of
Pacific Telecom and the Special Committee. . . .31
Opinions of Smith Barney and CS First Boston. . . . .35
Opinion of Smith Barney. . . . . . . . . . . . .35
Opinion of CS First Boston . . . . . . . . . . .44
Reasons of PacifiCorp and Holdings for the Merger . .49
Opinion of Financial Advisor to PacifiCorp. . . . . .51
Certain Effects of the Merger . . . . . . . . . . . .60
Conduct of Business After the Merger. . . . . . . . .61
Conduct of Business if the Merger Is Not Consummated.61
Regulatory Approvals. . . . . . . . . . . . . . . . .61
Interests of Certain Persons in the Merger;
Conflicts of Interest. . . . . . . . . . . . . .62
Rights of Dissenting Shareholders . . . . . . . . . .63
Certain Federal Income Tax Consequences
of the Merger. . . . . . . . . . . . . . . . . .65
Financing the Merger. . . . . . . . . . . . . . . . .66
Expenses of the Transaction . . . . . . . . . . . . .67
SELECTED FINANCIAL DATA;
PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . .68
CERTAIN FINANCIAL FORECASTS. . . . . . . . . . . . . . . .72
THE MERGER AGREEMENT . . . . . . . . . . . . . . . . . . .82
General . . . . . . . . . . . . . . . . . . . . . . .82
Effective Time. . . . . . . . . . . . . . . . . . . .82
Conversion of Shares; Surrender of Stock
Certificates; Payment for Shares . . . . . . . .82
Representations and Warranties. . . . . . . . . . . .84
General. . . . . . . . . . . . . . . . . . . . .84
Offers, Proposals and Intention To Sell. . . . .84
Covenants . . . . . . . . . . . . . . . . . . . . . .85
Indemnification of Officers and Directors . . . . . .86
<PAGE>ii
Conditions to the Merger. . . . . . . . . . . . . . .87
Waiver, Amendment and Termination . . . . . . . . . .88
Fees and Expenses . . . . . . . . . . . . . . . . . .89
MARKET PRICE AND DIVIDEND INFORMATION
FOR PTI COMMON STOCK. . . . . . . . . . . . . . . . .89
ELECTION OF DIRECTORS. . . . . . . . . . . . . . . . . . .90
Information as to Nominees for Director . . . . . . .90
Information with Respect to Meetings
and Committees . . . . . . . . . . . . . . . . .92
Director Compensation . . . . . . . . . . . . . . . .92
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . .94
Summary Compensation Table. . . . . . . . . . . . . .94
Severance Arrangements. . . . . . . . . . . . . . . .95
Retirement Plans . . . . . . . . . . . . . . . . . .95
Personnel Committee Report on Executive Compensation.97
Overview . . . . . . . . . . . . . . . . . . . .97
Compensation Program Components. . . . . . . . .97
CEO Compensation . . . . . . . . . . . . . . . .99
Performance Graph . . . . . . . . . . . . . . . . . 101
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS. . . . . 103
CERTAIN TRANSACTIONS IN PTI COMMON STOCK . . . . . . . . 103
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . 106
INFORMATION CONCERNING HOLDINGS AND PACIFICORP
AND THEIR DIRECTORS AND EXECUTIVE OFFICERS. . . . . 107
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . 113
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . 113
SHAREHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . 113
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934. . . . . . . . . . . . . . . . 113
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . 114
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE. . . . . 114
<PAGE>iii
EXHIBITS
A - Agreement and Plan of Merger
B - Sections 23B.13.010 through 23B.13.310
of the Washington Business Corporation Act
C - Opinion of Smith Barney Inc.
D - Opinion of CS First Boston Corporation
E - Opinion of Salomon Brothers Inc
<PAGE>1
SUMMARY
The following is a summary of certain information
contained or incorporated by reference in this Proxy Statement.
The following summary is not intended to be complete and is
qualified in its entirety by reference to the more detailed
information contained in this Proxy Statement and the Exhibits
hereto or incorporated herein by reference. Shareholders are
urged to review the entire Proxy Statement carefully.
The Annual Meeting; Record Date; Quorum
The Annual Meeting of Shareholders of Pacific Telecom
will be held on _______________, 1995 at _______________,
Pacific Time, at _______________________________________
_________________________________________. Only holders of
record of PTI Common Stock at the close of business on May 19,
1995 are entitled to notice of and to vote at the Annual
Meeting. On that date, there were _____________ 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 PTI Common Stock held by 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
<PAGE>2
Merger. Each outstanding share of PTI Common Stock held by
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 Merger Agreement is fair to, and in the best interests
of, the Minority Shareholders. After considering the
recommendation of the Special Committee, the Board of Directors
of Pacific Telecom has determined that the Merger Agreement is
fair to, and in the best interests of, Pacific Telecom and its
shareholders, has unanimously approved and adopted the Merger
Agreement and recommends that the Minority Shareholders vote
FOR the proposal to approve the Merger Agreement. See "Special
Factors--Background of the Merger" and "--Recommendations of
the Board of Directors of Pacific Telecom and the Special
Committee."
Opinions of Financial Advisors
Each of Smith Barney and CS First Boston, both
nationally recognized investment banking firms, has rendered a
written opinion to the Special Committee to the effect that,
subject to the assumptions set forth therein, as of the date of
this Proxy Statement, the Merger Consideration is fair to the
Minority Shareholders, from a financial point of view. The
full text of the written opinions of Smith Barney and CS First
Boston, which set forth the assumptions made, procedures
followed, matters considered and limits of review, are attached
hereto as Exhibits C and D, respectively. MINORITY
SHAREHOLDERS ARE URGED TO AND SHOULD READ SUCH OPINIONS
CAREFULLY AND IN THEIR ENTIRETY. See "Special Factors--
Opinions of Smith Barney and CS First Boston."
Salomon Brothers Inc ("Salomon Brothers"), also a
nationally recognized investment banking firm, has rendered a
written opinion to the effect that, subject to the assumptions
set forth therein, as of March 9, 1995, the Merger
Consideration was fair to PacifiCorp, from a financial point of
view. The opinion does not address the fairness of the Merger
Consideration to the Minority Shareholders. The full text of
the written opinion of Salomon Brothers, which sets forth the
assumptions made, procedures followed, matters considered and
limits of review, is attached hereto as
<PAGE>3
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 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."
<PAGE>4
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 proposed
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 the 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."
<PAGE>5
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 "The Merger--Rights
of Dissenting Shareholders." See "Special Factors--Rights of
Dissenting Shareholders."
Effective Time of the Merger
The Merger will become effective upon the filing of
Articles of Merger with the Secretary of State of the State of
Washington. The filing will occur promptly after all
conditions to the Merger contained in the Merger Agreement have
been satisfied or waived. Pacific Telecom and Holdings
anticipate that the Merger will be consummated immediately
following the Annual Meeting. See "The Merger Agreement--
General" and "--Effective Time."
Payment Agent; Surrender of Stock Certificates
Holdings has designated LaSalle National Trust, N.A.
as the payment agent (the "Payment Agent") for the Merger.
Promptly after the Effective Time, the Payment Agent will send
to each Minority Shareholder (other than those shareholders
holding shares as to which dissenters' rights are perfected) a
letter of transmittal advising as to the procedures for
surrendering certificates representing shares of PTI Common
Stock in exchange for the Merger Consideration. Certificates
should not be surrendered until the letter of transmittal is
received.
Conditions to Consummation of the Merger
The respective obligations of Pacific Telecom, on one
hand, and Holdings and Merger Sub, on the other hand, to
consummate the Merger are subject to the satisfaction or waiver
at or prior to the Effective Time of the following conditions,
among others: (a) approval of the Merger Agreement by the
holders of a majority of the outstanding shares of PTI Common
Stock held by Minority Shareholders and by the holders of two-
thirds of the outstanding shares of PTI Common Stock; (b) the
absence of any statute, rule, injunction or order making
illegal the consummation of the Merger; (c) the receipt of all
required authorizations, consents and approvals, subject to
certain exceptions; (d) 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; (e) 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 (f) 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
<PAGE>6
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 of 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:
(a) by mutual consent of Pacific Telecom and Holdings; (b) by
either Pacific Telecom or Holdings if the Effective Time has
not occurred on or before September 30, 1995, subject to
certain exceptions; (c) by either Holdings or Pacific Telecom
if the other party breaches its obligations under the Merger
Agreement in any material respect; (d) by either Holdings or
Pacific Telecom if consummation of the Merger is prohibited by
any final, nonappealable order, decree or injunction; (e) by
Holdings or Pacific Telecom if the shareholders of Pacific
Telecom fail to approve the Merger; and (f) by Holdings or
Merger Sub if the Special Committee or the Board of Directors
of Pacific Telecom shall have withdrawn or modified, in any
manner adverse to Holdings or Merger Sub, its recommendation or
approval of the Merger or the Merger Agreement. See "The
Merger Agreement--Waiver, Amendment and Termination."
<PAGE>7
Summary Financial Data
The following table sets forth summary selected
historical consolidated financial information for Pacific
Telecom and its subsidiaries for the three-month periods ended
March 31, 1995 and 1994, and each of the five years in the
period ended December 31, 1994. The consolidated financial
data for the three months ended March 31, 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 three months ended March 31, 1995 are not indicative of
results which may be expected for the entire year due to, among
other things, the pending sale of Alascom, Inc. The
consolidated financial data of Pacific Telecom for each of the
five years in the period ended December 31, 1994 are derived
from the audited consolidated financial statements of Pacific
Telecom not included herein, but incorporated by reference.
The following financial information should be read in
conjunction with the historical consolidated financial
statements and notes thereto of Pacific Telecom included in
Pacific Telecom's Quarterly Report on Form 10-Q for the period
ended March 31, 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>
Three Months Ended
March 31 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 $181,711 $165,787 $704,962 $702,111 $698,175 $719,991 $677,883
Operating expenses 141,556 131,126 540,321 560,463 558,701 559,567 522,904
------------------------------------------------------------------------------------------------------------
Net operating income 40,155 34,661 164,641 141,648 139,474 160,424 154,979
------------------------------------------------------------------------------------------------------------
Income from continuing
operations 16,727 15,800 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 $16,727 $15,800 $81,399 $119,502 $21,507 $81,105 $90,219
------------------------------------------------------------------------------------------------------------
Average number of common
shares outstanding 39,608 39,608 39,612 39,584 39,526 39,477 38,768
Data Per Common Share:
Income from continuing
operations $ .42 $ .40 $ 2.05 $ 1.49 $ 1.70 $ 2.27 $ 2.46
Gain (loss) from discontinued
operations -- -- -- 1.53 (1.16) (.22) (.13)
------------------------------------------------------------------------------------------------------------
Net income $ .42 $ .40 $ 2.05 $ 3.02 $ .54 $ 2.05 $ 2.33
------------------------------------------------------------------------------------------------------------
Dividends declared and paid $ .33 $ .33 $ 1.32 $ 1.32 $ 1.305 $ 1.235 $ 1.13
------------------------------------------------------------------------------------------------------------
Book Value $16.93 $16.19 $16.85 $16.13 $14.41 $15.16 $14.31
Balance Sheet Data:
Total assets $1,656,922 $1,461,264 $1,442,951 $1,482,224 $1,607,289 $1,748,570 $1,787,622
Long-term debt, net of
current maturities 375,443 421,536 376,997 426,669 571,585 528,391 480,940
Shareholders' equity 670,605 641,116 667,773 638,711 569,846 598,524 563,906
___________________________
(Footnote on following page)
<PAGE>8
(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.
Certain Financial Forecasts
Certain forecasts of Pacific Telecom's future
operating performance prepared by management of Pacific Telecom
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. Such forecasts have not been
updated since the date of their preparation, 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 such forecasts. Pacific Telecom does not intend
to update or publicly revise the forecasts. For information
concerning such 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 May ___, 1995, the
high and low sales prices for PTI Common Stock as reported on
the Nasdaq National Market were ____ and ____, respectively,
and the last reported sale price was ____. SHAREHOLDERS ARE
URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THEIR SHARES.
<PAGE>9
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
_______________, 1995 at _______________ Pacific Time, at
___________________________________________________________
_____________________, and at any adjournments or postponements
thereof.
Matters To Be Considered at the Meeting
At the Annual Meeting, the shareholders will be asked
to consider and vote upon a proposal to approve the Merger
Agreement. In addition, the shareholders will be asked to
elect ten directors, including the six current directors and
four additional directors nominated by Holdings.
Voting Information
Holders of record of PTI Common Stock at the close of
business on May 19, 1995 are entitled to vote at the Annual
Meeting. On that date __________ shares of PTI Common Stock
were issued and outstanding and held by approximately _________
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 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 Minority Shareholders and by the holders of two-thirds of
the outstanding shares of PTI Common Stock. As of May 19,
1995, approximately _____ shares of PTI Common Stock were held
by the Minority Shareholders. Accordingly, the affirmative
vote of ____ shares of PTI Common Stock held by the Minority
Shareholders is a condition to the obligation of Pacific
Telecom to consummate the Merger.
<PAGE>10
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 May 19, 1995, the directors and executive officers of
Pacific Telecom, Holdings and PacifiCorp owned a total of
___________ shares of PTI Common Stock, consisting of ___
percent of all PTI Common Stock outstanding.
In the election of directors, the holders of PTI
Common Stock have cumulative voting rights, which means each
shareholder has the right to give one candidate as many votes
as the number of directors multiplied by the number of his or
her shares or to distribute votes among any number of
candidates on the same principle. If the authority to vote for
directors is granted to them, the persons named on the
accompanying form of proxy will have the discretionary
authority to vote on a cumulative basis. Directors are elected
by a plurality of the votes cast by the holders of shares
entitled to vote at the Annual Meeting if a quorum is present.
Solicitation, Revocation and Use of Proxies
Pacific Telecom will pay the costs of soliciting
proxies from its shareholders and the costs of preparing and
mailing this Proxy Statement, proxy and any other material
furnished to the shareholders by Pacific Telecom in connection
with the Annual Meeting. In addition to the solicitation of
proxies by mail, certain of Pacific Telecom's directors,
officers and employees may solicit proxies by telephone,
telecopy and personal contact, without separate compensation
for such activities. Copies of solicitation materials will be
furnished to fiduciaries, custodians and brokerage houses for
forwarding to beneficial owners of PTI Common Stock, and such
persons will be reimbursed for their reasonable expenses
incurred in connection therewith. In addition, Georgeson &
Company Inc., 88 Pine Street, Wall Street Plaza, New York, New
York 10005 (telephone (212) 440-9800), has been engaged to
solicit proxies on behalf of Pacific Telecom for a fee of
$7,500 plus reasonable out-of-pocket 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
<PAGE>11
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 their 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 insure broad
applicability of the results, Edgar Dunn selected four Pacific
Telecom companies accounting for 21% 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 has ample opportunity to
<PAGE>12
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 the 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 the 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 reasonable 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."
<PAGE>13
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 on August 9, 1994,
management of Pacific Telecom made a presentation that included
materials derived from a report dated April 25, 1994 (the "SRI
Materials"), prepared by SRI International, an independent
consulting firm ("SRI"). SRI had been retained by Pacific
Telecom to provide an independent assessment of whether Pacific
Telecom's rural exchange business provided a viable growth
opportunity for continuing investment or whether additional
investment would be inadvisable due to threats posed by new
technology, new competitors and changes in the regulatory
environment. The SRI Materials focused primarily on Pacific
Telecom's business in the Midwest. SRI used as its starting
point the information and analyses contained in the 1993 Edgar
Dunn Materials. In its materials, SRI analyzed regulatory,
competitive and technological threats posed to Pacific
Telecom's business. SRI stated that the most serious threat
posed to Pacific Telecom's businesses comes from bypass
technology, but that Pacific Telecom's broad customer base
minimizes vulnerability to such competition. SRI concluded
that, although bypass technology could seriously erode revenues
for a small number of Pacific Telecom's exchanges, it did not
have the potential to undermine Pacific Telecom's entire local
exchange business. SRI determined that the alleged
technological threats actually presented Pacific Telecom with
additional opportunities to exploit and position Pacific
Telecom's business for partnering with other types of
technology. As more thoroughly set forth in the SRI Materials,
SRI found no serious threat to Pacific Telecom's Midwest region
business as of the time of the study and found that Pacific
Telecom was well positioned to deal with new competitive
technologies. Moreover, these new technologies, especially
cellular, cable television and personal communication systems,
constitute emerging opportunities for Pacific Telecom to expand
its revenues. In conclusion, SRI noted that the Midwest region
constituted an 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 which should prove attractive for growth
and partnering alliances. SRI recommended that Pacific
<PAGE>14
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 the 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
the Minority Shareholder who has been so designated in writing
upon written request and at the expense of the requesting
Minority Shareholder or representative. The summary of the SRI
Materials set forth in this Proxy Statement is qualified in its
entirety by reference to the full text of such report. SRI is
a nonprofit research and consulting firm and has conducted
numerous market studies of new telecommunication services.
Prior to preparation of the SRI Materials, SRI provided other
consulting services to Pacific Telecom. For services rendered
in connection with preparing the SRI Materials, Pacific Telecom
paid SRI a total of $76,512, which includes reimbursement of
SRI's reasonable 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
income and taxes ("EBIT") and assets. The materials examined
the recent trading history and related data in respect of PTI
Common Stock. The materials then reviewed illustrative
valuation parameters in respect of Pacific Telecom. The
materials set forth an illustrative range of implied overall
firm values of Pacific Telecom from $1,373 million to
$1,858 million, mathematically derived from a wide range of
share prices of $22.75 to $35.00. This share price range of
$22.75 to $35.00 was selected as an illustration rather than
derived from a valuation analysis. Because of its illustrative
nature, this range was very wide and outside the parameters of
an appropriate actual value range for Pacific
<PAGE>15
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 DCF data by segment presented in
the materials was in all material respects the same in terms of
form of presentation and content as that set forth below under
"Opinion of Financial Advisor--Comparable Transaction
Methodology. The materials presented by Salomon Brothers then
considered various transaction considerations and possible
transaction structure alternatives. The materials also set
forth various strategies in connection with the relevant
approach and potential forms of consideration. For certain
important limitations in respect of this summary, see "Opinion
of Financial Advisor to PacifiCorp--Summary." For certain
important limitations in respect of the engagement of Salomon
Brothers, see "Opinion of Financial Advisor to PacifiCorp." A
copy of the presentation materials of Salomon Brothers used at
the August meeting have 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 the 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
the 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 STOCKHOLDER 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
<PAGE>16
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 their report dated November 1, 1994 (the "1994 Edgar
Dunn Materials), which updated the analysis contained in the
1993 Edgar Dunn Materials. The 1994 Edgar Dunn Materials noted
that the wireless revolution and the video revolution had
fueled changes in customer demand, which in turn had driven
technological advances and increased competition.
Additionally, there has been a desire on the part of local
exchange companies, interexchange carriers and cable television
companies to diversify into each other's related, existing
markets. Certain companies have made pre-emptive 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 for taking advantage
of selective, technologically driven growth opportunities. The
1994 Edgar Dunn Materials serve only as an assessment of the
technological risks facing Pacific Telecom, do not address any
aspect of the Merger and do not constitute a recommendation to
any shareholder of Pacific Telecom as to how such shareholder
should vote at the Annual Meeting. A copy of the 1994 Edgar
Dunn Materials has been filed as an exhibit to the Schedule
13E-3 and is available for inspection and copying at the
principal offices of Pacific Telecom during Pacific Telecom's
normal business hours by any Minority Shareholder or any
representative of the Minority Shareholder that has been so
designated in writing. A copy of such materials shall be
<PAGE>17
provided to any Minority Shareholder or any representative of
the 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 reasonable out-of-pocket expenses in the
amount of 2,529.
Following the presentation by Edgar Dunn, management
discussed the following alternatives with respect to its
investment in Pacific Telecom: maintaining the status quo,
increasing Holdings' involvement in management of Pacific
Telecom without increasing its stock ownership of Pacific
Telecom and increasing both Holdings' involvement in management
and its ownership. Management explained that, for the reasons
discussed below under "--Reasons of PacifiCorp and Holdings for
the Merger," management had concluded that Holdings should
acquire the minority interest of Pacific Telecom.
Representatives of Salomon Brothers then made a
presentation to the 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 non-access 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 EBITDA of the independent companies was 5.4x on
average, compared to 6.2x for Pacific Telecom based on the
approximately current $25 share price. The access line
value/telephone EBIT of the independent companies was 9.1x on
average, compared to 10.9x for Pacific Telecom based on the
approximately current $25 share price. The material presented
at the November Board meeting then stated that, based on
various assumptions, the knowledge of Salomon Brothers of
Pacific Telecom and the knowledge of Salomon Brothers of the
telecommunications industry, a purchase price of $27 to $28 per
share for PTI Common Stock (or an 8% -12% 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
<PAGE>18
"Opinion of Financial Advisor to PacifiCorp." In conclusion,
the presentation materials stated that Pacific Telecom's
trading value at the time of the presentation of $25 per share
implied a 6.2x multiple of 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 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 non-access
line businesses of $581 million, supported a purchase price of
$27-28 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 the 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
the 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 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
<PAGE>19
Holdings should proceed with an offer to acquire the minority
interest at $28.00 per share in cash (the "Initial Offer").
Determination of the $28.00 per share price was based on
Salomon's evaluation as set forth above. A letter containing
the Initial Offer was sent to Pacific Telecom late in the day
on November 1 and PacifiCorp publicly announced the Initial
Offer on November 2, 1994.
In its press release announcing the Initial Offer,
PacifiCorp noted that the transaction was subject to the
preparation and execution of definitive agreements, the receipt
of regulatory approvals and third-party consents, and the
satisfaction of other conditions customary for such
transactions. PacifiCorp also announced that Salomon Brothers
had been retained as its financial advisor in connection with
the Initial Offer. Pacific Telecom announced on November 2,
1994 that it had received the Initial Offer.
On November 7, 1994, the Board of Directors of
Pacific Telecom met to consider the Initial Offer. At that
meeting, the Board of Directors of Pacific Telecom determined
that any proposed business combination between Pacific Telecom
and Holdings should be reviewed and negotiated by members of
the Board of Directors of Pacific Telecom who were not also
officers of Pacific Telecom or directors of Holdings or its
other affiliates. Accordingly, the Board of Directors of
Pacific Telecom unanimously approved the appointment of the
Special Committee, consisting of Mr. Donald L. Mellish
(Chairman), Mr. Roy M. Huhndorf, Ms. Joyce E. Galleher and the
Honorable Sidney R. Snyder to receive, study, negotiate and
make 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
<PAGE>20
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 and Holdings and PTI,
(viii) documentation relating to the pending sale of Alascom,
Inc. ("Alascom") to AT&T Corp. ("AT&T") for $365 million (the
"Alascom Sale") and (ix) documentation relating to certain
pending and proposed transactions involving Pacific Telecom.
Also during such period, Smith Barney and CS First Boston met
with representatives of Pacific Telecom, and Smith Barney met
with representatives of Holdings on a number of occasions, and
reviewed and discussed, among other things, (i) Pacific
Telecom's business and historical and projected financial
performance, (ii) Pacific Telecom's five-year business plan,
(iii) certain pending and proposed transactions involving
Pacific Telecom, and (iv) the background of the timing of, and
Holdings' reasons for, the Initial Offer. During discussions
with PacifiCorp's financial advisors, Smith Barney inquired
whether the common stock of PacifiCorp would be available as
consideration in any possible business combination and was
informed by Holdings' financial advisors that the Initial Offer
was limited to cash and that PacifiCorp would not include
common stock of PacifiCorp in the consideration to be received
by the Minority Shareholders. During this period, Smith Barney
and CS First Boston also discussed valuation analyses and
methodologies. On December 22, 1994, Smith Barney and CS First
Boston briefed the Special Committee and its counsel on the
status of the examinations that had been conducted and Smith
Barney briefed them on the results of discussions with
Holdings.
<PAGE>21
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") which 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
<PAGE>22
Common Stock and evaluation of the Initial Offer, (vi) a
discussion of the terms of other recent transactions similar to
the Initial Offer, (vii) an analysis of the historical and
projected future trading price of the PTI Common Stock, and
(viii) a discussion of the financial performance and trading
prices of certain companies comparable to Pacific Telecom.
Representatives of CS First Boston also reviewed the due
diligence investigation conducted and the examination of the
Initial Offer being undertaken by CS First Boston. The Special
Committee then discussed the presentations of Pacific Telecom
management and Smith Barney, as well as the status of the
review being conducted by CS First Boston, and considered
possible alternatives to the Initial Offer, including
increasing the amount of the cash consideration to be received
by the Minority Shareholders, as well as an increase in the
cash consideration coupled with the issuance to each Minority
Shareholder of rights or other similar securities (the
"Rights") that would provide additional consideration to the
Minority Shareholders in the event that Holdings, after
consummating the acquisition of the shares held by the Minority
Shareholders, sold Pacific Telecom to a third party within a
certain period of time. The Rights were discussed due to a
concern expressed by the Special Committee that Holdings might
have the opportunity to dispose of 100 percent of the PTI
Common Stock to a third party after 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
<PAGE>23
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 "generic
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% debt/total
capitalization ratio based on book accounting, whereas Salomon
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%, as opposed to 50%.
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% 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 generic and
unidentified acquisitions in its valuation of Pacific Telecom.
Salomon Brothers pointed out that an acquiror of a particular
company should not be expected to pay for "value" created by
unidentified future acquisitions and thus such acquisitions
should not be considered. Salomon Brothers also reiterated
PacifiCorp's position that the valuation of Pacific Telecom
should not take into account the premium suggested by the
Smith Barney analysis. Salomon Brothers noted that Smith
Barney applied a premium to theoretical prices, such as those
derived from a DCF analysis, which, according to Salomon
Brothers, resulted in "double counting." In addition, the
terminal multiples were significantly higher than those
observed in actual merger and acquisition transactions.
Finally, Salomon Brothers reviewed its own analysis of Pacific
Telecom, the substance of which is more fully discussed below
under "Opinion of Financial Advisor to PacifiCorp." For
certain important limitations in respect of this summary, see
"Opinion of Financial Advisor to PacifiCorp--Summary." For
certain important limitations in respect of the engagement of
Salomon Brothers, see "Opinion of Financial Advisor to
PacifiCorp." A copy of the presentation materials in respect
of the response by Salomon Brothers of the Smith Barney
analysis has been filed as an exhibit to the Schedule 13E-3 and
is available for inspection and copying
<PAGE>24
at the principal offices of Pacific Telecom during Pacific
Telecom's normal business hours by any Minority Shareholder or
any representative of the 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
the 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
<PAGE>25
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 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
<PAGE>26
Shareholders and the other matters addressed in the February 5,
1995 meeting of the Special Committee. During such
discussions, Salomon Brothers 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. 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.
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 which would include the Special
Representations and the Minority Shareholder Approval
condition. On February 7, 1995, Mr. Glasgow contacted
representatives of Smith Barney and informed them that,
although Holdings desired to complete a transaction as soon as
possible, Holdings was not prepared to increase significantly
the per share consideration to be received by the Minority
Shareholders. Mr. Glasgow further indicated that the Board of
Directors of Holdings had instructed him to complete
negotiations concerning the material terms of any negotiated
transaction between Pacific Telecom and Holdings as soon as
possible and that, if negotiations were not completed soon, the
Board of Directors of Holdings would convene a meeting to
discuss Holdings' available alternatives. Mr. Glasgow
suggested that representatives of Holdings, the Special
Committee and their respective advisors meet in person as soon
as possible.
The Special Committee held meetings on February 7,
1995 and again on February 8, 1995 with its legal counsel and
Smith Barney and discussed the status of negotiations and
determined that two of the four members of the Special
Committee, accompanied by Smith Barney and legal counsel,
should meet with Mr. Glasgow, Salomon Brothers and Holdings'
legal counsel. A meeting between Mr. Mellish and Mr. Huhndorf
of the Special Committee and Mr. Glasgow was scheduled for
February 15, 1995. At the February 8, 1995 meeting, the
Special Committee also discussed the possible alternatives that
Holdings could pursue, in the event that Holdings and the
Special Committee reached an impasse The alternatives that
the Special Committee believed could be available to Holdings
were: to terminate consideration of a transaction with Pacific
Telecom; to commence a tender offer for the shares of PTI
Common Stock held by the Minority Shareholders followed by a
short-form merger without first reaching an agreement with the
Special Committee; or to use Holdings' voting power to assert
greater control over the Board of Directors. The Special
Committee noted that each
<PAGE>27
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.
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 discussed 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 the Short-Term Forecasts, the Long-Term Forecasts Without
Future Acquisitions and the Long-Term Forecasts With Future
Acquisitions 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.
<PAGE>28
(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% to 10% and Salomon
Brothers used a WACC of 10% to 13%. In Smith Barney's view,
the difference in the WACCs used was due to two factors.
First, the firms used differing measures of risk ("beta").
Although both firms used betas published by BARRA, an
independent financial consulting firm, Salomon Brothers used
Pacific Telecom's historical beta, and Smith Barney used
Pacific Telecom's predicted beta. Smith Barney noted in their
summary that BARRA recommends that predicted beta, rather than
historical beta, be used to forecast market sensitivity.
Secondly, the firms used different debt to capitalization
ratios. Smith Barney used the book value of equity to
determine the debt to capitalization ratio, whereas Salomon
Brothers used the market value of equity. Smith Barney noted
in its summary that although Salomon Brothers' position is
correct for non-regulated 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' discounted cash flow analysis
did not include a squeezeout 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,
<PAGE>29
the Chief Executive Officer of PacifiCorp, that morning and
that Mr. Buckman had stated that Holdings might be willing to
reach an agreement at a price between $29.25 per share to
$29.50 per share of PTI Common Stock. The members of the
Special Committee then engaged in a discussion as to what price
per share they would be willing to recommend to the Minority
Shareholders. The Special Committee further discussed the
financial analyses with Smith Barney. After further
deliberation, the Special Committee determined to inform
Holdings that, subject to receipt of fairness opinions from its
financial advisors and the completion of negotiation of an
agreement and plan of merger between Holdings and Pacific
Telecom containing the Special Representations, a requirement
of Minority Shareholder Approval and other terms acceptable to
the Special Committee, the Special Committee was prepared to
favorably consider a transaction involving consideration in the
amount of $30.00 per share.
Following that meeting, representatives of Smith
Barney communicated the Special Committee's position concerning
the proposed consideration, the Special Representations and the
Minority Shareholder Approval Condition to Mr. Glasgow, who
indicated that he would be willing to recommend a transaction
at a $30 price if agreement could be reached regarding the
proposed representations and the approval condition, as well as
the other terms and conditions of a definitive agreement and
plan of merger.
On February 23, 1995, Holdings provided the Special
Committee and its advisors with a draft agreement and plan of
merger, and, between February 23 and March 8, 1995, legal
counsel to Holdings and the Special Committee negotiated the
terms and conditions of the agreement, including the Special
Representations and the requirement for Minority Shareholder
Approval.
On March 3, 1995, a joint meeting of the Board of
Directors of Holdings and the Executive Committee of the Board
of Directors of PacifiCorp (the "Executive Committee") was held
to discuss the status of the negotiations and to review the
draft agreement and plan of merger and the draft agreement
between Pacific Telecom and PacifiCorp pursuant to which
PacifiCorp would make certain representations and undertake
certain obligations with respect to the Merger. At that joint
meeting, Mr. Glasgow, who had resigned his positions with
PacifiCorp and it affiliates on February 28, 1995 to become a
partner in a venture capital firm, but continued to handle
negotiations with the Special Committee in his capacity as a
consultant to PacifiCorp, reviewed the status of the
negotiations. Counsel to PacifiCorp and Holdings reviewed the
terms and provisions of the 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
<PAGE>30
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 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 Holdings'
Board approved the draft agreement and plan of merger, and
authorized execution and delivery of an agreement substantially
in the form presented, subject to changes as approved by Mr.
Buckman within the same parameters specified by the Holdings
Board.
At the March 4, 1995 meeting of the Special
Committee, its legal counsel reported on the status of the
negotiations concerning the draft agreement and plan of merger.
The Special Committee also tentatively scheduled its next
meeting for March 8, 1995. From March 3 through March 8, 1995,
counsel for Holdings and counsel for the Special Committee had
a number of discussions to resolve open issues on the draft
agreement and plan of merger and related matters.
The Special Committee met on the evening of March 8,
1995 and the early morning of March 9, 1995 (Eastern Standard
Time) to consider the draft agreement and plan of merger and
the changes made thereto since March 4, 1994. That meeting
also included presentations from representatives of Smith
Barney, CS First Boston and the Special Committee's legal
counsel. The Special Committee's legal counsel reviewed the
process of the negotiations which 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
<PAGE>31
the PTI Common Stock. See "--Opinions of Smith Barney and CS
First Boston." Following each presentation, the Special
Committee received the oral opinion (subsequently confirmed in
writing) of each of Smith Barney and CS First Boston to the
effect that, as of March 9, 1995, the Merger Consideration was
fair, from a financial point of view, to the Minority
Shareholders.
After further discussion, the Special Committee
concluded, based primarily on the opinions of Smith Barney and
CS First Boston and, in part, on the other factors described
below under "--Recommendations of the Board of Directors of
Pacific Telecom and the Special Committee," that the terms of
the Merger were fair to, and in the best interests of, the
Minority Shareholders and unanimously recommended that the
Pacific Telecom Board of Directors (i) approve and adopt the
Merger Agreement in the form presented to the Special Committee
at such meeting, (ii) determine that the Merger was fair to,
and in the best interests of, the Minority Shareholders, and
(iii) recommend that the Minority Shareholders approve the
Merger Agreement and the Merger.
In a meeting of the Board of Directors of Pacific
Telecom held immediately after the meeting of the Special
Committee, the Board of Directors of Pacific Telecom
unanimously approved and adopted the Merger Agreement,
authorized the execution thereof, determined that the Merger
was fair to, and in the best interests of, the Minority
Shareholders, and recommended that the Minority Shareholders
approve the Merger Agreement and the Merger.
The Merger Agreement was executed and delivered by
the respective parties on March 9, 1995, in the form attached
hereto as Exhibit A.
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 interest of, the shareholders of Pacific Telecom,
(ii) approved and adopted the Merger Agreement and the
transactions contemplated thereby and authorized the execution,
delivery and performance thereof by Pacific Telecom, and
(iii) resolved to recommend that the shareholders of Pacific
Telecom approve the Merger Agreement and the
<PAGE>32
transactions contemplated therein. ACCORDINGLY, THE BOARD OF
DIRECTORS OF PACIFIC TELECOM RECOMMENDS THAT THE SHAREHOLDERS
OF PACIFIC TELECOM APPROVE THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
The Board of Directors of Pacific Telecom believes
that the terms of the Merger Agreement are fair to, and in the
best interests of, Pacific Telecom and its shareholders. In
reaching its conclusion, the Board of Directors of Pacific
Telecom adopted the recommendation of the Special Committee
as set forth below.
The Special Committee, in reaching its conclusion
that the Merger was fair to, and in the best interest of, the
Minority Shareholders and in determining to recommend approval
of the Merger Agreement and the Merger to the Board of
Directors of Pacific Telecom, considered a number of factors,
including, without limitation, the following:
1. The oral and written presentations of Smith
Barney and CS First Boston to the Special Committee on March 8,
1995 and the written opinions of Smith Barney and CS First
Boston dated March 9, 1995 to the effect that, as of the date
of each such opinion and based upon and subject to certain
matters stated in each such opinion, the Merger Consideration
was fair, from a financial point of view, to the Minority
Shareholders. 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 which
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) 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
<PAGE>33
portion of the capital stock or assets of Pacific Telecom. See
"The Merger Agreement--Representations and Warranties."
4. The possibility that, in the absence of a merger
agreement, Holdings could increase its ownership of the PTI
Common Stock in a transaction not approved by Pacific Telecom
or the Special Committee.
5. The fact that the Merger Consideration
represented a 23.7 percent premium over the last reported sale
price of the PTI Common Stock on the day immediately preceding
the announcement of the Initial Offer ($24.25 per share) and a
7.1 percent premium over the Initial Offer. The Special
Committee did note that the last reported sale price of the PTI
Common Stock on the day immediately preceding the announcement
of the execution of the Merger Agreement ($31.125 per share)
exceeded the Merger Consideration. The Special Committee
understood, based on Smith Barney's estimate of the number of
shares of PTI Common Stock traded on the Nasdaq National Market
between the announcement of the Initial Offer and March 8,
1995, that approximately 18.8 percent of such shares reflected
a trading price in excess of $30.00 per share.
6. The Special Committee's knowledge of the
business, financial condition, results of operations and
prospects of Pacific Telecom and the Special Committee's
understanding of the effect thereon of the Alascom Sale, the
Pending Acquisitions, the Future Acquisitions 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 their 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
discounted cash flow 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
<PAGE>34
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 since 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 since 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 Directors and
Officers." 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 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."
<PAGE>35
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. 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
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
<PAGE>36
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 in connection with the delivery of its
opinion, a copy of Smith Barney's draft report to the Special
Committee dated February 13, 1995 and 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, 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 the 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
the 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
<PAGE>37
summary description. In arriving at its opinion, Smith
Barney did not attribute any particular weight to any analysis
or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis
and factor. 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 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 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 pre-announcement 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 (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 discounted cash
flow analysis, a future stock price analysis, a comparable
company analysis and a comparable transaction analysis.
Certain of these methodologies utilized Pacific Telecom's 1995-
1996 forecasts adjusted for consummation of the Alascom Sale
and the Pending Acquisitions (the "Short-Term Forecasts"), but
not adjusted for the Future Acquisitions. See "Certain
Financial Forecasts." Other methodologies utilized 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" and,
<PAGE>38
together with the Long-Term Forecasts Without Future
Acquisitions, the "Long-Term Forecasts").
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 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
<PAGE>39
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.
Public Market Valuation Analysis. Smith Barney
also analyzed Pacific Telecom's equity market value, enterprise
value, net income, dividend yield and EBITDA implied by
various values of a share of PTI Common Stock. Under this
analysis, the Merger Consideration resulted in multiples of:
(i) Pacific Telecom's forecasted calendar 1996 net income of
17.0x; (ii) Pacific Telecom's forecasted 1996 EBITDA of 6.4x;
and (iii) a dividend yield on PTI Common Stock of 4.4 percent.
The Public Market Valuation Analysis, which is used to
evaluate, based on Pacific Telecom's consolidated near-term
financial performance, the price at which the PTI Common Stock
would trade if it were a publicly-held liquid security,
resulted in a valuation of $24.00 to $28.00 per share of PTI
Common Stock and, adjusted for a Minority Buy-Out Premium of 25
percent, resulted in a valuation range of between $30.00 and
$35.00 per share.
Averaging the low value of the range derived through
the Component Valuation Analysis (adjusted for a Minority Buy-
Out Premium of 25 percent) with the low value of the range
derived through the Public Market Valuation Analysis, and
averaging the high value of the range derived through the
Component Valuation Analysis (adjusted for a Minority Buy-Out
Premium of 25 percent) and the high value of the range derived
through the Public Market Valuation Analysis, Smith Barney
arrived at a valuation range for Pacific Telecom of $29.05 to
$34.33 per share of Pacific Telecom Common Stock.
<PAGE>40
Valuations Using Long-Term Forecasts
Discounted Cash Flow Analysis. Smith Barney
performed a discounted cash flow analysis of the projected free
cash flow of Pacific Telecom for the second half of 1995 and
the years 1996 through 1999, assuming, among other things,
discount rates of 8.0 percent to 10.0 percent and terminal
multiples of EBITDA of 5.50x to 6.25x. Utilizing these
assumptions and based on Pacific Telecom's Long-Term Forecasts
Without Future Acquisitions, Smith Barney arrived at estimated
ranges of equity values per share of PTI Common Stock, and
summarized these values at a range of between approximately
$27.66 to $30.64. After applying a Minority Buy-Out Premium of
25 percent, Smith Barney arrived at estimated ranges of equity
values per share of between approximately $34.57 to $38.30.
Using Pacific Telecom's Long-Term Forecasts With Future
Acquisitions, and applying the same discount rate and terminal
multiple assumptions, Smith Barney arrived at estimated ranges
of equity values per share of PTI Common Stock, and summarized
these values at a range of between approximately $28.87 to
$32.56. After applying a Minority Buy-Out Premium of 25
percent, Smith Barney arrived at estimated ranges of equity
values per share of between approximately $36.08 to $40.71.
Present Value of Future Stock Price. Smith
Barney also analyzed the present value of the future stock
price and discounted dividend stream of a share of PTI Common
Stock, assuming discount rates of 12.0 percent to 130
percent, multiples of 1999 projected earnings per share ("EPS")
of 15.5x to 16.5x and dividends as projected by Pacific
Telecom. 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 Analysis 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
<PAGE>41
and trading multiples of RBOCs and substantially all major
publicly-traded independent LECs. The comparable companies
analyzed were: Ameritech Corporation, Bell Atlantic
Corporation, BellSouth Corporation, GTE Corporation, NYNEX
Corporation, Pacific Telesis Group, Southwestern Bell
Corporation and US WEST, Inc. (the "RBOCs & GTE"), Lincoln
Telecommunications Company, Southern New England
Telecommunications Corporation and Telephone & Data Systems,
Inc. (the "Lower Growth Independents"), and ALLTEL Corporation,
Century Telephone Enterprises, Inc., Cincinnati Bell, Inc.,
Frontier Corporation and Citizens Utilities Company (the
"Higher Growth Independents" and, together with the RBOCs & GTE
and the Lower Growth Independents, the "Comparable Companies").
Smith Barney compared current stock prices to projected
calendar 1994 and 1995 EPS of the Comparable Companies. The
projected calendar 1994 and 1995 multiples of stock prices to
EPS ("Price-Earnings Multiples") of the RBOCs & GTE were
between 10.7x and 14.7x (with a mean of 13.6x and a median of
13.9x) and between 10.9x and 13.5x (with a mean of 12.6x and a
median of 12.9x), respectively. The projected calendar 1994
and 1995 Price-Earnings Multiples of the Lower Growth
Independents were between 6.9x and 14.5x (with a mean of 11.2x
and a median of 12.0x) and between 7.1x and 13.5x (with a mean
of 10.8x and a median of 11.7x), respectively. The projected
calendar 1994 and 1995 Price-Earnings Multiples of the Higher
Growth Independents were between 15.5x and 23.0x (with a mean
of 19.2x and a median of 18.7x) and between 14.2x and 17.5x
(with a mean of 16.0x and a median of 15.9x), respectively.
The pre-announcement projected calendar 1995 and 1996 Price-
Earnings Multiples of Pacific Telecom were 12.2x and 15.6x,
respectively. The Merger Consideration equated to multiples of
Pacific Telecom's forecasted calendar 1995 and 1996 net income
of 23.8x and 17.0x, respectively.
Smith Barney also compared the enterprise values to,
among other things, forecasted calendar 1995 EBITDA. The
multiples of forecasted calendar 1995 EBITDA of the RBOCs & GTE
were between 4.3x to 5.9x (with a mean of 5.1x and a median of
5.1x). The multiples of forecasted 1995 EBITDA of the Lower
Growth Independents were between 3.5x to 5.7x (with a mean of
4.5x and a median of 4.4x). The multiples of forecasted 1995
EBITDA of the Higher Growth Independents were between 5.3x to
7.9x (with a mean of 6.4x and a median of 5.6x). The median
multiple of forecasted 1995 EBITDA of the Lower Growth
Independents and Higher Growth Independents was 5.6x. Pacific
Telecom's pre-announcement 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 &
<PAGE>42
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 CAGR for the RBOCs & GTE was 2.4
percent, for the Lower Growth Independents it was 5.8 percent
and for the Higher Growth Independents it was 10.2 percent.
Pacific Telecom's five-year CAGR was -0.1 percent. The median
five-year estimated growth for the RBOCs & GTE was 6.8 percent,
for the Lower Growth Independents it was 7.8 percent and for
the Higher Growth Independents it was 12.3 percent. Pacific
Telecom's five-year estimated growth was 7.0 percent. All
forecasted net income estimates for the Comparable Companies
were based on the consensus estimates of selected investment
banking firms, and all forecasted net income estimates for
Pacific Telecom were based on forecasts of Pacific Telecom's
management. All multiples were based on closing stock prices
as of March 3, 1995.
Smith Barney also analyzed the market value of the
following publicly-traded cellular companies: U.S. Cellular,
CommNet Cellular Inc. and Centennial Cellular (together, the
"Most Comparable Cellular Companies"), LIN Broadcasting,
Cellular Communications, Vanguard Cellular, Contel Cellular and
AirTouch Communications. Smith Barney based its selection of
comparable companies primarily on the composition of their POP
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.
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
<PAGE>43
announcement date of the Selected LEC Acquisitions were 8.6x
and 9.0x, respectively. The mean and median multiples of
latest 12 months' EBITDA as of the announcement date of the
transaction for Selected LEC and Cellular Acquisitions were
12.0x and 11.8x, respectively.
Smith Barney also analyzed those private LEC
acquisitions for which Pacific Telecom was able to provide
information. These acquisitions were: US WEST
Colorado/Pacific Telecom, US WEST Montana/Consortium, US WEST
Wyoming/Consortium, US WEST Oregon/Pacific Telecom, US WEST
Washington/Pacific Telecom, Northwest Telecommunications/
Pacific Telecom, Missouri Telephone Company/ALLTEL, Anchorage
Telephone Utility/Pacific Telecom, and acquisitions of several
other small rural privately held LECs, certain of which were
acquired by Pacific Telecom, including Urban Telephone, Volcano
Telephone Company, Anchorage Telephone Utility, Viroqua
Telephone Company, Lakeshore Telephone Company, North-West
Telephone Company, Turtle Lake Telephone Co., Inc., Postville
Telephone Company, Thorp Telephone Co., Delta County Telecom,
Inc., Minot Telephone Company, Wayside Telcom, Inc., Farmers
Telephone Company, Mid-Plains Telephone, Inc., Northland
Telephone Company, Missouri Telephone Company, Arizona
Telephone Company, Helix Telephone Company, Casco Telephone
Company and Rib Lake Cellular for Wisconsin RSA #2, Inc. (the
"Private LEC Transactions"). The mean and median midpoint
multiples of EBITDA for the Private LEC Transactions were 9.2x
and 9.1x, respectively.
No company, transaction or business used in the
comparable company and selected merger and acquisition
transactions analyses as a comparison is identical to Pacific
Telecom or the Merger. Accordingly, an analysis of the results
of the foregoing is not entirely mathematical; rather, it
involves complex considerations and judgments concerning
differences in financial and operating characteristics and
other factors that could affect the acquisition or public
trading value of the comparable companies or the business
segment or company to which they are being compared.
Pursuant to the terms of Smith Barney's engagement,
Pacific Telecom has agreed to pay Smith Barney for its services
in connection with the Merger an aggregate financial advisory
fee of $1,500,000, with $250,000 paid at the commencement of
the engagement, $750,000 paid upon delivery of its opinion and
$100,000 paid each month for five months. Pacific Telecom also
has agreed to reimburse Smith Barney for travel and other out-
of-pocket expenses incurred by Smith Barney in performing its
services, including the reasonable fees and expenses of its
legal counsel, which out-of-pocket expenses are limited to a
maximum of $40,000, 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
<PAGE>44
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
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.
In arriving at its opinion, CS First Boston (i)
reviewed the draft Merger Agreement and certain publicly
available business and financial information relating to
Pacific Telecom, (ii) reviewed certain other information,
including financial forecasts, provided by Pacific Telecom,
(iii) met with management of Pacific Telecom to discuss the
business and prospects of Pacific Telecom, (iv) considered
certain financial and stock market data of Pacific Telecom and
compared that data with similar data for other publicly held
companies in businesses similar to those of Pacific Telecom,
(v) considered the financial terms of certain other business
combinations and other transactions recently effected and (vi)
considered such other information, financial studies, analyses
and investigations and financial, economic and market criteria
which CS First Boston deemed relevant.
<PAGE>45
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 the 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 assumptions made,
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
proposed 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.
<PAGE>46
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) discounted cash flow
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 aforementioned valuation
methodologies, developed a range of values for PTI Common Stock
which 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 they were widely held
instead of approximately 87 percent owned by Holdings and
Pacific Telecom were more closely followed by the investment
research community as a result of broader institutional
ownership. In performing this analysis, CS First Boston
compared Pacific Telecom to Frontier Corporation (formerly
Rochester Telephone Corporation), Lincoln Telecommunications
Company and Southern New England Telecommunications, as well as
other comparable companies. In general, these companies were
found to trade at 1995 price earnings multiples of 12.0x to
13.0x. In its analysis, CS First Boston assumed that the
Alascom divestiture 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 2.0x 1996 earnings per share of
$1.76 discounted to today's value at 12% (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.
<PAGE>47
Discounted Cash Flow Analysis. CS First Boston
performed discounted cash flow 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 earnings
before interest, taxes, depreciation and amortization 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 company.
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 discounted cash flow analyses and resulted in a
value range of $1,150 to $1,350 million (including the Pending
Acquisitions). In valuing Pacific Telecom's cellular
interests, CS First Boston relied principally on a per "POP"
(population equivalent) valuation applied to each individual
market, based on comparable publicly-traded cellular telephone
companies and assumed a value of $225 to $275 million. CS
First Boston's valuation of the cable and transmission business
was based both on a book value analysis and a discounted cash
flow analysis and was valued at $40 to $50 million. Pacific
Telecom's other businesses were valued at $25 million. In
addition to valuing these lines of business, CS First Boston
included the net proceeds from the sale of Alascom and deducted
net total debt and the purchase price of the Pending
Acquisitions to arrive at an overall equity value range for
Pacific Telecom. This analysis indicated a per share valuation
range of approximately $24.25 to $30.75 per share of PTI Common
Stock. The analysis necessarily involved complex considerations
and judgments concerning differences in financial and operating
characteristics of the companies.
Premiums Paid by a Majority Shareholder to Minority
Shareholders of other Public Companies. CS First Boston also
analyzed premiums paid to public minority shareholders of other
companies by a majority shareholder. This analysis indicated
an average of premiums paid over the stock price four weeks
prior to the initial announcement of the proposed transaction
of approximately 24 percent, which implied a price per share of
PTI Common Stock held by the Minority Shareholders of $30.00.
The analysis indicated an average of premiums paid over the
stock price one day prior to such announcement of approximately
18 percent, which implied a price per share of PTI Common Stock
of $28.50.
<PAGE>48
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.
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. 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 which are inherently unpredictable
and must be considered not certain of occurrence as projected.
Accordingly, actual results could vary significantly from those
set forth in such projections.
Pursuant to the terms of CS First Boston's
engagement, Pacific Telecom paid CS First Boston for its
services in connection with the Merger a fee of $500,000, with
$200,000 paid at the commencement of the engagement and
$300,000 paid upon delivery of its March 9, 1995 opinion.
Pacific Telecom has also agreed to reimburse CS First Boston
for its out of pocket expenses, including reasonable fees and
expenses of legal counsel, of up to $40,000, and to indemnify
CS First Boston and certain related persons or entities against
certain liabilities, including liabilities under the federal
securities laws, relating to or arising out of its engagement.
In the ordinary course of its business, CS First
Boston and its affiliates may actively trade the debt and
equity securities of both Pacific Telecom and Holdings for
their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in
<PAGE>49
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.
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.
<PAGE>50
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 to assume
Pacific Telecom's liabilities.
Holdings elected to pursue the Merger at this time
because of the belief of PacifiCorp and Holdings that, in view
of Pacific Telecom's recent and planned acquisition activity,
which will result in their increased exposure to the
telecommunications business, it is an appropriate time for
Holdings to have greater control over Pacific Telecom.
Each of PacifiCorp and Holdings has concluded that
the Merger is fair to the Minority Shareholders based on the
following factors:
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.
<PAGE>51
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 it 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 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
<PAGE>52
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, provided to Salomon Brothers by PacifiCorp. See
"Certain Financial Forecasts." Salomon Brothers discussed the
past and current operations and financial condition and
prospects of Pacific Telecom with its senior management and
senior management of 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 which 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.
<PAGE>53
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 and minority interest
less cash and marketable securities) to revenues, EBITDA and
EBIT. The following results were produced in this regard:
(i) for the 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); (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 2.3; (v) ratio of firm value to 1994 EBITDA of
6.1x; (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 non-access 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 non-access line businesses include
cellular telephone services and the provision of submarine
fiber optic cable capacity between the United States and Japan.
<PAGE>54
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); (v) for firm value
as a multiple of subscribers--Comparable Group
(median = $7,163). In addition, Salomon reported that
PriCellular, which had significant overlaps with Pacific
Telecom (52.9% 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 at $150 million to $200 million,
which represented $75 to $100 per POP, 17.5 to 23.3x 1994
EBITDA and 11.6 to 15.4x 1995 EBITDA. For Pacific Telecom's
cable business, Salomon Brothers valued such business at 90
percent of its attributable book value, resulting in a value of
$45 million with respect thereto. The analysis of the
businesses of Pacific Telecom other than the local telephone
exchange business thus implied a value of from $1,094 - $1,044
million for the local exchange business in light of the Merger
Consideration.
Comparable Local Exchange Business Approach. Salomon
Brothers analyzed the implied value of the local exchange
business in the Merger Consideration by examining how the local
telephone exchange business of selected companies exhibiting
comparable operating and financial characteristics were valued
in the public market. For such analysis, Salomon Brothers
examined the local exchange business for the Comparable Group
and the following regional Bell operating companies ("RBOCs"):
Ameritech Corporation, Bell Atlantic Corporation, BellSouth
Corporation, NYNEX Corporation, Pacific Telesis Group, SBC
Communications and U S WEST Communications, Inc. Salomon
Brothers analyzed the following financial measures of the local
exchange business for the Comparable Group and the RBOCs based
on publicly available financial data of such companies:
revenue per access line; telephone EBITDA per access line;
1991-1993 CAGR of telephone revenues and access lines; and the
ratio of telephone EBITDA and EBIT to telephone revenues. The
following results were produced in this regard: (i) for LTM
(December 31, 1993, in the case of RBOCs, September 30, 1994,
in the
<PAGE>55
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 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%, mean= 2.5%), Comparable
Group (median = 5.8%, mean = 5.3%), Pacific Telecom (not
applicable); (iv) 1991-1993 CAGR of access lines--RBOCs
(median = 2.9%, mean = 2.9%), Comparable Group (median = 3.0%,
mean = 3.4%), Pacific Telecom (actual = 5.7%; Pacific Telecom
experienced internal access line growth of 4.8%, 6.2% and 5.0%
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%, mean = 44.3%), Comparable
Group (median = 48.1%, mean = 45.9%), Pacific Telecom
(actual = 44.0%)); (vi) 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 EBIT to telephone revenues--RBOCs
(median = 23.1%, mean = 23.9%), Comparable Group
(median = 29.4%, mean = 27.5%), Pacific Telecom
(actual = 25.3%). 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);
(iv) for the ratio of telephone firm value to access lines
--Comparable Group (median = $1,376, mean = $1,397). The
$1,094 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), 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
<PAGE>56
of terminal values was calculated by applying certain multiples
to Pacific Telecom's estimated 1999 telephone EBITDA, and then
analyzed relative to Pacific Telecom's estimated 1999 telephone
revenues, 1999 telephone EBIT, 1999 telephone net income
assuming Pacific Telecom was not leveraged and 1999 telephone
net income assuming a certain level of leverage, in each case
with respect to the local telephone exchange business. The
range of terminal values in 1999 so calculated in respect of
Pacific Telecom's local exchange business was $1,004 million to
$1,406 million. The ratio of terminal value to 1999 revenues
ranged from 2.5x to 3.5x depending on the terminal value
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% to 6.9%. 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%,
while the market-weighted debt to total capitalization ratio of
Pacific Telecom was 30.9%. Based on this analysis, Salomon
Brothers used a range of weighted average cost of capital of
10% to 13%. 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 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),
<PAGE>57
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 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 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 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 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%, mean = 40.2%, Pacific
Telecom = 44%); and (ix) for the ratio of telephone EBIT to
telephone revenues (median = 20.9% and mean = 22.6%, Pacific
Telecom = 25.3%).
Comparable Transaction Methodology
Salomon Brothers reviewed the premiums paid to non-
control 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
<PAGE>58
price one month before the offer were 29.8% and 23.7%,
respectively, and the mean and median premiums paid in respect
of the stock price one day before the offer were 24.8% and
23.4%, 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% and 41.6%, respectively, and the
mean and median premiums paid in respect of the stock price one
day before the offer were 35.1% and 34.1%, 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% and 36.9%,
respectively, and the mean and median premiums paid in respect
of the stock price one day before the offer were 31.2% and
29.2%, 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% 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% and 60% 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% and 30.2%, respectively, and
the mean and median premiums paid in respect of the stock price
one day before the offer were 38.6% and 33.3%, respectively,
(ii) for such transactions where the acquiror held between 60%
and 70% 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% and 42.4%, respectively, and the
mean and median premiums paid in respect of the stock price one
day before the offer were 44.2% and 41.2%, respectively, (iii)
for such transactions where the acquiror held between 70% and
80% 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% and 49.5%, respectively, and the mean and
median premiums paid in respect of the stock price one day
before the offer were 27.2% and 33.8%, respectively, and (iv)
for such transactions where the acquiror held in excess of 80%
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% and 46.5%, respectively, and the mean and
median premiums paid in respect of the stock price one day
before the offer were 26.2% and 27.6%, 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% to
60% 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% and 23.6%, respectively, and the mean and
median premiums paid in respect of the stock price one day
before the offer were 17.8% and 11.7%, respectively, (ii) for
such transactions where the acquiror held between 60% and 70%
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% and 16.9%, respectively, and the mean and
median premiums paid one day before the offer were 19.4% and
19.5%, respectively, (iii) for such transactions where the
acquiror held between 70% and 80% 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% and 43.0%,
respectively, and the mean and median premiums paid in respect
of the stock price one day before the offer were 42.2% and
42.2%, respectively, and (iv) for such transactions where the
acquiror held in excess of 80% 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% and 37.8%,
respectively, and the mean and median premiums paid in respect
of the stock price one day before the offer were 30.1% and
25.1%, respectively. The Merger Consideration reflects a 20.1%
premium to the stock price in respect of Pacific Telecom one
month before the announcement of the Initial Offer
<PAGE>59
and 24.5% 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 which
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.
<PAGE>60
Salomon Brothers has previously rendered investment
banking and financial advisory services to PacifiCorp and
certain of its affiliates (including Pacific Telecom), in each
case for which Salomon Brothers received customary
compensation. In the ordinary course of its business, Salomon
Brothers actively trades the debt and/or equity securities of
PacifiCorp and certain of its affiliates (including Pacific
Telecom) for Salomon Brothers' own account and for the accounts
of its customers and, accordingly, may at any time hold a long
or short position in such securities.
Pursuant to an engagement letter dated August 15,
1994, PacifiCorp has agreed to pay Salomon Brothers a fee of
$800,000, $150,000 of which has been paid and $650,000 of which
is payable upon the consummation of the Merger. PacifiCorp
also has agreed to reimburse Salomon Brothers for certain
expenses incurred in connection with its engagement and to
indemnify Salomon Brothers and certain related persons against
certain liabilities and expenses relating to or arising out of
its engagement, including certain liabilities under the federal
securities laws.
The opinion of Salomon Brothers was one of many
factors taken into consideration by the Board of Directors of
PacifiCorp in making its determination to approve the Merger.
The opinion of Salomon Brothers does not address the relative
merits of the Merger as compared to any alternative business
strategies that might exist for PacifiCorp or the effect of any
other transaction in which PacifiCorp might have engaged.
Certain Effects of the Merger
If the Merger is approved, at the Effective Time, the
Minority Shareholders will cease to be shareholders of Pacific
Telecom and will not share in the future earnings or growth of
Pacific Telecom. Instead, each Minority Shareholder (other
than those shareholders holding shares as to which dissenters'
rights are perfected) will be entitled to receive the Merger
Consideration in exchange for their shares of PTI Common Stock
upon surrender of their stock certificates.
As a result of the Merger, Pacific Telecom will
become a wholly owned subsidiary of Holdings, the registration
of Pacific Telecom's Common Stock under the Exchange Act, will
be terminated and PTI Common Stock will cease to be reported on
the Nasdaq National Market. If Holdings determines to
terminate Pacific Telecom's public medium-term note program,
Pacific Telecom will cease to file annual and quarterly reports
with the SEC.
<PAGE>61
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 proposed for election 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 nominated by Holdings for
election at the Annual Meeting. Accordingly, following the
Annual Meeting a majority of the members of the Board of
Directors of Pacific Telecom will consist of individuals who
are designees of Holdings or directors or officers of
PacifiCorp or Holdings.
If the Merger is not consummated, Holdings may
purchase additional PTI Common Stock from time to time, subject
to availability at prices deemed acceptable to Holdings,
pursuant to a merger transaction, tender offer, open market or
privately negotiated transactions or otherwise on terms more or
less favorable to the Minority Shareholders than the terms of
the Merger. However, Holdings has made no determination as to
any future transactions if the Merger is not consummated.
<PAGE>62
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
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 PacifiCorp and Holdings and
Their Directors and 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
<PAGE>63
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 (e.g., either votes
against the merger or abstains from voting) will, upon proper
demand, have the right under the WBCA to obtain payment of the
fair value of his or her shares of PTI Common Stock. ANY
MINORITY SHAREHOLDER ELECTING TO EXERCISE DISSENTERS' RIGHTS
MUST FILE A WRITTEN NOTICE OF THIS INTENT WITH PACIFIC TELECOM,
ATTENTION OF THE SECRETARY, AT 805 BROADWAY, VANCOUVER,
WASHINGTON 98668, PRIOR TO THE VOTE, AND MUST NOT VOTE HIS OR
HER SHARES IN FAVOR OF THE MERGER. As provided in Section
23B.13.030 of the WBCA, a shareholder whose shares are held in
a brokerage account or by some other nominee must either have
the record holder of the shares file the dissenters' notice on
the shareholder's behalf or obtain the written consent of the
record holder and file the shareholder's dissenters' notice.
These documents must be filed with the Secretary of Pacific
Telecom prior to the vote on the Merger. A beneficial
shareholder of PTI Common Stock who chooses to exercise
dissenters' rights must exercise such rights with respect to
all shares of PTI Common Stock either beneficially held by such
shareholder or over which such shareholder has power to direct
the vote. A VOTE IN FAVOR OF THE MERGER WILL CONSTITUTE A
WAIVER OF DISSENTERS' RIGHTS. AN ABSTENTION OR BROKER NON-
VOTE 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
NON-VOTE 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.
<PAGE>64
If the Merger is approved by the requisite vote of
shareholders, Pacific Telecom will, within ten 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.
Except with respect to those Minority Shareholders
who held After-Acquired Shares (as defined below), Pacific
Telecom will remit, within 30 days of the later of the date of
effectiveness of the Merger or the date the payment demand is
received, to all Minority Shareholders who made proper demand,
an amount that Pacific Telecom estimates to be the fair value
of their Pacific Telecom shares, together with any interest
that has accrued from the effective date of the Merger until
the date of payment. The remittance will be accompanied by
certain financial information of Pacific Telecom, an
explanation of how the fair value of the shares was estimated
and an explanation of how the accrued interest was calculated.
If Pacific Telecom fails so to remit or if the dissenting
Minority Shareholder believes the amount remitted is less than
the fair value of his or her shares, the dissenting Minority
Shareholder may send Pacific Telecom his or her own estimate of
the fair value of the shares and amount of accrued interest due
and demand payment of the deficiency. The dissenting Minority
Shareholder must notify Pacific Telecom in writing of his or
her estimate within 30 days after the date Pacific Telecom
mails its remittance, if any. If Pacific Telecom and the
dissenting Minority Shareholder are unable to agree on a fair
value within 60 days after the receipt of a demand for payment
of a deficiency, Pacific Telecom will petition that the fair
value of the shares and interest thereon be determined by an
appropriate court.
If a dissenting Minority Shareholder acquired his or
her shares of PTI Common Stock after the date set forth in the
dissenters' notice as the 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
<PAGE>65
of how the fair value of the After-Acquired Shares was
estimated and how the accrued interest was calculated. If the
dissenting Minority Shareholder believes that the amount
offered is less than the fair value of his or her After-
Acquired Shares, the dissenting Minority Shareholder may send
Pacific Telecom his or her own estimate of the fair value of
the After-Acquired Shares and amount of accrued interest due.
The dissenting Minority Shareholder must notify Pacific Telecom
in writing of his or her estimate within 30 days after the date
Pacific Telecom makes its offer. If Pacific Telecom and the
dissenting Minority Shareholder are unable to agree on a fair
value for the After-Acquired Shares within 60 days after the
receipt of the dissenting Minority Shareholder's estimate of
the fair value of the After-Acquired Shares, Pacific Telecom
will petition that the fair value of the After-Acquired Shares
and interest thereon be determined by an appropriate court.
With respect to a judicial proceeding commenced by
Pacific Telecom to determine the fair value of the shares and
interest thereon with respect to any shares of PTI Common Stock
(including After-Acquired Shares), the court will determine the
costs of such proceeding and will assess such costs against
Pacific Telecom, except that the court may assess such costs
against one or more of the dissenting Minority Shareholders
party to such proceeding, in amounts the court finds equitable,
to the extent that such court finds that the dissenting
Minority Shareholder acted arbitrarily, vexatiously or not in
good faith in demanding payment.
The foregoing summary is not, and does not purport to
be, a complete statement of dissenters' rights and is qualified
in its entirety by reference to Sections 23B.13.010 through
23B.13.310 of the WBCA, a copy of which is attached to this
Proxy Statement as Exhibit B.
Certain Federal Income Tax Consequences of the Merger
The following is a summary of certain federal income
tax consequences of the Merger to Minority Shareholders. To
the extent it relates to matters of law or legal conclusion,
this summary constitutes the opinion of Stoel Rives Boley Jones
& Grey, counsel to Pacific Telecom. This summary is based on
the Internal Revenue Code of 1986, as amended, Treasury
Regulations (including Proposed Regulations and Temporary
Regulations) promulgated thereunder, official pronouncements
and judicial decisions, all as in effect on the date hereof,
all of which are subject to change, possibly with retroactive
effect. This summary does not purport to discuss all tax
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
<PAGE>66
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 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 long-term capital gain or loss if the stock has been
held for more than one year at such time.
Holdings or the Payment Agent will be required to
withhold 31 percent of the gross proceeds payable to a
shareholder or other payee in the Merger unless the shareholder
or payee provides in a properly completed substitute Form W-9
his or her taxpayer identification number and certifies under
penalties of perjury that such number is correct and that the
shareholder is not subject to backup withholding, unless an
exemption applies under applicable law and regulations.
Therefore, unless such an exemption exists and is demonstrated
in a manner satisfactory to Holdings or its Payment Agent in
accordance with the instructions that will accompany the
substitute Form W-9, each shareholder should complete and sign
the substitute Form W-9 that will be made available to the
shareholder with the letter of transmittal, so as to provide
the information and certification necessary to avoid backup
withholding. See "The Merger Agreement--Conversion of Shares;
Surrender of Stock Certificates; Payment for Shares."
EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX
ADVISOR WITH RESPECT TO THE FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER IN HIS OR HER INDIVIDUAL CIRCUMSTANCES AND WITH
RESPECT TO THE STATE, LOCAL OR OTHER INCOME TAX CONSEQUENCES OF
THE MERGER. FURTHER, ANY SHAREHOLDER WHO IS A CITIZEN OF A
COUNTRY OTHER THAN THE UNITED STATES SHOULD CONSULT HIS OR HER
OWN TAX ADVISOR WITH RESPECT TO THE TAX TREATMENT IN SUCH
COUNTRY OF THE MERGER AND WITH RESPECT TO THE QUESTION OF
WHETHER THE TAX CONSEQUENCES DESCRIBED ABOVE MAY BE ALTERED BY
REASON OF THE PROVISIONS OF THE INTERNAL REVENUE CODE
APPLICABLE TO FOREIGN PERSONS OR THE 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 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 and
<PAGE>67
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 April 30,
1995 were $350 million. Holdings plans to repay such
borrowings out of its cash flow, which consists primarily of
dividends from its subsidiaries, including Pacific Telecom.
Although Holdings will have the ability to change the
amount and timing of dividends paid by Pacific Telecom
following the Merger, Holdings presently intends that Pacific
Telecom will continue to pay approximately the same aggregate
amount of dividends to Holdings as it is currently paying to
all shareholders.
Expenses of the Transaction
The following is an estimate of the costs and
expenses incurred or expected to be incurred in connection with
the Merger.
SEC Filing Fees . . . . . . . . . . . . . .$ 31,746
Legal Fees and Expenses(1). . . . . . . . . 850,000
Investment Banking Fees and Expenses(2) . . 3,000,000
Printing and Mailing. . . . . . . . . . . . 100,000
Special Committee Directors' Fees(3). . . . 150,000
Accounting Fees and Expenses. . . . . . . . 15,000
Miscellaneous . . . . . . . . . . . . . . . 15,000
-----------
Total. . . . . . . . . . . . . . . . .$ 4,161,746
Under the Merger Agreement, all costs and expenses incurred by
Pacific Telecom, Holdings, PacifiCorp and Merger Sub will be
paid by the party that has incurred such costs and expenses,
whether or not the Merger is consummated.
_______________
(1) Includes fees of counsel for PacifiCorp, Holdings and
Pacific Telecom and counsel for the Special Committee.
(2) Includes fees of Salomon Brothers, Smith Barney and CS
First Boston. See "--Opinion of Financial Advisor to
PacifiCorp" and "--Opinions of Smith Barney and CS First
Boston."
(3) Members of the Special Committee will receive additional
directors' fees of $15,000, except for the Chairman who
will receive $20,000, plus $750 for each meeting of the
Special Committee attended.
<PAGE>68
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 three-month periods ended March 31, 1995 and 1994, and each of
the five years in the period ended December 31, 1994. The
consolidated financial data for the three months ended March 31, 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 three months ended
March 31, 1995 are not indicative of results which may be expected
for the entire year due to, among other things, the pending sale of
Alascom. The consolidated financial data of Pacific Telecom for each
of the five years in the period ended December 31, 1994 are derived
from the audited consolidated financial statements of Pacific Telecom
not included herein but incorporated by reference. The following
financial information should be read in conjunction with the
historical consolidated financial statements and notes thereto of
Pacific Telecom included in the 1995 Form 10-Q and the 1994 Form 10-K
and incorporated herein by reference. The consolidated financial
statements of Pacific Telecom for each of the five years in the
period ended December 31, 1994 have been audited by Deloitte & Touche
LLP, independent accountants. See "Incorporation of Certain
Documents by Reference."
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31 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 $181,711 $165,787 $ 704,962 $ 702,111 $ 698,175 $ 719,991 $ 677,883
Operating expenses 141,556 131,126 540,321 560,463 558,701 559,567 522,904
------------------------------------------------------------------------------------------------------------
Net operating income 40,155 34,661 164,641 141,648 139,474 160,424 154,979
Interest expense (9,998) (9,285) (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) (3,045) (1,615) (9,795) (15,811) (16,161) (13,302) 3,444
------------------------------------------------------------------------------------------------------------
Income before income taxes 27,112 23,761 122,165 82,904 99,774 120,429 137,471
Income taxes 10,385 7,961 40,766 23,846 32,526 30,893 42,061
------------------------------------------------------------------------------------------------------------
Income from continuing
operations 16,727 15,800 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 16,727 15,800 81,399 119,502 21,507 81,105 90,224
Preferred dividends -- -- -- -- -- -- 5
------------------------------------------------------------------------------------------------------------
Net income applicable to
common stock $16,727 $15,800 $81,399 $119,502 $21,507 $81,105 $90,219
------------------------------------------------------------------------------------------------------------
Average number of common
shares outstanding 39,608 39,608 39,612 39,584 39,526 39,477 38,768
Data Per Common Share:
Income from continuing
operations $ .42 $ .40 $ 2.05 $ 1.49 $ 1.70 $ 2.27 $ 2.46
Gain (loss) from discontinued
operations -- -- -- 1.53 (1.16) (.22) (.13)
------------------------------------------------------------------------------------------------------------
Net income $ .42 $ .40 $ 2.05 $ 3.02 $ .54 $ 2.05 $ 2.33
------------------------------------------------------------------------------------------------------------
Dividends declared and paid $ .33 $ .33 $ 1.32 $ 1.32 $1.305 $1.235 $ 1.13
------------------------------------------------------------------------------------------------------------
Book Value -- -- $ 16.85 $ 16.13 $ 14.41 $ 15.16 $ 14.31
Balance Sheet Data:
Total assets $1,656,922 $1,461,264 $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 375,443 421,536 376,997 426,669 571,585 528,391 480,940
Shareholders' equity 670,605 641,116 667,773 638,711 569,846 598,524 563,906
------------------------------------------------------------------------------------------------------------
(Footnotes on following page)
<PAGE>69
<FN>
(1) In August 1990, Pacific Telecom acquired North-West
Telecommunications, Inc. ("North-West") for $272 million.
Through North-West, Pacific Telecom acquired four LECs
with approximately 64,500 access lines and ownership
interests in certain cellular properties. Interest
expense increased in 1991 due to additional interest
expense incurred as a result of amounts borrowed to
acquire North-West.
(2) The gain on sale of subsidiaries and investments included,
in 1994, a $2.3 million pre-tax gain on the sale of PTI
Harbor Bay, Inc. and Upsouth Corporation. The gain in
1993 included the sale of a cellular property in
Washington. The gains in 1992 included a $21.4 million
gain on the sale of Catalina Marketing Corporation common
stock and a $7.2 million gain from cellular property sales
and exchanges. The gains in 1991 included a $22.2 million
gain on the sale of TU International, Inc. and a $6.1
million gain on the sales of cellular interests. The gain
in 1990 included the $18.5 million gain from the sale of
Petroleum Communications, Inc. These transactions had an
after-tax earnings per share effect of $.02 per share in
1994, $.02 per share in 1993, $.45 per share in 1992, $.54
per share in 1991 and $.36 per share in 1990.
(3) The increase in other expense in 1991 resulted from a $5.9
million increase in noncore business valuation adjustments
and an $8.8 million decrease in interest income. Pacific
Telecom recognized interest income in 1990 related to the
funds advanced to Holdings for the North-West acquisition,
the settlement of a dispute with an Alaska LEC and a
favorable resolution of income tax audit issues.
(4) ICH had been shown as a discontinued operation for
financial statement reporting purposes through September
1993 when TRT was sold. The remaining investment in ICH
is now reported as a continuing operation. See Note 7 to
Consolidated Financial Statements included in the 1994
Form 10-K and incorporated herein by reference for
information concerning the $60.4 million after-tax gain on
the sale of ICH's major operating subsidiary recorded in
1993 and a $45.7 million after-tax loss recorded in 1992.
Interest expense in 1994 decreased as proceeds from the
sale of TRT were used to reduce outstanding debt.
</TABLE>
<PAGE>70
Pro Forma Financial Information
The following unaudited pro forma consolidated
balance sheet as of March 31, 1995 reflects Pacific Telecom's
consolidated financial position excluding the assets and
liabilities of Alascom and including the local exchange assets
acquired in Colorado and to be acquired in Oregon and
Washington. Pacific Telecom signed a definitive agreement on
September 30, 1994 to sell the stock of Alascom to AT&T for
$365 million (including the $75 million transition payment
received in July 1994). Pacific Telecom expects to close the
purchase of assets in Oregon and Washington for approximately
$180 million before the end of 1995 after the receipt of
certain regulatory approvals and subject to certain purchase
price adjustments at closing. The pro forma balance sheet
assumes the sale and purchases occurred on March 31, 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 March 31, 1995 contained in the 1995 Form 10-Q and
the consolidated financial statements and related notes for the
year ended December 31, 1994 contained in the 1994 Form 10-K,
which are incorporated herein by reference.
<TABLE>
<CAPTION>
Pro Forma Consolidated Balance Sheet
(Unaudited, in millions)
Historical (a) (b) US WEST Pro forma
Consolidated Historical Elimination Sale of Asset Consolidated
March 31, 1995 PTI Alascom Reversal Alascom Acquisitions PTI
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current assets $ 237.8 $ (98.8) $ 13.2 $ 43.4 $(53.4)(c) $142.2
Investments 119.0 (0.3) 212.9 (212.9) (4.0) 114.7
Net plant in service 946.4 (179.8) - - 114.5 881.1
Intangible and other assets 353.7 (7.2) - - 76.0(c) 422.5
------- ----- ----- ----- ----- -------
Total assets $1,656.9 $(286.1) $226.1 $(169.5) $133.1 $1,560.5
Liabilities and Capitalization
Current liabilities $ 384.9 $(72.1) $ 20.8 $(214.5)(c) $ - $ 119.1
Long-term debt 375.4 - - - 133.1(c) 508.5
Deferred income taxes and
unamortized investment
tax credits 110.2 (1.5) - - - 108.7
Other long-term liabilities 115.8 (7.2) - (30.0) - 78.6
Shareholders' equity 670.6 (205.3) 205.3 75.0 - 745.6
------- ----- ----- ----- ----- -------
Total liabilities and
capitalization $1,656.9 $(286.1) $226.1 $(169.5) $133.1 $1,560.5
</TABLE>
<PAGE>71
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
Pro forma Adjustments -- The accompanying pro forma
consolidated balance sheet as of March 31, 1995 consists
of the historical balance sheet of Pacific Telecom (after
elimination of affiliated transactions and interest), less
the historical balance sheet of Alascom, plus an estimate
for the assets to be purchased in Oregon and Washington
and certain liabilities related to these acquisitions,
plus certain pro forma adjustments described below:
a. Affiliated balances between Pacific Telecom and its
subsidiaries and Alascom eliminated in the
consolidation process were restored on the pro forma
balance sheet. The affiliated balances between
Pacific Telecom and Alascom were added to Pacific
Telecom's investment in Alascom. The affiliated
balances between the other Pacific Telecom
subsidiaries and Alascom were reclassified to the
proper nonaffiliated line item.
b. Cash proceeds of $260 million to be received at
closing the sale of Alascom and the $30 million
deposit in "Other long-term liabilities" received in
October 1994 were offset by Pacific Telecom's basis
in Alascom, which will increase as Alascom's
earnings are recognized and affiliated account
balances change between March 31, 1995 and closing.
c. Cash proceeds received from the sale of Alascom have
been applied to short-term debt used to purchase
assets in Colorado, Oregon and Washington from USWC.
Amounts needed for the purchases in excess of the
Alascom proceeds and cash on hand were assumed to be
borrowed on a long-term basis. The entire $76
million shown for intangible and other assets was
allocated to goodwill.
<PAGE>72
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.
Certain Important Caveats and Limitations. Financial
forecasts involve estimates as to the future which,
notwithstanding the fact that they are presented with numeric
specificity, may or may not prove to be accurate. The
financial forecast set forth below reflects numerous
assumptions as to industry performance, general business and
economic conditions, regulatory and legal requirements, taxes
and other matters, many of which are beyond the control of
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 which 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 which 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. 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, PACIFIC TELECOM HAS NOT
UPDATED THE FORECAST TO REFLECT DEVELOPMENTS OCCURRING AFTER
JANUARY 21, 1995, THE DATE THE FORECAST WAS PREPARED. PACIFIC
TELECOM DOES NOT INTEND TO UPDATE OR PUBLICLY REVISE THE
FORECAST.
Background. Pacific Telecom completed the acquisition of
local exchange assets in Colorado from USWC in February 1995
and anticipates completing the acquisition of additional local
exchange assets from USWC in Oregon and Washington before the
end of 1995. In addition, Pacific Telecom has an agreement
<PAGE>73
to sell the stock of Alascom to AT&T. Pacific Telecom
anticipates closing this sale during the first half of 1995,
subject to receipt of FCC approval of the transfer of various
licenses and permits. If the Alascom Sale is not consummated
during the first half of 1995, the primary effect would be a
postponement of the gain on the sale to a later period.
Financial forecast information reflecting these transactions
and other material transactions enumerated under "Summary of
Significant Forecast Assumptions" are presented below. See
Item 1. "Business--Telecommunications Operations--Alaska
Market Restructuring" and Note 16 "Pending Sale of Alascom,
Inc." of the notes to the consolidated financial statements
contained in the 1994 Form 10-K, and Item 5. "Other Events" in
Pacific Telecom's Current Report on Form 8-K dated March 31,
1995, which are incorporated herein by reference, for
additional information relating to the pending sale of Alascom.
See Item 1. "Business--Telecommunications, Operations--Local
Exchange Companies" contained in the 1994 Form 10-K, which is
incorporated herein by reference, for additional information
relating to the acquisitions of local exchange assets from
USWC.
As used in the discussion of the opinion of Smith
Barney herein, see "Opinions of Smith Barney and CS First
Boston--Opinion of Smith Barney," the term "Long-Term Forecasts
With Future Acquisitions" refers to the financial forecast for
the years 1995 to 1999 set forth below, which assumes the
consummation of future unidentified acquisitions in the rural
telecommunications business. The term "Short-Term Forecasts"
refers to the financial forecast information for the years 1995
and 1996 presented in Section 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 section 2(c) of "Summary of
Accounting Policies and Significant Assumptions for the
Financial Forecast."
<PAGE>74
<TABLE>
<CAPTION>
Forecast Consolidated Statements of Income
Forecast
Historical ---------------------------------------------------
Year Ending December 31, 1994 1995 1996 1997 1998 1999
-----------------------------------------------------------------------------------------------------
(Unaudited, in millions except per share amounts)
<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>
<PAGE>75
<TABLE>
<CAPTION>
Forecast Consolidated Balance Sheets
Forecast
Historical ---------------------------------------------------
December 31, 1994 1995 1996 1997 1998 1999
-----------------------------------------------------------------------------------------------------
(Unaudited, in millions)
<S> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash $ 9.9 $ 6.5 $ 6.5 $ 6.5 $ 6.5 $ 6.5
Accounts receivable 110.8 56.8 60.8 62.5 65.1 67.1
Inventory -- North
Pacific Cable 62.8 54.2 45.3 36.5 23.3 14.5
Material and supplies 14.8 11.5 21.7 22.1 28.7 29.0
Other 16.0 11.1 11.2 11.3 11.4 11.5
------- ------- ------- ------- ------- -------
Total current assets 214.3 140.1 145.5 138.9 135.0 128.6
Investments 123.6 120.0 121.6 123.8 130.0 140.2
Net plant in service 825.5 1,050.7 1,086.3 1,174.0 1,177.3 1,145.4
Intangible and other assets 279.6 543.6 527.9 576.2 557.3 535.6
------- ------- ------- ------- ------- -------
Total assets $1,443.0 $1,854.4 $1,881.3 $2,012.9 $1,999.6 $1,949.8
Liabilities and Capitalization
Current liabilities:
Currently maturing
long-term debt $ 15.6 $ 6.9 $ 7.0 $ 7.2 $ 18.2 $ 8.0
Notes payable 21.7 121.4 111.0 90.4 73.2 26.4
Accounts payable 69.5 60.3 60.1 60.6 60.9 61.1
Other 68.3 45.7 52.9 53.4 58.6 59.2
------- ------- ------- ------- ------- -------
Total current liabilities 175.1 234.3 231.0 211.6 210.9 154.7
Long-term debt 377.0 666.5 675.4 800.7 746.0 701.0
Deferred income taxes and
unamortized investment
tax credits 109.8 115.5 116.3 118.2 113.3 106.8
Other long-term liabilities 113.3 84.2 85.3 79.0 81.4 82.9
Shareholders' equity 667.8 753.9 773.3 803.4 848.0 904.4
------- ------- ------- ------- ------- -------
Total liabilities and
capitalization $1,443.0 $1,854.4 $1,881.3 $2,012.9 $1,999.6 $1,949.8
</TABLE>
<PAGE>76
<TABLE>
<CAPTION>
Forecast Consolidated Statements of Cash Flows
Forecast
Historical -----------------------------------------------------
Year Ending December 31, 1994 1995 1996 1997 1998 1999
-----------------------------------------------------------------------------------------------------
(Unaudited, in millions)
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net income $ 81.4 $138.5 $ 72.4 $ 84.9 $100.7 $114.3
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization 107.8 113.5 137.0 143.5 163.7 170.6
Deferred income taxes and
investment tax
credits, net (62.3) (1.1) 3.4 4.3 (2.4) (3.9)
Gain on sale of Alascom -- (75.2) -- -- -- --
Other 14.4 (13.1) (8.9) (7.8) (7.9) (8.0)
----- ----- ----- ----- ----- -----
Net cash provided by
operating activities 141.3 162.6 203.9 224.9 254.1 273.0
----- ----- ----- ----- ----- -----
Cash Flows from Investing
Activities:
Construction expenditures (148.2) (127.5) (153.8) (115.9) (142.8) (119.0)
Cost of assets acquired -- (625.7) -- (165.6) -- --
Investments in and advances
to affiliates (4.7) (2.7) 4.0 5.9 5.4 5.5
Proceeds from sales of assets 122.6 261.6 0.4 0.4 0.4 0.4
----- ----- ----- ----- ----- -----
Net cash used by investing
activities (30.3) (494.3) (149.4) (275.2) (137.0) (113.1)
----- ----- ----- ----- ----- -----
Cash Flows from Financing
Activities:
Increase (decrease) in
short-term debt (3.2) 74.7 (10.4) (20.6) (17.2) (46.8)
Proceeds from issuance of
long-term debt 8.0 436.2 14.9 165.5 10.2 --
Dividends paid (52.3) (52.3) (53.1) (54.6) (56.3) (57.9)
Payments of long-term debt (58.5) (129.3) (5.9) (40.0) (53.8) (55.2)
----- ----- ----- ----- ----- -----
Net cash provided (used)
by financing activities (106.0) 329.3 (54.5) 50.3 ( 117.1) (159.9)
----- ----- ----- ----- ----- -----
Increase (Decrease) in Cash
and Temporary Cash
Investments 5.0 (2.4) -- -- -- --
Cash and Temporary Cash
Investment at Beginning
of Year 4.9 8.9 6.5 6.5 6.5 6.5
----- ----- ----- ----- ----- -----
Cash and Temporary Cash
Investments at End of Year $ 9.9 $ 6.5 $ 6.5 $ 6.5 $ 6.5 $ 6.5
</TABLE>
<PAGE>77
Summary of Accounting Policies and
Significant Assumptions for the Financial Forecast
1. Summary of Significant Accounting Policies -- The forecast
financial statements have been prepared using accounting
principles and policies generally consistent with those
used by 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 assumes
that Pacific Telecom will close the sale of Alascom
to AT&T at the end of May 1995. After-tax proceeds
from the sale were estimated at $256 million.
Management has assumed that Pacific Telecom will
recognize a $74 million after-tax gain from the sale.
Proceeds will be used to finance the acquisitions of
assets from USWC in Colorado, Oregon and Washington.
(See "Acquisition Assumptions" below.) Alascom's
results of operations are included in the 1994
historical amounts and the 1995 forecast through May
1995 as follows (in millions):
1994 1995
Actual Forecast
------ --------
Operating Revenues $343.5 $135.1
Operating Expenses 262.8 111.3
----- -----
Operating Income $ 80.7 $ 23.8
EBITDA* $115.4 $ 37.6
* EBITDA - Earnings before interest, taxes,
depreciation and amortization. EBITDA was one of the
measures used by the financial advisors in preparing
their financial analysis of Pacific Telecom.
<PAGE>78
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 has assumed that
substantially all of the purchase price was borrowed at
an average interest rate of 6.5 percent to fund the
acquisition. These borrowings were assumed to be
repaid at the end of May 1995 with proceeds from the
sale of Alascom. In the forecast, the purchase of the
USWC assets in Oregon and Washington was assumed to
close at the end of June 1995 at a final adjusted
purchase price of $170 million. Management has assumed
Pacific Telecom would borrow an additional $106 million
to complete the funding for the purchase of these local
exchange assets at an assumed average interest rate of
6.5 percent. This interest rate assumes financing
through short-term, floating-rate debt. In 1993,
Pacific Telecom lowered its debt balances by retiring
debt with proceeds received from the sale of Pacific
Telecom's international operations. The actual timing
of the closings for the Oregon and Washington asset
acquisitions is dependent upon the receipt of certain
regulatory approvals, a process over which Pacific
Telecom has no control. Consequently, the closings may
occur later than anticipated.
The five-year forecast also assumes that Pacific Telecom
will acquire additional local exchange assets serving access
lines in rural and suburban areas for $268 million and $166
million in cash at the end of 1995 and 1997, respectively.
The forecast assumes that the financial results from
operations of these unidentified acquisitions will be
similar to other known acquisition opportunities that
Pacific Telecom is currently evaluating. Long and short-
term borrowings with an assumed average interest rate of 8.1
percent are assumed to be used to finance the acquisitions.
Should Pacific Telecom not be successful in completing these
unidentified acquisitions, forecast amounts would be (in
millions):
<PAGE>79
<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. Access Line Growth -- Management has assumed that
internal access line growth of between 4.5 percent
and 5.0 percent, annually for its combined local
exchange operations, will continue throughout the
five-year forecast. Pacific Telecom has experienced
this level of access line growth for the past six
years.
e. Operating Revenues and Expenses -- For Pacific
Telecom's existing local exchange operations, the
operating revenues and expenses have been estimated
for the next five years using projections of
historical results, adjusted for access line growth,
the effects of increases due to assumed general
inflation of 3.0 percent to 3.5 percent, annually and
certain planned operating efficiencies. Management
has assumed that the regulatory environment in which
it operated in 1994 will continue to exist through
1999 and that competition within its service areas
will not increase significantly. Management has
assumed that future legislative changes regarding the
telecommunications regulatory structure will not
abandon interstate support for the higher cost rural
areas. To the extent there are changes in the
support mechanisms, management has assumed that
Pacific Telecom can successfully pursue rate
rebalancing on a revenue neutral basis. Although the
five-year forecast assumptions do not include new
revenues that might arise from technological changes,
management has assumed that future technological
changes may result in opportunities to develop new
services which will generate additional revenues to
help offset changes, if any, in the high cost support
mechanisms that 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 are
based on the number of access lines served by the
assets and an estimate of the minutes of use those
lines would generate. The resulting usage estimate
is then multiplied by the rate element assumed to be
adopted by 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.
<PAGE>80
The forecast assumes no material revenue increases as
a result of rate case activity. Any adjustments to
rates resulting from the current rate proceeding in
Wisconsin or in the rate proceeding scheduled for
Colorado in three years are assumed to be revenue
neutral.
Operating expenses for the acquired assets were
developed by estimating the necessary staffing
requirements to support their unique service and
geographic territories. In addition, expenses were
estimated based upon Pacific Telecom's experience as
a local telephone service provider in similar
geographic areas and its experiences in completing
similar acquisitions of comparable size.
f. Construction Expenditures -- Management has assumed a
normal managed construction program to replace and
upgrade property as needed due to retirement or
obsolescence with expenditures of $92.6 million in
1995, $97.3 million in 1996, $92.9 million in 1997,
$96.3 million in 1998 and $92.2 million in 1999. In
the areas where Pacific Telecom plans to acquire
additional local exchange assets, management has
assumed that construction expenditures will be
necessary to upgrade systems to meet service
requirements established by governing regulatory
authorities and to meet the service standard
maintained by Pacific Telecom. These expenditures
are assumed to total $34.9 million in 1995, $56.5
million in 1996, $23.0 million in 1997, $46.5 million
in 1998 and $26.8 million in 1999.
g. North Pacific Cable -- The forecast assumes that
Pacific Telecom will be successful in either selling
the remaining capacity on the North Pacific Cable, or
using its available, unsold capacity to develop a
business in the international high-quality television
transmission market. The North Pacific Cable
experienced an outage in February 1995 after this
financial forecast was prepared. While the cable
system has returned to operation, the cause of the
outage is still under investigation. The results of
that investigation may have an impact on Pacific
Telecom's ability to fully recover its remaining
$62.8 million investment in the North Pacific Cable.
h. Cellular Operations -- Cellular operations were
assumed to grow consistent with the cellular
industry's customer penetration estimates. Customer
growth was assumed to average 24 percent annually
over the next five years. Management plans to manage
its pricing structure and vertical service offerings
to stabilize average monthly customer revenue. The
forecast assumes no expenditures for pursuit or
integration of Personnel Communications Systems
("PCS") licenses. Management has assumed that the
impact of competition by PCS providers will be
minimal in the five-year forecast period due to
<PAGE>81
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.
i. Interest Rates -- Management has assumed that it can
borrow funds to finance its acquisition and
construction programs and repay outstanding debt as
it matures using internally generated funds and funds
available under its existing unissued Series B
Medium-Term Note program ($75.5 million unissued at
December 31, 1994), a new $150 million Series C
Medium-Term Note program commencing at the end of
1995 and the $300 million revolving credit agreement.
Interest rates on borrowings to fund the acquisitions
of local exchange assets are enumerated in "Note 2c"
above. Management has assumed that the weighted
average interest rate on its outstanding floating and
fixed rate debt at December 31, 1994 of 7.6 percent
can be maintained though the five-year forecast
period for debt other than debt incurred for newly
acquired assets.
j. Income Taxes -- The statutory federal income tax rate
was assumed to remain at 35 percent throughout the
forecast period. In the 1995 forecast, the effective
tax rate was estimated at 23.1 percent. This rate is
low because Pacific Telecom's assumed tax basis in
Alascom at closing is 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.
k. Average Shares Outstanding and Dividend Payments --
No equity issuances have been assumed during the
forecast period. Earnings per share were calculated
based on 39,620,000 average shares outstanding for
each forecast year. The financial forecast for
dividend payments assumed no increase in the dividend
during 1995, a $.02 per share increase in 1996 and
$.04 per share increases each year for 1997, 1998 and
1999.
<PAGE>82
THE MERGER AGREEMENT
General
Pacific Telecom has entered into the Merger Agreement
attached to this Proxy Statement as Exhibit A with Holdings and
Merger Sub, pursuant to which Merger Sub will be merged with
and into Pacific Telecom with Pacific Telecom as the
corporation surviving the Merger. Merger Sub is a Washington
corporation with its principal executive offices located at 700
NE Multnomah, Suite 1600, Portland, Oregon 97232. Merger Sub
was incorporated by Holdings as a wholly owned subsidiary to
effect the Merger, and it is not anticipated that Merger Sub
will conduct any business prior to the Merger. See
"Information Concerning Holdings and PacifiCorp and Their
Directors and Executive Officers" for information about
Holdings and PacifiCorp.
At the time Pacific Telecom, Holdings and Merger Sub
entered into the Merger Agreement, PacifiCorp and Pacific
Telecom also entered into the PacifiCorp Agreement pursuant to
which PacifiCorp made certain representations and warranties
and agreed to undertake certain obligations with respect to the
Merger.
The following description is a summary of the
material provisions of the Merger Agreement and the PacifiCorp
Agreement, does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement, a copy of
which is attached as Exhibit A to this Proxy Statement and is
incorporated herein by reference. A copy of the PacifiCorp
Agreement is included as Exhibit A to the Merger Agreement.
Shareholders are urged to read carefully the Merger Agreement
and the PacifiCorp Agreement.
Effective Time
At the Effective Time, which will occur as soon as
practicable following the satisfaction or waiver of certain
conditions, as described below, Merger Sub will merge with and
into Pacific Telecom with Pacific Telecom being the surviving
corporation after the Merger, each outstanding share of PTI
Common Stock held by Holdings will be cancelled, each
outstanding share of PTI Common Stock held by the Minority
Shareholders will be converted into the right to receive the
Merger Consideration and each outstanding share of Merger Sub
Stock will be converted into one share of PTI Common Stock.
Thus, after the Merger, Pacific Telecom will be a wholly owned
subsidiary of Holdings and the Minority Shareholders will have
no continuing interest in Pacific Telecom.
Conversion of Shares; Surrender of Stock Certificates; Payment
for Shares
As a result of the Merger, each share of PTI Common
Stock held by a Minority Shareholder at the Effective Time
(other than shares as to which
<PAGE>83
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 Minority Shareholders, which funds may
not be used for any other purpose.
To receive the Merger Consideration, each 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
Minority Shareholders in connection with the surrender of their
shares of PTI Common Stock. No interest will be paid or
accrued on the cash payable upon surrender of the certificate
or certificates, and after the Effective Time no dividends will
be paid to, or accrued for the benefit of, former holders of
PTI Common Stock. From and after the Effective Time, holders
of certificates formerly representing PTI Common Stock will
cease to have any rights with respect to such shares, except
the right to receive the amount of cash into which such shares
were converted in the Merger and any rights provided by law.
Upon the surrender and exchange of a certificate to
the Payment Agent, the holder will be paid the amount of cash
to which such holder is entitled under the Merger Agreement,
less any amount required to be withheld under applicable
federal income tax withholding regulations. A shareholder who
is a U.S. citizen and resident (other than a corporation) may
be able to avoid such withholding with respect to payment for
his or her shares by providing the Payment Agent with a correct
taxpayer identification number in accordance with the
instructions in the letter of transmittal. See "Special
Factors--Certain Federal Income Tax Consequences of the
Merger."
<PAGE>84
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 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
<PAGE>85
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 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 their 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 nominees of Holdings; (ii) issue, sell or
repurchase any shares of their capital stock; or other
securities; enter into any agreement, understanding or
arrangement with respect to the issuance, purchase or voting of
shares of their 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
<PAGE>86
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 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.
<PAGE>87
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 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
<PAGE>88
and authorizations required to be obtained in connection with
the Merger, except those that the failure to obtain would not
have a material adverse effect on the business, operations,
financial condition or prospects of Pacific Telecom and its
subsidiaries, taken as a whole; and (iv) except as disclosed to
Holdings prior to the date of the Merger Agreement or in
filings with the SEC, there shall not have been any change or
event since September 30, 1994 that has resulted or may result
in a material adverse change with respect to Pacific Telecom
and its subsidiaries, taken as a whole.
It will not be known until immediately prior to the
Effective Time whether all of the above conditions will have
been satisfied. As described below, each of the parties to the
Merger Agreement may, at its option, waive compliance with any
condition of its obligation to consummate the Merger.
Waiver, Amendment and Termination
Any provision of the Merger Agreement may be waived
at any time by the party that is, or whose shareholders are,
entitled to the benefits of that provision. Except for the
provisions relating to indemnification and insurance with
respect to Pacific Telecom's directors and officers following
the Merger, the Merger Agreement may be amended or supplemented
at any time, except that, after approval by the shareholders of
Pacific Telecom, no amendment may be made that decreases or
changes the form of the Merger Consideration or that in any
other way materially adversely affects the rights of the
Minority Shareholders (other than a termination of the Merger
Agreement) without the further approval of the Minority
Shareholders. Any waiver, amendment or supplement must be in
writing and signed by the party or parties intending to be
bound thereby.
The Merger Agreement may be terminated at any time
prior to the Effective Time, before or after the approval of
the shareholders of Pacific Telecom, (i) by mutual consent of
the respective Boards of Directors of Pacific Telecom and
Holdings; (ii) by Holdings or Pacific Telecom if the Merger has
not been consummated by September 30, 1995 (provided the
terminating party's failure to fulfill any obligation under the
Merger Agreement may not have been a significant cause of the
failure to consummate the Merger); (iii) by Holdings or Pacific
Telecom if the other party shall have materially breached any
representation or warranty or failed to comply in any material
respect with any covenant under the Merger Agreement; (iv) by
Holdings or Pacific Telecom if the consummation of the Merger
is prohibited by any final, nonappealable order, decree or
injunction; (v) by Holdings or Pacific Telecom if the
shareholders of Pacific Telecom fail to approve the Merger
Agreement and the Merger; and (vi) by Holdings or Merger Sub if
the Special Committee or the Board of Directors of Pacific
Telecom shall have withdrawn or modified, in any manner adverse
to Holdings or Merger Sub, its recommendation or approval of
the Merger or the Merger Agreement. See "Special Factors--
Conditions to the Merger" for conditions to the obligations of
the parties to consummate the Merger.
<PAGE>89
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 May ___, 1995, there
were __________ 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 May
__, 1995 the high and low sales prices for PTI Common Stock as
reported on the Nasdaq National Market were ____ and ____,
respectively, and the last reported sale price was ____.
<TABLE>
<CAPTION>
Quarterly High and Low Sale Prices
High Low Quarterly
Dividend
<S> <C> <C> <C>
1995
First Quarter $31 5/8 $29 1/2 $.33
1994
First Quarter 27 22 1/2 .33
Second Quarter 25 3/8 20 3/4 .33
Third Quarter 26 3/4 21 .33
Fourth Quarter 30 3/4 22 3/4 .33
<PAGE>90
1993
First Quarter 24 3/4 22 1/2 .33
Second Quarter 24 21 .33
Third Quarter 28 3/4 23 .33
Fourth Quarter 28 1/2 24 1/2 .33
</TABLE>
Pacific Telecom's ability to pay dividends on PTI
Common Stock is subject to restrictions under various loan
agreements. At March 31, 1995, approximately $153 million was
available for the payment of dividends.
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 proposed for
election 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 of JODI (real 1982
estate, equipment leasing),
Poulsbo, Washington
<PAGE>91
Roy M. Huhndorf*+ 54 President and Chief Executive 1991
Officer of Cook Inlet Region, Inc.
(native regional corporation),
Anchorage, Alaska
Donald L. Mellish*+ 67 Director and Chairman of the 1992
Executive Committee of the National
Bank of Alaska, Anchorage, Alaska
Charles E. Robinson* 61 Chairman, Chief Executive Officer 1982
and President of Pacific Telecom;
Chairman and Chief Executive
Officer from October 1990 to
December 1992; President and Chief
Executive Officer from April 1985
to October 1990; Chairman, Chief
Executive Officer and President of
Alascom, Inc.
Sidney R. Snyder+ 68 President, Sid's Super Market, 1973
Inc.; Washington State Senator,
Olympia, Washington
Nancy Wilgenbusch 47 President, Marylhurst College, 1990
Portland, Oregon; Director,
PacifiCorp
Holdings Nominees
Michael C. Henderson 48 President of Holdings since March
1995; Senior Vice President of
Holdings (1994-March 1995);
Director, President and Chief
Operating Officer (since 1993),
Executive Vice President (1992-
1993) and Senior Vice President
(1991-1992) of PacifiCorp Financial
Services, Inc.; Chief Executive
Officer of Crescent Foods, Inc.,
Seattle, Washington, 1986-1990
Nolan E. Karras 50 Investment Adviser, Karras &
Associates, Inc., an investment
advisory firm, Roy, Utah; Director,
PacifiCorp; Director, Holdings
Paul M. Lorenzini 54 Senior Vice President of PacifiCorp
since May 1994; President (1992-
1994) and Vice President (1989-
1992) of Pacific Power & Light
Company, formerly a division of
PacifiCorp
<PAGE>92
Verl R. Topham 60 Director, Senior Vice President and
General Counsel of PacifiCorp since
May 1994; President, Utah Power &
Light Company, formerly a division
of PacifiCorp, 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 they were members.
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."
<PAGE>93
Under Pacific Telecom's Non-Employee Director Stock
Compensation Plan, directors of Pacific Telecom who are not
employees of Pacific Telecom or any of its subsidiaries or of
PacifiCorp or any of PacifiCorp's subsidiaries are awarded
approximately $37,500 worth of Pacific Telecom's Common Stock
every five years. Non-employee directors having fewer than
five years of service remaining before reaching retirement age
receive stock awards equivalent to approximately $7,500 for
each remaining year. The director's right to receive the stock
awarded under this provision of the plan accrues over the five-
year period following the award or shorter period to retirement
and unaccrued shares are forfeited if the recipient ceases to
be a director prior to the end of the five-year period.
Accrued shares vest upon the director's retirement and are
subject to forfeiture prior to retirement if the director (i)
fails to attend at least 50 percent of the meetings of the
Board of Directors or committee of which the director is a
member, (ii) is removed by the Board of Directors for cause, or
(iii) becomes a director of or is otherwise employed by a
competing entity. The shares awarded under the plan are
purchased in the open market with funds supplied by Pacific
Telecom, and the certificates representing the shares and the
dividends earned on the shares are then held by Pacific Telecom
until the shares vest. No awards were made pursuant to this
plan during 1994.
<PAGE>94
EXECUTIVE COMPENSATION
The following table sets forth information concerning
compensation for services in all capacities to Pacific Telecom
and its subsidiaries for fiscal years ended December 31, 1994,
1993 and 1992 of those persons who were, at December 31, 1994,
the Chief Executive Officer of Pacific Telecom and the other
four most highly compensated executive officers of Pacific
Telecom.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation
-------------------------------------- ---------------------------------------
Other Restricted Long-Term All
Annual Annual Stock Incentive Other
Name and Principal Position Salary Bonus Compensation(1) Award Payouts Compensation(2)
--------------------------- -------- -------- --------------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles E. Robinson, 1994 $403,500 $322,800 $ -- $87,294(3) $ -- $10,691
President, Chief Executive 1993 387,500 232,500 -- 85,500(4) 185,865(5) 12,611
Officer and Chairman of 1992 375,000 -- -- -- 380,419(5) 12,006
the Board of Directors
James H. Huesgen, 1994 194,202 145,940 -- 55,125(3) -- 9,051
Executive Vice President and 1993 184,200 96,700 -- -- 111,967(5) 9,691
Chief Financial Officer 1992 175,850 -- 1,528 -- 209,696(5) 10,268
Donn T. Wonnell, 1994 154,103 83,351 -- 44,100(3) -- 8,726
Vice President and 1993 145,601 54,600 -- -- 53,742(5) 8,383
Corporate Secretary 1992 134,800 -- -- -- 42,762(5) 8,718
Donald A. Bloodworth, 1994 127,861 47,944 356 22,050(3) -- 8,511
Vice President, Revenue 1993 83,370 46,000 -- -- 22,392(5) 4,518
Requirements and Controller 1992 -- -- -- -- -- --
Wesley E. Carson, 1994 117,658 44,119 10 22,050(3) -- 8,433
Vice President, 1993 111,451 41,800 -- -- 35,001(5) 6,416
Human Resources 1992 101,050 -- -- -- 23,028(5) 6,536
_________________________
<FN>
(1) Amounts shown for 1994 include (a) $10 of interest earned
on deferred compensation accounts in excess of 120 percent
of the applicable federal long-term rate for each of
Messrs. Bloodworth and Carson, and (b) $346 in tax
reimbursement for Mr. Bloodworth.
(2) Amounts shown for 1994 include (a) contributions to defined
contribution plans of $7,500 for each of Messrs. Robinson,
Huesgen, Wonnell, Bloodworth and Carson, and (b) premiums
on term life insurance policies of $3,191, $1,551, $1,226,
$1,011 and $933 for Messrs. Robinson, Huesgen, Wonnell,
Bloodworth and Carson, respectively.
(3) Restricted stock grants made in connection with the 1994
restatement of Pacific Telecom's Long-Term Incentive Plan
(the "Restated Plan"). Dividends are payable with respect
to such shares from the date of grant. At December 31,
1994, the aggregate value of all restricted stock holdings
held by Messrs. Robinson, Huesgen, Wonnell, Bloodworth and
Carson, based on the market value of the shares at
December 31, 1994, without giving effect to the diminution
of value attributable to the restrictions on such stock,
were $106,890, $67,500, $54,000, $27,000 and $27,000,
respectively.
(4) Restricted stock grant made in connection with the 1993
restatement of PacifiCorp's Long-Term Incentive Plan, in
which Mr. Robinson is a participant. Dividends are payable
with respect to such shares from the date of grant.
(5) Prior to its restatement, Pacific Telecom's Long-Term
Incentive Plan had a four-year performance cycle ending
December 31, 1992. For that performance cycle, the
performance
<PAGE>95
criteria were relative return on equity compared to an
industry composite and earnings per share growth. In
connection with the adoption of the Restated Plan, Pacific
Telecom terminated the performance cycle that was to end
December 31, 1994 and made prorated awards in December 1993
for that performance cycle. The performance objectives for
that performance cycle were earnings per share growth and
return on equity compared to a five-year Treasury Bond
rate.
</TABLE>
Severance Arrangements
Pacific Telecom adopted an Executive Officer Severance
Plan effective January 1, 1994 under which certain executive
officers of Pacific Telecom, including Messrs. Robinson,
Huesgen, Wonnell and Carson, will receive a severance payment
equal to twice the executive's total cash compensation during
the last full calendar year if their employment is terminated.
The severance payment will be made to the executive in 24 equal
monthly payments following the date of the termination of his
employment, and the payments may be terminated by Pacific
Telecom if the executive accepts employment with a competitor
of Pacific Telecom or its affiliates. The plan does not apply
to the termination of an executive for reasons of normal
retirement, death or total disability, or to a termination for
cause or, subject to certain exceptions, voluntary termination.
"Voluntary termination" does not include voluntary termination
by an executive due to a change in reporting relationship, a
material change in authority or a change in control of the
ownership of Pacific Telecom that results in a change in
position that is detrimental to the executive officer, unless
such change in reporting relationship, authority or control is
agreed to by the executive officer. Under the plan, "cause"
for termination includes any act by an executive that is
materially contrary to the best interests of Pacific Telecom or
its affiliates and the willful and continued failure by an
executive to devote his full business time and efforts to the
business affairs of Pacific Telecom or its affiliates. In
October 1994, the termination date of the plan was extended
from December 31, 1995 to December 31, 1997.
Retirement Plans
Pacific Telecom and many of its subsidiaries have
adopted a noncontributory defined benefit retirement plan
("Retirement Plan") for their employees (other than employees
subject to collective bargaining agreements that do not provide
for coverage). Certain of Pacific Telecom's executive
officers, including Messrs. Robinson, Huesgen and Wonnell, are
also eligible to participate in PacifiCorp's nonqualified
Supplemental Executive Retirement Plan ("SERP"). The plans
provide benefits at retirement payable for life based on length
of service with Pacific Telecom or its subsidiaries and average
pay in the 60 consecutive months of highest pay out of the last
120 months. Actuarially equivalent alternative forms of
benefits are also available at the participant's election.
Retirement benefits are reduced to reflect Social Security
benefits. For participants in both plans, pay includes salary
and bonuses, as reflected in the Summary Compensation Table.
For participants in the Retirement Plan only, pay includes
<PAGE>96
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
Annual Pay at Years of Credited Service
Retirement Date 5 15 25 30
--------------- -----------------------------------------
<S> <C> <C> <C> <C>
$ 200,000 $ 43,333 $130,000 $130,000 $130,000
400,000 86,667 260,000 260,000 260,000
600,000 130,000 390,000 390,000 390,000
800,000 173,333 520,000 520,000 520,000
1,000,000 216,667 650,000 650,000 650,000
_______________
<FN>
(1) The benefits shown in the table above assume that the
individual will remain in the employ of Pacific Telecom
until normal retirement at age 65 and that the plans will
continue in their present form. Amounts shown above do
not reflect the Social Security offset.
(2) The number of credited years of service used to compute
benefits under the Retirement Plan for Messrs. Robinson,
Huesgen and Wonnell are 30, 11 and 4, respectively.
</TABLE>
Messrs. Bloodworth and Carson are accruing benefits
only under the Retirement Plan. The following table shows the
estimated annual benefits payable under the Retirement Plan
upon normal retirement at age 65 as of January 1, 1995:
<TABLE>
<CAPTION>
Pension
Qualified Years of Credited Service
Salary 10 15 20 25 30
------------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
$ 50,000 $ 8,065 $ 12,097 $ 16,130 $ 20,162 $ 24,194
100,000 17,815 26,722 35,630 44,537 53,444
150,000 27,565 41,347 55,130 68,912 82,694
_______________
<FN>
(1) Amounts shown above reflect Social Security Covered
Compensation for a participant turning age 65 in 1995.
The number of credited years of service used to compute
benefits under the Retirement Plan for Messrs. Bloodworth
and Carson are 6 and 13, respectively.
(2) 1994 pension qualified salaries used to compute Retirement
Plan benefits for Messrs. Bloodworth and Carson were
$140,635 and $129,415, respectively.
</TABLE>
<PAGE>97
Personnel Committee Report on Executive Compensation
THE PERSONNEL COMMITTEE OF THE BOARD OF DIRECTORS OF
PACIFIC TELECOM 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 Personnel Committee's (the "Committee") executive
compensation policies are designed to retain and to fairly
compensate quality executives who will manage Pacific Telecom's
business effectively for the benefit of its shareholders. To
assist Pacific Telecom in achieving those ends, the Committee
retains the services of a national consulting firm with special
expertise in compensation matters to assist in the design and
monitoring of compensation arrangements that are fair and
competitive for the executives and consistent with the
objectives of the shareholders. The Committee believes that
Pacific Telecom's compensation plans achieve an appropriate
balance between incentives for long-term success and those
related to annual goals, which are intended, over time, to
result in sustained earnings and dividend growth.
Qualifying compensation for deductibility under
Section 162(m) of the Internal Revenue Code, which limits to $1
million the annual deduction by a publicly held corporation of
compensation paid to any executive except with respect to
certain forms of incentive compensation that qualify for
exclusion, is one of many factors that Pacific Telecom
considers in designing its incentive compensation arrangements.
Pacific Telecom views the objectives outlined above as more
important than compliance with the technical requirements
necessary to exclude compensation from the deductibility limits
of Section 162(m). Nevertheless, Pacific Telecom anticipates
that the amount of compensation in excess of the deductibility
limits of Section 162(m) for all executive officers as a group
will not be material.
Compensation Program Components
Pacific Telecom has developed an executive
compensation system with three principal elements: (i) base
salary, (ii) annual incentive compensation and (iii) long-term
incentive compensation. The Committee, assisted by its
consultant, reviews base salary levels annually and recommends
appropriate changes for each executive officer. In connection
with this process, the Committee evaluates total compensation
of executives in relation to telecommunications and general
industry companies of similar size as measured by revenues.
Companies used for the competitive compensation analysis are
not restricted to those included
<PAGE>98
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 Company 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 below, 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 (a) Pacific
Telecom's return on average shareholder equity for the current
year in relation to the five-year Treasury Bond rate and (b)
the compound annual growth rate in Pacific Telecom's net
income. For 1994 performance, however, the Committee
determined to modify the plan and use subjective measures.
Based on a recommendation by PacifiCorp, in December 1993 the
Committee recommended that 1994 awards be determined without
regard to the measures set forth in the Executive Bonus Plan,
which recommendation was approved by the Board. Accordingly,
incentive awards in 1994 were based on a subjective assessment
of Pacific Telecom's performance. The Alaska
telecommunications market restructuring was the most
significant business issue facing Pacific Telecom and, during
1994, management negotiated with AT&T an agreement for the
Alascom Sale that effectively resolves those issues in a manner
favorable to Pacific Telecom. In recognition of this
accomplishment, the Board approved incentive awards that
recognized each executive's contributions to Pacific Telecom's
achievements in 1994.
Executive officers of Pacific Telecom and its
subsidiaries are also eligible to participate in Pacific
Telecom's Long-Term Incentive Plan 1994
<PAGE>99
Restatement (the "Restated Plan"). The Restated Plan is
designed to provide stock-based incentives in the form of
annual grants of restricted stock coupled with a requirement
that participants invest their own personal resources in the
stock of Pacific Telecom or PacifiCorp. The Committee believes
the Restated Plan aligns the interests of executive employees
more closely with those of shareholders, provides greater
opportunity to link grant size to achievement of performance
and increases Pacific Telecom's ability to retain key
employees. The Restated Plan provides for grants of restricted
stock based on past performance rather than target awards for
future performance cycles. The Restated Plan provides that the
Committee may vary the grants each year based on a subjective
assessment of Pacific Telecom's overall performance in relation
to long-term goals and plans. In determining the individuals
to whom awards will be made and the amounts of the grants, the
Committee considers criteria such as the following: (i) total
shareholder return relative to peer companies; (ii) earnings
per share growth over time relative to peer companies; (iii)
achievement of long-term goals, strategies and plans; and
(iv) maintenance of competitive position. Shares awarded under
the Restated Plan are subject to such terms, conditions and
restrictions as may be determined by the Committee to be
consistent with the purpose of the Restated Plan and the best
interests of Pacific Telecom. The restrictions may include,
without limitation, stock transfer restrictions and forfeiture
provisions designed to facilitate the achievement by
participants of specified stock ownership goals.
Grants totalling 10,163 shares were made in February
1994 to six executive officers of Pacific Telecom. Grants made
to the executive officers named in the Summary Compensation
Table are reflected in the Summary Compensation Table. The
principal factor considered by the Committee in selecting the
participants and determining the level of grants in February
1994 was the Committee's subjective assessment of the potential
impact of each position on corporate strategy, policies and
investment and business decisions relating to the long-term
direction of Pacific Telecom. The Committee also took into
consideration competitive practices for positions at similar
levels in the industry and at PacifiCorp, the termination of
existing cycles under the Long-Term Incentive Plan, the fact
that prorated awards were made with respect to the performance
cycle that would have ended December 31, 1994 under the pre-
restatement plan and Pacific Telecom's strong financial
performance and success in attaining its long-term goals during
1993.
CEO Compensation
For 1994, the Committee approved a base salary
increase for Mr. Robinson of 4.3 percent based upon various
factors, including an assessment of Pacific Telecom's
performance as measured by return on equity and the successful
negotiations relating to the Alascom Sale, a recommendation by
the PacifiCorp personnel committee, consideration of
competitive pay data, and a subjective assessment of Mr.
Robinson's performance, including recognition that he played a
<PAGE>100
key role in guiding the negotiations with AT&T in connection
with the Alascom Sale.
Mr. Robinson's 1994 award under the Executive Bonus
Plan was also determined based on an assessment of Pacific
Telecom's return on equity performance and the Alascom Sale.
The number of shares of restricted stock awarded to Mr.
Robinson pursuant to the Restated Plan was determined on the
same basis as for other executive officers of Pacific Telecom,
as described above, also taking into account restricted stock
granted to him by PacifiCorp pursuant to the PacifiCorp Long-
Term Incentive Plan, described below, such that his total
restricted stock award was comparable to median competitive
levels.
Executive officers of Pacific Telecom, who are
designated by the personnel committee of PacifiCorp, are also
eligible to participate in the PacifiCorp long-term incentive
plan. Mr. Robinson is a participant in this plan, and the
costs of his participation are borne by Pacific Telecom. The
PacifiCorp plan, like the Restated Plan, provides for annual
grants of restricted stock coupled with a requirement that
participants invest their own personal resources in Common
Stock of PacifiCorp or Pacific Telecom. No grants were made
under the PacifiCorp plan during 1994.
PERSONNEL COMMITTEE
Roy M. Huhndorf
Joyce E. Galleher
Sidney R. Snyder
<PAGE>101
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
<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>
<PAGE>102
* Dow Jones Telephone System IndexAdditional Companies
AirTouch Communications C-TEC Corporation
NEXTEL Communications Inc. Century Telephone Enterprises, Inc.
Vanguard Cellular Systems Inc. Citizens Utilities Company
GTE Corporation Lincoln Telecommunications Company
MCI Communications Corporation Frontier Corporation
Sprint Corporation Telephone & Data Systems, Inc.
ALLTEL Corporation
Ameritech Corporation
Bell Atlantic Corporation
Bellsouth Corporation
Cincinnati Bell, Inc.
NYNEX Corporation
Pacific Telesis Group
Southern New England
Telecommunications Corporation
Southwestern Bell Corporation
US WEST, Inc.
<PAGE>103
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 LTIP pursuant to which
shares awarded are purchased in the open market with funds
supplied by Pacific Telecom, and the certificates representing
the shares are registered in the name of the recipient and held
by Pacific Telecom until the shares vest; (ii) 181,500 shares
were acquired
<PAGE>104
between May 1993 and July 1993 in the open market in connection
with an acquisition by Pacific Telecom of an LEC in the Midwest
and the shares were then issued to the shareholders of the
acquired entity in a merger transaction; (iii) 8,188 shares
were purchased between December 1, 1993 and February 15, 1994
in connection with an odd-lot tender offer program announced in
November 1993 pursuant to which Pacific Telecom offered to
acquire shares of PTI Common Stock from holders of fewer than
100 shares of PTI Common Stock as of November 12, 1993; and
(iv) 29,900 shares were purchased from the trustee of the
PacifiCorp K Plus Employee Savings and Stock Ownership Plan in
January 1995.
The prices paid for the foregoing acquisitions of PTI
Common Stock ranged from $21.875 on April 29, 1993 to $30.00
on January 26, 1995. The purchases can be summarized as
follows:
<TABLE>
<CAPTION>
Number of Average Price Dollar Value
Date Shares per Share of Shares High Low
---- --------- ------------- ------------ -------- -------
<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
------ ------- ----------
TOTALS: 261,946 $ 23.629 $ 6,189,543
</TABLE>
Neither PacifiCorp nor Holdings has effected any
transactions in PTI Common Stock within the past 60 days.
Except for transactions effected pursuant to the PacifiCorp K
Plus Employee Savings and Stock Ownership Plan (the "K Plus
Plan"), which includes a PTI Common Stock investment fund to
which participants may direct a portion of their elective
contributions, no director or executive officer of PacifiCorp,
Holdings or Pacific Telecom has effected any transaction in PTI
Common Stock within the past 60 days. Information regarding
transactions effected pursuant to the K Plus Plan is set forth
below.
<PAGE>105
<TABLE>
<CAPTION>
Date of Number Price Nature of
Name Transaction of Shares per Share Transaction
------------------ ----------- ---------- --------- ---------------------
<S> <C> <C> <C> <C>
Robert F. Lanz 3/31/95 84.98948 $29.99 Acquisition of shares
by Trustee with con-
tributions previously
directed to fund
Robert F. Lanz 3/31/95 2,331.4001 $29.50 Transfer out of PTI
Common Stock Fund
Charles E. Robinson 3/31/95 324.3657 $29.99 Acquisition of shares
by Trustee with con-
tributions previously
directed to fund
Diana E. Snowden 3/31/95 17.996 $29.99 Acquisition of shares
by Trustee with con-
tributions previously
directed to fund
Thomas J. Imeson 3/31/95 2.4551 $29.99 Acquisition of shares
by Trustee with con-
tributions 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 April 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 April 30, 1995, each of the directors and executive
officers identified below and all executive officers and
directors of Pacific Telecom as a group owned less than 1
percent of PTI Common Stock and less than 1 percent of the
Common Stock of PacifiCorp. No person is known by Pacific
Telecom to be the beneficial owner of more than 5 percent of
PTI Common Stock, except that, as of April 30, 1995, Holdings
was the beneficial owner of 34,325,181 shares, representing
approximately 86.6 percent, of PTI Common Stock. The principal
business address of Holdings is 700 NE Multnomah, Suite 1600,
Portland, Oregon 97232.
<TABLE>
<CAPTION>
Number of Number of
Shares of Shares of
Pacific Telecom PacifiCorp
Beneficial Owner Common Stock(1) Common Stock(1)
---------------- --------------- ---------------
<S> <C> <C>
Joyce E. Galleher. . . . . . . . . . . . 5,284 100
Roy M. Huhndorf. . . . . . . . . . . . . 2,472 100
Donald L. Mellish. . . . . . . . . . . . 5,084 3,000
Charles E. Robinson. . . . . . . . . . . 79,256 13,264
Sidney R. Snyder . . . . . . . . . . . . 7,769 --
Nancy Wilgenbusch. . . . . . . . . . . . 2,711 5,687
James H. Huesgen . . . . . . . . . . . . 27,925 3,027
Donn T. Wonnell. . . . . . . . . . . . . 10,179 1,127
Donald A. Bloodworth . . . . . . . . . . 6,168 2,394
Wesley E. Carson . . . . . . . . . . . . 5,839 1,326
All executive officers and directors
as a group (12 persons). . . . . . . . . 181,779 38,184
____________________
<FN>
(1) Includes ownership of (a) shares held by family members
even though beneficial ownership of such shares may be
disclaimed, (b) shares granted and subject to vesting as
to which the individual has voting but not investment
power under one or more of the stock-based compensation
plans of Pacific Telecom or PacifiCorp and (c) shares held
for the account of such persons under the PacifiCorp
Compensation Reduction Plan.
</TABLE>
<PAGE>107
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 April 30, 1995. Unless
otherwise indicated, all occupations, positions, offices or
employments listed opposite an individual's name have been held
by such individual during the course of the past five years.
Unless otherwise indicated, the business address of each
individual is PacifiCorp, 700 NE Multnomah, Suite 1600,
Portland, Oregon 97232-4116. All listed individuals are
citizens of the United States. All shares are held directly
with sole voting and sole investment power unless otherwise
indicated.
<TABLE>
<CAPTION>
Name and Principal Occupation Shares of PTI
Residence or Position, Office Common Stock Approximate
Business Address or Employment Beneficially Owned Percentage
---------------- -------------------- ------------------ ----------
<S> <C> <C> <C>
PacifiCorp Holdings, Inc.
-------------------------
DIRECTORS
---------
Frederick W. Buckman Director, President and Chief -- --
Executive Officer of PacifiCorp
since February 1994; President and
Chief Executive Officer (1992-1994)
and President and Chief Operating
Officer (1988-1991) of Consumers
Power Company, Jackson, Michigan
<PAGE>108
C. Todd Conover General Manager, Finance Industry -- --
Group, Tandem Computers
Incorporated, 19191 Vallco Parkway,
LOC 4-57, Cupertino, California
95014 since January 1994; President
and Chief Executive Officer, the
Vantage Company, a business
consulting firm, Los Altos,
California, since 1992; President
and Chief Executive Officer,
Central Banks of Colorado, 1991-
1992; and Partner and National
Director-Bank Consulting, KPMG Peat
Marwick, 1988-1990
Michael C. Henderson President of Holdings since March -- --
1995; Senior Vice President of
Holdings (1994-March 1995);
Director, President and Chief
Operating Officer (since 1993),
Executive Vice President (1992-
1993) and Senior Vice President
(1991-1992) of PacifiCorp Financial
Services, Inc.; Chief Executive
Officer of Crescent Foods, Inc.,
Seattle, Washington, 1986-1990
Nolan E. Karras Investment Adviser, Karras & -- --
Associates, Inc., an investment
advisory firm with offices at 4695
South 1900 West #3, Roy, Utah 84067
___________________________
<FN>
* Less than 1 percent of the outstanding shares of PTI Common Stock.
</TABLE>
<TABLE>
<CAPTION>
Name and Principal Occupation Shares of PTI
Residence or Position, Office Common Stock Approximate
Business Address or Employment Beneficially Owned Percentage
---------------- -------------------- ------------------ ----------
<S> <C> <C> <C>
EXECUTIVE OFFICERS
------------------
Daniel L. Spalding Senior Vice President (since 1992) -- --
and Vice President (1987-1992) of
PacifiCorp; Senior Vice President
of Holdings
Richard T. O'Brien Vice President of PacifiCorp and -- --
Senior Vice President of Holdings,
Inc. since August 1993; Senior Vice
President, Treasurer and Chief
Financial Officer (1992-1993) and
Vice President and Treasurer (1989-
1992) of NERCO, Inc., PacifiCorp's
former mining and resource
subsidiary
William E. Peressini Treasurer of PacifiCorp and -- --
Treasurer of Holdings since January
1994; Executive Vice President
(1992-1994) and Senior Vice
President and Chief Financial
Officer (1989-1992) of PacifiCorp
Financial Services, Inc., 1989-1994
Sally A. Nofziger Vice President and Corporate -- --
Secretary of PacifiCorp and
Secretary of Holdings
Jacqueline S. Bell Controller of PacifiCorp and -- --
Holdings
PacifiCorp
----------
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) -- --
<PAGE>110
Richard C. Edgley Member of 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 of 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) of
Dow Corning Corporation, Midland,
Michigan; Executive Vice President
and Director, The Dow Chemical
Company, 1990-1992
Robert G. Miller Chairman of the Board and Chief -- --
Executive Officer of 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 Senior Vice President and General -- --
Counsel of PacifiCorp since May
1994; President, Utah Power & Light
Company, 1989-1994
Don M. Wheeler Chairman and Chief Executive -- --
Officer, Wheeler Machinery Company,
an equipment sales, repair and
service firm with offices at 4901
West 2100 South, Salt Lake City,
Utah 84120
<PAGE>111
Nancy Wilgenbusch President, Marylhurst College, 2,711 *
Marylhurst, Oregon 97036
Peter I. Wold Partner, Wold Oil & Gas Company, an -- --
oil and gas exploration and
production company, Casper, Wyoming
EXECUTIVE OFFICERS
------------------
Paul G. Lorenzini Senior Vice President of PacifiCorp -- --
since May 1994; President (1992-
1994) and Vice President (1989-
1992) of Pacific Power & Light
Company
Charles E. Robinson Chairman, President and Chief 79,526 *
Executive Officer of Pacific
Telecom
John A. Bohling Senior Vice President of PacifiCorp -- --
since February 1993; Executive Vice
President of Pacific Power & Light
Company, 1991-1993; Senior Vice
President, Utah Power & Light
Company, 1990-1991
Shelley R. Faigle Senior Vice President of PacifiCorp -- --
since 1993; Vice President of
PacifiCorp, 1992-1993; Vice
President Pacific Power & Light
Company, 1989-1992
John E. Mooney Senior Vice President of PacifiCorp -- --
since November 1994; Executive Vice
President Utah Power & Light
Company, 1991-1994; Vice President
Pacific Power & Light Company,
1990-1991
Daniel L. Spalding (See above) -- --
Dennis P. Steinberg Senior Vice President (since May -- --
1994), Vice President (1990-1994)
of PacifiCorp
Thomas J. Imeson Vice President of PacifiCorp -- *
<PAGE>112
Robert F. Lanz Vice President of PacifiCorp -- *
Sally A. Nofziger (See above) -- --
Richard T. O'Brien (See above) -- --
William E. Peressini (See above) -- --
Jacqueline S. Bell (See above) -- --
________________________
<FN>
*Less than 1 percent of the outstanding shares of PTI Common Stock.
</TABLE>
<PAGE>113
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 and directors, and persons who own
more than 10 percent of the
<PAGE>114
outstanding PTI Common Stock, to file reports of ownership and
changes in ownership with the SEC and the New York Stock
Exchange. Based solely on reports and other information
submitted by executive officers and directors, Pacific Telecom
believes that during the year ended December 31, 1994, and
prior fiscal years, each of its executive officers, directors
and persons who owns more than 10 percent of the outstanding
PTI Common Stock filed all reports required by Section 16(a).
AVAILABLE INFORMATION
Pacific Telecom is subject to the informational
requirements of the Exchange Act, and, in accordance therewith,
files reports, proxy statements and other information with the
SEC. Such reports and other information may be inspected and
copied or obtained by mail upon payment of the SEC's prescribed
rates at the public reference facilities maintained by the SEC
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549
and at the following regional offices of the SEC: New York
Regional Office, 7 World Trade Center, New York, New York
10048, and Chicago Regional Office, 500 West Madison Avenue,
14th Floor, Chicago, Illinois 60661.
This Proxy Statement includes information required to
be disclosed pursuant to Rule 13e-3 under the Exchange Act,
which governs "going private" transactions by certain issuers
or their affiliates. In accordance with such rule, Pacific
Telecom, PacifiCorp and Holdings have filed with the SEC, under
the Exchange Act, a Schedule 13E-3 with respect to the Merger.
This Proxy Statement does not contain all of the information
set forth in the Schedule 13E-3, parts of which are omitted in
accordance with the applicable regulations of the SEC. The
Schedule 13E-3, and any amendments thereto, including exhibits
filed as a part thereof, will be available for inspection and
copying at the offices of the SEC as set forth above.
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE
The following documents or portions thereof filed by
Pacific Telecom with the SEC are incorporated herein by
reference and are made a part hereof:
(a) Pacific Telecom's Annual Report on Form 10-K for
the year ended December 31, 1994;
(b) Pacific Telecom's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1995; and
<PAGE>115
(c) Pacific Telecom's Current Reports on Form 8-K
dated February 6, 1995, February 15, 1995, March 9, 1995 and
March 31, 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 JUNE 15, 1995.
PACIFIC TELECOM, INC.
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
_______________, 1995
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints ___________________ and
_____________________, or either of them, with full power of
substitution, the undersigned's true and lawful attorneys to
vote all the Common Stock standing in the undersigned's name on
the Company's books at the close of business on ________, 1995
at the Annual Meeting of Shareholders of Pacific Telecom, Inc.
to be held at ___________________________________, _________
___________, ________, ____________, on ______, ________, 1995
at _________, and any adjournments or postponements thereof.
1. APPROVAL OF THE AGREEMENT AND PLAN OF MERGER, DATED AS OF
MARCH 9, 1995, BY AND AMONG PACIFIC TELECOM, INC.,
PACIFICORP HOLDINGS, INC. AND PXYZ CORPORATION
/ / FOR / / AGAINST / / ABSTAIN
2. ELECTION OF DIRECTORS / / WITHHOLD AUTHORITY / /
For all nominees listed to vote for all
below (except as nominees listed
indicated to the
contrary below)
Joyce E. Galleher
Michael C. Henderson
Roy M. Huhndorf
Nolan E. Karras
Paul M. Lorenzini
Donald L. Mellish
Charles E. Robinson
Sidney R. Snyder
Verl R. Topham
Nancy Wilgenbusch
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW
---------------------------------------------------------------
The Board of Directors recommends a vote FOR the approval of
the above proposal and FOR the election of the above directors.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN
ACCORDANCE WITH INSTRUCTIONS, IF GIVEN. IF THIS PROXY IS
RETURNED UNMARKED, IT WILL BE VOTED FOR APPROVAL OF THE
AGREEMENT AND PLAN OF MERGER, FOR THE DIRECTORS AND ON ANY
OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE MEETING IN
ACCORDANCE WITH THE PROXY STATEMENT. THE PROXIES MAY VOTE IN
THEIR DISCRETION AS TO OTHER MATTERS THAT MAY PROPERLY COME
BEFORE THE MEETING AND ANY ADJOURNMENTS OR POSTPONEMENTS
THEREOF. The undersigned hereby acknowledges receipt of the
notice of Annual Meeting of Shareholders dated _______, 1995
and the Proxy Statement furnished therewith.
Dated this day of _____, 1995
------------------------------------------------------------
------------------------------------------------------------
Shareholder(s)
Please sign exactly as shown [below]. When signing as an
attorney, executor, administrator, trustee or guardian,
please give full title. If more than one trustee, all
should sign. All joint owners must sign.
Please complete, date, sign and mail this proxy card promptly
in the enclosed envelope.
