<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Ameritech Corporation
- --------------------------------------------------------------------------------
(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):
[_] No fee required
[_] 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:
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(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[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:
$13,918,441.66
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(2) Form, Schedule or Registration Statement No.:
Form S-4 Registration No. 333-56141
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(3) Filing Party:
SBC Communications Inc.
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(4) Date Filed:
October 15, 1998
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Notes:
<PAGE>
LOGO
AMERITECH CORPORATION
30 SOUTH WACKER DRIVE
CHICAGO, ILLINOIS 60606
October 15, 1998
Dear Shareowner:
We cordially invite you to attend a special meeting of shareowners (the
"Special Meeting") of Ameritech Corporation, a Delaware corporation
("Ameritech"), which will be held on December 11, 1998, at 9:00 a.m., local
time, at McCormick Place South, Grand Ballroom, Level 1, 2301 South Martin
Luther King, Jr. Drive, Chicago, Illinois 60616.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to adopt the Agreement and Plan of Merger, dated as of May 10, 1998,
among Ameritech, SBC Communications Inc., a Delaware corporation ("SBC") and
SBC Delaware, Inc., a Delaware corporation and a wholly owned subsidiary of
SBC ("Merger Sub") (as such agreement may be amended, supplemented or
otherwise modified from time to time, the "Merger Agreement"), pursuant to
which Merger Sub will be merged with and into Ameritech (the "Merger") and
Ameritech will become a wholly owned subsidiary of SBC. Upon consummation of
the Merger, each share of common stock, $1.00 par value per share, of
Ameritech ("Ameritech Common Stock") will be converted into 1.316 (the
"Exchange Ratio") shares of common stock, par value $1.00 per share, of SBC
("SBC Common Stock"), together with the appropriate number of preferred stock
purchase rights attached thereto, if any.
The Board of Directors of Ameritech has carefully reviewed and considered
the terms and conditions of the Merger. In addition, the Board of Directors of
Ameritech has received a written opinion from its financial advisor, Goldman,
Sachs & Co., to the effect that, as of May 10, 1998, the Exchange Ratio is
fair from a financial point of view to the holders of Ameritech Common Stock.
AMERITECH'S BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE BEST INTERESTS
OF, AMERITECH AND ITS SHAREOWNERS. ACCORDINGLY, THE BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT
ALL SHAREOWNERS VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
I urge you to review and consider carefully the accompanying Notice of
Special Meeting of Shareowners and Joint Proxy Statement/Prospectus, which
contain information about Ameritech and SBC and describe the Merger and
certain other matters relating to the Merger.
<PAGE>
The affirmative vote of the holders of at least a majority of the
outstanding shares of Ameritech Common Stock is necessary for adoption of the
Merger Agreement. If the Merger Agreement is adopted and the Merger is
consummated, you will be sent a letter of transmittal with instructions for
obtaining your shares of SBC Common Stock and cash in lieu of fractional
shares of SBC Common Stock. If you hold share certificates, please do not send
your certificates representing Ameritech Common Stock until you receive these
materials.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING,
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON AND REGARDLESS
OF THE NUMBER OF SHARES YOU OWN. TO MAKE SURE YOUR SHARES ARE REPRESENTED, WE
URGE YOU TO SUBMIT A PROXY CONTAINING YOUR VOTING INSTRUCTIONS AS SOON AS
POSSIBLE BY TELEPHONE, THROUGH THE INTERNET OR BY SIGNING, DATING AND MAILING
YOUR PROXY CARD. Failure to submit your proxy through any such method or to
vote at the Special Meeting or any abstention will have the same effect as a
vote against the proposal to adopt the Merger Agreement. Your prompt
cooperation will be appreciated.
Sincerely,
/s/ Richard C. Notebaert
Richard C. Notebaert
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
LOGO
AMERITECH CORPORATION
30 SOUTH WACKER DRIVE
CHICAGO, ILLINOIS 60606
----------------
NOTICE OF SPECIAL MEETING OF SHAREOWNERS
TO BE HELD ON DECEMBER 11, 1998
----------------
To the Shareowners of Ameritech Corporation:
NOTICE IS HEREBY GIVEN that a special meeting of shareowners (including any
adjournments or postponements thereof, the "Special Meeting") of Ameritech
Corporation, a Delaware corporation ("Ameritech"), will be held on December
11, 1998, at 9:00 a.m., local time, at McCormick Place South, Grand Ballroom,
Level 1, 2301 South Martin Luther King, Jr. Drive, Chicago, Illinois 60616.
The purpose of the Special Meeting is to consider and vote upon the following
matters:
1. A proposal to adopt the Agreement and Plan of Merger, dated as of May
10, 1998 (as such agreement may be amended, supplemented or otherwise
modified from time to time, the "Merger Agreement"), among Ameritech, SBC
Communications Inc., a Delaware corporation ("SBC"), and SBC Delaware,
Inc., a Delaware corporation and a wholly owned subsidiary of SBC ("Merger
Sub"), pursuant to which Merger Sub will be merged (the "Merger") with and
into Ameritech, and Ameritech will become a wholly owned subsidiary of SBC.
Upon the Merger becoming effective, each share of common stock, $1.00 par
value per share, of Ameritech ("Ameritech Common Stock"), will be converted
into 1.316 shares of common stock, par value $1.00 per share, of SBC,
together with the appropriate number of preferred stock purchase rights
attached thereto, if any.
2. Such other business related to the proposal to adopt the Merger
Agreement as may properly come before the Special Meeting or any
adjournments or postponements thereof.
Adoption of the Merger Agreement requires the affirmative vote of the
holders of at least a majority of the shares of Ameritech Common Stock
outstanding on the record date. Notwithstanding shareowner adoption of the
Merger Agreement, Ameritech reserves the right to abandon the Merger at any
time prior to the consummation thereof, subject to the terms and conditions of
the Merger Agreement.
The close of business on October 13, 1998 has been fixed as the record date
for the determination of shareowners entitled to notice of, and to vote at,
the Special Meeting. Only shareowners of record as of such time will be
entitled to notice of, and to vote at, the Special Meeting. A complete list of
the shareowners entitled to vote at the Special Meeting shall be open to the
examination of any Ameritech shareowner, for any purpose germane to the
Special Meeting, at Ameritech's offices at 30 South Wacker Drive, Chicago,
Illinois 60606, during Ameritech's ordinary business hours for a period of ten
days prior to the Special Meeting.
A form of proxy and a Joint Proxy Statement/Prospectus containing more
detailed information with respect to the matters to be considered at the
Special Meeting (including a copy of the Merger Agreement attached as Annex A
thereto) accompany and form a part of this notice.
<PAGE>
If you are a shareowner of record as of the record date and you plan to
attend the Special Meeting, please keep the admission ticket that is attached
to the form of proxy sent to you with this notice and the Joint Proxy
Statement/Prospectus. If your shares are held by a broker or a bank and you do
not receive an admission ticket, please bring proof of your ownership in order
to be admitted to the Special Meeting.
Whether or not you plan to attend the Special Meeting, it is important that
you read the accompanying materials carefully and submit your proxy with
voting instructions as soon as possible. Record holders of Ameritech Common
Stock may submit their proxies with voting instructions by dialing toll free
1-800-690-6903 or through the Internet. Instructions for using these services
are set forth on the enclosed proxy card and accompanying information card. Of
course, you also may submit a proxy containing your voting instructions by
completing, signing, dating and returning the accompanying proxy card in the
enclosed self-addressed, postage-paid envelope. If you attend the Special
Meeting and desire to revoke your proxy in writing and vote in person, you may
do so. In any event, a proxy may be revoked in writing or by submitting a
later-dated proxy with voting instructions by mail or telephone or through the
Internet at any time before the original proxy is exercised.
----------------
THE BOARD OF DIRECTORS OF AMERITECH HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT SHAREOWNERS VOTE FOR ADOPTION OF THE
MERGER AGREEMENT.
By Order of the Board of Directors,
/s/ Deidra D. Gold
Deidra D. Gold
Secretary
Chicago, Illinois
October 15, 1998
THE INFORMATION AGENT FOR THE MERGER IS:
SHAREHOLDER COMMUNICATIONS CORPORATION
17 STATE STREET, 27TH FLOOR
NEW YORK, NEW YORK 10004
CALL TOLL FREE 1-800-813-3797
----------------
YOUR VOTE IS IMPORTANT.
PLEASE SUBMIT A PROXY WITH YOUR VOTING INSTRUCTIONS BY TELEPHONE,
THROUGH THE INTERNET OR BY RETURNING YOUR SIGNED AND DATED PROXY BY MAIL.
<PAGE>
LOGO SBC LOGO AMERITECH
JOINT PROXY STATEMENT
----------------
SBC COMMUNICATIONS INC.
PROSPECTUS
----------------
This Joint Proxy Statement/Prospectus is being furnished to the shareowners
of SBC Communications Inc., a Delaware corporation ("SBC"), in connection with
the solicitation of proxies by the Board of Directors of SBC (the "SBC Board")
from holders of outstanding shares of common stock, par value $1.00 per share,
of SBC ("SBC Common Stock"), for use at a special meeting of shareowners of SBC
to be held on December 10, 1998, at 3 p.m., local time, at The Charline McCombs
Empire Theatre, 226 North St. Mary's Street, San Antonio, Texas 78205
(including any adjournments or postponements thereof, the "SBC Special
Meeting"). This Joint Proxy Statement/Prospectus is also being furnished to the
shareowners of Ameritech Corporation, a Delaware corporation ("Ameritech"), in
connection with the solicitation of proxies by the Board of Directors of
Ameritech (the "Ameritech Board") from holders of outstanding shares of common
stock, $1.00 par value per share, of Ameritech ("Ameritech Common Stock"), for
use at a special meeting of shareowners of Ameritech to be held on December 11,
1998, at 9:00 a.m., local time, at McCormick Place South, Grand Ballroom, Level
1, 2301 South Martin Luther King, Jr. Drive, Chicago, Illinois 60616 (including
any adjournments or postponements thereof, the "Ameritech Special Meeting" and,
together with the SBC Special Meeting, the "Special Meetings").
At the Ameritech Special Meeting, shareowners of Ameritech will be asked to
consider and vote upon a proposal (the "Merger Proposal") to adopt the
Agreement and Plan of Merger, dated as of May 10, 1998, among Ameritech, SBC
and SBC Delaware, Inc. ("Merger Sub"), a Delaware corporation and a wholly
owned subsidiary of SBC (as such agreement may be amended, supplemented or
otherwise modified from time to time, the "Merger Agreement"). In accordance
with Section 262 of the Delaware General Corporation Law (the "DGCL"), no
appraisal rights will be available to the holders of Ameritech Common Stock in
connection with the matters to be voted upon at the Ameritech Special Meeting.
At the SBC Special Meeting, shareowners of SBC will be asked to approve the
issuance of shares of SBC Common Stock pursuant to the Merger Agreement. The
Merger Agreement is attached as Annex A to this Joint Proxy
Statement/Prospectus and is incorporated
(continued on next page)
----------------
SEE "RISK FACTORS" ON PAGE 19 FOR A DESCRIPTION OF CERTAIN INVESTMENT
CONSIDERATIONS RELATING TO THE MERGER THAT SHOULD BE CONSIDERED BY SHAREOWNERS
OF SBC AND AMERITECH.
----------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/
PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is October 15, 1998.
<PAGE>
(cover page continued)
herein by reference. In addition, at the SBC Special Meeting, shareowners of
SBC will also be asked to consider a proposal to amend the Bylaws of SBC (the
"SBC Bylaws") to increase the maximum number of persons who may serve as
directors on the SBC Board from twenty-one (21) to twenty-five (25) and allow
a majority of the SBC Board to thereafter decrease (but not thereafter
increase) the maximum number of persons that may serve as directors to not
less than twenty-one (21) (the "Bylaw Amendment"). See "The Bylaw Amendment."
In accordance with Section 262 of the DGCL, no appraisal rights will be
available to holders of SBC Common Stock in connection with the matters to be
voted upon at the SBC Special Meeting.
The Merger Agreement provides for the merger (the "Merger") of Merger Sub
with and into Ameritech, with Ameritech being the surviving corporation in the
Merger (sometimes referred to in this Joint Proxy Statement/Prospectus as the
"Surviving Corporation") and becoming a wholly owned subsidiary of SBC. Upon
the Merger becoming effective, each share of Ameritech Common Stock issued and
outstanding immediately prior to such time (other than (i) shares of Ameritech
Common Stock that are owned by SBC, Merger Sub or any other direct or indirect
subsidiary of SBC or (ii) shares of Ameritech Common Stock that are owned by
Ameritech or any direct or indirect subsidiary of Ameritech, in the case of
each of (i) and (ii) not held on behalf of third parties (collectively,
"Excluded Ameritech Common Stock")) will be converted into 1.316 (the
"Exchange Ratio") shares of SBC Common Stock. Based on the closing price of
$43.375 per share of SBC Common Stock on the New York Stock Exchange (the
"NYSE") on October 14, 1998, 1,103,382,472 shares of Ameritech Common Stock
issued and outstanding as of such date and the Exchange Ratio, the implied
value of the aggregate consideration to be received in the Merger by
shareowners of Ameritech was approximately $63 billion. Because the Exchange
Ratio is a fixed number, such implied value will fluctuate to the extent that
there are fluctuations in the share price of SBC Common Stock. See "The
Merger--Terms of the Merger."
The Merger will qualify for federal income tax purposes as a tax-free
"reorganization" under the Internal Revenue code of 1986, as amended (the
"Code") and the receipt by SBC and Ameritech of opinions from their respective
counsel stating that the Merger will qualify as a reorganization under the
Code is a condition to the consummation of the Merger. See "Material Federal
Income Tax Consequences of the Merger." As a result of the Merger, immediately
following the Effective Time, holders of Ameritech Common Stock will own
approximately 44% of the issued and outstanding shares of SBC Common Stock
(based on the number of shares of SBC Common Stock and Ameritech Common Stock
issued and outstanding as of October 13, 1998 and on the Exchange Ratio, but
not including any shares of SBC Common Stock to be issued in the SNET
acquisition). See "Summary--The Merger." Each share of SBC Common Stock issued
in the Merger will have attached thereto the appropriate number of SBC Rights
(as defined herein) or SBC Substitute Rights (as defined herein), if any are
attached to the shares of SBC Common Stock at such time.
On January 4, 1998, SBC entered into a merger agreement to acquire Southern
New England Telecommunications Corporation, a Connecticut corporation
("SNET"), which acquisition is expected to close prior to the end of 1998. In
addition to the Merger, SBC's pending acquisition of SNET is reflected in
certain of the pro forma financial information presented herein. See
"Unaudited Pro Forma Combined Condensed Financial Statements."
SBC has filed a Registration Statement on Form S-4 (including exhibits and
amendments thereto, the "Registration Statement") pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), covering
(continued on next page)
ii
<PAGE>
(cover page continued)
the approximately 1,452,067,411 shares of SBC Common Stock (and any
accompanying participating preferred stock purchase rights of SBC) issuable
upon consummation of the Merger. This Joint Proxy Statement/Prospectus
constitutes the Proxy Statement of both SBC and Ameritech relating to the
solicitation of proxies for use at their respective Special Meetings and the
Prospectus of SBC in connection with the issuance of SBC Common Stock pursuant
to the Merger Agreement. This Joint Proxy Statement/Prospectus and the
accompanying proxy cards are first being provided to shareowners of Ameritech
and SBC on or about October 19, 1998.
The Rights Agreement, dated as of January 27, 1989 and amended on August 5,
1992 and June 15, 1994 (the "SBC Rights Agreement"), between SBC and The Bank
of New York, as Rights Agent, and the SBC Rights are scheduled to expire by
their terms on January 27, 1999 (the "SBC Rights Expiration Date"). As of the
date of this Joint Proxy Statement/Prospectus, SBC has not determined whether
it will enter into a new rights agreement which would have the effect that the
rights to purchase Series A Junior Participating Preferred Stock, par value
$1.00 per share, of SBC (the "SBC Rights") currently outstanding under the SBC
Rights Agreement would continue to be outstanding after the SBC Rights
Expiration Date. If the SBC Rights or similar rights ("SBC Substitute Rights")
are outstanding at the time shares of SBC Common Stock are issued pursuant to
the Merger Agreement, such shares of SBC Common Stock will have attached the
appropriate number of SBC Rights or SBC Substitute Rights. If no such rights
are outstanding at the time shares of SBC Common Stock are issued pursuant to
the Merger Agreement, no rights will be attached to such shares of SBC Common
Stock.
iii
<PAGE>
AVAILABLE INFORMATION
Each of SBC and Ameritech is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "SEC"). The reports, proxy
statements and other information filed by SBC and Ameritech with the SEC can
be inspected and copied at the SEC's public reference room located at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
and at the public reference facilities in the SEC's regional offices located
at: 7 World Trade Center, 13th Floor, New York, New York 10048, and Suite
1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can be obtained at prescribed rates by writing
to the Securities and Exchange Commission, Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549. The SEC maintains a Website that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC, which registrants
include SBC and Ameritech. The address of such site is http://www.sec.gov. The
shares of SBC Common Stock and Ameritech Common Stock are listed on the NYSE,
the Pacific Exchange (the "PSE"), and the Chicago Stock Exchange ("CSE") and
the shares of Ameritech Common Stock are also listed on the Boston Stock
Exchange (the "BSE") and the Philadelphia Stock Exchange ("PHLX"). As such,
the periodic reports, proxy statements and other information filed with the
SEC by SBC and Ameritech may be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005, the offices of the PSE, 301 Pine Street, San
Francisco, California 94104, and the offices of the CSE, 440 South LaSalle
Street, Chicago, Illinois 60605 and, in addition, in the case of Ameritech,
the offices of the PHLX, 1900 Market Street, Philadelphia, Pennsylvania 19103
and the BSE, 38th Floor, One Boston Place, Boston, Massachusetts 02108.
This Joint Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement covering the securities
offered hereby which SBC has filed with the SEC, certain portions of which
have been omitted pursuant to the rules and regulations of the SEC, and to
which portions reference is hereby made for further information with respect
to SBC, Ameritech and the securities offered hereby. Statements contained
herein concerning any documents are not necessarily complete and, in each
instance, reference is made to the copies of such documents filed as exhibits
to the Registration Statement. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO
SBC, EXCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED HEREIN BY REFERENCE, ARE AVAILABLE WITHOUT CHARGE
UPON REQUEST TO MANAGER-EXTERNAL REPORTING, SBC COMMUNICATIONS INC., 175 EAST
HOUSTON, SAN ANTONIO, TEXAS 78205-2233. TELEPHONE REQUESTS MAY BE DIRECTED TO
MANAGER-EXTERNAL REPORTING AT (210) 351-3049. DOCUMENTS RELATING TO AMERITECH,
EXCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED HEREIN BY REFERENCE, ARE AVAILABLE WITHOUT CHARGE UPON REQUEST TO
MANAGER-SHAREHOLDER RELATIONS, AMERITECH CORPORATION, 30 SOUTH WACKER DRIVE,
35TH FLOOR, CHICAGO, ILLINOIS 60606. TELEPHONE REQUESTS MAY BE DIRECTED TO
AMERITECH INVESTOR RELATIONS AT (312) 750-5353. IN ORDER TO ENSURE TIMELY
DELIVERY OF ANY OF SUCH DOCUMENTS IN ADVANCE OF THE SPECIAL MEETINGS TO WHICH
THIS JOINT PROXY STATEMENT/PROSPECTUS RELATES, ANY REQUEST SHOULD BE MADE BY
DECEMBER 4, 1998.
The following documents filed with the SEC by SBC (File No. 1-8610) are
incorporated herein by reference: (a) SBC's Annual Report on Form 10-K for the
year ended December 31, 1997 (the "1997 SBC 10-K"); (b)
iv
<PAGE>
Amendment No.1 to the 1997 SBC 10-K on Form 10-K/A, filed June 23, 1998; (c)
Amendment No.2 to the 1997 SBC 10-K on Form 10-K/A, filed June 26, 1998; (d)
SBC's Quarterly Reports on Form 10-Q for the quarterly periods ended March 31,
1998 and June 30, 1998; (e) SBC's Current Reports on Form 8-K, filed on
January 5, 1998, February 5, 1998, May 11, 1998 and October 15, 1998; (f)
SBC's proxy statement for its 1998 annual meeting of shareowners; (g) the
description of SBC Common Stock contained in SBC's Registration Statement on
Form 10, dated November 15, 1983; and (h) SBC's Registration Statement on Form
8-A, dated February 9, 1989, together with amendments thereto.
The following documents filed with the SEC by Ameritech (File No. 1-8612)
are incorporated herein by reference: (a) Ameritech's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 (the "1997 Ameritech 10-K");
(b) Amendment No.1 to the 1997 Ameritech 10-K on Form 10-K/A, filed June 29,
1998; (c) Amendment No. 2 to the 1997 Ameritech 10-K on Form 10-K/A, filed
June 29, 1998; (d) Ameritech's Quarterly Reports on Form 10-Q for the
quarterly periods ended March 31, 1998 and June 30, 1998; (e) Ameritech's
Current Reports on Form 8-K, filed January 13, 1998, April 14, 1998, May 11,
1998, July 17, 1998 and October 15, 1998; (f) Ameritech's proxy statement for
its 1998 annual meeting of shareowners; (g) the description of Ameritech
Common Stock contained in Ameritech's Registration Statement on Form 10, dated
November 16, 1983; and (h) Ameritech's Registration Statement on Form 8-A,
dated December 21, 1988, together with amendments thereto.
The following documents filed with the SEC by SNET (File No. 1-9157) are
incorporated herein by reference: (a) SNET's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 (the "1997 SNET 10-K"); (b) Amendment
No.1 to the 1997 SNET Form 10-K on Form 10-K/A, filed April 29, 1998; (c)
Amendment No.2 to the 1997 SNET 10-K on Form 10-K/A, filed June 19, 1998; (d)
SNET's Quarterly Reports on Form 10-Q for the quarterly periods ended March
31, 1998 and June 30, 1998; (e) SNET's Current Reports on Form 8-K, filed
January 5, 1998, January 27, 1998, March 31, 1998, April 27, 1998, July 27,
1998, September 2, 1998 and October 15, 1998; and (f) SNET's proxy statement
for its 1998 annual meeting of shareholders.
All documents filed by any of SBC, Ameritech or SNET pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Joint Proxy Statement/Prospectus and prior to the date of the Ameritech
Special Meeting will be deemed to be incorporated herein by reference and to
be a part hereof from the date of filing of such document. Any statement
contained herein or in a document incorporated or deemed to be incorporated
herein by reference will be deemed to be modified or superseded for purposes
hereof to the extent that a statement contained herein or in any other
subsequently filed document which is, or is deemed to be, incorporated herein
by reference modifies or supersedes such statement. Any such statement so
modified or superseded will not be deemed to constitute a part hereof, except
as so modified or superseded.
No person is authorized to give any information or to make any
representations not contained in this Joint Proxy Statement/Prospectus or in
the documents incorporated herein by reference in connection with the
solicitation and the offering made hereby and, if given or made, such
information or representation should not be relied upon as having been
authorized by SBC or Ameritech. This Joint Proxy Statement/Prospectus does not
constitute an offer to sell, or a solicitation of an offer to purchase, the
securities offered by this Joint Proxy Statement/Prospectus, or the
solicitation of a proxy from any person, in any jurisdiction in which it is
unlawful to make such offer, solicitation of an offer or proxy solicitation.
Neither the delivery of this Joint Proxy Statement/Prospectus nor any
distribution of the securities made under this Joint Proxy
Statement/Prospectus hereunder will, under any circumstances, create an
implication that there has been no change in the affairs of SBC or Ameritech
since the date of this Joint Proxy Statement/Prospectus other than as set
forth in the documents incorporated herein by reference.
v
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION..................................................... iv
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................... iv
SUMMARY................................................................... 1
The Companies........................................................... 1
The Special Meetings.................................................... 2
Voting and Revocation of Proxies........................................ 2
The Merger.............................................................. 3
Interests of Certain Persons in the Merger.............................. 13
Dissenters' Rights of Appraisal......................................... 13
Accounting Treatment.................................................... 14
Material Federal Income Tax Consequences of the Merger.................. 14
The Bylaw Amendment..................................................... 14
Certain Effects of the Merger on the Rights of Holders of Ameritech
Common Stock........................................................... 14
COMPARATIVE STOCK PRICES.................................................. 15
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA....... 16
RECENT DEVELOPMENTS....................................................... 18
Third Quarter Results................................................... 18
Telekom Austria......................................................... 18
RISK FACTORS.............................................................. 19
THE SPECIAL MEETINGS...................................................... 20
General................................................................. 20
SBC................................................................... 20
Ameritech............................................................. 20
Date, Place and Time.................................................... 20
Record Dates............................................................ 20
SBC................................................................... 20
Ameritech............................................................. 21
Vote Required........................................................... 21
SBC................................................................... 21
Ameritech............................................................. 21
Voting and Revocation of Proxies........................................ 22
Solicitation of Proxies................................................. 24
THE COMPANIES............................................................. 25
SBC..................................................................... 25
Ameritech............................................................... 25
Merger Sub.............................................................. 25
THE MERGER................................................................ 26
General................................................................. 26
Background of the Merger................................................ 27
Reasons for the Merger; Recommendations of the Boards of Directors...... 29
SBC................................................................... 29
Ameritech............................................................. 31
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Opinions of Financial Advisors........................................... 34
SBC.................................................................... 34
Ameritech.............................................................. 42
Cautionary Statement Concerning Forward-Looking Statements............... 48
Terms of the Merger...................................................... 48
Closing; Effective Time.................................................. 49
Exchange of Ameritech Common Stock for Shares of SBC Common Stock........ 49
Lost, Stolen or Destroyed Certificates................................. 50
Distributions with Respect to Unexchanged Shares; Voting............... 51
Representations and Warranties........................................... 51
Certain Covenants........................................................ 52
Interim Operations..................................................... 52
Acquisition Proposals.................................................. 55
The Special Meetings................................................... 56
Pooling of Interests................................................... 57
Certain Regulatory Filings and Approvals................................. 57
HSR.................................................................... 58
FCC.................................................................... 58
State PUCs............................................................. 59
PUC Approvals Regarding Intrastate Interexchange Service............... 60
Municipal Cable Franchises............................................. 60
European Regulatory Approvals.......................................... 60
Stock Exchange Listing and De-listing.................................... 61
Employee Benefits........................................................ 61
Stock Options.......................................................... 61
Benefit Plans.......................................................... 61
Expenses................................................................. 62
Dividends................................................................ 62
SBC Board Following the Merger........................................... 62
Conditions............................................................... 62
Termination.............................................................. 64
Certain Termination Fees................................................. 66
Resale of SBC Common Stock............................................... 67
Dissenters' Rights of Appraisal.......................................... 68
Interests of Certain Persons in the Merger............................... 68
Indemnification; Directors' and Officers' Insurance.................... 68
Board of Directors Following the Merger................................ 69
Directors' Plan........................................................ 69
Stock Options.......................................................... 69
Change in Control Agreements and Severance Plan........................ 70
Other Compensation and Benefit Plans................................... 71
Performance and Retention Bonus........................................ 72
Services and Non-Compete Agreements.................................... 72
ACCOUNTING TREATMENT....................................................... 73
</TABLE>
vii
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER..................... 73
General.................................................................. 73
Fractional Shares........................................................ 74
THE BYLAW AMENDMENT........................................................ 75
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS................ 76
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS....... 83
DESCRIPTION OF SBC CAPITAL STOCK........................................... 85
SBC Common Stock......................................................... 85
SBC Preferred Stock...................................................... 85
Description of SBC Rights................................................ 86
COMPARISON OF CERTAIN RIGHTS OF SHAREOWNERS OF SBC AND AMERITECH........... 88
General.................................................................. 88
Size and Classification of the Board of Directors........................ 88
SBC.................................................................... 88
Ameritech.............................................................. 89
Removal of Directors..................................................... 89
SBC.................................................................... 89
Ameritech.............................................................. 89
Action by Written Consent................................................ 89
SBC.................................................................... 89
Ameritech.............................................................. 89
Meetings of Shareowners; Quorum and Voting............................... 90
SBC.................................................................... 90
Ameritech.............................................................. 90
Shareowner Proposals and Shareowner Nominations of Directors............. 90
SBC.................................................................... 90
Ameritech.............................................................. 91
Amendment of Corporate Charter and Bylaws................................ 91
SBC.................................................................... 91
Ameritech.............................................................. 91
Fair Price Provisions.................................................... 91
SBC.................................................................... 91
Ameritech.............................................................. 92
Rights Plans............................................................. 92
SBC.................................................................... 92
Ameritech.............................................................. 93
Indemnification of Officers and Directors................................ 93
SBC.................................................................... 93
Ameritech.............................................................. 94
EXPERTS.................................................................... 94
VALIDITY OF SHARES......................................................... 95
INDEX OF DEFINED TERMS..................................................... 96
ANNEX A Agreement and Plan of Merger....................................... A-1
ANNEX B Opinion of Salomon Smith Barney.................................... B-1
ANNEX C Opinion of Goldman, Sachs & Co. ................................... C-1
</TABLE>
viii
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Joint Proxy Statement/Prospectus, does not purport to be complete and is
qualified in its entirety by reference to the full text of this Joint Proxy
Statement/Prospectus, including the Annexes attached hereto and the documents
incorporated herein by reference. The information contained in this Joint Proxy
Statement/Prospectus with respect to SBC, Merger Sub and SNET has been supplied
by SBC, and the information with respect to Ameritech has been supplied by
Ameritech.
THE COMPANIES
SBC
SBC is a holding company whose subsidiaries and affiliates operate
predominantly in the communications services industry. SBC's subsidiaries and
affiliates provide landline and wireless telecommunications services and
equipment, directory advertising, publishing services and Internet access
services. SBC's subsidiaries and affiliates provide landline telecommunications
and related services in California, Texas, Missouri, Oklahoma, Kansas, Arkansas
and Nevada and wireless telecommunications and related services in those states
as well as in Illinois, Maryland, Indiana, Massachusetts, New York, Virginia,
Washington, D.C. and West Virginia. SBC will also provide landline and wireless
telecommunications and related services in Connecticut and wireless services in
Rhode Island following the completion of the acquisition of SNET, if completed.
SBC was incorporated under the laws of the State of Delaware in 1983.
On January 4, 1998, SBC entered into an agreement to acquire SNET, which, as
of and for the year ended December 31, 1997, had assets of $2.8 billion,
shareholders' equity of $597 million and net income of $194 million. The
acquisition of SNET is intended to qualify for "pooling of interests"
accounting treatment, and is expected to close prior to the end of 1998. The
Merger and the SNET acquisition are both reflected in certain of the pro forma
combined financial information presented herein.
The mailing address of SBC's principal executive offices is 175 East Houston,
San Antonio, Texas 78205-2233, and its telephone number is (210) 821-4105.
Ameritech
Ameritech is a holding company whose subsidiaries and affiliates operate
predominantly in the communications services industry. Ameritech's subsidiaries
and affiliates provide a wide range of communications services, including local
and long distance, cellular, paging, security, cable TV, Internet access and
directory publishing services. Ameritech's subsidiaries and affiliates provide
landline and wireless telecommunications and related services in Illinois,
Indiana, Michigan, Ohio and Wisconsin, wireless telecommunications and related
services in Missouri, Minnesota and Hawaii, and security monitoring services in
most of the United States' largest metropolitan areas. Ameritech also has
significant investments in the European telecommunications industry, with
financial interests in 15 European countries.
The mailing address of Ameritech's principal executive offices is 30 South
Wacker Drive, Chicago, Illinois 60606, and its telephone number is (800) 257-
0902.
<PAGE>
Merger Sub
Merger Sub, a wholly-owned subsidiary of SBC, was formed by SBC solely for
the purpose of effecting the Merger. The mailing address of Merger Sub's
principal executive offices is 175 East Houston, San Antonio, Texas 78205-2233,
and its telephone number is (210) 821-4105.
THE SPECIAL MEETINGS
SBC
The SBC Special Meeting to consider and vote on the proposal to issue shares
of SBC Common Stock pursuant to the Merger Agreement and the Bylaw Amendment
will be held on December 10, 1998, at 3:00 p.m., local time, at The Charline
McCombs Theatre, 226 North St. Mary's Street, San Antonio, Texas 78205. Only
holders of record of SBC Common Stock at the close of business on October 13,
1998 (the "SBC Record Date") will be entitled to vote at the SBC Special
Meeting. On the SBC Record Date, there were 1,835,049,268 shares of SBC Common
Stock outstanding and entitled to vote. Each share of SBC Common Stock is
entitled to one vote on each matter submitted at the SBC Special Meeting.
The affirmative vote of at least a majority of the shares of SBC Common Stock
voting on the proposal to issue shares of SBC Common Stock pursuant to the
Merger Agreement, assuming at least a majority of the outstanding shares of SBC
Common Stock are present in person or represented by proxy at the SBC Special
Meeting, is necessary for approval of such share issuance. The affirmative vote
of the holders of at least two-thirds of the shares of SBC Common Stock issued
and outstanding on the SBC Record Date is necessary to adopt the Bylaw
Amendment.
Ameritech
The Ameritech Special Meeting to consider and vote on the Merger Proposal
will be held on December 11, 1998, at 9:00 a.m., local time, at McCormick Place
South, Grand Ballroom, Level 1, 2301 South Martin Luther King, Jr. Drive,
Chicago, Illinois 60616. Only holders of record of Ameritech Common Stock at
the close of business on October 13, 1998 (the "Ameritech Record Date") will be
entitled to vote at the Ameritech Special Meeting. On the Ameritech Record
Date, there were 1,103,394,689 shares of Ameritech Common Stock outstanding and
entitled to vote. Each share of Ameritech Common Stock is entitled to one vote
on each matter submitted at the Ameritech Special Meeting.
The affirmative vote of at least a majority of the shares of Ameritech Common
Stock issued and outstanding on the Ameritech Record Date is necessary for
approval of the Merger Proposal.
For additional information relating to the Special Meetings, see "The Special
Meetings."
VOTING AND REVOCATION OF PROXIES
Holders of SBC Common Stock or Ameritech Common Stock may submit their
respective proxies with voting instructions by telephone in accordance with the
instructions contained in their proxy cards or by signing, dating and returning
their proxy cards. In addition, holders of Ameritech Common Stock may submit
their proxies with voting instructions by Internet through the website
designated on the reverse side of Ameritech's proxy card and on the
accompanying Ameritech information card. Any proxy given pursuant to this
solicitation may be revoked by the person giving it at any time before the
proxy is voted by following the procedures hereinafter described. See "The
Special Meetings--Voting and Revocation of Proxies."
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THE MERGER
The Merger Agreement provides for a business combination of SBC and Ameritech
pursuant to which, subject to the satisfaction or waiver of the conditions
therein, at the effective time of the Merger (the "Effective Time"), Merger Sub
will be merged with and into Ameritech and Ameritech will thereby become a
wholly-owned subsidiary of SBC in a transaction which is intended to qualify
for "pooling of interests" accounting treatment and which will be treated as a
tax-free "reorganization" under the Code for federal income tax purposes. As a
consequence of the Merger, each share of Ameritech Common Stock issued and
outstanding immediately prior to the Effective Time (other than Excluded
Ameritech Common Stock) will be converted into and become exchangeable for a
number of shares of SBC Common Stock equal to the Exchange Ratio (the "Merger
Consideration"). Based on the closing price per share of SBC Common Stock on
the NYSE on October 14, 1998 of $43.375, giving effect to the Exchange Ratio,
the implied per share value of Ameritech Common Stock was $57.0815 as of such
date. The closing price per share of Ameritech Common Stock on the NYSE on
October 14, 1998 was $50.5625. Each share of SBC Common Stock issued in the
Merger will have attached thereto the appropriate number of SBC Rights or SBC
Substitute Rights in the event that SBC Rights or SBC Substitute Rights are
attached to the outstanding shares of SBC Common Stock when shares of SBC
Common Stock are issued pursuant to the Merger Agreement. Each outstanding
share of SBC Common Stock will remain outstanding and unaffected by the Merger.
As a result of the Merger, holders of Ameritech Common Stock immediately prior
to the Effective Time will own approximately 44% of SBC Common Stock (based on
the number of shares of SBC Common Stock and Ameritech Common Stock issued and
outstanding as of October 13, 1998 and on the Exchange Ratio, but not including
any shares of SBC Common Stock to be issued in the SNET acquisition).
No fractional shares of SBC Common Stock will be issued in the Merger.
Instead, the Merger Agreement provides that each holder of Ameritech Common
Stock who would otherwise have been entitled to receive a fractional share of
SBC Common Stock in the Merger will be entitled to receive, in lieu thereof, an
amount in cash (without interest) determined by multiplying such fraction
(rounded to the nearest one-hundredth of a share) by the closing price of a
share of SBC Common Stock, as reported in The Wall Street Journal, New York
City edition, on the trading day immediately prior to the Effective Time.
Reasons for the Merger; Recommendations of the Boards of Directors
SBC
The SBC Board has determined that the terms of the Merger Agreement and the
transactions contemplated thereby are fair to, and in the best interests of,
SBC and its shareowners. ACCORDINGLY, THE SBC BOARD HAS AUTHORIZED AND APPROVED
THE MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT THE
SHAREOWNERS OF SBC VOTE FOR APPROVAL OF THE ISSUANCE OF SHARES OF SBC COMMON
STOCK PURSUANT TO THE MERGER AGREEMENT. The recommendation of the SBC Board is
based on a number of strategic, operating and financial factors as described in
"The Merger--Reasons for the Merger; Recommendations of the Boards of
Directors--SBC."
Ameritech
The Ameritech Board has unanimously determined that the terms of the Merger
Agreement and the transactions contemplated thereby are fair to, and in the
best interests of, Ameritech and its shareowners. ACCORDINGLY, THE AMERITECH
BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY
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<PAGE>
RECOMMENDS THAT THE SHAREOWNERS OF AMERITECH VOTE FOR ADOPTION OF THE MERGER
PROPOSAL. The recommendation of the Ameritech Board is based on a number of
strategic, operating and financial factors as described in "The Merger--Reasons
for the Merger; Recommendations of the Boards of Directors--Ameritech."
Opinions of Financial Advisors
SBC
On May 10, 1998, Salomon Brothers Inc and Smith Barney Inc., collectively
doing business as Salomon Smith Barney ("Salomon Smith Barney"), delivered to
the SBC Board their opinion to the effect that, as of such date, the Exchange
Ratio was fair from a financial point of view to SBC. SBC believes that because
SBC is owned by its shareowners, a transaction that is in the best interests of
SBC is also in the best interests of its shareowners, and that its receipt of
an opinion as to the fairness to SBC from a financial point of view of the
Exchange Ratio necessarily speaks to the fairness of the Exchange Ratio from a
financial point of view to SBC's shareowners.
The full text of the written opinion of Salomon Smith Barney, dated May 10,
1998, which sets forth assumptions made, matters considered and limitations on
the review undertaken in connection with the opinion, is attached hereto as
Annex B and is incorporated herein by reference. Holders of SBC Common Stock
are urged to, and should, read such opinion in its entirety. See "The Merger--
Opinions of Financial Advisors--SBC."
Ameritech
On May 10, 1998, Goldman, Sachs & Co. ("Goldman Sachs") delivered to the
Ameritech Board its opinion to the effect that, as of such date, the Exchange
Ratio pursuant to the Merger Agreement was fair from a financial point of view
to the holders of Ameritech Common Stock.
The full text of the written opinion of Goldman Sachs, dated May 10, 1998,
which sets forth assumptions made, matters considered and limitations on the
review undertaken in connection with the opinion, is attached hereto as Annex C
and is incorporated herein by reference. Holders of Ameritech Common Stock are
urged to, and should, read such opinion in its entirety. See "The Merger--
Opinions of Financial Advisors--Ameritech."
Effective Time
The Effective Time will occur when a certificate of merger (the "Certificate
of Merger") has been duly filed with the Secretary of State of the State of
Delaware or such other time as agreed upon by the parties and set forth in the
Certificate of Merger in accordance with the DGCL.
See "The Merger--Closing; Effective Time."
Covenants
Interim Operations
Pursuant to the Merger Agreement, each of SBC and Ameritech has agreed as to
itself and its respective Subsidiaries (as defined herein) that, after the date
of the Merger Agreement and prior to the Effective Time, it
4
<PAGE>
will, among other things and subject to certain specified exceptions, (i)
conduct its business in the ordinary and usual course; (ii) not declare, set
aside or pay any dividend payable in cash, stock or property (other than, in
the case of SBC, SBC Common Stock) in respect of any capital stock, other than
regular quarterly cash dividends in amounts consistent with its past practice;
(iii) not knowingly take any action that would prevent the Merger from
qualifying for "pooling of interests" accounting treatment or as a
"reorganization" within the meaning of Section 368(a) of the Code; (iv) not
issue any preferred stock or incur any indebtedness for borrowed money or
guarantee any such indebtedness if it should reasonably anticipate that, after
any such issuance or incurrence, any of its or any of its Subsidiaries'
outstanding senior indebtedness would be rated A or lower by Standard & Poor's;
(v) not, and not permit its Subsidiaries to, make any capital expenditures in
any period of twelve consecutive months in an aggregate amount in excess of
150% of the aggregate amount reflected in its capital expenditure budget for
such year; (vi) not spend in excess of $4.8 billion, in the case of SBC, and
$3.6 billion, in the case of Ameritech, in the aggregate in any period of
twelve consecutive months to acquire any business; and (vii) not enter into any
business other than the telecommunications business and those businesses
traditionally associated with the telecommunications business. See "The
Merger--Certain Covenants--Interim Operations."
Acquisition Proposals
Pursuant to the Merger Agreement, each of SBC and Ameritech has agreed that
neither they nor any of their respective Subsidiaries will, and that each will
direct and use its best efforts to cause its and its Subsidiaries employees,
agents and representatives not to, directly or indirectly, initiate, solicit,
encourage or otherwise facilitate any inquiries or the making of any proposal
or offer with respect to a merger, reorganization, share exchange,
consolidation or similar transaction involving, or any purchase of, or tender
offer for, any of the assets of it or any of its Subsidiaries or its voting
securities if, as a result of such transaction, (i) the shareowners of SBC or
Ameritech, as the case may be, do not hold more than 50% of the voting
securities of the surviving corporation or its ultimate parent, (ii) the
directors of SBC or Ameritech, as the case may be, do not constitute a majority
of the board of directors of the surviving corporation or its ultimate parent,
or (iii) another person would acquire more than 50% of the assets of SBC or
Ameritech, as the case may be, and their respective Subsidiaries (any such
proposal or offer made to SBC being an "SBC Acquisition Proposal" and any such
proposal or offer made to Ameritech being an "Ameritech Acquisition Proposal,"
and together referred to as an "Acquisition Proposal").
SBC and Ameritech have further agreed in the Merger Agreement that neither
they nor any of their Subsidiaries will, and that they will direct and use
their best efforts to cause their respective representatives not to, directly
or indirectly, have any discussion with or provide any confidential information
or data to any person relating to an SBC Acquisition Proposal or an Ameritech
Acquisition Proposal, as the case may be, or engage in any negotiations
concerning an SBC Acquisition Proposal or an Ameritech Acquisition Proposal, as
the case may be, or otherwise facilitate any effort or attempt to make or
implement an SBC Acquisition Proposal or an Ameritech Acquisition Proposal.
Notwithstanding the foregoing, the Merger Agreement does not prevent either SBC
or Ameritech or their respective representatives from (A) complying with Rule
14e-2 promulgated under the Exchange Act with regard to an Acquisition
Proposal; (B) engaging in any discussions or negotiations with, or providing
any information to, any person in response to an unsolicited bona fide written
Acquisition Proposal by any such person; or (C) recommending such an
unsolicited Acquisition Proposal to the shareowners of SBC or Ameritech, as the
case may be, if and only to the extent that, in such cases referred to in (B)
or (C), (i) the
5
<PAGE>
SBC Board or the Ameritech Board, as the case may be, concludes in good faith
(after consultation with its financial advisor) that such SBC Acquisition
Proposal or Ameritech Acquisition Proposal, as the case may be, is reasonably
capable of being completed, taking into account all legal, financial,
regulatory and other aspects of the proposal and the person making the
proposal, and would, if consummated, result in a transaction more favorable to
its shareowners from a financial point of view than the transaction
contemplated by the Merger Agreement (any such more favorable SBC Acquisition
Proposal being referred to as a "Superior SBC Proposal," and any such more
favorable Ameritech Acquisition Proposal being referred to as a "Superior
Ameritech Proposal," and together as a "Superior Proposal"), (ii) the SBC Board
or the Ameritech Board, as the case may be, determines in good faith after
consultation with outside legal counsel that such action is necessary to comply
with its fiduciary duty under applicable law and (iii) prior to providing any
information or data to any person in connection with an SBC Acquisition
Proposal or Ameritech Acquisition Proposal, as the case may be, by any such
person, the SBC Board or the Ameritech Board, as the case may be, receives from
such person a confidentiality agreement in customary form, subject to
exceptions provided for in the Merger Agreement.
"Pooling of Interests" Accounting Treatment
Pursuant to the Merger Agreement, Ameritech and SBC have agreed to use all of
their respective reasonable best efforts to cause the Merger to qualify for
"pooling of interests" accounting treatment.
Certain Regulatory Filings and Approvals
Pursuant to the Merger Agreement, Ameritech and SBC have agreed to cooperate
with each other and use (and cause their respective Subsidiaries to use) all of
their respective reasonable best efforts to take or cause to be taken all
actions, and do or cause to be done all things, necessary, proper or advisable
on its part under the Merger Agreement and applicable laws to consummate and
make effective the Merger and the other transactions contemplated by the Merger
Agreement as soon as practicable; provided, however, that nothing set forth in
the provisions of the Merger Agreement relating to regulatory filings or
approvals will require, or be construed to require, SBC or Ameritech to agree
to, or comply with, any conditions to the granting of any consent,
registration, approval, permit or authorization by any Governmental Entity (as
defined herein) if compliance with such conditions, individually or in the
aggregate, would be reasonably likely to have a Regulatory Material Adverse
Effect (as defined herein) on the Surviving Corporation or SBC following the
Effective Time. See "The Merger--Certain Regulatory Filings and Approvals."
General
There can be no assurance as to when or if any of the regulatory approvals
described below will be obtained. In addition, there can be no assurance that
certain of such approvals will not include conditions that could result in the
abandonment of the Merger by SBC and Ameritech.
HSR
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder, certain transactions,
including the Merger, may not be consummated unless certain waiting period
requirements have been satisfied. On July 20, 1998, SBC and Ameritech each
filed a Premerger
6
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Notification and Report Form (a "Notification and Report Form") pursuant to the
HSR Act with the Antitrust Division of the Department of Justice ("Department
of Justice") and the Federal Trade Commission ("FTC"). On August 19, 1998, the
Department of Justice requested additional information and documents from SBC
and Ameritech relating to the Merger. Under the HSR Act, the Merger may not be
consummated until 20 days after SBC and Ameritech have substantially complied
with such request for additional information. At any time before or after the
Effective Time, the FTC, the Department of Justice or others could take action
under the antitrust laws with respect to the Merger, including seeking to
enjoin the consummation of the Merger, to rescind the Merger or to require
divestiture of substantial assets of SBC or Ameritech. There can be no
assurance that a challenge to the Merger on antitrust grounds will not be made
or, if such a challenge is made, that it would not be successful. See "The
Merger--Certain Regulatory Filings and Approvals--HSR."
FCC
Before the Merger can be consummated, SBC and Ameritech must obtain the
approval of the Federal Communications Commission (the "FCC") pursuant to the
Communications Act of 1934, as amended (the "Communications Act") for transfer
of control from Ameritech to SBC of certain FCC licenses and authorizations
held by certain of Ameritech's Subsidiaries. On July 24, 1998, SBC and
Ameritech filed transfer of control applications with the FCC seeking the FCC's
approval to transfer such licenses and authorizations. SBC and Ameritech expect
that these applications will demonstrate compliance with the FCC's standards.
See "The Merger--Certain Regulatory Filings and Approvals--FCC."
The FCC has established certain rules and regulations, including in
particular 47 C.F.R. Section 22.942, that limit the ability of any single
person to have an interest in more than one cellular license in the same
market. In an effort to comply with the FCC's rules and regulations, SBC and
Ameritech are investigating various alternatives regarding their overlapping
cellular licenses. See "The Merger--Certain Regulatory Filings and Approvals--
FCC."
State PUC Approvals
Ameritech has subsidiaries that operate as public utility or public service
companies in the states of Illinois, Indiana, Michigan, Ohio and Wisconsin, and
such subsidiaries accordingly are regulated by the public utility commissions
(including any analogous foreign or local bodies, each a "PUC") in such states.
Express statutory provisions in Illinois and Ohio require SBC and Ameritech to
obtain the approval of such states' PUCs prior to the consummation of the
Merger, and SBC and Ameritech filed applications for such approval on July 24,
1998. The states of Indiana, Michigan and Wisconsin do not have express
statutory requirements for prior approval of the Merger by their respective
state PUCs. However, the Indiana Utility Regulatory Commission (the "IURC")
issued an order on September 2, 1998 indicating that because it believes that
the Merger could affect telephone competition in Indiana and might have an
effect on the quality of service, rates and employment levels, the IURC will
investigate the Merger. The IURC intends to conduct hearings on December 1 and
2, 1998. There can be no assurance that Michigan and Wisconsin will not
similarly attempt to take action with respect to the Merger. See "The Merger--
Certain Regulatory Filings and Approvals--State PUCs." In addition, in
connection with the Merger, Ameritech may be required to modify or withdraw
certain of its authorizations to provide long distance service in states where
it or SBC operates local exchange service. See "The Merger--Certain Regulatory
Filings and Approvals--PUC Approvals Regarding Intrastate Interexchange
Service."
7
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Municipal Cable Franchises
Under the Cable Franchise Agreements (as defined herein), the consummation of
the Merger may require the approval of the relevant municipalities. See "The
Merger--Certain Regulatory Filings and Approvals--Municipal Cable Franchises."
European Regulatory Approvals
SBC and Ameritech have made the requisite filings with regulatory authorities
in various European countries in which SBC or Ameritech has direct or indirect
investments in telecommunications companies. No additional approvals,
notifications or filings are required from such regulatory authorities with
respect to consummation of the Merger. See "The Merger--Certain Regulatory
Filings and Approvals--European Regulatory Approvals."
Stock Exchange Listing
SBC has agreed to use its best efforts to cause the shares of SBC Common
Stock to be issued in the Merger to be approved for listing on the NYSE,
subject to official notice of issuance, prior to the date of the closing of the
Merger (the "Closing Date").
Employee Benefits
Stock Options
The Merger Agreement provides that at the Effective Time each outstanding
option to purchase shares of Ameritech Common Stock (each an "Ameritech
Option") under the Ameritech Stock Plans (as defined herein), whether vested or
unvested, will be deemed to constitute an option to acquire, on the same terms
and conditions as were applicable under such Ameritech Option, the same number
of shares of SBC Common Stock as the holder of such Ameritech Option would have
been entitled to receive pursuant to the Merger had such holder exercised such
Ameritech Option in full immediately prior to the Effective Time (rounded down
to the nearest whole number) (a "Substitute Option"), at an exercise price per
share (rounded up to the nearest whole cent) (a "Substitute Option Price")
equal to (y) the aggregate exercise price for the shares of Ameritech Common
Stock otherwise purchasable pursuant to such Ameritech Option divided by (z)
the number of full shares of SBC Common Stock deemed purchasable pursuant to
such Ameritech Option in accordance with the terms of the Merger Agreement. See
"The Merger--Employee Benefits--Stock Options."
Benefit Plans
The Merger Agreement provides that, subject to certain exceptions, for at
least two years after the Effective Time, SBC will cause the Surviving
Corporation to provide or cause to be provided to employees of Ameritech and
its Subsidiaries compensation and benefit plans that are no less favorable, in
the aggregate, than certain Ameritech Compensation and Benefit Plans (as
defined herein) specifically disclosed to SBC. See "The Merger--Employee
Benefits--Benefit Plans."
Expenses
The Merger Agreement provides that whether or not the Merger is consummated,
all costs and expenses incurred in connection with the Merger Agreement and the
Merger and the other transactions contemplated by
8
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the Merger Agreement will be paid by the party incurring such expense, except
that expenses incurred in connection with the filing fee for the Registration
Statement and printing and mailing this Joint Proxy Statement/Prospectus and
the Registration Statement and the filing fee under the HSR Act will be shared
equally by SBC and Ameritech.
Indemnification; Directors' and Officers' Insurance
The Merger Agreement provides that, from and after the Effective Time, SBC
will, and will cause the Surviving Corporation to, indemnify and hold harmless
each present and former director and officer of Ameritech (when acting in such
capacity) determined as of the Effective Time (each, an "Indemnified Party")
against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities (collectively,
"Costs") incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
arising out of or pertaining to matters existing or occurring at or prior to
the Effective Time, whether asserted or claimed prior to, at or after the
Effective Time, to the fullest extent permitted under Delaware law.
The Merger Agreement also provides that the Surviving Corporation will
maintain a policy of officers' and directors' liability insurance for acts and
omissions occurring prior to the Effective Time ("D&O Insurance"), with
coverage in amount and scope at least as favorable as Ameritech's existing
directors' and officers' liability insurance coverage, for a period of six
years after the Effective Time. However, if the existing D&O Insurance expires,
is terminated or canceled, or if the annual premium therefor is increased to an
amount in excess of 175% of the last annual premium paid prior to the date of
the Merger Agreement (the "Current Premium"), in each case during such six-year
period, the Surviving Corporation will use its best efforts to obtain D&O
Insurance in an amount and scope as great as can be obtained for the remainder
of such period for a premium not in excess (on an annualized basis) of 175% of
the Current Premium.
SBC Board Following the Merger
SBC has agreed pursuant to the Merger Agreement that at the Effective Time
SBC will enable up to five members of the Ameritech Board to be members of the
SBC Board. The SBC Board, in consultation with the Chief Executive Officer of
Ameritech and the Ameritech Board, will select the director designees and
appoint each such director designee to the SBC Board as of the Effective Time,
with such director designees divided as nearly evenly as is possible among the
classes of directors on the SBC Board. SBC and Ameritech expect that Richard C.
Notebaert, Chairman of the Board, President and Chief Executive Officer of
Ameritech, will be one of the members of the Ameritech Board who will become a
member of the SBC Board as of the Effective Time.
Conditions
The respective obligations of Ameritech, SBC and Merger Sub to effect the
Merger are subject to the satisfaction or waiver at or prior to the Effective
Time of a number of conditions including the following: (a) the Merger
Agreement having been duly adopted by the requisite vote of holders of
Ameritech Common Stock and duly adopted by the sole stockholder of Merger Sub
(each of which approvals may not be waived under the DGCL), and the issuance of
shares of SBC Common Stock pursuant to the Merger Agreement having been duly
approved by the holders of shares of SBC Common Stock; (b) the shares of SBC
Common Stock issuable to the shareowners of Ameritech pursuant to the Merger
Agreement having been authorized for listing on the NYSE,
9
<PAGE>
upon official notice of issuance; (c) the waiting period applicable to the
consummation of the Merger under the HSR Act having expired or been terminated
and all material Ameritech Required Consents (as defined herein) and material
SBC Required Consents (as defined herein) from or with any Governmental Entity
having been made or obtained pursuant to a Final Order (as defined herein),
free of any conditions (other than conditions that are not reasonably likely,
either individually or in the aggregate to have a Regulatory Material Adverse
Effect (as defined herein)); (d) no Governmental Entity of competent
jurisdiction having enacted, issued, promulgated, enforced or entered any law
or injunction (whether temporary, preliminary or permanent) that is in effect
and restrains, enjoins or otherwise prohibits consummation of the Merger or the
other transactions contemplated by the Merger Agreement or that is,
individually or in the aggregate, with all other such laws or injunctions,
reasonably likely to have a Material Adverse Effect (as defined herein) on SBC
or Ameritech (collectively, an "Order"), and no Governmental Entity having
instituted any proceeding or, in the case of a federal Governmental Entity,
threatened in writing to institute any proceeding seeking any such Order; (e)
the Registration Statement having become effective under the Securities Act;
(f) SBC and Ameritech having received customary "comfort" letters from each
other's independent auditors with respect to the Registration Statement, and
letters from their respective independent public accounting firms to the effect
that the Merger will qualify for "pooling of interests" accounting treatment;
and (g) SBC having received all state securities and "blue sky" permits and
approvals necessary to consummate the transactions contemplated by the Merger
Agreement. See "The Merger--Conditions."
The Merger Agreement also provides that the obligations of SBC and Merger Sub
to effect the Merger are subject to the satisfaction or waiver by SBC at or
prior to the Effective Time of a number of conditions including the following,
subject to certain exceptions: (a) the representations and warranties of
Ameritech set forth in the Merger Agreement being true and correct in all
material respects; (b) Ameritech having performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the Closing Date; (c) Ameritech having obtained the consent or
approval of each person whose consent or approval is required in order to
consummate the transactions contemplated by the Merger Agreement under any
Contract (as defined in the Merger Agreement) to which Ameritech or any of its
Subsidiaries is a party, except those for which the failure to obtain such
consent or appraisal, individually or in the aggregate, is not reasonably
likely to have a Material Adverse Effect on Ameritech; and (d) SBC having
received the opinion of Sullivan & Cromwell, dated the Closing Date, to the
effect that the Merger will be treated for federal income tax purposes as a
"reorganization" within the meaning of Section 368(a) of the Code, and that
each of SBC, Merger Sub and Ameritech will be a party to that "reorganization"
within the meaning of Section 368(b) of the Code. See "The Merger--Conditions."
The Merger Agreement further provides that the obligation of Ameritech to
effect the Merger is subject to the satisfaction or waiver by Ameritech at or
prior to the Effective Time of a number of conditions including the following:
(a) the representations and warranties of SBC and Merger Sub set forth in the
Merger Agreement being true and correct in all material respects; (b) each of
SBC and Merger Sub having performed in all material respects all obligations
required to be performed by it under the Merger Agreement at or prior to the
Closing Date; and (c) Ameritech having received the opinion of Skadden, Arps,
Slate, Meagher & Flom (Illinois) dated the Closing Date, to the effect that the
Merger will be treated for federal income tax purposes as a "reorganization"
within the meaning of Section 368(a) of the Code, and that each of SBC, Merger
Sub and Ameritech will be a party to that "reorganization" within the meaning
of Section 368(b) of the Code. See "The Merger--Conditions."
10
<PAGE>
Termination
The Merger Agreement provides that it may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after the
required approval or adoption, as applicable, by the shareowners of Ameritech
and SBC, by mutual written consent of Ameritech and SBC authorized by action of
their respective Boards of Directors. The Merger Agreement further provides
that it may be terminated and the Merger may be abandoned at any time prior to
the Effective Time by action of either the SBC Board or the Ameritech Board if
(i) the Merger has not been consummated by July 31, 1999 (the "Termination
Date") (provided, however, that if SBC or Ameritech determines that additional
time is necessary in connection with obtaining an SBC Required Consent or an
Ameritech Required Consent from or with any Governmental Entity, the
Termination Date may be extended to a date no later than March 31, 2000 (which
date will be deemed the Termination Date)), (ii) the adoption of the Merger
Agreement by Ameritech's shareowners has not occurred at the Ameritech Special
Meeting, (iii) the approval of the issuance of shares of SBC Common Stock
pursuant to the Merger Agreement by SBC's shareowners has not been obtained at
the SBC Special Meeting, or (iv) any Order permanently restraining, enjoining
or otherwise prohibiting consummation of the Merger has become final and non-
appealable.
In addition, the Merger Agreement provides that it may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, by action of
the Ameritech Board: (a) if (i) the Ameritech Board approves entering into a
binding written agreement concerning a transaction that constitutes a Superior
Ameritech Proposal and Ameritech notifies SBC in writing that Ameritech desires
to enter into such agreement, (ii) SBC does not make, within ten calendar days
after receipt of Ameritech's written notification of its desire to enter into a
binding agreement for a Superior Ameritech Proposal, the terms of which are
specified in such notice, an offer that the Ameritech Board believes, in good
faith after consultation with its financial advisors, is at least as favorable,
from a financial point of view, to the shareowners of Ameritech as the Superior
Ameritech Proposal, and (iii) prior to such termination Ameritech pays to SBC
in immediately available funds any termination fees required to be paid
pursuant to the Merger Agreement, or (b) if (i) the SBC Board has withdrawn or
adversely modified its approval of the Merger Agreement or its recommendation
to the shareowners of SBC that such shareowners approve the issuance of shares
of SBC Common Stock pursuant to the Merger Agreement or failed to reconfirm
such recommendation in certain specific circumstances, (ii) there has been a
material breach by SBC or Merger Sub of any representation, warranty, covenant
or agreement contained in the Merger Agreement which (x) would result in a
failure of the condition relating to either the representations and warranties
of SBC or Merger Sub or the performance of the obligations of SBC or Merger Sub
under the Merger Agreement and (y) cannot be or is not cured prior to the
Termination Date or (iii) SBC or any of its representatives takes any of the
actions that would be proscribed by the non-solicitation provisions of the
Merger Agreement described under "The Merger--Certain Covenants--Acquisition
Proposals" but for the exception described therein allowing certain actions to
be taken with respect to engaging in discussions or negotiating in response to
a bona fide written unsolicited Superior SBC Proposal.
The Merger Agreement may also be terminated and the Merger may be abandoned
at any time prior to the Effective Time, by action of the SBC Board: (a) if (i)
the SBC Board approves entering into a binding written agreement concerning a
transaction that constitutes a Superior SBC Proposal and SBC notifies Ameritech
in writing that SBC desires to enter into such agreement, (ii) Ameritech does
not make, within ten days after receipt of SBC's written notification of its
desire to enter into a binding agreement for a Superior SBC Proposal, the terms
of which are specified in such notice, an offer that the SBC Board believes, in
good faith after consultation
11
<PAGE>
with its financial advisors, is at least as favorable, from a financial point
of view, to the shareowners of SBC as the Superior SBC Proposal, and (iii) SBC
prior to such termination pays to Ameritech in immediately available funds any
termination fees required to be paid pursuant to the Merger Agreement or (b) if
(i) the Ameritech Board has withdrawn or adversely modified its approval or
recommendation to Ameritech's shareowners of the Merger Agreement, or failed to
reconfirm such recommendation in certain specified circumstances, (ii) there
has been a material breach by Ameritech of any representation, warranty,
covenant or agreement contained in the Merger Agreement at the Ameritech
Special Meeting which (x) would result in a failure of a condition relating to
either the representations and warranties of Ameritech or the performance of
its obligations under the Merger Agreement and (y) cannot be or is not cured
prior to the Termination Date or (iii) Ameritech or any of its representatives
takes any of the actions that would be proscribed by the non-solicitation
provisions of the Merger Agreement described under "The Merger--Certain
Covenants--Acquisition Proposals" but for the exception described therein
allowing certain actions to be taken with respect to engaging in discussions or
negotiating in response to a bona fide written unsolicited Superior Ameritech
Proposal.
Certain Termination Fees
The Merger Agreement provides that (i) in the event that a bona fide
Ameritech Acquisition Proposal has been made to Ameritech and such Ameritech
Acquisition Proposal has not been withdrawn prior to the Ameritech Special
Meeting and thereafter the Merger Agreement is terminated by either SBC or
Ameritech pursuant to the provisions of the Merger Agreement permitting
termination if Ameritech's shareowners fail to adopt the Merger Agreement at
the Ameritech Special Meeting and within nine months after such termination
Ameritech enters into an agreement to consummate a transaction that would
constitute an Ameritech Acquisition Proposal if it were the subject of a
proposal, or (ii) the Merger Agreement is terminated (x) by Ameritech pursuant
to the provisions of the Merger Agreement permitting it to terminate in order
to enter into an agreement concerning a transaction that constitutes a Superior
Ameritech Proposal or (y) by SBC pursuant to the provisions of the Merger
Agreement permitting it to terminate (A) because the Ameritech Board has
withdrawn or adversely modified its approval or recommendation to Ameritech's
shareowners of the Merger Agreement, (B) because of a wilful or intentional
breach of the representations, warranties or covenants of Ameritech or (C)
because Ameritech or any of its representatives has taken any actions that
would be proscribed by the non-solicitation provisions of the Merger Agreement,
but for the exception therein allowing certain actions to be taken in response
to a bona fide unsolicited Superior Ameritech Proposal, then Ameritech will be
required to pay SBC a fee equal to $1.2 billion (the "Termination Fee"). See
"The Merger--Termination" and "--Certain Termination Fees."
The Merger Agreement further provides that (i) in the event that a bona fide
SBC Acquisition Proposal has been made to SBC and such SBC Acquisition Proposal
has not been withdrawn prior to the SBC Special Meeting and thereafter the
Merger Agreement is terminated by either SBC or Ameritech pursuant to the
provision of the Merger Agreement permitting termination if SBC's shareowners
fail to approve the issuance of shares of SBC Common Stock at the SBC Special
Meeting pursuant to the Merger Agreement and within nine months after such
termination SBC enters into an agreement to consummate a transaction that would
constitute an SBC Acquisition Proposal if it were the subject of a proposal, or
(ii) if the Merger Agreement is terminated (x) by SBC pursuant to the
provisions of the Merger Agreement permitting it to terminate in order to enter
into an agreement concerning a transaction that constitutes a Superior SBC
Proposal or (y) by Ameritech pursuant to the provisions of the Merger Agreement
permitting it to terminate (A) because the SBC Board has withdrawn or adversely
modified its approval or recommendation to SBC's shareowners of the issuance of
shares of SBC
12
<PAGE>
Common Stock pursuant to the Merger Agreement, (B) because of a wilful or
intentional breach of the representations, warranties or covenants of SBC or
(C) because SBC or any of its representatives has taken any actions that would
be proscribed by the non-solicitation provisions of the Merger Agreement, but
for the exception therein allowing certain actions to be taken in response to a
bona fide unsolicited Superior SBC Proposal, then SBC will be required to pay
Ameritech the Termination Fee. See "The Merger--Termination" and "--Certain
Termination Fees."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of Ameritech's Board, shareowners should be
aware that certain members of management of Ameritech and of the Ameritech
Board have certain interests in the Merger that are in addition to the
interests of shareowners generally.
Ameritech has entered into agreements regarding changes in control (the
"Change in Control Agreements") with Mr. Notebaert, Oren G. Shaffer, Executive
Vice President and Chief Financial Officer, Barry K. Allen, Executive Vice
President--Regulatory and Wholesale Operations, W. Patrick Campbell, Executive
Vice President--Corporate Strategy and Business Development and Thomas E.
Richards, Executive Vice President --Communications and Information Products,
the named executive officers set forth in Ameritech's proxy statement for the
1998 annual meeting of its shareowners (the "Named Executive Officers") and
three other executive officers of Ameritech. In addition, approximately 220
members of the management of Ameritech participate in the Corporate Resource
Severance Pay Plan (the "Severance Plan"), which provides for severance
payments upon termination of employment after a change in control. The
aggregate amount of payments to be made by Ameritech pursuant to the Change in
Control Agreements and the Severance Plan cannot be determined definitively as
of the date of this Joint Proxy Statement/Prospectus; however, the maximum
aggregate amount of such payments, if all covered employees were terminated
under circumstances entitling them to severance benefits, is estimated to be
approximately $41.7 million for the 15 executive officers of Ameritech as a
group, including up to $14.3 million for Mr. Notebaert, up to $3.9 million for
Mr. Shaffer, up to $5.2 million for Mr. Allen, up to $3.5 million for Mr.
Campbell and up to $2.8 million for Mr. Richards, and approximately
$135.5 million for the other covered employees under the Severance Plan. See
"The Merger--Interests of Certain Persons in the Merger."
On May 10, 1998, SBC entered into services and non-compete agreements (the
"Services and Non-Compete Agreements") with eight executive officers of
Ameritech. The Services and Non-Compete Agreements provide that each of these
officers will be employed or retained as a consultant by SBC or a subsidiary of
SBC for a period of up to 30 months commencing at the Effective Time. The
annual compensation as an employee or a consultant of the Named Executive
Officers pursuant to the Services and Non-Compete Agreements is as follows: Mr.
Notebaert $7.0 million, Mr. Shaffer $2.3 million, Mr. Allen $2.0 million, Mr.
Campbell $1.8 million and Mr. Richards $1.6 million, and $3.4 million in the
aggregate for the three other executive officers of Ameritech who have entered
into Services and Non-Compete Agreements. See "The Merger--Interests of Certain
Persons in the Merger."
DISSENTERS' RIGHTS OF APPRAISAL
In accordance with Section 262 of the DGCL, no appraisal rights will be
available to either holders of Ameritech Common Stock or SBC Common Stock in
connection with the Merger. No appraisal rights will be available to holders of
SBC Common Stock in connection with the Bylaw Amendment.
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<PAGE>
ACCOUNTING TREATMENT
Based on the advice of their respective independent public accountants, SBC
and Ameritech believe that the Merger will qualify for "pooling of interests"
accounting treatment. Under this method of accounting, SBC will retroactively
restate its consolidated financial statements at the Effective Time to include
the assets, liabilities, shareowners' equity and results of operations of
Ameritech. Consummation of the Merger is conditioned upon the receipt by SBC
and Ameritech of letters from their respective independent public accounting
firms stating that the Merger will qualify for "pooling of interests"
accounting treatment. See "The Merger--Conditions" and "Accounting Treatment."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger will qualify for federal income tax purposes as a "reorganization"
within the meaning of Section 368(a) of the Code. In general, no gain or loss
will be recognized for federal income tax purposes by holders of Ameritech
Common Stock with respect thereto on the surrender of their Ameritech Common
Stock in exchange for SBC Common Stock, except with respect to cash received in
lieu of fractional shares, and no gain or loss will be recognized for federal
income tax purposes by SBC, Merger Sub or Ameritech. The obligations of SBC and
Merger Sub, on the one hand, and Ameritech, on the other hand, to consummate
the Merger are respectively conditioned on (i) the receipt by SBC of an opinion
of Sullivan & Cromwell, dated as of the Closing Date, to the effect that the
Merger will be treated for federal income tax purposes as a "reorganization"
within the meaning of Section 368(a) of the Code, and that each of SBC,
Ameritech and Merger Sub will be a party to the "reorganization" within the
meaning of Section 368(b) of the Code, and (ii) the receipt by Ameritech of an
opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois), dated as of the
Closing Date, to the effect that the Merger will be treated for federal income
tax purposes as a "reorganization" within the meaning of Section 368(a) of the
Code, and that each of SBC, Ameritech and Merger Sub will be a party to the
"reorganization" within the meaning of Section 368(b) of the Code. See
"Material Federal Income Tax Consequences of the Merger."
THE BYLAW AMENDMENT
The SBC Board has unanimously approved the Bylaw Amendment and recommends
that the shareowners of SBC vote FOR the Bylaw Amendment. The Bylaw Amendment
would amend the second paragraph of Article II, Section 1, of the SBC Bylaws to
increase the maximum number of persons who may serve as directors on the SBC
Board from twenty-one (21) to twenty-five (25) and allow a majority of the SBC
Board to thereafter decrease (but not thereafter increase) the maximum number
of persons that may serve as directors to not less than twenty-one (21). See
"The Bylaw Amendment."
CERTAIN EFFECTS OF THE MERGER ON THE RIGHTS OF HOLDERS OF AMERITECH COMMON
STOCK
Upon consummation of the Merger, holders of shares of Ameritech Common Stock
will become shareowners of SBC. The internal affairs of SBC are governed by the
DGCL, the SBC Restated Certificate of Incorporation and the SBC Bylaws. The
internal affairs of Ameritech are governed by the DGCL, the Certificate of
Incorporation of Ameritech, as amended (the "Ameritech Charter") and the By-
Laws of Ameritech (the "Ameritech Bylaws"). For a description of certain
differences between the rights holders of Ameritech Common Stock currently have
and those they would have as holders of SBC Common Stock, see "Description of
SBC Capital Stock," and "Comparison of Certain Rights of Shareowners of SBC and
Ameritech."
14
<PAGE>
COMPARATIVE STOCK PRICES
The shares of SBC Common Stock and Ameritech Common Stock are each listed on
the NYSE as well as on certain other exchanges. SBC is listed on the NYSE under
the symbol "SBC" and Ameritech is listed on the NYSE under the symbol "AIT."
The following table sets forth, for the periods indicated, the high and low
sale prices per share of SBC Common Stock and Ameritech Common Stock as
reported on the NYSE Composite Transactions Tape.
<TABLE>
<CAPTION>
SBC AMERITECH
COMMON STOCK(1) COMMON STOCK(2)
---------------------- --------------------
CALENDAR QUARTER HIGH LOW HIGH LOW
---------------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
1996
First Quarter......... $ 30 1/8 $ 24 7/8 $ 33 7/16 $ 26 1/8
Second Quarter........ 25 3/8 23 1/8 30 26 5/16
Third Quarter......... 25 1/2 23 29 13/16 24 13/16
Fourth Quarter........ 27 5/8 23 1/2 31 11/16 26
1997
First Quarter......... 29 1/8 24 13/16 32 1/2 28 5/16
Second Quarter........ 30 15/16 24 5/8 35 7/8 27 5/8
Third Quarter......... 31 1/8 26 25/32 35 5/16 30 21/32
Fourth Quarter........ 38 1/16 30 43 1/8 30 1/8
1998
First Quarter......... 46 9/16 35 3/8 49 7/8 38 27/32
Second Quarter........ 44 15/16 37 1/8 50 1/4 41 1/2
Third Quarter......... 44 7/8 35 52 1/8 43 3/8
Fourth Quarter 44 3/4 41 1/8 51 1/8 48 1/8
(through October 14,
1998)................
</TABLE>
- --------
(1) Prices for SBC Common Stock reflect the effect of the two-for-one split of
SBC Common Stock effective March 19, 1998 (the "SBC Stock Split").
(2) Prices for Ameritech Common Stock reflect the effect of the two-for-one
split of Ameritech Common Stock effective December 31, 1997 (the "Ameritech
Stock Split").
On May 8, 1998, the last trading day before the public announcement of the
Merger Agreement, the closing prices of SBC Common Stock and Ameritech Common
Stock as reported on the NYSE Composite Transactions Tape were $42.375 per
share and $43.875 per share, respectively. Based on the Exchange Ratio, the pro
forma equivalent per share value of Ameritech Common Stock on May 8, 1998 was
equal to approximately $55.7655 per share. The pro forma implied per share
value of Ameritech Common Stock on any date equals the closing sale price of
SBC Common Stock on such date multiplied by the Exchange Ratio.
On October 14, 1998, the closing sale prices of the shares of SBC Common
Stock and Ameritech Common Stock as reported on the NYSE Composite Transactions
Tape were $43.375 per share and $50.5625 per share ($57.0815 on a pro forma
equivalent per share basis), respectively.
Shareowners are urged to obtain current quotations for the market prices of
SBC Common Stock and Ameritech Common Stock.
No assurance can be given as to the market price of the SBC Common Stock at
the Effective Time. Because the Exchange Ratio is fixed in the Merger
Agreement, the market value of the shares of SBC Common Stock that holders of
Ameritech Common Stock will receive following the Closing may vary
significantly from the market value of the shares of SBC Common Stock that
holders of Ameritech Common Stock would receive if the Merger were consummated
on the date of this Joint Proxy Statement/Prospectus.
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<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table presents selected historical financial data of SBC,
Ameritech and SNET and selected unaudited pro forma combined financial data
after giving effect to the consummation of the Merger separately and the
consummation of the Merger and the pending SNET acquisition. The tables assume
that each of the Merger and the SNET acquisition are accounted for as a
"pooling of interests." SBC, Ameritech and SNET selected historical data for
each of the five years in the period ended December 31, 1997 have been derived
from audited financial statements filed with the SEC, and the selected
historical data for the six-month period ended June 30, 1998 have been derived
from unaudited financial statements filed with the SEC.
All per share amounts set forth in the following table give effect to the SBC
Stock Split and the Ameritech Stock Split, as appropriate. Shareowners should
note that the data set forth below is presented for illustrative purposes only
and is not necessarily indicative of the financial position or operating
results that would have occurred or that will occur upon consummation of the
Merger and the SNET acquisition.
Differences in accounting policies among the companies do not have a material
effect on either the pro forma combined financial position or pro forma
combined results of operations and have not been reflected in any unaudited pro
forma combined financial data. Shareowners should note that the following
selected financial data should be read in conjunction with the related
historical and pro forma combined financial statements and notes thereto
incorporated by reference or included herein. See "Available Information,"
"Incorporation of Certain Information by Reference" and "Unaudited Pro Forma
Combined Condensed Financial Statements."
<TABLE>
<CAPTION>
AS OF OR FOR
THE SIX AS OF OR FOR THE YEARS ENDED DECEMBER
MONTHS ENDED 31,
JUNE 30, ---------------------------------------
1998 1997 1996 1995 1994 1993
------------ ------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
SBC--HISTORICAL
Operating revenues........ $13,015 $24,856 $23,445 $21,712 $21,006 $20,084
Income from continuing
operations............... 1,878 1,474 3,189 2,958 2,777 1,589
Income from continuing
operations per common
share--basic............. 1.02 0.81 1.73 1.61 1.52 0.88
Income from continuing
operations per common
share--assuming dilution. 1.01 0.80 1.72 1.60 1.52 0.88
Total assets.............. 42,600 42,132 39,485 37,112 46,113 47,695
Long-term debt............ 11,547 12,019 10,930 10,409 10,746 10,588
Dividends per common
share.................... 0.4675 0.895 0.86 0.825 0.79 0.755
Book value per common
share.................... 5.91 5.38 5.28 4.57 7.29 8.34
Network access lines...... 34.21 33.44 31.84 30.32 29.15 28.23
AMERITECH--HISTORICAL
Operating revenues........ $ 8,422 $15,998 $14,917 $13,428 $12,569 $11,865
Income from continuing
operations............... 2,200 2,296 2,134 2,008 1,170 1,513
Income from continuing
operations per common
share--basic............. 2.00 2.09 1.93 1.81 1.06 1.39
Income from continuing
operations per common
share--assuming dilution. 1.98 2.08 1.92 1.81 1.06 1.39
Total assets.............. 29,045 25,339 23,707 21,942 19,947 23,428
Long-term debt............ 7,013 4,610 4,437 4,513 4,448 4,090
Dividends per common
share.................... 0.60 1.148 1.078 1.015 0.97 0.93
Book value per common
share.................... 9.14 7.57 6.99 6.33 5.49 7.18
Network access lines...... 20.84 20.50 19.69 19.06 18.24 17.56
PRO FORMA SBC AND
AMERITECH COMBINED
Operating revenues........ $21,437 $40,854 $38,362 $35,140 $33,575 $31,949
Income from continuing
operations............... 4,078 3,770 5,323 4,966 3,947 3,102
Income from continuing
operations per common
share--basic............. 1.24 1.15 1.62 1.51 1.21 0.96
Income from continuing
operations per common
share--assuming dilution. 1.23 1.14 1.61 1.50 1.21 0.96
Total assets.............. 71,645 67,471 63,192 59,054 66,060 71,123
Long-term debt............ 18,560 16,629 15,367 14,922 15,194 14,678
Dividends per common
share(1)................. 0.4675 0.895 0.86 0.825 0.79 0.755
Book value per common
share.................... 6.37 5.54 5.29 4.68 5.92 7.07
Network access lines...... 55.05 53.94 51.53 49.37 47.39 45.79
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
AS OF OR FOR
THE SIX AS OF OR FOR THE YEARS ENDED DECEMBER
MONTHS ENDED 31,
JUNE 30, ---------------------------------------
1998 1997 1996 1995 1994 1993
------------ ------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
SNET--HISTORICAL
Operating revenues........ $ 1,066 $ 2,022 $ 1,942 $ 1,816 $ 1,718 $ 1,655
Income (loss) from
continuing operations.... 109 198 193 169 178 (44)
Income (loss) from
continuing operations per
common share-- basic..... 1.62 2.99 2.95 2.60 2.77 (0.68)
Income (loss) from
continuing operations per
common share--assuming
dilution................. 1.60 2.98 2.94 2.60 2.77 (0.68)
Total assets.............. 2,837 2,771 2,671 2,724 3,505 3,762
Long-term debt............ 1,147 1,157 1,170 1,182 952 984
Dividends per common
share.................... 0.88 1.76 1.76 1.76 1.76 1.76
Book value per common
share.................... 10.84 8.96 7.05 5.42 14.77 13.38
Network access lines...... 2.34 2.29 2.16 2.07 2.01 1.96
PRO FORMA SBC, AMERITECH
AND SNET COMBINED
Operating revenues........ $22,503 $42,876 $40,304 $36,956 $35,293 $33,604
Income from continuing
operations............... 4,187 3,964 5,516 5,135 4,125 3,058
Income from continuing
operations per common
share--basic............. 1.23 1.17 1.62 1.50 1.22 0.91
Income from continuing
operations per common
share--assuming dilution. 1.22 1.16 1.61 1.50 1.22 0.91
Total assets.............. 74,482 70,242 65,863 61,778 69,565 74,885
Long-term debt............ 19,707 17,786 16,537 16,104 16,146 15,662
Dividends per common
share(1)................. 0.4675 0.895 0.86 0.825 0.79 0.755
Book value per common
share.................... 6.36 5.53 5.25 4.63 6.00 7.09
Network access lines...... 57.38 56.23 53.69 51.45 49.40 47.76
AMERITECH EQUIVALENTS--SBC
AND AMERITECH COMBINED
Income from continuing
operations per common
share--basic(2).......... 1.63 1.51 2.13 1.99 1.59 1.26
Income from continuing
operations per common
share--assuming
dilution(2).............. 1.62 1.50 2.12 1.97 1.59 1.26
Dividends per common
share(2)................. 0.62 1.18 1.13 1.09 1.04 0.99
Book value per common
share(2)................. 8.38 7.29 6.96 6.16 7.79 9.30
AMERITECH EQUIVALENTS--
SBC, AMERITECH AND SNET
COMBINED
Income from continuing
operations per common
share--basic(2) 1.62 1.54 2.13 1.97 1.61 1.20
Income from continuing
operations per common
share--assuming
dilution(2).............. 1.61 1.53 2.12 1.97 1.61 1.20
Dividends per common
share(2)................. 0.62 1.18 1.13 1.09 1.04 0.99
Book value per common
share(2)................. 8.37 7.28 6.91 6.09 7.90 9.33
</TABLE>
- --------
(1) The unaudited pro forma combined cash dividends declared per share of SBC
Common Stock are assumed to be the same as cash dividends declared by SBC
on an historical basis.
(2) The Ameritech Equivalents per share amounts are calculated by multiplying
the pro forma combined per share amounts by the Exchange Ratio.
General:
The selected unaudited pro forma combined financial data do not give effect
to any cost synergies which may result from the integration of the
operations of SBC, Ameritech and SNET. These potential synergies, as well
as any potential revenue synergies, reflect future opportunities, including
the reduction of expected cost increases, and do not necessarily involve
reductions from historical cost levels. Further, the selected unaudited pro
forma combined financial data do not include any transaction costs relating
to the Merger (which are estimated to be approximately $150 million) or the
SNET acquisition. In addition, the selected unaudited pro forma combined
financial data do not include any reorganization costs or costs associated
with the actions that may be required to be taken regarding the Overlapping
Cellular Licenses (as defined herein) as a result of the Merger. As the
nature of any actions to be taken regarding the Overlapping Cellular
Licenses is unknown, the selected unaudited pro forma combined financial
data do not reflect any such disposition which may be made or consideration
which may be received.
17
<PAGE>
RECENT DEVELOPMENTS
THIRD QUARTER RESULTS
On October 15, 1998, SBC, Ameritech and SNET announced results for and
through the third quarter of 1998. A copy of the press release issued by each
such company was filed with the SEC on October 15, 1998 with each company's
respective Current Report on Form 8-K. The following table contains historical
and pro forma financial data as of or for the nine months ended September 30,
1998. The historical financial data for the nine months ended September 30,
1998 has been taken from the results announced on October 15, 1998.
The following data is unaudited but, in the respective opinions of SBC,
Ameritech and SNET (in each case solely with respect to that company's
historical data), includes all adjustments (consisting only of normally
occurring accruals) necessary to present fairly the data shown.
AS OF OR FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AMERITECH
AMERITECH PRO FORMA EQUIVALENTS--
PRO FORMA EQUIVALENTS-- SBC, SBC,
SBC AND SBC AND AMERITECH AMERITECH
SBC-- AMERITECH-- AMERITECH AMERITECH SNET-- AND SNET AND SNET
HISTORICAL HISTORICAL COMBINED COMBINED HISTORICAL COMBINED COMBINED
---------- ----------- --------- ------------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues...... $ 19,791 $12,712 $ 32,503 -- $ 1,606 $ 34,109 --
Income from continuing
operations............. 3,085 2,845 5,930 -- 164 6,094 --
Income from continuing
operations per common
share--basic........... 1.68 2.58 1.80 $ 2.37 2.42 1.79 $ 2.36
Income from continuing
operations per common
share--assuming
dilution............... 1.66 2.56 1.78 2.34 2.39 1.77 2.33
Total assets............ 42,529 29,843 72,372 -- 2,842 75,214 --
Long-term debt.......... 11,217 7,013 18,230 -- 1,141 19,371 --
Dividends per common
share.................. 0.70125 0.90 0.70125 0.9228 1.32 0.70125 0.9228
Book value per common
share.................. 6.29 9.78 6.80 8.95 11.45 6.79 8.94
Network access lines.... 34.60 20.93 55.53 -- 2.34 57.87 --
</TABLE>
TELEKOM AUSTRIA
As part of its continuing European investment strategy, Ameritech has
submitted a bid for a 25% interest in Telekom Austria Aktiengesellschaft
("Telekom Austria"), the primary fixed line and wireless telecommunications
provider in Austria that is being partially privatized by the Austrian
government. Ameritech expects the Austrian government to select the successful
bidder by the end of 1998. There can be no assurance that Ameritech's bid will
be accepted or, if accepted, what the terms of the transaction would be.
18
<PAGE>
RISK FACTORS
Fixed Exchange Ratio. Under the terms of the Merger Agreement, at the
Effective Time, each share of Ameritech Common Stock issued and outstanding
immediately prior to such time (other than Excluded Ameritech Stock) will be
converted into 1.316 shares of SBC Common Stock. The Merger Agreement does not
contain any provisions for adjustment of the Exchange Ratio based on
fluctuations in the market prices of Ameritech Common Stock or SBC Common
Stock prior to the Merger. The market prices of Ameritech Common Stock and SBC
Common Stock at the Effective Time may be different than their respective
market prices as of the date of execution of the Merger Agreement, the date
hereof or the dates of the Special Meetings. For example, during the second
and third calendar quarters of 1998, the sale price of Ameritech Common Stock
ranged from a low of $41 1/2 to a high of $52 1/8, and the sale price of SBC
Common Stock ranged from a low of $35 to a high of $44 15/16, all as reported
on the NYSE Composite Transactions Tape. See "Summary--Comparative Stock
Prices." Such variations could be the result of changes in the business,
operations or prospects of Ameritech, SBC, or the combined company, market
assessments of the likelihood that the Merger will be consummated and the
timing thereof, regulatory considerations, general market and economic
conditions and other factors both within and beyond the control of SBC or
Ameritech. At the time of the Special Meetings, Ameritech and SBC shareowners
will not know the price at which shares of SBC Common Stock that will be
issued upon consummation of the Merger will trade at the time of such
issuance.
Failure to Realize Benefits Anticipated by the Parties. The Merger involves
the integration of two companies that have previously operated independently.
SBC and Ameritech entered into the Merger Agreement with the expectation that
the Merger would create opportunities to implement a "national-local"
strategy, and to achieve cost synergies, revenue growth, technological
development and other synergistic benefits. The value of SBC Common Stock
following consummation of the Merger may be affected by the ability to achieve
the benefits expected to result from consummation of the Merger. Achieving the
benefits of the Merger will depend in part upon meeting the challenges
inherent in the successful combination of two business enterprises of the size
and scope of SBC and Ameritech and the possible resulting diversion of
management attention for an extended period of time. There can be no assurance
that such challenges will be met and that such diversion will not negatively
impact the operations of SBC following the Merger. Delays encountered in the
transition process could have a material adverse effect upon the revenues,
level of expenses, operating results and financial condition of the combined
company. Although SBC and Ameritech expect significant benefits to result from
the Merger, there can be no assurance that the combined company will realize
any of these anticipated benefits. See "The Merger--Reasons for the Merger;
Recommendations of the Boards of Directors."
Risk of Conditions Imposed by Regulatory Agencies. Consummation of the
Merger is conditioned upon the expiration or termination of the applicable
waiting period under the HSR Act and the making of certain filings with and
notices to, and the receipt of consents, orders and approvals from, the FCC,
various PUCs and other local, state, federal and foreign governmental
entities. Certain of the consents, orders and approvals will entail the
relevant governmental entity considering the effect of the Merger on
competition in various jurisdictions. The terms and conditions of such
consents, orders or approvals may require the divestiture of certain
divisions, operations or assets of the combined companies. There can be no
assurance that such required divestitures or other conditions, if any, will
not have a material adverse effect on the business, financial condition or
results of operations of the combined company or cause the abandonment of the
Merger by SBC and Ameritech. As a result of certain FCC rules, SBC and
Ameritech expect that they will be required to divest one of the Overlapping
Cellular Licenses in each market and are in the process of determining the
manner in which such divestitures should be accomplished. Other than
considering the manner in which Overlapping Cellular Licenses could be
divested, SBC and Ameritech have not determined how they will respond to
conditions, limitations or divestitures which may be sought by Governmental
Entities (as defined herein) in connection with any requisite approvals. See
"The Merger--Certain Regulatory Filings and Approvals" and "--Conditions."
19
<PAGE>
THE SPECIAL MEETINGS
GENERAL
SBC
This Joint Proxy Statement/Prospectus is being furnished to holders of SBC
Common Stock in connection with the solicitation of proxies by the SBC Board
for use at the SBC Special Meeting, to be held on December 10, 1998, to
consider and vote upon the approval of the issuance of shares of SBC Common
Stock pursuant to the Merger Agreement and adoption of the Bylaw Amendment,
and to transact such other business related to such proposals as may properly
come before the SBC Special Meeting.
THE SBC BOARD HAS AUTHORIZED AND APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT THE SBC SHAREOWNERS VOTE FOR THE APPROVAL OF THE
ISSUANCE OF SHARES OF SBC COMMON STOCK PURSUANT TO THE MERGER AGREEMENT. IN
ADDITION, THE SBC BOARD HAS UNANIMOUSLY APPROVED THE BYLAW AMENDMENT AND
DETERMINED THAT THE BYLAW AMENDMENT IS ADVISABLE AND RECOMMENDS THAT SBC
SHAREOWNERS VOTE FOR ADOPTION OF THE BYLAW AMENDMENT.
Ameritech
This Joint Proxy Statement/Prospectus is being furnished to holders of
Ameritech Common Stock in connection with the solicitation of proxies by the
Ameritech Board for use at the Ameritech Special Meeting, to be held on
December 11, 1998 to consider and vote upon the adoption of the Merger
Agreement and to transact such other business related to such Merger Proposal
as may properly come before the Ameritech Special Meeting.
THE AMERITECH BOARD HAS APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY
RECOMMENDS THAT THE AMERITECH SHAREOWNERS VOTE FOR THE ADOPTION OF THE MERGER
AGREEMENT.
This Joint Proxy Statement/Prospectus is also furnished to Ameritech
shareowners as a prospectus in connection with the issuance by SBC of shares
of SBC Common Stock pursuant to the Merger Agreement.
Each copy of this Joint Proxy Statement/Prospectus mailed to holders of
Ameritech Common Stock is accompanied by a form of proxy for use at the
Ameritech Special Meeting, and each copy of this Joint Proxy
Statement/Prospectus mailed to holders of SBC Common Stock is accompanied by a
form of proxy for use at the SBC Special Meeting. In addition, record owners
of Ameritech Common Stock as of the Ameritech Record Date may provide proxies
by calling toll-free at 1-800-690-6903, or through the Internet, in accordance
with the instructions set forth on the Ameritech proxy card and accompanying
information card. Record owners of SBC Common Stock as of the SBC Record Date
may provide proxies by calling 1-800-840-6013, in accordance with the
instructions set forth on the SBC proxy card.
DATE, PLACE AND TIME
The SBC Special Meeting will be held on December 10, 1998, at 3:00 p.m.,
local time, at The Charline McCombs Theatre, 226 North St. Mary's Street, San
Antonio, Texas 78205.
The Ameritech Special Meeting will be held on December 11, 1998, at 9:00
a.m., local time, at McCormick Place South, Grand Ballroom, Level 1, 2301
South Martin Luther King, Jr. Drive, Chicago, Illinois 60616.
RECORD DATES
SBC
The SBC Board has fixed the close of business on October 13, 1998 as the SBC
Record Date for the determination of the holders of SBC Common Stock entitled
to receive notice of and to vote at the SBC Special Meeting.
20
<PAGE>
Ameritech
The close of business on October 13, 1998 has been fixed as the Ameritech
Record Date for the determination of the holders of Ameritech Common Stock
entitled to receive notice of and to vote at the Ameritech Special Meeting.
VOTE REQUIRED
SBC
As of the SBC Record Date, there were 1,835,049,268 shares of SBC Common
Stock issued and outstanding. Each share of SBC Common Stock outstanding on
the SBC Record Date is entitled to one vote upon each matter properly
submitted at the SBC Special Meeting.
The affirmative vote of at least a majority of the shares of SBC Common
Stock voting on the proposal to issue shares of SBC Common Stock pursuant to
the Merger Agreement is necessary for approval of such share issuance. Under
the rules of the NYSE, in order to approve the issuance of shares of SBC
Common Stock pursuant to the Merger Agreement, the total number of votes cast
with respect to such matter must be in excess of 50% of the issued and
outstanding shares of SBC Common Stock. The affirmative vote of the holders of
at least two-thirds of the shares of SBC Common Stock issued and outstanding
on the SBC Record Date is necessary to adopt the Bylaw Amendment.
The presence in person or represented by proxy of forty percent of the
shares of SBC Common Stock entitled to vote at the SBC Special Meeting will
constitute a quorum for the transaction of business other than the share
issuance proposal.
With respect to the proposal to issue shares of SBC Common Stock pursuant to
the Merger Agreement, any abstention or broker non-vote will have the effect
of reducing the aggregate number of shares of SBC Common Stock voting and the
number of shares of SBC Common Stock required to approve such proposal. With
respect to the Bylaw Amendment, any abstention by a record holder or
beneficial owner of SBC Common Stock or failure to vote by a record holder of
SBC Common Stock will have the effect of a vote against such proposal. Under
the rules of the NYSE, brokers who hold shares in street name for customers
will not have authority to vote on the issuance of shares of SBC Common Stock
pursuant to the Merger Agreement, unless they receive specific instructions
from beneficial owners. However, under the rules of the NYSE, brokers who hold
shares in street name for customers will have authority to vote on the Bylaw
Amendment which is considered a "routine" matter. Shares that are not voted
because brokers did not receive any such instructions are referred to as
"broker non-votes."
As of September 30, 1998, directors and executive officers of SBC and their
affiliates owned beneficially an aggregate of 6,613,458 shares of SBC Common
Stock (including shares which may be acquired within 60 days upon exercise of
employee stock options) or approximately 0.4% of the shares of SBC Common
Stock outstanding on such date. The directors and executive officers of SBC
have indicated their intention to vote their shares of SBC Common Stock in
favor of the proposal to issue shares of SBC Common Stock pursuant to the
Merger Agreement.
As of September 30, 1998, the directors and executive officers of SBC owned
no shares of Ameritech Common Stock.
Ameritech
As of the Ameritech Record Date, there were 1,103,394,689 shares of
Ameritech Common Stock issued and outstanding. Each share of Ameritech Common
Stock outstanding on the Ameritech Record Date is entitled to one vote on each
matter submitted at the Ameritech Special Meeting. The affirmative vote of the
holders of a
21
<PAGE>
majority of the shares of Ameritech Common Stock issued and outstanding on the
Ameritech Record Date is required to adopt the Merger Agreement. Any failure
to be present at the Ameritech Special Meeting, in person or by proxy, any
abstention and any broker non-vote will have the same effect as a vote against
adoption of the Merger Agreement. Under the rules of the NYSE, brokers who
hold shares in street name for customers will not have authority to vote on
the Merger Proposal unless they receive specific instructions from the
beneficial owners of such shares.
The presence, in person or by proxy, of a majority of the votes entitled to
be cast at the Ameritech Special Meeting will constitute a quorum for the
transaction of business. Abstentions and broker non-votes will be counted as
present for purposes of determining a quorum.
As of September 30, 1998, directors and executive officers of Ameritech and
their affiliates owned beneficially an aggregate of approximately 2,600,000
shares of Ameritech Common Stock (including shares which may be acquired
within 60 days upon exercise of employee stock options) or less than 0.25% of
the shares of Ameritech Common Stock outstanding on such date. The directors
and executive officers of Ameritech have indicated their intention to vote
their shares of Ameritech Common Stock in favor of the proposal to adopt the
Merger Agreement.
As of September 30, 1998, the directors and executive officers of Ameritech
owned an aggregate of approximately 7,000 shares of SBC Common Stock.
See "The Merger--Interests of Certain Persons in the Merger."
VOTING AND REVOCATION OF PROXIES
Proxies for shares of SBC Common Stock and Ameritech Common Stock may be
submitted by completing and mailing the proxy card that accompanies this Joint
Proxy Statement/Prospectus, or by submitting your proxy with voting
instructions by telephone. Submission of proxies with voting instructions by
telephone may not be available to shareholders who hold their shares through a
broker, nominee, fiduciary or other custodian. In addition, proxies with
voting instructions for shares of Ameritech Common Stock may be submitted
through the Internet. Shares of SBC Common Stock and Ameritech Common Stock
represented by a proxy properly signed or submitted as described below and
received at or prior to the appropriate Special Meeting, unless subsequently
revoked, will be voted in accordance with the instructions thereon.
To submit a written proxy by mail, holders of SBC Common Stock or Ameritech
Common Stock should complete, sign, date and mail the proxy card provided with
this Joint Proxy Statement/Prospectus in accordance with the instructions set
forth on such card. If a proxy card is signed and returned without indicating
any voting instructions, shares of SBC Common Stock represented by the proxy
will be voted FOR the proposal to approve the issuance of shares of SBC Common
Stock pursuant to the Merger Agreement and FOR the Bylaw Amendment and shares
of Ameritech Common Stock represented by the proxy will be voted FOR the
Merger Proposal.
Instead of submitting a signed proxy card, SBC and Ameritech shareowners may
also submit their proxies with voting instructions by telephone, and holders
of Ameritech Common Stock may also submit their proxies with voting
instructions through the Internet. To submit proxies with voting instructions
via telephone or the Internet, shareowners should follow the instructions that
accompany or are set forth on the reverse side of their proxy card. Each SBC
and Ameritech shareowner has been assigned a unique control number which has
been printed on each holder's proxy card. Shareowners who submit proxies with
voting instructions by telephone or through the Internet will be required to
provide their assigned control number before their proxy will be accepted. In
addition to the instructions that appear on or accompany the proxy card, step-
by-step instructions will be provided by recorded telephone message, or at the
designated website for Ameritech shareowners submitting
22
<PAGE>
their proxies with voting instructions through the Internet, and shareowners
submitting their proxies with voting instructions by telephone or the Internet
will receive confirmation that their proxies have been successfully submitted.
Under a confidential voting policy adopted by the Ameritech Board, no
proxies, voting instructions or ballots (which are to be cast at the Ameritech
Special Meeting) submitted by Ameritech shareowners will be made available for
examination by, nor will the particular vote of any Ameritech shareowner be
disclosed to, Ameritech, its directors, officers or employees, or any third
party, except (i) as necessary to tabulate and certify voting results, (ii) as
necessary to meet applicable legal requirements and to assert or defend claims
of or against Ameritech, (iii) if there is a proxy solicitation by another
party in opposition to the solicitation by the Ameritech Board, (iv) if the
shareowner has made a written comment on his or her proxy, voting instruction
or ballot or (v) if the shareowner expressly requests or consents to such
disclosure in writing. This policy also provides that votes of Ameritech
shareowners will be tabulated by Ameritech's transfer agent or another
independent party selected by Ameritech and that Ameritech will engage an
independent inspector of elections to inspect the tabulation of votes and
certify the results of the voting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the proxy is voted by filing a duly executed
revocation or a duly executed proxy bearing a later date with the Secretary of
SBC, for SBC shareowners, or by filing a duly executed revocation or a duly
executed proxy bearing a later date with the Secretary of Ameritech, for
Ameritech shareowners, prior to or at the appropriate Special Meeting, or, in
either case, by voting in person at the appropriate Special Meeting, although
attendance at the appropriate Special Meeting will not in and of itself
constitute revocation of a proxy. All written notices of revocation and other
communications with respect to revocation by SBC shareowners should be
addressed as follows: SBC Communications Inc., 175 East Houston, San Antonio,
Texas 78205, Attention: Secretary. All written notices of revocation and other
communications with respect to revocation by Ameritech shareowners should be
addressed as follows: Ameritech Corporation, 30 South Wacker Drive, Chicago,
Illinois 60606, Attention: Corporate Secretary. To revoke a proxy previously
submitted by telephone or, for Ameritech shareowners, by Internet, a
shareowner of record can simply vote again at a later date, using the same
procedures, in which case the later submitted vote will be recorded and the
earlier vote will thereby be revoked.
If an SBC shareowner is a participant in SBC's Direct Stock Purchase and
Reinvestment Plan, the SBC proxy card or telephone proxy will serve as voting
instructions with respect to the number of shares of SBC Common Stock held in
the plan on behalf of the particular shareowner. If an SBC shareowner is a
participant in any of the following benefit plans of SBC: the SBC Savings
Plan, the SBC Savings and Security Plan, the Pacific Telesis Group
Supplemental Retirement and Savings Plan for Salaried and Nonsalaried
Employees (Leveraged ESOP) (together with the SBC Savings Plan and the SBC
Savings and Security Plan referred to as the "Savings Plans"), the SBC PAYSOP,
the Pacific Telesis Group Supplemental Retirement and Savings Plan for
Nonsalaried Employees, or the Pacific Telesis Group Employee Stock Ownership
Plan, then the SBC proxy card or telephone proxy will, similarly, serve as
voting instructions for the trustees of those plans where all accounts are
registered in the same name. Shares of SBC Common Stock in each of the
foregoing benefit plans for which voting instructions are not received, as
well as shares of SBC Common Stock which have not yet been allocated to
participants' accounts in the Savings Plans, will be voted in the same
proportion as the shares of SBC Common Stock for which signed cards are
returned by other participants in each such compensation and benefit plan of
SBC. If an SBC shareowner participates in any of these plans or maintains
other accounts under a different name (e.g., with and without a middle
initial), the SBC shareowner may receive more than one set of Joint Proxy
Statement/Prospectus materials. To ensure that all shares of SBC Common Stock
are voted, the shareowner must either sign and return every proxy card
received or provide his or her proxy with voting instructions by telephone in
the manner described in each proxy card and using the assigned control number.
23
<PAGE>
If an Ameritech shareowner is a participant in the Ameritech Direct Services
Investment Plan, the Ameritech proxy card, telephone proxy or Internet proxy
will serve as voting instructions with respect to the number of shares of
Ameritech Common Stock held in the plan on behalf of the particular
shareowner. If an Ameritech shareowner is a participant in the Ameritech
Savings Plan for Salaried Employees or the Ameritech Savings and Security Plan
for Non-Salaried Employees, then the Ameritech proxy card, telephone proxy or
Internet proxy similarly will serve as voting instructions for the trustees of
those plans if all accounts are registered in the same name. Shares of
Ameritech Common Stock in the Ameritech Savings Plan for Salaried Employees or
the Ameritech Savings and Security Plan for Non-Salaried Employees as to which
voting instructions are not received, as well as shares of Ameritech Common
Stock which have not yet been allocated to participants' accounts in the
savings plans, will be voted in the same proportion as the shares of Ameritech
Common Stock for which voting instructions are given by other participants in
the same plan. If an Ameritech shareowner participates in any of these plans
or maintains other accounts under a different name (e.g., with and without a
middle initial), the Ameritech shareowner may receive more than one copy of
this Joint Proxy Statement/Prospectus. To ensure that all shares of Ameritech
Common Stock are voted, the shareowner must either sign and return every proxy
card received or provide his or her proxy with voting instructions by
telephone or through the Internet in the manner described in each proxy card
and using the assigned control number.
The SBC Board and the Ameritech Board are not currently aware of any
business to be acted upon at their respective Special Meetings, other than as
described herein. If, however, other matters related to the proposals at the
respective Special Meetings are properly brought before either Special
Meeting, the persons appointed as proxies will have discretion to vote or act
thereon according to their best judgment. The persons appointed as proxies
will have discretion to vote on adjournment of the Special Meetings. Such
adjournment may be for the purpose of soliciting additional proxies. Shares
represented by proxies voting against, in the case of SBC, approval of the
issuance of shares of SBC Common Stock pursuant to the Merger Agreement and,
in the case of Ameritech, adoption of the Merger Agreement will be voted
against a proposal to adjourn the respective Special Meeting for the purpose
of soliciting additional proxies.
Shareowners of SBC and Ameritech will not be entitled to present any matter
not related to the proposals described herein for consideration at their
respective Special Meetings.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
SBC or Ameritech, none of whom will be specifically compensated for such
services but may be reimbursed for reasonable out-of-pocket expenses in
connection therewith, may solicit proxies from the shareowners of SBC or
Ameritech personally or by telephone, telecopy or telegram or other forms of
communication. Brokerage houses, nominees, fiduciaries and other custodians
will be requested to forward soliciting materials to beneficial owners and
will be reimbursed for their reasonable expenses incurred in sending such
materials to beneficial owners.
In addition, SBC has retained Georgeson & Company, Inc. and Ameritech has
retained D.F. King & Co. to assist in the solicitation of proxies from their
respective shareowners. The fees to be paid by SBC to Georgeson & Company,
Inc. for such services will be equal to approximately $40,000, and the fees to
be paid by Ameritech to D.F. King & Co. for such services will be equal to
approximately $25,000 plus in each case reasonable out-of-pocket costs and
expenses. SBC and Ameritech will each bear its own expenses in connection with
the solicitation of proxies for the Special Meetings, except that SBC and
Ameritech will share equally all expenses incurred in connection with the
filing fee for the Registration Statement and printing and mailing this Joint
Proxy Statement/Prospectus and the Registration Statement.
AMERITECH SHAREOWNERS SHOULD NOT SEND AMERITECH COMMON STOCK CERTIFICATES
WITH THEIR PROXY CARDS.
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THE COMPANIES
SBC
SBC is a holding company whose subsidiaries and affiliates operate
predominantly in the communications services industry. SBC's subsidiaries and
affiliates provide landline and wireless telecommunications services and
equipment, directory advertising, publishing services and Internet access
services. SBC's subsidiaries and affiliates provide landline
telecommunications and related services in California, Texas, Missouri,
Oklahoma, Kansas, Arkansas and Nevada and wireless telecommunications and
related services principally in those states as well as in Illinois, Indiana,
Maryland, Massachusetts, New York, Virginia, Washington, D.C. and West
Virginia. SBC will also provide landline and wireless telecommunications and
related services in Connecticut and wireless services in Rhode Island
following the completion of the acquisition of SNET, if completed. SBC was
incorporated under the laws of the State of Delaware in 1983.
On January 4, 1998, SBC entered into an agreement to acquire SNET, which, as
of and for the year ended December 31, 1997, had assets of $2.8 billion,
shareholders' equity of $597 million and net income of $194 million. The
acquisition of SNET is intended to qualify for "pooling of interests"
accounting treatment, and is expected to close prior to the end of 1998. The
Merger and the SNET acquisition are reflected in certain of the pro forma
combined financial information presented herein.
The mailing address of SBC's principal executive offices is 175 East
Houston, San Antonio, Texas 78205-2233, and its telephone number is (210) 821-
4105.
AMERITECH
Ameritech is a holding company whose subsidiaries and affiliates operate
predominantly in the communications services industry. Ameritech's
subsidiaries and affiliates provide a wide range of communications services,
including local and long distance, cellular, paging, security, cable TV,
Internet access and directory publishing services. Ameritech's subsidiaries
and affiliates provide landline and wireless telecommunications and related
services in Illinois, Indiana, Michigan, Ohio and Wisconsin, wireless
telecommunications and related services in Missouri, Minnesota and Hawaii, and
security monitoring services in most of the United States' largest
metropolitan areas. Ameritech also has significant investments in the European
telecommunications industry with financial interests in 15 European countries.
The mailing address of Ameritech's principal executive offices is 30 South
Wacker Drive, Chicago, Illinois 60606, and its telephone number is 1-800-257-
0902.
MERGER SUB
Merger Sub, a wholly-owned subsidiary of SBC, was formed by SBC solely for
the purpose of effecting the Merger. The mailing address of Merger Sub's
principal executive offices is 175 East Houston, San Antonio, Texas 78205-2233
and its telephone number is (210) 821-4105.
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THE MERGER
This section of this Joint Proxy Statement/Prospectus describes certain
aspects of the Merger. To the extent that it relates to the Merger Agreement,
the following description sets forth the material provisions of the Merger
Agreement, but does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement, which is attached as Annex A to
this Joint Proxy Statement/Prospectus and is incorporated herein by reference.
All shareowners of SBC and Ameritech are urged to read the Merger Agreement in
its entirety.
GENERAL
The Merger Agreement provides for a business combination between SBC and
Ameritech pursuant to which, subject to the satisfaction or waiver of the
conditions therein, at the Effective Time, Merger Sub will be merged with and
into Ameritech, and Ameritech will thereby become a wholly-owned subsidiary of
SBC in a transaction which is intended to qualify as a "pooling of interests"
for accounting and financial reporting purposes and which will be treated as a
tax free "reorganization" within the meaning of Section 368(a) of the Code for
federal income tax purposes. As a consequence of the Merger, each share of
Ameritech Common Stock issued and outstanding immediately prior to the
Effective Time (other than Excluded Ameritech Common Stock) will be converted
into and become exchangeable for the Merger Consideration. Based on the
closing price per share of SBC Common Stock on the NYSE on October 14, 1998 of
$43.375, giving effect to the Exchange Ratio, the implied per share value of
Ameritech Common Stock was $57.0815 as of such date. The closing price per
share of Ameritech Common Stock on the NYSE on October 14, 1998 was $50.5625.
Each share of SBC Common Stock issued in the Merger will have attached thereto
the appropriate number of SBC Rights or SBC Substitute Rights in the event
that SBC Rights or SBC Substitute Rights are attached to the outstanding
shares of SBC Common Stock when such shares are issued pursuant to the Merger
Agreement. Each outstanding share of SBC Common Stock will remain outstanding
and unaffected by the Merger. As a result of the Merger, holders of Ameritech
Common Stock immediately prior to the Effective Time will own approximately
44% of the SBC Common Stock (based on the number of shares of SBC Common Stock
and Ameritech Common Stock outstanding as of October 13, 1998 and on the
Exchange Ratio, but not including any shares of SBC Common Stock to be issued
in the SNET acquisition).
The SBC Rights Agreement and the SBC Rights are scheduled to expire by their
terms on the SBC Rights Expiration Date. As of the date of this Joint Proxy
Statement/Prospectus, SBC has not determined whether it will enter into a new
rights agreement which would have the effect that the SBC Rights currently
outstanding under the SBC Rights Agreement would continue to be outstanding
after the SBC Rights Expiration Date. If the SBC Rights or SBC Substitute
Rights are outstanding at the time shares of SBC Common Stock are issued
pursuant to the Merger Agreement, the appropriate number of SBC Rights or SBC
Substitute Rights will be attached to such shares of SBC Common Stock. If no
such rights are outstanding at the time shares of SBC Common Stock are issued
pursuant to the Merger Agreement, no rights will be attached to such shares of
SBC Common Stock.
No fractional shares of SBC Common Stock will be issued in the Merger.
Instead, the Merger Agreement provides that each holder of Ameritech Common
Stock who would otherwise have been entitled to receive a fractional share of
SBC Common Stock in the Merger will be entitled to receive, in lieu thereof,
an amount in cash (without interest) determined by multiplying such fraction
(rounded to the nearest one-hundredth of a share) by the closing price of a
share of SBC Common Stock, as reported in The Wall Street Journal, New York
City edition, on the trading day immediately prior to the Effective Time.
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BACKGROUND OF THE MERGER
Prior to the passage of the Telecommunications Act, Mr. Notebaert and the
Ameritech Board began considering strategic alternatives to better position
Ameritech in the changing telecommunications industry, including possible
acquisitions, combinations, joint ventures or other alliances with other large
telecommunications carriers. During the two years leading up to the execution
of the Merger Agreement, Mr. Notebaert and other members of Ameritech's senior
management together with, among others, Goldman Sachs, identified and reviewed
various strategic alternatives. Although Ameritech considered certain of these
alternatives, none were pursued beyond exploratory discussions due to
strategic, financial and/or regulatory considerations.
During a meeting on February 24, 1998, Edward E. Whitacre, Jr., Chairman of
the Board and Chief Executive Officer of SBC, and Mr. Notebaert discussed the
possibility of a combination of the respective businesses of SBC and
Ameritech, including possible structures for such a combination. At a March
18, 1998 meeting of the Ameritech Board, Mr. Notebaert reported briefly on his
preliminary discussion with Mr. Whitacre. On March 24, 1998, Mr. Whitacre and
Mr. Notebaert met for further discussions. By the conclusion of this meeting,
their discussions had focused on the possibility of an exchange of SBC Common
Stock for Ameritech Common Stock that would provide a premium to Ameritech
shareowners. During the course of that meeting, Mr. Whitacre and Mr. Notebaert
generally discussed how such a premium might be calculated, but deferred any
detailed discussions until their respective management teams could be
assembled to further explore the feasibility of a potential combination.
Thereafter, Mr. Whitacre asked James S. Kahan, Senior Vice President--
Corporate Development of SBC, to assemble a small team of SBC representatives
to work with a small group of Ameritech representatives in evaluating a
potential combination. Mr. Notebaert requested that Mr. Shaffer, Kelly R.
Welsh, Executive Vice President and General Counsel of Ameritech, and Ali
Shadman, Vice President of Corporate Strategy and Business Development of
Ameritech, represent Ameritech in evaluating the feasibility of a possible
combination with SBC.
On April 8, 1998, SBC and Ameritech entered into a confidentiality and non-
disclosure agreement governing their exchange of confidential information.
Beginning in early April, representatives of SBC met with representatives of
Ameritech to discuss various aspects of a potential combination. During the
week of April 13, 1998, SBC began to involve its outside financial and legal
advisors. At a meeting of the Ameritech Board on April 15, 1998, Ameritech
management presented preliminary information and its views regarding the
possibility of a transaction with SBC. Thereafter, on April 21, 1998, Mr.
Notebaert and Mr. Whitacre met and determined, based on the information that
had been exchanged and reviewed, that there appeared to be sufficient mutual
interest in a potential combination to continue discussions.
The Ameritech Board met again on April 22, 1998 to consider additional
information with respect to a possible combination with SBC. At that meeting,
Mr. Notebaert reported on his meeting the previous day with Mr. Whitacre and
updated the Ameritech Board concerning the discussions that had taken place
regarding various issues, including a potential range of market premiums for
Ameritech's shareowners being considered and the proposed transaction
structure, as well as post-combination corporate governance, management and
employee retention issues. At the conclusion of such meeting, the Ameritech
Board authorized further exploration of such a transaction, with the
assistance of outside financial and legal advisors. On April 24, 1998
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the SBC Board met and discussed a possible combination with Ameritech. At the
conclusion of this meeting, SBC management represented to the SBC Board that
they would continue discussing such a combination with Ameritech.
Beginning on April 28, 1998, representatives of SBC and Ameritech began
conducting mutual due diligence reviews in Chicago and in San Antonio. These
reviews continued throughout the first ten days of May. On April 29, 1998,
representatives of SBC and Ameritech met in San Antonio to discuss the terms
of a draft Merger Agreement. Negotiations regarding the Merger and the terms
of the draft Merger Agreement continued on a daily basis between April 29th
and the early morning hours of May 10th, and focused primarily on (i) a
mutually agreeable exchange ratio (ii) the restrictions on each party's
ability to contact and engage in discussions with other potential acquirors,
(iii) the actions that the companies would be prohibited from taking prior to
the Effective Time, without the consent of the other company, (iv) the
provisions for termination of the Merger Agreement, (v) the circumstances
under which a Termination Fee would be payable and the amount of such fee and
(vi) regulatory considerations relating to the proposed Merger.
On May 6, 1998, the Ameritech Board met to discuss various aspects of the
proposed merger. Members of Ameritech's senior management discussed their
views and analyses of various aspects of the proposed transaction.
Representatives of Goldman Sachs presented an analysis of the financial terms
of the proposed transaction, and representatives from Ameritech's legal
advisors outlined the terms of the Merger Agreement and the Ameritech Board's
legal duties and responsibilities. In connection with those presentations and
analyses, the Ameritech Board reviewed and considered, among other things, the
following matters: a tentative fixed exchange ratio; the synergistic benefits
expected to be derived from the Merger and the business reasons in support of
those benefits; industry trends and marketplace expectations involving the
integrated, global delivery of telecommunications products and services; the
regulatory review process and its anticipated requirements and timing; the
principal terms of the draft Merger Agreement; and the other matters described
under "--Reasons for the Merger; Recommendations of the Boards of Directors--
Ameritech" and "--Opinions of Financial Advisors--Ameritech." The Ameritech
Board authorized representatives of Ameritech to continue negotiating with SBC
and determined that it would convene again on May 10, 1998 to consider further
the possible transaction with SBC.
On May 7, 1998, the SBC Board met to discuss the terms of the proposed
merger. Members of SBC's senior management and representatives of SBC
discussed with the SBC Board their views and analyses of the proposed
transaction and representatives of Salomon Smith Barney made a presentation on
the financial aspects of the proposed transaction. The SBC Board reviewed and
considered, among other things, the matters described under "--Reasons for the
Merger; Recommendations of the Boards of Directors--SBC" and "--Opinions of
Financial Advisors--SBC" which included the terms of the Merger Agreement, the
matters discussed with Salomon Smith Barney and the prospects for the combined
company. The SBC Board also discussed the various matters that were still
being negotiated. At the conclusion of this meeting, a meeting of the SBC
Board was scheduled for May 10, 1998 to consider approving a merger with
Ameritech.
The parties continued to negotiate following the mid-week meetings of the
Ameritech Board and the SBC Board and in the early morning hours of May 10,
1998 the negotiators for each company reached an agreement which they were
prepared to recommend to their respective Boards of Directors. Later that
morning, the Ameritech Board met with representatives of Ameritech and its
outside advisors to discuss the final terms of the Merger Agreement,
including, among other things, the Exchange Ratio and its relation to the
current stock prices for each company. At this meeting, Goldman Sachs
delivered its opinion to the Ameritech Board to the effect
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that, as of the date of such meeting, the Exchange Ratio was fair from a
financial point of view to holders of Ameritech Common Stock. After
deliberation, the Ameritech Board unanimously approved the Merger Agreement.
The SBC Board met in the afternoon on May 10, 1998 with representatives of
SBC and its outside advisors to further discuss the terms of the Merger
Agreement. At this meeting, Salomon Smith Barney delivered its opinion to the
SBC Board to the effect that, as of the date of such meeting, the Exchange
Ratio was fair from a financial point of view to SBC. After deliberation, the
SBC Board unanimously (with one director absent) authorized and approved the
Merger Agreement, including the issuance of shares of SBC Common Stock
pursuant to the Merger Agreement.
Thereafter, the Merger Agreement was executed on May 10, 1998.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
SBC
In reaching its conclusion to approve the Merger Agreement and the Merger
and recommend that shareowners of SBC vote FOR approval of the issuance of
shares of SBC Common Stock pursuant to the Merger Agreement, the SBC Board
concluded that over time the Merger was likely to increase the value of shares
of SBC Common Stock over what that value would have been had SBC not agreed to
the Merger and that the opportunities created by the Merger to increase such
value more than offset the risks inherent in the Merger. In reaching this
conclusion, the SBC Board considered the following benefits that it believes
will be derived from the Merger:
. Creation of a Global Telecommunications Company. The Merger will create a
global telecommunications company that will be better positioned to compete
in local, national and international markets. The SBC Board and SBC's
management believe that over the course of the next several years as a
result of the rapid changes taking place in the telecommunications industry,
the telecommunications industry will be comprised of a limited number of
integrated global operators and a large number of regional, niche and local
competitors. The Merger is intended to position the combined entity to be a
successful global operator in this environment.
. The "National-Local" Strategy. The SBC Board and SBC's management believe
that the Merger will provide the resulting entity with the scope, scale,
management and "critical mass" of resources to permit it to pursue and
implement successfully a strategy that focuses on the local exchange market
on a national basis. In furtherance of this national-local strategy, the
combined company would be positioned to enter, following the receipt of
applicable regulatory approvals which are expected to be obtained within
three years, 30 U.S. markets outside its traditional local telephone region,
including New York, Baltimore/Washington, Boston, Atlanta, Denver, Miami,
Phoenix and Seattle, offering an integrated bundle of local exchange, long
distance, cellular, Internet and high-speed data services to large, medium
and small businesses and residential consumers, thereby providing customers
with a competitive alternative to existing service providers. To implement
this strategy, SBC will be required to obtain certificates to act as a
competitive local exchange carrier in all states in which it intends to
function in such capacity. Based on SBC's experience in building voice and
data switching architecture, SBC anticipates that in order to expand its
services to the 30 markets outside its traditional local telephone region,
capital expenditures may be up to approximately $2.5 billion in the ten
years following consummation of the Merger. It is expected that the
resulting entity would serve customers in the top 50 U.S. markets (i.e., 30
markets outside of the traditional service territories of SBC,
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Ameritech and SNET and 20 markets inside those territories) and that the
resulting entity would use those 50 markets as a platform to develop a truly
national, state-of-the-art voice and data network and ultimately to
interconnect that national network with those of its international
investments and operations to create an international network permitting it
to "follow" communications traffic and serve its customers globally. SBC
estimates that this national-local strategy has the potential of making a
positive contribution to SBC's financial results in the fourth year after
consummation of the Merger, with the potential of adding $2.0 billion in
revenue in the fifth year after consummation of the Merger and $7.0 billion
in revenue and $900 million in net income in the tenth year after
consummation of the Merger.
. Synergistic Benefits Resulting from the Merger. The SBC Board and SBC's
management believe that the Merger will result in significant opportunities
for cost savings, revenue growth, technological development and other
synergistic benefits. Economies of scope and scale, the elimination of
duplicative expenditures and the consistent use of the best practices of
SBC, Ameritech and SNET in cost control and product offerings are expected
to enable the combined company to realize significant cost savings and
revenue enhancements. SBC estimates that these potential synergies could
increase otherwise estimated net income by $1.4 billion annually and that
90% of such synergies could be achieved by the third full year following
consummation of the Merger. The estimated annual pre-tax synergies are
expected to be derived from $1.2 billion in potential expense savings,
including expense savings resulting from elimination of redundant
administrative functions, increased scale and the adoption of "best
practices"; $750 million in potential additional revenue synergies,
including revenue enhancements resulting from increased use of residential
vertical features, additional residential telephone lines, increased caller
ID penetration, and increased use of the directory business; and $300
million in potential combined future long distance synergies. Additionally,
the Merger also provides the opportunity to reduce annual capital
expenditures by $250 million annually in three years, including through
procurement savings. It is anticipated that the expense savings will
primarily come from SBC's operations in Texas, Missouri, Oklahoma, Kansas,
Arkansas and areas outside its traditional local telephone region while the
revenue synergies will primarily come from Ameritech's operations. All of
the preceding estimates of synergistic benefits are exclusive of the
national-local strategy effects described above.
. Geographic Diversification. As a result of the Merger, SBC will be more
geographically diverse. Its geographic region would include the combined
traditional 13 state region of SBC, Ameritech and SNET, as well as
complementary international operations and investments in, among other
locations, Mexico, South Africa, France, Belgium, Denmark, Norway,
Switzerland and Hungary. This increased geographic diversification will
reduce the resulting entity's exposure to changes in economic, competitive
and political conditions in any given geographic area in which it operates,
as compared to the exposure that either SBC or Ameritech would have in the
absence of the Merger.
. International Investment and Expansion. The Merger would expand SBC's
international investments, especially in Europe. This increased investment
will facilitate continuation of SBC's strategy of deploying key
telecommunications infrastructures in high-traffic areas around the world.
. Employees. A strong management team, drawn from the experienced management
of both companies, should permit the new entity to become a global
communications company, to achieve synergistic benefits and to implement
successfully its strategies, including the national-local strategy.
The SBC Board weighed these advantages and opportunities against the
following risks associated with the Merger:
. the challenges inherent in the combination of two business enterprises of
the size and scope of SBC and Ameritech and the possible resulting diversion
of management attention for an extended period of time;
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. the likelihood that the competitiveness of the local exchange business will
increase due to the entrance of additional competitors or to strategic or
product initiatives by existing competitors which could occur in the absence
of a Merger, but the effect of which could be exacerbated by the Merger;
. the additional complexity of satisfying the FCC standards for permission to
provide long distance service as a result of being a larger company; and
. the fact that, excluding special transition and integration charges and
assuming that the Merger is consummated in the second half of 1999, the
Merger (including anticipated synergies) is expected to be dilutive to SBC's
otherwise anticipated stand alone earnings per share in 2000 and 2001 by
approximately 7% and 3%, respectively (which is calculated based on SBC's
management's earnings per share estimates for SBC and Ameritech for 2000 and
2001, the approximate number of shares of SBC Common Stock expected to be
outstanding immediately prior to the Merger (assuming completion of the SNET
acquisition), the approximate number of shares of Ameritech Common Stock
expected to be outstanding immediately prior to the Merger and the Exchange
Ratio).
In reaching the determination that the terms of the Merger were fair to and
in the best interests of SBC and its shareowners, the SBC Board also
considered a number of additional factors, including its management's
knowledge of Ameritech's business and its management's reports concerning the
results of its due diligence investigation of Ameritech, the terms of the
Merger Agreement, the historical and current market prices of Ameritech Common
Stock, the presentation of SBC's financial advisor, Salomon Smith Barney, and
the written opinion of Salomon Smith Barney to the effect that the Exchange
Ratio is fair from a financial point of view to SBC.
The foregoing discussion of the information and material factors which were
given weight by the SBC Board is not intended to be exhaustive. The SBC Board
did not assign specific weights to the foregoing factors and individual
directors may have given different weights to different factors. The SBC
Board, however, unanimously (with one director absent) authorized and approved
the Merger Agreement, including the issuance of shares of SBC Common Stock
pursuant to the Merger Agreement.
THE SBC BOARD UNANIMOUSLY RECOMMENDS THAT SBC SHAREOWNERS VOTE FOR APPROVAL
OF THE ISSUANCE OF SHARES OF SBC COMMON STOCK PURSUANT TO THE MERGER
AGREEMENT.
Ameritech
The Ameritech Board has unanimously determined that the terms of the Merger
Agreement and the transactions contemplated thereby are fair to, and in the
best interests of, Ameritech and its shareowners.
In reaching its decision to approve the Merger Agreement and recommend that
Ameritech shareowners vote for adoption of the Merger Proposal, the Ameritech
Board concluded that the Merger would afford the opportunity to accelerate the
delivery of shareowner value and create a combined enterprise which would be
better positioned to accomplish Ameritech's growth strategies and participate
in the rapidly evolving and expanding global communications marketplace. The
Ameritech Board considered a number of factors in reaching this conclusion,
including the following:
Exchange Ratio and Transaction Structure. The Ameritech Board considered the
relationship of the Exchange Ratio to the historical market prices for
Ameritech Common Stock, including the fact that the Exchange Ratio would
provide a premium of approximately 27% to Ameritech shareowners based on the
closing per share sale prices on the NYSE of Ameritech Common Stock and SBC
Common Stock on May 8, 1998, the
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last trading day prior to the announcement of the Merger. The Ameritech Board
also viewed favorably the form of the Merger Consideration and the structure
of the Merger, which permit Ameritech shareowners to exchange, on a tax-free
basis, outstanding shares of Ameritech Common Stock for registered shares of
SBC Common Stock representing approximately 44% of the total outstanding
equity of SBC (based on the number of outstanding shares of SBC Common Stock
outstanding as of May 8, 1998, without giving effect to the SNET acquisition).
Ameritech shareowners can thereby retain a significant aggregate equity
interest in the combined enterprise and the related opportunity to share in
its future growth. In reaching its conclusions, the Ameritech Board
considered, among other things, the various analyses and reports of its
financial advisors and the opinion of its financial advisor described below as
to the fairness, from a financial point of view, of the Exchange Ratio to
Ameritech's shareowners. See "--Opinions of Financial Advisors--Ameritech."
Combined Best Practices and Other Synergistic Benefits. The Ameritech Board
considered the opportunity presented by the Merger for two well-regarded,
profitable companies to integrate and apply as best practices across the
combined enterprise their complementary business strengths, including those
relating to revenue enhancement, asset management, capital allocation, cost
control, operational and engineering practices, marketing programs and product
offerings. The Ameritech Board also considered management's view that the
Merger would create opportunities for revenue growth, economies of scope and
scale (including the greater purchasing scale of the combined enterprise),
elimination of duplicative expenditures, joint technological development and
other synergistic benefits in which Ameritech shareowners would be able to
participate as shareowners of SBC following the Merger. The Ameritech Board
concluded that the cost and operating synergies expected to be achievable as a
result of the Merger would not be available to Ameritech on its own. In
addition, the Ameritech Board considered the demonstrated ability of SBC's
management to successfully integrate and obtain synergistic benefits from
previous SBC acquisitions, most notably SBC's acquisition of Pacific Telesis
Group.
Competitive Scope and Scale. The Ameritech Board considered the opportunity
afforded by the merger of two companies with a shared strategic vision to
create a combined enterprise with the scale, scope and financial,
technological, management and operational resources to take greater advantage
of rapid growth and change in the global communications marketplace than would
have been achievable by Ameritech alone. The Ameritech Board considered the
importance of scale, scope, market position and financial and other resources
in accelerating and achieving the execution of Ameritech's growth strategies
and in better serving customers through offering a broad, integrated package
of products and services on a cost-effective basis. The Ameritech Board also
considered that recent consolidation in the telecommunications industry may
continue or accelerate, leading to the formation of a limited number of global
industry leaders.
Expanded Geographic Coverage; Complementary International Presence. As a
result of the Merger, the combined enterprise would be more geographically
diversified, both domestically and internationally, through the complementary
investments and operations of Ameritech and SBC in Belgium, Denmark, Hungary,
Mexico, South Africa and fourteen other countries on five continents. The
Ameritech Board considered management's view that this extended reach would
provide opportunities for the resulting entity to meet the needs of national
and international customers for integrated communications services across a
broader geographic base. The Ameritech Board also considered the opportunity
for the combined company's expanded platform in key communications and
information markets to position it to maximize future growth opportunities,
both domestically and internationally.
Potential Risks. The Ameritech Board considered a number of potential risks,
as well as related mitigating factors, in connection with its evaluation of
the Merger. Such risks included the potential diversion of management
resources from operational matters and the opportunity costs associated with
the proposed Merger
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during an extended regulatory review process. In weighing this factor,
however, the Ameritech Board considered the flexibility afforded by the
interim operating covenants in the Merger Agreement, relating, for example, to
acquisitions, divestitures, capital expenditures, indebtedness and continued
regular dividend payments. See "--Certain Covenants." Other risks considered
by the Ameritech Board included the possibility that: (i) despite the
historical performance of SBC Common Stock and the historical relationship of
its market price to that of Ameritech Common Stock, the value of the Merger
Consideration received by Ameritech shareowners in the Merger (which is
determined by a fixed exchange ratio) may diminish prior to the Effective Time
if the market value of SBC Common Stock declines during the period prior to
the Effective Time; (ii) the synergistic benefits expected from the Merger may
be more difficult to achieve than anticipated; and (iii) the Merger ultimately
may not be consummated as a result of material adverse conditions imposed by
regulatory authorities or otherwise. In the judgment of the Ameritech Board,
however, these potential risks were more than offset by the potential benefits
of the Merger discussed above.
Additional Considerations. In the course of its deliberations on the Merger,
the Ameritech Board received and evaluated reports, analyses and presentations
from members of Ameritech's senior management and from Ameritech's financial,
legal, accounting and tax advisors on various business and financial matters,
including comparative information on peer companies and combinations of
telecommunications companies and information on the results of the due
diligence investigations of SBC. Additional factors considered by the
Ameritech Board in determining whether to approve the Merger Agreement
included: (i) information concerning the financial performance and condition,
operations, cash flows and business plans and prospects of each company, and
the projected future performance of Ameritech as a separate entity and of
Ameritech and SBC on a combined basis; (ii) the current and historical market
prices of Ameritech Common Stock and SBC Common Stock; (iii) the opinion of
Ameritech's financial advisor, described below, as to the fairness, from a
financial point of view, of the Exchange Ratio to Ameritech's shareowners;
(iv) the improbability of an alternative transaction that would yield a
superior value to Ameritech shareowners; (v) the terms and conditions of the
Merger Agreement; (vi) the current industry, economic and marketplace
conditions and trends; (vii) the likelihood and anticipated timing of receipt
of required regulatory approvals, the possible divestiture of certain
overlapping wireless properties and the potential effect of the pendency of
the Merger on existing regulatory proceedings involving Ameritech and its
subsidiaries; (viii) labor relations at each of the companies; (ix) SBC's
expressed commitments to continue, following the consummation of the Merger,
Ameritech's historic levels of charitable contributions and community
activities and support economic development and education in Ameritech's
region consistent with Ameritech's established commitments in these areas; and
(x) the expressed intention of SBC to provide job opportunities through
business growth and to avoid net reductions in employment levels within
Ameritech's traditional local exchange regions as a result of the Merger, as
well as various SBC commitments in the Merger Agreement with respect to
contractual benefit obligations and compensation and benefit plans of the
Surviving Corporation. See "--Opinions of Financial Advisors--Ameritech" and
"--Employee Benefits."
The foregoing discussion of the information and factors considered by the
Ameritech Board is not intended to be exhaustive, but is believed to include
all material factors considered by the Ameritech Board. In view of the variety
of factors considered in connection with its evaluation of the Merger
Agreement, the Ameritech Board did not consider it practical to, and did not,
quantify or otherwise assign relative weights to the factors it considered in
reaching its determination, and individual directors may have given different
weights to different factors.
THE AMERITECH BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT AMERITECH SHAREOWNERS VOTE FOR ADOPTION OF THE
MERGER PROPOSAL.
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OPINIONS OF FINANCIAL ADVISORS
SBC
At the meeting of the SBC Board held on May 10, 1998, Salomon Smith Barney
delivered its oral opinion, subsequently confirmed in writing, that, as of
such date, the Exchange Ratio was fair to SBC from a financial point of view.
No limitations were imposed by the SBC Board upon Salomon Smith Barney with
respect to the investigation made or the procedures followed by Salomon Smith
Barney in rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SALOMON SMITH BARNEY, DATED MAY 10,
1998, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS
ANNEX B AND IS INCORPORATED BY REFERENCE HEREIN. HOLDERS OF SBC COMMON STOCK
ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. THE SUMMARY OF
THE OPINION AS SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In connection with rendering its opinion, Salomon Smith Barney reviewed
certain publicly available information concerning SBC and Ameritech and
certain other financial information concerning SBC and Ameritech, including
financial forecasts, that were provided to Salomon Smith Barney by SBC and
Ameritech, respectively. Salomon Smith Barney discussed with certain officers
and employees of SBC and Ameritech, respectively, the past and current
business operations and financial conditions of SBC and Ameritech as well as
other matters it believed relevant to its inquiry, including the regulatory
approvals that would be required to consummate the Merger (including, among
other things, regulatory approvals required because of the deemed transfer of
control of certain FCC licenses from Ameritech to SBC and requirements of
various state PUCs and other state regulatory authorities, see "--Certain
Regulatory Filings and Approvals"). Salomon Smith Barney also considered such
other information, financial studies, analyses, investigations and financial,
economic and market criteria that it deemed relevant.
In its review and analysis and in arriving at its opinion, Salomon Smith
Barney assumed and relied upon the accuracy and completeness of the financial
and other information (including information relating to the regulatory
approvals required to consummate the Merger) reviewed by Salomon Smith Barney,
and it did not assume any responsibility for independent verification of such
information. With respect to the financial forecasts of SBC and Ameritech,
Salomon Smith Barney assumed that such forecasts had been reasonably prepared
on bases reflecting the best currently available estimates and judgments of
the respective managements of SBC and Ameritech as to the future financial
performance of SBC or Ameritech, respectively, and Salomon Smith Barney
expressed no opinion with respect to such forecasts or the assumptions on
which such forecasts were based. Salomon Smith Barney also assumed that the
Merger will be consummated in accordance with the terms of the Merger
Agreement. Salomon Smith Barney did not make or obtain or assume any
responsibility for making or obtaining any independent evaluations or
appraisals of any of the assets (including properties and facilities) or
liabilities of SBC or Ameritech.
Salomon Smith Barney's opinion is necessarily based upon conditions as they
existed and could be evaluated on the date thereof. Salomon Smith Barney's
opinion does not imply any conclusion as to the trading range for SBC Common
Stock following the consummation of the Merger, which may vary depending upon,
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among other factors, changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities. Salomon Smith Barney's opinion does not
address SBC's underlying business decision to effect the Merger. Salomon Smith
Barney's opinion is directed only to the fairness, from a financial point of
view, of the Exchange Ratio to SBC and does not constitute a recommendation by
Salomon Smith Barney concerning how holders of SBC Common Stock should vote
with respect to the transactions contemplated by the Merger Agreement.
The material portions of the analyses which were performed by Salomon Smith
Barney in connection with its opinion dated May 10, 1998 are summarized below.
(i) Historical Stock Price Performance. Salomon Smith Barney reviewed the
relationship between movements in the closing prices of Ameritech Common
Stock and SBC Common Stock with the Salomon Smith Barney RHBC (as defined
below) Index (excluding Ameritech and SBC, as appropriate) and the Standard
& Poor's Composite Average for the period from January 2, 1997 through May
1, 1998, the trading volume and price history of Ameritech Common Stock for
the period from January 2, 1997 through May 1, 1998 and the trading volume
and price history of SBC Common Stock for the period from January 2, 1997
through May 1, 1998.
(ii) Historical Exchange Ratio Analysis. Salomon Smith Barney also
reviewed the relationship between the daily closing prices of SBC Common
Stock and Ameritech Common Stock during the period from January 2, 1997
through May 4, 1998 and the implied historical exchange ratios determined
by dividing the price per share of Ameritech Common Stock by the price per
share of SBC Common Stock (the "Historical Exchange Ratio") over such
period. Salomon Smith Barney calculated that during this period the
Historical Exchange Ratio ranged from a high of 1.191 to a low of 1.004
with an average of 1.112. The Exchange Ratio is 1.316.
(iii) Comparative Premium Analysis. Salomon Smith Barney noted that if
the Merger had closed on May 4, 1998, SBC would have paid a 28.2% premium
to the Ameritech Common Stock May 1, 1998 closing price, a 30.0% premium to
the one-week historical average closing price per share of Ameritech Common
Stock and a 24.0% premium to the three-month historical average closing
price per share of Ameritech Common Stock, in the latter two cases with
respect to the period ended May 1, 1998. Salomon Smith Barney compared
these implied premiums to the implied premiums for similar periods prior to
public announcement in the following comparable transactions: Qwest
Communications International Inc.'s pending acquisition of LCI
International, Inc., SBC's pending acquisition of SNET, WorldCom Inc.'s
pending acquisition of MCI, WorldCom, Inc.'s acquisition of Brooks Fiber
Properties, Inc., WorldCom Inc.'s acquisition of MFS Communications Co. and
SBC's acquisition of Pacific Telesis Group. The median premiums in such
transactions were 35.5% to the previous trading day closing price, 39.1% to
the prior one-week historical average closing price and 47.0% to the prior
three-month historical average closing price per share. Salomon Smith
Barney noted that the premiums paid, assuming the Merger had closed on May
4, 1998, would be consistent with those paid in the comparable transactions
discussed above.
(iv) Ameritech Segmented Public Market Analysis. Salomon Smith Barney
arrived at a range of values for Ameritech by separately valuing its
telecommunications business segment ("Ameritech Telco"), domestic cellular
segment ("Ameritech Cellular"), domestic PCS business segment ("Ameritech
PCS"), directory/publishing business segment ("Ameritech Publishing") its
other business segments, including paging, security monitoring, video,
leasing segments and international investments (collectively,"Ameritech
Other Assets") and aggregating the values determined for the various
business segments. Salomon Smith Barney utilized a public market analysis
in valuing these business segments. Public market analysis assesses
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a segment's operating performance and outlook relative to a group of
publicly traded peer companies to determine an implied unaffected market
trading value. No company used in the public market analyses described
below is identical to the comparable business segment of Ameritech.
Accordingly, an examination of the results of analyses described below
necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics of the business
segments and other facts that could affect the public trading value of the
companies to which they are being compared.
Ameritech Telco
Salomon Smith Barney compared certain financial information of Ameritech
Telco with two groups of companies that Salomon Smith Barney believed to be
appropriate for comparison. The first group, which Salomon Smith Barney
believed was more closely comparable to Ameritech Telco, included Bell
Atlantic Corp., BellSouth Telecommunications, Inc., SBC, USWest, Inc. and
GTE Corporation (the "RBHCs"). The second group, which Salomon Smith Barney
believed was somewhat less comparable to Ameritech Telco, included Aliant
Communications Inc., ALLTEL Corp., Century Telephone Enterprises, Inc.,
Cincinnati Bell Inc. and SNET (the "Independent Telcos"). The financial and
valuation data for the comparable companies were adjusted by Salomon Smith
Barney to estimate the financial and valuation characteristics of pure
"stripped wireline" telecommunications companies. Salomon Smith Barney
reviewed the multiples of firm value to 1997 earnings before interest,
taxes, depreciation and amortization ("EBITDA") represented by the trading
prices of the RBHCs as of May 1, 1998, which ranged from 6.2x to 8.2x, with
a mean of 7.0x and a median of 6.7x, and the comparable multiples for the
Independent Telcos, which ranged from 6.5x to 8.2x, with a mean of 7.4x and
a median of 7.3x. Using this information and other factors relevant in the
valuation of Ameritech Telco, Salomon Smith Barney determined a valuation
range for Ameritech Telco of approximately $33.6 billion to $38.7 billion.
Ameritech Cellular
Salomon Smith Barney compared certain financial information of Ameritech
Cellular with the following group of companies that Salomon Smith Barney
believed to be appropriate for comparison: AirTouch Communications Inc.,
Centennial Cellular Corp., PriCellular Corporation, United States Cellular
Corp., Vanguard Cellular Systems Inc. and 360(degrees) Communications
Company (the "Cellular Comparable Companies"). Salomon Smith Barney
reviewed the multiples of firm value to the latest twelve months ("LTM")
EBITDA represented by the trading prices of the Cellular Comparable
Companies, which ranged from 11.3x to 19.0x, with a mean of 14.4x and a
median of 13.9x. Using this information and other factors relevant in the
valuation of Ameritech Cellular, such as the relative penetration levels,
margins and growth rates of Ameritech Cellular, Salomon Smith Barney
determined a valuation range for Ameritech Cellular of approximately $4.0
billion to $4.5 billion.
Ameritech PCS
Salomon Smith Barney compared certain financial information of Ameritech
PCS, including certain operating and financial data reflecting the relative
stage of development of Ameritech PCS, with the following group of
companies that Salomon Smith Barney believed to be appropriate for
comparison: Aerial Communications Inc., Omnipoint Corp., Powertel Inc.,
Western Wireless Corp. and Nextel Communications Inc. (the "PCS Comparable
Companies"). Salomon Smith Barney reviewed the multiples of firm value to
the number of adjusted "population equivalents" ("POPs") represented by the
trading prices of the PCS
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Comparable Companies, which resulted in a range of $42 to $60 per POP.
Using this information and other factors relevant in the valuation of
Ameritech PCS, such as the relative amount of spectrum and of fixed assets
of Ameritech PCS, Salomon Smith Barney determined a valuation range of
Ameritech PCS of approximately $288 million to $370 million.
Ameritech Publishing
Salomon Smith Barney compared certain financial information of Ameritech
Publishing, including certain operating and financial data reflecting
Ameritech Publishing's relative performance, with the following group of
companies that Salomon Smith Barney believed to be appropriate for
comparison: Central Newspapers Inc., Dow Jones & Company, Inc., Gannett
Co., Knight-Ridder, Inc., McClatchy Newspapers Inc., The New York Times
Company, Tribune Company, The Times Mirror Company, The Washington Post
Company, Hollinger International Inc. and Lee Enterprises, Incorporated
(the "Publishing Comparable Companies"). Salomon Smith Barney reviewed the
multiples of firm value to LTM EBITDA represented by the trading prices of
the Publishing Comparable Companies, which ranged from 7.2x to 13.9x, with
a mean of 10.5x and a median of 10.3x. Using this information and other
factors relevant in the valuation of Ameritech Publishing, such as the
relative margins and growth rates of Ameritech Publishing, Salomon Smith
Barney determined a valuation range for Ameritech Publishing of
approximately $5.5 billion to $6.8 billion.
Ameritech Other Assets
Salomon Smith Barney compared certain financial information of certain of
the businesses comprising Ameritech Other Assets with groups of companies
that Salomon Smith Barney believed were appropriate for comparison. In
addition, Salomon Smith Barney valued certain domestic and international
minority investments, including, without limitation, investments in
Belgacom SA, MATAV Rt., Tele Danmark A/S, and NetCom asa, based on the
trading prices of such entities. These analyses resulted in a valuation
range for Ameritech Other Assets of approximately $10.0 billion to $10.9
billion.
Total Ameritech Public Market Valuation
By combining the stand-alone valuations for Ameritech Telco, Ameritech
Cellular, Ameritech PCS, Ameritech Publishing and Ameritech Other Assets
described above and making certain adjustments for debt, preferred
securities of subsidiaries, cash and cash equivalents, investments (other
than those included in Ameritech Other Assets) and option proceeds, this
analysis resulted in a valuation range for Ameritech's aggregate equity of
approximately $44.1 billion to $52.2 billion, or $39.70 to $46.91 per share
based on the number of fully diluted shares of Ameritech Common Stock as of
May 1, 1998. The foregoing analysis does not reflect the revenue, expense
and capital expenditure synergies believed to be achievable by SBC
following the consummation of the Merger, which synergies have been
analyzed as described in clause (ix) below.
(v) Ameritech Segmented Discounted Cash Flow Analysis. Salomon Smith
Barney performed a discounted cash flow analysis based on projected
earnings and capital requirements and the subsequent cash flows generated
by the business segments of Ameritech. Salomon Smith Barney derived ranges
of firm values for Ameritech's business segments based upon the aggregate
present value of each segment's eleven-year stream (to 2008) of projected
cash flows (without giving effect to the Merger). In general, the growth
rates for each segment's projected cash flow for the years from 2009 to
2017 were reduced or increased to
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reach the assumed 2017 perpetuity growth rate. For Ameritech Telco (which
excludes long distance), Salomon Smith Barney applied discount rates
reflecting a weighted average cost of capital ("WACC") ranging from 8.75%
to 9.75% and perpetuity growth rates ranging from 2.00% to 3.00%, which
resulted in a valuation range for Ameritech Telco of approximately $42.5
billion to $46.2 billion. For the Ameritech long distance business segment,
Salomon Smith Barney applied discount rates reflecting a WACC ranging from
10.50% to 11.50% and perpetuity growth rates ranging from 2.50% to 3.50%,
which resulted in a valuation range for Ameritech long distance of
approximately $3.2 billion to $3.6 billion. For the segment consisting of
Ameritech Cellular along with Ameritech's paging business, Salomon Smith
Barney applied discount rates reflecting a WACC ranging from 10.00% to
11.00% and perpetuity growth rates ranging from 2.50% to 3.50%, which
resulted in a valuation range for such segment and Ameritech's paging
business of approximately $6.4 billion to $6.9 billion. For Ameritech PCS,
Salomon Smith Barney applied discount rates reflecting a WACC ranging from
12.50% to 13.50% and perpetuity growth rates ranging from 2.50% to 3.50%,
which resulted in a valuation range for Ameritech PCS of approximately $366
million to $434 million. For Ameritech Publishing, Salomon Smith Barney
applied discount rates reflecting a WACC ranging from 9.00% to 10.00% and
perpetuity growth rates ranging from 1.00% to 2.00%, which resulted in a
valuation range for Ameritech Publishing of approximately $6.1 billion to
$6.6 billion. For the Ameritech security monitoring segment, Salomon Smith
Barney applied discount rates reflecting a WACC ranging from 10.50% to
11.50% and perpetuity growth rates ranging from 3.00% to 4.00%, which
resulted in a valuation range for the Ameritech security monitoring segment
of approximately $1.9 billion to $2.1 billion. For the other business
segments and assets of Ameritech, including, without limitation, the
leasing business segment, the international equity positions and corporate
overhead, Salomon Smith Barney derived a range of net values based on other
valuation methodologies discussed above under "Ameritech Segmented Public
Market Analysis" of approximately $5.1 billion to $5.5 billion. By
combining the stand-alone discounted cash flow valuations for the business
segments described above and making certain adjustments for debt, preferred
securities of subsidiaries, cash and cash equivalents, investments, option
proceeds and minority investments in Ameritech Cellular, this analysis
resulted in a valuation range for Ameritech's equity value of approximately
$55.4 billion to $60.9 billion, or $49.80 to $54.79 per share based on the
number of fully-diluted shares of Ameritech Common Stock as of May 1, 1998.
The foregoing analysis does not reflect the revenue, expense and capital
expenditure synergies believed to be achievable by SBC following the
consummation of the Merger, which synergies have been analyzed as described
in clause (ix) below.
(vi) Consolidated Public Market Comparison. Salomon Smith Barney compared
the price to earnings per share multiples ("P/E Multiples") of SBC and
Ameritech with the P/E Multiples of the RBHCs. The P/E Multiples of the
RHBCs ranged from 19.9x to 22.8x based on 1997 EPS, with a median of 20.7x,
from 17.9x to 20.4x based on 1998 analysts' estimated EPS, with a median of
19.0x, and from 16.3x to 18.4x based on 1999 analysts' estimated EPS, with
a median of 17.1x. The P/E Multiples for Ameritech were 20.3x, 18.1x and
16.8x based on 1997 EPS, 1998 estimated EPS and 1999 estimated EPS (based
on First Call estimates), respectively, representing a discount to the
RBHCs median of 1.8%, 4.6% and 1.7% for such periods, respectively. The P/E
Multiples for SBC were 23.9x, 20.4x and 18.1x based on 1997 EPS, 1998
estimated EPS and 1999 estimated EPS (based on First Call estimates),
respectively, representing a premium to the RHBCs median of 15.2%, 7.3% and
6.1% for such periods, respectively.
(vii) SBC Segmented Public Market Analysis. Salomon Smith Barney arrived
at a range of values for SBC by separately valuing its telecommunications
business segment ("SBC Telco"), domestic cellular segment ("SBC Cellular"),
domestic PCS business segment ("SBC PCS"), directory/publishing business
segment ("SBC Publishing") and its other business segments, including
domestic video businesses, Nevada
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Bell, SNET and international investments (collectively, "SBC Other Assets")
and aggregating the values determined for the various business segments.
Salomon Smith Barney utilized a public market analysis in valuing these
business segments. Public market analysis assesses a segment's operating
performance and outlook relative to a group of publicly traded peer
companies to determine an implied unaffected market trading value. No
company used in the public market analyses described below is identical to
the comparable business segment of SBC. Accordingly, an examination of the
results of analyses described below necessarily involves complex
considerations and judgments concerning differences in financial and
operating characteristics of the business segments and other facts that
could affect the public trading value of the companies to which they are
being compared.
SBC Telco
Salomon Smith Barney compared certain financial information of SBC Telco
with two groups of companies that Salomon Smith Barney believed to be
appropriate for comparison. The first group, which Salomon Smith Barney
believed was more closely comparable to SBC Telco, was the RBHCs (excluding
SBC and including Ameritech) and the second group, which Salomon Smith
Barney believed was somewhat less comparable to SBC Telco, was the
Independent Telcos. The financial and valuation data of the comparable
companies were adjusted by Salomon Smith Barney to estimate the financial
and valuation characteristics of pure "stripped wireline"
telecommunications companies. Salomon Smith Barney reviewed the multiples
of firm value to 1997 EBITDA represented by the trading prices of the
RHBCs, which ranged from 6.2x to 8.2x, with a mean of 6.9x and a median of
6.7x, and the comparable multiples for the Independent Telcos, which ranged
from 6.5x to 8.2x, with a mean of 7.4x and a median of 7.3x. Using this
information and other factors relevant in the valuation of SBC Telco,
Salomon Smith Barney determined a valuation range for SBC Telco of $52.1
billion to $60.1 billion.
SBC Cellular
Salomon Smith Barney compared certain financial information of SBC
Cellular with the Cellular Comparable Companies. Salomon Smith Barney
reviewed the multiples of firm value to LTM EBITDA represented by the
trading prices of the Cellular Comparable Companies, which ranged from
11.3x to 19.0x, with a mean of 14.4x and a median of 13.9x. Using this
information and other factors relevant in the valuation of SBC Cellular,
Salomon Smith Barney determined a valuation range for SBC Cellular of
approximately $10.4 billion to $11.5 billion.
SBC PCS
Salomon Smith Barney compared certain financial information of SBC PCS
with the PCS Comparable Companies. Salomon Smith Barney reviewed the
multiples of firm value to the number of adjusted POPs represented by the
trading prices of the PCS Comparable Companies, which resulted in a range
of $42 to $60 per POP. Using this information and other factors relevant in
the valuation of SBC PCS, Salomon Smith Barney determined a valuation range
for SBC PCS of approximately $1.6 billion to $2.3 billion.
SBC Publishing
Salomon Smith Barney compared certain financial information of SBC
Publishing with the Publishing Comparable Companies. Salomon Smith Barney
reviewed the multiples of firm value to LTM EBITDA represented by the
trading prices of the Publishing Comparable Companies, which ranged from
7.2x to
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13.9x, with a mean of 10.5x and a median of 10.3x. Using this information
and other factors relevant in the valuation of SBC Publishing, Salomon
Smith Barney determined a valuation range for SBC Publishing of
approximately $8.4 billion to $10.6 billion.
SBC Other Assets
Salomon Smith Barney compared certain financial information of certain
SBC business segments in North America, including, without limitation,
wireless cable, Media Ventures Hauser and Nevada Bell with groups of
companies that Salomon Smith Barney believed were appropriate for
comparison. In addition, Salomon Smith Barney valued certain domestic and
international investments, including, without limitation, investments in
Cegetel, S.A., Shinsegi Mobile Telecom Co. Ltd., Mobile Telephone Networks,
Telefonos de Mexico, S.A. de C.V., Aurec Group, VTR S.A., diAx and Telkom,
S.A. Limited, based on other valuation methodologies appropriate for SBC's
percentage ownership. Salomon Smith Barney also valued SNET based on the
exchange ratio for the pending acquisition of SNET by SBC. These analyses
resulted in a valuation of SBC Other Assets ranging from approximately
$14.2 billion to $15.5 billion.
Total SBC Public Market Valuation
By combining the stand-alone valuations for SBC Telco, SBC Cellular, SBC
PCS, SBC Publishing and SBC Other Assets described above and making certain
adjustments for debt, preferred securities of subsidiaries, cash and cash
equivalents, investments (other than those included in SBC Other Assets)
and option proceeds, this analysis resulted in a valuation range for SBC's
aggregate equity of approximately $71.1 billion to $84.4 billion, or $35.86
to $42.57 per share based on the number of fully-diluted shares of SBC
Common Stock as of May 1, 1998 (including the issuance of shares of SBC
Common Stock expected to be issued in the SNET acquisition). The foregoing
analysis does not reflect the revenue, expense and capital expenditure
synergies believed to be achievable by SBC following the consummation of
the Merger, which synergies have been analyzed as described in clause (ix)
below.
(viii) SBC Segmented Discounted Cash Flow Analysis. Salomon Smith Barney
performed a discounted cash flow analysis based on projected earnings and
capital requirements and the subsequent cash flows generated by the
business segments of SBC. Salomon Smith Barney derived ranges of firm
values for SBC's business segments based upon the aggregate present value
of each segment's eleven-year stream (to 2008) of projected cash flows
(without giving effect to the Merger). In general, the growth rates for
each segment's projected cash flow for the years from 2009 to 2017 were
reduced or increased to reach the assumed 2017 perpetuity growth rate. For
SBC Telco (which excludes long distance), Salomon Smith Barney applied
discount rates reflecting a WACC ranging from 8.75% to 9.75% and perpetuity
growth rates ranging from 2.00% to 3.00%, which resulted in a valuation
range for SBC Telco of approximately $67.2 billion to $72.9 billion. For
the SBC long distance segment, Salomon Smith Barney applied discount rates
reflecting a WACC ranging from 10.50% to 11.50% and perpetuity growth rates
ranging from 2.50% to 3.50%, which resulted in a valuation range for SBC
long distance of approximately $5.9 billion to $6.6 billion. For the
segment consisting of SBC Cellular, Salomon Smith Barney applied discount
rates reflecting a WACC ranging from 10.00% to 11.00% and perpetuity growth
rates ranging from 2.50% to 3.50%, which resulted in a valuation range for
such segment of approximately $11.9 billion to $13.2 billion. For SBC PCS,
Salomon Smith Barney applied discount rates reflecting a WACC ranging from
12.50% to 13.50% and perpetuity growth rates ranging from 2.50% to 3.50%,
which resulted in a valuation range for SBC PCS of approximately $2.4
billion to $2.6 billion. For SBC Publishing, Salomon Smith Barney applied
discount rates reflecting a WACC ranging from 9.00% to 10.00% and
perpetuity growth rates ranging from 1.00% to
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2.00%, which resulted in a valuation range for SBC Publishing of
approximately $9.3 billion to $10.2 billion. For the other business
segments and assets of SBC, including, without limitation, the domestic
video business segment, the international equity stakes, SNET and corporate
overhead, Salomon Smith Barney derived a range of net values based on
various valuation methodologies of approximately $4.6 billion to $5.4
billion. By combining the stand-alone discounted cash flow valuations for
the business segments described above and making certain adjustments for
debt, preferred securities of subsidiaries, cash and cash equivalents,
investments and option proceeds, this analysis resulted in a valuation
range for SBC's aggregate equity of approximately $92.7 billion to $103.5
billion, or $46.77 to $52.22 per share based on the number of fully-diluted
shares of SBC Common Stock as of May 1, 1998 (including the issuance of
shares of SBC Common Stock expected to be issued in the SNET acquisition).
The foregoing analysis does not reflect the revenue, expense and capital
expenditure synergies believed to be achievable by SBC following the
consummation of the Merger, which synergies have been analyzed as described
in clause (ix) below.
(ix) Synergies. Salomon Smith Barney reviewed the synergy estimates
provided by the management of SBC (the "SBC Synergy Estimates") prepared
after the management of SBC held discussions and exchanged information with
the management of Ameritech. The SBC Synergy Estimates reflect only the
incremental benefits expected by the management of SBC to result from the
Merger compared to SBC on a stand-alone basis (but adjusted on a pro forma
basis as if SBC had completed its pending acquisition of SNET), and include
revenue, expense and capital expenditure synergies. The SBC Synergy
Estimates assumed full potential synergies would not be achieved until
2003. Salomon Smith Barney then estimated the present value of the future
streams of after-tax cash flows generated by those synergies, net of
implementation costs, by applying discount rates reflecting a WACC ranging
from 9.0% to 10.0% to such cash flows through 2008 and by adding a terminal
value determined by projecting a range of nominal perpetual synergy growth
rates ranging from 1.5% to 2.5%. This analysis resulted in a net present
value for the synergies of approximately $16.0 billion to $19.0 billion or
$4.64 per share of SBC Common Stock to $5.51 per share of SBC Common Stock
outstanding following the consummation of the Merger on a fully diluted
basis (including the issuance of shares of SBC Common Stock expected to be
issued in the SNET acquisition). For a more detailed discussion of SBC
management's projected synergies resulting from the Merger, see "Reasons
for the Merger; Recommendation of the Boards of Directors--SBC--Synergistic
Benefits Resulting from the Merger."
(x) Pro Forma EPS Impact to SBC. Salomon Smith Barney reviewed certain
pro forma financial effects of the Merger on the estimated EPS of SBC.
Using SBC management projections, Salomon Smith Barney compared the EPS of
SBC, on a stand-alone basis assuming the Merger was not consummated (but
adjusted on a pro forma basis as if SBC had completed its pending
acquisition of SNET), to the estimated EPS of SBC following consummation of
the Merger on a pro forma basis. Salomon Smith Barney's analysis assumed
that each share of Ameritech Common Stock would be exchanged for a number
of shares of SBC Common Stock equal to the Exchange Ratio and gave effect
to revenue, expense and capital expenditure synergies along with certain
costs necessary to achieve those synergies referred to above. Based on such
analysis, Salomon Smith Barney determined that the proposed Merger would be
dilutive to the EPS of SBC on a pro forma basis by approximately 7.3% in
2000, would be slightly dilutive in 2001 and would be accretive thereafter.
The preparation of a fairness opinion is a complex process not susceptible
to partial analysis or summary descriptions. The summary set forth above does
not purport to be a complete description of the analyses underlying Salomon
Smith Barney's opinion or its presentation to the Board of Directors of SBC.
Salomon Smith Barney believes that its analysis and the summary set forth
above must be considered as a whole and that
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selecting portions of its analyses and the factors considered by it, without
considering all analyses and factors, could create an incomplete view of the
processes underlying its opinion.
In performing its analyses, Salomon Smith Barney 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
SBC or Ameritech. The analyses which Salomon Smith Barney performed are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of Salomon Smith Barney's analysis of
the fairness, from a financial point of view, of the Exchange Ratio to SBC.
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.
Pursuant to an engagement letter (the "Engagement Letter") dated April 20,
1998, SBC agreed to pay Salomon Smith Barney a fee of: (a) $1 million, after
execution of the Engagement Letter; plus (b) an additional fee of $4 million
following execution of the Merger Agreement; plus (c) an additional fee of $28
million contingent upon the consummation of the Merger and payable promptly at
the closing thereof (or, if following or in connection with the termination or
abandonment of the Merger prior to its consummation SBC receives any "break-
up","termination" or similar fee or payment from Ameritech, an additional cash
fee equal to the lesser of $20 million and 2.5% of the excess of the aggregate
amount of all such termination fees and expense reimbursements over SBC's
direct out-of-pocket expenses). SBC also agreed, under certain circumstances,
to reimburse Salomon Smith Barney for certain out-of-pocket expenses incurred
by Salomon Smith Barney in connection with the Merger, and agreed to indemnify
Salomon Smith Barney and certain related persons against certain liabilities,
including liabilities under the federal securities laws, relating to or
arising out of its engagement.
Salomon Smith Barney is an internationally recognized investment banking
firm that provides financial services in connection with a wide range of
business transactions. As part of its business, Salomon Smith Barney regularly
engages in the valuation of companies and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and for other purposes. In the past, Salomon Smith Barney has rendered certain
investment banking and financial advisory services to SBC for which Salomon
Smith Barney received customary compensation. In addition, in the ordinary
course of its business, Salomon Smith Barney and its current and future
affiliates (including Travelers Group Inc.) may actively trade the securities
of SBC and Ameritech for its own account and the accounts of its customers
and, accordingly, may at any time hold a long or short position in such
securities. Salomon Smith Barney and its current and future affiliates
(including Travelers Group Inc.) may have other business relationships with
SBC, Ameritech and their respective affiliates. The SBC Board retained Salomon
Smith Barney based on its expertise in the valuation of companies as well as
its substantial experience in transactions such as the Merger.
Ameritech
Goldman Sachs delivered its written opinion, dated May 10, 1998, to the
Ameritech Board that as of such date, the Exchange Ratio pursuant to the
Merger Agreement is fair from a financial point of view to the holders of
Ameritech Common Stock.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED MAY 10, 1998,
WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE
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OPINION, IS ATTACHED AS ANNEX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND
IS INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE OPINION IN THIS JOINT
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF THE OPINION. SHAREOWNERS OF AMERITECH ARE URGED TO, AND SHOULD,
READ SUCH OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
the Merger Agreement; Annual Reports to shareowners and Annual Reports on Form
10-K of Ameritech and SBC for the five years ended December 31, 1997; certain
interim reports to shareowners and Quarterly Reports on Form 10-Q of Ameritech
and SBC; certain other communications from Ameritech and SBC to their
respective shareowners; and certain internal financial analyses and forecasts
for Ameritech and SBC prepared by their respective managements. Goldman Sachs
held discussions with members of the senior management of Ameritech and SBC
regarding the past and current business operations, financial condition, and
future prospects of their respective companies. Goldman Sachs also held
discussions with members of the senior management of Ameritech and SBC
regarding the strategic rationale for, and potential benefits of, the
transactions contemplated by the Merger Agreement, including a discussion of
potential synergies expected to be derived as a result of the transactions
contemplated by the Merger Agreement. In addition, Goldman Sachs reviewed the
reported price and trading activity for Ameritech Common Stock and SBC Common
Stock, compared certain financial and stock market information for Ameritech
and SBC with similar information for certain other companies the securities of
which are publicly traded, reviewed the financial terms of certain recent
business combinations in the telecommunications industry specifically and in
other industries generally and performed such other studies and analyses as it
considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion. In addition, Goldman Sachs
did not make an independent evaluation or appraisal of the assets and
liabilities of Ameritech or SBC or any of their subsidiaries and Goldman Sachs
has not been furnished with any such evaluation or appraisal. Goldman Sachs
also assumed that the Merger will be accounted for as a pooling of interests
under generally accepted accounting principles. Goldman Sachs' advisory
services and the opinion of Goldman Sachs referred to herein were provided for
the information and assistance of the Ameritech Board in connection with its
consideration of the transactions contemplated by the Merger Agreement. The
opinion of Goldman Sachs referred to herein does not constitute a
recommendation as to how any Ameritech shareowner should vote with respect to
the Merger Agreement.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its written opinion to the
Ameritech Board:
(i) Historical Stock Price Analysis. Goldman Sachs reviewed market
valuation information for Ameritech, SBC, Bell Atlantic Corp., BellSouth
Corporation, GTE Corporation and US West Communications, Inc. (the
"Selected Companies"). This analysis indicated P/E Multiples for the
Selected Companies based on estimated 1998 and 1999 EPS ranging from 18.2x
to 21.2x with a median of 19.5x 1998 EPS, and ranging from 16.7x to 19.2x
with a median of 17.3x 1999 EPS, compared with P/E Multiples for Ameritech
of 18.9x and 17.1x, respectively in 1998 and 1999, based on the latest
estimates provided by the Institutional Brokers Estimate Service ("IBES").
IBES is a data service which monitors and publishes a compilation of
earnings estimates produced by selected research analysts on companies of
interest to investors. Goldman Sachs performed a shareowner return on
common stock analysis as of May 4, 1998 for the Selected Companies
(excluding US West Communications, Inc., but including AT&T Corp.),
assuming the re-investment of dividends and excluding spin-offs. This
analysis indicated a total return ranging from
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79.3% to 214.0% over the five years preceding May 4, 1998, compared with a
return of 183.8% for Ameritech, a total return ranging from 90.0% to 140.8%
over the three years preceding May 4, 1998, compared with a return of
115.1% for Ameritech, and a return ranging from 33.8% to 89.5% over the
preceding year, compared with a return of 48.8% for Ameritech. Goldman
Sachs reviewed historical closing prices for Ameritech Common Stock from
May 5, 1995 to May 1, 1998. This analysis showed that the Ameritech Common
Stock price had increased over this period from $22.75 per share to $43.125
per share, as adjusted to give effect to stock splits. Goldman Sachs also
reviewed historical implied exchange ratios based on market prices for
Ameritech Common Stock and SBC Common Stock, weekly from May 5, 1995 to May
1, 1998. This analysis showed implied exchange ratios ranging from
approximately 0.925 to approximately 1.200 and an implied exchange ratio of
approximately 1.025 at May 1,1998.
(ii) Comparable Transactions Analysis. Goldman Sachs reviewed and
compared certain P/E Multiples relative to the merger of NYNEX Corporation
and Bell Atlantic Corp. on April 22, 1996 (the "NYNEX Merger") and the
acquisition of Pacific Telesis Group by SBC on April 1, 1996 (the "Pactel
Acquisition"), and P/E Multiples relative to the Merger, using for both the
NYNEX Merger and the Pactel Acquisition P/E Multiples based on pre-
announcement and post-announcement stock prices, and for the Merger, P/E
Multiples based on stock prices as of May 4, 1998, of $44.125 per share of
Ameritech Common Stock and $43.125 per share of SBC Common Stock, and, in
each case, based on the latest IBES estimates of EPS. The NYNEX Merger and
the Pactel Acquisition were selected by Goldman Sachs because both
transactions involved regional Bell operating companies that operate
predominantly in the communications services industry, which for purposes
of this analysis, makes them comparable to the Merger. This comparison
demonstrated for the NYNEX Merger, the Pactel Acquisition and the Merger,
respectively, based upon exchange ratios of 0.768x, 0.733x and 1.316x,
respectively: (i) pre-announcement P/E Multiples for the acquired company
of 14.9x, 11.1x and 18.9x based on calendar year-end earnings estimates;
(ii) transaction P/E Multiples for the acquired company of 14.0x, 15.4x and
24.3x based on calendar year-end earnings estimates (using announcement
stock prices for the NYNEX Merger and Pactel Acquisition and stock prices
as of May 4, 1998 for the Merger); (iii) acquiror P/E Multiples based on
stock prices at announcement for the NYNEX Merger and the Pactel
Acquisition and as of May 4, 1998 for the Merger of 15.5x, 15.3x and 20.9x
based on calendar year-end earnings estimates; and (iv) premiums to
acquiror P/E Multiples of (9.4)%, 0.5% and 15.9% based on calendar year end
earnings estimates. In each of (i) through (iv) above, year-end earnings
estimates were based on latest IBES estimates for the then current fiscal
year of each company. Such analysis demonstrated that the premium of the
acquired company transaction P/E Multiple (based on the Exchange Ratio) to
the acquiror P/E Multiple was higher for the Merger than for the NYNEX
Merger and the Pactel Acquisition. Goldman Sachs also performed a
contribution analysis exchange ratio comparison for the NYNEX Merger, the
Pactel Acquisition and the Merger, based on (i) IBES estimates for the then
current fiscal year of each company as of April 1996 for the NYNEX Merger
and the Pactel Acquisition and as of April 1998 for the Merger, (ii)
closing prices of $44.125 per share of Ameritech Common Stock and $43.125
per share of SBC Common Stock, and (iii) exchange ratios of 0.768, 0.733
and 1.316, respectively, for the NYNEX Merger, the Pactel Acquisition and
the Merger. Such analysis indicated a premium (discount) to net income
contribution analysis of (9.1)%, 0.3% and 15.8%, respectively, for the
NYNEX Merger, the Pactel Acquisition and the Merger.
(iii) Synergy Analysis. Goldman Sachs performed an analysis of the
synergies estimated by the management of Ameritech to be achievable
following the Merger, assuming that 40% of the projected synergies would be
generated in 1999, 70% in 2000, 90% in 2001 and 100% in 2002 in order to
quantify anticipated synergies from the Merger for purposes of its analysis
set forth below. The analysis showed a range of incremental annual pre-tax
earnings of $1,827 million to $2,722 million. Goldman Sachs used
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anticipated synergies of $2,275 million, which constitutes the mid-point of
the range of incremental pre-tax earnings for purposes of the Pro Forma
Merger Analysis and the Present Value of Future Performance Analysis set
forth below.
(iv) Contribution Analysis. Goldman Sachs reviewed certain historical and
estimated future operating and financial information (including revenue,
EBIT and net income) for Ameritech and SBC and the relative contribution of
Ameritech and SBC to the combined company, based on an average of estimates
provided by research analysts' reports that were used by Goldman Sachs and
on estimates provided by management of Ameritech and SBC. This analysis
indicated, among other things, that Ameritech would contribute for each of
1997, 1998 and 1999, (i) 39%, 39% and 39% of revenue, respectively,
according to research analysts' estimates and management estimates, (ii)
38%, 38% and 37% of EBIT, respectively, according to research analysts'
estimates (or 38%, 37% and 36%, respectively, according to management
estimates), and (iii) 41%, 40% and 40% of net income, respectively,
according to research analysts' estimates (or 41%, 40% and 38%,
respectively, according to management estimates), as compared with an
implied ownership by Ameritech shareowners of 44.1% of the equity value of
the combined company based on the Exchange Ratio. Goldman Sachs also
performed an analysis of the relative estimated contribution of Ameritech
and SBC to the combined company on a pro forma basis in 1998 before and
after taking into account any of the possible benefits that management of
Ameritech estimates may be realized following the Merger, based on an
average of estimates provided by research analysts. This analysis
indicated, among other things, that Ameritech would contribute (i) 37.4% of
EBITDA (33.3% after taking into account the benefits that management of
Ameritech estimates may be realized following the Merger) as compared with
an implied ownership of 42.9% of the combined levered company based on the
Exchange Ratio, (ii) 38% of EBIT (31.5% after taking into account the
benefits that management of Ameritech estimates may be realized from the
Merger) as compared with an implied ownership of 42.9% of the combined
levered company based on the Exchange Ratio and (iii) 40.5% of net income
(33.1% after taking into account the benefits that management of Ameritech
estimates may be realized from the Merger) as compared with an implied
ownership by Ameritech shareowners of 44.1% of the equity value of the
combined company based on the Exchange Ratio.
(v) Pro Forma Merger Analysis. Goldman Sachs performed an analysis of the
pro forma EPS impact of the Merger on the Ameritech shareowners, based on
IBES estimates and on estimates provided by management of Ameritech and
SBC. For purposes of this analysis, Goldman Sachs used estimates provided
by management of Ameritech that the Merger would generate pre-tax synergies
of $910 million in 1999 and $2,275 million in 2000. This analysis showed
pro forma EPS for Ameritech shareowners, as adjusted by the Exchange Ratio,
before giving effect to the synergies that management of Ameritech
estimates will be realized from the Merger, of $2.85 and $3.08 in 1999 and
2000, respectively, based on IBES estimates ($3.00 and $3.63, respectively,
based on management estimates) and based on a pro forma ownership of 44.1%
of the combined entity at the Exchange Ratio. Such pro forma EPS represent
an accretion of 10.5% and 10.6%, respectively, over estimated EPS of
Ameritech Common Stock on a stand alone basis, based on IBES estimates
(15.7% and 21.9%, respectively, based on management estimates). After
giving effect to such synergies, this analysis showed pro forma EPS for
Ameritech Common Stock, as adjusted by the Exchange Ratio, of $3.07 and
$3.63 in 1999 and 2000, respectively, based on IBES estimates ($3.21 and
$4.18, respectively, based on management estimates). Such pro forma EPS
represent an accretion of 19.0% and 30.1%, respectively, over EPS of
Ameritech Common Stock on a stand alone basis, based on IBES estimates
(24.1% and 40.2%, respectively, based on management estimates).
Comparatively, an analysis of the pro forma EPS impact of the NYNEX Merger
and the Pactel Acquisition, assuming that these acquisitions were
consummated using the pooling of interests method of accounting and
generated no
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synergies, indicated (i) an EPS accretion for Bell Atlantic shareowners of
3.8% in 1997 and 4.5% in 1998 and dilution for NYNEX shareowners of (4.6)%
in 1997 and (5.4)% in 1998 and (ii) EPS dilution for SBC shareowners of
(3.8)% in 1997 and (7.3)% in 1998 and an accretion for Pacific Telesis
Group shareowners of 8.4% in 1997 and 18.1% in 1998.
(vi) Present Values of Future Performance Analysis. Goldman Sachs
performed an analysis of the present value at May 1, 1998 of the potential
future price per share of Ameritech Common Stock in 2000 (plus the present
value of quarterly dividends to be received by Ameritech shareowners from
May 1, 1998 through December 31, 2000) using IBES EPS estimates and EPS
estimates provided by management of Ameritech and SBC, (i) on a stand alone
basis and on a combined basis with SBC, both before and after giving effect
to the synergies that management of Ameritech estimates may be realized
following the Merger, (ii) assuming that until the end of 1999 the holders
of Ameritech Common Stock will receive dividends at a rate based on a
dividend growth rate of 5.5% according to the five year historical average
dividend growth rate of the Ameritech Common Stock and after such date will
receive dividends as projected for the year 2000 by SBC management, (iii)
assuming synergies of $2,275 million in 2000 and (iv) assuming an ownership
by Ameritech shareowners of 44.1% of the equity value of the combined
company (based on the Exchange Ratio). Goldman Sachs calculated the present
value per share of Ameritech Common Stock based on year 2000 estimated EPS
by applying discount rates of 9.0%, 10.0% and 11.0% and P/E Multiples to
estimated EPS in the year 2000 of 16.0x, 18.0x and 20.0x. This analysis
indicated present values per share of Ameritech Common Stock (i) ranging
from $36.61 to $47.23, based on IBES estimates ($38.91 to $50.25, based on
estimates provided by management of Ameritech) if Ameritech is considered
on a stand alone basis, (ii) ranging from $40.14 to $51.87, based on IBES
estimates ($46.77 to $60.57, based on estimates provided by management of
Ameritech and SBC) if Ameritech is considered on a combined basis with SBC,
but before giving effect to the synergies that management of Ameritech
estimates will be realized following the Merger, and (iii) ranging from
$46.73 to $60.52, based on IBES estimates ($53.36 to $69.22, based on
estimates provided by management of Ameritech and SBC) if Ameritech is
considered on a combined basis with SBC and after giving effect to the
synergies that management of Ameritech estimates will be realized following
the Merger.
(vii) Discounted Cash Flow Analysis. Goldman Sachs performed a discounted
cash flow analysis after giving effect to the Merger, both before and after
giving effect to the synergies that management of Ameritech estimates will
be realized following the Merger. Assuming a 7.5% revenue growth rate and
an exit multiple of 6.0x EBITDA, and using discount rates ranging from 8.5%
to 11.5% and an EBITDA margin ranging from 40.0% to 44.0%, this analysis
showed a value per share of Ameritech Common Stock, adjusted for the
Exchange Ratio, ranging from $45.78 to $66.22 per share before giving
effect to the synergies that management of Ameritech estimates will be
realized following the Merger, and a value per share ranging from $50.34 to
$71.77 after giving effect to such synergies. Assuming a revenue growth
rate ranging from 5.5% to 9.5%, an exit multiple of 6.0x EBITDA, and using
a discount rate of 10.5% and an EBITDA margin ranging from 40.0% to 44.0%,
this analysis showed a value per share of Ameritech Common Stock, adjusted
for the Exchange Ratio ranging from $41.66 to $67.08 per share before
giving effect to the synergies that management of Ameritech estimates will
be realized following the Merger, and a value per share ranging from $46.52
to $71.94 per share after giving effect to such synergies.
The analyses referred to above do not take into account the acquisition of
SNET by SBC, which has not yet been consummated.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
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considering the analyses as a whole, could create an incomplete view of the
processes underlying Goldman Sachs' opinion. In arriving at its fairness
determination, Goldman Sachs considered the results of all such analyses. No
company or transaction (other than the Merger) used in the above analyses as a
comparison is directly comparable to Ameritech or SBC or the contemplated
transaction. The analyses were prepared solely for purposes of Goldman Sachs
providing its opinion to the Ameritech Board as to the fairness from a
financial point of view to the holders of Ameritech Common Stock of the
Exchange Ratio pursuant to the Merger Agreement and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly
more or less favorable than suggested by such analyses. Because such analyses
are inherently subject to uncertainty, being based upon numerous factors or
events beyond the control of the parties or their respective advisors, none of
Ameritech, SBC, Goldman Sachs or any other person assumes responsibility if
future results are materially different from those forecast.
As described above, Goldman Sachs' opinion to the Ameritech Board was one of
many factors taken into consideration by the Ameritech Board in making its
determination to approve the Merger Agreement. The foregoing summary does not
purport to be a complete description of the analysis performed by Goldman
Sachs and is qualified by reference to the written opinion of Goldman Sachs
set forth in Annex C hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their 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. Goldman Sachs is
familiar with Ameritech, having provided certain investment banking services
to Ameritech from time to time, including: (i) having acted as financial
advisor to Ameritech with respect to Ameritech's purchase of 4.5 million Class
A ordinary shares of TeleDanmark in 1997, (ii) having acted as managing
underwriter of a public offering of stated rate auction preferred securities
issued by Ameritech Denmark Capital Funding Corporation, an affiliate of
Ameritech, on April 20, 1998, (iii) having acted as managing underwriter of a
public offering of $1.75 billion of notes and debentures issued by Ameritech
on January 15, 1998, and (iv) having acted as financial advisor to Ameritech
in connection with, and participated in certain of the negotiations leading
to, the Merger Agreement. Goldman Sachs has also provided certain investment
banking services to SBC from time to time, including having acted as co-
manager of a public offering of $200 million of notes for a subsidiary of SBC
on February 10, 1998, and may provide investment banking services to SBC in
the future. Goldman Sachs provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold securities, including
derivative securities, of Ameritech or SBC for its own account and for the
accounts of customers. As of May 6, 1998, Goldman Sachs had accumulated (i) a
long position of 287,383 shares of Ameritech Common Stock against which
Goldman Sachs was short 191,694 shares of Ameritech Common Stock, (ii) a short
position of 1,431,742 shares of SBC Common Stock against which Goldman Sachs
was long 446,807 shares of SBC Common Stock, options to purchase 40,000 shares
of SBC Common Stock, and 10,100 convertible bonds of SBC, and (iii) a long
position of 666,000 shares of common stock of SNET.
Pursuant to a letter agreement dated May 7, 1998 (the "Goldman Sachs
Engagement Letter"), Ameritech engaged Goldman Sachs to act as its financial
advisor to assist Ameritech in connection with the possible sale of all or a
portion of Ameritech. Pursuant to the terms of the Goldman Sachs Engagement
Letter, Ameritech has agreed to pay Goldman Sachs (i) a fee equal to $10
million payable upon execution of the Merger Agreement, and (ii) an additional
transaction fee of $15 million payable upon consummation of the Merger or
another transaction involving the sale of 50% or more of the outstanding
common stock or assets of Ameritech. In
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addition, pursuant to the terms of the Goldman Sachs Engagement Letter,
Ameritech may, at its discretion, elect to pay Goldman Sachs (i) an additional
fee of $5 million, payable in whole or in part at Ameritech's discretion,
based on Goldman Sachs' availability and contribution through the closing of
any such transactions, and (ii) an additional fee of $10 million, payable in
whole or in part at Ameritech's discretion, based on Goldman Sachs' reasonable
support, upon request, in the pursuit by Ameritech of regulatory approvals
necessary to consummate any such transactions. Ameritech's discretion with
respect to the payment of such additional fees will be based upon the extent
to which Ameritech reasonably believes that Goldman Sachs has met customary
industry standards with respect to its obligations under the Goldman Sachs
Engagement Letter. Ameritech has also agreed to indemnify Goldman Sachs and
certain related persons against various liabilities in connection with its
engagement and to reimburse Goldman Sachs for its out-of-pocket expenses,
including reasonable attorney's fees.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements that involve
risks and uncertainties. Forward-looking statements include the information
concerning possible or assumed future results of operations of SBC and
Ameritech and synergistic benefits of the Merger set forth under "--Reasons
for the Merger; Recommendations of the Boards of Directors" and "--Opinions of
Financial Advisors." To that extent, SBC and Ameritech claim the protection of
the disclosure liability safe harbor for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995. Readers are cautioned
that the following important factors, in addition to those discussed elsewhere
herein, and in the documents incorporated by reference herein, could affect
the future results of SBC and Ameritech and cause those results to differ
materially from those expressed in such forward-looking statements: future
regulatory conditions in both companies' operating areas, including conditions
which may be attached to regulatory approvals required for consummation of the
Merger, greater than anticipated competition in the local service market or
other markets in which either company operates, integration of the businesses,
rate of growth of SBC's and Ameritech's cellular businesses, the timing,
extent, and profitability of SBC's national-local strategy and its entry into
the long-distance market, growth in local access lines, risks inherent in
international operations, including exposure to fluctuations in foreign
currency exchange rates and political risk, the impact of new technologies and
changes in general economic and market conditions.
TERMS OF THE MERGER
At the Effective Time, Merger Sub will be merged with and into Ameritech and
the separate corporate existence of Merger Sub will thereupon cease. Ameritech
will be the Surviving Corporation, will continue to be governed by the laws of
the State of Delaware and will become a wholly owned subsidiary of SBC. The
Merger Agreement provides that the Ameritech Charter as in effect immediately
prior to the Effective Time will be amended as contemplated by the Merger
Agreement and, as so amended, will be the certificate of incorporation of the
Surviving Corporation and that the bylaws of Merger Sub in effect at the
Effective Time will be the bylaws of the Surviving Corporation.
Pursuant to the Merger Agreement, at the Effective Time, each share of
Ameritech Common Stock issued and outstanding immediately prior to the
Effective Time (other than Excluded Ameritech Common Stock) will be converted
into a number of shares of SBC Common Stock equal to the Exchange Ratio
(subject to appropriate adjustment to prevent dilution), together with an
appropriate number of corresponding SBC Rights or SBC Substitute Rights, if
any. See "--General." The Merger Agreement further provides that at the
Effective Time,
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all shares of Ameritech Common Stock will no longer be outstanding, will be
canceled and retired and will cease to exist, and (A) each certificate (an
"Ameritech Certificate") formerly representing any shares of Ameritech Common
Stock (other than Excluded Ameritech Shares) and (B) each uncertificated share
of Ameritech Common Stock (a "Registered Ameritech Share") registered to a
holder on the stock transaction books of Ameritech (other than Excluded
Ameritech Common Stock) will thereafter represent only the right to receive
the Merger Consideration and the right, if any, to receive cash in lieu of
fractional shares and any distribution or dividend on SBC Common Stock with a
record date at or after the Effective Time. In addition, each share of
Excluded Ameritech Common Stock issued and outstanding immediately prior to
the Effective Time will be canceled and retired without payment of any
consideration therefor and will cease to exist.
The Merger Agreement provides that in the event that prior to the Effective
Time there is a change in the number of shares of Ameritech Common Stock or
shares of SBC Common Stock or securities convertible or exchangeable into or
exercisable for shares of Ameritech Common Stock or shares of SBC Common Stock
issued and outstanding as a result of a distribution, reclassification, stock
split (including a reverse split), stock dividend or distribution, or other
similar transaction, the Exchange Ratio will be equitably adjusted to
eliminate the effects of such event.
No fractional shares of SBC Common Stock will be issued in the Merger.
Instead, the Merger Agreement provides that each holder of Ameritech Common
Stock who would otherwise have been entitled to receive a fractional share of
SBC Common Stock in the Merger will be entitled to receive, in lieu thereof,
an amount in cash (without interest) determined by multiplying such fraction
(rounded to the nearest one-hundredth of a share) by the average closing price
of a share of SBC Common Stock, as reported in The Wall Street Journal, New
York City edition, on the trading day immediately prior to the Effective Time.
CLOSING; EFFECTIVE TIME
The Merger Agreement provides that the Closing will take place on the second
business day after the date on which the last to be fulfilled or waived of the
conditions set forth in the Merger Agreement are satisfied or waived in
accordance with the Merger Agreement, or on such other date as SBC and
Ameritech may agree in writing. Immediately following the Closing, Ameritech
and SBC will cause the Certificate of Merger to be executed, acknowledged and
filed with the Secretary of State of the State of Delaware as provided in
Section 251 of the DGCL. The Merger will become effective at the time when the
Certificate of Merger has been duly filed with the Secretary of State of the
State of Delaware or such other time as agreed upon by the parties and set
forth in the Certificate of Merger in accordance with the DGCL.
EXCHANGE OF AMERITECH COMMON STOCK FOR SHARES OF SBC COMMON STOCK
Procedures
The Merger Agreement provides that promptly after the Effective Time, the
Surviving Corporation will cause an exchange agent (the "Exchange Agent") to
mail to each holder of record as of the Effective Time of an Ameritech
Certificate or a Registered Ameritech Share, as the case may be (other than
holders of Ameritech Certificates or Registered Ameritech Shares in respect of
Excluded Ameritech Common Stock), (i) (x) in the case of holders of Ameritech
Certificates, a letter of transmittal specifying that delivery will be
effected, and that risk of loss and title to the Ameritech Certificates will
pass, only upon delivery of Ameritech Certificates (or affidavits of loss in
lieu thereof) to the Exchange Agent (the "Certificate Letter of Transmittal")
or (y) in the case of holders of Registered Ameritech Shares, a letter of
transmittal specifying that the exchange for SBC Common Stock will occur only
upon delivery of a letter of transmittal to the Exchange Agent (the
"Registered
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Letter of Transmittal"), each such letter of transmittal to be in such form
and have such other provisions as SBC and Ameritech may reasonably agree, and
(ii) instructions for exchanging Ameritech Certificates or Registered
Ameritech Shares for (A) uncertificated shares of SBC Common Stock registered
on the stock transfer books of SBC in the name of such holder ("Registered SBC
Shares") or, at the election of such holder, certificates representing shares
of SBC Common Stock and (B) any unpaid dividends and other distributions and
cash in lieu of fractional shares. Except as otherwise provided in the Merger
Agreement, upon (I) surrender of an Ameritech Certificate for cancellation to
the Exchange Agent together with a Certificate Letter of Transmittal, duly
executed, the holder of such Ameritech Certificate or (II) delivery of a
Registered Letter of Transmittal, duly executed, the holder of such Registered
Ameritech Shares, as the case may be, will be entitled to receive in exchange
therefor (x) Registered SBC Shares or, at the election of such holder, a
certificate representing that number of whole shares of SBC Common Stock that
such holder is entitled to receive pursuant to the Merger Agreement, (y) a
check in the amount (after giving effect to any required tax withholdings) of
(A) any cash in lieu of fractional shares determined in accordance with the
terms of the Merger Agreement plus (B) any cash dividends and any other
dividends or other distributions that such holder has the right to receive
pursuant to the Merger Agreement, and any Ameritech Certificate so surrendered
and any Registered Ameritech Share in respect of which a Registered Letter of
Transmittal is so delivered will be canceled. No interest will be paid or
accrued on any amount payable upon due surrender of any Ameritech Certificate
or delivery of a duly executed Registered Letter of Transmittal, as the case
may be.
The Merger Agreement also provides that in the event of a transfer of
ownership of Ameritech Common Stock that is not registered in the transfer
records of Ameritech, Registered SBC Shares or a certificate representing the
proper number of shares of SBC Common Stock, as the case may be, together with
a check for any cash to be paid upon due surrender of the Ameritech
Certificate or upon the delivery to the Exchange Agent of the duly executed
Registered Letter of Transmittal and any other dividends or distributions in
respect thereof, may be issued and/or paid to such a transferee if, in the
case of holders of Ameritech Certificates, the Ameritech Certificate formerly
representing such Ameritech Common Stock is presented to the Exchange Agent,
and, in the case of holders of Registered Ameritech Shares, if the Registered
Letter of Transmittal is delivered to the Exchange Agent, in either case
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid. If any
Registered SBC Shares or any certificate for shares of SBC Common Stock is to
be issued in a name other than that in which the Ameritech Certificate
surrendered in exchange therefor or the Registered Ameritech Shares exchanged
therefor, as the case may be, is registered, it will be a condition of such
exchange that the Person (as defined in the Merger Agreement) requesting such
exchange will pay any transfer or other taxes required by reason of the
issuance of Registered SBC Shares or a certificate for shares of SBC Common
Stock in a name other than that of the registered holder of the Ameritech
Certificate surrendered or the Registered Ameritech Shares exchanged, as the
case may be, or will establish to the satisfaction of SBC or the Exchange
Agent that such tax has been paid or is not applicable.
Lost, Stolen or Destroyed Certificates
In the event any Ameritech Certificate is lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person claiming such Ameritech
Certificate to be lost, stolen or destroyed and the posting by such Person of
a bond in the form customarily required by SBC as indemnity against any claim
that may be made against it with respect to such Ameritech Certificate, SBC
will issue the shares of SBC Common Stock and the Exchange Agent will issue
the shares of SBC Common Stock and the Exchange Agent will issue any cash,
dividends and other distributions in respect thereof issuable and/or payable
in exchange for such lost, stolen or destroyed Certificate pursuant to the
terms of the Merger Agreement upon due surrender of and delivery in
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respect of the Ameritech Common Stock represented by such Ameritech
Certificate pursuant to the Merger Agreement, in each case, without interest.
Distributions with Respect to Unexchanged Shares; Voting
The Merger Agreement provides that whenever a dividend or other distribution
is declared by SBC in respect of SBC Common Stock, the record date for which
is at or after the Effective Time, that declaration will include dividends or
other distributions in respect of all shares of SBC Common Stock issuable
pursuant to the Merger Agreement. The Merger Agreement also provides that no
dividends or other distributions in respect of such SBC Common Stock will be
paid to any holder of any unsurrendered Ameritech Certificate or Registered
Ameritech Shares for which a Registered Letter of Transmittal has not been
delivered, until such Ameritech Certificate is surrendered for exchange or
such Registered Letter of Transmittal is delivered, as the case may be, in
accordance with the provisions of the Merger Agreement. Subject to the effect
of applicable laws, following surrender of any such Ameritech Certificate or
delivery of any such Registered Letter of Transmittal, as the case may be,
there will be issued and/or paid to the holder of the Registered SBC Shares or
the certificates representing whole shares of SBC Common Stock, as the case
may be, issued in exchange therefor, without interest, (A) at the time of such
surrender or delivery, as the case may be, the dividends or other
distributions with a record date after the Effective Time and a payment date
on or prior to the date of issuance of such whole shares of SBC Common Stock
and not previously paid and (B) at the appropriate payment date, the dividends
or other distributions payable with respect to such whole shares of SBC Common
Stock with a record date after the Effective Time but with a payment date
subsequent to surrender or delivery, as the case may be. For purposes of
dividends or other distributions in respect of shares of SBC Common Stock, all
shares of SBC Common Stock to be issued pursuant to the Merger will be deemed
issued and outstanding as of the Effective Time.
The Merger Agreement further provides that registered holders of
unsurrendered Ameritech Certificates or Registered Ameritech Shares for which
a duly executed Registered Letter of Transmittal has not been delivered will
be entitled to vote after the Effective Time at any meeting of SBC shareowners
with a record date at or after the Effective Time the number of whole shares
of SBC Common Stock represented by such Ameritech Certificates or Registered
Ameritech Shares, as the case may be, regardless of whether such holders have
surrendered their Ameritech Certificates or delivered duly executed Registered
Letters of Transmittal, as the case may be.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Ameritech, SBC and Merger Sub, certain of which are qualified as to
materiality. Ameritech represents and warrants to SBC and Merger Sub, and SBC
(on behalf of itself and Merger Sub) represents and warrants to Ameritech
regarding the following matters, among others: (i) corporate existence and
capitalization of it and its respective Significant Subsidiaries (as defined
in Rule 1.02(w) of Regulation S-X promulgated pursuant to the Exchange Act);
(ii) corporate power and authority to execute, deliver and perform its
obligations under the Merger Agreement and to consummate the Merger; (iii)
that the Merger Agreement and the consummation of the Merger will not result
in a violation of any Contract to which it is a party, or violate any law,
rule, regulation, any governmental or non-governmental permit or license or
the organizational documents of it or its Significant Subsidiaries; (iv)
consents, registrations, approvals, permits or authorizations required by any
governmental or regulatory authority, court, agency, commission, body or other
governmental entity ("Governmental Entity") required in connection with the
execution and delivery of the Merger Agreement and the consummation of the
Merger and the other transactions
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contemplated by the Merger Agreement, including filings with applicable PUCs
and the FCC; (v) its financial statements; (vi) the conduct of its and its
Subsidiaries' businesses since December 31, 1997; (vii) pending or threatened
civil, criminal or administrative suits, actions or proceedings and
undisclosed liabilities; (viii) employee benefits; (ix) compliance with laws;
(x) in the case of Ameritech, inapplicability of state takeover statutes; (xi)
environmental matters; (xii) accounting and tax matters, including the absence
of any action that would prevent SBC from accounting for the Merger as a
"pooling of interests" or prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code; (xiii)
labor matters; (xiv) in the case of Ameritech, Ameritech having adopted an
amendment to the Rights Agreement between Ameritech and American Transtech
Inc., as Rights Agent dated as of December 21, 1988 (the "Ameritech Rights
Agreement") to provide, among other things, that neither SBC nor Ameritech
will have any obligations relating to the Rights Agreement as a result of the
Merger; and (xv) the absence of any liability to any undisclosed person for
any brokerage fees, commissions or finders' fees.
As used in the Merger Agreement, the term "Subsidiary" means, with respect
to Ameritech, SBC or Merger Sub, as the case may be, any entity, whether
incorporated or unincorporated, of which at least fifty percent of the
securities or ownership interests having by their terms ordinary voting power
to elect at least fifty percent of the board of directors or other persons
performing similar functions is directly or indirectly owned by such party or
by one or more of its respective Subsidiaries or by such party and any one or
more of its respective Subsidiaries.
CERTAIN COVENANTS
Interim Operations
Pursuant to the Merger Agreement, Ameritech has covenanted and agreed as to
itself and its Subsidiaries that, after the date of the Merger Agreement and
prior to the Effective Time (unless SBC otherwise approves in writing, and
except as otherwise expressly contemplated by the Merger Agreement, disclosed
to SBC or required by applicable Law): (i) the business of it and its
Subsidiaries will be conducted in the ordinary and usual course and, to the
extent consistent therewith, it and its Subsidiaries will use all reasonable
best efforts to preserve its business organization intact and maintain its
existing relations and goodwill with customers, suppliers, regulators,
distributors, creditors, lessors, employees and business associates; (ii) it
will not (A) amend the Ameritech Charter or the Ameritech Bylaws or amend,
modify or terminate the Ameritech Rights Agreement; provided, however, that
nothing in the Merger Agreement will prevent Ameritech from reducing below 20%
the beneficial ownership threshold in the definition of an Acquiring Person
(as defined in the Ameritech Rights Agreement) or extending the Final
Expiration Date (as defined in the Ameritech Rights Agreement) or adopting a
new rights agreement having substantially similar terms as the Rights
Agreement and not inconsistent with the terms of the Merger Agreement relating
to the Ameritech Rights Agreement or the transactions contemplated by the
Merger Agreement; (B) split, combine, subdivide or reclassify its outstanding
shares of capital stock; (C) declare, set aside or pay any dividend or
distribution payable in cash, stock or property in respect of any capital
stock, other than regular quarterly cash dividends in amounts consistent with
its past practice or rights to purchase Ameritech Common Stock or Ameritech
Preference Stock pursuant to any successor agreement to the Ameritech Rights
Agreement, adopted in accordance with the terms of the Merger Agreement; or
(D) repurchase, redeem or otherwise acquire or permit any of its Subsidiaries
to purchase or otherwise acquire, except in open market transactions in
connection with the Ameritech Stock Plans, any shares of its capital stock or
any securities convertible into or exchangeable or exercisable for any shares
of its capital stock, but subject to Ameritech's obligations under the
following item (iii); (iii) neither it nor any of its Subsidiaries will
knowingly take any action that would prevent the Merger from qualifying for
"pooling of interests" accounting treatment or as a
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"reorganization" within the meaning of Section 368(a) of the Code or that
would cause any of its representations and warranties contained in the Merger
Agreement to become untrue in any material respect; (iv) neither it nor any of
its Subsidiaries will terminate, establish, adopt, enter into, make any new
grants or awards of stock-based compensation or other benefits under, amend or
otherwise modify, any Ameritech Compensation and Benefit Plans or increase the
salary, wage, bonus or other compensation of any directors, officers or key
employees except (A) for grants or awards to directors, officers and employees
of it or its Subsidiaries under existing Ameritech Compensation and Benefit
Plans in such amounts and on such terms as are consistent with past practice,
(B) in the normal and usual course of business (which will include normal
periodic performance reviews and related Ameritech Compensation and Benefit
Plan increases and the provision of individual Ameritech Compensation and
Benefit Plans consistent with past practice for promoted or newly hired
officers and employees and the adoption of Ameritech Compensation and Benefit
Plans for employees of new Subsidiaries in amounts and on terms consistent
with past practice); provided, that in no event will it institute a broad
based change in compensation, unless it has used its reasonable best efforts
to provide SBC with prior notice of any such change or, if Ameritech was
unable to provide such prior notice, Ameritech will provide SBC with notice as
soon as practicable following any such change, or (C) for actions necessary to
satisfy existing contractual obligations under Ameritech Compensation and
Benefit Plans existing as of the date of the Merger Agreement; (v) neither it
nor any of its Subsidiaries will issue any Ameritech Preferred Stock or
Ameritech Preference Stock or incur any indebtedness for borrowed money or
guarantee any such indebtedness if it reasonably anticipates that after such
incurrence any of its or any of its Subsidiaries' outstanding senior
indebtedness would be rated A or lower by Standard & Poor's; (vi) neither it
nor any of its Subsidiaries will make any capital expenditures in any period
of twelve consecutive months following the date of the Merger Agreement in an
aggregate amount in excess of 150% of the aggregate amount reflected in
Ameritech's capital expenditure budget for such year; (vii) neither it nor any
of its Subsidiaries will transfer, lease, license, sell, mortgage, pledge,
encumber or otherwise dispose of any of its or its Subsidiaries' property or
assets (including capital stock of any of its Subsidiaries) with a fair market
value in excess of $1 billion in the aggregate in any period of twelve
consecutive months following the date of the Merger Agreement except for
transfers, leases, licenses, sales, mortgages, pledges, encumbrances, or other
dispositions in the ordinary course of business consistent with past practice;
(viii) neither it nor any of its Subsidiaries will issue, deliver, sell, or
encumber shares of any class of its common stock or any securities convertible
into, or any rights, warrants or options to acquire, any such shares except
(A) any such shares issued pursuant to options and other awards outstanding on
the date of the Merger Agreement under the Ameritech Stock Plans, awards of
options and other awards granted after the execution of the Merger Agreement
under Ameritech Stock Plans in accordance with the Merger Agreement and shares
issuable pursuant to such awards and (B) up to an aggregate amount of $3.6
billion of such shares, securities, rights, warrants or options (valued at
their fair market value as of the date of the agreement to make such
acquisition) in any period of twelve consecutive months following the date of
the Merger Agreement to fund, in whole or in part, the cost of any acquisition
or acquisitions permitted under the following item (ix) following reasonable
notice to SBC of its intention to take such action; (ix) neither it nor any of
its Subsidiaries will spend in excess of $3.6 billion in the aggregate in any
period of twelve consecutive months following the date of the Merger Agreement
to acquire any business, whether by merger, consolidation, purchase of
property or assets or otherwise, provided, that no such acquisition will
prevent, materially delay or materially impair its ability to consummate the
transactions contemplated by the Merger Agreement, and provided further, that
neither it nor any of its Subsidiaries will acquire any business the
acquisition of which would subject SBC and its Subsidiaries following the
consummation of the Merger to any Commercial Mobile Radio Service spectrum
aggregation limit restriction pursuant to the provisions of 47 C.F.R. Section
20.6 or place SBC and its Subsidiaries following the consummation of the
Merger in violation of the Cellular Cross Ownership limits contained in 47
C.F.R. Section 22.942; (x) neither it nor its Subsidiaries will enter into any
business other than the telecommunications business
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and those businesses traditionally associated with the telecommunications
business; and (xi) neither it nor any of its Subsidiaries will authorize or
enter into any agreement to do any of the foregoing. As permitted pursuant to
the provision of the Merger Agreement described in clause (ii)(D) above, from
time to time, Ameritech repurchases its shares in the open market and expects
to continue to do so prior to and after the Ameritech Special Meeting,
pursuant to a share repurchase program previously announced in December 1997,
in order to satisfy share issuance requirements under certain of its employee
benefit plans.
Pursuant to the Merger Agreement, SBC has covenanted and agreed as to itself
and its Subsidiaries that after the date of the Merger Agreement and prior to
the Effective Time (unless Ameritech otherwise approves in writing, which
approval will not be unreasonably withheld or delayed, and except as otherwise
expressly contemplated by the Merger Agreement, disclosed to Ameritech or
required by applicable Law): (i) the business of it and its Subsidiaries will
be conducted in the ordinary and usual course and, to the extent consistent
therewith, it and its Subsidiaries will use all reasonable best efforts to
preserve its business organization intact and maintain its existing relations
and goodwill with customers, suppliers, regulators, distributors, creditors,
lessors, employees and business associates; (ii) it will not (A) amend the SBC
Charter or SBC Bylaws in any manner that would prohibit or hinder, impede or
delay in any material respect the Merger or the consummation of the
transactions contemplated thereby, provided, that any amendment to the SBC
Charter to increase the authorized number of shares of any class or series of
the capital stock of SBC will in no way be restricted by the foregoing; (B)
declare, set aside or pay any dividend or other distribution payable in cash
or property (other than SBC Common Stock or rights to purchase SBC Common
Stock or SBC Preferred Stock pursuant to any successor agreement to the SBC
Rights Agreement) in respect of any capital stock, other than per share
regular quarterly cash dividends in amounts consistent with its past practice;
or (C) repurchase, redeem or otherwise acquire, or permit any of its
Subsidiaries to purchase or otherwise acquire, except in open market
transactions in connection with the SBC Stock Plans, any shares of its capital
stock or any securities convertible into or exchangeable for any shares of its
capital stock, but subject to SBC's obligations under the following item
(iii); (iii) neither it nor any of its Subsidiaries will knowingly take any
action that would prevent the Merger from qualifying for "pooling-of-
interests" accounting treatment or as a tax-free "reorganization" within the
meaning of Section 368(a) of the Code or that will cause any of its
representations and warranties therein to become untrue in any material
respect; (iv) neither it nor any of its Subsidiaries will issue any SBC
Preferred Stock or incur any indebtedness for borrowed money or guarantee any
such indebtedness if it reasonably anticipates that after such incurrence any
of its or any of its Subsidiaries' outstanding senior indebtedness would be
rated A or lower by Standard & Poor's; (v) neither it nor any of its
Subsidiaries will make any capital expenditures in any period of twelve
consecutive months following the date of the Merger Agreement in an aggregate
amount in excess of 150% of the aggregate amount of capital expenditures
reflected in its capital expenditure budget for such year; (vi) neither it nor
any of its Subsidiaries will transfer, lease, license, sell, mortgage, pledge,
encumber or otherwise dispose of any of its or its Subsidiaries' property or
assets (including capital stock of any of its Subsidiaries) with a fair market
value in excess of $1.5 billion in the aggregate in any period of twelve
consecutive months following the date of the Merger Agreement except for
transfers, leases, licenses, sales, mortgages, pledges, encumbrances, or other
dispositions in the ordinary course of business consistent with past practice;
(vii) neither it nor any of its Subsidiaries will issue, deliver, sell or
encumber shares of any class of its common stock or any securities convertible
into, or any rights, warrants or options to acquire, any such shares, except
(A) any such shares issued pursuant to options and other awards outstanding on
the date of the Merger Agreement under the SBC Stock Plans, awards of options
and other awards granted hereafter under the SBC Stock Plans and shares
issuable pursuant to such awards, (B) up to an aggregate amount of $4.8
billion of such shares, securities, rights, warrants or options in any period
of twelve consecutive months following the date of the Merger Agreement to
fund, in whole or in part, the cost of any acquisition or acquisitions
permitted under the following item (viii), following reasonable notice to
Ameritech of its intention to take such action, and (C) pursuant to the terms
of the Agreement and Plan of Merger dated as of January 4, 1998, by and among
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SNET and SBC(CT) Sub, Inc. a Connecticut corporation and a wholly-owned
subsidiary of SBC (the "SNET Agreement"), which issuances of SBC capital stock
will not be included in calculating the $4.8 billion of permissible issuances,
deliveries, sales or encumbrances, or require notice to Ameritech, pursuant to
clause (B) above; (viii) neither it nor any of its Subsidiaries will spend in
excess of $4.8 billion in the aggregate in any period of twelve consecutive
months following the date of the Merger Agreement to acquire any business,
whether by merger, consolidation, purchase of property or assets or otherwise
(valuing any non-cash consideration at its fair market value as of the date of
the agreement for such acquisition), provided, however, that no such
acquisition would prevent, materially delay or materially impair its ability
to consummate the transactions contemplated by the Merger Agreement; and
provided, further, that the SNET Agreement and the transactions contemplated
thereby will not be subject to the terms of the foregoing restriction and,
provided, further, that neither it nor any of its Subsidiaries will acquire
any business the acquisition of which would subject SBC and its Subsidiaries
following the consummation of the Merger to any Commercial Mobile Radio
Service spectrum aggregation limit restriction pursuant to the provisions of
47 C.F.R. Section 20.6 or place SBC and its Subsidiaries following the
consummation of the Merger in violation of the Cellular Cross Ownership limits
contained in 47 C.F.R. Section 22.942, except that the SNET Agreement and the
transactions contemplated thereby will not be subject to the terms of the
foregoing restriction; (ix) neither it nor any of its Subsidiaries will enter
any business other than the telecommunications business and those businesses
traditionally associated with the telecommunications business; and (x) neither
it nor any of its Subsidiaries will authorize or enter into an agreement to do
any of the foregoing.
Acquisition Proposals
In accordance with the terms of the Merger Agreement, Ameritech has agreed
that neither it nor any of its Subsidiaries will, and that it will direct and
use its best efforts to cause its and its Subsidiaries' employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) (Ameritech, its Subsidiaries and
their officers, directors, employees, agents and representatives being the
"Ameritech Representatives") not to, directly or indirectly, initiate,
solicit, encourage or otherwise facilitate any inquiries or the making of any
Ameritech Acquisition Proposal. Ameritech has further agreed that neither it
nor any of its Subsidiaries will, and that it will direct and use its best
efforts to cause Ameritech Representatives not to, directly or indirectly,
have any discussion with or provide any confidential information or data to
any Person relating to an Ameritech Acquisition Proposal or engage in any
negotiations concerning an Ameritech Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Ameritech Acquisition
Proposal; provided, however, that nothing contained in the Merger Agreement
will prevent either Ameritech or Ameritech Representatives from (A) complying
with Rule 14e-2 promulgated under the Exchange Act with regard to an Ameritech
Acquisition Proposal; (B) engaging in any discussions or negotiations with or
providing any information to, any Person in response to an unsolicited bona
fide written Ameritech Acquisition Proposal by any such Person; or (C)
recommending such an unsolicited bona fide written Ameritech Acquisition
Proposal to the shareowners of Ameritech if, and only to the extent that, in
such case referred to in clause (B) or (C), (i) the Ameritech Board concludes
in good faith (after consultation with its financial advisor) that such
Ameritech Acquisition Proposal is reasonably capable of being completed,
taking into account all legal, financial, regulatory and other aspects of the
proposal and the Person making the proposal, and would, if consummated, result
in a Superior Ameritech Proposal, (ii) the Ameritech Board determines in good
faith after consultation with outside legal counsel that such action is
necessary for the Ameritech Board to comply with its fiduciary duty under
applicable law and (iii) prior to providing any information or data to any
Person in connection with an Ameritech Acquisition Proposal by any such
Person, the Ameritech Board receives from such Person a confidentiality
agreement in customary form, provided, that such confidentiality agreement
will not contain terms that prevent Ameritech from complying with its
obligations under the foregoing provisions of the Merger Agreement.
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In accordance with the terms of the Merger Agreement, SBC has agreed that
neither it nor any of its Subsidiaries will, and that it will direct and use
its best efforts to cause its and its Subsidiaries' employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) (SBC, its Subsidiaries and their
officers, directors, employees, agents and representatives being the "SBC
Representatives") not to, directly or indirectly, initiate, solicit, encourage
or otherwise facilitate any inquiries or the making of any SBC Acquisition
Proposal. SBC has further agreed that neither it nor any of its Subsidiaries
nor any of the officers and directors of it or its Subsidiaries will, and that
it will direct and use its best efforts to cause the SBC Representatives not
to, directly or indirectly, have any discussion with or provide any
confidential information or data to any Person relating to an SBC Acquisition
Proposal or engage in any negotiations concerning an SBC Acquisition Proposal,
or otherwise facilitate any effort or attempt to make or implement an SBC
Acquisition Proposal; provided, however, that nothing contained in the Merger
Agreement will prevent either SBC or the SBC Representatives from (A)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to an
SBC Acquisition Proposal; (B) engaging in any discussions or negotiations with
or providing any information to, any Person in response to an unsolicited bona
fide written SBC Acquisition Proposal by any such Person; or (C) recommending
such an unsolicited bona fide written SBC Acquisition Proposal to the
shareowners of SBC if and only to the extent that, in such cases referred to
in clause (B) or (C), (i) the SBC Board concludes in good faith (after
consultation with its financial advisor) that such SBC Acquisition Proposal is
reasonably capable of being completed, taking into account all legal,
financial, regulatory and other aspects of the proposal and the Person making
the proposal, and would, if consummated, result in a Superior SBC Proposal,
(ii) the SBC Board determines in good faith after consultation with outside
legal counsel that such action is necessary for the Board of Directors to
comply with its fiduciary duty under applicable law and (iii) prior to
providing any information or data to any Person in connection with an SBC
Acquisition Proposal by any such Person, the SBC Board will receive from such
Person a confidentiality agreement in customary form, provided, that, such
confidentiality agreement will not contain terms that prevent SBC from
complying with its obligations under the foregoing provisions of the Merger
Agreement.
Ameritech and SBC have each agreed in the Merger Agreement to cease and
cause to be terminated any existing activities, discussions or negotiations
with any parties conducted theretofore with respect to any Ameritech
Acquisition Proposal or SBC Acquisition Proposal, as the case may be. The
Merger Agreement further requires Ameritech and SBC to notify the other
immediately if any such inquiries, proposals or offers are received by, any
such information is requested from, or any such discussions or negotiations
are sought to be initiated or continued with, any of its representatives
indicating, in connection with such notice, the name of such Person and the
terms and conditions of any proposals or offers, and thereafter to inform the
other of any material modification of the terms of any such proposal or offer
or the withdrawal thereof. The Merger Agreement requires Ameritech and SBC to
promptly request each Person that has theretofore executed a confidentiality
agreement in connection with its consideration of any Ameritech Acquisition
Proposal or any SBC Acquisition Proposal, as the case may be, to return all
confidential information heretofore furnished to such Person by or on behalf
of it or any of its Subsidiaries.
The Special Meetings
Ameritech has agreed in the Merger Agreement to take all action necessary to
convene the Ameritech Special Meeting as promptly as practicable after the
Registration Statement is declared effective. Similarly, SBC has agreed in the
Merger Agreement to take all action necessary to convene the SBC Special
Meeting as promptly as practicable after the Registration Statement is
declared effective.
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Subject to their respective fiduciary obligations under applicable law and
the terms of the Merger Agreement, Ameritech has agreed in the Merger
Agreement that the Ameritech Board will recommend that the shareowners of
Ameritech adopt the Merger Agreement and thereby approve the transactions
contemplated thereby and to take all lawful action to solicit such adoption,
and SBC has agreed in the Merger Agreement that the SBC Board will recommend
that the shareowners of SBC approve the issuance of shares of SBC Common Stock
pursuant to the Merger Agreement and will take all lawful action to solicit
such approval.
Pooling of Interests
Pursuant to the Merger Agreement, Ameritech and SBC have each agreed to use
all respective reasonable best efforts to cause the Merger to qualify for
"pooling of interests" accounting treatment. See "Accounting Treatment."
CERTAIN REGULATORY FILINGS AND APPROVALS
Pursuant to the Merger Agreement, each of Ameritech and SBC has agreed to
cooperate with the other and use (and cause their respective Subsidiaries to
use) all their respective reasonable best efforts to take or cause to be taken
all actions, and do or cause to be done all things, necessary, proper or
advisable on its part under the Merger Agreement and applicable laws to
consummate and make effective the Merger and the other transactions
contemplated by the Merger Agreement as soon as practicable after the
execution of the Merger Agreement, including preparing and filing as promptly
as practicable after the date of the Merger Agreement all documentation to
effect all necessary applications, notices, petitions, filings and other
documents and to obtain as promptly as practicable all consents,
registrations, approvals, permits and authorizations required to be obtained
from any third party and/or any Governmental Entity in connection with the
execution and delivery of the Merger Agreement and the consummation of the
Merger and the other transactions contemplated thereby; provided, however,
that nothing in the foregoing will require, or be construed to require, SBC or
Ameritech to agree to, or comply with, any conditions to the granting of any
such consent, registration, approval, permit or authorization by any
Governmental Entity if compliance with such conditions, individually or in the
aggregate, would be reasonably likely to have a Material Adverse Effect on the
Surviving Corporation or SBC following the Effective Time (it being understood
for purposes of the Merger Agreement that, for this purpose only, materiality
shall be determined by reference to the trading market equity value of SBC
prior to the consummation of the Merger and after taking into account (i) any
adverse effects reasonably likely to arise from any restrictions on the
ability of the Surviving Corporation or SBC or any of their respective
Subsidiaries to conduct its operations as currently conducted or as proposed
as of the date of the Merger Agreement to be conducted resulting from
complying with the conditions to or from the grant of any such consent,
registration, approval, permit or authorization, (ii) any benefits reasonably
likely to be realized by SBC on a consolidated basis (other than those
operational benefits reasonably likely to be realized directly from the
consummation of the Merger) resulting from complying with the conditions to or
from the grant of any such consent, registration, approval, permit or
authorization, and (iii) any proceeds resulting from any divestiture required
by a Governmental Entity as a condition to its granting any such consent,
registration, approval, permit or authorization) (a "Regulatory Material
Adverse Effect"). The Merger Agreement further provides that any divestiture
by either SBC or Ameritech or any of their respective Subsidiaries reasonably
required to cause the Surviving Corporation to be in compliance with the
commercial mobile radio service spectrum aggregation limits established by the
FCC in 47 C.F.R. Section 20.6 and the cellular cross ownership limits
contained in 47 C.F.R. Section 22.942 will be deemed not to have any adverse
effect on either the Surviving Corporation or SBC following the Effective
Time.
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There can be no assurance that the approvals described below will be
obtained or, if obtained, will not include conditions that could result in the
abandonment of the Merger by SBC and Ameritech. Other than as described below
under "--FCC," SBC and Ameritech have not determined how they will respond to
conditions, limitations or divestitures which may be sought by Governmental
Entities in connection with any requisite approvals. If any conditions,
limitations or divestitures are sought by Governmental Entities, SBC and
Ameritech will make such determinations at the appropriate time.
As used in the Merger Agreement,"Material Adverse Effect" means, with
respect to either SBC or Ameritech, as the case may be, a material adverse
effect determined by reference to its trading market equity value prior to the
consummation of the Merger, other than effects or changes resulting from the
execution of the Merger Agreement or the announcement thereof or changes in
(i) the telecommunications industry generally, (ii) the national economy
generally or (A) with respect to SBC only, the economy of Texas, Oklahoma,
Missouri, Kansas, Arkansas, Nevada and California, taken together, generally
or of France, Mexico and/or the Republic of South Africa or (B) with respect
to Ameritech only, the economies of Illinois, Indiana, Michigan, Ohio and
Wisconsin, taken together, generally, or of Belgium, Denmark and/or Hungary or
(iii) the securities markets generally.
HSR
Under the HSR Act and the rules promulgated thereunder, certain
transactions, including the Merger, may not be consummated unless certain
waiting period requirements have been satisfied. SBC and Ameritech each filed
a Notification and Report Form pursuant to the HSR Act with the Department of
Justice and the FTC on July 20, 1998. On August 19, 1998, the Department of
Justice requested additional information and documents from SBC and Ameritech
relating to the Merger. Under the HSR Act, the Merger may not be consummated
until 20 days after SBC and Ameritech have substantially complied with such
request for additional information. At any time before or after the Effective
Time, the FTC, the Department of Justice or others could take action under the
antitrust laws with respect to the Merger, including seeking to enjoin the
consummation of the Merger, to rescind the Merger or to require divestiture of
substantial assets of SBC or Ameritech. One or more state attorneys general
may seek to review the Merger under various antitrust or competition laws.
There can be no assurance that a challenge to the Merger on antitrust or
anticompetitive grounds will not be made or, if such a challenge is made, that
it would not be successful.
FCC
Before the Merger can be consummated, SBC and Ameritech must obtain the
approval of the FCC pursuant to the Communications Act for the deemed transfer
of control from Ameritech to SBC of certain FCC licenses and authorizations
held by certain of Ameritech's subsidiaries. These licenses and authorizations
include various microwave authorizations currently held by Ameritech's local
exchange and cellular operations, numerous cellular authorizations,
authorizations to provide long distance service, and other authorizations used
in connection with the businesses of such subsidiaries. The FCC is expected to
evaluate whether SBC is qualified to control Ameritech and whether the public
interest, convenience, and necessity will be served by the transfer of control
that will be effected upon consummation of the Merger. On July 24, 1998, SBC
and Ameritech filed transfer of control applications with the FCC seeking the
FCC's approval to transfer the above-described FCC licenses and
authorizations. SBC and Ameritech expect that these applications will
demonstrate compliance with the FCC's standards. However, there can be no
assurance as to when and if the requisite FCC approvals will be obtained. In
addition, there can be no assurance that such approvals will not include
conditions that could result in the abandonment of the Merger.
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The FCC has established certain rules and regulations, including in
particular the cellular cross-ownership limits contained in 47 C.F.R. Section
22.942, that limit the ability of any single person to have an interest in
more than one cellular license in the same market. SBC and Ameritech own
competing cellular licenses in several markets, including, but not limited to,
Chicago, Illinois and St. Louis, Missouri (the "Overlapping Cellular
Licenses"). In an effort to comply with the FCC's rules and regulations and
certain provisions of the Merger Agreement, SBC and Ameritech expect to be
required by the FCC to divest one of the Overlapping Cellular Licenses in each
market and are attempting to determine the manner in which an Overlapping
Cellular License in each market should be divested.
State PUCs
Ameritech has subsidiaries that operate as public utility or public service
companies in the states of Illinois, Indiana, Michigan, Ohio and Wisconsin.
The PUCs in Illinois and Ohio have express statutory requirements that require
SBC and Ameritech to obtain their approval prior to the consummation of the
Merger; SBC and Ameritech filed applications for such approval on July 24,
1998. There can be no assurance as to when and if the requisite PUC approvals
will be obtained. In addition, there can be no assurance that such approvals
will not include conditions that could result in the abandonment of the
Merger. The states of Indiana, Michigan and Wisconsin do not have express
statutory requirements for prior approval of the Merger by their respective
state PUCs. However, the IURC issued an order to SBC and Ameritech on
September 2, 1998 indicating that because it believes that the Merger could
affect telephone competition in Indiana and might have an effect on the
quality of service, rates and employment levels, the IURC will investigate the
Merger. The IURC intends to conduct hearings on December 1 and 2, 1998. There
can be no assurance that Michigan and Wisconsin will not similarly attempt to
take action with respect to the Merger. SBC must also file a notice with the
California Public Utility Commission explaining how the Merger affects the
analysis used and conditions imposed by the California Public Utility
Commission in its order granting approval of the Pactel Acquisition.
Illinois Commerce Commission. Ameritech has two operating company
subsidiaries in Illinois: Illinois Bell Telephone Company, d/b/a Ameritech
Illinois, and Ameritech Illinois Metro, Inc. (collectively, the "Illinois
Telecommunications Carriers"). Because the Merger is a "reorganization" for
purposes of the Illinois Public Utilities Act ("IPUA"), it is subject to the
jurisdiction of the Illinois Commerce Commission ("ICC") and may not be
consummated without approval of the ICC. On July 24, 1998, SBC, Ameritech and
the Illinois Telecommunications Carriers (collectively, the "Applicants"),
filed a joint application with the ICC (the "ICC Application") requesting the
necessary approvals to consummate the Merger and for SBC to indirectly control
the Illinois Telecommunications Carriers. The IPUA provides that the ICC will
not approve any "reorganization" if the ICC finds, after notice and hearing,
that the reorganization will adversely affect the public utility's ability to
perform its duties under the IPUA. In order to find that there will be no such
adverse effect, the ICC must find that the reorganization meets the
requirements specified in chapter 220 Section 5/7-204 of the Illinois Compiled
Statutes ("Section 5/7-204"). In approving the proposed reorganization
pursuant to Section 5/7-204, the ICC may impose such terms, conditions or
requirements as, in its judgment, are necessary to protect the interests of
the public utility and its customers. The ICC has 11 months to make its
decision on the ICC Application, unless the ICC finds that it has been delayed
by the Applicants' failure to provide data or information requested by the ICC
or to provide information that the ICC has ordered the Applicants to turn over
to other parties. The ICC may extend the review period for up to three months
if the ICC Application is amended or if necessary to consider changes in
circumstances after the filing of the ICC Application that were not reasonably
foreseeable.
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Public Utility Commission of Ohio. The Ohio Bell Telephone Company, d/b/a
Ameritech Ohio ("Ohio Bell"), a subsidiary of Ameritech, is a domestic
telephone company (as defined by the Ohio Public Utility Act (the "Ohio
Act")). Section 4905.402 of the Ohio Act provides that no person can acquire
control, directly or indirectly, of a domestic telephone company or a holding
company controlling a domestic telephone company until that person obtains the
prior approval of the Public Utilities Commission of Ohio (the "PUCO"). SBC
and Ameritech filed an application on July 24, 1998 (the "Ohio Application")
with the PUCO seeking authority for the deemed transfer of control of Ohio
Bell to SBC. Under the provisions of the Ohio Act, the Ohio Application must
demonstrate that the transfer of control will promote the public convenience
and result in the provision of adequate service for a reasonable rate, rental,
toll or charge. A hearing on the Ohio Application may be held by the PUCO, but
is not required. If no hearing is held, the PUCO is required to issue an order
within 30 days of the filing of the Ohio Application. If a hearing is held,
then the PUCO must issue an order within 20 days of the conclusion of the
hearing. Section 4905.402 indicates that if, after the review of the Ohio
Application, and after any necessary hearing, the PUCO is satisfied that
approval of the Ohio Application will promote the public convenience and
result in the provision of adequate service for a reasonable rate, rental,
toll or charge, the PUCO shall approve the application and make such orders as
it considers proper. If the PUCO does not issue an order within the 30 or 20
day time periods, the Ohio Application will be deemed approved by operation of
law.
PUC Approvals Regarding Intrastate Interexchange Service
Ameritech is authorized to provide interexchange services (the "LD
Certificates") in 45 states and the District of Columbia. Ameritech is also
authorized to provide local exchange services (the "LE Certificates", and
together with the LD Certificates, the "State Certificates") in twelve states
outside of its five state region. The State Certificates include
authorizations for Ameritech, or its subsidiaries, to provide local exchange
services in the states of California, Texas and Missouri, which are each
states in which SBC has a subsidiary which is an incumbent local exchange
carrier, as defined by the Telecommunications Act. Ameritech may be required
to modify or withdraw LD Certificates in the states of California, Nevada,
Texas, Missouri, Kansas, Arkansas and Oklahoma depending upon the status of
SBC's applications to obtain authority to provide long distance service in
these states. Furthermore, authorization may be required from certain other
states to permit Ameritech to effect the deemed transfer of its existing long
distance authorizations to SBC or one of its subsidiaries. In addition,
Ameritech may be required to modify or withdraw its LE Certificates in the
states of California, Texas and Missouri as a result of this transaction. SBC
may be required to modify or amend any LD Certificates or LE Certificates it
may have in the states of Illinois, Indiana, Michigan, Ohio and Wisconsin.
Municipal Cable Franchises
Ameritech has been granted cable franchises pursuant to agreements with
various municipalities ("Cable Franchise Agreements") located in the states of
Illinois, Michigan and Ohio. Under the Cable Franchise Agreements,
consummation of the Merger may require the approval of the appropriate
municipality prior to the Effective Time. Ameritech and SBC intend to seek any
required approvals.
European Regulatory Approvals
SBC and Ameritech have made the requisite notifications to or filings with
regulatory authorities in various European countries in which SBC or Ameritech
has direct or indirect investments in telecommunications companies. No
additional approvals, notifications or filings are required from such
regulatory authorities with respect to the consummation of the Merger. SBC has
investments in the United Kingdom, France and
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Switzerland. Ameritech has equity investments in telecommunications companies
in Belgium, Germany, Denmark, Norway, and Hungary.
STOCK EXCHANGE LISTING AND DE-LISTING
SBC has agreed to use its best efforts to cause the shares of SBC Common
Stock to be issued in the Merger to be approved for listing on the NYSE,
subject to official notice of issuance, prior to the Closing Date. The Merger
Agreement provides that the Surviving Corporation will use its best efforts to
cause the shares of Ameritech Common Stock to be de-listed from the NYSE, CSE,
BSE, PSE and PHLX and de-registered under the Exchange Act as soon as
practicable following the Effective Time.
EMPLOYEE BENEFITS
Stock Options
The Merger Agreement provides that at the Effective Time each outstanding
Ameritech Option under the Ameritech Stock Plans, whether vested or unvested,
will be deemed to constitute a Substitute Option at an exercise price equal to
the Substitute Option Price. For each Substitute Option substituted for an
Ameritech Option that included a right under certain circumstances to receive
dividend equivalents in the form of stock units ("Ameritech Stock Units"), all
Ameritech Stock Units credited to the account of the holder of such Substitute
Option at the Effective Time will, as of the Effective Time, be deemed to
constitute a number of stock units, each of which will represent one share of
SBC Common Stock ("SBC Stock Units"), equal to the number of shares of SBC
Common Stock the holder of such Substitute Option would have been entitled to
receive pursuant to the Merger Agreement had such Ameritech Stock Units been
distributed to such holder in full immediately prior to the Effective Time.
Thereafter SBC Stock Units will continue to be credited to the account of the
holder of such Substitute Option to the same extent and on the same terms and
conditions as they would have under the Ameritech Option for which the
Substitute Option was substituted (except that the record dates and dividend
amounts will be the record dates and dividend amounts for SBC Common Stock),
and all such SBC Stock Units will be distributed at the same times and in the
same manner as the Ameritech Stock Units would have been distributed had the
Substitute Option not been substituted for the Ameritech Option (except that
the option price used to determine if the SBC Stock Units can be distributed
will be the Substitute Option Price).
The Merger Agreement further provides that at or prior to the Effective
Time, Ameritech will make all necessary arrangements with respect to the
Ameritech Stock Plans to permit the assumption of the unexercised Ameritech
Options by SBC and as soon as practicable after the Effective Time SBC will
use its best efforts to register under the Securities Act on Form S-8 or other
appropriate form (and use its best efforts to maintain the effectiveness
thereof) shares of SBC Common Stock issuable pursuant to all Substitute
Options. The Merger Agreement further provides that, effective at the
Effective Time, SBC will assume each Ameritech Option in accordance with the
terms of the Ameritech Stock Plan under which it was issued and the stock
option agreement by which it is evidenced and that as promptly as practicable
after the Effective Time, Ameritech will deliver to the participants in the
Ameritech Stock Plans appropriate notices setting forth such participants'
rights pursuant to such assumed Ameritech Options.
Benefit Plans
Pursuant to the Merger Agreement, SBC agrees that it will cause the
Surviving Corporation for at least two years after the Effective Time to
provide or cause to be provided to employees of Ameritech and its Subsidiaries
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compensation and benefit plans that are no less favorable, in the aggregate,
than the Ameritech Compensation and Benefit Plans specifically disclosed to
SBC. However, if during this period SBC implements any widespread increase or
decrease in benefits under compensation and benefit plans or in the cost
thereof to participants under compensation and benefit plans applicable to
employees of SBC and its Subsidiaries (other than the Surviving Corporation
and its Subsidiaries), the Surviving Corporation will proportionately adjust
the benefits under Ameritech's compensation and benefit plans or the cost
thereof to participants. Notwithstanding the foregoing, the Merger Agreement
provides that with respect to employees who are subject to collective
bargaining, all benefits will be provided only in accordance with the
applicable collective bargaining agreement. Pursuant to the Merger Agreement,
at or prior to the Effective Time, Ameritech will make all necessary
arrangements to cause any Ameritech Common Stock units under the Ameritech
Compensation and Benefit Plans to be converted into share units with respect
to SBC Common Stock by multiplying the shares of Ameritech Common Stock
subject to such Ameritech Common Stock units by the Exchange Ratio. In
addition, the Merger Agreement provides that SBC will, and will cause the
Surviving Corporation to, honor, pursuant to their terms, all employee benefit
obligations existing at the Closing Date to current and former employees under
the Ameritech Compensation and Benefit Plans.
EXPENSES
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger Agreement and the Merger and the other transactions
contemplated by the Merger Agreement will be paid by the party incurring such
expense, except that expenses incurred in connection with the filing fee for
the Registration Statement and printing and mailing this Joint
Prospectus/Proxy Statement and the Registration Statement and the filing fee
under the HSR Act will be shared equally by SBC and Ameritech.
DIVIDENDS
The Merger Agreement provides that Ameritech will coordinate with SBC the
declaration, setting of record dates and payment dates of dividends on shares
of Ameritech Common Stock so that holders of Ameritech Common Stock do not
receive dividends on both Ameritech Common Stock and SBC Common Stock received
in the Merger in respect of any calendar quarter or fail to receive a dividend
on either Ameritech Common Stock or SBC Common Stock received in the Merger in
respect of any calendar quarter.
SBC BOARD FOLLOWING THE MERGER
SBC has agreed pursuant to the Merger Agreement that at the Effective Time
SBC will enable up to five members of the Ameritech Board to be members of the
SBC Board. The SBC Board will, in consultation with the Chief Executive
Officer of Ameritech and the Ameritech Board, select the director designees
and appoint each such director designee to the SBC Board as of the Effective
Time, with such director designees divided as nearly evenly as is possible
among the classes of directors on the SBC Board. SBC and Ameritech expect that
Mr. Notebaert will be one of the members of the Ameritech Board who will
become a member of the SBC Board as of the Effective Time.
CONDITIONS
The respective obligations of Ameritech, SBC and Merger Sub to effect the
Merger are subject to the satisfaction or waiver at or prior to the Effective
Time of each of the following conditions: (a) the Merger
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Agreement having been duly adopted by holders of Ameritech Common Stock and
having been duly adopted by the sole stockholder of Merger Sub (each of which
approvals may not be waived under the DGCL), and the issuance of shares of SBC
Common Stock pursuant to the Merger Agreement having been duly approved by the
holders of shares of SBC Common Stock; (b) the shares of SBC Common Stock
issuable to Ameritech shareowners pursuant to the Merger Agreement having been
authorized for listing on the NYSE upon official notice of issuance; (c) the
waiting period applicable to the consummation of the Merger under the HSR Act
having expired or been terminated and all material Ameritech Required Consents
and material SBC Required Consents from or with any Governmental Entity having
been made or obtained pursuant to a Final Order (as defined below), free of
any conditions (other than conditions that are not reasonably likely, either
individually or in the aggregate, to have a Regulatory Material Adverse
Effect); (d) no Governmental Entity of competent jurisdiction having enacted,
issued, promulgated, enforced or entered any Order, and no Governmental Entity
having instituted any proceeding, or, in the case of a federal Governmental
Entity, threatened in writing to institute any proceeding, seeking any such
Order; (e) the Registration Statement having become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement having been issued, and no proceedings for that purpose
having been initiated or been threatened by the SEC; (f) SBC and Ameritech
having received "comfort" letters in customary form and substance and letters
from their respective independent public accounting firms to the effect that
the Merger will qualify for "pooling of interests" accounting treatment; and
(g) SBC having received all state securities and "blue sky" permits and
approvals necessary to consummate the transactions contemplated by the Merger
Agreement.
For purposes of the Merger Agreement, the term "Final Order" means an action
or decision that has been granted as to which (a) no request for a stay or any
similar request is pending, no stay is in effect, the action or decision has
not been vacated, reversed, set aside, annulled or suspended and any deadline
for filing such a request that may be designated by statute or regulation has
passed, (b) no petition for rehearing or reconsideration or application for
review is pending and the time for the filing of any such petition or
application has passed, (c) no Governmental Entity has undertaken to
reconsider the action on its own motion and the time within which it may
effect such reconsideration has passed and (d) no appeal is pending (including
other administrative or judicial review) or in effect and any deadline for
filing any such appeal that may be specified by statute or rule has passed,
which in any such case (a), (b), (c) or (d) is reasonably likely to result in
vacating, reversing, setting aside, annulling, suspending or modifying such
action or decision (in any such case in a manner which would have a Regulatory
Material Adverse Effect following the Effective Time).
For purposes of the Merger Agreement, the necessary filings, notices and/or
approvals (i) under the HSR Act, the Exchange Act and the Securities Act, (ii)
to comply with state securities or "blue-sky" laws, (iii) if any, of the FCC
pursuant to the Telecommunications Act, (iv) if any, of the PUC and the local,
state and foreign Governmental Entities identified by SBC or Ameritech to one
another pursuant to Utilities Laws and (v) if any, of the foreign regulatory
bodies identified by SBC or Ameritech to one another pursuant to applicable
foreign laws regulating actions having the purpose or effect of monopolization
or restraint of trade with respect to SBC are referred to as the "SBC Required
Consents" and with respect to Ameritech are referred to as the "Ameritech
Required Consents."
The obligations of SBC and Merger Sub to effect the Merger are also subject
to the satisfaction or waiver by SBC at or prior to the Effective Time of the
following conditions: (a) the representations and warranties of Ameritech set
forth in the Merger Agreement (i) to the extent qualified by Material Adverse
Effect being true and correct and (ii) to the extent not qualified by Material
Adverse Effect being true and correct, except that
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such representations and warranties will be deemed satisfied so long as any
failures of such representations and warranties to be true and correct, taken
together, do not have a Material Adverse Effect on Ameritech, in each case (i)
and (ii), as of the Closing Date as though made on and as of the Closing Date
(except to the extent such representations and warranties speak as of an
earlier date); (b) Ameritech's having performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the Closing Date; (c) Ameritech's having obtained the consent or
approval of each Person whose consent or approval is required in order to
consummate the transactions contemplated by the Merger Agreement under any
Contract to which Ameritech or any of its Subsidiaries is a party, except
those for which the failure to obtain such consent or approval, individually
or in the aggregate, is not reasonably likely to have, a Material Adverse
Effect on Ameritech; and (d) SBC's having received the opinion of Sullivan &
Cromwell, counsel to SBC, dated the Closing Date, to the effect that the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and that each of SBC, Merger
Sub and Ameritech will be a party to that reorganization within the meaning of
Section 368(b) of the Code.
The obligation of Ameritech to effect the Merger is also subject to the
satisfaction or waiver by Ameritech at or prior to the Effective Time of the
following conditions: (a) the representations and warranties of SBC and Merger
Sub set forth in the Merger Agreement (i) to the extent qualified by Material
Adverse Effect being true and correct, and (ii) to the extent not qualified by
Material Adverse Effect being true and correct, except that such
representations and warranties will be deemed satisfied so long as any
failures of such representations and warranties to be true and correct, taken
together, do not have a Material Adverse Effect on SBC, in each case (i) and
(ii), as of the Closing Date as though made on and as of the Closing Date
(except to the extent such representations and warranties speak as of an
earlier date); (b) SBC and Merger Sub each having performed in all material
respects all obligations required to be performed by it under the Merger
Agreement at or prior to the Closing Date; and (c) Ameritech's having received
the opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel to
Ameritech, dated the Closing Date, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code, and that each of SBC, Merger Sub and Ameritech
will be a party to that reorganization within the meaning of Section 368(b) of
the Code.
TERMINATION
The Merger Agreement provides that it may be terminated and the Merger may
be abandoned at any time prior to the Effective Time, whether before or after
the approval by shareowners of Ameritech and SBC by mutual written consent of
Ameritech and SBC authorized by action of their respective Boards of
Directors. The Merger Agreement further provides that it may be terminated and
the Merger may be abandoned at any time prior to the Effective Time by action
of either the SBC Board or the Ameritech Board if (a) the Merger has not been
consummated by the Termination Date, whether such date is before or after the
date of approval by the shareowners of Ameritech or SBC (provided, however,
that if SBC or Ameritech determines that additional time is necessary in
connection with obtaining an SBC Required Consent or an Ameritech Required
Consent from or with any Governmental Entity, the Termination Date may be
extended for up to 60 calendar days at any one time by SBC or Ameritech from
time to time by written notice to the other party up to a date not beyond
March 31, 2000, which date will be deemed to be the Termination Date), (b) the
adoption of the Merger Agreement by Ameritech's shareowners has not occurred
at the Ameritech Special Meeting, (c) the approval of SBC's shareowners
necessary to approve the issuance of shares of SBC Common Stock pursuant to
the Merger Agreement has not been obtained at the SBC Special Meeting, or (d)
any Order permanently restraining, enjoining or otherwise prohibiting
consummation of the Merger becomes final and non-appealable (whether
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before or after the adoption or approval by the shareowners of Ameritech or
SBC, as the case may be). The Merger Agreement provides that the right to
terminate the Merger Agreement pursuant to clause (a) above will not be
available to any party that has breached in any material respect its
obligations under the Merger Agreement in any manner that proximately
contributes to the failure of the Merger to be consummated.
The Merger Agreement also provides that it may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before or
after the adoption of the Merger Agreement by the shareowners of Ameritech, by
action of the Ameritech Board: (a) if (i) the Ameritech Board approves
entering into a binding written agreement concerning a transaction that
constitutes a Superior Ameritech Proposal and Ameritech notifies SBC in
writing that Ameritech desires to enter into such agreement, (ii) SBC does not
make, within ten calendar days after receipt of Ameritech's written
notification of its desire to enter into a binding agreement for a Superior
Ameritech Proposal, the terms of which are specified in such notice, an offer
that the Ameritech Board believes, in good faith after consultation with its
financial advisors, is at least as favorable, from a financial point of view,
to the shareowners of Ameritech as the Superior Ameritech Proposal, and
(iii) Ameritech prior to such termination pays to SBC in immediately available
funds any fees required to be paid pursuant to the Merger Agreement; or (b) if
(i) the SBC Board has withdrawn or adversely modified its approval of the
Merger Agreement or its recommendation to the shareowners of SBC that such
shareowners approve the issuance of shares of SBC Common Stock pursuant to the
Merger Agreement or failed to reconfirm such recommendation within fifteen
business days after a written request by Ameritech to do so (provided that
such a request is made after the SBC Board or any SBC Representative has taken
any of the actions that would be proscribed by the provisions of the Merger
Agreement relating to SBC Acquisition Proposals, but for the exception in such
provisions allowing certain actions to be taken with respect to any bona fide
written SBC Acquisition Proposal that has not been withdrawn or rejected by
the SBC Board), (ii) there has been a material breach by SBC or Merger Sub of
any representation, warranty, covenant or agreement contained in the Merger
Agreement which (x) would result in a failure of the condition relating to SBC
and Merger Sub's representations and warranties or the condition relating to
performance in all material respects of all obligations required to be
performed by SBC or Merger Sub pursuant to the Merger Agreement and (y) cannot
be or is not cured prior to the Termination Date, or (iii) SBC or any SBC
Representative takes any of the actions that would be proscribed by the terms
of the Merger Agreement relating to SBC Acquisition Proposals.
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, before or after the approval by the
shareowners of SBC, by action of the SBC Board: (a) if (i) the SBC Board
approves entering into a binding written agreement concerning a transaction
that constitutes a Superior SBC Proposal and SBC notifies Ameritech in writing
that SBC desires to enter into such agreement, (ii) Ameritech does not make,
within ten days after receipt of SBC's written notification of its desire to
enter into a binding agreement for a Superior SBC Proposal, the terms of which
are specified in such notice, an offer that the SBC Board believes, in good
faith after consultation with its financial advisors, is at least as
favorable, from a financial point of view, to the shareowners of SBC as the
Superior SBC Proposal, and (iii) SBC prior to such termination pays to
Ameritech in immediately available funds any fees required to be paid pursuant
to the Merger Agreement, or (b) if (i) the Ameritech Board has withdrawn or
adversely modified its approval or recommendation to Ameritech's shareowners
of the Merger Agreement, or failed to reconfirm such recommendation within
fifteen business days after a written request by SBC to do so (provided that
such a request is made after the Ameritech Board or any Ameritech
Representative has taken any of the actions that would be proscribed by the
provisions of the Merger Agreement relating to Ameritech Acquisition Proposals
but for the exception in such provisions allowing certain actions to be taken
with respect to any bona fide written
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Ameritech Acquisition Proposal that has not been withdrawn or rejected by the
Ameritech Board, (ii) there has been a material breach by Ameritech of any
representation, warranty, covenant or agreement contained in the Merger
Agreement which (x) would result in a failure of a condition relating to
Ameritech's representations and warranties or the condition relating to
performance in all material respects of all obligations required to be
performed by Ameritech pursuant to the Merger Agreement and (y) cannot be or
is not cured prior to the Termination Date, or (iii) if Ameritech or any
Ameritech Representative takes any of the actions that would be proscribed by
provisions of the Merger Agreement relating to Ameritech Acquisition Proposals
but for the exception therein allowing certain actions to be taken.
In the event of termination of the Merger Agreement and the abandonment of
the Merger pursuant to the termination provisions enumerated above, the Merger
Agreement (other than those provisions which will specifically survive) will
become void and of no effect with no liability on the part of any party
thereto (or of any of its directors, officers, employees, agents, legal or
financial advisors or other representatives); provided, however, no such
termination will relieve any party thereto from any liability for damages
resulting from any willful and intentional breach of the Merger Agreement (to
the extent such damages exceed any Termination Fee as described below under
"--Certain Termination Fees") or from any obligation to pay, if applicable,
the Termination Fee.
CERTAIN TERMINATION FEES
The Merger Agreement provides that in the event that (i) a bona fide
Ameritech Acquisition Proposal has been made to Ameritech and made known to
shareowners generally or has been made directly to shareowners generally or
any Person has publicly announced an intention (whether or not conditional) to
make a bona fide Ameritech Acquisition Proposal and such Ameritech Acquisition
Proposal or announced intention has not been withdrawn prior to the Ameritech
Special Meeting and thereafter the Merger Agreement is terminated by either
SBC or Ameritech because adoption of the Merger Agreement by Ameritech's
shareowners at the Ameritech Special Meeting has not occurred and within nine
months after such termination Ameritech enters into an agreement to consummate
a transaction that would constitute an Ameritech Acquisition Proposal if it
were the subject of a proposal, or (ii) the Merger Agreement is terminated (x)
by Ameritech pursuant to the provisions of the Merger Agreement permitting
Ameritech to terminate if the Ameritech Board has approved entering into a
binding written agreement concerning a transaction that constitutes a Superior
Ameritech Proposal and SBC has not made, within ten calendar days after
receipt of Ameritech's written notification of its desire to enter into a
binding agreement for a Superior Ameritech Proposal, an offer that the
Ameritech Board believes, in good faith after consultation with its financial
advisors, is at least as favorable, from a financial point of view, to the
shareowners of Ameritech as the Superior Ameritech Proposal or (y) by SBC
pursuant to the provisions of the Merger Agreement permitting termination (A)
if the Ameritech Board withdraws or adversely modifies its approval or
recommendation to Ameritech's shareowners of the Merger Agreement or fails to
reconfirm such recommendation within fifteen business days after a written
request by SBC to do, (B) if Ameritech materially breaches any representation,
warranty, covenant or agreement contained in the Merger Agreement which would
result in a failure of the condition relating to Ameritech's representations
and warranties or the condition relating to performance by Ameritech in all
material respects of all obligations of Ameritech under the Merger Agreement
(solely with respect to a willful and intentional breach) or (C) if Ameritech
or any Ameritech Representative takes any of the actions that would be
proscribed by provisions of the Merger Agreement relating to Ameritech
Acquisition Proposals but for the exception therein allowing certain actions
to be taken, then Ameritech will promptly, but in no event later than two days
after the date of such termination (except as otherwise provided in the Merger
Agreement), or, in the case of termination because of Ameritech's shareowners'
failure to adopt the
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agreement, two days after the relevant agreement is entered into, pay SBC the
Termination Fee, which amount will be exclusive of any amounts to be paid
pursuant to the provision of the Merger Agreement relating to the sharing of
expenses. See "--Expenses."
The Merger Agreement further provides that in the event that (i) a bona fide
SBC Acquisition Proposal has been made to SBC and made known to shareowners
generally or has been made directly to shareowners generally or any Person has
publicly announced an intention (whether or not conditional) to make a bona
fide SBC Acquisition Proposal and such SBC Acquisition Proposal or announced
intention has not been withdrawn prior to the SBC Special Meeting and
thereafter the Merger Agreement is terminated by Ameritech or SBC because the
approval of SBC's shareowners necessary for the issuance of shares of SBC
Common Stock pursuant to the Merger Agreement has not been obtained and within
nine months after such termination SBC enters into an agreement to consummate
a transaction that would constitute an SBC Acquisition Proposal if it were the
subject of a proposal, or (ii) the Merger Agreement is terminated (x) by SBC
pursuant to the provisions of the Merger Agreement permitting SBC to terminate
the Merger Agreement if the SBC Board has approved entering into a binding
written agreement concerning a transaction that constitutes a Superior SBC
Proposal and Ameritech does not make, within ten calendar days after receipt
of SBC's written notification of its desire to enter into a binding agreement
for a Superior SBC Proposal an offer that the SBC Board believes, in good
faith after consultation with its financial advisors, is at least as
favorable, from a financial point of view, to the shareowners of SBC as the
Superior SBC Proposal or (y) by Ameritech pursuant to the provisions of the
Merger Agreement permitting termination (A) if the SBC Board withdraws or
adversely modifies its approval or recommendation to SBC's shareowners of the
issuance of shares of SBC Common Stock or fails to reconfirm such
recommendation within fifteen business days after a written request by
Ameritech to do so, or (B) if SBC or Merger Sub materially breaches any
representation, warranty, covenant or agreement contained in the Merger
Agreement which would result in a failure of the condition relating to SBC's
representations and warranties or the condition relating to performance by SBC
or Merger Sub in all material respects of all obligations of SBC and Merger
Sub under the Merger Agreement (solely with respect to a willful and
intentional breach) or (C) if SBC or any SBC Representative takes any of the
actions that would be proscribed by provisions of the Merger Agreement
relating to SBC Acquisition Proposals but for the exception therein allowing
certain actions to be taken, then SBC will promptly, but in no event later
than two days after the date of such termination (except as otherwise provided
in the Merger Agreement) or, in the case of a termination because of the
failure to obtain SBC shareowner approval of the issuance of shares of SBC
Common Stock pursuant to the Merger Agreement, two (2) days after the relevant
agreement is entered into, pay Ameritech a fee equal to the Termination Fee,
which amount will be exclusive of any amounts to be paid pursuant to the
provision relating to sharing of expenses. See "--Expenses."
RESALE OF SBC COMMON STOCK
The shares of SBC Common Stock issuable to shareowners of Ameritech in
connection with the Merger have been registered under the Securities Act. Such
shares may be traded freely and without restriction by those shareowners not
deemed to be "affiliates" of Ameritech prior to the date of the Ameritech
Special Meeting, or of SBC following the Effective Time, as that term is
defined in the rules under the Securities Act. "Affiliates" are generally
defined as persons who control, are controlled by or are under common control
with Ameritech at the time of the Ameritech Special Meeting or SBC following
the Effective Time. Shares of SBC Common Stock received by those shareowners
of Ameritech who are deemed to be "affiliates" of Ameritech may be resold
without registration as provided for by Rule 144 or 145, or as otherwise
permitted, under the Securities Act, subject to the provisions of the
Ameritech Affiliates Letter referred to below. This Joint Proxy
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Statement/Prospectus does not cover any resales of SBC Common Stock received
by affiliates of Ameritech in the Merger or by certain of their family members
or related interests.
Pursuant to the Merger Agreement, each of Ameritech and SBC has agreed to
deliver to the other a letter identifying all persons whom such company
believes to be, as of the date of the Ameritech Special Meeting, "affiliates"
of such company for purposes of applicable interpretations regarding use of
the "pooling-of-interests" accounting method and, in the case of "affiliates"
of Ameritech, for purposes of Rule 145 under the Securities Act. Each of
Ameritech and SBC has agreed to use all reasonable best efforts to cause each
person who is identified as an "affiliate" in the letter referred to above to
deliver to SBC prior to the date of the Ameritech Special Meeting a written
agreement in the appropriate form attached to the Merger Agreement (in the
case of affiliates of Ameritech, an "Ameritech Affiliates Letter" and, in the
case of affiliates of SBC, an "SBC Affiliates Letter"). The provisions of the
Ameritech Affiliates Letter restrict certain sales of securities of SBC by
such affiliates of Ameritech prior to and following the Effective Time and
sales of securities of Ameritech at certain times prior to the Effective Time.
The provisions of the SBC Affiliates Letter restrict sales of securities of
SBC by affiliates of SBC at certain times prior to and following the Effective
Time.
DISSENTERS' RIGHTS OF APPRAISAL
In accordance with Section 262 of the DGCL, no appraisal rights will be
available to either holders of Ameritech Common Stock or SBC Common Stock in
connection with the Merger. No appraisal rights will be available to holders
of SBC Common Stock in connection with the Bylaw Amendment.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Ameritech Board, Ameritech
shareowners should be aware that certain members of Ameritech's management and
of the Ameritech Board have certain interests in the Merger that are in
addition to the interests of shareowners generally.
Indemnification; Directors' and Officers' Insurance
The Merger Agreement provides that, from and after the Effective Time, SBC
will, and will cause the Surviving Corporation to, indemnify and hold harmless
each present and former director and officer of Ameritech (when acting in such
capacity) determined as of the Effective Time against any Costs incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent permitted under Delaware law (and the Surviving Corporation will also
advance expenses as incurred to the fullest extent permitted under applicable
law, provided the Person to whom expenses are advanced provides an undertaking
to repay such advances if it is ultimately determined that such person is not
entitled to indemnification).
The Merger Agreement also provides that the Surviving Corporation will
maintain D&O Insurance with coverage in amount and scope at least as favorable
as Ameritech's existing directors' and officers' liability insurance coverage
for a period of six years after the Effective Time. However, if the existing
D&O Insurance expires, is terminated or cancelled, or if the annual premium
therefor is increased to an amount in excess of 175% of the Current Premium,
in each case during such six-year period, the Surviving Corporation will use
its best efforts to obtain D&O Insurance in an amount and scope as great as
can be obtained for the remainder of such period for a premium not in excess
(on an annualized basis) of 175% of the Current Premium.
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Board of Directors Following the Merger
SBC has agreed pursuant to the Merger Agreement that at the Effective Time
SBC will enable up to five members of the Ameritech Board to become members of
the SBC Board. The SBC Board, in consultation with the Chairman of the Board,
President and Chief Executive Officer of Ameritech, and the Ameritech Board,
will select the director designees and appoint each such director designee to
the SBC Board as of the Effective Time, with such director designees divided
as nearly evenly as is possible among the classes of directors on the SBC
Board. SBC and Ameritech expect that Mr. Notebaert will be one of the members
of the Ameritech Board who will become a member of the SBC Board as of the
Effective Time.
Directors' Plan
Under Ameritech's Deferred Compensation Plan for Non-Employee Directors,
directors who are not employees of Ameritech may elect to defer receipt of
their retainers for service on the Ameritech Board in the form of cash units
or stock units. Under the terms of the plan, deferred amounts are paid in cash
following termination of a director's service on the Ameritech Board. Under
the terms of the plan, as a result of the consummation of the Merger, deferred
amounts will be paid out in a lump sum as soon as practicable after the
Effective Time. Stock units will be valued for this purpose at the highest
sales price of Ameritech Common Stock as reported on the NYSE Composite
Transactions Tape during the thirty days prior to the Effective Time. The
Ameritech directors who have deferred accounts under the plan, and the current
approximate value thereof, based on a price per share of Ameritech Common
Stock of $50.5625, the closing price on October 14, 1998, are Donald C. Clark,
$1,189,353; James A. Henderson, $888,830; Sheldon B. Lubar, $510,425; Arthur
C. Martinez, $240,518; John B. McCoy, $398,382; and James A. Unruh, $207,069.
Stock Options
Substantially all Ameritech Options granted prior to May 11, 1998 pursuant
to Ameritech Compensation and Benefit Plans become fully vested upon a change
in control, and if the option holder's employment is involuntarily terminated
on or before the last day of the second full calendar year following the
change in control, such options remain exercisable for up to five years
following the employment termination date. In addition, certain associated
agreements not to compete with Ameritech terminate upon a change in control
according to the terms of such associated agreements. The Ameritech Board has
concluded that the consummation of the Merger will constitute a change in
control under the Ameritech Compensation and Benefit Plans. The following
table sets forth, with respect to the Named Executive Officers, and all other
executive officers of Ameritech as a group, based on the closing price per
share of Ameritech Common Stock of $50.5625 on October 14, 1998 and an assumed
Effective Time of May 1, 1999, in each case (i), (ii), and (iii) below, as of
the date of this Joint Proxy Statement/Prospectus: (i) the number of shares of
Ameritech Common Stock subject to Ameritech Options held by such persons that
are not presently exercisable but will become exercisable at the Effective
Time, (ii) the approximate weighted average exercise price for such Ameritech
Options held by such persons and (iii) the aggregate value of such Ameritech
Options held by such persons:
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<TABLE>
<CAPTION>
APPROXIMATE
OPTIONS WHICH WEIGHTED
BECOME AVERAGE
EXERCISABLE EXERCISE AGGREGATE
AT THE PRICE PER VALUE OF
EFFECTIVE TIME SHARE OPTIONS
-------------- ----------- -----------
<S> <C> <C> <C>
Mr. Notebaert........................... 749,624 $31.4459 $14,330,284
Mr. Shaffer............................. 344,136 36.0197 5,004,708
Mr. Campbell............................ 188,198 35.9129 2,757,026
Mr. Allen............................... 265,900 36.1507 3,832,091
Mr. Richards............................ 291,498 34.7636 4,605,358
All executive officers as a group (15
persons in total)...................... 2,479,578 $34.5471 $39,711,444
</TABLE>
Under the terms of certain of the foregoing options, dividend equivalent
shares are credited quarterly for up to five years on the shares subject to
the options (and on previously credited dividend equivalent shares) by
dividing the aggregate cash dividend that would have been paid on such shares
had they been outstanding by the then current market price of the Ameritech
Common Stock. The dividend equivalents are distributed in the form of shares
of Ameritech Common Stock after the earlier of the exercise of the option or
the first set distribution date which is at least five years from the date of
grant on which the then current market price exceeds the exercise price. The
number of dividend equivalent shares credited to date on options that will
become exercisable at the Effective Time and the value of such dividend
equivalent shares based on the closing price per share of Ameritech Common
Stock of $50.5625 on October 14, 1998 were 26,493 shares ($1,339,552) for all
executive officers as a group, including 7,563 shares ($382,404) for Mr.
Notebaert; 2,645 shares ($133,738) for Mr. Shaffer; 1,983 shares ($100,265)
for Mr. Campbell; 1,984 shares ($100,316) for Mr. Allen; and 5,091 shares
($257,414) for Mr. Richards.
Change in Control Agreements and Severance Plan
Ameritech has entered into "Change in Control Agreements" with the Named
Executive Officers. Three other executive officers are also parties to Change
of Control Agreements and the remaining seven executive officers are
participants in the Severance Plan. The Change in Control Agreements provide
that, if the executive officer's employment with Ameritech is terminated under
specified circumstances, the executive officer will continue to receive
certain medical, insurance and other employee benefit coverage and perquisites
for a period of 24 months following such termination, and will receive a lump
sum payment up to the sum of (i) 2.99 times the executive officer's annual
base salary and the executive officer's short-term incentive award for the
preceding year, plus (ii) the actuarial equivalent of the additional pension
benefits the executive officer would have accrued under Ameritech's qualified
and non-qualified pension arrangements, if, on the date of termination, the
executive had been credited with two additional years of age, service and
compensation (base salary and target short term incentive award). Under such
plans, these benefits will be provided to the executive officers other than
Mr. Notebaert if the executive officer's employment is terminated
involuntarily for any reason other than death, disability or just cause during
the 24 month period following the change in control or voluntarily by the
executive during the thirty-day period beginning on the first anniversary of
the change in control, and to Mr. Notebaert if his employment is voluntarily
or involuntarily terminated (other than for death, disability or just cause)
during the 24 month period following the change in control. The Ameritech
Board has concluded that the consummation of the Merger will constitute a
change in control under the Change in Control Agreements.
Approximately 220 members of the management of Ameritech participate in the
Severance Plan which provides for severance payments upon termination of
employment after a change in control. The Ameritech Board has concluded that
the consummation of the Merger will constitute a change in control under the
Severance Plan. The Severance Plan provides that base salaries for such
employees will not be reduced and
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certain incentive plans and benefit plans will not be materially reduced
during the 24 month period following the Merger and provides for a severance
benefit to such employees, in an amount up to two times the sum of their
annual base salary and their target short-term incentive award and other
bonuses for the year preceding the change in control, and the actuarial
equivalent of the additional pension benefits the employee would have accrued
under the qualified and non-qualified pension arrangements of Ameritech if, on
the date of termination, he or she had been credited with two additional years
of age, service and compensation (base salary and target short-term incentive
award). Under the Severance Plan, the aforementioned benefits become payable
if the employee's employment is terminated by Ameritech other than for cause
or disability or by the employee for good reason during the 24 months
following a change in control or at the employee's discretion during the 30-
day period following the first anniversary of the change in control. In
addition, if at the time of the employee's termination of employment, such
employee is a participant in the Ameritech Key Management Life Insurance Plan
and/or the Ameritech Estate Preservation Plan and is not then Retirement
Eligible (as defined in these plans), Ameritech will contribute on the
employee's behalf, for a period of not less than 24 consecutive months
immediately following the date of termination, such amount as Ameritech in its
sole discretion determines to be needed to maintain the employee's death
benefits under such plans. The employee also shall be entitled to receive
certain medical insurance and other benefits and perquisites for a period of
24 months.
The aggregate amount of payments to be made by Ameritech pursuant to the
Change in Control Agreements and the Severance Plan cannot be determined
definitively as of the date of this Joint Proxy Statement/Prospectus; however,
the maximum aggregate amount of such payments, if all covered employees were
terminated under circumstances entitling them to severance benefits, is
estimated to be approximately $41.7 million for all executive officers as a
group, including up to $14.3 million for Mr. Notebaert, up to $3.9 million for
Mr. Shaffer, up to $5.2 million for Mr. Allen (which amounts include
approximately $1.8 million payable to Mr. Allen as an additional pension
benefit pursuant to a July 1995 employment agreement), up to $3.5 million for
Mr. Campbell and up to $2.8 million for Mr. Richards, and approximately $135.5
million for the other covered employees under the Severance Plan. All payments
under the Change in Control Agreement and the Severance Plan may be reduced to
the extent they, together with certain other payments, may result in the loss
of a tax deduction to Ameritech under certain provisions of the Code.
Other Compensation and Benefit Plans
The Ameritech Management Committee Short-Term Incentive Plan and the
Ameritech Senior Management Short-Term Incentive Plan (the "Short-Term
Incentive Plans") provide that upon a change in control, each participant will
receive as soon as practicable following the earlier of such employee's
termination or at the end of the calendar year in which the change in control
occurs, a payment equal to not less than 100% of the target award for such
participant for that year established by the Compensation Committee of the
Ameritech Board (the "Compensation Committee"). In addition, upon a change in
control, benefits of all participants under certain nonqualified pension plans
will become fully vested and compensation previously deferred at the election
of the employee will be paid in a lump sum unless such distribution was
previously waived by the employee. The Ameritech Board has concluded that the
consummation of the Merger will constitute a change in control under the
Short-Term Incentive Plans and the nonqualified pension plans. The Short-Term
Incentive Plans cover approximately 35 employees, including most executive
officers. Ameritech may also accelerate into 1998 payment of a portion of the
1998 short-term incentive awards and previously vested deferred compensation
and non-qualified pension benefits.
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Performance and Retention Bonus
On May 10, 1998, the Ameritech Board approved the grant to Mr. Notebaert of
a retention and performance bonus of $2.5 million, as recommended by the
Compensation Committee, payable on the earlier of the Effective Time or
September 1, 1999. The bonus will be paid by Ameritech to retain Mr.
Notebaert's services during the period commencing on the date of the Merger
Agreement through the Effective Time and to compensate him for the increased
demands and responsibilities placed upon him during this period, and will be
in addition to all other amounts to be paid to Mr. Notebaert as described
herein.
Services and Non-Compete Agreements
On May 10, 1998, SBC entered into Services and Non-Compete Agreements with
eight executive officers of Ameritech, including the Named Executive Officers.
The Services and Non-Compete Agreements provide that each such officer of
Ameritech will be employed by SBC or a subsidiary of SBC for a period of up to
30 months commencing at the Effective Time and will provide services to the
combined company as a member of senior management as required by SBC during
the transition and integration period. The Services and Non-Compete Agreements
also provide that the executive officer may cease to be a full-time employee
of SBC or a subsidiary of SBC and become a consultant to SBC any time after
six months from the Effective Time at the officer's or SBC's election. The
Agreements for Services acknowledge that termination of the executive
officer's status as a full-time employee under the Services and Non-Compete
Agreements would constitute an involuntary termination for purposes of the
Change in Control Agreements. The annual compensation as an employee or a
consultant of the Named Executive Officers pursuant to the Services and Non-
Compete Agreements is as follows: Mr. Notebaert $7.0 million, Mr. Shaffer $2.3
million, Mr. Allen $2.0 million, Mr. Campbell $1.8 million and Mr. Richards
$1.6 million, and $3.4 million in the aggregate for the three other executive
officers of Ameritech who have entered into Services and Non-Compete
Agreements. The Services and Non-Compete Agreements also provide that, in
addition to this compensation, Mr. Notebaert will receive a bonus for the year
in which the Merger is consummated in an amount equal to $1,331,000 multiplied
by the percentage by which the bonus paid to the Chief Executive Officer of
SBC for such year exceeds his base salary, and Mr. Shaffer will be treated as
having fully earned his pension supplements pursuant to his supplemental
pension arrangement entered into with Ameritech in 1995, and will qualify for
certain post-retirement benefits. All payments under the Services and Non-
Compete Agreements cease if SBC terminates the employment or consulting
relationship of the executive officer in the event the executive officer
becomes an employee or director of, or performs services for, a substantial
competitor of SBC during the term. In addition, each Services and Non-Compete
Agreement prohibits the executive officer for 36 months after the Effective
Time from soliciting customers of SBC or attempting to induce any employee or
agent to cease his or her relationship with SBC. Upon termination of
employment, unless the non-competition clause is violated, the Services and
Non-Compete Agreements provide that each executive officer shall receive
financial consulting assistance for a period of five years under SBC's
standard policies for retiring executives, and, in addition, Mr. Notebaert
will receive office space and secretarial support.
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ACCOUNTING TREATMENT
Based on the advice of their respective independent public accountants, SBC
and Ameritech believe that the Merger will qualify as a pooling-of-interests
for accounting and financial reporting purposes. Under this method of
accounting, SBC will retroactively restate its consolidated financial
statements at the Effective Time to include the assets, liabilities,
shareowners' equity and results of operations of Ameritech. Consummation of
the Merger is conditioned on receipt by SBC and Ameritech of letters from
their respective independent public accounting firms to the effect that the
Merger will qualify as a "pooling of interests" for accounting purposes. See
"The Merger--Conditions" and "The Merger--Certain Covenants--Pooling of
Interests."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following sets forth the material federal income tax consequences of the
Merger. The following is based upon the Code, applicable Treasury Regulations
thereunder and administrative rulings and judicial authority as of the date
hereof (collectively, "Currently Applicable Law"), and representations as to
factual matters made or to be made by Ameritech and SBC (such representations,
the "Factual Representations"). Any change in Currently Applicable Law, which
may or may not have retroactive effect, or failure of the Factual
Representations to be true, correct and complete in all material respects,
could affect the continuing validity of this discussion. The following assumes
that holders of shares of Ameritech Common Stock hold such shares as a capital
asset within the meaning of Section 1221 of the Code. Further, the following
does not address the federal income tax consequences that may be relevant to a
particular shareowner subject to special treatment under applicable federal
income tax laws, such as dealers in securities or foreign currencies, banks,
trusts, insurance companies, financial institutions, tax-exempt organizations,
persons that hold Ameritech Common Stock as part of a straddle, a hedge
against currency risk or a constructive sale or conversion transaction,
persons that have a functional currency other than the U.S. dollar, investors
in pass-through entities, non-United States persons, shareowners who acquired
shares of Ameritech Common Stock through the exercise of options or otherwise
as compensation or through a tax-qualified retirement plan, and holders of
options and performance share units granted under Ameritech's benefit plans.
The following does not address any consequences arising under the laws of any
state, locality or foreign jurisdiction.
Neither Ameritech nor SBC has requested a ruling from the Internal Revenue
Service ("IRS") with regard to any of the federal income tax consequences of
the Merger and the discussion below as to such federal income tax consequences
will not be binding on the IRS. As a result, there can be no assurance that
the IRS will not disagree with or challenge any of the conclusions set forth
below.
GENERAL
The obligations of SBC and Merger Sub, on the one hand, and Ameritech, on
the other hand, to consummate the Merger are respectively conditioned on (i)
the receipt by SBC of an opinion of Sullivan & Cromwell, dated as of the
Closing Date, to the effect that the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code, and that each of SBC, Ameritech and Merger Sub will be a party to the
reorganization within the meaning of Section 368(b) of the Code, and (ii) the
receipt by Ameritech of an opinion of Skadden, Arps, Slate, Meagher & Flom
(Illinois), dated as of the Closing Date, to the effect that the Merger will
be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, and that each of SBC, Ameritech and
Merger Sub will be a party to the
73
<PAGE>
reorganization within the meaning of Section 368(b) of the Code. The receipt
of such opinions may be waived solely at the discretion of the party waiving
such condition. If either party waives such condition after that party's
Special Meeting, that party will re-circulate a revised version of this Joint
Proxy Statement/Prospectus to disclose the waiver of the condition, the
material risks, if any, to its shareowners as a result of such waiver and any
related material effects and re-solicit the approval of its respective
shareowners. Each such opinion will be based upon, among other things, Factual
Representations reasonably satisfactory in form and substance to each counsel
dated as of the Closing Date.
In the opinion of each of Sullivan & Cromwell and Skadden, Arps, Slate,
Meagher & Flom (Illinois), assuming that the Factual Representations are true
and complete as of the Effective Time, and based upon Currently Applicable
Law, the Merger will be treated as a "reorganization" within the meaning of
Section 368(a) of the Code, and Ameritech, SBC and Merger Sub will each be
parties to that "reorganization" within the meaning of Section 368(b) of the
Code. As a result, (i) no gain or loss will be recognized by holders of
Ameritech Common Stock with respect thereto as a result of the surrender of
all of their shares of Ameritech Common Stock in exchange for shares of SBC
Common Stock (including the receipt of SBC Rights) pursuant to the Merger
(except as discussed below with respect to cash received in lieu of fractional
shares), (ii) the aggregate adjusted tax basis of the shares of SBC Common
Stock received by a holder of Ameritech Common Stock who exchanges all of his
or her Ameritech Common Stock solely for SBC Common Stock pursuant to the
Merger Agreement will be the same as the aggregate adjusted tax basis of the
shares of Ameritech Common Stock surrendered by such holder in exchange
therefor in the Merger (reduced by any amount of tax basis allocable to a
fractional share interest in SBC Common Stock for which cash is received),
(iii) the holding period of a share of SBC Common Stock received in the Merger
will include the holder's holding period of shares of Ameritech Common Stock
surrendered in exchange therefor, (iv) no gain or loss will be recognized by
holders of SBC Common Stock as a result of the Merger and (v) in general, no
gain or loss will be recognized by Ameritech, SBC or Merger Sub as a result of
the Merger.
FRACTIONAL SHARES
If a holder of shares of Ameritech Common Stock receives cash in lieu of a
fractional share interest in SBC Common Stock in the Merger, the holder of
Ameritech Common Stock will generally recognize capital gain or loss equal to
the cash amount received for the fractional share of SBC Common Stock reduced
by the portion of the holder's adjusted tax basis in shares of Ameritech
Common Stock surrendered that is allocable to the fractional share interest in
SBC Common Stock. Under these rules, a minority shareowner of Ameritech should
generally recognize capital gain or loss on the receipt of cash in lieu of a
fractional share interest in SBC Common Stock. The capital gain or loss will
be long term capital gain or loss if the holder's holding period in the
fractional share interest is more than one year. Long term capital gain of an
individual holder is generally subject to a maximum tax rate of 20%. Holders
should consult their tax advisors concerning the treatment of capital gains
and losses.
THE PRECEDING STATEMENTS DO NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER. THUS,
AMERITECH SHAREOWNERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN
REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER APPLICABLE TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES
IN THE TAX LAWS.
74
<PAGE>
THE BYLAW AMENDMENT
The SBC Board has unanimously approved the Bylaw Amendment and recommends
that the shareowners of SBC vote for the Bylaw Amendment. The Bylaw Amendment
would amend the second paragraph of Article II, Section 1, of the SBC Bylaws
to provide as follows:
"The number of Directors shall be not more than twenty-five (25), and
the maximum number of persons that may serve as Directors may
thereafter be decreased from time to time by a vote of a majority of
the Board of Directors (but not thereafter increased) to not less than
twenty-one (21)."
The SBC Board desires to cause the adoption of the Bylaw Amendment to
facilitate the transactions contemplated by the Merger Agreement. SBC has
agreed, pursuant to the Merger Agreement, that as of the Effective Time up to
five members of the Ameritech Board will become members of the SBC Board. The
SBC Board is currently composed of 19 members. If the SNET acquisition is
completed, pursuant to the SNET Merger Agreement (as defined herein), SBC will
be obligated to cause a person selected by the SBC Board in consultation with
the Chief Executive Officer and Board of Directors of SNET from among the
members of the Board of Directors of SNET to become a member of the SBC Board.
Therefore, following the SNET acquisition, the SBC Board may be composed of up
to 20 members. The SBC Bylaws currently provide that the maximum number of
persons who may be members of the SBC Board is 21. Therefore, at the Effective
Time, it may be necessary for the maximum number of persons who may serve on
the SBC Board to be increased to permit the election of members of the
Ameritech Board to the SBC Board. The SBC Board is therefore proposing the
Bylaw Amendment to serve to ensure that up to five members of the Ameritech
Board may be appointed to the SBC Board as of the Effective Time. There can,
however, be no assurance that the Bylaw Amendment will be necessary at the
Effective Time as certain directors of SBC may cease to serve as members of
the SBC Board prior to the Effective Time, in which case there may be
sufficient vacancies to permit the election of the Ameritech designees.
The approval of the Bylaw Amendment requires the affirmative vote of at
least two-thirds of the shares of SBC Common Stock issued and outstanding as
of the SBC Record Date. Abstentions and failures to vote shares of SBC Common
Stock will have the effect of a vote against the approval of the Bylaw
Amendment.
THE SBC BOARD HAS UNANIMOUSLY APPROVED THE BYLAW AMENDMENT AND DETERMINED
THAT IT IS ADVISABLE AND RECOMMENDS THAT SBC SHAREOWNERS VOTE FOR APPROVAL OF
THE BYLAW AMENDMENT.
75
<PAGE>
UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
and notes thereto are presented assuming the Merger and the pending SNET
acquisition will each be accounted for as a "pooling of interests." For a
description of pooling of interests accounting with respect to the Merger, see
"Accounting Treatment."
The following unaudited pro forma combined condensed financial statements
have been prepared using the Exchange Ratio. See "The Merger--Terms of the
Merger."
The unaudited pro forma combined condensed income statements reflect the
combination of the historical operating results of SBC and Ameritech (on a
combined basis assuming that the SNET acquisition does not close prior to the
Merger), and SBC, Ameritech and SNET (on a combined basis assuming that the
SNET acquisition closes prior to the Merger) for the years ended December 31,
1997, 1996 and 1995 and for the six months ended June 30, 1998. The unaudited
pro forma combined condensed balance sheets reflect the combination of the
historical balance sheets of SBC and Ameritech (on a combined basis assuming
that the SNET acquisition does not close prior to the Merger) and SBC,
Ameritech and SNET (on a combined basis assuming that the SNET acquisition
closes prior to the Merger) at December 31, 1997 and at June 30, 1998.
Shareowners should be aware that consummation of the Merger is conditioned
upon, among other things, obtaining consents from certain Governmental
Entities. See "Risk Factors," "The Merger--Conditions" and "--Certain
Regulatory Filings and Approvals."
The unaudited pro forma combined condensed financial statements are not
necessarily indicative of the results of operations or financial position that
actually would have occurred had the Merger and the SNET acquisition been
consummated on the dates indicated or that may be obtained in the future.
These unaudited pro forma combined condensed financial statements should be
read in conjunction with the related historical financial statements and notes
thereto of SBC, Ameritech and SNET incorporated by reference in this Joint
Proxy Statement/Prospectus.
76
<PAGE>
SBC COMMUNICATIONS INC. AND AMERITECH CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
SBC/
SBC/ AMERITECH/
HISTORICAL AMERITECH SNET
------------------ PRO FORMA PRO FORMA HISTORICAL PRO FORMA PRO FORMA
SBC AMERITECH ADJUSTMENTS COMBINED SNET ADJUSTMENTS COMBINED
------- --------- ----------- --------- ---------- ----------- ----------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash
equivalents............ $ 615 $ 280 $ 895 $ 12 $ 907
Accounts receivable--
net.................... 4,847 3,008 7,855 378 8,233
Other current assets.... 1,573 1,846 3,419 96 3,515
Total current assets.... 7,035 5,134 12,169 486 12,655
PROPERTY, PLANT AND
EQUIPMENT--NET......... 27,758 14,025 41,783 1,758 43,541
INTANGIBLE ASSETS--NET.. 3,208 1,917 5,125 385 5,510
INVESTMENTS IN EQUITY
AFFILIATES............. 2,484 4,364 6,848 -- 6,848
OTHER ASSETS............ 2,115 3,605 5,720 208 5,928
TOTAL ASSETS............ $42,600 $29,045 $71,645 $2,837 $74,482
LIABILITIES AND
SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Debt maturing within one
year................... $ 2,211 $ 1,281 $ 3,492 $ 180 $ 3,672
Other current
liabilities............ 7,813 5,031 12,844 429 13,273
Total current
liabilities............ 10,024 6,312 16,336 609 16,945
LONG-TERM DEBT.......... 11,547 7,013 18,560 1,147 19,707
POSTEMPLOYMENT BENEFIT
OBLIGATION............. 4,882 3,125 8,007 256 8,263
OTHER NONCURRENT
LIABILITIES............ 4,282 2,520 6,802 88 6,890
CORPORATION-OBLIGATED
MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS*..... 1,000 1,000 1,000
SHAREOWNERS' EQUITY
Common shares........... 1,867 1,177 273 2a 3,317 70 50 2b 3,437
Capital in excess of par
value.................. 8,495 5,438 (1,927) 2a 12,006 690 (135) 2b 12,561
Retained earnings....... 2,167 5,729 7,896 92 7,988
Guaranteed obligations
of ESOPs............... (155) (114) (269) (30) (299)
Deferred compensation--
LESOP.................. (86) -- (86) -- (86)
Accumulated
comprehensive income... (650) (501) (1,151) -- (1,151)
Treasury shares (at
cost).................. (773) (1,654) 1,654 2a (773) (85) 85 2b (773)
Total shareowners'
equity................. 10,865 10,075 -- 20,940 737 -- 21,677
TOTAL LIABILITIES AND
SHAREOWNERS' EQUITY.... $42,600 $29,045 $ -- $71,645 $2,837 $ -- $74,482
</TABLE>
* The trusts contain assets of $1,030 in principal amount of the Subordinated
Debentures of Pacific Telesis Group.
The accompanying notes are an integral part of these unaudited pro forma
combined condensed financial statements.
77
<PAGE>
SBC COMMUNICATIONS INC. AND AMERITECH CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
SBC/
SBC/ AMERITECH/
HISTORICAL AMERITECH SNET PRO
------------------ PRO FORMA PRO FORMA HISTORICAL PRO FORMA FORMA
SBC AMERITECH ADJUSTMENTS COMBINED SNET ADJUSTMENTS COMBINED
------- --------- ----------- --------- ---------- ----------- ----------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash
equivalents............ $ 398 $ 239 $ 637 $ 12 $ 649
Accounts receivable--
net.................... 5,015 3,078 8,093 328 8,421
Other current assets.... 1,649 1,232 2,881 115 2,996
Total current assets.... 7,062 4,549 11,611 455 12,066
PROPERTY, PLANT AND
EQUIPMENT--NET......... 27,339 13,873 41,212 1,717 42,929
INTANGIBLE ASSETS--NET.. 3,269 1,882 5,151 395 5,546
INVESTMENTS IN EQUITY
AFFILIATES............. 2,740 1,685 4,425 -- 4,425
OTHER ASSETS............ 1,722 3,350 5,072 204 5,276
TOTAL ASSETS............ $42,132 $25,339 $67,471 $2,771 $70,242
LIABILITIES AND
SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Debt maturing within one
year................... $ 1,953 $ 3,036 $ 4,989 $ 186 $ 5,175
Other current
liabilities............ 8,299 4,205 12,504 472 12,976
Total current
liabilities............ 10,252 7,241 17,493 658 18,151
LONG-TERM DEBT.......... 12,019 4,610 16,629 1,157 17,786
POSTEMPLOYMENT BENEFIT
OBLIGATION............. 4,929 3,127 8,056 267 8,323
OTHER NONCURRENT
LIABILITIES............ 4,040 2,053 6,093 92 6,185
CORPORATION-OBLIGATED
MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS*..... 1,000 -- 1,000 -- 1,000
SHAREOWNERS' EQUITY
Common shares........... 934 1,177 $ (455) 2a 1,656 69 $(10) 2b 1,715
Capital in excess of par
value.................. 9,418 5,313 (1,190) 2a 13,541 622 (75) 2b 14,088
Retained earnings....... 1,146 4,190 5,336 27 5,363
Guaranteed obligations
of ESOPs............... (183) (190) (373) (36) (409)
Deferred compensation--
LESOP.................. (119) -- (119) -- (119)
Foreign currency
translation adjustment (574) (537) (1,111) -- (1,111)
Treasury shares (at
cost).................. (730) (1,645) 1,645 2a (730) (85) 85 2b (730)
Total shareowners'
equity................. 9,892 8,308 -- 18,200 597 -- 18,797
TOTAL LIABILITIES AND
SHAREOWNERS' EQUITY.... $42,132 $25,339 $ -- $67,471 $2,771 $ -- $70,242
</TABLE>
* The trusts contain assets of $1,030 in principal amount of the Subordinated
Debentures of Pacific Telesis Group.
The accompanying notes are an integral part of these unaudited pro forma
combined condensed financial statements.
78
<PAGE>
SBC COMMUNICATIONS INC. AND AMERITECH CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
SBC/
SBC/ AMERITECH/
HISTORICAL AMERITECH SNET PRO
----------------- PRO FORMA PRO FORMA HISTORICAL PRO FORMA FORMA
SBC AMERITECH ADJUSTMENTS COMBINED SNET ADJUSTMENTS COMBINED
------- --------- ----------- --------- ---------- ----------- ----------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Total operating
revenues............... $13,015 $8,422 $21,437 $1,066 $22,503
Total operating
expenses............... 9,647 6,353 16,000 845 16,845
OPERATING INCOME........ 3,368 2,069 5,437 221 5,658
Interest expense........ (471) (322) (793) (45) (838)
Equity in net income of
affiliates............. 126 180 306 -- 306
Other income (expense)--
net.................... (77) 1,498 1,421 (1) 1,420
INCOME BEFORE INCOME TAX
AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE... 2,946 3,425 6,371 175 6,546
Income taxes............ 1,068 1,225 2,293 66 2,359
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING
CHANGE................. 1,878 2,200 4,078 109 4,187
Cumulative Effect of
Accounting Change, net
of tax................. -- -- -- 16 16
NET INCOME.............. $ 1,878 $2,200 $ 4,078 $ 125 $ 4,203
EARNINGS PER COMMON
SHARE--BASIC:(2C)
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING
CHANGE................. $ 1.02 $ 2.00 $ 1.24 $ 1.62 $ 1.23
NET INCOME.............. $ 1.02 $ 2.00 $ 1.24 $ 1.85 $ 1.23
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING............ 1,839 1,100 348 3,287 68 51 3,406
EARNINGS PER COMMON
SHARE--ASSUMING
DILUTION:(2C)
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING
CHANGE................. $ 1.01 $ 1.98 $ 1.23 $ 1.60 $ 1.22
NET INCOME.............. $ 1.01 $ 1.98 $ 1.23 $ 1.83 $ 1.22
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING............ 1,864 1,109 350 3,323 68 51 3,442
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined condensed financial statements.
79
<PAGE>
SBC COMMUNICATIONS INC. AND AMERITECH CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SBC/
SBC/ AMERITECH/
HISTORICAL AMERITECH SNET PRO
------------------ PRO FORMA PRO FORMA HISTORICAL PRO FORMA FORMA
SBC AMERITECH ADJUSTMENTS COMBINED SNET ADJUSTMENTS COMBINED
------- --------- ----------- --------- ---------- ----------- ----------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Total operating
revenues............... $24,856 $15,998 $40,854 $2,022 $42,876
Total operating
expenses............... 21,686 12,199 33,885 1,624 35,509
OPERATING INCOME........ 3,170 3,799 6,969 398 7,367
Interest expense........ (947) (505) (1,452) (90) $(6) 2d (1,548)
Equity in net income of
affiliates............. 201 206 407 -- 407
Other income (expense)--
net.................... (87) 184 97 8 105
INCOME BEFORE INCOME TAX
AND EXTRAORDINARY LOSS. 2,337 3,684 6,021 316 (6) 2d 6,331
Income taxes............ 863 1,388 2,251 118 (2) 2d 2,367
INCOME BEFORE
EXTRAORDINARY LOSS..... 1,474 2,296 3,770 198 (4) 2d 3,964
Extraordinary Loss, net
of tax................. -- -- -- (4) 4 2d --
NET INCOME............. $ 1,474 $ 2,296 $ 3,770 $ 194 $-- $ 3,964
EARNINGS PER COMMON
SHARE-- BASIC:(2C)
INCOME BEFORE
EXTRAORDINARY LOSS..... $ 0.81 $ 2.09 $ 1.15 $ 2.99 $ 1.17
NET INCOME.............. $ 0.81 $ 2.09 $ 1.15 $ 2.93 $ 1.17
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING............ 1,828 1,099 347 3,274 66 50 3,390
EARNINGS PER COMMON
SHARE--ASSUMING
DILUTION:(2C)
INCOME BEFORE
EXTRAORDINARY LOSS..... $ 0.80 $ 2.08 $ 1.14 $ 2.98 $ 1.16
NET INCOME.............. $ 0.80 $ 2.08 $ 1.14 $ 2.92 $ 1.16
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING............ 1,845 1,104 349 3,298 66 50 3,414
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined condensed financial statements.
80
<PAGE>
SBC COMMUNICATIONS INC. AND AMERITECH CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SBC/
SBC/ AMERITECH/
HISTORICAL AMERITECH SNET PRO
------------------ PRO FORMA PRO FORMA HISTORICAL PRO FORMA FORMA
SBC AMERITECH ADJUSTMENTS COMBINED SNET ADJUSTMENTS COMBINED
------- --------- ----------- --------- ---------- ----------- ----------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Total operating
revenues............... $23,445 $14,917 $38,362 $1,942 $40,304
Total operating
expenses............... 17,609 11,412 29,021 1,560 30,581
OPERATING INCOME........ 5,836 3,505 9,341 382 9,723
Interest expense........ (812) (514) (1,326) (89) (1,415)
Equity in net income of
affiliates............. 207 236 443 -- 443
Other income (expense)--
net.................... (82) 90 8 7 15
INCOME BEFORE INCOME
TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING
CHANGE................. 5,149 3,317 8,466 300 8,766
Income taxes............ 1,960 1,183 3,143 107 3,250
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING
CHANGE................. 3,189 2,134 5,323 193 5,516
Cumulative Effect of
Accounting Change, net
of tax................. 90 -- 90 -- 90
NET INCOME............. $ 3,279 $ 2,134 $ 5,413 $ 193 $ 5,606
EARNINGS PER COMMON
SHARE--BASIC:(2C)
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING
CHANGE................. $ 1.73 $ 1.93 $ 1.62 $ 2.95 $ 1.62
NET INCOME.............. $ 1.78 $ 1.93 $ 1.64 $ 2.95 $ 1.64
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING............ 1,841 1,104 349 3,294 65 49 3,408
EARNINGS PER COMMON
SHARE-- ASSUMING
DILUTION:(2C)
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING
CHANGE................. $ 1.72 $ 1.92 $ 1.61 $ 2.94 $ 1.61
NET INCOME.............. $ 1.77 $ 1.92 $ 1.64 $ 2.94 $ 1.64
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING............ 1,851 1,108 350 3,309 66 50 3,425
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined condensed financial statements.
81
<PAGE>
SBC COMMUNICATIONS INC. AND AMERITECH CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
SBC/
SBC/ AMERITECH/
HISTORICAL AMERITECH SNET
------------------ PRO FORMA PRO FORMA HISTORICAL PRO FORMA PRO FORMA
SBC AMERITECH ADJUSTMENTS COMBINED SNET ADJUSTMENTS COMBINED
------- --------- ----------- --------- ---------- ----------- ----------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Total operating
revenues............... $21,712 $13,428 $35,140 $1,816 $36,956
Total operating
expenses............... 16,592 10,125 26,717 1,467 28,184
OPERATING INCOME........ 5,120 3,303 8,423 349 8,772
Interest expense........ (957) (469) (1,426) (86) (1,512)
Equity in net income of
affiliates............. 120 94 214 -- 214
Other income (expense)--
net.................... 194 166 360 15 375
INCOME BEFORE INCOME TAX
AND EXTRAORDINARY LOSS. 4,477 3,094 7,571 278 7,849
Income taxes............ 1,519 1,086 2,605 109 2,714
INCOME BEFORE
EXTRAORDINARY LOSS..... 2,958 2,008 4,966 169 5,135
Extraordinary Loss, net
of tax................. (6,022) -- (6,022) (687) (6,709)
NET INCOME (LOSS)...... $(3,064) $ 2,008 $(1,056) $ (518) $(1,574)
EARNINGS PER COMMON
SHARE--BASIC:(2C)
INCOME BEFORE
EXTRAORDINARY LOSS..... $ 1.61 $ 1.81 $ 1.51 $ 2.60 $ 1.50
NET INCOME (LOSS)....... $ (1.66) $ 1.81 $ (0.32) $(7.99) $ (0.46)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING............ 1,841 1,107 350 3,298 65 49 3,412
EARNINGS PER COMMON
SHARE--ASSUMING
DILUTION:(2C)
INCOME BEFORE
EXTRAORDINARY LOSS..... $ 1.60 $ 1.81 $ 1.50 $ 2.60 $ 1.50
NET INCOME (LOSS)....... $ (1.66) $ 1.81 $ (0.32) $(7.99) $ (0.46)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING............ 1,849 1,111 351 3,311 65 49 3,425
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined condensed financial statements.
82
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited pro forma combined condensed financial statements
include the historical financial statements of SBC, Ameritech and SNET and are
intended to reflect the impact of the Merger and the pending SNET acquisition
on SBC. On January 5, 1998, SBC and SNET jointly announced the execution of
the SNET Merger Agreement, pursuant to which SBC would acquire SNET in a
transaction in which each share of common stock, par value $1.00 per share, of
SNET ("SNET Common Stock") would be converted into and exchanged for 1.7568
shares of SBC Common Stock (equivalent to approximately 120 million shares, or
6% of the outstanding shares of SBC Common Stock at December 31, 1997). After
the SNET acquisition, SNET will be a wholly-owned subsidiary of SBC. The
transaction is intended to be accounted for as a "pooling of interests" and to
be a tax-free reorganization. The shareholders of SNET approved the merger on
March 27, 1998; however, the SNET acquisition is also subject to certain
regulatory approvals (which SBC expects it will be able to obtain). If such
approvals are granted, the transaction is expected to close by the end of
1998.
The accompanying unaudited pro forma combined condensed financial statements
are presented for illustrative purposes only and do not give effect to any
cost savings which may result from the integration of SBC's, Ameritech's and
SNET's operations. These potential savings, as well as any potential revenue
synergies, reflect future opportunities, including the reduction of expected
cost increases, and do not necessarily involve reductions from historical cost
levels. For a discussion of the potential synergistic benefits which may
result from the Merger, see "The Merger--Reasons for the Merger;
Recommendations of the Boards of Directors." Additionally, the unaudited pro
forma combined condensed financial statements do not include any transaction
costs relating to the Merger (which are estimated to be approximately $150
million), nor do they consider any reorganization costs or costs associated
with the disposition of the Overlapping Cellular Licenses that may be required
as a result of the Merger. As the nature of any dispositions relating to the
Overlapping Cellular Licenses is unknown, the accompanying unaudited pro forma
combined condensed financial statements do not reflect any such disposition
which may be made or consideration which may be received. Differences in
accounting policies do not have a material effect on either the pro forma
combined financial position or pro forma combined results of operations and
have not been reflected in the unaudited pro forma combined condensed
financial statements. The unaudited pro forma combined condensed statements of
income reflect the Merger and the SNET acquisition as if each had been in
effect on January 1, 1998, 1997, 1996 and 1995, respectively.
The unaudited pro forma combined condensed financial statements are not
necessarily indicative of the results of operations or financial position that
actually would have occurred had the Merger and the SNET acquisition been
consummated on the dates indicated or that may be obtained in the future.
These unaudited pro forma combined condensed financial statements should be
read in conjunction with the related historical financial statements and notes
thereto of SBC, Ameritech and SNET incorporated by reference in this Joint
Proxy Statement/Prospectus.
SBC issued shares in connection with the SBC Stock Split, effected in the
form of a stock dividend, in the first quarter of 1998. Shareowners' equity
accounts were adjusted at the time of such issuance.
Ameritech issued shares in connection with the Ameritech Stock Split,
effected in the form of a stock dividend, on December 31, 1997. Shareowners'
equity accounts were retroactively restated as of December 31, 1997 to reflect
the effects of the Ameritech Stock Split.
It is expected that SBC and Ameritech will form review teams subsequent to
the completion of the Merger to perform comprehensive reviews of the combined
companies' operations and strategic initiatives. Though the results of any
such reviews cannot be determined at this time, such reviews may result in
significant accounting charges.
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NOTE 2--PRO FORMA ADJUSTMENTS
a. Shareowners' Equity--The shareowners' equity accounts of Ameritech have
been adjusted to reflect the assumed issuance of approximately 1,450 million
shares of SBC Common Stock in exchange for all of the issued and outstanding
Ameritech Common Stock (based on the Exchange Ratio of 1.316). The actual
number of shares of SBC Common Stock to be issued in connection with the
Merger will be based upon the number of shares of Ameritech Common Stock
issued and outstanding at the Effective Time.
b. Shareowners' Equity--The shareowners' equity accounts of SNET have been
adjusted to reflect the assumed issuance of approximately 120 million shares
of SBC Common Stock in exchange for all of the issued and outstanding SNET
Common Stock (based on the exchange ratio in the SNET acquisition of 1.7568
shares of SBC Common Stock for each share of SNET Common Stock). The actual
number of shares of SBC Common Stock to be issued in connection with the SNET
acquisition will be based upon the number of shares of SNET Common Stock
issued and outstanding at the time the SNET acquisition becomes effective.
c. Earnings per Common Share--Pro forma combined basic earnings per common
share and earnings per common share assuming dilution for each period
presented are based on the combined weighted average shares outstanding in
each period after conversion of shares of Ameritech Common Stock and SNET
Common Stock into shares of SBC Common Stock, as appropriate.
d. Extraordinary Loss--The extraordinary loss on early extinguishment of
debt is reclassified as the amount is not material to SBC and, therefore, is
not reported as an extraordinary item.
e. Intercompany Transactions--There are no significant intercompany
transactions between or among SBC, Ameritech and SNET.
NOTE 3--FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The unaudited pro forma combined condensed financial statements assume that
the Merger qualifies as a tax-free reorganization for federal income tax
purposes.
NOTE 4--RECENT DEVELOPMENTS--SALE OF INVESTMENT IN TELECOM CORPORATION OF NEW
ZEALAND LIMITED BY AMERITECH
During the six months ended June 30, 1998, Ameritech sold substantially all
of its shares in Telecom Corporation of New Zealand Limited for approximately
$2.1 billion. Ameritech reflected a gain in its "other income" of
approximately $1.5 billion, which resulted in an after-tax gain of $1.0
billion. Additional details of this transaction are summarized in Ameritech's
Form 10-Q for the quarter ended June 30, 1998.
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DESCRIPTION OF SBC CAPITAL STOCK
The following description of material terms of the capital stock of SBC does
not purport to be complete and is qualified in its entirety by reference to
the SBC Restated Certificate incorporated herein by reference and to the
relative rights, preferences and limitations of the Series A Junior
Participating Preferred Stock (the "SBC Participating Preferred Stock"), which
documents are filed or incorporated by reference as exhibits to the
Registration Statement of which this Joint Proxy Statement/Prospectus is a
part.
The authorized capital stock of SBC currently consists of 7,000,000,000
shares of SBC Common Stock and 10,000,000 shares of preferred stock, par value
$1.00 per share issuable in series (the "SBC Preferred Stock"). Each share of
SBC Common Stock trades with one fourth of an SBC Right. See "--Description of
SBC Rights." As of the Record Date, there were outstanding 1,835,049,268
shares of SBC Common Stock, with an additional 29,831,147 shares issued and
held in treasury. There are no shares of SBC Preferred Stock outstanding, but
SBC has designated all 10,000,000 shares as SBC Participating Preferred Stock.
SBC COMMON STOCK
The holders of SBC Common Stock are entitled to one vote per share for each
share held of record on all matters voted on by shareowners, including the
election of directors, and are entitled to participate equally in dividends
when and as such dividends may be declared by the SBC Board out of funds
legally available therefor. As a Delaware corporation, SBC is subject to
statutory limitations on the declaration and payment of dividends. In the
event of a liquidation, dissolution or winding up of SBC, holders of SBC
Common Stock have the right to a ratable portion of assets remaining after
satisfaction in full of the prior rights of creditors, including holders of
SBC's indebtedness, all liabilities and the aggregate liquidation preferences
of any outstanding shares of SBC Preferred Stock. The holders of SBC Common
Stock have no conversion, redemption, preemptive or cumulative voting rights.
All outstanding shares of SBC Common Stock are, and the shares of SBC Common
Stock to be issued in the Merger will be, validly issued, fully paid and non-
assessable.
The transfer agent and registrar for SBC Common Stock is The Bank of New
York, 48 Wall Street, New York, New York 10286.
SBC PREFERRED STOCK
The SBC Restated Certificate provides that the SBC Preferred Stock may be
issued from time to time in one or more series. The SBC Board is specifically
authorized to establish the number of shares in any series and to set the
designation of any series and the powers, preferences, and rights and the
qualifications, limitations or restrictions on each series of SBC Preferred
Stock. The holders of SBC Preferred Stock will have no preemptive rights.
In connection with the SBC Rights Agreement, the SBC Board has authorized
the issuance of up to 10,000,000 shares of SBC Participating Preferred Stock.
Upon issuance, each share of SBC Participating Preferred Stock is entitled to
quarterly cash dividends equal to the greater of $5 or 200 times (subject to
antidilution adjustments for stock dividends and stock splits) the aggregate
value of all dividends or other distributions declared on a share of SBC
Common Stock (other than distributions of SBC Common Stock) since the last
quarterly dividend payment date. The SBC Participating Preferred Stock is not
redeemable by SBC.
Each share of SBC Participating Preferred Stock is entitled to 400 votes
(subject to antidilution adjustments) on all matters submitted to a vote of
the shareowners of SBC, voting together as one class with SBC Common
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Stock. In addition, if at any time dividends in an amount equal to six
quarterly dividend payments will have accrued and be unpaid, the SBC Board
will be increased by two directors and holders of the SBC Participating
Preferred Stock will have the right to elect two members to the SBC Board
until dividends on the SBC Participating Preferred Stock have been declared
and paid or set apart for payment. Except as required by applicable law,
holders of SBC Participating Preferred Stock have no other special voting
rights. Whenever dividends or distributions on the SBC Participating Preferred
Stock are in arrears, SBC is prohibited from declaring or paying dividends or
distributions on, and SBC and any subsidiary are prohibited from redeeming or
acquiring for value, any stock ranking junior as to dividends or upon
liquidation. During any such arrearage, SBC may declare or pay dividends on
stock ranking on a parity with the SBC Participating Preferred Stock as to
dividends or upon liquidation only if declared or paid ratably with the SBC
Participating Preferred Stock. During any such arrearage, SBC and any
subsidiary are prohibited from redeeming or acquiring for value any such
parity stock or any SBC Participating Preferred Stock, except pursuant to an
exchange of parity stock for stock ranking junior to the SBC Participating
Preferred Stock or pursuant to a purchase offer to the SBC Participating
Preferred Stock and holders of parity stock on terms the SBC Board determines
to be fair and equitable.
The SBC Participating Preferred Stock ranks junior to all other series of
SBC's preferred stock as to the payment of dividends and the distribution of
assets, unless the terms of any such series provide otherwise.
Upon any liquidation, dissolution or winding up of SBC, the SBC
Participating Preferred Stock is entitled to a liquidation preference of $100
per share plus any accrued but unpaid dividends, subject to the prior rights
of any series of preferred stock ranking in liquidation senior to the SBC
Participating Preferred Stock. In the event of any shortfall in the assets
available for distribution, any such liquidating distribution will be made
ratably to the SBC Participating Preferred Stock and any other series of
preferred stock ranking on a parity in proportion to their relative
liquidation preferences. Following such payment, no additional liquidating
distributions may be made on the SBC Participating Preferred Stock until each
share of SBC Common Stock has received $0.50 (subject to antidilution
adjustments). Thereafter, any remaining assets will be distributed to each
share of SBC Participating Preferred Stock and each share of SBC Common Stock
in the ratio of 400 to 1 (subject to antidilution adjustments).
DESCRIPTION OF SBC RIGHTS
The SBC Rights Agreement is intended to protect shareowners in the event of
unsolicited offers or attempts to acquire SBC, including offers that do not
treat all shareowners equally, acquisitions in the open market of shares
constituting control without offering fair value to all shareowners and other
coercive or unfair takeover tactics that could impair the SBC Board's ability
to represent shareowners' interests fully. Pursuant to the SBC Rights
Agreement, the SBC Board declared a dividend distribution of one SBC Right for
each outstanding share of SBC Common Stock to shareowners of record at the
close of business on February 16, 1989 (the "SBC Rights Record Date"), and
authorized the issuance of one SBC Right (as adjusted pursuant to the SBC
Rights Agreement, as described below) for each share of SBC Common Stock
issued between the SBC Rights Record Date and the SBC Distribution Date (as
defined below). After giving effect to a stock split in May 1993 and the SBC
Stock Split, each effected in the form of a stock dividend, each share of SBC
Common Stock outstanding or to be issued prior to the SBC Distribution Date
has or will have attached one-quarter of an SBC Right. Each SBC Right entitles
the registered holder to purchase from SBC one-hundredth of a share (an "SBC
Unit") of SBC's Participating Preferred Stock at a price of $160 per SBC Unit,
subject to adjustment, which is not exercisable until after an SBC
Distribution Date. The description and terms of the SBC Rights are set forth
in
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the SBC Rights Agreement. One-quarter of an SBC Right will be attached to each
share of SBC Common Stock issued by SBC (including shares of SBC Common Stock
issued to holders of Ameritech Common Stock in the Merger).
The SBC Rights have certain anti-takeover effects. The SBC Rights may cause
substantial dilution to a person that attempts to acquire SBC without the
approval of the SBC Board. The SBC Rights, however, should not affect offers
for all outstanding shares of SBC Common Stock at a fair price and otherwise
in the best interests of SBC and its shareowners as determined by the SBC
Board and should not interfere with any merger or other business combination
approved by the SBC Board since the SBC Board may, at its option, at any time
until 10 days following the SBC Stock Acquisition Date (as defined below),
redeem all but not less than all of the then outstanding SBC Rights at a
redemption price of $.05 per share, except that in certain circumstances a
majority of directors not affiliated with an SBC Acquiring Person (as defined
below) or an SBC Adverse Person (as defined below) who were elected by a
majority of unaffiliated directors may need to approve the redemption.
Initially, the SBC Rights are and will be attached to all certificates
representing SBC Common Stock (including shares issued in the Merger) at the
time outstanding. The SBC Rights will separate from the SBC Common Stock on
the SBC Distribution Date, which is defined as (i) 10 business days after the
public announcement by SBC or the SBC Acquiring Person (the date of such
public announcement, the "SBC Stock Acquisition Date") that a person (an "SBC
Acquiring Person") has acquired 20% or more of the then outstanding SBC Common
Stock, (ii) 10 business days following commencement of a tender offer or
exchange offer for 20% or more of the then outstanding SBC Common Stock or
(iii) 10 business days after an owner of 10% or more of the then outstanding
SBC Common Stock is determined to be an "SBC Adverse Person" by the SBC Board
of Directors and a majority of SBC's independent directors that are not
officers of SBC. An SBC Adverse Person is one who intends to have SBC
repurchase such person's ownership interest, who intends to pressure SBC into
action for the short-term financial gain of such person and such action is not
in the best long-term interests of SBC or its shareowners or whose ownership
is likely to cause a material adverse effect on the business or prospects of
SBC (including, but not limited to, impairment of SBC's (i) relationships with
customers, (ii) relationships with regulators or (iii) ability to maintain its
competitive position).
If an "SBC Flip-in Event" occurs, the holder of an SBC Right is entitled to
receive SBC Common Stock or other property of SBC valued at two times the
exercise price of the SBC Right. An SBC Flip-in Event occurs if a person
acquires 20% or more of the SBC Common Stock (except offers to acquire all of
the SBC Common Stock deemed by a majority of the SBC Board that are not
officers of SBC and who are not representatives, nominees or associates of an
SBC Acquiring Person to be fair and in the best interests of SBC) or if a
person is determined to be an SBC Adverse Person.
To avoid the consequences of an SBC Flip-in Event, SBC may redeem the SBC
Rights in whole, but not in part, at a redemption price of $0.05 per SBC Right
at any time prior to an SBC Stock Acquisition Date, except that in certain
circumstances a majority of directors not affiliated with an SBC Acquiring
Person or an SBC Adverse Person who were elected by a majority of unaffiliated
directors may need to approve the redemption.
If an "SBC Flip-over Event" occurs, the holder of an SBC Right is entitled
to receive common stock of a company that has acquired SBC valued at two times
the exercise price of the SBC Right. An SBC Flip-over Event occurs if SBC is
acquired in a merger or other business combination in which SBC is not the
survivor or if 50% or more of SBC's assets, cash flow or earning power is sold
or transferred.
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Following the occurrence of an SBC Flip-in Event or SBC Flip-over Event, all
SBC Rights that are beneficially owned by an SBC Acquiring Person or an SBC
Adverse Person or any transferee thereof will be null and void.
The SBC Rights Agreement may be amended at any time prior to an SBC
Distribution Date, without the approval of holders of SBC Rights in any
manner, except to amend the Redemption Price (as defined in the SBC Rights
Agreement), the SBC Rights Expiration Date, the SBC Purchase Price and the
number of SBC Units for which an SBC Right is exercisable.
The SBC Rights Agreement expires on the SBC Rights Expiration Date. As of
the date of this Joint Proxy Statement/Prospectus, SBC has not determined
whether it will enter into a new rights agreement which would have the effect
that the SBC Rights currently outstanding under the SBC Rights Agreement would
continue to be outstanding after the SBC Rights Expiration Date. If the SBC
Rights or SBC Substitute Rights are outstanding at the time shares of SBC
Common Stock are issued pursuant to the Merger Agreement, such shares of SBC
Common Stock will have attached the appropriate number of SBC Rights or SBC
Substitute Rights. If no such rights are outstanding at the time shares of SBC
Common Stock are issued pursuant to the Merger Agreement, no rights will be
attached to such shares of SBC Common Stock.
The foregoing description of the SBC Rights is qualified in its entirety by
reference to the SBC Rights Agreement, which is filed or incorporated by
reference as an exhibit to the Registration Statement of which this Joint
Proxy Statement/Prospectus is a part.
COMPARISON OF CERTAIN RIGHTS OF SHAREOWNERS OF SBC AND AMERITECH
GENERAL
As a result of the Merger, holders of Ameritech Common Stock will become
holders of SBC Common Stock and the rights of all such former holders of
Ameritech Common Stock will thereafter be governed by the SBC Restated
Certificate, the SBC Bylaws and the DGCL (which is the law governing their
rights as shareowners of Ameritech). The rights of the holders of Ameritech
Common Stock are presently governed by the Ameritech Charter, the Ameritech
Bylaws and the DGCL. The following summary, which does not purport to be a
complete statement of the differences among the rights of the shareowners of
SBC and Ameritech, sets forth material differences between the SBC Restated
Certificate and the SBC Bylaws, on the one hand, and the Ameritech Charter and
the Ameritech Bylaws, on the other hand. This summary is qualified in its
entirety by reference to the full text of each of such documents.
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
SBC
The SBC Bylaws provide that the number of directors of SBC will be
determined from time to time by a majority of the SBC Board, but in no event
will the SBC Board be comprised of more than 21 members. The current number of
directors is 19. The SBC Bylaws also provide that the SBC Board will be
divided into three classes with the number of directors divided as evenly as
possible among the three classes. Each class is elected to serve for a term of
three years. Each year the term of one class of directors expires and
approximately one-third of the directors are elected. The SBC Restated
Certificate provides that the classified board provision and
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the limitation on the maximum number of directors that may serve on the SBC
Board may only be amended or repealed by a two-thirds majority vote of the
total number of shares of stock of SBC then outstanding and entitled to vote.
Ameritech
The Ameritech Charter provides that the number of directors of Ameritech
will be determined from time to time by a majority vote of the Ameritech
Board, but may not be less than three or more than 18. Until 1995, the
Ameritech Board was divided into three classes of directors with one class of
directors elected each year for a three-year term, but an amendment to the
Ameritech Charter filed on April 30, 1996 eliminated the classification of the
Ameritech Board as directors' terms expire. Pursuant to that amendment, all
directors will be elected annually beginning in 1999 and hold office until the
next annual meeting of shareowners and until their successors are elected or
qualified, or until the directors' earlier resignation or removal.
REMOVAL OF DIRECTORS
SBC
Pursuant to the DGCL, unless a corporation's certificate of incorporation
provides otherwise, in the case of a corporation whose board of directors is
classified (as the SBC Board is), any director or the entire SBC Board may be
removed only for cause and only by the affirmative vote of a majority of the
outstanding shares of SBC capital stock entitled to vote in the election of
directors.
Ameritech
The Ameritech Charter provides that no director will be removed from the
Ameritech Board by action of the shareowners of Ameritech other than for cause
(which means that the conduct of such director has been determined by a court
of competent jurisdiction to constitute a breach of such director's fiduciary
duty). To remove a director for cause, the holders of a majority of the shares
then entitled to vote in an election of directors must vote in favor of
removal.
ACTION BY WRITTEN CONSENT
SBC
Under the DGCL, unless otherwise provided in a corporation's certificate of
incorporation, shareowners may take action without a meeting, without prior
notice and without a vote, upon the written consent of shareowners having not
less than the minimum number of votes that would be necessary to authorize the
proposed action at a meeting at which all shares entitled to vote were present
and voted. The SBC Restated Certificate provides that action can be taken by
shareowners without a meeting if a consent in writing, setting forth the
actions so taken, is signed by the holders of at least two-thirds of all the
issued and outstanding shares of stock of SBC entitled to vote thereon at any
such meeting.
Ameritech
The Ameritech Charter requires that all actions by shareowners be taken at a
duly called annual or special meeting and may not be taken by written consent
of such shareowners.
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MEETINGS OF SHAREOWNERS; QUORUM AND VOTING
SBC
Pursuant to the SBC Bylaws, a special meeting of shareowners may be called
at any time by either the SBC Board or the Chairman of the SBC Board. The
Chairman of the SBC Board is required to call a special meeting whenever
requested to do so by shareowners representing two-thirds of the shares of SBC
then outstanding and entitled to vote at the meeting.
The SBC Bylaws provide that the presence in person or by proxy of forty
percent of the issued and outstanding shares of SBC stock entitled to vote
will constitute a quorum. When a quorum is present in person or represented by
proxy at a meeting of the shareowners of SBC, the vote of a majority of the
votes cast will decide any question brought before the meeting, unless the
question is one upon which by express provision of the DGCL, the SBC Restated
Certificate or the SBC Bylaws a different vote is required, in which case such
express provision will govern and control the decision of such question
brought before the meeting. See "--Size and Classification of the Board of
Directors."
Ameritech
The Ameritech Bylaws provide that a special meeting of shareowners may be
called at any time by either the Ameritech Board or the Chairman of the
Ameritech Board. The Ameritech Bylaws also state that the presence, in person
or by proxy, of a majority of the issued and outstanding stock entitled to
vote constitutes a quorum at all shareowners' meetings, except as provided by
law. When a quorum is present, a majority vote will decide any question
brought before the meeting, unless a different vote is required by law or by
the Ameritech Charter.
SHAREOWNER PROPOSALS AND SHAREOWNER NOMINATIONS OF DIRECTORS
SBC
The SBC Bylaws establish procedures that must be followed for a shareowner
to submit a proposal to be voted on by the shareowners of SBC at its annual
meeting of shareowners and a substantially similar procedure to be followed
for the nomination and election of directors. No business may be proposed by a
shareowner at the annual meeting of shareowners without giving written notice
to the Secretary of SBC not less than 60 days or more than 90 days prior to
the scheduled date of the meeting. In the event, however, that less than 70
days' notice or prior public disclosure of the date of the meeting is given to
shareowners, notice by the shareowner to be timely must be received not later
than the close of business on the tenth day following the earlier of (i) the
day on which such notice of the date of the meeting was mailed or (ii) the day
on which such public disclosure was made. The shareowner's notice must set
forth (i) the name and record address of such shareowner and (ii) the class or
series and number of shares of capital stock of SBC which are owned
beneficially or of record by such shareowner. In addition, with respect to
business to be brought before an annual meeting, the shareowner's notice must
set forth (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting the business at the annual
meeting and (ii) any material interest the shareowner has in the proposal.
Shareowners' notices relating to director nominations must include (i) the
name, age, business address and residence address of the nominee, (ii) the
principal occupation or employment of the nominee, (iii) the class or series
and number of shares of capital stock of SBC which are owned beneficially or
of record by the nominee and (iv) any other information relating to the
nominee and the shareowner making the nomination that is required to be
disclosed in a proxy statement or other filings required to be made in
connection with the
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solicitation of proxies for the election of directors under the Exchange Act.
If the Chairman of the SBC Board determines that any such proposal (including
a director nomination) was not made in accordance with these procedures or is
otherwise not in accordance with law, the Chairman of the SBC Board may so
declare at the meeting, and such defective proposal (or nomination) will be
disregarded.
Ameritech
The Ameritech Charter and the Ameritech Bylaws do not set forth procedures
for shareowner proposals or for the nomination and election of directors.
AMENDMENT OF CORPORATE CHARTER AND BYLAWS
SBC
Under the DGCL, an amendment to a corporation's certificate of incorporation
generally requires the recommendation of the board of directors, the approval
of a majority of all shares entitled to vote thereon, voting together as a
single class, and the majority of the outstanding stock of each class entitled
to vote thereon.
Under the DGCL, a corporation's board of directors may amend its bylaws if
its certificate of incorporation contains a provision entitling the directors
to amend the bylaws. Even if the certificate of incorporation contains such a
provision, the shareowners also have the power to amend the bylaws. The SBC
Restated Certificate provides that the SBC Board is expressly authorized to
adopt, amend or repeal the SBC Bylaws without the consent or vote of its
shareowners, except for certain SBC Bylaws described under "--Size and
Classification of the Board of Directors" and "--Fair Price Provisions."
Ameritech
The Ameritech Charter provides that Ameritech may amend, alter or repeal any
provision contained in the Ameritech Charter; however, an affirmative vote of
80% of all voting stock of Ameritech is required to change, repeal or render
inoperative any of the provisions set forth in the Ameritech Charter
concerning the Ameritech Board, super-majority voting requirements for certain
business combinations or such super-majority voting requirements for
amendments to the Ameritech Charter. Notwithstanding this requirement, the 80%
vote is not required for any amendments concerning these provisions that are
unanimously recommended to the shareowners by the Ameritech Board when no
other entity owns or proposes to acquire more than 5% of Ameritech's voting
stock, or if all directors then serving on the Ameritech Board were members of
the Ameritech Board prior to the acquisition of 5% of Ameritech's voting stock
by another entity. See "Fair Price Provisions."
The Ameritech Bylaws may be amended by the Ameritech Board. In addition, the
Ameritech Bylaws may be amended by the shareowners of Ameritech.
FAIR PRICE PROVISIONS
SBC
The SBC Bylaws provide that certain "business combinations" involving
"interested shareowners" (defined generally to be beneficial owners of 10% or
more of the voting stock of SBC or any person acquiring any voting stock, in
the two year period prior to the business combination, from such a person in a
non-public offering) require approval by a vote of the holders of at least
two-thirds of the then-outstanding shares of capital
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stock of SBC entitled to vote generally for the election of directors, voting
as a single class, if not previously approved by a majority of the members of
the SBC Board who are not affiliated with the interested shareowner (and those
who became directors after the time at which the interested shareowner
acquired its shares, if they are approved by a majority of the unaffiliated
directors) or unless certain minimum price and procedural criteria are
satisfied. The minimum price criteria require that the consideration paid to
SBC's shareowners must be either cash or the same type of consideration paid
by the interested shareowner in acquiring the largest portion of its SBC
shares prior to the proposed business combination and would generally have to
be at least equal in value to the greater of (i) the highest per share price
paid by the interested shareowner in acquiring any share of SBC Common Stock
during the two years prior to the announcement date of the proposed business
combination or in the transaction in which it became an interested shareowner
(whichever is higher), (ii) the fair market value per share of SBC Common
Stock on the day after such announcement date or on the date on which the
interested shareowner became an interested shareowner (whichever is higher),
or (iii) the price per share determined pursuant to (ii) multiplied by the
ratio of (a) the highest per share price paid by the interested shareowner in
acquiring any share of SBC Common Stock during the two years prior to such
announcement to (b) the fair market value per share of SBC Common Stock on the
first day in such two-year period upon which the interested shareowner
acquired any shares of SBC Common Stock. This provision may only be amended or
repealed by a vote of the holders of at least two-thirds of the then-
outstanding shares of capital stock of SBC entitled to vote generally for the
election of directors, voting as a single class.
Ameritech
The Ameritech Charter provides that the affirmative vote of 80% of all
outstanding voting stock is required to approve an "extraordinary business
transaction" with another entity if, as of the record date for such vote, the
other entity is the beneficial owner of 5% or more of Ameritech's voting
stock. For the purposes of this provision, an extraordinary business
transaction includes the merger or consolidation of Ameritech with or into
another corporation, the sale, lease, exchange or disposition of assets
representing 10% or more of Ameritech's total assets or going concern value
(as determined by the Ameritech Board), or the sale or lease to Ameritech or
its subsidiaries, in exchange for securities of Ameritech or its subsidiaries,
of any assets having an aggregate fair market value in excess of $5 million.
This 80% voting requirement does not apply, however, if (a) the value of the
consideration to be received by Ameritech common shareowners in the
extraordinary business transaction is equal to or greater than (i) the highest
share price paid by the acquiring entity for any of its Ameritech holdings,
and (ii) Ameritech's book value per share in its most recently published
financial statements, and (b) a proxy statement soliciting approval of the
transaction is mailed to all Ameritech common shareowners and contains any
recommendation that the Continuing Directors (as defined in the Ameritech
Charter) or the Ameritech Board may have concerning the advisability of
undertaking the transaction as well as any opinions from experts that the
Ameritech Board has received concerning the fairness of the transaction to
Ameritech common shareowners. In addition, the 80% voting requirement will not
be applicable if the extraordinary business transaction is approved by at
least 80% of the Continuing Directors at a time when the continuing directors
constitute a majority of the Ameritech Board.
RIGHTS PLANS
SBC
Pursuant to the SBC Rights Agreement each share of SBC Common Stock has
attached to it after giving effect to the May 1993 stock split and the SBC
Stock Split one-quarter of an SBC Right. Each SBC Right entitles the holder
thereof to purchase one one-hundredth of a share of SBC Participating
Preferred Stock for $160. Until
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the SBC Distribution Date the SBC Rights remain attached to the SBC Common
Stock. Following the SBC Distribution Date, the SBC Rights will separate.
After the occurrence of an SBC Flip-in Event or an SBC Flip-over Event the
holders of the SBC Rights will have the right to purchase shares of SBC Common
Stock or shares of common stock of an SBC Acquiring Person or SBC Adverse
Person, as the case may be, having a market value of twice the purchase price
(i.e., $320 worth of SBC Common Stock or common stock of an SBC Acquiring
Person or SBC Adverse Person, as the case may be, for $160). See "Description
of SBC Capital Stock--Description of Rights."
The SBC Board may, at its option, redeem the SBC Rights at a redemption
price of $0.05 per SBC Right, generally at any time prior to an SBC Stock
Acquisition Date. The SBC Rights will terminate on January 27, 1999. See
"Description of SBC Capital Stock--Description of SBC Rights."
Ameritech
Pursuant to the Ameritech Rights Agreement, each share of Ameritech Common
Stock has attached to it one quarter of a right, and each such right, when
exercisable, permits the holder thereof to purchase from Ameritech one one-
hundredth of a share of Series A Junior Participating Preference Stock, par
value $1.00 per share, for $125, subject to adjustment (each, an "Ameritech
Right"). Until the Ameritech Distribution Date (as defined in the Ameritech
Rights Agreement), the Ameritech Rights remain attached to the Ameritech
Common Stock, but following the Ameritech Distribution Date, the Ameritech
Rights will separate. In the event that any person becomes the beneficial
owner of 20% or more of the then-outstanding shares of Ameritech Common Stock,
except pursuant to a tender or exchange offer for all outstanding shares that
a majority of the Ameritech Board determines to be fair and in the best
interests of Ameritech and its shareowners, each owner of an Ameritech Right
will have the right to receive upon exercise Ameritech Common Stock or other
consideration with a value equal to twice the exercise price of the Ameritech
Right. The Ameritech Rights are not exercisable until the Ameritech
Distribution Date and will expire upon the earliest of (i) December 30, 1998,
(ii) consummation of certain approved merger transactions, or (iii) redemption
by Ameritech at a price of $.01 per Ameritech Right. The Ameritech Rights
Agreement was amended on May 10, 1998 to provide that the Merger Agreement and
the consummation of the transactions contemplated by the Merger Agreement will
not cause any of the provisions of the Rights Agreement to be triggered.
The description of the Ameritech Rights Agreement specifying the terms of
the Ameritech Rights is incorporated herein by reference. See "Incorporation
of Certain Information by Reference." The foregoing description of the
Ameritech Rights is qualified in its entirety by reference to the Ameritech
Rights Agreement.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
SBC
Section 145 of the DGCL provides that a corporation may indemnify its
officers and directors who were or are a party to any action, suit or
proceeding by reason of the fact that he or she was a director, officer, or
employee of the corporation by, among other things, a majority vote of a
quorum consisting of directors who were not parties to such action, suit, or
proceeding, provided that such officers and directors acted in good faith and
in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation. The SBC Restated Certificate provides for
indemnification of officers and directors as permitted by the DGCL. The SBC
Restated Certificate also provides for the payment of expenses incurred by
directors and officers in defending a proceeding in advance of the final
disposition of such proceeding as authorized by the SBC Board
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upon receipt of an undertaking by or on behalf of that person to repay such
amounts unless it is ultimately determined that person is entitled to be
indemnified under Delaware law.
Ameritech
The Ameritech Bylaws provide for indemnification of directors and officers
of Ameritech to the full extent permitted by law. The Ameritech Bylaws also
contain indemnification provisions similar to those provisions contained in
the SBC Restated Certificate. However, in the case of criminal actions or
proceedings, the Ameritech Bylaws contain the additional requirement that the
person being indemnified must have had no reasonable cause to believe that his
conduct was unlawful. The Ameritech Bylaws also provide for payment of
expenses actually and reasonably incurred by a director, officer, employee or
agent in connection with such an action, suit or proceeding if he or she has
been successful on the merits or otherwise in defense thereof. The Ameritech
Bylaws also provide for advancement of expenses upon receipt of an undertaking
similar to that provided for in the SBC Restated Certificate. With respect to
threatened, pending or completed legal action by or on behalf of Ameritech
against such person, Ameritech will indemnify such person against expenses
actually and reasonably incurred in connection with the defense or settlement
of such an action or suit, provided that such person acted in good faith and
in a manner such person believed to be in or not opposed to Ameritech's best
interests. No indemnification will be made, however, with respect to any
claim, issue or matter as to which such person has been found liable for
negligence or misconduct in the performance of such person's duty to
Ameritech, unless the applicable court determines that such person is fairly
or reasonably entitled to indemnification.
EXPERTS
The consolidated financial statements and schedules of SBC at December 31,
1997 and 1996, and for each of the three years in the period ended December
31, 1997, incorporated by reference in this Joint Proxy Statement/Prospectus
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon incorporated herein by reference which, as to the years
1996 and 1995, are based in part on the reports of PricewaterhouseCoopers LLP
independent accountants. Such consolidated financial statements and schedules
are incorporated herein by reference in reliance upon such reports given upon
the authority of such firms as experts in accounting and auditing.
The consolidated financial statements and schedules of Ameritech as of
December 31, 1997 and 1996 and for the three years in the period ended
December 31, 1997, included and incorporated by reference in the Ameritech 10-
K, incorporated by reference in this Joint Proxy Statement/Prospectus and
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as set forth in their reports thereon, which are
incorporated herein by reference. Such consolidated financial statements and
schedules are incorporated herein by reference in reliance upon authority of
such firm as experts in accounting and auditing.
The consolidated financial statements and schedule of SNET as of December
31, 1997 and 1996, and for the three years in the period ended December 31,
1997, incorporated by reference in this Joint Proxy Statement/Prospectus and
Registration Statement, have been audited by PricewaterhouseCoopers LLP,
independent accountants, as set forth in their reports thereon, which are
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon the authority of such firm
as experts in accounting and auditing.
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VALIDITY OF SHARES
The validity of the SBC Common Stock to be issued pursuant to the Merger
will be passed upon for SBC by James D. Ellis, Senior Executive Vice President
and General Counsel of SBC. As of the date of this Joint Proxy
Statement/Prospectus, Mr. Ellis owned less than 0.1% of the shares (including
options representing certain rights to purchase shares) of SBC Common Stock.
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
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1997 Ameritech 10-K........................................................ v
1997 SBC 10-K.............................................................. iv
1997 SNET 10-K............................................................. v
Acquiring Person........................................................... 52
Acquisition Proposal....................................................... 5
Affiliates................................................................. 67
Ameritech.................................................................. i
Ameritech Acquisition Proposal............................................. 5
Ameritech Affiliates Letter................................................ 68
Ameritech Board............................................................ i
Ameritech Bylaws........................................................... 14
Ameritech Cellular......................................................... 35
Ameritech Certificate...................................................... 49
Ameritech Charter.......................................................... 14
Ameritech Common Stock..................................................... i
Ameritech Distribution Date................................................ 93
Ameritech Option........................................................... 8
Ameritech Other Assets..................................................... 35
Ameritech PCS.............................................................. 35
Ameritech Publishing....................................................... 35
Ameritech Record Date...................................................... 2
Ameritech Representatives.................................................. 55
Ameritech Required Consents................................................ 63
Ameritech Right............................................................ 93
Ameritech Rights Agreement................................................. 52
Ameritech Special Meeting.................................................. i
Ameritech Stock Split...................................................... 15
Ameritech Stock Units...................................................... 61
Ameritech Telco............................................................ 35
Applicants................................................................. 59
BSE........................................................................ iv
Bylaw Amendment............................................................ ii
Cable Franchise Agreements................................................. 60
Cellular Comparable Companies.............................................. 36
Certificate Letter of Transmittal.......................................... 49
Certificate of Merger...................................................... 4
Change in Control Agreements............................................... 13
Closing Date............................................................... 8
Code....................................................................... ii
Communications Act......................................................... 7
Compensation Committee..................................................... 71
Continuing Directors....................................................... 92
Costs...................................................................... 9
CSE........................................................................ iv
Current Premium............................................................ 9
Currently Applicable Law................................................... 73
D&O Insurance.............................................................. 9
Department of Justice...................................................... 7
</TABLE>
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TERM PAGE
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<S> <C>
DGCL....................................................................... i
EBITDA..................................................................... 36
Effective Time............................................................. 3
Engagement Letter.......................................................... 42
Exchange Act............................................................... iv
Exchange Agent............................................................. 49
Exchange Ratio............................................................. ii
Excluded Ameritech Common Stock............................................ ii
Factual Representations.................................................... 72
FCC........................................................................ 7
Final Expiration Date...................................................... 52
Final Order................................................................ 63
FTC........................................................................ 7
Goldman Sachs.............................................................. 4
Goldman Sachs Engagement Letter............................................ 47
Governmental Entity........................................................ 51
HSR Act.................................................................... 6
IBES....................................................................... 43
ICC........................................................................ 59
ICC Application............................................................ 59
Illinois Telecommunications Carriers....................................... 59
Indemnified Party.......................................................... 9
Independent Telcos......................................................... 36
IPUA....................................................................... 59
IRS........................................................................ 72
IURC....................................................................... 7
LD Certificates............................................................ 60
LE Certificates............................................................ 60
LTM........................................................................ 36
Material Adverse Effect.................................................... 58
Merger..................................................................... ii
Merger Agreement........................................................... i
Merger Consideration....................................................... 3
Merger Proposal............................................................ i
Merger Sub................................................................. i
Named Executive Officers................................................... 13
Notification and Report Form............................................... 7
NYSE....................................................................... ii
NYNEX Merger............................................................... 44
Ohio Act................................................................... 60
Ohio Application........................................................... 60
Ohio Bell.................................................................. 60
Order...................................................................... 10
Overlapping Cellular Licenses.............................................. 59
Pactel Acquisition......................................................... 44
PCS Comparable Companies................................................... 36
P/E Multiples.............................................................. 38
</TABLE>
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Person..................................................................... 50
PHLX....................................................................... iv
POPs....................................................................... 36
PSE........................................................................ iv
Publishing Comparable Companies............................................ 37
PUC........................................................................ 7
PUCO....................................................................... 60
RBHCs...................................................................... 36
Redemption Price........................................................... 88
Registered Ameritech Share................................................. 49
Registered Letter of Transmittal........................................... 49
Registered SBC Shares...................................................... 50
Registration Statement..................................................... ii
Regulatory Material Adverse Effect......................................... 57
Salomon Smith Barney....................................................... 4
SBC........................................................................ i
SBC Acquiring Person....................................................... 87
SBC Acquisition Proposal................................................... 5
SBC Adverse Person......................................................... 87
SBC Affiliates Letter...................................................... 68
SBC Board.................................................................. i
SBC Bylaws................................................................. ii
SBC Cellular............................................................... 38
SBC Common Stock........................................................... i
SBC Flip-over Event........................................................ 87
SBC Flip-in Event.......................................................... 87
SBC Other Assets........................................................... 39
SBC Participating Preferred Stock.......................................... 85
SBC PCSs................................................................... 38
SBC Preferred Stock........................................................ 85
SBC Publishing............................................................. 38
SBC Record Date............................................................ 2
SBC Representatives........................................................ 56
SBC Required Consents...................................................... 63
SBC Rights................................................................. iii
</TABLE>
<TABLE>
<CAPTION>
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- ---- ----
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SBC Rights Agreement....................................................... iii
SBC Rights Expiration Date................................................. iii
SBC Rights Record Date..................................................... 86
SBC Special Meeting........................................................ i
SBC Stock Acquisition Date................................................. 87
SBC Stock Split............................................................ 15
SBC Stock Units............................................................ 60
SBC Substitute Rights...................................................... iii
SBC Synergy Estimates...................................................... 41
SBC Telco.................................................................. 38
SBC Unit................................................................... 86
SEC........................................................................ iv
Section 5/7-204............................................................ 59
Securities Act............................................................. ii
Selected Companies......................................................... 43
Services and Non-Compete Agreements........................................ 13
Severance Plan............................................................. 13
Short-Term Incentive Plans................................................. 71
Significant Subsidiaries................................................... 51
SNET....................................................................... ii
SNET Agreement............................................................. 55
SNET Common Stock.......................................................... 83
Special Meetings........................................................... i
State Certificates......................................................... 60
Subsidiary................................................................. 52
Substitute Option.......................................................... 8
Substitute Option Price.................................................... 8
Superior Ameritech Proposal................................................ 6
Superior Proposal.......................................................... 6
Superior SBC Proposal...................................................... 6
Surviving Corporation...................................................... ii
Telekom Austria............................................................ 18
Termination Date........................................................... ii
Termination Fee............................................................ 12
WACC....................................................................... 38
</TABLE>
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ANNEX A
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
AMONG
AMERITECH CORPORATION
SBC COMMUNICATIONS INC.
AND
SBC DELAWARE, INC.
DATED AS OF MAY 10, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
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RECITALS
ARTICLE I
The Merger; Closing; Effective Time
1.1. The Merger.......................................................... 1
1.2. Closing............................................................. 1
1.3. Effective Time...................................................... 2
ARTICLE II
Certificate of Incorporation and By-laws
of the Surviving Corporation
2.1. The Certificate of Incorporation.................................... 2
2.2. The By-Laws......................................................... 2
ARTICLE III
Officers and Directors
3.1. Directors of Surviving Corporation.................................. 2
3.2. Officers of Surviving Corporation................................... 2
3.3. Election to SBC's Board of Directors................................ 2
ARTICLE IV
Effect of the Merger on Capital Stock;
Exchange of Certificates
4.1. Effect on Capital Stock............................................. 3
(a) Merger Consideration............................................ 3
(b) Cancellation of Shares.......................................... 3
(c) Merger Sub...................................................... 3
4.2. Exchange of Certificates for Shares................................. 3
(a) Exchange Procedures............................................. 3
(b) Distributions with Respect to Unexchanged Shares; Voting........ 5
(c) Transfers....................................................... 5
(d) Fractional Shares............................................... 5
(e) Termination of Exchange Period; Unclaimed Stock................. 5
(f) Lost, Stolen or Destroyed Certificates.......................... 6
(g) Affiliates...................................................... 6
4.3. Dissenters' Rights.................................................. 6
4.4. Adjustments to Prevent Dilution..................................... 6
</TABLE>
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ARTICLE V
Representations and Warranties
<TABLE>
<C> <S> <C>
5.1. Representations and Warranties of the Company, SBC and Merger Sub... 6
(a) Organization, Good Standing and Qualification................... 6
(b) Capital Structure............................................... 7
(c) Corporate Authority; Approval and Fairness...................... 9
(d) Governmental Filings; No Violations............................. 9
(e) Reports; Financial Statements................................... 10
(f) Absence of Certain Changes...................................... 11
(g) Litigation and Liabilities...................................... 11
(h) Employee Benefits............................................... 12
(i) Compliance with Laws............................................ 13
(j) Takeover Statutes............................................... 14
(k) Environmental Matters........................................... 14
(l) Accounting and Tax Matters...................................... 15
(m) Taxes........................................................... 15
(n) Labor Matters................................................... 15
(o) Rights Agreement................................................ 15
(p) Brokers and Finders............................................. 16
ARTICLE VI
Covenants
6.1. Interim Operations.................................................. 16
6.2. Acquisition Proposals............................................... 20
6.3. Information Supplied................................................ 21
6.4. Stockholders Meetings............................................... 22
6.5. Filings; Other Actions; Notification................................ 22
6.6. Access; Consultation................................................ 24
6.7. Affiliates.......................................................... 24
6.8. Stock Exchange Listing and De-listing............................... 25
6.9. Publicity........................................................... 25
6.10. Benefits............................................................ 25
(a) Stock Options................................................... 25
(b) Employee Benefits............................................... 26
6.11. Expenses............................................................ 26
6.12. Indemnification; Directors' and Officers' Insurance................. 26
6.13. Takeover Statute.................................................... 27
6.14. Dividends........................................................... 27
6.15. Confidentiality..................................................... 28
6.16. Control of the Company's Operations................................. 28
ARTICLE VII
Conditions
7.1. Conditions to Each Party's Obligation to Effect the Merger.......... 28
(a) Stockholder Approval............................................ 28
</TABLE>
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(b) NYSE Listing................................................... 28
(c) Governmental Consents.......................................... 28
(d) Laws and Order................................................. 29
(e) S-4............................................................ 29
(f) Accountants' Letters........................................... 29
(g) Blue Sky Approvals............................................. 29
7.2. Conditions to Obligations of SBC and Merger Sub.................... 29
(a) Representations and Warranties................................. 29
(b) Performance of Obligations of the Company...................... 29
(c) Consents Under Agreements...................................... 29
(d) Tax Opinion.................................................... 29
7.3. Conditions to Obligation of the Company............................ 30
(a) Representations and Warranties................................. 30
(b) Performance of Obligations of SBC and Merger Sub............... 30
(c) Tax Opinion.................................................... 30
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent...................................... 30
8.2. Termination by Either SBC or the Company........................... 30
8.3. Termination by the Company......................................... 31
8.4. Termination by SBC................................................. 31
8.5. Effect of Termination and Abandonment.............................. 32
ARTICLE IX
Miscellaneous and General
9.1. Survival........................................................... 33
9.2. Modification or Amendment.......................................... 34
9.3. Waiver of Conditions............................................... 34
9.4. Counterparts....................................................... 34
9.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL...................... 34
9.6. Notices............................................................ 35
9.7. Entire Agreement................................................... 36
9.8. No Third Party Beneficiaries....................................... 36
9.9. Obligations of SBC and of the Company.............................. 36
9.10. Severability....................................................... 36
9.11. Interpretation..................................................... 36
9.12. Captions........................................................... 37
9.13. Assignment......................................................... 37
EXHIBITS
A Form of Company Affiliate's Letter ................................ A-1
B Form of SBC Affiliate's Letter..................................... B-1
</TABLE>
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<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
- ---- ------------
<S> <C>
Affiliate.......................................................... 6.7(a)
Agreement.......................................................... preamble
Audit Date......................................................... 5.1(e)
Bankruptcy and Equity Exception.................................... 5.1(c)(i)
By-Laws............................................................ 2.2
Certificate........................................................ 4.1(a)
Certificate Letter of Transmittal.................................. 4.2(a)
Certificate of Merger.............................................. 1.3
Charter............................................................ 2.1
Closing............................................................ 1.2
Closing Date....................................................... 1.2
Code............................................................... recitals
Company............................................................ preamble
Company Acquisition Proposal....................................... 6.2(a)
Company Affiliate's Letter......................................... 6.7(a)
Company Compensation and Benefit Plans............................. 5.1(h)(i)
Company Disclosure Letter.......................................... 5.1
Company Option..................................................... 6.10(a)(i)
Company Preference Shares ......................................... 5.1(b)(i)
Company Preferred Shares .......................................... 5.1(b)(i)
Company Representatives ........................................... 6.2(a)
Company Required Consents ......................................... 5.1(d)(i)
Company Requisite Vote ............................................ 5.1(c)(i)
Company Share ..................................................... 4.1(a)
Company Shares .................................................... 4.1(a)
Company Stock Plans ............................................... 5.1(b)(i)
Company Stock Units ............................................... 6.10(a)(i)
Company Stockholders Meeting....................................... 6.4
Compensation and Benefit Plans..................................... 5.1(h)(ii)
Confidentiality Agreement.......................................... 6.15
Constituent Corporations........................................... preamble
Contracts.......................................................... 5.1(d)(ii)
Costs.............................................................. 6.12(a)
Current Premium.................................................... 6.12(c)
D&O Insurance...................................................... 6.12(c)
DGCL............................................................... 1.1
Director Designees................................................. 3.3
Disclosure Letter.................................................. 5.1
Effective Time..................................................... 1.3
Environmental Law.................................................. 5.1(k)
ERISA.............................................................. 5.1(h)(ii)
ERISA Affiliate.................................................... 5.1.(h)(iii)
ERISA Affiliate Plan............................................... 5.1(h)(iii)
</TABLE>
A-iv
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<TABLE>
<CAPTION>
TERM SECTION
- ---- ----------
<S> <C>
Exchange Act......................................................... 5.1(b)(i)
Exchange Agent....................................................... 4.2(a)
Exchange Ratio....................................................... 4.1(a)
Excluded Company Shares ............................................. 4.1(a)
FCC.................................................................. 5.1(d)(i)
Final Order.......................................................... 7.1(c)
GAAP................................................................. 5.1(e)
Governmental Entity.................................................. 5.1(d)(i)
Hazardous Substance.................................................. 5.1(k)
HSR Act.............................................................. 5.1(d)(i)
Indemnified Parties.................................................. 6.12(a)
Initial 50 Day Period................................................ 8.3(b)
IRS.................................................................. 5.1(h)(ii)
Laws................................................................. 5.1(i)
Material Adverse Effect.............................................. 5.1(a)
Merger............................................................... recitals
Merger Consideration................................................. 4.1(a)
Merger Sub........................................................... preamble
NYSE................................................................. 6.8
Order................................................................ 7.1(d)
Pension Plan......................................................... 5.1(h)(ii)
Permits.............................................................. 5.1(i)
Person............................................................... 4.2(a)
Prospectus/Proxy Statement........................................... 6.3
PUC.................................................................. 5.1(d)(i)
Registered Company Shares............................................ 4.1(a)
Registered Letter of Transmittal..................................... 4.2(a)
Registered SBC Shares................................................ 4.2(a)
Regulatory Material Adverse Effect................................... 6.5(c)
Reports.............................................................. 5.1(e)
Rights Agreement..................................................... 5.1(b)(i)
Rights Amendment..................................................... 5.1(o)
S-4 Registration Statement........................................... 6.3
SBC.................................................................. preamble
SBC Acquisition Proposal............................................. 6.2(b)
SBC Affiliate's Letter............................................... 6.7(a)
SBC Common Stock..................................................... 4.1(a)
SBC Companies........................................................ 4.1(a)
SBC Disclosure Letter................................................ 5.1
SBC Preferred Shares................................................. 5.1(b)(ii)
SBC Representatives.................................................. 6.2(b)
SBC Required Consents................................................ 5.1(d)(i)
SBC Requisite Vote................................................... 5.1(c)(ii)
SBC Rights........................................................... 4.1(a)
SBC Rights Agreement................................................. 5.1(b)(ii)
</TABLE>
A-v
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<TABLE>
<CAPTION>
TERM SECTION
- ---- -----------
<S> <C>
SBC Stock Plans..................................................... 5.1(b)(ii)
SBC Stock Units..................................................... 6.10(a)(i)
SBC Stockholders Meeting............................................ 6.4
SEC................................................................. 5.1(e)
Securities Act...................................................... 5.1(d)(i)
Significant Subsidiary.............................................. 5.1(b)(i)
SNET................................................................ 6.1(b)(vii)
SNET Agreement...................................................... 6.1(b)(vii)
Stockholders Meeting................................................ 6.4
Subsidiary.......................................................... 5.1(a)
Substitute Option................................................... 6.10(a)(i)
Substitute Option Price............................................. 6.10(a)(i)
Superior Company Proposal........................................... 6.2(a)
Superior SBC Proposal............................................... 6.2(b)
Surviving Corporation............................................... 1.1
Takeover Statute.................................................... 5.1(j)
Tax................................................................. 5.1(m)
Tax Return.......................................................... 5.1(m)
Taxable............................................................. 5.1(m)
Taxes............................................................... 5.1(m)
Termination Date.................................................... 8.2(i)
Termination Fee..................................................... 8.5(b)
Utilities Laws...................................................... 5.1(d)(i)
</TABLE>
A-vi
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"), dated as
of May 10, 1998, among Ameritech Corporation, a Delaware corporation (the
"Company"), SBC Communications Inc., a Delaware corporation ("SBC"), and SBC
Delaware, Inc., a Delaware corporation and a wholly-owned subsidiary of SBC
("Merger Sub," the Company and Merger Sub sometimes being hereinafter together
referred to as the "Constituent Corporations").
RECITALS
WHEREAS, the respective Boards of Directors of each of SBC, Merger Sub and
the Company have approved this Agreement and the merger of Merger Sub with and
into the Company (the "Merger") upon the terms and subject to the conditions
set forth in this Agreement;
WHEREAS, it is intended that, for federal income tax purposes, the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of
the Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code");
WHEREAS, for financial accounting purposes, it is intended that the Merger
shall be accounted for as a "pooling-of-interests;" and
WHEREAS, the Company, SBC and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
The Merger; Closing; Effective Time
1.1. The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, at the Effective Time (as defined in Section 1.3) Merger Sub
shall be merged with and into the Company and the separate corporate existence
of Merger Sub shall thereupon cease. The Company shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation") and shall continue to be governed by the laws of the State of
Delaware, and the separate corporate existence of the Company with all its
rights, privileges, immunities, powers and franchises shall continue
unaffected by the Merger except as set forth in Article III hereof. The Merger
shall have the effects specified in the Delaware General Corporation Law, as
amended (the "DGCL").
1.2. Closing. The closing of the Merger (the "Closing") shall take place (i)
at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York
10004 at 9:00 A.M., local time, on the second business day after the date on
which the last to be fulfilled or waived of the conditions set forth in
Article VII (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the fulfillment or waiver of those
conditions) shall be satisfied or waived in accordance with this Agreement or
(ii) at such other place and time and/or on such other date as the Company and
SBC may agree in writing (the "Closing Date").
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1.3. Effective Time. Immediately following the Closing, the Company and SBC
will cause a Certificate of Merger (the "Certificate of Merger") to be
executed, acknowledged and filed with the Secretary of State of Delaware as
provided in Section 251 of the DGCL. The Merger shall become effective at the
time when the Certificate of Merger has been duly filed with the Secretary of
State of Delaware or such other time as shall be agreed upon by the parties
and set forth in the Certificate of Merger in accordance with the DGCL (the
"Effective Time").
ARTICLE II
Certificate of Incorporation and By-Laws
of the Surviving Corporation
2.1. The Certificate of Incorporation. The certificate of incorporation of
the Company as in effect immediately prior to the Effective Time shall be the
certificate of incorporation of the Surviving Corporation (the "Charter"),
until duly amended as provided therein or by applicable law, except that (i)
Article Fourth of the Charter shall be amended to read in its entirety as
follows: "FOURTH. The aggregate number of shares that the Corporation shall
have the authority to issue is 1,000 shares of Common Stock, par value $1.00
per share."; (ii) Article Fifth of the Charter shall be deleted in its
entirety and shall read as follows: "FIFTH. Reserved."; (iii) Article Eighth,
Section B of the Charter shall be amended to read in its entirety as follows:
"B. Number. The number of directors, their terms and their manner of election
shall be fixed by or pursuant to the By-Laws of the Corporation."; (iv)
Article Ninth of the Charter shall be deleted in its entirety and shall read
as follows: "NINTH. Reserved." and (v) Article Tenth of the Charter shall be
amended to read in its entirety as follows: "TENTH. The Corporation reserves
the right to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, in any manner now or hereafter permitted or
prescribed by statute."
2.2. The By-Laws. The by-laws of Merger Sub in effect at the Effective Time
shall be the by-laws of the Surviving Corporation (the "By-Laws"), until
thereafter amended as provided therein or by applicable law.
ARTICLE III
Officers and Directors
3.1. Directors of Surviving Corporation. The directors of Merger Sub at the
Effective Time shall, from and after the Effective Time, be the directors of
the Surviving Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal
in accordance with the Charter and the By-Laws.
3.2. Officers of Surviving Corporation. The officers of the Company at the
Effective Time shall, from and after the Effective Time, be the officers of
the Surviving Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal
in accordance with the Charter and the By-Laws.
3.3. Election to SBC's Board of Directors. At the Effective Time of the
Merger, SBC shall increase the size of its Board of Directors in order to
enable up to five members of the Board of Directors of the Company to be
members of the SBC Board of Directors, which persons shall be selected by the
SBC Board of Directors in consultation with the Chief Executive Officer of the
Company and the Board of Directors of the Company (the
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"Director Designees"), and the SBC Board of Directors shall appoint each of
the Director Designees to the SBC Board of Directors as of the Effective Time,
with such Director Designees to be divided as nearly evenly as is possible
among the classes of directors of SBC.
ARTICLE IV
Effect of the Merger on Capital Stock;
Exchange of Certificates
4.1. Effect on Capital Stock. At the Effective Time, as a result of the
Merger and without any action on the part of the holder of any capital stock
of the Company:
(a) Merger Consideration. Each share of Common Stock, $1.00 par value per
share, of the Company (each a "Company Share" and together the "Company
Shares") issued and outstanding immediately prior to the Effective Time
(other than Company Shares that are owned by SBC, Merger Sub or any other
direct or indirect subsidiary of SBC (collectively, the "SBC Companies") or
Company Shares that are owned by the Company or any direct or indirect
subsidiary of the Company and in each case not held on behalf of third
parties (collectively, "Excluded Company Shares")) shall be converted into
and become exchangeable for 1.316 (the "Exchange Ratio") shares of Common
Stock, par value $1.00 per share, of SBC ("SBC Common Stock"), subject to
adjustment as provided in Section 4.4 (the "Merger Consideration"). All
references in this Agreement to SBC Common Stock to be issued pursuant to
the Merger shall be deemed to include the corresponding rights ("SBC
Rights") to purchase shares of SBC Participating Preferred Stock pursuant
to the SBC Rights Agreement (as defined in Section 5.1(b)(ii)), except
where the context otherwise requires. At the Effective Time, all Company
Shares shall no longer be outstanding, shall be cancelled and retired and
shall cease to exist, and (A) each certificate (a "Certificate") formerly
representing any of such Company Shares (other than Excluded Company
Shares) and (B) each uncertificated Company Share (a "Registered Company
Share") registered to a holder on the stock transaction books of the
Company (other than Excluded Company Shares), shall thereafter represent
only the right to the Merger Consideration and the right, if any, to
receive pursuant to Section 4.2(d) cash in lieu of fractional shares into
which such Company Shares have been converted pursuant to this Section
4.1(a) and any distribution or dividend pursuant to Section 4.2(b), in each
case without interest.
(b) Cancellation of Shares. Each Excluded Company Share issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, no longer
be outstanding, shall be cancelled and retired without payment of any
consideration therefor and shall cease to exist.
(c) Merger Sub. At the Effective Time, each share of Common Stock, par
value $1.00 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into one share of common
stock of the Surviving Corporation, and the Surviving Corporation shall be
a wholly-owned subsidiary of SBC.
4.2. Exchange of Certificates for Shares.
(a) Exchange Procedures. Promptly after the Effective Time, the Surviving
Corporation shall cause an exchange agent selected by SBC with the
Company's prior approval, which shall not be unreasonably withheld (the
"Exchange Agent") to mail to each holder of record as of the Effective Time
of a Certificate
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or Registered Company Shares, as the case may be, (other than holders of a
Certificate or Registered Company Shares in respect of Excluded Company
Shares) (i) (x) in the case of holders of Certificates, a letter of
transmittal specifying that delivery shall be effected, and that risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates (or affidavits of loss in lieu thereof) to the Exchange Agent
(the "Certificate Letter of Transmittal") or (y) in the case of holders of
Registered Company Shares, a letter of transmittal specifying that the
exchange for SBC Shares shall occur only upon delivery of such letter of
transmittal to the Exchange Agent (the "Registered Letter of Transmittal"),
each such letter of transmittal to be in such form and have such other
provisions as SBC and the Company may reasonably agree, and (ii)
instructions for exchanging Certificates or Registered Company Shares for
(A) uncertificated shares of SBC Common Stock registered on the stock
transfer books of SBC in the name of such holder ("Registered SBC Shares")
or, at the election of such holder, certificates representing shares of SBC
Common Stock and (B) any unpaid dividends and other distributions and cash
in lieu of fractional shares. Subject to Section 4.2(g), upon (I) surrender
of a Certificate for cancellation to the Exchange Agent together with a
Certificate Letter of Transmittal, duly executed, the holder of such
Certificate or (II) upon delivery of a Registered Letter of Transmittal,
duly executed, the holder of such Registered Company Shares, as the case
may be, shall be entitled to receive in exchange therefor (x) Registered
SBC Shares or, at the election of such holder, a certificate representing
that number of whole shares of SBC Common Stock that such holder is
entitled to receive pursuant to this Article IV, (y) a check in the amount
(after giving effect to any required tax withholdings) of (A) any cash in
lieu of fractional shares determined in accordance with Section 4.2(d)
hereof plus (B) any cash dividends and any other dividends or other
distributions that such holder has the right to receive pursuant to the
provisions of this Article IV, and any Certificate so surrendered and any
Registered Company Share in respect of which a Registered Letter of
Transmittal is so delivered shall forthwith be cancelled. No interest will
be paid or accrued on any amount payable upon due surrender of any
Certificate or delivery of a duly executed Registered Letter of
Transmittal, as the case may be. In the event of a transfer of ownership of
Company Shares that is not registered in the transfer records of the
Company, Registered SBC Shares or a certificate representing the proper
number of shares of SBC Common Stock, as the case may be, together with a
check for any cash to be paid upon due surrender of the Certificate or upon
the delivery to the Exchange Agent of the duly executed Registered Letter
of Transmittal and any other dividends or distributions in respect thereof,
may be issued and/or paid to such a transferee if, in the case of holders
of Certificates, the Certificate formerly representing such Company Shares
is presented to the Exchange Agent, and, in the case of holders of
Registered Company Shares, if the Registered Letter of Transmittal is
delivered to the Exchange Agent in either case accompanied by all documents
required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid. If any Registered SBC
Shares or any certificate for shares of SBC Common Stock is to be issued in
a name other than that in which the Certificate surrendered in exchange
therefor or the Registered Company Shares exchanged therefor, as the case
may be, is registered, it shall be a condition of such exchange that the
Person (as defined below) requesting such exchange shall pay any transfer
or other taxes required by reason of the issuance of Registered SBC Shares
or a certificate for shares of SBC Common Stock in a name other than that
of the registered holder of the Certificate surrendered or the Registered
Company Shares exchanged, as the case may be, or shall establish to the
satisfaction of SBC or the Exchange Agent that such tax has been paid or is
not applicable.
For the purposes of this Agreement, the term "Person" shall mean any
individual, corporation (including not-for-profit), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, Governmental Entity (as defined in Section
5.1(d)(i)) or other entity of any kind or nature.
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(b) Distributions with Respect to Unexchanged Shares; Voting.
(i) Whenever a dividend or other distribution is declared by SBC in
respect of SBC Common Stock, the record date for which is at or after
the Effective Time, that declaration shall include dividends or other
distributions in respect of all shares of SBC Common Stock issuable
pursuant to this Agreement. No dividends or other distributions in
respect of such SBC Common Stock shall be paid to any holder of any
unsurrendered Certificate or Registered Company Shares for which a
Registered Letter of Transmittal shall not have been delivered, until
such Certificate is surrendered for exchange or such Registered Letter
of Transmittal is delivered, as the case may be, in accordance with
this Article IV. Subject to the effect of applicable laws, following
surrender of any such Certificate or delivery of any such Registered
Letter of Transmittal, as the case may be, there shall be issued and/or
paid to the holder of the Registered SBC Shares or the certificates
representing whole shares of SBC Common Stock, as the case may be,
issued in exchange therefor, without interest, (A) at the time of such
surrender or delivery, as the case my be, the dividends or other
distributions with a record date after the Effective Time and a payment
date on or prior to the date of issuance of such whole shares of SBC
Common Stock and not previously paid and (B) at the appropriate payment
date, the dividends or other distributions payable with respect to such
whole shares of SBC Common Stock with a record date after the Effective
Time but with a payment date subsequent to surrender or delivery, as
the case may be. For purposes of dividends or other distributions in
respect of shares of SBC Common Stock, all shares of SBC Common Stock
to be issued pursuant to the Merger shall be deemed issued and
outstanding as of the Effective Time.
(ii) Registered holders of unsurrendered Certificates or Registered
Company Shares for which a duly executed Registered Letter of
Transmittal shall not have been delivered shall be entitled to vote
after the Effective Time at any meeting of SBC stockholders with a
record date at or after the Effective Time the number of whole shares
of SBC Common Stock represented by such Certificates or Registered
Company Shares, as the case may be, regardless of whether such holders
have surrendered their Certificates or delivered duly executed
Registered Letters of Transmittal, as the case may be.
(c) Transfers. After the Effective Time, there shall be no transfers on
the stock transfer books of the Company of the Company Shares that were
outstanding immediately prior to the Effective Time.
(d) Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional shares of SBC Common Stock will be issued and any
holder of Company Shares entitled to receive a fractional share of SBC
Common Stock but for this Section 4.2(d) shall be entitled to receive an
amount in cash (without interest) determined by multiplying such fraction
(rounded to the nearest one-hundredth of a share) by the average of the
closing price of a share of SBC Common Stock, as reported in The Wall
Street Journal, New York City edition, on the trading day immediately prior
to the Effective Time.
(e) Termination of Exchange Period; Unclaimed Stock. Any shares of SBC
Common Stock and any portion of the cash, dividends or other distributions
with respect to the SBC Common Stock deposited by SBC with the Exchange
Agent (including the proceeds of any investments thereof) that remain
unclaimed by the stockholders of the Company 180 days after the Effective
Time shall be paid to SBC. Any stockholders of the Company who have not
theretofore complied with this Article IV shall thereafter look only to SBC
for payment of their shares of SBC Common Stock and any cash, dividends and
other distributions in respect thereof issuable and/or payable pursuant to
Section 4.1, Section 4.2(b) and Section 4.2(d) upon due (i) surrender of
(i) their Certificates (or affidavits of loss in lieu thereof) or (ii)
delivery of duly executed Registered Letters of Transmittal, as the case
may be, in each case with respect to both clause
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(i) and (ii), without any interest thereon. Notwithstanding the foregoing,
none of SBC, the Surviving Corporation, the Exchange Agent or any other
Person shall be liable to any former holder of Company Shares for any
amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(f) Lost, Stolen or Destroyed Certificates. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the Person claiming such Certificate to be lost, stolen or
destroyed and the posting by such Person of a bond in the form customarily
required by SBC as indemnity against any claim that may be made against it
with respect to such Certificate, SBC will issue the shares of SBC Common
Stock and the Exchange Agent will issue any cash, dividends and other
distributions in respect thereof issuable and/or payable in exchange for
such lost, stolen or destroyed Certificate pursuant to Section 4.1, Section
4.2(b) and Section 4.2(d) upon due surrender of and deliverable in respect
of the Company Shares represented by such Certificate pursuant to this
Agreement, in each case, without interest.
(g) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange, or Registered Company Shares to be
exchanged pursuant to a Registered Letter of Transmittal delivered, by any
"affiliate" (as determined pursuant to Section 6.7) of the Company shall
not be exchanged until SBC has received a written agreement from such
Person as provided in Section 6.7 hereof.
4.3. Dissenters' Rights. In accordance with Section 262 of the DGCL, no
appraisal rights shall be available to holders of Company Shares in connection
with the Merger.
4.4. Adjustments to Prevent Dilution. In the event that prior to the
Effective Time there is a change in the number of Company Shares or shares of
SBC Common Stock or securities convertible or exchangeable into or exercisable
for Company Shares or shares of SBC Common Stock issued and outstanding as a
result of a distribution, reclassification, stock split (including a reverse
split), stock dividend or distribution, or other similar transaction, the
Exchange Ratio shall be equitably adjusted to eliminate the effects of such
event.
ARTICLE V
Representations and Warranties
5.1. Representations and Warranties of the Company, SBC and Merger Sub.
Except as set forth in the corresponding sections or subsections of the
disclosure letter, dated the date hereof, delivered by the Company to SBC or
by SBC to the Company (each a "Disclosure Letter", and the "Company Disclosure
Letter" and the "SBC Disclosure Letter", respectively), as the case may be,
the Company (except for subparagraphs (b)(ii), (b)(iii), (c)(ii) and (p)(ii)
below and references in subparagraphs (a) and (e) below to documents made
available by SBC to the Company) hereby represents and warrants to SBC and
Merger Sub, and SBC (except for subparagraphs (b)(i), (c)(i), (d)(iii), the
last sentence of (f), (j), (o) and (p)(i) below and references in
subparagraphs (a), (e) and (h)(i) below to documents made available by the
Company to SBC), on behalf of itself and Merger Sub, hereby represents and
warrants to the Company, that:
(a) Organization, Good Standing and Qualification. Each of it and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of organization and
has all requisite corporate or similar power and authority to own and
operate its properties and assets and to carry on its business as presently
conducted and is qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where the ownership or operation
of its properties or conduct
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of its business requires such qualification, except where the failure to be
so qualified or in good standing is not, when taken together with all other
such failures, reasonably likely to have a Material Adverse Effect (as
defined below) on it. It has made available to SBC, in the case of the
Company, and to the Company, in the case of SBC, a complete and correct
copy of its certificate of incorporation and by-laws, each as amended to
date. Such certificates of incorporation and by-laws as so made available
are in full force and effect.
As used in this Agreement, (i) the term "Subsidiary" means, with respect
to the Company, SBC or Merger Sub, as the case may be, any entity, whether
incorporated or unincorporated, of which at least fifty percent of the
securities or ownership interests having by their terms ordinary voting
power to elect at least fifty percent of the Board of Directors or other
persons performing similar functions is directly or indirectly owned by
such party or by one or more of its respective Subsidiaries or by such
party and any one or more of its respective Subsidiaries, (ii) the term
"Material Adverse Effect" means, with respect to either SBC or the Company,
as the case may be, a material adverse effect, it being understood that
materiality shall be determined by reference to the trading market equity
value of such Person prior to the consummation of the Merger, other than
effects resulting from the execution of this Agreement or the announcement
thereof or changes in (I) the telecommunications industry generally, (II)
the national economy generally or (A) with respect to SBC only, the economy
of Texas, Oklahoma, Missouri, Kansas, Arkansas, Nevada and California,
taken together, generally, or of France, Mexico and/or the Republic of
South Africa or (B) with respect to the Company only, the economies of
Illinois, Indiana, Michigan, Ohio and Wisconsin, taken together, generally,
or of Belgium, Denmark and/or Hungary or (III) the securities markets
generally, and (iii) reference to "the other party" means, with respect to
the Company, SBC and means, with respect to SBC, the Company.
(b) Capital Structure. (i) The authorized capital stock of the Company
consists of 2,400,000,000 Company Shares, of which 1,100,161,364 Company
Shares were issued and outstanding and 76,993,242 Company Shares were held
in treasury as of the close of business on April 30, 1998, 30,000,000
shares of Preferred Stock, $1.00 par value per share (the "Company
Preferred Shares"), none of which were outstanding as of the close of
business on May 8, 1998 and 30,000,000 shares of Preference Stock, $1.00
par value per share, (the "Company Preference Shares"), none of which were
outstanding as of the close of business on May 8, 1998. All of the
outstanding Company Shares have been duly authorized and are validly
issued, fully paid and nonassessable. Other than 12,000,000 Company
Preference Shares, designated "Series A Junior Participating Preference
Stock", reserved for issuance pursuant to the Rights Agreement, dated as of
December 21, 1988, between the Company and American Transtech Inc., as
Rights Agent (the "Rights Agreement"), and Company Shares subject to
issuance as set forth below, the Company has no Company Shares, Company
Preferred Shares or Company Preference Shares reserved for or otherwise
subject to issuance. As of May 10, 1998, there were not more than
47,000,000 Company Shares that the Company was obligated to issue pursuant
to the Company Compensation and Benefit Plans identified in Section 5.1(h)
of the Company Disclosure Letter as being the only Company Compensation and
Benefit Plans pursuant to which Company Shares may be issued (collectively
the "Company Stock Plans"). Each of the outstanding shares of capital stock
or other securities of each of the Company's Subsidiaries that constitute a
"Significant Subsidiary" (as defined in Rule 1.02(w) of Regulation S-X
promulgated pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), is duly authorized, validly issued, fully paid and
nonassessable and owned by the Company or a direct or indirect wholly-owned
Subsidiary of the Company, free and clear of any lien, pledge, security
interest, claim or other encumbrance. Except as set forth above and for
Company Shares and options to purchase Company Shares which may be issued
in accordance with Section 6.1(a), there are no preemptive or other
outstanding rights, options,
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warrants, conversion rights, stock appreciation rights, redemption rights,
repurchase rights, agreements, arrangements or commitments to issue or sell
any shares of capital stock or other securities of the Company or any of
its Significant Subsidiaries or any securities or obligations convertible
or exchangeable into or exercisable for, or giving any Person a right to
subscribe for or acquire, any securities of the Company or any of its
Significant Subsidiaries, and no securities or obligations evidencing such
rights are authorized, issued or outstanding. The Company does not have
outstanding any bonds, debentures, notes or other obligations the holders
of which have the right to vote (or convertible into or exercisable for
securities having the right to vote) with the stockholders of the Company
on any matter.
(ii) The authorized capital stock of SBC consists of 7,000,000,000
shares of SBC Common Stock, of which 1,838,844,294 shares were issued
and outstanding and 26,060,210 shares were held in treasury as of the
close of business on April 30, 1998, and 10,000,000 shares of Preferred
Stock, par value $1.00 per share (the "SBC Preferred Shares"), none of
which shares were outstanding as of the close of business on May 8,
1998. All of the outstanding shares of SBC Common Stock have been duly
authorized and are validly issued, fully paid and nonassessable. SBC
has no shares of SBC Common Stock or SBC Preferred Shares reserved for
or subject to issuance except that SBC has reserved no more than
10,000,000 SBC Preferred Shares for or subject to issuance pursuant to
the Rights Agreement, dated as of January 27, 1989, between SBC and
American Transtech, Inc., as Rights Agent, as amended by the Amendment
of Rights Agreement, dated as of August 5, 1992, between SBC and The
Bank of New York, as successor Rights Agent, and the Second Amendment
of Rights Agreement, dated as of June 15, 1994, between SBC and The
Bank of New York, as successor Rights Agent (as amended, the "SBC
Rights Agreement"). As of May 10, 1998, there were not more than
92,000,000 shares of SBC Common Stock that SBC was obligated to issue
pursuant to (x) SBC's Senior Management Long Term Incentive Plan,
Senior Management Incentive Award Deferral Plan, Non-Employee Directors
Stock and Deferral Plan, Stock Savings Plan, 1994 Stock Option Plan,
1996 Stock and Incentive Plan, 1995 Management Stock Option Plan,
Savings Plan and the Savings and Security Plan and (y) Pacific Telesis
Group's Supplemental Retirement and Savings Plan for Salaried
Employees, Supplemental Retirement and Savings Plan for Non-Salaried
Employees, Supplemental Retirement and Savings Plan for Salaried and
Non-Salaried Employees, Employee Stock Ownership Plan, Stock Option and
Stock Appreciation Rights Plan, Outside Directors Deferred Stock Unit
Plan and Restricted Stock Plan (collectively, the "SBC Stock Plans").
Each of the outstanding shares of capital stock of each of SBC's
Significant Subsidiaries is duly authorized, validly issued, fully paid
and nonassessable and owned by SBC or a direct or indirect wholly-owned
subsidiary of SBC, free and clear of any lien, pledge, security
interest, claim or other encumbrance. Except as set forth above, there
are no preemptive or other outstanding rights, options, warrants,
conversion rights, stock appreciation rights, redemption rights,
repurchase rights, agreements, arrangements or commitments to issue or
to sell any shares of capital stock or other securities of SBC or any
of its Significant Subsidiaries or any securities or obligations
convertible or exchangeable into or exercisable for, or giving any
Person a right to subscribe for or acquire, any securities of SBC or
any of its Significant Subsidiaries, and no securities or obligation
evidencing such rights are authorized, issued or outstanding. SBC does
not have outstanding any bonds, debentures, notes or other obligations
the holders of which have the right to vote (or convertible into or
exercisable for securities having the right to vote) with the
stockholders of SBC on any matter.
(iii) The authorized capital stock of Merger Sub consists of 1,000
shares of Common Stock, par value $1.00 per share, all of which are
validly issued and outstanding. All of the issued and outstanding
capital stock of Merger Sub is, and at the Effective Time will be,
owned by SBC, and there are (i) no
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other shares of capital stock or other voting securities of Merger Sub,
(ii) no securities of Merger Sub convertible into or exchangeable for
shares of capital stock or other voting securities of Merger Sub and
(iii) no options or other rights to acquire from Merger Sub, and no
obligations of Merger Sub to issue, any capital stock, other voting
securities or securities convertible into or exchangeable for capital
stock or other voting securities of Merger Sub. Merger Sub has not
conducted any business prior to the date hereof and has no, and prior
to the Effective Time will have no, assets, liabilities or obligations
of any nature other than those incident to its formation and pursuant
to this Agreement and the Merger and the other transactions
contemplated by this Agreement.
(c) Corporate Authority; Approval and Fairness. (i) The Company has all
requisite corporate power and authority and has taken all corporate action
necessary in order to execute, deliver and perform its obligations under
this Agreement and to consummate, subject only to adoption of this
Agreement by the holders of a majority of the outstanding Company Shares
(the "Company Requisite Vote") and the Company Required Consents (as
defined in Section 5.1(d)), the Merger. This Agreement has been duly
executed and delivered by the Company and is a valid and binding agreement
of the Company enforceable against the Company in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles
(the "Bankruptcy and Equity Exception"). The Board of Directors of the
Company (A) has unanimously approved this Agreement and the Merger and the
other transactions contemplated hereby and (B) has received the opinion of
its financial advisors, Goldman, Sachs & Co., in a customary form and to
the effect that the Merger Consideration to be received by the holders of
the Company Shares in the Merger is fair to such holders from a financial
point of view.
(ii) SBC and Merger Sub each has all requisite corporate power and
authority and each has taken all corporate action necessary in order to
execute, deliver and perform its obligations under this Agreement and
to consummate, subject only to the approval by the stockholders of SBC
by a majority of votes cast on the proposal to issue the shares of SBC
Common Stock required to be issued pursuant to Article IV; provided,
that the total vote cast represents over 50% of all of the outstanding
shares of SBC Common Stock (the "SBC Requisite Vote") and the SBC
Required Consents (as defined in Section 5.1(d)), the Merger. This
Agreement has been duly executed and delivered by SBC and Merger Sub
and is a valid and binding agreement of SBC and Merger Sub, enforceable
against each of SBC and Merger Sub in accordance with its terms,
subject to the Bankruptcy and Equity Exception. SBC has received the
opinion of its financial advisors, Salomon Brothers Inc and Smith
Barney Inc., in a customary form and to the effect that the Exchange
Ratio is fair to SBC from a financial point of view. The shares of SBC
Common Stock, when issued pursuant to this Agreement, will be validly
issued, fully paid and nonassessable, and no stockholder of SBC will
have any preemptive right of subscription or purchase in respect
thereof.
(d) Governmental Filings; No Violations. (i) Other than the necessary
filings, notices and/or approvals (A) pursuant to Section 1.3, (B) under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), the Exchange Act and the Securities Act of 1933, as amended
(the "Securities Act"), (C) to comply with state securities or "blue-sky"
laws, (D) if any, of the Federal Communications Commission ("FCC") pursuant
to the Communications Act of 1934, as amended, (E) if any, of the local,
state and foreign public utility commissions or similar local, state or
foreign regulatory bodies (each a "PUC") and the local, state and foreign
Governmental Entities (as defined below) identified in its respective
Disclosure Letter pursuant to applicable local, state or foreign laws
regulating the telephone, mobile cellular, paging, cable television or
other telecommunications business ("Utilities Laws") and (F) if
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any, of the foreign regulatory bodies identified in its Disclosure Letter
pursuant to applicable foreign laws regulating actions having the purpose
or effect of monopolization or restraint of trade (such filings, notices
and/or approvals of SBC being the "SBC Required Consents" and of the
Company being the "Company Required Consents"), no filings, notices and/or
reports are required to be made by it with, nor are any consents,
registrations, approvals, permits or authorizations required to be obtained
by it from, any governmental or regulatory authority, court, agency,
commission, body or other governmental entity ("Governmental Entity"), in
connection with the execution and delivery of this Agreement by it and the
consummation by it of the Merger and the other transactions contemplated
hereby, except those that the failure to make or obtain are not,
individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on it or prevent, materially delay or materially impair its
ability to consummate the transactions contemplated by this Agreement.
(ii) The execution, delivery and performance of this Agreement by it
do not, and the consummation by it of the Merger and the other
transactions contemplated hereby will not, constitute or result in (A)
a breach or violation of, or a default under, its certificate of
incorporation or by-laws or the comparable governing instruments of any
of its Significant Subsidiaries, (B) a breach or violation of, or a
default under, the acceleration of any obligations or the creation of a
lien, pledge, security interest or other encumbrance on its assets or
the assets of any of its Subsidiaries (with or without notice, lapse of
time or both) pursuant to, any agreement, lease, contract, note,
mortgage, indenture, arrangement or other obligation ("Contracts")
binding upon it or any of its Subsidiaries or, assuming the filings,
notices and/or approvals referred to in Section 5.1(d)(i) are made or
obtained, any Law (as defined in Section 5.1(i)) or governmental or
non-governmental permit or license to which it or any of its
Subsidiaries is subject or (C) any change in the rights or obligations
of any party under any of its Contracts, except, in the case of clause
(B) or (C) above, for any breach, violation, default, acceleration,
creation or change that, individually or in the aggregate, is not
reasonably likely to have a Material Adverse Effect on it or prevent,
materially delay or materially impair its ability to consummate the
transactions contemplated by this Agreement. The Company Disclosure
Letter, with respect to the Company, and the SBC Disclosure Letter,
with respect to SBC, sets forth a correct and complete list of
Contracts of it and its Subsidiaries pursuant to which consents or
waivers are or may be required prior to consummation of the
transactions contemplated by this Agreement other than those where the
failure to obtain such consents or waivers is not, individually or in
the aggregate, reasonably likely to have a Material Adverse Effect on
it or prevent or materially impair its ability to consummate the
transactions contemplated by this Agreement.
(e) Reports; Financial Statements. It has made available to the other
party, each registration statement, report, proxy statement or information
statement prepared by it since December 31, 1997 (the "Audit Date"),
including its Annual Report on Form 10-K for the year ended December 31,
1997 in the form (including exhibits, annexes and any amendments thereto)
filed with the Securities and Exchange Commission (the "SEC")
(collectively, including any such reports filed subsequent to the date
hereof, its "Reports"). As of their respective dates, its Reports did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not
misleading. Each of the consolidated balance sheets included in or
incorporated by reference into its Reports (including the related notes and
schedules) fairly presents the consolidated financial position of it and
its Subsidiaries as of its date and each of the consolidated statements of
income and of cash flows included in or incorporated by reference into its
Reports (including any related notes and schedules) fairly presents the
consolidated results of operations, retained earnings and cash flows, as
the case may be, of it and its Subsidiaries for the periods set forth
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therein (subject, in the case of unaudited statements, to notes and normal
year-end audit adjustments that will not be material in amount or effect),
in each case in accordance with United States generally accepted accounting
principles ("GAAP") consistently applied during the periods involved,
except as may be noted therein. Since the Audit Date, it and each
Subsidiary required to make filings under Utilities Laws has filed with the
applicable PUCs or the FCC, as the case may be, all material forms,
statements, reports and documents (including exhibits, annexes and any
amendments thereto) required to be filed by them, and each such filing
complied in all material respects with all applicable laws, rules and
regulations, other than such failures to file and non-compliance that are,
individually or in the aggregate, not reasonably likely to have a Material
Adverse Effect on it or prevent or materially impair its ability to
consummate the transactions contemplated by this Agreement. To its
knowledge, as of the date hereof, no Person or "group" "beneficially owns"
5% or more of its outstanding voting securities, with the terms
"beneficially owns" and "group" having the meanings ascribed to them under
Rule 13d-3 and Rule 13d-5 under the Exchange Act.
(f) Absence of Certain Changes. Except as disclosed in its Reports filed
prior to the date hereof or as expressly contemplated or permitted by this
Agreement, since the Audit Date it and its Subsidiaries have conducted
their respective businesses only in, and have not engaged in any material
transaction other than according to, the ordinary and usual course of such
businesses and there has not been (i) any change in the financial
condition, properties, prospects, business or results of operations of it
and its Subsidiaries, except those changes that are not, individually or in
the aggregate, reasonably likely to have a Material Adverse Effect on it;
(ii) any damage, destruction or other casualty loss with respect to any
asset or property owned, leased or otherwise used by it or any of its
Subsidiaries, whether or not covered by insurance, which damage,
destruction or loss is reasonably likely, individually or in the aggregate,
to have a Material Adverse Effect on it; (iii) any declaration, setting
aside or payment of any dividend or other distribution in respect of its
capital stock, except publicly announced regular quarterly cash dividends
on its common stock and, in the case of SBC, any dividends in capital stock
of SBC which are simultaneously taken into account in an adjustment to the
Exchange Ratio pursuant to Section 4.4; or (iv) any change by it in
accounting principles, practices or methods, except as required by GAAP.
Since the Audit Date, except as provided for herein, in the Company
Disclosure Letter, as disclosed in the Reports filed by the Company prior
to the date hereof or permitted hereby, there has not been any increase in
the salary, wage, bonus or other compensation payable or that could become
payable by the Company or any of its Subsidiaries to directors, officers or
key employees or any amendment of any of the Company Compensation and
Benefit Plans (as defined in Section 5.1(h)(i)) other than increases or
amendments in the ordinary course.
(g) Litigation and Liabilities. Except as disclosed in its Reports filed
prior to the date hereof, there are no (i) civil, criminal or
administrative actions, suits, claims, hearings, investigations or
proceedings pending or, to the actual knowledge of its executive officers,
threatened in writing against it or any of its Affiliates (as defined in
Rule 12b-2 under the Exchange Act) or (ii) obligations or liabilities,
whether or not accrued, contingent or otherwise and whether or not required
to be disclosed, including those relating to matters involving any
Environmental Law (as defined in Section 5.1(k)), or any other facts or
circumstances, in either such case, of which its executive officers have
actual knowledge that are reasonably likely to result in any claims against
or obligations or liabilities of it or any of its Affiliates, except for
those that are not, individually or in the aggregate, reasonably likely to
have a Material Adverse Effect on it or prevent, materially delay or
materially impair its ability to consummate the transactions contemplated
by this Agreement; provided, however, that for purposes of this subsection
(g) no action, suit, claim, hearing, investigation or proceeding arising
after the date hereof shall be deemed to have any adverse effect if and to
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the extent such actions, suits, claims, hearings, investigations or
proceedings are based on this Agreement or the transactions contemplated
hereby.
(h) Employee Benefits.
(i) A copy of each bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus,
stock purchase, restricted stock, stock option, employment,
termination, severance, compensation, medical, health or other plan,
agreement, policy or arrangement that covers employees, directors,
former employees or former directors of the Company and its
Subsidiaries (the "Company Compensation and Benefit Plans") and any
trust agreements or insurance contracts forming a part of such Company
Compensation and Benefit Plans has been made available by the Company
to SBC prior to the date hereof and each such Company Compensation and
Benefit Plan is listed in Section 5.1(h) of the Company Disclosure
Letter.
(ii) In the case of the Company, each of the Company Compensation and
Benefit Plans or, in the case of SBC, each bonus, deferred
compensation, pension, retirement, profit-sharing, thrift, savings,
employee stock ownership, stock bonus, stock purchase, restricted
stock, stock option, employment, termination, severance, compensation,
medical, health or other plan, agreement, policy or arrangement that
covers employees, directors, former employees or former directors of
SBC and SBC's Subsidiaries (together with the Company Compensation and
Benefit Plans, its "Compensation and Benefit Plans") is in substantial
compliance with all applicable law, including the Code and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Each of
its Compensation and Benefit Plans that is an "employee pension benefit
plan" within the meaning of Section 3(2) of ERISA (a "Pension Plan")
and that is intended to be qualified under Section 401(a) of the Code
has received a favorable determination letter from the Internal Revenue
Service (the "IRS") with respect to "TRA" (as such term is defined in
Section 1 of Rev. Proc 93-39), and it is not aware of any circumstances
likely to result in revocation of any such favorable determination
letter. There is no pending or, to the actual knowledge of its
executive officers, threatened in writing material litigation relating
to its Compensation and Benefit Plans. Neither it nor any Subsidiary
has engaged in a transaction with respect to any of its Compensation
and Benefit Plans that, assuming the taxable period of such transaction
expired as of the date hereof, would subject it or any of its
Subsidiaries to a material tax or penalty imposed by either Section
4975 of the Code or Section 502 of ERISA.
(iii) As of the date hereof, no liability under Subtitle C or D of
Title IV of ERISA (other than the payment of prospective premium
amounts to the Pension Benefit Guaranty Corporation in the normal
course) has been or is expected to be incurred by it or any Subsidiary
with respect to any ongoing, frozen or terminated "single-employer
plan", within the meaning of Section 4001(a)(15) of ERISA, currently or
formerly maintained by any of them, or the single-employer plan of any
entity which is considered one employer with it under Section 4001 of
ERISA or Section 414 of the Code (its "ERISA Affiliate") (each such
single-employer plan, its "ERISA Affiliate Plan"). It and its
Subsidiaries and ERISA Affiliates have not contributed, or been
obligated to contribute, to a multiemployer plan under Subtitle E of
Title IV of ERISA at any time since September 26, 1980. No notice of a
"reportable event", within the meaning of Section 4043 of ERISA for
which the 30-day reporting requirement has not been waived, has been
required to be filed for any of its Pension Plans or any of its ERISA
Affiliate Plans within the 12-month period ending on the date hereof or
will be required to be filed in connection with the transactions
contemplated by this Agreement.
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(iv) All contributions required to be made under the terms of any of
its Compensation and Benefit Plans as of the date hereof have been
timely made or have been reflected on the most recent consolidated
balance sheet filed or incorporated by reference in its Reports prior
to the date hereof. Neither any of its Pension Plans nor any of any of
its ERISA Affiliate Plans has an "accumulated funding deficiency"
(whether or not waived) within the meaning of Section 412 of the Code
or Section 302 of ERISA. Neither it nor its Subsidiaries has provided,
or is required to provide, security to any of its Pension Plans or to
any of its ERISA Affiliate Plans pursuant to Section 401(a)(29) of the
Code.
(v) Under each of its Pension Plans which is a single-employer plan
and each of its ERISA Affiliate Plans, as of the last day of the most
recent plan year ended prior to the date hereof, the actuarially
determined present value of all "benefit liabilities", within the
meaning of Section 4001(a)(16) of ERISA (as determined on the basis of
the actuarial assumptions contained in such Pension Plan's or ERISA
Affiliate Plan's most recent actuarial valuation), did not exceed the
then current value of the assets of such Pension Plan or ERISA
Affiliate Plan, and there has been no material change in the financial
condition of such Pension Plan or ERISA Affiliate Plan since the last
day of the most recent plan year.
(vi) Neither it nor its Subsidiaries have any obligations for retiree
health and life benefits under any of its Compensation and Benefit
Plans, except as set forth in its Reports filed prior to the date
hereof or as required by applicable law.
(vii) None of the consummation of the Merger and the other
transactions contemplated by this Agreement, in the case of SBC and the
Company, the adoption of this Agreement by the stockholders of the
Company, in the case of the Company, the approval by the stockholders
of SBC of the issuance of the shares of SBC Common Stock required to be
issued pursuant to Article IV, in the case of SBC, shall (x) entitle
any of their respective employees or directors or any employees of
their respective Subsidiaries to severance pay, directly or indirectly,
upon termination of employment, (y) accelerate the time of funding
(whether through a grantor trust or otherwise), payment or vesting or
trigger any payment of compensation or benefits under, increase the
amount payable or trigger any other material obligation pursuant to,
any of their respective Compensation and Benefit Plans or (z) result in
any breach or violation of, or a default under, any of their respective
Compensation and Benefit Plans.
(i) Compliance with Laws. Except as set forth in its Reports filed prior
to the date hereof, the businesses of each of it and its Subsidiaries have
not been, and are not being, conducted in violation of any law, statute,
ordinance, regulation, judgment, order, decree, injunction, arbitration
award, license, authorization, opinion, agency requirement or permit of any
Governmental Entity or common law (collectively, "Laws"), except for
violations or possible violations that are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on it or
prevent, materially delay or materially impair its ability to consummate
the transactions contemplated by this Agreement. Except as set forth in its
Reports filed prior to the date hereof, no investigation or review by any
Governmental Entity with respect to it or any of its Subsidiaries is
pending or, to the actual knowledge of its executive officers, threatened,
nor has any Governmental Entity indicated an intention to conduct the same,
except for those the outcome of which are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on it or
prevent, materially delay or materially impair its ability to consummate
the transactions contemplated by this Agreement. To the actual knowledge of
its executive officers, no material change is required in its or any of its
Subsidiaries' processes, properties or procedures in connection with any
such Laws, and it has not received any notice or communication of any
material noncompliance with any such Laws that has not been cured as of the
date hereof, except for such changes and noncompliance that are not,
individually or in the aggregate, reasonably
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likely to have a Material Adverse Effect on it or prevent, materially delay
or materially impair its ability to consummate the transactions
contemplated by this Agreement. Each of it and its Subsidiaries has all
permits, licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals (collectively,
"Permits"), necessary to conduct their business as presently conducted,
except for those the absence of which are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on it or
prevent, materially delay or materially impair its ability to consummate
the transactions contemplated by this Agreement.
(j) Takeover Statutes. The Board of Directors of the Company has taken
all appropriate and necessary actions such that SBC will not be prohibited
from entering into a "business combination" with the Company as an
"interested stockholder" (in each case as such term is used in Section 203
of the DGCL) as a result of the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby. To the best
knowledge of the Company, no other "fair price," "moratorium," "control
share acquisition" or other similar anti-takeover statute or regulation
(each a "Takeover Statute") as in effect on the date hereof is applicable
to the Company, the Company Shares, the Merger or the other transactions
contemplated by this Agreement. No anti-takeover provision contained in the
Company's certificate of incorporation, including Article Ninth thereof, or
its by-laws is, or at the Effective Time will be, applicable to the
Company, the Company Shares, the Merger or the other transactions
contemplated by this Agreement.
(k) Environmental Matters. Except as disclosed in its Reports filed prior
to the date hereof and except for such matters that, alone or in the
aggregate, are not reasonably likely to have a Material Adverse Effect on
it: (i) each of it and its Subsidiaries has complied with all applicable
Environmental Laws (as defined below); (ii) the properties currently owned
or operated by it or any of its Subsidiaries (including soils, groundwater,
surface water, buildings or other structures) are not contaminated with any
Hazardous Substances (as defined below); (iii) the properties formerly
owned or operated by it or any of its Subsidiaries were not contaminated
with Hazardous Substances during the period of ownership or operation by it
or any of its Subsidiaries; (iv) neither it nor any of its Subsidiaries is
subject to liability for any Hazardous Substance disposal or contamination
on any third party property; (v) neither it nor any Subsidiary has been
associated with any release or threat of release of any Hazardous
Substance; (vi) neither it nor any Subsidiary has received any notice,
demand, letter, claim or request for information alleging that it or any of
its Subsidiaries may be in violation of or liable under any Environmental
Law (including any claims relating to electromagnetic fields or microwave
transmissions); (vii) neither it nor any of its Subsidiaries is subject to
any orders, decrees, injunctions or other arrangements with any
Governmental Entity or is subject to any indemnity or other agreement with
any third party relating to liability under any Environmental Law or
relating to Hazardous Substances; and (viii) there are no circumstances or
conditions involving it or any of its Subsidiaries that could reasonably be
expected to result in any claims, liability, investigations, costs or
restrictions on the ownership, use, or transfer of any of its properties
pursuant to any Environmental Law.
As used herein, the term "Environmental Law" means any Law relating to:
(A) the protection, investigation or restoration of the environment,
health, safety, or natural resources, (B) the handling, use, presence,
disposal, release or threatened release of any Hazardous Substance or (C)
noise, odor, wetlands, pollution, contamination or any injury or threat of
injury to persons or property in connection with any Hazardous Substance.
As used herein, the term "Hazardous Substance" means any substance that
is: listed, classified or regulated pursuant to any Environmental Law,
including any petroleum product or by-product, asbestos-
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containing material, lead-containing paint or plumbing, polychlorinated
biphenyls, radioactive materials or radon.
(l) Accounting and Tax Matters. As of the date hereof, neither it nor any of
its affiliates (as determined in accordance with Section 6.7) has taken or
agreed to take any action, nor do its executive officers have any actual
knowledge of any fact or circumstance, that, to their actual knowledge, would
prevent SBC from accounting for the business combination to be effected by the
Merger as a "pooling-of-interests" or prevent the Merger and the other
transactions contemplated by this Agreement from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code.
(m) Taxes. It and each of its Subsidiaries have prepared in good faith and
duly and timely filed (taking into account any extension of time within which
to file) all material Tax Returns (as defined below) required to be filed by
any of them and all such filed tax returns are complete and accurate in all
material respects and: (i) it and each of its Subsidiaries have paid all Taxes
(as defined below) that are shown as due on such filed Tax Returns or that it
or any of its Subsidiaries is obligated to withhold from amounts owing to any
employee, creditor or third party, except with respect to matters contested in
good faith or for such amounts that, alone or in the aggregate, are not
reasonably likely to have a Material Adverse Effect on it; (ii) as of the date
hereof, there are not pending or, to the actual knowledge of its executive
officers threatened in writing, any audits, examinations, investigations or
other proceedings in respect of Taxes or Tax matters; and (iii) there are not,
to the actual knowledge of its executive officers, any unresolved questions or
claims concerning its or any of its Subsidiaries' Tax liability that are
reasonably likely to have a Material Adverse Effect on it. Neither it nor any
of its Subsidiaries has any liability with respect to income, franchise or
similar Taxes in excess of the amounts accrued in respect thereof that are
reflected in the financial statements included in its Reports, except such
excess liabilities as are not, individually or in the aggregate, reasonably
likely to have a Material Adverse Effect on it. No payments to be made to any
of the officers and employees of it or its Subsidiaries will as a result of
consummation of the Merger be subject to the deduction limitations under
Section 280G of the Code.
As used in this Agreement, (i) the term "Tax" (including, with correlative
meaning, the terms "Taxes", and "Taxable") includes all federal, state, local
and foreign income, profits, franchise, gross receipts, environmental, customs
duty, capital stock, severance, stamp, payroll, sales, employment,
unemployment, disability, use, property, withholding, excise, production,
value added, occupancy and other taxes, duties or assessments of any nature
whatsoever, together with all interest, penalties and additions imposed with
respect to such amounts and any interest in respect of such penalties and
additions, and (ii) the term "Tax Return" includes all returns and reports
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be supplied to a Tax authority relating to
Taxes.
(n) Labor Matters. Neither it nor any of its Subsidiaries is the subject of
any material proceeding asserting that it or any of its Subsidiaries has
committed an unfair labor practice or is seeking to compel it to bargain with
any labor union or labor organization nor is there pending or, to the actual
knowledge of its executive officers, threatened in writing, nor has there been
for the past five years, any labor strike, dispute, walkout, work stoppage,
slow-down or lockout involving it or any of its Subsidiaries, except in each
case as is not, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect on it.
(o) Rights Agreement. (i) The Company has adopted an amendment to the
Rights Agreement (the "Rights Amendment") with the effect that neither SBC nor
Merger Sub shall be deemed to be an Acquiring Person (as such term is defined
in the Rights Agreement) and the Distribution Date (as defined in the Rights
Agreement) shall not be deemed to occur and that the Rights will not separate
from the Company Shares, as a result of entering into this Agreement or
consummating the Merger and/or the other transactions contemplated hereby.
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(ii) The Company has taken all necessary action with respect to all of the
outstanding Rights (as defined in the Rights Agreement) so that, as of
immediately prior to the Effective Time, as a result of entering into this
Agreement or consummating the Merger and/or the other transactions
contemplated by this Agreement, (A) neither the Company nor SBC will have any
obligations under the Rights or the Rights Agreement and (B) the holders of
the Rights will have no rights under the Rights or the Rights Agreement.
(p) Brokers and Finders. Neither it nor any of its officers, directors or
employees has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders, fees in connection with the Merger or
the other transactions contemplated in this Agreement except that (i) the
Company has employed Goldman, Sachs & Co. as its financial advisor, the
arrangements with which have been disclosed to SBC prior to the date hereof,
and (ii) SBC and Merger Sub have employed Salomon Brothers Inc and Smith
Barney Inc. as their financial advisor, the arrangements with which have been
disclosed to the Company prior to the date hereof.
ARTICLE VI
Covenants
6.1. Interim Operations. (a) The Company covenants and agrees as to itself
and its Subsidiaries that, after the date hereof and prior to the Effective
Time (unless SBC shall otherwise approve in writing, which approval shall not
be unreasonably withheld or delayed, and except as otherwise expressly
contemplated by this Agreement, disclosed in the Company Disclosure Letter or
required by applicable Law):
(i) the business of it and its Subsidiaries shall be conducted in the
ordinary and usual course and, to the extent consistent therewith, it and
its Subsidiaries shall use all reasonable best efforts to preserve its
business organization intact and maintain its existing relations and
goodwill with customers, suppliers, regulators, distributors, creditors,
lessors, employees and business associates;
(ii) it shall not (A) amend its certificate of incorporation or by-laws
or amend, modify or terminate the Rights Agreement; provided, however, that
nothing in this Agreement shall prevent the Company from reducing below 20%
the beneficial ownership threshold in the definition of an Acquiring Person
(as defined in the Rights Agreement) or extending the Final Expiration Date
of the Rights Agreement (as defined therein) or adopting a new rights
agreement having substantially similar terms as the Rights Agreement and
not inconsistent with (x) this proviso, (y) Section 5.1(o) (assuming
references therein are to such a new rights agreement) or (z) the
transactions contemplated by this Agreement; (B) split, combine, subdivide
or reclassify its outstanding shares of capital stock; (C) declare, set
aside or pay any dividend or distribution payable in cash, stock or
property in respect of any capital stock, other than regular quarterly cash
dividends in amounts consistent with its past practice or rights to
purchase Company Shares or Company Preference Shares pursuant to any
successor agreement to the Rights Agreement, adopted in accordance with the
terms of this Agreement; or (D) repurchase, redeem or otherwise acquire or
permit any of its Subsidiaries to purchase or otherwise acquire, except in
open market transactions in connection with the Company Stock Plans, any
shares of its capital stock or any securities convertible into or
exchangeable or exercisable for any shares of its capital stock, but
subject to the Company's obligations under subparagraph (iii) below.
(iii) neither it nor any of its Subsidiaries shall knowingly take any
action that would prevent the Merger from qualifying for "pooling of
interests" accounting treatment or as a "reorganization" within the meaning
of Section 368(a) of the Code or that would cause any of its
representations and warranties herein to become untrue in any material
respect;
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(iv) neither it nor any of its Subsidiaries shall terminate, establish,
adopt, enter into, make any new grants or awards of stock-based
compensation or other benefits under, amend or otherwise modify, any
Company Compensation and Benefit Plans or increase the salary, wage, bonus
or other compensation of any directors, officers or key employees except
(A) for grants or awards to directors, officers and employees of it or its
Subsidiaries under existing Company Compensation and Benefit Plans in such
amounts and on such terms as are consistent with past practice, (B) in the
normal and usual course of business (which shall include normal periodic
performance reviews and related Company Compensation and Benefit Plan
increases and the provision of individual Company Compensation and Benefit
Plans consistent with past practice for promoted or newly hired officers
and employees and the adoption of Company Compensation and Benefit Plans
for employees of new Subsidiaries in amounts and on terms consistent with
past practice); provided, that in no event shall it institute a broad based
change in compensation, unless it shall have used its reasonable best
efforts to provide SBC with prior notice of any such change or, if the
Company was unable to provide such prior notice, the Company shall provide
SBC with notice as soon as practicable following any such change, or (C)
for actions necessary to satisfy existing contractual obligations under
Company Compensation and Benefit Plans existing as of the date hereof;
(v) neither it nor any of its Subsidiaries shall issue any Company
Preferred Shares or Company Preference Shares or incur any indebtedness for
borrowed money or guarantee any such indebtedness if it should reasonably
anticipate that after such incurrence any of its or any of its
Subsidiaries' outstanding senior indebtedness would be rated A or lower by
Standard & Poor's;
(vi) neither it nor any of its Subsidiaries shall make any capital
expenditures in any period of twelve consecutive months following the date
hereof in an aggregate amount in excess of 150% of the aggregate amount
reflected in the Company's capital expenditure budget for such year, a copy
of which has been provided to SBC;
(vii) neither it nor any of its Subsidiaries shall transfer, lease,
license, sell, mortgage, pledge, encumber or otherwise dispose of any of
its or its Subsidiaries property or assets (including capital stock of any
of its Subsidiaries) with a fair market value in excess of $1 billion in
the aggregate in any period of twelve consecutive months following the date
hereof except for transfers, leases, licenses, sales, mortgages, pledges,
encumbrances, or other dispositions in the ordinary course of business
consistent with past practice;
(viii) neither it nor any of its Subsidiaries shall issue, deliver, sell,
or encumber shares of any class of its common stock or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares except, (A) any such shares issued pursuant to options and other
awards outstanding on the date hereof under the Company Stock Plans, awards
of options and other awards granted hereafter under the Company Stock Plans
in accordance with this Agreement and shares issuable pursuant to such
awards, and (B) up to an aggregate amount of $3.6 billion of such shares,
securities, rights, warrants or options (valued at their fair market value
as of the date of the agreement to make such acquisition) in any period of
twelve consecutive months following the date hereof to fund, in whole or in
part, the cost of any acquisition or acquisitions permitted under clause
(ix) below following reasonable notice to SBC of its intention to take such
action;
(ix) neither it nor any of its Subsidiaries shall spend in excess of $3.6
billion in the aggregate in any period of twelve consecutive months
following the date hereof to acquire any business, whether by merger,
consolidation, purchase of property or assets or otherwise (valuing any
non-cash consideration at its fair market value as of the date of the
agreement for such acquisition); provided, that no such acquisition would
prevent, materially delay or materially impair its ability to consummate
the transactions contemplated by
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this Agreement. Notwithstanding the foregoing, neither it nor any of its
Subsidiaries shall acquire any business the acquisition of which would
subject SBC and its Subsidiaries following the consummation of the Merger
to any Commercial Mobile Radio Service spectrum aggregation limit
restriction pursuant to the provisions of 47 C.F.R. Section 20.6 or place
SBC and its Subsidiaries following the consummation of the Merger in
violation of the Cellular Cross Ownership limits contained in 47 C.F.R.
Section 22.942. For purposes of this clause (ix), the amount spent with
respect to any acquisition shall be deemed to include the aggregate amount
of capital expenditures that the Company is obligated to make at any time
or plans to make as a result of such acquisition within two years after the
date of acquisition;
(x) neither it nor its Subsidiaries shall enter into any business other
than the telecommunications business and those businesses traditionally
associated with the telecommunications business; and
(xi) neither it nor any of its Subsidiaries shall authorize or enter into
any agreement to do any of the foregoing.
(b) SBC covenants and agrees as to itself and its Subsidiaries that after
the date hereof and prior to the Effective Time (unless the Company shall
otherwise approve in writing, which approval shall not be unreasonably
withheld or delayed, and except as otherwise expressly contemplated by this
Agreement, disclosed in the SBC Disclosure Letter or required by applicable
Law):
(i) the business of it and its Subsidiaries shall be conducted in the
ordinary and usual course and, to the extent consistent therewith, it and
its Subsidiaries shall use all reasonable best efforts to preserve its
business organization intact and maintain its existing relations and
goodwill with customers, suppliers, regulators, distributors, creditors,
lessors, employees and business associates;
(ii) it shall not (A) amend its certificate of incorporation or by-laws
in any manner that would prohibit or hinder, impede or delay in any
material respect the Merger or the consummation of the transactions
contemplated hereby, provided that any amendment to its certificate of
incorporation to increase the authorized number of shares of any class or
series of the capital stock of SBC shall in no way be restricted by the
foregoing; (B) declare, set aside or pay any dividend or other distribution
payable in cash or property (other than SBC Common Stock or rights to
purchase SBC Common Stock or SBC Preferred Stock pursuant to any successor
agreement to the SBC Rights Agreement) in respect of any capital stock,
other than per share regular quarterly cash dividends in amounts consistent
with its past practice; or (C) repurchase, redeem or otherwise acquire, or
permit any of its Subsidiaries to purchase or otherwise acquire, except in
open market transactions in connection with the SBC Stock Plans, any shares
of its capital stock or any securities convertible into or exchangeable for
any shares of its capital stock, but subject to SBC's obligations under
subparagraph (iii) below;
(iii) neither it nor any of its Subsidiaries shall knowingly take any
action that would prevent the Merger from qualifying for "pooling-of-
interests" accounting treatment or as a tax-free "reorganization" within
the meaning of Section 368(a) of the Code or that would cause any of its
representations and warranties herein to become untrue in any material
respect;
(iv) neither it nor any of its Subsidiaries shall issue any SBC Preferred
Shares or incur any indebtedness for borrowed money or guarantee any such
indebtedness if it should reasonably anticipate that after such incurrence
any of its or any of its Subsidiaries' outstanding senior indebtedness
would be rated A or lower by Standard & Poor's;
(v) neither it nor any of its Subsidiaries shall make any capital
expenditures in any period of twelve consecutive months following the date
hereof in an aggregate amount in excess of 150% of the aggregate
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amount of capital expenditures reflected in its capital expenditure budget
for such year, a copy of which has been provided to the Company;
(vi) neither it nor any of its Subsidiaries shall transfer, lease,
license, sell, mortgage, pledge, encumber or otherwise dispose of any of
its or its Subsidiaries property or assets (including capital stock of any
of its Subsidiaries) with a fair market value in excess of $1.5 billion in
the aggregate in any period of twelve consecutive months following the date
hereof except for transfers, leases, licenses, sales, mortgages, pledges,
encumbrances, or other dispositions in the ordinary course of business
consistent with past practice;
(vii) neither it nor any of its Subsidiaries shall issue, deliver, sell
or encumber shares of any class of its common stock or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, except (A) any such shares issued pursuant to options and other
awards outstanding on the date hereof under the SBC Stock Plans, awards of
options and other awards granted hereafter under the SBC Stock Plans and
shares issuable pursuant to such awards, (B) up to an aggregate amount of
$4.8 billion of such shares, securities, rights, warrants or options
(valued at their fair market value as of the date of the agreement to make
such acquisition) in any period of twelve consecutive months following the
date hereof to fund, in whole or in part, the cost of any acquisition or
acquisitions permitted under clause (viii) below, following reasonable
notice to the Company of its intention to take such action, and (C)
pursuant to the terms of the Agreement and Plan of Merger dated as of
January 4, 1998, by and among Southern New England Telecommunications
Corporation ("SNET"), SBC and SBC(CT) Sub, Inc. a Connecticut corporation
and a wholly-owned subsidiary of SBC (the "SNET Agreement"), which
issuances of SBC capital stock shall not be included in calculating the
$4.8 billion of permissible issuances, deliveries, sales or encumbrances,
or require notice to the Company, pursuant to clause (B) above;
(viii) neither it nor any of its Subsidiaries shall spend in excess of
$4.8 billion in the aggregate in any period of twelve consecutive months
following the date hereof to acquire any business, whether by merger,
consolidation, purchase of property or assets or otherwise (valuing any
non-cash consideration at its fair market value as of the date of the
agreement for such acquisition); provided, however, that no such
acquisition would prevent, materially delay or materially impair its
ability to consummate the transactions contemplated by this Agreement;
provided, further, that the SNET Agreement and the transactions
contemplated thereby shall not be subject to the terms of the foregoing
restriction. Notwithstanding the foregoing, neither it nor any of its
Subsidiaries shall acquire any business the acquisition of which would
subject SBC and its Subsidiaries following the consummation of the Merger
to any Commercial Mobile Radio Service spectrum aggregation limit
restriction pursuant to the provisions of 47 C.F.R. Section 20.6 or place
SBC and its Subsidiaries following the consummation of the Merger in
violation of the Cellular Cross Ownership limits contained in 47 C.F.R.
Section 22.942; provided, that, the SNET Agreement and the transactions
contemplated thereby shall not be subject to the terms of the foregoing
restriction. For purposes of this clause (viii), the amount spent with
respect to any acquisition shall be deemed to include the aggregate amount
of capital expenditures that the Company is obligated to make at any time
or plans to make as a result of such acquisition within two years after the
date of acquisition;
(ix) neither it nor any of its Subsidiaries shall enter any business
other than the telecommunications business and those businesses
traditionally associated with the telecommunications business; and
(x) neither it nor any of its Subsidiaries shall authorize or enter into
an agreement to do any of the foregoing.
(c) SBC and the Company agree that any written approval obtained under this
Section 6.1 may be relied upon by the other party if signed by the Chief
Executive Officer or another executive officer of the other party.
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6.2. Acquisition Proposals. (a) The Company agrees that neither it nor any
of its Subsidiaries shall, and that it shall direct and use its best efforts
to cause its and its Subsidiaries' employees, agents and representatives
(including any investment banker, attorney or accountant retained by it or any
of its Subsidiaries) (the Company, its Subsidiaries and their officers,
directors, employees, agents and representatives being the "Company
Representatives") not to, directly or indirectly, initiate, solicit, encourage
or otherwise facilitate any inquiries or the making of any proposal or offer
with respect to a merger, reorganization, share exchange, consolidation or
similar transaction involving, or any purchase of, or tender offer for, any of
the assets of it or any of its Subsidiaries or its voting securities if, as a
result of such transaction, (i) the stockholders of the Company would not hold
more than 50% of the voting securities of the surviving corporation or its
ultimate parent, (ii) the directors of the Company would not constitute a
majority of the board of directors of the surviving corporation or its
ultimate parent, or (iii) another Person would acquire more than 50% of the
assets of the Company and its Subsidiaries (any such proposal or offer being
hereinafter referred to as a "Company Acquisition Proposal"). The Company
further agrees that neither it nor any of its Subsidiaries shall, and that it
shall direct and use its best efforts to cause the Company Representatives not
to, directly or indirectly, have any discussion with or provide any
confidential information or data to any Person relating to a Company
Acquisition Proposal or engage in any negotiations concerning a Company
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement a Company Acquisition Proposal; provided, however, that nothing
contained in this Agreement shall prevent either the Company or the Company
Representatives from (A) complying with Rule 14e-2 promulgated under the
Exchange Act with regard to a Company Acquisition Proposal; (B) engaging in
any discussions or negotiations with or providing any information to, any
Person in response to an unsolicited bona fide written Company Acquisition
Proposal by any such Person; or (C) recommending such an unsolicited bona fide
written Company Acquisition Proposal to the stockholders of the Company if and
only to the extent that, in such case referred to in clause (B) or (C), (i)
the Board of Directors of the Company concludes in good faith (after
consultation with its financial advisor) that such Company Acquisition
Proposal is reasonably capable of being completed, taking into account all
legal, financial, regulatory and other aspects of the proposal and the Person
making the proposal, and would, if consummated, result in a transaction more
favorable to the Company's stockholders from a financial point of view than
the transaction contemplated by this Agreement (any such more favorable
Company Acquisition Proposal being referred to in this Agreement as a
"Superior Company Proposal"), (ii) the Board of Directors of the Company
determines in good faith after consultation with outside legal counsel that
such action is necessary for the Board of Directors to comply with its
fiduciary duty under applicable law and (iii) prior to providing any
information or data to any Person in connection with a Company Acquisition
Proposal by any such Person, the Board of Directors of the Company shall
receive from such Person a confidentiality agreement in customary form;
provided, that such confidentiality agreement shall not contain terms that
prevent the Company from complying with its obligations under this Section
6.2.
(b) SBC agrees that neither it nor any of its Subsidiaries shall, and that
it shall direct and use its best efforts to cause its and its Subsidiaries'
employees, agents and representatives (including any investment banker,
attorney or accountant retained by it or any of its Subsidiaries) (SBC, its
Subsidiaries and their officers, directors, employees, agents and
representatives being the "SBC Representatives") not to, directly or
indirectly, initiate, solicit, encourage or otherwise facilitate any inquiries
or the making of any proposal or offer with respect to a merger,
reorganization, share exchange, consolidation or similar transaction
involving, or any purchase of, or tender offer for, all or any assets of it or
any of its Subsidiaries or its voting securities if, as a result of such
transaction, (i) the stockholders of SBC would not hold more than 50% of the
voting securities of the surviving corporation or its ultimate parent, (ii)
the directors of SBC would not constitute a majority of the board of directors
of the surviving corporation or its ultimate parent, or (iii) another Person
would acquire more than 50% of the assets of SBC and its Subsidiaries (any
such proposal or offer being hereinafter referred to as a "SBC
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<PAGE>
Acquisition Proposal"). SBC further agrees that neither it nor any of its
Subsidiaries nor any of the officers and directors of it or its Subsidiaries
shall, and that it shall direct and use its best efforts to cause the SBC
Representatives not to, directly or indirectly, have any discussion with or
provide any confidential information or data to any Person relating to a SBC
Acquisition Proposal or engage in any negotiations concerning a SBC
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement a SBC Acquisition Proposal; provided, however, that nothing
contained in this Agreement shall prevent either SBC or the SBC
Representatives from (A) complying with Rule 14e-2 promulgated under the
Exchange Act with regard to a SBC Acquisition Proposal; (B) engaging in any
discussions or negotiations with or providing any information to, any Person
in response to an unsolicited bona fide written SBC Acquisition Proposal by
any such Person; or (C) recommending such an unsolicited bona fide written SBC
Acquisition Proposal to the stockholders of SBC if and only to the extent
that, in such cases referred to in clause (B) or (C), (i) the Board of
Directors of SBC concludes in good faith (after consultation with its
financial advisor) that such SBC Acquisition Proposal is reasonably capable of
being completed, taking into account all legal, financial, regulatory and
other aspects of the proposal and the Person making the proposal, and would,
if consummated, result in a transaction more favorable to SBC or SBC's
stockholders from a financial point of view than the transaction contemplated
by this Agreement (any such more favorable SBC Acquisition Proposal being
referred to herein as a "Superior SBC Proposal"), (ii) the Board of Directors
of SBC determines in good faith after consultation with outside legal counsel
that such action is necessary for the Board of Directors to comply with its
fiduciary duty under applicable law and (iii) prior to providing any
information or data to any Person in connection with a SBC Acquisition
Proposal by any such Person, the Board of Directors of SBC shall receive from
such Person a confidentiality agreement in customary form; provided, that,
such confidentiality agreement shall not contain terms that prevent SBC from
complying with its obligations under this Section 6.2.
(c) The Company and SBC each agrees that it will immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any Company Acquisition Proposal
or SBC Acquisition Proposal, as the case may be. The Company and SBC each
agrees that it will take the necessary steps to promptly inform the
individuals or entities referred to in the first sentence of paragraphs (a)
and (b), respectively, of the obligations undertaken in Section 6.2(a) or (b),
as the case may be. The Company and SBC each agrees that it will notify the
other immediately if any such inquiries, proposals or offers are received by,
any such information is requested from, or any such discussions or
negotiations are sought to be initiated or continued with, any of its
representatives indicating, in connection with such notice, the name of such
Person and the terms and conditions of any proposals or offers, and thereafter
shall inform the other of any material modification of the terms of any such
proposal or offer or the withdrawal thereof. The Company and SBC each also
agrees that it will promptly request each Person that has heretofore executed
a confidentiality agreement in connection with its consideration of any
Company Acquisition Proposal or any SBC Acquisition Proposal, as the case may
be, to return all confidential information heretofore furnished to such Person
by or on behalf of it or any of its Subsidiaries.
6.3. Information Supplied. The Company and SBC each agrees, as to itself and
its Subsidiaries, that none of the information supplied or to be supplied by
it or its Subsidiaries for inclusion or incorporation by reference in (i) the
Registration Statement on Form S-4 to be filed with the SEC by SBC in
connection with the issuance of shares of SBC Common Stock in the Merger
(including the joint proxy statement and prospectus (the "Prospectus/Proxy
Statement") constituting a part thereof) (the "S-4 Registration Statement")
will, at the time the S-4 Registration Statement becomes effective under the
Securities Act, and (ii) the Prospectus/Proxy Statement and any amendment or
supplement thereto will, at the date of mailing to stockholders and at the
times of the meetings of stockholders of the Company and SBC to be held in
connection with the Merger, in any such
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case, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If at any time prior to the Effective Time any information
relating to SBC or the Company, or any of their respective affiliates,
officers or directors, should be discovered by SBC or the Company which should
be set forth in an amendment or supplement to either the S-4 Registration
Statement or the Prospectus/Proxy Statement, so that any of such documents
would not include any misstatement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, the party which discovers such information shall
promptly notify the other parties hereto and an appropriate amendment or
supplement describing such information shall be promptly filed with the SEC
and, to the extent required by law, disseminated to the stockholders of the
Company and SBC.
6.4. Stockholders Meetings. The Company will take, in accordance with
applicable law and its certificate of incorporation and by-laws, all action
necessary to convene a meeting of holders of Company Shares (the "Company
Stockholders Meeting") as promptly as practicable after the S-4 Registration
Statement is declared effective to consider and vote upon the adoption of this
Agreement. SBC will take, in accordance with applicable law and its
certificate of incorporation and by-laws, all action necessary to convene a
meeting of holders of the SBC Common Stock (the "SBC Stockholders Meeting",
and either the SBC Stockholders Meeting or the Company Stockholders Meeting, a
"Stockholders Meeting") as promptly as practicable after the S-4 Registration
Statement is declared effective to consider and vote upon the approval of the
issuance of SBC Common Stock required to be issued pursuant to Article IV.
Subject to fiduciary obligations under applicable law and the terms of this
Agreement, the Company's Board of Directors shall recommend that the
stockholders of the Company adopt this Agreement and thereby approve the
transactions contemplated hereby and shall take all lawful action to solicit
such adoption, and SBC's Board of Directors shall recommend that the
stockholders of SBC approve the issuance of SBC Common Stock required to be
issued pursuant to Article IV and shall take all lawful action to solicit such
approval.
6.5. Filings; Other Actions; Notification. (a) SBC and the Company shall
promptly prepare and file with the SEC the Prospectus/Proxy Statement, and SBC
shall prepare and file with the SEC the S-4 Registration Statement as promptly
as practicable. SBC and the Company each shall use all reasonable best efforts
to have the S-4 Registration Statement declared effective under the Securities
Act as promptly as practicable after such filing, and promptly thereafter mail
the Prospectus/Proxy Statement to the respective stockholders of each of the
Company and SBC. SBC shall also use all reasonable best efforts to obtain
prior to the effective date of the S-4 Registration Statement all necessary
state securities law or "blue sky" permits and approvals required in
connection with the Merger and to consummate the other transactions
contemplated by this Agreement and will pay all expenses incident thereto.
(b) The Company and SBC each shall use all reasonable best efforts to cause
(x) the Merger to qualify for "pooling of interests" accounting treatment and
(y) to be delivered to the other party and its directors a letter of its
independent auditors, dated (i) the date on which the S-4 Registration
Statement shall become effective and (ii) the Closing Date, and addressed to
the other party and its directors, in form and substance customary for
"comfort" letters delivered by independent public accountants in connection
with registration statements similar to the S-4 Registration Statement.
(c) The Company and SBC shall cooperate with each other and use (and shall
cause their respective Subsidiaries to use) all their respective reasonable
best efforts to take or cause to be taken all actions, and do or cause to be
done all things, necessary, proper or advisable on its part under this
Agreement and applicable Laws
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to consummate and make effective the Merger and the other transactions
contemplated by this Agreement as soon as practicable, including preparing and
filing as promptly as practicable all documentation to effect all necessary
applications, notices, petitions, filings and other documents and to obtain as
promptly as practicable all consents, registrations, approvals, permits and
authorizations required to be obtained from any third party and/or any
Governmental Entity in connection with the execution and delivery of this
Agreement and the consummation of the Merger and the other transactions
contemplated hereby; provided, however, that nothing in this Section 6.5 shall
require, or be construed to require, SBC or the Company to agree to, or comply
with, any conditions to the granting of any such consent, registration,
approval, permit or authorization by any Governmental Entity if compliance
with such conditions, individually or in the aggregate, would be reasonably
likely to have a Material Adverse Effect on the Surviving Corporation or SBC
following the Effective Time (it being understood that, for this purpose only,
materiality shall be determined by reference to the trading market equity
value of SBC prior to the consummation of the Merger and after taking into
account (i) any adverse effects reasonably likely to arise from any
restrictions on the ability of the Surviving Corporation or SBC or any of
their respective Subsidiaries to conduct its operations as currently conducted
or as proposed as of the date of this Agreement to be conducted resulting from
complying with the conditions to or from the grant of any such consent,
registration, approval, permit or authorization, (ii) any benefits reasonably
likely to be realized by SBC on a consolidated basis (other than those
operational benefits reasonably likely to be realized directly from the
consummation of the Merger) resulting from complying with the conditions to or
from the grant of any such consent, registration, approval, permit or
authorization, and (iii) any proceeds resulting from any divestiture required
by a Governmental Entity as a condition to its granting any such consent,
registration, approval, permit or authorization); provided, further, that any
divestiture by either SBC or the Company or any of their respective
Subsidiaries reasonably required to cause the Surviving Corporation to be in
compliance with the Commercial Mobile Radio Service spectrum aggregation
limits established by the FCC in 47 C.F.R. Section 20.6 and the Cellular Cross
Ownership limits contained in 47 C.F.R. Section 22.942 shall be deemed not to
have any adverse effect on either the Surviving Corporation or SBC following
the Effective Time (a "Regulatory Material Adverse Effect"). Subject to
applicable laws relating to the exchange of information, SBC and the Company
shall have the right to review in advance, and to the extent practicable each
will consult the other on, all the information relating to SBC or the Company,
as the case may be, and any of their respective Subsidiaries, that appear in
any filing made with, or written materials submitted to, any third party
and/or any Governmental Entity in connection with the Merger and the other
transactions contemplated by this Agreement. In exercising the foregoing
right, each of the Company and SBC shall act reasonably and as promptly as
practicable.
(d) The Company and SBC each shall, upon request by the other, furnish the
other with all information concerning itself, its Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably
necessary or advisable in connection with the Prospectus/Proxy Statement, the
S-4 Registration Statement or any other statement, filing, notice or
application made by or on behalf of SBC, the Company or any of their
respective Subsidiaries to any third party and/or any Governmental Entity in
connection with the Merger and the transactions contemplated by this
Agreement.
(e) The Company and SBC each shall keep the other apprised of the status of
matters relating to completion of the transactions contemplated hereby,
including promptly furnishing the other with copies of notice or other
communications received by SBC or the Company, as the case may be, or any of
its Subsidiaries, from any third party and/or any Governmental Entity with
respect to the Merger and the other transactions contemplated by this
Agreement. Each of the Company and SBC shall give prompt notice to the other
of any change that is reasonably likely to result in a Material Adverse Effect
on it or of any failure of any condition to the other party's obligations to
effect the Merger set forth in Article VII.
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6.6. Access; Consultation. (a) Upon reasonable notice, and except as may
otherwise be required by applicable law, the Company and SBC each shall (and
shall cause its Subsidiaries to) afford the SBC Representatives or the Company
Representatives, as the case may be, reasonable access, during normal business
hours throughout the period prior to the Effective Time, to its properties,
books, contracts and records and, during such period, each shall (and shall
cause its Subsidiaries to) furnish promptly to the other all information
concerning its business, properties and personnel as may reasonably be
requested, provided that no investigation pursuant to this Section shall
affect or be deemed to modify any representation or warranty made by the
Company, SBC or Merger Sub hereunder, and provided, further, that the
foregoing shall not require the Company or SBC to permit any inspection, or to
disclose any information, that in the reasonable judgment of the Company or
SBC, as the case may be, would result in the disclosure of any trade secrets
of third parties or violate any of its obligations with respect to
confidentiality if the Company or SBC, as the case may be, shall have used all
reasonable best efforts to obtain the consent of such third party to such
inspection or disclosure. All requests for information made pursuant to this
Section shall be directed to an executive officer of the Company or SBC, as
the case may be, or such Person as may be designated by any such executive
officer, as the case may be.
(b) From the date hereof to the Effective Time, SBC and the Company agree to
consult with each other on a regular basis on a schedule to be agreed with
regard to their respective operations.
(c) From the date hereof to the Effective Time, the Company agrees to notify
SBC in advance of any issuance by the Company or any of its Subsidiaries of
any long-term debt in excess of $50 million, Company Preferred Shares or
Company Preference Shares.
6.7. Affiliates. (a) Each of the Company and SBC shall deliver to the other
a letter identifying all Persons whom such party believes to be, at the date
of the Stockholders Meeting of such party, "affiliates" of such party for
purposes of applicable interpretations regarding use of the pooling-of-
interests accounting method and, in the case of "affiliates" of the Company,
for purposes of Rule 145 under the Securities Act. Each of the Company and SBC
shall use all reasonable best efforts to cause each Person who is identified
as an "affiliate" in the letter referred to above to deliver to SBC on or
prior to the date of the Stockholders Meeting of such party a written
agreement, in the form attached hereto as Exhibit A, in the case of affiliates
of the Company (the "Company Affiliate's Letter"), and Exhibit B, in the case
of affiliates of SBC (the "SBC Affiliate's Letter"). Prior to the Effective
Time, each of the Company and SBC shall use all reasonable best efforts to
cause each additional Person who is identified as an "affiliate" after the
date of the relevant Stockholders Meeting to execute the applicable written
agreement as set forth in this Section 6.7, as soon as practicable after such
Person is identified.
(b) If the Merger would otherwise qualify for pooling-of-interests
accounting treatment, shares of SBC Common Stock issued to such affiliates of
the Company in exchange for Company Shares shall not be transferable until
such time as financial results covering at least 30 days of combined
operations of SBC and the Company shall have been published within the meaning
of Section 201.01 of the SEC's Codification of Financial Reporting Policies,
regardless of whether each such affiliate has provided the written agreement
referred to in this Section, except to the extent permitted by, and in
accordance with, SEC Accounting Series Release 135 and SEC Staff Accounting
Bulletins 65 and 76. Any Company Shares held by any such affiliate shall not
be transferable, regardless of whether such affiliate has provided the
applicable written agreement referred to in this Section, if such transfer,
either alone or in the aggregate with other transfers by affiliates, would
preclude SBC's ability to account for the business combination to be effected
by the Merger as a pooling of interests. The Company shall not register the
transfer of any Certificate, unless such transfer is made in compliance with
the foregoing.
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6.8. Stock Exchange Listing and De-listing. SBC shall use its best efforts
to cause the shares of SBC Common Stock to be issued in the Merger to be
approved for listing on the New York Stock Exchange ("NYSE"), subject to
official notice of issuance, prior to the Closing Date. The Surviving
Corporation shall use its best efforts to cause the Company Shares to be de-
listed from the NYSE and the Chicago, Boston, Pacific and Philadelphia stock
exchanges and de-registered under the Exchange Act as soon as practicable
following the Effective Time.
6.9. Publicity. The initial press release with respect to the Merger shall
be a joint press release and thereafter the Company and SBC shall consult with
each other prior to issuing any press releases or otherwise making public
announcements with respect to the Merger and the other transactions
contemplated by this Agreement and prior to making any filings with any third
party and/or any Governmental Entity (including any national securities
exchange) with respect thereto, except as may be required by law or by
obligations pursuant to any listing agreement with or rules of any national
securities exchange.
6.10. Benefits.
(a) Stock Options.
(i) At the Effective Time, each outstanding option to purchase Company
Shares (a "Company Option") under the Company Stock Plans, whether vested
or unvested, shall be deemed to constitute an option to acquire, on the
same terms and conditions as were applicable under such Company Option
(except to the extent such terms and conditions are altered in accordance
with their terms as a result of the consummation of the transactions
contemplated by this Agreement), the same number of shares of SBC Common
Stock as the holder of such Company Option would have been entitled to
receive pursuant to the Merger had such holder exercised such Company
Option in full immediately prior to the Effective Time (rounded down to the
nearest whole number) (a "Substitute Option"), at an exercise price per
share (rounded up to the nearest whole cent) (the "Substitute Option
Price") equal to (y) the aggregate exercise price for the Company Shares
otherwise purchasable pursuant to such Company Option divided by (z) the
number of full shares of SBC Common Stock deemed purchasable pursuant to
such Company Option in accordance with the foregoing. For each Substitute
Option substituted for a Company Option that included a right under certain
circumstances to receive dividend equivalents in the form of stock units
("Company Stock Units"), all Company Stock Units credited to the account of
the holder of such Substitute Option at the Effective Time shall, as of the
Effective Time, be deemed to constitute a number of stock units, each of
which shall represent one share of SBC Common Stock ("SBC Stock Units"),
equal to the number of shares of SBC Common Stock the holder of such
Substitute Option would have been entitled to receive pursuant to this
Agreement had such Company Stock Units been distributed to such holder in
full immediately prior to the Effective Time and thereafter SBC Stock Units
shall continue to be credited to the account of the holder of such
Substitute Option to the same extent and on the same terms and conditions
as they would have under the Company Option for which the Substitute Option
was substituted (except that the record dates and dividend amounts shall be
the record dates and dividend amounts for SBC Common Stock), and all such
SBC Stock Units shall be distributed at the same times and in the same
manner as the Company Stock Units would have been distributed had the
Substitute Option not been substituted for the Company Option (except that
the option price used to determine if the SBC Stock Units can be
distributed shall be the Substitute Option Price). At or prior to the
Effective Time, the Company shall make all necessary arrangements with
respect to the Company Stock Plans to permit the assumption of the
unexercised Company Options by SBC pursuant to this Section and as soon as
practicable after the Effective Time SBC shall use its best efforts to
register under the Securities Act on Form S-8 or other appropriate form
(and use
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its best efforts to maintain the effectiveness thereof) shares of SBC
Common Stock issuable pursuant to all Substitute Options.
(ii) Effective at the Effective Time, SBC shall assume each Company
Option in accordance with the terms of the Company Stock Plan under which
it was issued and the stock option agreement by which it is evidenced. As
promptly as practicable after the Effective Time, the Company shall deliver
to the participants in the Stock Plans appropriate notices setting forth
such participants' rights pursuant to such assumed Company Options.
(b) Employee Benefits. SBC agrees that it shall cause the Surviving
Corporation for at least two years after the Effective Time to provide or
cause to be provided to employees of the Company and its Subsidiaries
compensation and benefit plans that are no less favorable, in the aggregate,
than the Company Compensation and Benefit Plans disclosed in Section 6.10(b)
of the Company Disclosure Letter; provided, however, if during this period SBC
implements any widespread increase or decrease in benefits under compensation
and benefit plans or in the cost thereof to participants under compensation
and benefit plans applicable to employees of SBC and its Subsidiaries (other
than the Surviving Corporation and its Subsidiaries), the Surviving
Corporation shall proportionately adjust the benefits under the Company's
compensation and benefit plans or the cost thereof to participants, and
provided, further with respect to employees who are subject to collective
bargaining, all benefits shall be provided only in accordance with the
applicable collective bargaining agreement. At or prior to the Effective Time,
the Company shall make all necessary arrangements to cause any Company Share
units under the Company's Compensation and Benefit Plans to be converted into
share units with respect to SBC Common Stock by multiplying the Company Shares
subject to such Company Share units by the Exchange Ratio. SBC shall, and
shall cause the Surviving Corporation to, honor, pursuant to their terms, all
employee benefit obligations existing at the Closing Date to current and
former employees under the Company Compensation and Benefit Plans.
6.11. Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the Merger and the
other transactions contemplated by this Agreement shall be paid by the party
incurring such expense, except that expenses incurred in connection with the
filing fee for the S-4 Registration Statement and printing and mailing the
Prospectus/Proxy Statement and the S-4 Registration Statement and the filing
fee under the HSR Act shall be shared equally by SBC and the Company.
6.12. Indemnification; Directors' and Officers' Insurance. (a) From and
after the Effective Time, SBC shall, and shall cause the Surviving Corporation
to, indemnify and hold harmless each present and former director and officer
of the Company (when acting in such capacity) determined as of the Effective
Time (the "Indemnified Parties"), against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities (collectively, "Costs") incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent
permitted under Delaware law (and the Surviving Corporation shall also advance
expenses as incurred to the fullest extent permitted under applicable law,
provided the Person to whom expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such Person is not
entitled to indemnification).
(b) Any Indemnified Party wishing to claim indemnification under paragraph
(a) of this Section 6.12, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify the Surviving Corporation
thereof, but the failure to so notify shall not relieve the Surviving
Corporation of any liability it may
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have to such Indemnified Party if such failure does not materially prejudice
the Surviving Corporation. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) the Surviving Corporation shall have the right to assume the
defense thereof and the Surviving Corporation shall not be liable to such
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, except that if the Surviving Corporation elects not to
assume such defense or counsel for the Indemnified Parties advises that there
are issues which raise conflicts of interest between the Surviving Corporation
and the Indemnified Parties, the Indemnified Parties may retain counsel
satisfactory to them, and the Surviving Corporation shall pay all reasonable
fees and expenses of such counsel for the Indemnified Parties promptly as
statements therefor are received; provided, however, that the Surviving
Corporation shall be obligated pursuant to this paragraph (b) to pay for only
one firm of counsel for all Indemnified Parties in any jurisdiction (unless
there is a conflict of interest as provided above) (ii) the Indemnified
Parties will cooperate in the defense of any such matter and (iii) the
Surviving Corporation shall not be liable for any settlement effected without
its prior written consent.
(c) The Surviving Corporation shall maintain a policy of officers' and
directors' liability insurance for acts and omissions occurring prior to the
Effective Time ("D&O Insurance") with coverage in amount and scope at least as
favorable as the Company's existing directors' and officers' liability
insurance coverage for a period of six years after the Effective Time;
provided, however, if the existing D&O Insurance expires, is terminated or
cancelled, or if the annual premium therefor is increased to an amount in
excess of 175% of the last annual premium paid prior to the date hereof (the
"Current Premium"), in each case during such six year period, the Surviving
Corporation will use its best efforts to obtain D&O Insurance in an amount and
scope as great as can be obtained for the remainder of such period for a
premium not in excess (on an annualized basis) of 175% of the Current Premium.
(d) If SBC or any of its successors or assigns (i) shall consolidate with or
merge into any other corporation or entity and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or (ii) shall
transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then and in each such case, proper
provisions shall be made so that the successors and assigns of SBC shall
assume all of the obligations set forth in this Section.
(e) The provisions of this Section are intended to be for the benefit of,
and shall be enforceable by, each of the Indemnified Parties, their heirs and
their representatives.
6.13. Takeover Statute. If any Takeover Statute is or may become applicable
to the Merger or the other transactions contemplated by this Agreement, each
of SBC and the Company and its Board of Directors shall grant such approvals
and take such actions as are necessary so that such transactions may be
consummated as promptly as practicable on the terms contemplated by this
Agreement or by the Merger and otherwise act to eliminate or minimize the
effects of such statute or regulation on such transactions. The Company will
cause the Rights Agent to promptly execute the Rights Amendment.
6.14. Dividends. The Company shall coordinate with SBC the declaration,
setting of record dates and payment dates of dividends on Company Shares so
that holders of Company Shares do not receive dividends on both Company Shares
and SBC Common Stock received in the Merger in respect of any calendar quarter
or fail to receive a dividend on either Company Shares or SBC Common Stock
received in the Merger in respect of any calendar quarter.
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6.15. Confidentiality. The Company and SBC each acknowledges and confirms
that it has entered into a Confidentiality and Non-Disclosure Agreement, dated
April 8, 1997 (the "Confidentiality Agreement"), that information provided by
each party hereto to the other party hereto pursuant to this Agreement is
subject to the terms of the Confidentiality Agreement and that the
Confidentiality Agreement shall remain in full force and effect in accordance
with its terms, except that notwithstanding any provision to the contrary
contained in the Confidentiality Agreement, the Confidentiality Agreement
shall not terminate until the earlier to occur of the following: (i) the
Effective Time and (ii) the expiration of two years following the date of any
termination of this Agreement pursuant to Article VIII.
6.16. Control of the Company's Operations. Nothing contained in this
Agreement shall give SBC or the Company, directly or indirectly, rights to
control or direct the operations of the other prior to the Effective Time.
Prior to the Effective Time, each of SBC and the Company shall exercise,
consistent with the terms and conditions of this Agreement, complete control
and supervision of its operations.
ARTICLE VII
Conditions
7.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
(a) Stockholder Approval. This Agreement shall have been duly adopted by
holders of Company Shares constituting the Company Requisite Vote and have
been duly adopted by the sole stockholder of Merger Sub, and the issuance
of SBC Common Stock required to be issued pursuant to Article IV shall have
been duly approved by the holders of shares of SBC Common Stock
constituting the SBC Requisite Vote;
(b) NYSE Listing. The shares of SBC Common Stock issuable to the Company
stockholders pursuant to this Agreement shall have been authorized for
listing on the NYSE upon official notice of issuance.
(c) Governmental Consents. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated and all material Company Required Consents and material SBC
Required Consents from or with any Governmental Entity shall have been made
or obtained pursuant to a Final Order, free of any conditions (other than
conditions that are not reasonably likely, either individually or in the
aggregate, to have a Regulatory Material Adverse Effect). For the purposes
of this Agreement, "Final Order" means an action or decision that has been
granted as to which (a) no request for a stay or any similar request is
pending, no stay is in effect, the action or decision has not been vacated,
reversed, set aside, annulled or suspended and any deadline for filing such
a request that may be designated by statute or regulation has passed, (b)
no petition for rehearing or reconsideration or application for review is
pending and the time for the filing of any such petition or application has
passed, (c) no Governmental Entity has undertaken to reconsider the action
on its own motion and the time within which it may effect such
reconsideration has passed and (d) no appeal is pending (including other
administrative or judicial review) or in effect and any deadline for filing
any such appeal that may be specified by statute or rule has passed, which
in any such case (a), (b), (c) or (d) is reasonably likely to result in
vacating, reversing, setting aside, annulling, suspending or modifying such
action or decision (in any such case in a manner which would have a
Regulatory Material Adverse Effect following the Effective Time).
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(d) Laws and Order. No Governmental Entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any Law
(whether temporary, preliminary or permanent) that is in effect and
restrains, enjoins or otherwise prohibits consummation of the Merger or the
other transactions contemplated by this Agreement or that is, individually
or in the aggregate with all other such Laws, reasonably likely to have a
Material Adverse Effect on SBC or the Company (collectively, an "Order"),
and no Governmental Entity shall have instituted any proceeding, or, in the
case of a federal Governmental Entity, threatened in writing to institute
any proceeding, seeking any such Order.
(e) S-4. The S-4 Registration Statement shall have become effective under
the Securities Act. No stop order suspending the effectiveness of the S-4
Registration Statement shall have been issued, and no proceedings for that
purpose shall have been initiated or be threatened by the SEC.
(f) Accountants' Letters. SBC and the Company shall have received the
"comfort" letters described in Section 6.5(b). SBC and the Company shall
have received letters from their respective independent public accounting
firms to the effect that the Merger will qualify for "pooling of interests"
accounting treatment.
(g) Blue Sky Approvals. SBC shall have received all state securities and
"blue sky" permits and approvals necessary to consummate the transactions
contemplated hereby.
7.2. Conditions to Obligations of SBC and Merger Sub. The obligations of SBC
and Merger Sub to effect the Merger are also subject to the satisfaction or
waiver by SBC at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement (i) to the extent qualified by
Material Adverse Effect shall be true and correct and (ii) to the extent
not qualified by Material Adverse Effect shall be true and correct, except
that this clause (ii) shall be deemed satisfied so long as any failures of
such representations and warranties to be true and correct, taken together,
do not have a Material Adverse Effect on the Company, in each case (i) and
(ii), as of the Closing Date as though made on and as of the Closing Date
(except to the extent such representations and warranties speak as of an
earlier date), and SBC shall have received a certificate signed on behalf
of the Company by an executive officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and SBC shall
have received a certificate signed on behalf of the Company by an executive
officer of the Company to such effect.
(c) Consents Under Agreements. The Company shall have obtained the
consent or approval of each Person whose consent or approval shall be
required in order to consummate the transactions contemplated by this
Agreement under any Contract to which the Company or any of its
Subsidiaries is a party, except those for which the failure to obtain such
consent or approval, individually or in the aggregate, is not reasonably
likely to have, a Material Adverse Effect on the Company.
(d) Tax Opinion. SBC shall have received the opinion of Sullivan &
Cromwell, counsel to SBC, dated the Closing Date, to the effect that the
Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and that each of SBC,
Merger Sub and the Company will be a party to that reorganization within
the meaning of Section 368(b) of the Code; it being understood that in
rendering such opinion, such counsel shall be entitled to rely on certain
customary representations and assumptions.
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7.3. Conditions to Obligation of the Company. The obligation of the Company
to effect the Merger is also subject to the satisfaction or waiver by the
Company at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties of
SBC and Merger Sub set forth in this Agreement (i) to the extent qualified
by Material Adverse Effect shall be true and correct, and (ii) to the
extent not qualified by Material Adverse Effect shall be true and correct,
except that this clause (ii) shall be deemed satisfied so long as any
failures of such representations and warranties to be true and correct,
taken together, do not have a Material Adverse Effect on SBC, in each case
(i) and (ii), as of the Closing Date as though made on and as of the
Closing Date (except to the extent such representations and warranties
speak as of an earlier date), and the Company shall have received a
certificate signed on behalf of SBC by an executive officer of SBC to such
effect.
(b) Performance of Obligations of SBC and Merger Sub. Each of SBC and
Merger Sub shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the
Closing Date, and the Company shall have received a certificate signed on
behalf of SBC and Merger Sub by an executive officer of SBC to such effect.
(c) Tax Opinion. The Company shall have received the opinion of Skadden,
Arps, Slate, Meagher & Flom (Illinois), counsel to the Company, dated the
Closing Date, to the effect that the Merger will be treated for Federal
income tax purposes as a reorganization within the meaning of Section
368(a) of the Code, and that each of SBC, Merger Sub and the Company will
be a party to that reorganization within the meaning of Section 368(b) of
the Code; it being understood that in rendering such opinion, such counsel
shall be entitled to rely on certain customary representations and
assumptions.
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval by stockholders of the Company and SBC referred
to in Section 7.1(a), by mutual written consent of the Company and SBC, by
action of their respective Boards of Directors.
8.2. Termination by Either SBC or the Company. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the Board of Directors of either SBC or the Company if (i)
the Merger shall not have been consummated by July 31, 1999 (the "Termination
Date"), whether such date is before or after the date of approval by the
stockholders of the Company or SBC; provided, however, that if SBC or the
Company determines that additional time is necessary in connection with
obtaining a SBC Required Consent or a Company Required Consent from or with
any Governmental Entity, the Termination Date may be extended for up to 60
calendar days at any one time by SBC or the Company from time to time by
written notice to the other party up to a date not beyond March 31, 2000,
which date shall be deemed to be the Termination Date, (ii) the adoption of
this Agreement by the Company's stockholders required by Section 7.1(a) shall
not have occurred at a meeting duly convened therefor or at any adjournment or
postponement thereof, (iii) the approval of SBC's stockholders necessary for
the issuance of SBC Common Stock required to be issued pursuant to Article IV
as required by Section 7.1(a) shall not have been obtained at a meeting duly
convened therefor or at any adjournment or postponement thereof, or (iv) any
Order permanently restraining, enjoining or otherwise prohibiting consummation
of the Merger shall become final and non-appealable (whether before or after
the adoption or approval by the stockholders of the Company or SBC, as the
case may be); provided, that the right to terminate this Agreement pursuant to
clause (i) above shall not be available to any party that has breached in any
material respect its obligations under this Agreement in any manner that shall
have proximately contributed to the failure of the Merger to be consummated.
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8.3. Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether
before or after the adoption of this Agreement by the stockholders of the
Company referred to in Section 7.1(a), by action of the Board of Directors of
the Company:
(a) if (i) the Board of Directors of the Company approves entering into a
binding written agreement concerning a transaction that constitutes a
Superior Company Proposal and the Company notifies SBC in writing that the
Company desires to enter into such agreement, (ii) SBC does not make,
within ten calendar days after receipt of the Company's written
notification of its desire to enter into a binding agreement for a Superior
Company Proposal, the terms of which are specified in such notice, an offer
that the Board of Directors of the Company believes, in good faith after
consultation with its financial advisors, is at least as favorable, from a
financial point of view, to the stockholders of the Company as the Superior
Company Proposal, and (iii) the Company prior to such termination pays to
SBC in immediately available funds any fees required to be paid pursuant to
Section 8.5(b). The Company agrees to notify SBC promptly if its desire to
enter into a written agreement referred to in its notification shall change
at any time after giving such notification; or
(b) if (i) the Board of Directors of SBC shall have withdrawn or
adversely modified its approval of this Agreement or its recommendation to
the stockholders of SBC that such stockholders approve the issuance of SBC
Common Stock required to be issued pursuant to Article IV or failed to
reconfirm such recommendation within fifteen business days after a written
request by the Company to do so; provided that such a request is made after
the Board of Directors of SBC or any SBC Representative shall have taken
any of the actions that would be proscribed by Section 6.2(b) but for the
exception therein allowing certain actions to be taken pursuant to clause
(B) or (C) of the proviso thereof with respect to any bona fide written SBC
Acquisition Proposal that has not been withdrawn or rejected by the Board
of Directors of SBC, (ii) there has been a material breach by SBC or Merger
Sub of any representation, warranty, covenant or agreement contained in
this Agreement which (x) would result in a failure of a condition set forth
in Section 7.3(a) or 7.3(b) and (y) cannot be or is not cured prior to the
Termination Date, or (iii) SBC or any SBC Representative shall take any of
the actions that would be proscribed by Section 6.2(b) but for the
exception therein allowing certain actions to be taken pursuant to clause
(B) or (C) of the proviso thereof (other than any such actions taken
pursuant to such clause (B) with respect to any bona fide written SBC
Acquisition Proposal (received after the date hereof that was not solicited
by SBC after the date hereof) during the Initial 50 Day Period, if such SBC
Acquisition Proposal is received during the first through the 30th days of
the Initial 50 Day Period or during the 20 calendar day period following
receipt of such SBC Acquisition Proposal by SBC if such SBC Acquisition
Proposal is received during the 31st through 50th days of the Initial 50
Day Period, in each case if, and only if, SBC receives such SBC Acquisition
Proposal during the Initial 50 Day Period). For purposes of this Agreement,
the "Initial 50 Day Period" shall mean the 50 calendar day period
commencing with the first calendar day after the day on which this
Agreement shall have been filed by SBC or the Company with the SEC as an
exhibit to a Current Report on Form 8-K under the Exchange Act.
8.4. Termination by SBC. This Agreement may be terminated and the Merger may
be abandoned at any time prior to the Effective Time, before or after the
approval by the stockholders of SBC referred to in Section 7.1(a), by action
of the Board of Directors of SBC:
(a) If (i) the Board of Directors of SBC approves entering into a binding
written agreement concerning a transaction that constitutes a Superior SBC
Proposal and SBC notifies the Company in writing that SBC desires to enter
into such agreement, (ii) the Company does not make, within ten days after
receipt of SBC's written notification of its desire to enter into a binding
agreement for a Superior SBC Proposal, the terms of
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which are specified in such notice, an offer that the Board of Directors of
SBC believes, in good faith after consultation with its financial advisors,
is at least as favorable, from a financial point of view, to the
stockholders of SBC as the Superior SBC Proposal, and (iii) SBC prior to
such termination pays to the Company in immediately available funds any
fees required to be paid pursuant to Section 8.5(c). SBC agrees to notify
the Company promptly if its desire to enter into a written agreement
referred to in its notification shall change at any time after giving such
notification.
(b) If (i) the Board of Directors of the Company shall have withdrawn or
adversely modified its approval or recommendation to the Company's
stockholders of this Agreement, or failed to reconfirm such recommendation
within fifteen business days after a written request by SBC to do so;
provided that such a request is made after the Board of Directors of the
Company or any Company Representative shall have taken any of the actions
that would be proscribed by Section 6.2(a) but for the exception therein
allowing certain actions to be taken pursuant to clause (B) or (C) of the
proviso thereof with respect to any bona fide written Company Acquisition
Proposal that has not been withdrawn or rejected by the Board of Directors
of the Company, or (ii) there has been a material breach by the Company of
any representation, warranty, covenant or agreement contained in this
Agreement which (x) would result in a failure of a condition set forth in
Section 7.2(a) or 7.2(b) and (y) cannot be or is not cured prior to the
Termination Date, or (iii) if the Company or any Company Representative
shall take any of the actions that would be proscribed by Section 6.2(a)
but for the exception therein allowing certain actions to be taken pursuant
to clause (B) or (C) of the proviso thereof (other than any such actions
taken pursuant to such clause (B) with respect to any bona fide written
Company Acquisition Proposal (received after the date hereof that was not
solicited by the Company after the date hereof) during the Initial 50 Day
Period, if such Company Acquisition Proposal is received during the first
through the 30th days of the Initial 50 Day Period or during the 20
calendar day period following receipt of such Company Acquisition Proposal
by the Company if such Company Acquisition Proposal is received during the
31st through 50th days of the Initial 50 Day Period, in each case if, and
only if, the Company receives such Company Acquisition Proposal during the
Initial 50 Day Period).
8.5. Effect of Termination and Abandonment. (a) In the event of termination
of this Agreement and the abandonment of the Merger pursuant to this Article
VIII, this Agreement (other than as set forth in Section 9.1) shall become
void and of no effect with no liability on the part of any party hereto (or of
any of its directors, officers, employees, agents, legal or financial advisors
or other representatives); provided, however, no such termination shall
relieve any party hereto from any liability for damages resulting from any
willful and intentional breach of this Agreement (to the extent any such
damages exceed any Termination Fee that may have been paid pursuant to Section
8.5(b) or 8.5(c)) or from any obligation to pay, if applicable, the
Termination Fee pursuant to Section 8.5(b) or 8.5(c).
(b) In the event that (i) a bona fide Company Acquisition Proposal shall
have been made to the Company and made known to stockholders generally or have
been made directly to stockholders generally or any Person shall have publicly
announced an intention (whether or not conditional) to make a bona fide
Company Acquisition Proposal and such Company Acquisition Proposal or
announced intention shall not have been withdrawn prior to the Company's
Stockholders Meeting and thereafter this Agreement is terminated by either SBC
or the Company pursuant to Section 8.2(ii) and within nine months after such
termination the Company shall have entered into an agreement to consummate a
transaction that would constitute a Company Acquisition Proposal if it were
the subject of a proposal, or (ii) this Agreement is terminated (x) by the
Company pursuant to Section 8.3(a) or (y) by SBC pursuant to Section
8.4(b)(i), (b)(ii) (solely with respect to a willful and intentional breach)
or (b)(iii), then the Company shall promptly, but in no event later than two
days after the date of such
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termination (except as otherwise provided in Section 8.3(a)), or, in the case
of termination pursuant to Section 8.2(ii), two days after the relevant
agreement is entered into, pay SBC a fee equal to $1.2 billion (the
"Termination Fee"), which amount shall be exclusive of any expenses to be paid
pursuant to Section 6.11, payable by wire transfer of same day funds. The
Company acknowledges that the agreements contained in this Section 8.5(b) are
an integral part of the transactions contemplated by this Agreement, and that,
without these agreements, SBC and Merger Sub would not enter into this
Agreement; accordingly, if the Company fails to pay promptly the amount due
pursuant to this Section 8.5(b), and, in order to obtain such payment, SBC or
Merger Sub commences a suit which results in a judgment against the Company
for the fee set forth in this paragraph (b), the Company shall pay to SBC or
Merger Sub its costs and expenses (including attorneys' fees) in connection
with such suit, together with interest on the amount of the fee at the prime
rate of Citibank N.A. in effect on the date such payment was required to be
made.
(c) In the event that (i) a bona fide SBC Acquisition Proposal shall have
been made to SBC and made known to stockholders generally or shall have been
made directly to stockholders generally or any Person shall have publicly
announced an intention (whether or not conditional) to make a bona fide SBC
Acquisition Proposal and such SBC Acquisition Proposal or announced intention
shall not have been withdrawn prior to the SBC Stockholder Meeting and
thereafter this Agreement is terminated by the Company or SBC pursuant to
Section 8.2(iii) and within nine months after such termination SBC shall have
entered into an agreement to consummate a transaction that would constitute a
SBC Acquisition Proposal if it were the subject of a proposal, or (ii) this
Agreement is terminated (x) by SBC pursuant to Section 8.4(a) or (y) by the
Company pursuant to Section 8.3(b)(i), (b)(ii) (solely with respect to a
willful and intentional breach) or (b)(iii), then SBC shall promptly, but in
no event later than two days after the date of such termination (except as
otherwise provided in Section 8.4(a)), or, in the case of a termination
pursuant to Section 8.2(iii), two (2) days after the relevant agreement is
entered into, pay the Company a fee equal to the Termination Fee, which amount
shall be exclusive of any expenses to be paid pursuant to Section 6.11,
payable by wire transfer of same day funds. SBC acknowledges that the
agreements contained in this Section 8.5(c) are an integral part of the
transactions contemplated by this Agreement, and that, without these
agreements, the Company would not enter into this Agreement; accordingly, if
SBC fails to pay promptly the amount due pursuant to this Section 8.5(c), and,
in order to obtain such payment, the Company commences a suit which results in
a judgment against SBC for the fee set forth in this paragraph (c), SBC shall
pay to the Company its costs and expenses (including attorneys' fees) in
connection with such suit, together with interest on the amount of the fee at
the prime rate of Citibank N.A. in effect on the date such payment was
required to be made.
ARTICLE IX
Miscellaneous and General
9.1. Survival. This Article IX and the agreements of the Company, SBC and
Merger Sub contained in Sections 6.10 (Benefits), 6.11 (Expenses) and 6.12
(Indemnification; Directors' and Officers' Insurance) shall survive the
consummation of the Merger. This Article IX (other than Section 9.2
(Modification or Amendment), Section 9.3 (Waiver of Conditions) and Section
9.13 (Assignment)) and the agreements of the Company, SBC and Merger Sub
contained in Section 6.11 (Expenses), Section 6.15 (Confidentiality) and
Section 8.5 (Effect of Termination and Abandonment) shall survive the
termination of this Agreement. All other representations, warranties,
covenants and agreements in this Agreement shall not survive the consummation
of the Merger or the termination of this Agreement.
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<PAGE>
9.2. Modification or Amendment. Subject to the provisions of applicable law,
at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties.
9.3. Waiver of Conditions. (a) Any provision of this Agreement may be waived
prior to the Effective Time if, and only if, such waiver is in writing and
signed by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder 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. Except as otherwise herein
provided, the rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
9.4. Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
9.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL
BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF
THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES
THEREOF. The parties hereby irrevocably submit to the jurisdiction of the
Federal courts of the United States of America and the state courts located in
the State of Delaware solely in respect of the interpretation and enforcement
of the provisions of this Agreement and of the documents referred to in this
Agreement, and in respect of the transactions contemplated hereby, and hereby
waive, and agree not to assert, as a defense in any action, suit or proceeding
for the interpretation or enforcement hereof or of any such document, that it
is not subject thereto or that such action, suit or proceeding may not be
brought or is not maintainable in said courts or that the venue thereof may
not be appropriate or that this Agreement or any such document may not be
enforced in or by such courts, and the parties hereto irrevocably agree that
all claims with respect to such action or proceeding shall be heard and
determined in such a Federal or state court. The parties hereby consent to and
grant any such court jurisdiction over the Person of such parties and over the
subject matter of such dispute and agree that mailing of process or other
papers in connection with any such action or proceeding in the manner provided
in Section 9.6 or in such other manner as may be permitted by law, shall be
valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES,
AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH
PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii)
EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS
BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.5.
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<PAGE>
9.6. Notices. Notices, requests, instructions or other documents to be given
under this Agreement shall be in writing and shall be deemed given, (i) when
sent if sent by facsimile, provided that the fax is promptly confirmed by
telephone confirmation thereof, (ii) when delivered, if delivered personally
to the intended recipient, and (iii) one business day later, if sent by
overnight delivery via a national courier service, and in each case, addressed
to a party at the following address for such party:
if to SBC or Merger Sub
SBC Communications Inc.
175 E. Houston
San Antonio, Texas 78205
Attention: James D. Ellis, Esq.
Fax: (210) 351-2298
with a copy to:
Benjamin F. Stapleton, Esq.
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Fax: (212) 558-3588
if to the Company
Ameritech Corporation
30 S. Wacker Drive
Chicago, Illinois 60606
Attention: Chairman of the Board, President and
Chief Executive Officer
Fax: (312) 207-0892
with copies to:
Ameritech Corporation
30 S. Wacker Drive
Chicago, Illinois 60606
Attention: Executive Vice President and
General Counsel
Fax: (312) 207-1540
and
Ameritech Corporation
30 S. Wacker Drive
Chicago, Illinois 60606
Attention: Assistant General Counsel -
Transactions
Fax: (312) 207-0086
A-35
<PAGE>
and
Charles W. Mulaney, Jr., Esq.
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 W. Wacker Dr.
Chicago, Illinois 60606
Fax: (312) 407-0411
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
9.7. Entire Agreement. This Agreement (including any exhibits hereto), the
Confidentiality Agreement, the Company Disclosure Letter and the SBC
Disclosure Letter constitute the entire agreement, and supersede all other
prior agreements, understandings, representations and warranties both written
and oral, among the parties, with respect to the subject matter hereof. EACH
PARTY HERETO AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
CONTAINED IN THIS AGREEMENT, NEITHER SBC AND MERGER SUB NOR THE COMPANY MAKES
ANY OTHER REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY DISCLAIMS ANY OTHER
REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR ANY OF ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, FINANCIAL AND LEGAL ADVISORS OR OTHER
REPRESENTATIVES, WITH RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR
DISCLOSURE TO THE OTHER OR THE OTHER'S REPRESENTATIVES OF ANY DOCUMENTATION OR
OTHER INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE FOREGOING.
9.8. No Third Party Beneficiaries. Except as provided in Section 6.12
(Indemnification; Directors' and Officers' Insurance), this Agreement is not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
9.9. Obligations of SBC and of the Company. Whenever this Agreement requires
a Subsidiary of SBC to take any action, such requirement shall be deemed to
include an undertaking on the part of SBC to cause such Subsidiary to take
such action. Whenever this Agreement requires a Subsidiary of the Company to
take any action, such requirement shall be deemed to include an undertaking on
the part of the Company to cause such Subsidiary to take such action and,
after the Effective Time, on the part of the Surviving Corporation to cause
such Subsidiary to take such action.
9.10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may
be valid and enforceable, the intent and purpose of such invalid or
unenforceable provision and (b) the remainder of this Agreement and the
application of such provision to other Persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or
the application thereof, in any other jurisdiction.
9.11. Interpretation. The table of contents and headings herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section or Exhibit, such
reference shall be to a Section
A-36
<PAGE>
of or Exhibit to this Agreement unless otherwise indicated. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation."
9.12. Captions. The Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
9.13. Assignment. This Agreement shall not be assignable by operation of law
or otherwise; provided, however, that SBC may designate prior to the Effective
Time, by written notice to the Company, another wholly-owned direct or
indirect Subsidiary to be a party to the Merger in lieu of Merger Sub, in
which event all references herein to Merger Sub shall be deemed references to
such other Subsidiary (except with respect to representations and warranties
made herein with respect to Merger Sub as of the date hereof) and all
representations and warranties made herein with respect to Merger Sub as of
the date hereof shall also be made with respect to such other subsidiary as of
the date of such designation. Any assignment in contravention of the preceding
sentence shall be null and void.
A-37
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
AMERITECH CORPORATION
By: /s/ Richard C. Notebaert
__________________________________
Name: Richard C. Notebaert
Title: Chairman and Chief
Executive Officer
SBC COMMUNICATIONS INC.
By: /s/Edward E. Whitacre, Jr.
__________________________________
Name: Edward E. Whitacre, Jr.
Title: Chairman and Chief
Executive Officer
SBC DELAWARE, INC.
By: /s/Edward E. Whitacre, Jr.
__________________________________
Name: Edward E. Whitacre, Jr.
Title: President
A-38
<PAGE>
EXHIBIT A
FORM OF COMPANY AFFILIATE'S LETTER
, 1998
SBC Communications Inc.
175 E. Houston
San Antonio, TX 78205
Ladies and Gentlemen:
The undersigned is a holder of shares of Common Stock, $1.00 par value per
share ("Company Common Stock"), of Ameritech Corporation, a Delaware
corporation (the "Company"). Pursuant to the terms of that certain Agreement
and Plan of Merger, dated as of May 10, 1998, among the Company, SBC
Communications Inc., a Delaware corporation ("SBC"), and SBC (Delaware), Inc.,
a Delaware corporation and a wholly-owned subsidiary of SBC ("Merger Sub"),
Merger Sub will be merged with and into the Company and the Company will
become a wholly owned subsidiary of SBC (the "Merger"). In connection with the
Merger, the undersigned, as a holder of Company Common Stock, will be entitled
to receive Common Stock, par value $1.00 per share, of SBC (the "Securities")
in exchange for the shares of Company Common Stock held by the undersigned at
the effective time of the Merger.
The undersigned acknowledges that the undersigned may be deemed an
"affiliate" of the Company within the meaning of Rule 145 ("Rule 145")
promulgated under the Securities Act of 1933, as amended (the "Act"), and/or
as such term is used in and for purposes of Accounting Series Release Nos. 130
and 135, as amended, of the Securities and Exchange Commission (the
"Commission"), although nothing contained herein shall be construed as an
admission of such status.
If in fact the undersigned were an affiliate of the Company under the Act,
the undersigned's ability to sell, assign or transfer any Securities received
by the undersigned in exchange for any shares of Company Common Stock pursuant
to the Merger may be restricted unless such sale, assignment or transfer is
registered under the Act or an exemption from such registration is available.
The undersigned understands that such exemptions are limited and the
undersigned has obtained advice of counsel as to the nature and conditions of
such exemptions, including information with respect to the applicability to
the sale of such Securities of Rules 144 and 145(d) promulgated under the Act.
The undersigned hereby represents to and covenants with SBC that it will not
sell, assign or transfer any Securities received by the undersigned in
exchange for shares of Company Common Stock pursuant to the Merger except (i)
pursuant to an effective registration statement under the Act, (ii) by a sale
made in conformity with the volume and other limitations of Rule 145 (and
otherwise in accordance with Rule 144 under the Act, if the undersigned is an
affiliate of SBC and if so required at the time) or (iii) in a transaction
which, in the opinion of independent counsel reasonably satisfactory to the
Company or as described in a "no-action" or interpretive letter from the Staff
of the Commission reasonably satisfactory to SBC, is not required to be
registered under the Act.
The undersigned understands that SBC is under no obligation to register the
sale, assignment, transfer or other disposition of the Securities by the
undersigned or on behalf of the undersigned under the Act or to take any other
action necessary in order to make compliance with an exemption from such
registration available solely as a result of the Merger.
A-A-1
<PAGE>
SBC Communications Inc.
, 1998
Page 2
In the event of a sale of Securities pursuant to Rule 145, the undersigned
will supply SBC with evidence of compliance with such Rule, in the form of
customary seller's and broker's Rule 145 representation letters or as SBC may
otherwise reasonably request. The undersigned understands that SBC may
instruct its transfer agent to withhold the transfer of any Securities
disposed of by the undersigned in a manner inconsistent with this letter.
The undersigned acknowledges and agrees that appropriate legends will be
placed on certificates representing Securities received by the undersigned in
the Merger or held by a transferee thereof, which legends will be removed (i)
by delivery of substitute certificates upon receipt of a letter from the staff
of the Commission, or an opinion of counsel in form and substance reasonably
satisfactory to SBC, to the effect that such legends are no longer required
for the purposes of the Act and the rules and regulations of the Commission
promulgated thereunder, (ii) in the event of a sale of the Securities which
has been registered under the Act or made in conformity with the provisions of
Rule 145.
The undersigned further represents to and covenants with SBC that (i) the
undersigned will not, during the 30 days prior to the effective time of the
Merger sell, transfer or otherwise dispose of, or reduce any risk relative to,
any securities of the Company or SBC, and (ii) the undersigned will not, after
the effective time of the Merger, sell, transfer or otherwise dispose of, or
reduce any risk relative to, the Securities, whether received by the
undersigned in the Merger or otherwise, until after such time as financial
results covering at least 30 days of post-Merger operations of SBC (including
the combined operations of the Company and SBC) have been published by SBC in
the form of a quarterly earnings report, an effective registration statement
filed with the Commission, a report to the Commission on Form 10-K, 10-Q or 8-
K, or any other public filing or announcement which includes such results of
operations, except in the cases of clauses (i) and (ii) of this paragraph to
the extent permitted by, and in accordance with, SEC Accounting Series Release
135 and SEC Staff Accounting Bulletins 65 and 76 if and to the extent that
such release and bulletins remain in full force and effect at the relevant
time.
I further understand and agree that this letter agreement shall apply to all
shares of Company Common Stock and Securities that I am deemed to beneficially
own pursuant to applicable federal securities law.
The undersigned acknowledges that it has carefully reviewed this letter and
understands the requirements hereof and the limitations imposed upon the
distribution, sale, transfer or other disposition of Securities.
Sincerely,
[NAME OF COMPANY AFFILIATE]
A-A-2
<PAGE>
EXHIBIT B
FORM OF SBC AFFILIATE'S LETTER
, 1998
SBC Communications Inc.
175 E. Houston
San Antonio, TX 78205
Ladies and Gentlemen:
The undersigned is a holder of shares of Common Stock, par value $1.00 per
share (the "Securities"), of SBC Communications Inc., a Delaware corporation
("SBC"). Pursuant to the terms of that certain Agreement and Plan of Merger,
dated as of May 10, 1998, among Ameritech Corporation, a Delaware corporation
(the "Company"), SBC and SBC Delaware, Inc., a Delaware corporation and a
wholly-owned subsidiary of SBC ("Merger Sub"), Merger Sub will be merged with
and into the Company and the Company will become a wholly owned subsidiary of
SBC (the "Merger").
The undersigned acknowledges that the undersigned may be deemed an
"affiliate" of SBC as such term is used in and for purposes of Accounting
Series Release Nos. 130 and 135, as amended, of the Securities and Exchange
Commission (the "Commission"), although nothing contained herein shall be
construed as an admission of such status.
The undersigned hereby represents to and covenants with SBC that the
undersigned will not, during the 30 days prior to the effective time of the
Merger sell, transfer or otherwise dispose of, or reduce any risk relative to,
the Securities or any other shares of the capital stock of SBC until after
such time as financial results covering at least 30 days of post-Merger
operations of SBC (including the combined operations of the Company and SBC)
have been published by SBC in the form of a quarterly earnings report, an
effective registration statement filed with the Commission, a report to the
Commission on Form 10-K, 10-Q or 8-K, or any other public filing or
announcement which includes such results of operations, except to the extent
permitted by, and in accordance with, SEC Accounting Series Release 135 and
SEC Staff Accounting Bulletins 65 and 76 if and to the extent that such
release and bulletins remain in full force and effect at the relevant time.
I further understand and agree that this letter agreement shall apply to all
Securities that I am deemed to beneficially own pursuant to applicable federal
securities law.
The undersigned acknowledges that the undersigned has carefully reviewed
this letter and understands the requirements hereof and the limitations
imposed upon the sale, transfer or other disposition of Securities.
Sincerely,
[NAME OF SBC AFFILIATE]
A-B-1
<PAGE>
ANNEX B
SALOMON SMITH BARNEY
- -------------------------------
A Member of TravelersGroup LOGO
May 10, 1998
Board of Directors
SBC Communications Inc.
175 East Houston
San Antonio TX 78205
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to SBC Communications Inc. ("Parent") of the consideration to be paid by
Parent in connection with the proposed business combination between Parent and
Ameritech Corporation (the "Company") pursuant to the Agreement and Plan of
Merger (the "Agreement"), dated as of May 10, 1998, among the Company, Parent,
and SBC Delaware, Inc., a wholly owned subsidiary of Parent ("Sub"). Pursuant
to the terms of the Agreement, Sub will merge (the "Merger") with and into the
Company, and each share of common stock, $1.00 par value per share, of the
Company ("Company Common Stock") issued and outstanding immediately prior to
the Merger (other than shares of Company Common Stock owned by Parent or Sub
or any other direct or indirect subsidiary of Parent or owned by the Company
or any direct or indirect subsidiary of the Company, in each case not held on
behalf of third parties) will be converted into and become exchangeable for
1.316 (the "Exchange Ratio") shares of common stock, $1.00 par value per
share, of Parent ("Parent Common Stock"). We understand that the Merger is
expected to be accounted for as a pooling-of-interests in accordance with
generally accepted accounting principles and is expected to qualify, for
federal income tax purposes, as a reorganization under the provisions of
Section 368 (a) of the Internal Revenue Code of 1986, as amended.
In connection with rendering our opinion, we have reviewed certain publicly
available information with respect to Parent and the Company and certain other
financial information with respect to Parent and the Company, including
financial forecasts, that were provided to us by Parent and the Company,
respectively. We have discussed the past and current business operations and
financial conditions of Parent and the Company as well as other matters we
believe relevant to our inquiry, including matters relating to the regulatory
approvals required to consummate the Merger, with certain officers and
employees of Parent and the Company, respectively. We have also considered
such other information, financial studies, analyses, investigations and
financial, economic and market criteria that we deemed relevant.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of the financial and other
information (including information relating to the regulatory approvals
required to consummate the Merger) reviewed by us, and we have not assumed any
responsibility for independent verification of such information. With respect
to the financial forecasts of Parent and the Company, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements of Parent or
the Company as to the future financial performance of Parent or the Company,
respectively, and we express no view with respect to such forecasts or the
assumptions on which they are based. We also have assumed that the Merger will
be consummated in
SALOMON SMITH BARNEY INC.
7 World Trade Center, 31st Floor, New York, NY 10013 212-783-70003
B-1
<PAGE>
SALOMON SMITH BARNEY
- -------------------------------
A Member of TravelersGroup LOGO
accordance with the terms of the Agreement. We have not made or obtained, or
assumed any responsibility for making or obtaining, any independent
evaluations or appraisals of any of the assets (including properties and
facilities) or liabilities of Parent or the Company.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion as expressed below does not imply
any conclusion as to the trading range for the Parent Common Stock following
the consummation of the Merger, which may vary depending upon, among other
factors, changes in interest rates, dividend rates, market conditions, general
economic conditions and other factors that generally influence the price of
securities. Our opinion does not address Parent's underlying business decision
to effect the Merger. Our opinion is directed only to the fairness, from a
financial point of view, of the Exchange Ratio to Parent and does not
constitute a recommendation concerning how holders of Parent Common Stock
should vote with respect to the transactions contemplated by the Agreement.
We have acted as financial advisor to the Board of Directors of Parent in
connection with the Merger and will receive a fee for our services, part of
which is contingent upon consummation of the Merger. In the ordinary course of
business, we (including our current and future affiliates) may actively trade
the securities of Parent and the Company and their affiliates for our own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities. Also, we and our affiliates
have previously rendered investment banking and financial advisory services to
Parent and the Company and certain of their affiliates for which we have
received customary compensation. We (including our current and future
affiliates) may have other business relationships with Parent, the Company and
their respective affiliates.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to Parent from a financial point of
view.
Very truly yours,
/s/ SALOMON SMITH BARNEY
SALOMON SMITH BARNEY
B-2
<PAGE>
- --------------------------------------------------------------------------------
ANNEX C
Goldman, Sachs & Co. | 85 Broad Street | New York, New York 10004
Tel: 212-902-1000
GOLDMAN SACHS
- --------------------------------------------------------------------------------
PERSONAL AND CONFIDENTIAL
May 10, 1998
Board of Directors
Ameritech Corporation
30 South Wacker Drive
Chicago, IL 60606
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of common stock, par value $1.00
per share (the "Shares"), of Ameritech Corporation (the "Company") of the
exchange ratio of 1.316 shares of common stock, par value $1.00 per share, of
SBC Communications Inc. ("SBC") to be received for each Share (the "Exchange
Ratio") pursuant to the Agreement and Plan of Merger, dated as of May 10, 1998,
among SBC, SBC Delaware, Inc., a wholly-owned subsidiary of SBC, and the
Company (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their 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. We are
familiar with the Company having provided certain investment banking services
to the Company from time to time, including: (i) having acted as financial
advisor to the Company with respect to the Company's acquisition of 4.5 million
Class A ordinary shares of TeleDanmark in 1997, (ii) having acted as managing
underwriter of a public offering of stated rate auction preferred securities
issued by Ameritech Denmark Capital Funding Corporation, an affiliate of the
Company, on April 20, 1998, (iii) having acted as managing underwriter of a
public offering of $1.75 billion of notes and debentures issued by the Company
on January 15, 1998, and (iv) having acted as financial advisor to the Company
in connection with, and participated in certain of the negotiations leading to,
the Agreement. We also have provided certain investment banking services to SBC
from time to time, including having acted as co-manager of a public offering of
$200 million of notes for a subsidiary of SBC on February 10, 1998, and may
provide investment banking services to SBC in the future. Goldman, Sachs & Co.
provides a full range of financial advisory and securities services and, in the
course of its normal trading activities, may from time to time effect
transactions and hold securities, including derivative securities, of the
Company or SBC for its own account and for the accounts of
New York London Tokyo Boston Chicago Dallas Frankfurt George Town
Hong Kong Houston Los Angeles Memphis Miami Milan Montreal Osaka Paris
Philadelphia San Francisco Singapore Sydney Toronto Vancouver Zurich
C-1
<PAGE>
customers. As of May 6, 1998, Goldman, Sachs & Co. has accumulated (i) a long
position of 287,383 Shares against which Goldman, Sachs & Co. is short 191,694
Shares, (ii) a short position of 1,431,742 shares of common stock of SBC
against which Goldman, Sachs & Co. is long 446,807 shares of common stock of
SBC, options to purchase 40,000 shares of common stock of SBC, and 10,100
convertible bonds of SBC, and (iii) a long position of 666,000 shares of
common stock of Southern New England Telecommunications Corporation.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to stockholders and Annual Reports on Form 10-K of
the Company and SBC for the five years ended December 31, 1997; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of the Company and
SBC; certain other communications from the Company and SBC to their respective
stockholders; and certain internal financial analyses and forecasts for the
Company and SBC prepared by their respective managements. We have held
discussions with members of the senior management of the Company and SBC
regarding the past and current business operations, financial condition, and
future prospects of their respective companies. We have also held discussions
with members of the senior management of the Company and SBC regarding the
strategic rationale for, and potential benefits of, the transaction
contemplated by the Agreement, including a discussion of potential synergies
expected to be derived as a result of the transaction contemplated by the
Agreement. In addition, we have reviewed the reported price and trading
activity for the Shares and SBC's common stock, compared certain financial and
stock market information for the Company and SBC with similar information for
certain other companies the securities of which are publicly traded, reviewed
the financial terms of certain recent business combinations in the
telecommunications industry specifically and in other industries generally and
performed such other studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In addition, we have not
made an independent evaluation or appraisal of the assets and liabilities of
the Company or SBC or any of their subsidiaries and we have not been furnished
with any such evaluation or appraisal. We also have assumed that the
transaction will be accounted for as a pooling of interests under generally
accepted accounting principles.
Our advisory services and the opinion expressed herein are provided for the
information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion may not be used or quoted for any other purpose
without our prior written consent. The opinion expressed herein does not
constitute a recommendation as to how any holder of Shares should vote with
respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair from a financial point of
view to the holders of Shares.
Very truly yours,
/s/ Goldman, Sachs & Co.
C-2
<PAGE>
EXHIBIT 99-A
[Face of Ameritech Proxy Card]
[LOGO OF AMERITECH APPEARS HERE]
1998 SPECIAL MEETING OF SHAREOWNERS
DECEMBER 11, 1998
9:00 A.M.
MCCORMICK PLACE SOUTH
GRAND BALLROOM, LEVEL 1
2301 SOUTH MARTIN LUTHER KING, JR. DRIVE
CHICAGO, ILLINOIS 60616
DOORS OPEN AT 8:45 A.M., MEETING BEGINS PROMPTLY AT 9:00 A.M.
CAMERAS AND RECORDING DEVICES WILL NOT BE ALLOWED IN THE MEETING
ADMISSION TICKET
THIS TICKET ENTITLES YOU, THE SHAREOWNER, TO ATTEND THE SPECIAL MEETING.
FOR WHEELCHAIR AND HEARING IMPAIRED SEATING, PLEASE SEE A HOST/HOSTESS FOR
ASSISTANCE.
AMERITECH CORPORATION
This Proxy is Solicited on Behalf of the Board of Directors of Ameritech
Corporation
30 South Wacker Drive
Chicago, Illinois 60606
The undersigned hereby (1) acknowledges receipt of the Notice of Special
Meeting of Shareowners (including any adjournments or postponements thereof,
the "Ameritech Special Meeting") of Ameritech Corporation, a Delaware
corporation ("Ameritech"), to be held on December 11, 1998, at 9:00 a.m.,
local time, at McCormick Place South, Grand Ballroom, Level 1, 2301 South
Martin Luther King, Jr. Drive, Chicago, Illinois 60616, and the Joint Proxy
Statement/Prospectus in connection therewith, and (2) appoints Richard C.
Notebaert, Melvin R. Goodes, Hanna Holborn Gray, Lynn M. Martin, A. Barry Rand
and John D. Ong, and each of them, his or her proxies with full power of
substitution for and in the name, place, and stead of the undersigned, to vote
upon and act with respect to all of the shares of common stock, $1.00 par
value per share, of Ameritech ("Ameritech Common Stock") standing in the name
of the undersigned, or with respect to which the undersigned is entitled to
vote and act, at the Ameritech Special Meeting.
This proxy when properly executed will be voted as specified on the reverse
side. If no specification is made, this proxy will be voted FOR the proposal
to adopt the Merger Agreement (as defined on the reverse side).
This card also serves as voting instructions for shares held in the Ameritech
Direct Services Investment Plan and shares held in the Ameritech Savings Plan
for Salaried Employees and the Ameritech Savings and Security Plan for Non-
Salaried Employees, as described in the Joint Proxy Statement/Prospectus, if
registrations are identical.
Notwithstanding shareowner adoption of the Merger Agreement, Ameritech
reserves the right to abandon the Merger (as defined on the reverse side) at
any time prior to its consummation, subject to the terms and conditions of the
Merger Agreement.
Holders of Ameritech Common Stock will not be entitled to appraisal or
dissenters' rights in connection with the Merger.
The undersigned hereby revokes any proxy heretofore given to vote or act with
respect to the Ameritech Common Stock and hereby ratifies and confirms all
that the proxies, their substitutes, or any of them may lawfully do by virtue
hereof.
To submit your proxy by telephone or Internet, please see the reverse side of
this card. To submit your proxy by mail, please mark, sign, date and return
this proxy card in the enclosed envelope. No postage is required.
<PAGE>
[Reverse of Ameritech Proxy Card]
Your electronic proxy authorizes the named proxies to vote your shares to the
same extent as if you marked, signed, dated and returned the proxy card. If
you submit your proxy by phone or through the Internet, please do not mail
your proxy.
THANK YOU FOR VOTING.
Ameritech Corporation encourages you to take advantage of one of the three
proxy submission methods outlined below to cast your ballot. We've made it
easier than ever.
SUBMIT YOUR PROXY BY PHONE
1-800-690-6903
Use any touch-tone telephone to submit your proxy 24 hours a day, 7 days a
week. Have your proxy card in hand when you call. You will be prompted to
enter the 12-digit Control Number which is located below. You will then be
asked to provide voting instructions on the proposal to adopt the Merger
Agreement. Your voting instructions will be repeated to you and you will be
asked to confirm them.
SUBMIT YOUR PROXY BY INTERNET
WWW.PROXYVOTE.COM
Use the Internet to submit your proxy 24 hours a day, 7 days a week. Have your
proxy card in hand when you access the web site. You will be prompted to enter
the 12-digit Control Number which is located below to obtain your records and
create an electronic ballot. You will then be asked to provide voting
instructions on the proposal to adopt the Merger Agreement and to confirm your
submission.
SUBMIT YOUR PROXY BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to Ameritech Corporation, c/o ADP, 51 Mercedes
Way, Edgewood, NY 11717.
CONTROL NUMBER: [ ]
TO PROVIDE VOTING INSTRUCTIONS,
MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
KEEP THIS PORTION FOR YOUR RECORDS.
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
DETACH AND RETURN THIS PORTION ONLY
PLEASE SIGN AND DATE THIS PROXY CARD WHERE INDICATED BELOW.
AMERITECH CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF AMERITECH
CORPORATION
THE UNDERSIGNED DIRECTS THAT THIS PROXY BE VOTED AS FOLLOWS:
<TABLE>
<S> <C>
(1) TO APPROVE A PROPOSAL TO ADOPT THE AGREEMENT AND
PLAN OF MERGER, DATED AS OF MAY 10, 1998, AMONG FOR AGAINST ABSTAIN
AMERITECH, SBC COMMUNICATIONS INC., A DELAWARE
CORPORATION ("SBC"), AND SBC DELAWARE, INC., A [_] [_] [_]
DELAWARE CORPORATION ("MERGER SUB") WHOLLY OWNED
BY SBC (AS SUCH AGREEMENT MAY BE AMENDED,
SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO
TIME, THE "MERGER AGREEMENT"). PURSUANT TO THE
MERGER AGREEMENT, MERGER SUB WILL BE MERGED WITH
AND INTO AMERITECH (THE "MERGER") AND AMERITECH
WILL BECOME A WHOLLY OWNED SUBSIDIARY OF SBC.
(2) IN THE DISCRETION OF THE PROXIES, ON SUCH OTHER
BUSINESS RELATED TO PROPOSAL (1) AS MAY PROPERLY
COME BEFORE THE AMERITECH SPECIAL MEETING
(INCLUDING ANY ADJOURNMENTS OR POSTPONEMENTS
THEREOF.)
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON.
JOINT OWNERS SHOULD EACH SIGN. WHEN SIGNING AS AN
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF
SIGNED BY A CORPORATION, THE PROXY SHOULD BE
SIGNED BY A DULY AUTHORIZED REPRESENTATIVE AND
STATE THE NAME OF THE CORPORATION AND THE
AUTHORIZED CORPORATE REPRESENTATIVE.
</TABLE>
---------------------------------------- ------------------------------
Signature (Please Sign Within Box) Date Signature (Joint Owners) Date
<PAGE>
[Instructions for Ameritech Registered Shareowners]
WAIT! THERE'S AN EASIER WAY TO SUBMIT YOUR PROXY.
24 HOURS A DAY -- 7 DAYS A WEEK [LOGO OF AMERITECH APPEARS HERE]
- -------------------------------------------------------------------------------
SUBMIT YOUR PROXY BY TELEPHONE
It's fast, convenient, and your submission is immediatelyconfirmed and posted.
CALL TOLL-FREE ON A TOUCH-TONE PHONE
1-800-690-6903
JUST FOLLOW THESE FOUR EASY STEPS:
1. Read the accompanying
Joint Proxy Statement/
Prospectus and proxy
card.
2. Call the toll-free
number: 1-800-690-6903
3. Enter your 12-digit
Control Number located on
your proxy card.
4. Follow the simple
recorded instructions.
YOUR VOTE IS IMPORTANT!
CALL 1-800-690-6903
24 HOURS A DAY
- -------------------------------------------------------------------------------
SUBMIT YOUR PROXY BY INTERNET
It's fast, convenient, and your submission is immediatelyconfirmed and posted.
GO TO WEBSITE:
WWW.PROXYVOTE.COM
JUST FOLLOW THESE FOUR EASY STEPS:
1. Read the accompanying
Joint Proxy Statement/
Prospectus and proxy
card.
2. Go to the web site,
www.proxyvote.com
3. Enter your 12-digit
Control Number located on
your proxy card.
4. Follow the simple
instructions.
YOUR VOTE IS IMPORTANT!
GO TO WWW.PROXYVOTE.COM
24 HOURS A DAY
IF YOU SUBMIT YOUR PROXY BY TELEPHONE OR INTERNET,
DO NOT RETURN YOUR PROXY CARD.
THANK YOU FOR YOUR PROXY SUBMISSION.
