<PAGE> 1
REGISTRATION NO. 333-02587
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SBC COMMUNICATIONS INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 6719 42-1301883
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
175 EAST HOUSTON
SAN ANTONIO, TEXAS 78205
(210) 821-4105
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's principal executive offices)
---------------------
JUDITH M. SAHM
SBC COMMUNICATIONS INC.
175 EAST HOUSTON
SAN ANTONIO, TEXAS 78205
(210) 821-4105
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
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Copies to:
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<S> <C> <C> <C>
JOSEPH B. FRUMKIN WAYNE WIRTZ DUANE G. HENRY JAMES M. CANTY
SULLIVAN & CROMWELL SBC COMMUNICATIONS INC. PACIFIC TELESIS GROUP PILLSBURY MADISON & SUTRO LLP
125 BROAD STREET 175 EAST HOUSTON 130 KEARNY STREET 235 MONTGOMERY STREET
NEW YORK, NEW YORK 10004 SAN ANTONIO, TEXAS 78205 SAN FRANCISCO, CALIFORNIA 94108 SAN FRANCISCO, CALIFORNIA
94104
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
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<PAGE> 2
SBC COMMUNICATIONS INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
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<CAPTION>
FORM S-4 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
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1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus........................... Inside Front and Outside Back Cover Pages
3. Risk Factors, Ratio of Earnings to Fixed
Charges, and Other Information.......... Summary; Unaudited Pro Forma Combined
Condensed Financial Statements of SBC
Communications Inc. and Pacific Telesis
Group; The Special Meetings; The Merger
4. Terms of the Transaction.................. Summary; The Merger; Comparison of Certain
Rights of Shareowners of SBC and PAC;
Certain Federal Income Tax Consequences
of the Merger
5. Pro Forma Financial Information........... Summary; Unaudited Pro Forma Condensed
Combined Financial Statements of SBC
Communications Inc. and Pacific Telesis
Group
6. Material Contacts with the Company Being
Acquired................................ Summary; The Merger
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters...................... *
8. Interests of Named Experts and Counsel.... Experts; Validity of Shares
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. *
10. Information with Respect to S-3
Registrants............................. Incorporation of Certain Information by
Reference; Summary; Unaudited Pro Forma
Combined Condensed Financial Statements
of SBC Communications Inc. and Pacific
Telesis Group
11. Incorporation of Certain Information by
Reference............................... Incorporation of Certain Information by
Reference
12. Information with Respect to S-2 or S-3
Registrants............................. *
13. Incorporation of Certain Information by
Reference............................... *
14. Information with Respect to Registrants
Other Than S-2 or S-3 Registrants....... *
15. Information with Respect to S-3
Companies............................... Incorporation of Certain Information by
Reference; Summary; Unaudited Pro Forma
Combined Condensed Financial Statements
of SBC Communications Inc. and Pacific
Telesis Group
16. Information with Respect to S-2 or S-3
Companies............................... *
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FORM S-4 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
------------------------------------------ ------------------------------------------
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17. Information with Respect to Companies
Other Than S-2 or S-3 Companies......... *
18. Information if Proxies, Consents or
Authorizations Are to be Solicited:..... The Special Meetings
1. Date, Time and Place Information....... Outside Front Cover Page; Summary; The
Special Meetings
2. Revocability of Proxy.................. The Special Meetings
3. Dissenters' Rights of Appraisal........ Summary; The Special Meetings; The Merger;
Comparison of Certain Rights of
Shareowners of SBC Communications Inc.
and Pacific Telesis Group
4. Persons Making the Solicitation........ Outside Front Cover Page; Summary; The
Special Meetings; The Merger
5. Interest of Certain Persons in Matters
to be Acted Upon and Voting Securities
and Principal Holders Thereof.......... Incorporation of Certain Information by
Reference; Summary; The Special
Meetings; The Merger
6. Vote Required for Approval............. Summary; The Special Meetings
7. Directors and Executive Officers,
Executive Compensation, and Certain
Relationships and Related
Transactions........................... Incorporation of Certain Information by
Reference; Summary
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer................. *
<FN>
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* Indicates that Item is not applicable or answer is in the negative.
</TABLE>
<PAGE> 4
[SBC COMMUNICATIONS INC. LOGO]
175 EAST HOUSTON
SAN ANTONIO, TEXAS 78205
June 3, 1996
Dear Shareowner:
You are cordially invited to attend a special meeting of shareowners (the
"SBC Special Meeting") of SBC Communications Inc. ("SBC") to be held on July 31,
1996, at 9:30 a.m., local time, at the Travis Conference Center at the Sheraton
Gunter Hotel, 205 East Houston, San Antonio, Texas.
At the SBC Special Meeting, you will be asked to consider and vote on a
proposal to approve and adopt an Agreement and Plan of Merger (the "Merger
Agreement"), pursuant to which SBC Communications (NV) Inc. ("Merger Sub"), a
wholly-owned subsidiary of SBC, will be merged (the "Merger") with and into
Pacific Telesis Group ("PAC"), and to approve the transactions contemplated
thereby, including the issuance of shares of common stock, par value $1.00 per
share, of SBC ("SBC Common Stock") pursuant to the Merger Agreement. Upon the
Merger becoming effective, each share of common stock, par value $.10 per share,
of PAC will be converted into the right to receive, and become exchangeable for,
0.733 of a share of SBC Common Stock, subject to increase or decrease in certain
circumstances as set forth in the Merger Agreement and as described in the
accompanying Joint Proxy Statement/Prospectus (the "Exchange Ratio"), together
with the appropriate number of preferred stock purchase rights attached thereto.
The Board of Directors of SBC has carefully reviewed and considered the
terms and conditions of the Merger. In addition, the Board of Directors of SBC
has received a written opinion from its financial advisor, Lazard Freres & Co.
LLC, to the effect that, as of April 1, 1996 and as of the date hereof, the
Exchange Ratio is fair to SBC from a financial point of view.
SBC'S BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE BEST INTERESTS OF, ITS
SHAREOWNERS. ACCORDINGLY, THE BOARD HAS UNANIMOUSLY APPROVED (BY VOTE OF ALL
DIRECTORS PRESENT) THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT ALL
SHAREOWNERS VOTE FOR ITS APPROVAL AND ADOPTION AND APPROVAL OF THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE ISSUANCE OF SHARES OF SBC COMMON STOCK
PURSUANT THERETO.
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 SBC and PAC and describe the Merger and certain other
matters.
The affirmative vote of a majority of the votes cast at the SBC Special
Meeting is necessary for approval and adoption of the Merger Agreement and
approval of the transactions contemplated thereby, including the issuance of
shares of SBC Common Stock pursuant to the Merger Agreement.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE SBC SPECIAL MEETING,
YOU ARE URGED PROMPTLY TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY
IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SBC SPECIAL
MEETING. Prior to the voting of the Proxy at the SBC Special Meeting, any person
giving a proxy has the power to revoke it at any time, and shareowners who are
present at the SBC Special Meeting may withdraw their proxies and vote in
person.
Sincerely,
/s/ EDWARD E. WHITACRE, JR.
EDWARD E. WHITACRE, JR.
Chairman of the Board and Chief
Executive Officer
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[SBC COMMUNICATIONS INC. LOGO]
SBC COMMUNICATIONS INC.
175 EAST HOUSTON
SAN ANTONIO, TEXAS 78205
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NOTICE OF SPECIAL MEETING OF SHAREOWNERS
TO BE HELD ON JULY 31, 1996
---------------------
To the Shareowners of SBC COMMUNICATIONS INC.:
NOTICE IS HEREBY GIVEN that a special meeting of shareowners (the "SBC
Special Meeting") of SBC Communications Inc., a Delaware corporation ("SBC"),
has been called by the Board of Directors of SBC and will be held at the Travis
Conference Center at the Sheraton Gunter Hotel, 205 East Houston, San Antonio,
Texas at 9:30 a.m., local time, on July 31, 1996, to consider and vote upon the
following matters described in the accompanying Joint Proxy
Statement/Prospectus:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger (the "Merger Agreement"), among Pacific Telesis
Group, a Nevada corporation ("PAC"), SBC and SBC Communications (NV) Inc., a
Nevada corporation and a wholly-owned subsidiary of SBC ("Merger Sub"),
dated as of April 1, 1996, and to approve the transactions contemplated by
the Merger Agreement, including the issuance of shares of common stock, par
value $1.00 per share, of SBC ("SBC Common Stock") pursuant to the Merger
Agreement;
2. To transact such other business as may properly come before the SBC
Special Meeting or any adjournments or postponements thereof. SBC does not
currently intend to seek an adjournment of the SBC Special Meeting.
Notwithstanding shareowner approval of the foregoing proposal, SBC reserves
the right to abandon the merger of Merger Sub with and into PAC (the "Merger")
at any time prior to the consummation of the Merger, subject to the terms and
conditions of the Merger Agreement.
Holders of SBC Common Stock will not be entitled to appraisal rights in
connection with the Merger.
SBC has fixed the close of business on June 3, 1996, as the record date for
the determination of shareowners entitled to notice of, and to vote at, the SBC
Special Meeting, and only shareowners of record at such time will be entitled to
notice of, and to vote at, the SBC Special Meeting. A list of these shareowners
will be available for inspection during business hours from July 17 through July
30, 1996 at 175 East Houston, San Antonio, Texas, and will also be available at
the SBC Special Meeting.
Approval and adoption of the Merger Agreement and approval of the
transactions contemplated thereby, including the issuance of shares of SBC
Common Stock pursuant to the Merger Agreement, requires the affirmative vote of
a majority of the votes cast at the SBC 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 SBC
Special Meeting (including the Merger Agreement attached as Appendix A thereto)
accompany and form a part of this notice.
Whether or not you plan to attend the SBC Special Meeting, please promptly
complete, sign, date and return the enclosed proxy in the enclosed
pre-addressed, stamped envelope. No postage is necessary if it is mailed in the
United States. Prior to the voting of the proxy at the SBC Special Meeting, any
person giving a proxy has the power to revoke it at any time, and shareowners
who are present at the SBC Special Meeting may withdraw their proxies and vote
in person.
If you plan to attend the SBC Special Meeting in person, please bring the
admission ticket (which is attached to the proxy voting card) to the Special
Meeting. Shareowners who do not have admission tickets will be admitted upon
presentation of identification at the door. Anyone requiring special services
for the hearing impaired or physically disabled should contact SBC Financial
Communications at 210-351-2163 in advance of the meeting to arrange for these
services.
---------------------
THE BOARD OF DIRECTORS OF SBC UNANIMOUSLY RECOMMENDS THAT SHAREOWNERS VOTE IN
FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE ISSUANCE OF SHARES OF SBC
COMMON STOCK PURSUANT TO THE MERGER AGREEMENT.
By Order of the Board of Directors
/s/ JUDITH M. SAHM
-----------------------------------
JUDITH M. SAHM
Vice President and Secretary
San Antonio, Texas
June 3, 1996
A SPECIAL MERGER INFORMATION NUMBER HAS BEEN
ESTABLISHED FOR SHAREOWNERS OF SBC COMMUNICATIONS INC.
THE INFORMATION AGENT FOR THE MERGER IS:
SHAREHOLDER COMMUNICATIONS CORPORATION
17 STATE STREET 27TH AND 28TH FLOORS
NEW YORK, NEW YORK 10004
CALL TOLL FREE 1-800 813-3797
YOUR VOTE IS IMPORTANT PLEASE SIGN, DATE AND RETURN YOUR PROXY
<PAGE> 6
[PACIFIC TELESIS LOGO]
130 KEARNY STREET
SAN FRANCISCO, CALIFORNIA 94108
June 3, 1996
Dear Shareowner:
You are cordially invited to attend a special meeting of shareowners (the
"PAC Special Meeting") of Pacific Telesis Group ("PAC") to be held on July 31,
1996, at the San Jose Scottish Rite Center, 2455 Masonic Drive, San Jose,
California at 2:00 p.m., local time.
At the PAC Special Meeting, you will be asked to consider and vote on a
proposal to approve and adopt an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which SBC Communications (NV) Inc. ("Merger Sub"), a
wholly-owned subsidiary of SBC Communications Inc. ("SBC"), will be merged (the
"Merger") with and into PAC, and to approve the transactions contemplated
thereby. Upon the Merger becoming effective, each share of Common Stock, par
value $.10 per share, of PAC ("PAC Common Stock") will be converted into the
right to receive, and become exchangeable for, 0.733 of a share of common stock,
par value $1.00 per share, of SBC ("SBC Common Stock"), subject to increase or
decrease in certain circumstances as set forth in the Merger Agreement and as
described in the accompanying Joint Proxy Statement/Prospectus (the "Exchange
Ratio"), together with an appropriate number of preferred stock purchase rights
attached thereto. There can be no assurance that the Exchange Ratio will be
equal to 0.733 of a share of SBC Common Stock. In the event that the Exchange
Ratio is adjusted to less than 0.667 of a share of SBC Common Stock (other than
as a result of certain equitable adjustments necessitated by a distribution,
reclassification, stock split, stock dividend or similar transaction), PAC will
convene another meeting at which the shareowners of PAC will be requested again
to consider and vote upon the proposal to approve and adopt the Merger Agreement
and to approve the transactions contemplated thereby.
The Board of Directors of PAC has carefully reviewed and considered the
terms and conditions of the Merger. In addition, the Board of Directors of PAC
has received written opinions from its financial advisor, Salomon Brothers Inc,
to the effect that, as of April 1, 1996 and as of the date hereof, the Exchange
Ratio is fair to the holders of PAC Common Stock from a financial point of view.
PAC'S BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE BEST
INTERESTS OF, ITS SHAREOWNERS. ACCORDINGLY, THE BOARD HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT ALL SHAREOWNERS VOTE FOR
ITS APPROVAL AND ADOPTION AND APPROVAL OF THE TRANSACTIONS CONTEMPLATED THEREBY.
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 PAC and SBC and describe the Merger and certain other
matters.
The affirmative vote of the holders of at least a majority of the
outstanding shares of PAC Common Stock is necessary for approval and adoption of
the Merger Agreement and approval of the transactions contemplated thereby.
If the Merger Agreement is approved and the Merger is consummated, you will
be sent a letter of transmittal with instructions for surrendering your
certificates representing shares of PAC Common Stock. Please do not send your
share certificates until you receive these materials.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE PAC SPECIAL MEETING,
YOU ARE URGED PROMPTLY TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY
IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE PAC SPECIAL
MEETING. If you attend the PAC 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 at any time before it is exercised. Your prompt cooperation
will be appreciated.
Sincerely,
/s/ PHILIP J. QUIGLEY
PHILIP J. QUIGLEY
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 7
[PACIFIC TELESIS LOGO]
130 KEARNY STREET
SAN FRANCISCO, CALIFORNIA 94108
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NOTICE OF SPECIAL MEETING OF SHAREOWNERS
TO BE HELD ON JULY 31, 1996
---------------------
To the Shareowners of Pacific Telesis Group:
NOTICE IS HEREBY GIVEN that a special meeting of shareowners (the "PAC
Special Meeting") of Pacific Telesis Group, a Nevada corporation ("PAC"), has
been called by the Board of Directors of PAC and will be held at the San Jose
Scottish Rite Center, 2455 Masonic Drive, San Jose, California at 2:00 p.m.,
local time, on July 31, 1996, to consider and vote upon the following matters
described in the accompanying Joint Proxy Statement/Prospectus:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger (the "Merger Agreement"), among PAC, SBC
Communications Inc., a Delaware corporation ("SBC"), and SBC Communications
(NV) Inc., a Nevada corporation and a wholly-owned subsidiary of SBC
("Merger Sub"), dated as of April 1, 1996, and to approve the transactions
contemplated thereby; and
2. To transact such other business as may properly come before the PAC
Special Meeting or any adjournments or postponements thereof. PAC does not
currently intend to seek an adjournment of the PAC Special Meeting.
Notwithstanding shareowner approval of the foregoing proposal, PAC reserves
the right to abandon the merger of Merger Sub with and into PAC (the "Merger")
at any time prior to the consummation of the Merger, subject to the terms and
conditions of the Merger Agreement.
Holders of PAC Common Stock will not be entitled to appraisal rights in
connection with the Merger.
The Board of Directors of PAC has fixed the close of business on June 3,
1996, as the record date for the determination of shareowners entitled to notice
of, and to vote at, the PAC Special Meeting, and only shareowners of record at
such time will be entitled to notice of, and to vote at, the PAC Special
Meeting.
Approval and adoption of the Merger Agreement and approval of the
transactions contemplated thereby requires the affirmative vote of at least a
majority of the outstanding shares of PAC common stock.
A form of Proxy and a Joint Proxy Statement/Prospectus containing more
detailed information with respect to the matters to be considered at the PAC
Special Meeting (including the Merger Agreement attached as Appendix A thereto)
accompany and form a part of this notice.
Whether or not you plan to attend the PAC Special Meeting, please promptly
complete, sign, date and return the enclosed Proxy in the enclosed
self-addressed, stamped envelope. If you attend the PAC 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 at any time before it is voted.
If you are a registered shareowner of PAC Common Stock and plan to attend
the PAC Special Meeting in person, please detach and retain the admission ticket
which is attached to your proxy card and mark the appropriate box on the proxy
card. Beneficial owners who plan to attend the meeting in person may obtain
admission tickets in advance by sending written requests, along with proof of
ownership, such as a bank or brokerage firm account statement to:
Manager-Shareowner Relations, Pacific Telesis Group, 130 Kearny Street, Suite
2907, San Francisco, California 94108. Shareowners who do not present admission
tickets at the meeting will be admitted upon verification of ownership at the
shareowner services counter.
---------------------
THE BOARD OF DIRECTORS OF PAC UNANIMOUSLY RECOMMENDS THAT SHAREOWNERS VOTE
IN FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF
THE TRANSACTIONS CONTEMPLATED THEREBY.
By Order of the Board of Directors
/s/ RICHARD W. ODGERS
RICHARD W. ODGERS
Secretary
San Francisco, California
June 3, 1996
A SPECIAL MERGER INFORMATION NUMBER HAS BEEN
ESTABLISHED FOR SHAREOWNERS OF PACIFIC TELESIS GROUP.
THE INFORMATION AGENT FOR THE MERGER IS:
SHAREHOLDER COMMUNICATIONS CORPORATION
17 STATE STREET 27TH AND 28TH FLOORS
NEW YORK, NEW YORK 10004
CALL TOLL FREE 1-800 813-3797
YOUR VOTE IS IMPORTANT PLEASE SIGN, DATE AND RETURN YOUR PROXY
<PAGE> 8
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<S> <C>
[SBC COMMUNICATIONS INC. LOGO] [PACIFIC TELESIS LOGO]
</TABLE>
JOINT PROXY STATEMENT
---------------------
SBC COMMUNICATIONS INC.
PROSPECTUS
---------------------
This Joint Proxy Statement/Prospectus (the "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 SBC's Board of Directors 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 July 31, 1996
and at any adjournments or postponements thereof (the "SBC Special Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to the shareowners
of Pacific Telesis Group, a Nevada corporation ("PAC"), in connection with the
solicitation of proxies by PAC's Board of Directors from holders of outstanding
shares of common stock, par value $.10 per share, of PAC ("PAC Common Stock"),
for use at a special meeting of shareowners of PAC to be held on July 31, 1996
and at any adjournments or postponements thereof (the "PAC Special Meeting,"
and, together with the SBC Special Meeting, the "Special Meetings"). Neither PAC
nor SBC currently intends to seek an adjournment of its respective Special
Meeting.
At the Special Meetings, shareowners of SBC and PAC will be asked to
consider and vote upon a proposal to approve and adopt an Agreement and Plan of
Merger, dated as of April 1, 1996, among SBC, PAC and SBC Communications (NV)
Inc., a Nevada corporation and a wholly-owned subsidiary of SBC ("Merger Sub")
(as it may be amended, supplemented or otherwise modified from time to time, the
"Merger Agreement"), which is attached as Appendix A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference, and to approve the
transactions contemplated by the Merger Agreement, including, in the case of
SBC, the issuance of shares of SBC Common Stock pursuant to the Merger
Agreement. The Merger Agreement provides for the merger of Merger Sub with and
into PAC (the "Merger"), with PAC being the corporation surviving the Merger
(sometimes hereinafter referred to as the "Surviving Corporation"). Upon the
Merger becoming effective, each share of PAC Common Stock issued and outstanding
immediately prior to such time (other than shares of PAC Common Stock owned by
SBC, Merger Sub or any other subsidiary of SBC, or shares of PAC Common Stock
owned by PAC or any subsidiary of PAC ("Excluded PAC Common Stock")) will be
converted into the right to receive, and become exchangeable for, 0.733 of a
share of SBC Common Stock, subject to increase or decrease in certain
circumstances as set forth in the Merger Agreement and as described in this
Joint Proxy Statement/Prospectus. There can be no assurance that the Exchange
Ratio will be equal to 0.733 of a share of SBC Common Stock. In the event that
the Exchange Ratio is adjusted to less than 0.667 of a share of SBC Common Stock
(other than as a result of certain equitable adjustments necessitated by a
distribution, reclassification, stock split, stock dividend or similar
transaction), then PAC will convene another meeting at which the shareowners of
PAC will be requested again to consider and vote upon the proposal to approve
and adopt the Merger Agreement and to approve the transactions contemplated
thereby. See "The Merger -- Terms of the Merger." Each share of SBC Common Stock
issued in the Merger will be accompanied by an appropriate number of preferred
stock purchase rights of SBC. See "Description of SBC Capital Stock."
SBC has filed a Registration Statement (including exhibits and amendments
thereto, the "Registration Statement") pursuant to the Securities Act of 1933,
as amended (the "Securities Act"), covering the shares of SBC Common Stock (and
accompanying SBC preferred stock purchase rights) issuable in the Merger. This
Joint Proxy Statement/Prospectus constitutes the respective Proxy Statements of
SBC and PAC relating to the solicitation of proxies for use at their respective
Special Meetings and the Prospectus of SBC filed as part of the Registration
Statement. This Joint Proxy Statement/Prospectus and the proxies are first being
provided to shareowners of SBC and PAC on or about June 7, 1996.
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 June 3, 1996
<PAGE> 9
AVAILABLE INFORMATION
Each of SBC and PAC 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 PAC 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 shares of SBC Common Stock and PAC Common Stock are
listed on the New York Stock Exchange (the "NYSE"), the Pacific Stock Exchange
(the "PSE") and the Chicago Stock Exchange (the "CSE"). As such, the periodic
reports, proxy statements and other information filed by SBC and PAC with the
SEC 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, One Financial Place, 444 South LaSalle
Street, Chicago, Illinois 60605.
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,
PAC 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 DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO SBC,
EXCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED HEREIN, ARE AVAILABLE WITHOUT CHARGE UPON REQUEST TO SPECIALIST-
EXTERNAL REPORTING, SBC COMMUNICATIONS INC., 175 EAST HOUSTON, SAN ANTONIO,
TEXAS 78205. TELEPHONE REQUESTS MAY BE DIRECTED TO SPECIALIST-EXTERNAL REPORTING
AT (210) 351-3049. DOCUMENTS RELATING TO PAC, EXCLUDING EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED HEREIN, ARE
AVAILABLE WITHOUT CHARGE UPON REQUEST TO INVESTOR SERVICES, PACIFIC TELESIS
GROUP, 130 KEARNY STREET, SUITE 2926, SAN FRANCISCO, CALIFORNIA 94108. TELEPHONE
REQUESTS MAY BE DIRECTED TO GINNY ROGERS AT (415) 394-3079. IN ORDER TO ENSURE
TIMELY DELIVERY OF ANY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JULY 24,
1996.
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, 1995 (the "1995 SBC 10-K"); (b) SBC's Current Report on
Form 8-K, dated April 1, 1996; (c) SBC's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996; (d) the description of SBC Common Stock contained
in SBC's Registration Statement on Form 10, dated November 15, 1983; and (e)
SBC's Registration Statement on Form 8-A, dated February 9, 1989, together with
amendments thereto.
The following documents filed with the SEC by PAC (File No. 1-8609) are
incorporated herein by reference: (a) PAC's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 (the "1995 PAC 10-K"); (b) PAC's Current
Reports on Form 8-K, dated January 4, 1996 and April 1, 1996; (c) PAC's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996; (d) PAC's
1995 Consolidated Financial Statements included in PAC's 1996 Proxy Statement,
filed March 4, 1996; (e) the description of PAC Common Stock contained in PAC's
Registration Statement on Form 10, dated November 15, 1983; and (f) PAC's
Registration Statement on Form 8-A, dated September 25, 1989, together with
amendments thereto.
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<PAGE> 10
All documents filed by either SBC or PAC pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date hereof shall be deemed to
be incorporated herein by reference and to be a part hereof from the date of
such filing. Any statement contained herein or in a document incorporated or
deemed to be incorporated herein by reference shall 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 also is, or is deemed to be,
incorporated herein by reference modifies or supersedes such statement. Any such
statement so modified or superseded shall 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
PAC. 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 shall, under any circumstances,
create an implication that there has been no change in the affairs of SBC or PAC
since the date of this Joint Proxy Statement/Prospectus other than as set forth
in the documents incorporated herein by reference.
iii
<PAGE> 11
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................... ii
Incorporation of Certain Information by
Reference................................ ii
Summary.................................... 1
The Companies............................ 1
The Special Meetings..................... 1
The Merger............................... 2
Certain Federal Income Tax
Consequences.......................... 10
Certain Effects of the Merger on the
Rights of Holders of PAC Common
Stock................................. 10
Comparative Stock Prices................. 11
Selected Historical and Pro Forma
Combined Financial Data............... 12
Notes to Selected Historical and Pro
Forma Combined Financial Data......... 13
The Special Meetings....................... 14
General.................................. 14
Date, Place and Time..................... 14
Record Dates............................. 15
Votes Required........................... 15
Voting and Revocation of Proxies......... 16
Solicitation of Proxies.................. 17
Appraisal Rights......................... 17
The Companies.............................. 18
The Merger................................. 18
General.................................. 18
Background of the Merger................. 19
Reasons for the Merger; Recommendations
of the Boards of Directors............ 21
Opinions of Financial Advisors........... 25
Cautionary Statement Concerning Forward-
Looking Statements.................... 31
Terms of the Merger...................... 32
Regulatory Approval Costs................ 34
Effective Time; Closing.................. 34
Representations and Warranties........... 34
Conduct of Business Prior to Effective
Time; Certain Covenants; Acquisition
Proposals............................. 35
Certain Regulatory Matters............... 37
Employee Benefits........................ 39
Indemnification and Insurance............ 40
Conditions............................... 40
Modification or Amendment; Waiver of
Conditions............................ 42
Termination.............................. 42
Certain Termination Fees................. 43
Expenses................................. 44
Accounting Treatment..................... 45
Resale of SBC Capital Stock.............. 45
Interests of Certain Persons in the
Merger................................ 45
Appraisal Rights......................... 48
<CAPTION>
PAGE
----
<S> <C>
Exchange of Certificates................. 48
New York Stock Exchange Listing;
De-Listing of PAC Common Stock........ 49
Certain Federal Income Tax Consequences of
the Merger............................... 49
General.................................. 50
Consequences to PAC Shareowners.......... 50
Fractional Shares........................ 50
Consequences to PAC, SBC, Merger Sub and
Holders of SBC Common Stock........... 50
Unaudited Pro Forma Combined Condensed
Financial Statements of SBC
Communications Inc. and Pacific Telesis
Group.................................... 51
SBC Communications Inc. and Pacific Telesis
Group Notes to Unaudited Pro Forma
Combined Condensed Financial
Statements............................... 58
Description of SBC Capital Stock........... 59
SBC Common Stock......................... 59
SBC Preferred............................ 59
Description of SBC Rights................ 60
Comparison of Certain Rights of Shareowners
of SBC and PAC........................... 62
General.................................. 62
Size and Classification of the Board of
Directors; Director Designees......... 62
Removal of Directors; Filling Vacancies
on the Board of Directors............. 62
Action by Written Consent................ 63
Meetings of Shareowners.................. 63
Shareowner Proposals and Shareowner
Nominations of Directors.............. 64
Required Vote for Authorization of
Certain Actions....................... 65
Amendment of Corporate Charter
and Bylaws............................ 65
Appraisal and Dissenters' Rights......... 66
Fair Price and Anti-Greenmail
Provisions............................ 66
State Antitakeover Statutes.............. 67
Rights Plans............................. 68
Limitation on Directors' Liability....... 69
Indemnification of Officers and
Directors............................. 69
Cumulative Voting........................ 70
Conflict-of-Interest Transactions........ 70
Dividends and Other Distributions........ 70
Duties of Directors...................... 71
Issuance of Rights or Options to Purchase
Shares to Directors, Officers and
Employees............................. 71
Loans to Directors....................... 71
Experts.................................... 71
Validity of Shares......................... 72
</TABLE>
APPENDIX A: Agreement and Plan of Merger
APPENDIX B: Opinion of Lazard Freres & Co. LLC, dated as of June 3, 1996
APPENDIX C: Opinion of Salomon Brothers Inc, dated as of June 3, 1996
iv
<PAGE> 12
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 Appendices attached hereto and the documents
incorporated herein by reference. The information contained in this Joint Proxy
Statement/Prospectus with respect to SBC and Merger Sub has been supplied by
SBC, and the information with respect to PAC has been supplied by PAC.
THE COMPANIES
SBC
SBC is a communications holding company, which in 1995 had operating
revenues of approximately $12.67 billion and income before extraordinary loss of
approximately $1.89 billion. At December 31, 1995, SBC had total assets of
approximately $22 billion. SBC's subsidiaries are engaged principally in
communications and information services, including the provision of
telecommunications services in Texas, Missouri, Oklahoma, Kansas and Arkansas.
SBC was incorporated under the laws of the State of Delaware in 1983 by AT&T
Corp. ("AT&T") as one of seven regional holding companies formed to hold AT&T's
local telephone companies. AT&T divested SBC by means of a spin-off of stock to
AT&T shareowners on January 1, 1984. The divestiture was made pursuant to a
consent decree, settling antitrust litigation, issued by the United States
District Court for the District of Columbia (the "Consent Decree").
The mailing address of SBC's principal executive offices is 175 East
Houston, San Antonio, Texas 78205, and its telephone number is (210) 821-4105.
PAC
PAC was incorporated under the laws of the State of Nevada in 1983 by AT&T
as one of seven regional holding companies formed to hold AT&T's local telephone
companies. AT&T divested PAC by means of a spin-off of stock to AT&T shareowners
on January 1, 1984. The divestiture was made pursuant to the Consent Decree. PAC
includes two wholly-owned operating telephone companies, Pacific Bell and Nevada
Bell, and certain diversified subsidiaries. PAC provides financial and strategic
planning and general administrative functions on its own behalf and on behalf of
its subsidiaries. In 1995, PAC had operating revenues of approximately $9.04
billion and income before extraordinary item of approximately $1.05 billion. At
December 31, 1995, PAC had total assets of approximately $16 billion.
The mailing address of PAC's principal executive offices is 130 Kearny
Street, San Francisco, California 94108, and its telephone number is (415)
394-3000.
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, and
its telephone number is (210) 821-4105.
THE SPECIAL MEETINGS
SBC
The SBC Special Meeting to consider and vote on approval and adoption of
the Merger Agreement and approval of the transactions contemplated thereby,
including the issuance of shares of SBC Common Stock pursuant to the Merger
Agreement, will be held on July 31, 1996 at 9:30 a.m., local time, at the Travis
Conference Center at the Sheraton Gunter Hotel, 205 East Houston, San Antonio,
Texas. Only holders of record of SBC Common Stock at the close of business on
June 3, 1996 (the "SBC Record Date") will be entitled to vote at the SBC Special
Meeting. At April 30, 1996, there were 609,158,765 shares of SBC Common Stock
outstanding and entitled to vote. Each share of SBC Common Stock is entitled to
one vote.
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<PAGE> 13
The affirmative vote of a majority of the votes cast at the SBC Special
Meeting is necessary for the approval and adoption of the Merger Agreement and
approval of the transactions contemplated thereby, including the issuance of
shares of SBC Common Stock pursuant thereto.
As of April 30, 1996, directors and executive officers of SBC and their
affiliates beneficially owned an aggregate of 1,784,853 shares of SBC Common
Stock (including shares which may be acquired within 60 days upon exercise of
stock options) or less than 1% 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 approval and
adoption of the Merger Agreement and approval of the transactions contemplated
thereby, including the issuance of the shares of SBC Common Stock pursuant to
the Merger Agreement.
PAC
The PAC Special Meeting to consider and vote on approval and adoption of
the Merger Agreement and approval of the transactions contemplated thereby will
be held on July 31, 1996 at 2:00 p.m., local time, at the San Jose Scottish Rite
Center, 2455 Masonic Drive, San Jose, California. Only holders of record of PAC
Common Stock at the close of business on June 3, 1996 (the "PAC Record Date")
will be entitled to vote at the PAC Meeting. At April 30, 1996, there were
428,434,672 shares of PAC Common Stock outstanding and entitled to vote. Each
share of PAC Common Stock is entitled to one vote.
Approval and adoption of the Merger Agreement and approval of the
transactions contemplated thereby require the affirmative vote of at least a
majority of the outstanding shares of PAC Common Stock.
As of May 22, 1996, directors and executive officers of PAC and their
affiliates beneficially owned an aggregate of 785,270 shares of PAC Common Stock
(including shares which may be acquired within 60 days upon exercise of stock
options) or less than 1% of the shares of PAC Common Stock outstanding on such
date. The directors and executive officers of PAC have indicated their intention
to vote their shares of PAC Common Stock in favor of approval and adoption of
the Merger Agreement and approval of the transactions contemplated thereby.
For additional information relating to the Special Meetings, see "The
Special Meetings."
THE MERGER
The Merger Agreement provides for a business combination of SBC and PAC in
which, subject to the satisfaction of the conditions therein, Merger Sub will be
merged with and into PAC and the holders of shares of PAC Common Stock (other
than Excluded PAC Common Stock) will be issued SBC Common Stock in a transaction
intended to qualify as a "pooling of interests" for accounting purposes and as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), for federal income tax purposes. In the
Merger, each issued and outstanding share of PAC Common Stock will be converted
into the right to receive, and become exchangeable for, 0.733 of a share of SBC
Common Stock, subject to increase or decrease in certain circumstances as set
forth in the Merger Agreement and as described herein under "The Merger -- Terms
of the Merger" (such number, as it may be adjusted in accordance with the terms
of the Merger Agreement, is referred to herein as the "Exchange Ratio"),
together with an appropriate number of preferred stock purchase rights (the "SBC
Rights") attached thereto. See "Description of SBC Capital Stock -- Description
of SBC Rights." Each outstanding share of SBC Common Stock will remain
outstanding and be unaffected by the Merger. As a result of the Merger, holders
of PAC Common Stock immediately prior to the Merger will own approximately 34%
of SBC Common Stock after the Merger (based on the number of shares of SBC
Common Stock and PAC Common Stock outstanding as of March 31, 1996 and assuming
the Exchange Ratio is equal to 0.733).
In the event that the Exchange Ratio is adjusted to less than 0.667 of a
share of SBC Common Stock (other than as a result of certain equitable
adjustments necessitated by a distribution, reclassification, stock split, stock
dividend or similar transaction) in accordance with the terms of the Merger
Agreement, then PAC will, as promptly as practicable after the determination of
such Exchange Ratio, convene another meeting of the shareowners of PAC at which
the holders of PAC Common Stock will be requested again to consider and vote
2
<PAGE> 14
upon the transactions contemplated by the Merger Agreement, taking into account
the Exchange Ratio, as so decreased. Any further approval by the shareowners of
PAC would be a condition to the obligations of PAC and SBC to consummate the
Merger. See "The Merger -- Terms of the Merger."
No fractional shares of SBC Common Stock will be issued in the Merger.
Instead, the Merger Agreement provides that each holder of PAC Common Stock who
would otherwise be entitled to receive a fractional share of SBC Common Stock
will be entitled to receive, in lieu thereof, cash (without interest)
representing such holder's proportionate interest in a share of SBC Common Stock
based on 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 (as defined under "-- The Merger -- Effective Time").
Reasons for the Merger; Recommendations of the Boards of Directors
SBC
The SBC Board of Directors (the "SBC Board") has determined unanimously (by
vote of all directors present) that the Merger Agreement and the transactions
contemplated thereby are fair to, and in the best interests of, SBC's
shareowners. Accordingly, the SBC Board has unanimously approved (by vote of all
directors present) the Merger Agreement and unanimously recommends that the
shareowners of SBC vote FOR approval and adoption of the Merger Agreement and
approval of the transactions contemplated thereby, including 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."
PAC
The PAC Board of Directors (the "PAC 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, PAC's shareowners. Accordingly, the
PAC Board has unanimously approved the Merger Agreement and unanimously
recommends that the shareowners of PAC vote FOR approval and adoption of the
Merger Agreement and approval of the transactions contemplated thereby. The
recommendation of the PAC 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 -- PAC."
Opinions of Financial Advisors
SBC
Lazard Freres & Co. LLC ("Lazard Freres") has delivered its written
opinion, dated as of April 1, 1996 which it has confirmed as of the date of this
Joint Proxy Statement/Prospectus, to the SBC Board, to the effect that, as of
such dates, the Exchange Ratio is fair to SBC from a financial point of view.
See "The Merger -- Opinions of Financial Advisors -- SBC." A copy of the opinion
of Lazard Freres, dated as of the date hereof, which sets forth the assumptions
made, procedures followed, matters considered and limitations on the scope of
the review by Lazard Freres in rendering its opinion, is attached as Appendix B
to this Joint Proxy Statement/Prospectus. HOLDERS OF SBC COMMON STOCK ARE URGED
TO READ LAZARD FRERES' OPINION IN ITS ENTIRETY.
PAC
Salomon Brothers Inc ("Salomon") has delivered written opinions, dated as
of April 1, 1996 and as of the date of this Joint Proxy Statement/Prospectus, to
the PAC Board to the effect that, as of such dates, the Exchange Ratio is fair
to the holders of PAC Common Stock from a financial point of view. See "The
Merger -- Opinions of Financial Advisors -- PAC." A copy of the opinion of
Salomon, dated as of the date hereof, which sets forth the assumptions made,
procedures followed, matters considered and limitations on the scope of review
by Salomon in rendering its opinion, is attached as Appendix C to this Joint
Proxy Statement/Prospectus. HOLDERS OF PAC COMMON STOCK ARE URGED TO READ
SALOMON'S OPINION IN ITS ENTIRETY.
3
<PAGE> 15
Effective Time
The Merger will become effective at the time when the Articles of Merger
have been duly filed with the Secretary of State of Nevada or such other time as
shall be agreed upon by the parties and set forth in the Articles of Merger and
in accordance with the Nevada Private Corporations Law (the "NPCL") (the
"Effective Time"). See "The Merger -- Effective Time; Closing."
Exchange of Certificates
Promptly after the Effective Time, the exchange agent will mail transmittal
instructions to each shareowner of record of PAC Common Stock (other than
Excluded PAC Common Stock), advising such shareowner of the procedure for
surrendering PAC Common Stock certificates (each, a "PAC Certificate") in
exchange for SBC Common Stock certificates (each, an "SBC Certificate") and
obtaining cash in lieu of any fractional share of SBC Common Stock. See "The
Merger -- Exchange of Certificates" and "The Merger -- Terms of the Merger."
Covenants
The Merger Agreement provides that, during the period from the date of the
Merger Agreement until the Effective Time, except as otherwise contemplated by
the Merger Agreement, as consented to by the other party or as required by
applicable law, rule or regulation, each of SBC and PAC will, and each of their
respective subsidiaries will, conduct its business only in the ordinary and
usual course and use all reasonable 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. See "The Merger -- Conduct of Business Prior to
Effective Time; Certain Covenants; Acquisition Proposals" and "-- Operational
Covenants" for a discussion of additional restrictions on SBC, PAC and their
respective subsidiaries with respect to the conduct of their respective
businesses prior to the Effective Time.
The Merger Agreement provides that neither SBC nor PAC or any of their
respective subsidiaries will (i) 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 all or any significant portion of the assets or
any equity securities of, it or any of its subsidiaries that, in any such case,
could reasonably be expected to lead to a breach of the Merger Agreement or
otherwise interfere with the completion of the Merger (an "Acquisition
Proposal") or (ii) have any discussion with or provide any confidential
information or data to any person relating to an Acquisition Proposal or engage
in any negotiations concerning an Acquisition Proposal. The Merger Agreement
does not prohibit, however, either SBC or PAC from 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
recommending an unsolicited bona fide written Acquisition Proposal to the
shareowners of SBC or PAC, as the case may be, if certain prerequisite
determinations are made by the SBC Board or the PAC Board, as the case may be,
although taking any such actions will give the other party the right to
terminate the Merger Agreement. See "The Merger -- Termination." The Merger
Agreement provides that SBC and PAC each agrees that it will notify the other
immediately if it receives an Acquisition Proposal indicating, in connection
with such notice, the name of the person making such proposal and the terms and
conditions of any proposals or offers, and thereafter shall keep SBC or PAC, as
the case may be, informed, on a current basis, of the status of any ensuing
discussions or negotiations. See "The Merger -- Conduct of Business Prior to
Effective Time; Certain Covenants; Acquisition Proposals."
Regulatory Matters
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. SBC and PAC each filed a Premerger
Notification and Report Form (a "Notification and Report Form") pursuant to the
HSR Act with the Antitrust Division of the Department of Justice ("DOJ") and the
Federal Trade Commission ("FTC") on April 10, 1996. On May 10, 1996, each of
4
<PAGE> 16
SBC and PAC received requests from the Antitrust Division of the DOJ for
additional information and documents relating to the Merger. Under the HSR Act,
the Merger may not be consummated until 20 days after both SBC and PAC have
substantially complied with such requests. Although SBC and PAC believe the
Merger complies with the antitrust laws, at any time before or after the
Effective Time, the DOJ 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 PAC. 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.
In addition, PAC and SBC are required to file notices with, and obtain
approvals or consents from, the Federal Communications Commission (the "FCC")
pursuant to the Communications Act of 1934, as amended (the "Communications
Act"), and the California Public Utilities Commission ("CPUC"). SBC and PAC have
filed applications with the FCC and CPUC seeking such approvals and consents.
SBC and PAC have also filed an application with the Nevada Public Service
Commission ("NPSC") in connection with the Merger. See "The Merger -- Certain
Regulatory Matters."
The transfer of control from PAC to SBC of PAC's subsidiaries holding
certain FCC licenses and authorizations must be approved by the FCC based on the
FCC's evaluation as to whether SBC is qualified to control PAC and whether the
public interest, convenience and necessity will be served by such transfer of
control. SBC and PAC believe that the transfer of control applications that SBC
and PAC filed with the FCC demonstrate compliance with these standards.
PAC's primary operating subsidiaries, Pacific Bell and Nevada Bell, are
public utilities subject to the respective jurisdictions of the CPUC and NPSC.
SBC and PAC have filed an application with the CPUC requesting its
authorization, to the extent required under Section 854 of the California Public
Utilities Code ("Section 854"), to approve an indirect change in control of
Pacific Bell, which will become an indirect wholly-owned subsidiary of SBC.
Before authorizing a change of control under Section 854(b), the CPUC is
required to find that the Merger provides short- and long-term economic benefits
to customers and to allocate equitably these forecasted economic benefits, as
found by the CPUC, between shareowners and customers, with customers receiving
not less than 50% of any such benefits. The CPUC's determination of forecasted
economic benefits is limited to services within its jurisdiction and over which
it exercises ratemaking authority. The CPUC is not required to use any
particular method for assuring that customers receive any forecasted economic
benefits and, in markets where competition exists, the CPUC can rely on
competition to produce the economic benefits. As of the May 30, 1996 deadline
for filing of protests, five protests to SBC's and PAC's application were filed.
These protests have variously asserted that the Merger will adversely affect
competition in California or that there will be quantifiable forecasted economic
benefits allocable to customers from the Merger. During the course of the CPUC's
proceedings regarding SBC's and PAC's application, protestants may assert that
there will be substantial forecasted economic benefits from the Merger that
should be allocated to customers, which may result in refunds or mandated rate
adjustments. SBC and PAC intend to vigorously contest any such assertions. There
can be no assurance, however, as to the amount of forecasted economic benefits,
if any, that might be allocated to customers by the CPUC or the method of such
allocation. The CPUC also is required under Section 854(b) to determine that a
change in control does not adversely affect competition in the provision of
telephone service in California and, in making that determination, it is
required to request an advisory opinion from the Attorney General of the State
of California.
Under Section 854(c), the CPUC is required to consider eight separate
criteria, including whether the indirect change in control is fair and
reasonable to public utility employees and to shareowners. Based on its
consideration of those criteria, the CPUC is required to find that, on balance,
the change of control is in the public interest.
SBC and PAC believe that the application they filed with the CPUC
demonstrates compliance with Section 854 provisions.
PAC and SBC believe that the Merger will produce benefits to the State of
California, to its citizens and to PAC's customers. PAC and SBC also believe
that the indirect change of control of Pacific Bell will not have an adverse
effect on competition in the provision of telephone service in California. See
"The Merger -- Certain Regulatory Matters."
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<PAGE> 17
SBC and PAC have agreed in the Merger Agreement to cooperate with each
other and use all their respective reasonable efforts to take all actions
necessary, proper or advisable to obtain as promptly as practicable all required
consents, registrations, authorizations, permits and approvals from any
governmental or regulatory authority, court, agency, commission, body or other
governmental entity (each, a "Governmental Entity") and/or third party that is
necessary to be obtained to consummate the Merger or any of the other
transactions contemplated by the Merger Agreement. Notwithstanding the
foregoing, except as contemplated in connection with the allocation of
Regulatory Approval Costs (as described under "The Merger -- Regulatory Approval
Costs"), neither SBC nor PAC is required to proffer to, or agree to, any
concession to any Governmental Entity that SBC concludes is reasonably likely to
materially reduce the economic or business benefits SBC expects, as of the date
of the Merger Agreement, to realize from the Merger. See "The Merger -- Certain
Regulatory Matters."
Employee Benefits
Pursuant to the Merger Agreement, each outstanding option (each, a "PAC
Option") to purchase PAC Common Stock under the PAC 1994 Stock Incentive Plan,
the PAC Nonemployee Director Stock Option Plan and the PAC Stock Option and
Stock Appreciation Rights Plan (collectively, "PAC Stock Option Plans"), whether
vested or unvested, will be deemed to constitute an option to acquire the same
number of shares of SBC Common Stock as the holder of such PAC Option would have
been entitled to receive at the Effective Time had such holder exercised such
PAC Option in full immediately prior to the Effective Time at an exercise price
per share equal to (x) the aggregate exercise price for the PAC Common Stock
otherwise purchasable pursuant to such PAC Option, divided by (y) the number of
full shares of SBC Common Stock deemed purchasable pursuant to such PAC Option.
At the Effective Time, SBC will assume each PAC Option in accordance with the
terms of the PAC Stock Option Plan under which it was issued and the stock
option agreement by which it was evidenced.
Pursuant to the Merger Agreement, SBC will cause the Surviving Corporation
for at least two years after the Effective Time to provide or cause to be
provided to the employees of PAC and its subsidiaries compensation and benefit
plans that are no less favorable, in the aggregate, than the compensation and
benefit plans maintained by PAC and its subsidiaries ("PAC's Compensation and
Benefit Plans"), subject to adjustment in the event SBC implements widespread
increases or decreases in benefits or the cost thereof with respect to
compensation and benefit plans applicable to employees of SBC and its
subsidiaries (other than the Surviving Corporation and its subsidiaries) and
subject to terms of applicable collective bargaining agreements. At or prior to
the Effective Time, PAC will make all necessary arrangements to cause any PAC
Common Stock units under PAC's Compensation and Benefit Plans to be converted
into share units with respect to SBC Common Stock by multiplying the number of
shares of PAC Common Stock subject to such PAC Common Stock units by the
Exchange Ratio. SBC has agreed to honor (and to cause the Surviving Corporation
to honor), pursuant to their terms, all employee benefit obligations to current
and former employees under PAC's Compensation and Benefit Plans.
Pursuant to the Merger Agreement, each outstanding share of PAC Common
Stock that is restricted under the PAC 1994 Stock Incentive Plan or PAC
Restricted Stock Plan shall be converted into the right to receive, and become
exchangeable for, a fraction of a share of SBC Common Stock equal to the
Exchange Ratio, having the same restrictions, terms and conditions as were
applicable to such restricted share of PAC Common Stock.
In addition, pursuant to the Merger Agreement, each outstanding stock unit
under the PAC Outside Directors' Deferred Stock Unit Plan shall be converted
into the right to receive a stock unit representing a fraction of a share of SBC
Common Stock equal to the Exchange Ratio and having the same terms and
conditions as were applicable to such stock unit before the Effective Time. See
"The Merger -- Employee Benefits."
Conditions
The respective obligations of SBC, Merger Sub and PAC to consummate the
Merger are subject to the satisfaction (or waiver) at or prior to the Effective
Time of a number of conditions, including, among others, the following: (a)
approval by the shareowners of PAC of the matters required to be approved by
such shareowners at the PAC Special Meeting, (b) approval by the shareowners of
SBC of the matters required to be approved by
6
<PAGE> 18
such shareowners at the SBC Special Meeting, (c) expiration or termination of
the waiting period applicable to the Merger under the HSR Act, (d) the decision
and order of the CPUC authorizing certain matters in connection with the Merger
and making such determinations as may be required under Section 854(a)-(c),
including its determination as to any required allocation of economic benefits,
if any, of the Merger, between shareowners and ratepayers, having become final,
and the receipt of all other material consents, authorizations, orders, and
approvals of (or filings or registrations with) any Governmental Entity
(including the FCC) or any third party, in accordance with the terms set forth
in the Merger Agreement, (e) there being in effect no provision of any
applicable law, rule or regulation and no judgment, injunction, order or decree
of a court that would restrain or otherwise prohibit the consummation of the
Merger or that has or is reasonably likely to have a material adverse effect on
SBC or PAC, (f) the declaration of effectiveness by the SEC under the Securities
Act of the Registration Statement, of which this Joint Proxy
Statement/Prospectus is a part, and no stop order suspending such effectiveness
being in effect and no proceedings for such purpose having been initiated or
threatened by the SEC, (g) approval for listing on the NYSE, subject to official
notice of issuance, of SBC's Common Stock to be issued in the Merger, (h)
receipt by SBC and PAC of opinions from their respective independent public
accounting firms to the effect that the Merger will qualify for "pooling of
interests" accounting treatment, (i) receipt by SBC and PAC of opinions from
their respective legal counsel 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 (j) determination and allocation of the Regulatory
Approval Costs as described under "The Merger -- Regulatory Approval Costs". See
"The Merger -- Conditions." If, after shareowners of PAC and SBC have voted, any
of the foregoing conditions are waived, including the receipt of the opinions
with respect to the federal income tax consequences of the Merger, no additional
vote of shareowners may be required.
Modification or Amendment; Waiver of Conditions
The Merger Agreement provides that, subject to the provisions of applicable
law, at any time prior to the Effective Time, the parties to the Merger
Agreement may modify or amend the Merger Agreement by written agreement. The
Merger Agreement also provides that the conditions to each party's obligation to
consummate the Merger may be waived by such party in whole or in part to the
extent permitted by applicable law. See "The Merger -- Modification or
Amendment; Waiver of Conditions."
Termination
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, (a) whether before or after any requisite
approval by the shareowners of SBC or PAC, by mutual written consent of SBC and
PAC, or (b) by either SBC or PAC if (i) the Merger is not consummated by March
31, 1997, whether such date is before or after the date of approval by the
shareowners of SBC or PAC (provided, however, that if SBC or PAC determines that
additional time is necessary in connection with obtaining a required approval of
the CPUC, such date may be extended by SBC or PAC to a date not later than
December 31, 1997); (ii) any of the shareowner approvals required pursuant to
the Merger Agreement are not obtained; (iii) any order permanently restraining,
enjoining or otherwise prohibiting consummation of the Merger becomes final and
non-appealable (whether before or after the approval by the shareowners of PAC
or SBC); (iv) the other party is in material breach of a representation or
warranty made by such party in the Merger Agreement or materially fails to
comply with any of the covenants or agreements to be performed by such party
pursuant to the Merger Agreement and such breach or failure to perform is not
curable or is not cured within 30 days after notice of such breach is given by
the non-breaching party; (v) the board of directors of the other party withdraws
or adversely modifies its recommendation of the Merger Agreement or (vi) the
other party (or any of its directors, officers, employees or representatives)
commences or authorizes negotiations with (or provides certain information to)
third parties in connection with certain Acquisition Proposals. The Merger
Agreement may also be terminated by PAC (a) if PAC is not in material breach of
the Merger Agreement and the PAC Board approves entering into an agreement that
constitutes a Superior Proposal (as defined under "The Merger -- Conduct of
Business Prior to the Effective Time; Certain Covenants; Acquisition
Proposals -- Acquisition Proposals") and SBC does not, within ten business days,
make an offer at least as favorable to the shareowners of PAC from a financial
point of view as the Superior Proposal, (b) if the persons comprising the
7
<PAGE> 19
members of the SBC Board as of April 1, 1996 (the "Incumbent Directors") and any
additional members of the SBC Board whose election or nomination for election as
a director is supported by a majority of the Incumbent Directors (such
additional member of the SBC Board thereafter being an Incumbent Director) cease
to constitute a majority of the members of the SBC Board or any person or
"group" (as defined in Rule 13d-5 under the Exchange Act) shall own capital
stock of SBC with voting power sufficient to cast a majority of the votes
entitled to be cast for the election of directors of SBC, or (c) if SBC, in any
calendar year, enters into an agreement or agreements to spend in excess of $5
billion to acquire one or more businesses, by merger, consolidation or
otherwise. In addition, the Merger Agreement will terminate if the allocation of
Regulatory Approval Costs in accordance with the terms of the Merger Agreement
does not occur. See "The Merger -- Termination."
If the Merger Agreement is terminated under certain specified
circumstances, certain termination fees are payable by one party to the other.
See "The Merger -- Certain Termination Fees."
Accounting Treatment
SBC and PAC believe that the Merger will qualify as a "pooling of
interests" for accounting and financial reporting purposes, and have been so
advised by their respective independent public accountants. Under this method of
accounting, SBC will restate its consolidated financial statements at the
Effective Time to include the assets, liabilities, shareowners' equity and
results of operations of PAC.
Consummation of the Merger is conditioned upon the receipt by each of SBC
and PAC of a letter from their respective independent public accountants stating
that the Merger, in their respective opinions, will qualify as a "pooling of
interests" for accounting purposes. See "The Merger -- Accounting Treatment" and
"-- Conditions" and "Unaudited Pro Forma Combined Condensed Financial
Information."
Interests of Certain Persons in the Merger
In considering the recommendations of PAC's Board, shareowners should be
aware that certain members of management of PAC and of the PAC Board have
certain interests in the Merger that are in addition to the interests of
shareowners generally. See "The Merger -- Interests of Certain Persons in the
Merger."
Employee Benefits
As described under "The Merger -- Employee Benefits," pursuant to the
Merger Agreement, each PAC Option, whether vested or unvested, will be deemed to
constitute an option to acquire the same number of shares of SBC Common Stock as
the holder of such PAC Option would have been entitled to receive at the
Effective Time had such holder exercised such PAC Option in full immediately
prior to the Effective Time at an exercise price per share equal to (x) the
aggregate exercise price of the shares of PAC Common Stock otherwise purchasable
pursuant to such PAC Option, divided by (y) the number of full shares of SBC
Common Stock deemed purchasable pursuant to such PAC Option.
Pursuant to the Merger Agreement, SBC has agreed to honor (and to cause the
Surviving Corporation to honor), pursuant to their terms, all employee benefit
obligations to current and former employees under PAC's Compensation and Benefit
Plans, including obligations to the officers of PAC under existing employment
and severance agreements. Approval of the Merger Agreement by PAC's shareowners
will constitute a change in control under such employment and severance
agreements, pursuant to which special severance payments will be payable upon
certain involuntary terminations (including a constructive termination, as
defined in the employment and severance agreements) during the three-year period
following a change in control. See "The Merger -- Interests of Certain Persons
in the Merger."
Pursuant to the Merger Agreement, each outstanding share of PAC Common
Stock that is restricted under the PAC 1994 Stock Incentive Plan or PAC
Restricted Stock Plan shall be converted into the right to receive, and become
exchangeable for, a fraction of a share of SBC Common Stock equal to the
Exchange Ratio, having the same restrictions, terms and conditions as were
applicable to such restricted share of PAC Common Stock.
Pursuant to the Merger Agreement, each outstanding stock unit under the PAC
Outside Directors' Deferred Stock Unit Plan shall be converted into the right to
receive a stock unit representing a fraction of a share of SBC
8
<PAGE> 20
Common Stock equal to the Exchange Ratio and having the same terms and
conditions as were applicable to such stock unit before the Effective Time. See
"The Merger -- Employee Benefits."
Pursuant to the terms of the PAC 1994 Stock Incentive Plan, all options
granted thereunder to nonemployee directors that are not already exercisable
will become exercisable in the event of a change in control. Approval by PAC's
shareowners of the Merger Agreement will constitute a change in control and
accelerate exercisability of the options granted to nonemployee directors.
The Compensation and Personnel Committee of PAC's Board (the "PAC
Committee") determined that the options granted on March 22, 1996 under the PAC
1994 Stock Incentive Plan to certain officers and other key employees of PAC
will become immediately exercisable upon a change in control, which for such
purposes would occur at the Effective Time.
Director and Officer Indemnification and Insurance
Pursuant to the Merger Agreement, from and after the Effective Time, SBC
will indemnify, defend and hold harmless each present and former director and
officer of PAC against any costs or expenses (including reasonable attorneys'
fees), judgments, fines, losses, claims, damages or liabilities 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, to the fullest
extent that PAC would have been permitted under Nevada law and its articles of
incorporation or by-laws in effect on the date of the Merger Agreement to
indemnify such person. The Surviving Corporation is obligated to maintain a
policy of directors' and officers' liability insurance ("D&O Insurance") for
acts and omissions occurring prior to the Effective Time with coverage in amount
and scope at least as favorable as PAC's existing D&O Insurance for a period of
six years after the Effective Time so long as the annual premium therefor is not
in excess of the last annual premium paid prior to the date of the Merger
Agreement (the "Current Premium"); provided, however, if the existing D&O
Insurance expires, is terminated or cancelled 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 of 175% of the Current Premium. See "The
Merger -- Interests of Certain Persons in the Merger -- Director and Officer
Indemnification and Insurance."
Board of Directors; Management
Pursuant to the Merger Agreement, SBC has agreed to increase the size of
the SBC Board at the Effective Time of the Merger in order to enable
approximately one-third of the SBC Board to be comprised of directors designated
by the SBC Board in consultation with the Chief Executive Officer of PAC and the
PAC Board from among the members of the PAC Board (the "Director Designees") and
the SBC Board will appoint each of the Director Designees to the SBC Board 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. As of the date hereof, the
SBC Board is composed of 14 directors. Further, the Merger Agreement provides
that at the Effective Time of the Merger, SBC will cause Mr. Philip J. Quigley
to be appointed President and Chief Executive Officer of the Surviving
Corporation and Vice Chairman of the SBC Board. Other executive officers of PAC
are expected to become executive officers of the Surviving Corporation following
the Merger.
For more complete information concerning the interests of executives and
directors of PAC in the Merger, shareowners of PAC should review the information
set forth under "The Merger -- Interests of Certain Persons in the Merger."
Appraisal Rights
The Merger Agreement provides that in accordance with Section 92A.390 of
the NPCL, no appraisal rights will be available to holders of PAC Common Stock
in connection with the Merger. Holders of SBC Common Stock will not be entitled
to any dissenters' or appraisal rights under Section 262 of the General
Corporation Law of the State of Delaware (the "DGCL") as a result of the matters
to be voted upon at the SBC Special Meeting.
9
<PAGE> 21
NYSE Listing
Pursuant to the Merger Agreement, 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
Effective Time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code. Assuming the
Merger so qualifies as a reorganization within the meaning of Section 368(a) of
the Code, in general, no gain or loss will be recognized by holders of PAC
Common Stock with respect thereto on the surrender of their PAC 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 by SBC or PAC. Under
the Merger Agreement, it is a condition precedent to the respective obligations
of SBC and PAC to consummate the Merger that each of SBC and PAC will have
received an opinion of its respective counsel dated the date of the closing of
the Merger to the effect that the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code and that each of PAC, SBC and Merger
Sub will be a party to the reorganization within the meaning of Section 368(b)
of the Code. For a further discussion of the federal income tax consequences of
the Merger, see "Certain Federal Income Tax Consequences of the Merger."
CERTAIN EFFECTS OF THE MERGER ON THE RIGHTS OF HOLDERS OF PAC COMMON STOCK
Upon consummation of the Merger, holders of shares of PAC Common Stock will
become shareowners of SBC. The internal affairs of SBC are governed by the DGCL,
SBC's Restated Certificate of Incorporation (the "SBC Restated Certificate") and
Bylaws (the "SBC Bylaws"). The Merger will result in certain differences in the
rights of holders of PAC Common Stock. See "Description of SBC Capital Stock"
and "Comparison of Certain Rights of Shareowners of SBC and PAC."
10
<PAGE> 22
COMPARATIVE STOCK PRICES
SBC Common Stock and PAC Common Stock are each listed on the NYSE as well
as on certain other exchanges. SBC is listed under the symbol "SBC" and PAC is
listed under the symbol "PAC." The following table sets forth, for the periods
indicated, the high and low sale prices per share of SBC Common Stock and PAC
Common Stock as reported on the NYSE Composite Transactions Tape.
<TABLE>
<CAPTION>
SBC PAC
COMMON STOCK COMMON STOCK
------------- -----------------
CALENDAR QUARTER HIGH LOW HIGH LOW
--------------------------------------------------- ---- ---- ---- -----
<S> <C> <C> <C> <C>
1994
First Quarter.................................... $41 7/8 $36 3/4 $58 (a) $ 51 (a)
Second Quarter.................................... 44 1/4 38 1/2 32 3/8 29 7/8
Third Quarter.................................... 44 1/4 40 1/4 33 1/2 30 1/8
Fourth Quarter................................... 43 1/8 39 1/4 32 1/8 28 1/4
1995
First Quarter.................................... 43 7/8 39 5/8 31 1/4 28
Second Quarter................................... 47 7/8 41 3/8 31 1/4 25 5/8
Third Quarter.................................... 55 1/8 45 5/8 30 7/8 25 5/8
Fourth Quarter................................... 58 1/2 53 1/8 34 3/8 29 1/8
1996
First Quarter.................................... 60 1/4 49 3/4 35 1/4 25 7/8
Second Quarter (through May 31, 1996)............ 50 3/4 46 1/4 34 5/8 31 1/2
</TABLE>
- ---------------
(a) Effective April 1, 1994, PAC spun off to its shareowners its domestic and
international cellular, paging, and other wireless operations in a
one-for-one stock distribution of its interest in those operations.
On March 29, 1996, the last trading day before the public announcement of
the Merger Agreement, the closing prices of SBC Common Stock and PAC Common
Stock as reported on the NYSE Composite Transactions Tape were $52 5/8 per share
and $27 3/4 per share, respectively. Assuming an Exchange Ratio of 0.733, the
pro forma equivalent per share value of PAC Common Stock on March 29, 1996 was
$38.57 per share. The pro forma equivalent per share value of PAC Common Stock
on any date, assuming an Exchange Ratio of 0.733, equals the closing sale price
of SBC Common Stock on such date, as reported on the NYSE Composite Transaction
Tape, multiplied by 0.733.
On May 31, the closing sale prices of SBC Common Stock and PAC Common Stock
as reported on the NYSE Composite Transactions Tape were $49 3/8 per share and
$33 3/8 per share ($36.19 on a pro forma equivalent per share basis, assuming an
Exchange Ratio of 0.733), respectively.
Shareowners are urged to obtain current quotations for the market prices of
SBC Common Stock and PAC Common Stock.
No assurance can be given as to the market prices of SBC Common Stock or
PAC Common Stock at the Effective Time. Because the Exchange Ratio is fixed in
the Merger Agreement (subject to increase or decrease under certain
circumstances not related to the market value of the SBC Common Stock) and
neither SBC nor PAC has the right to terminate the Merger Agreement based on
changes in the market price of SBC's Common Stock, the market value of the
shares of SBC Common Stock that holders of PAC Common Stock will receive upon
consummation of the Merger may vary significantly from the market value of the
shares of SBC Common Stock that holders of PAC Common Stock would receive if the
Merger were consummated on the date of this Joint Proxy Statement/Prospectus.
11
<PAGE> 23
SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
The following table presents selected historical financial data of SBC and
PAC and selected unaudited pro forma combined financial data after giving effect
to the Merger as a "pooling-of-interests." SBC and PAC selected historical data
for each of the five years in the period ended December 31, 1995 have been
derived from audited financial statements filed with the SEC and the selected
historical data for the three-month period ended March 31, 1996 have been
derived from unaudited financial statements. The pro forma combined financial
data are presented for illustrative purposes only and are not necessarily
indicative of the financial position or operating results that would have
occurred or that will occur upon consummation of the Merger. The pro forma
combined financial data do not give effect to any cost savings which may result
from the integration of SBC's and PAC's operations. Additionally, the pro forma
combined financial data do not include any transaction costs relating to the
Merger (which are estimated to be approximately $70 million), nor do they
consider any reorganization costs that might occur as a result of the Merger.
Differences in accounting policies do not have a material effect on either the
pro forma financial position or pro forma results of operations and have not
been reflected in the unaudited pro forma combined financial data. 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>
FOR THE
THREE
MONTHS
ENDED FOR THE YEAR ENDED DECEMBER 31,
MARCH 31, ---------------------------------------------------
1996 1995 1994 1993 1992 1991
--------- ------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
SBC -- HISTORICAL
Operating revenues...................................... $ 3,197 $12,670 $11,772 $10,840 $10,150 $ 9,460
Income from continuing operations....................... 464 1,889 1,649 1,435 1,302 1,157
Income from continuing operations per common share...... 0.76 3.10 2.74 2.39 2.17 1.93
Total assets.......................................... 22,172 22,003 26,005 24,308 23,810 23,179
Long-term debt.......................................... 5,588 5,672 5,848 5,459 5,716 5,675
Dividends per common share.............................. 0.43 1.65 1.58 1.51 1.46 1.42
Book value per common share............................. 10.57 10.27 13.72 12.61 15.47 14.77
Network access lines.................................... 14.47 14.22 13.61 13.15 12.72 12.33
PAC -- HISTORICAL
Operating revenues...................................... $ 2,334 $ 9,042 $ 9,235 $ 9,244 $ 9,108 $ 9,168
Income from continuing operations....................... 298 1,048 1,136 191 1,173 931
Income from continuing operations per common share...... 0.70 2.46 2.68 0.46 2.91 2.37
Total assets.......................................... 15,858 15,841 20,139 20,563 21,104 20,563
Long-term debt.......................................... 5,084 4,737 4,897 5,129 5,207 5,395
Dividends per common share.............................. 0.545 2.18 2.18 2.18 2.18 2.14
Book value per common share............................. 5.32 5.11 12.34 11.61 18.53 17.62
Network access lines.................................... 16.01 15.78 15.32 14.87 14.55 14.26
PRO FORMA COMBINED
Operating revenues...................................... $ 5,531 $21,712 $21,007 $20,084 $19,258 $18,628
Income from continuing operations....................... 762 2,937 2,785 1,626 2,475 2,088
Income from continuing operations per common share...... 0.83 3.19 3.05 1.80 2.76 2.34
Total assets.......................................... 37,352 37,176 46,144 44,871 44,914 43,742
Long-term debt.......................................... 10,672 10,409 10,745 10,588 10,923 11,070
Dividends per common share.............................. 0.43 1.65 1.58 1.51 1.46 1.42
Book value per common share............................. 9.45 9.15 14.77 13.71 18.72 17.81
Network access lines.................................... 30.48 30.01 28.93 28.02 27.28 26.59
PAC -- EQUIVALENTS
Income from continuing operations per common share...... $ 0.61 $ 2.34 $ 2.24 $ 1.32 $ 2.02 $ 1.72
Dividends per common share............................ 0.315 1.21 1.16 1.11 1.07 1.04
Book value per common share............................. 6.93 6.71 10.83 10.05 13.72 13.05
</TABLE>
See "Notes to Selected Historical and Pro Forma Combined Financial Data" on
page 13.
12
<PAGE> 24
NOTES TO SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
All data presented for PAC and the pro forma combined company exclude net
assets and results of operations for domestic and international cellular,
paging, and other wireless operations spun off by PAC on April 1, 1994, in a
one-for-one stock distribution of its interest in those operations.
The unaudited pro forma combined cash dividends declared per common share
are assumed to be the same as the cash dividends declared by SBC on an
historical basis. PAC has agreed that effective with the dividend for the second
quarter of 1996 its quarterly dividend per share will not exceed 0.733
multiplied by SBC's quarterly dividend per share. Dividends per share of the
combined company are expected to be equivalent to the dividend per share of SBC
Common Stock.
The PAC-Equivalents per share amounts are calculated by multiplying the pro
forma combined per share amounts by an assumed Exchange Ratio of 0.733.
13
<PAGE> 25
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 July 31, 1996, and any
adjournments or postponements thereof to consider and vote upon the approval and
adoption of the Merger Agreement and approval of the transactions contemplated
thereby, including the issuance of shares of SBC Common Stock pursuant to the
Merger Agreement, and to transact such other business as may properly come
before the SBC Special Meeting or any adjournments or postponements thereof. SBC
does not currently intend to seek an adjournment of the SBC Special Meeting.
THE SBC BOARD HAS UNANIMOUSLY APPROVED (BY VOTE OF ALL DIRECTORS PRESENT)
THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE SBC SHAREOWNERS VOTE
FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE ISSUANCE OF SHARES OF SBC
COMMON STOCK PURSUANT TO THE MERGER AGREEMENT.
PAC
This Joint Proxy Statement/Prospectus is also being furnished to holders of
PAC Common Stock in connection with the solicitation of proxies by the PAC Board
for use at the PAC Special Meeting, to be held on July 31, 1996, and any
adjournments or postponements thereof, to consider and vote upon the approval
and adoption of the Merger Agreement and approval of the transactions
contemplated thereby and to transact such other business as may properly come
before the PAC Special Meeting or any adjournments or postponements thereof. PAC
does not currently intend to seek an adjournment of the PAC Special Meeting.
THE PAC BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY
RECOMMENDS THAT THE PAC SHAREOWNERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND APPROVAL OF THE TRANSACTIONS CONTEMPLATED THEREBY.
This Joint Proxy Statement/Prospectus is furnished to PAC shareowners as a
prospectus in connection with the issuance by SBC of shares of SBC Common Stock
in connection with the Merger.
Each copy of this Joint Proxy Statement/Prospectus mailed to holders of PAC
Common Stock is accompanied by a form of proxy for use at the PAC 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.
DATE, PLACE AND TIME
The SBC Special Meeting will be held at the Travis Conference Center at the
Sheraton Gunter Hotel, 205 East Houston, San Antonio, Texas, on July 31, 1996,
at 9:30 a.m., local time.
The PAC Special Meeting will be held at the San Jose Scottish Rite Center,
2455 Masonic Drive, San Jose, California on July 31, 1996 at 2:00 p.m., local
time.
In the event that the Exchange Ratio is decreased to less than 0.667 (other
than as a result of certain equitable adjustments necessitated by a
distribution, reclassification, stock split, stock dividend or similar
transaction) in accordance with the terms of the Merger Agreement, then PAC
shall, as promptly as practicable after the determination of such Exchange
Ratio, convene another meeting of the shareowners of PAC at which the holders of
PAC Common Stock will be requested again to consider and vote upon the
transactions contemplated by the Merger Agreement, taking into account the
Exchange Ratio, as so decreased. Any further approval by the shareowners of PAC
would be a condition to the obligations of PAC and SBC to consummate the Merger.
See "The Merger -- Terms of the Merger."
14
<PAGE> 26
RECORD DATES
SBC
The SBC Board has fixed the close of business on June 3, 1996 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 and at any adjournments
or postponements thereof.
PAC
The PAC Board has fixed the close of business on June 3, 1996 as the PAC
Record Date for the determination of the holders of PAC Common Stock entitled to
receive notice of and to vote at the PAC Special Meeting and at any adjournments
or postponements thereof.
VOTES REQUIRED
SBC
As of April 30, 1996 there were 609,158,765 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 a majority of the votes cast at the
SBC Special Meeting is necessary for the approval and adoption of the Merger
Agreement and approval of the transactions contemplated thereby, including the
issuance of the shares of SBC Common Stock pursuant to the Merger Agreement.
Under the rules of the NYSE, in order to approve the issuance of shares of
SBC Common Stock, the total number of shares voting with respect to such matter
must be in excess of 50% of the outstanding shares of SBC Common Stock. 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 and adopt the Merger Agreement and approve the
transactions contemplated thereby, including the issuance of shares of SBC
Common Stock pursuant to 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 and the transactions contemplated thereby, including the
issuance of shares of SBC Common Stock pursuant to the Merger, unless they
receive specific instructions from beneficial owners (otherwise known as "broker
non-votes").
As of April 30, 1996, directors and executive officers of SBC and their
affiliates beneficially owned an aggregate of 1,784,853 shares of SBC Common
Stock (including shares which may be acquired within 60 days upon exercise of
employee stock options) or less than 1% 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
approval and adoption of the Merger Agreement and approval of the transactions
contemplated thereby, including the issuance of shares of SBC Common Stock
pursuant to the Merger Agreement.
As of March 31, 1996, the directors and executive officers of PAC owned 263
shares of SBC Common Stock.
See "The Merger -- Interests of Certain Persons in the Merger."
PAC
As of April 30, 1996, there were 428,434,672 shares of PAC Common Stock
issued and outstanding. Each share of PAC Common Stock outstanding on the PAC
Record Date is entitled to one vote upon each matter properly submitted at the
PAC Special Meeting. The affirmative vote of at least a majority of the
outstanding shares of PAC Common Stock is required to approve and adopt the
Merger Agreement and to approve the transactions contemplated thereby.
The presence in person or by proxy at the PAC Special Meeting of the
holders entitled to vote a majority of the outstanding shares of PAC Common
Stock is necessary to constitute a quorum for the transaction of business.
Abstentions will be counted as present for the purposes of determining whether a
quorum is present. Any
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abstention or broker non-vote will have the same effect as a negative vote.
Under the rules of the NYSE, brokers who hold shares in street name for
customers will not have the authority to vote on the Merger unless they receive
specific instructions from beneficial owners.
As of May 22, 1996, directors and executive officers of PAC and their
affiliates beneficially owned an aggregate of 785,270 shares of PAC Common Stock
(including shares which may be acquired within 60 days upon exercise of employee
stock options) or less than 1% of the shares of PAC Common Stock outstanding on
such date. The directors and executive officers of PAC have indicated their
intention to vote their shares of PAC Common Stock in favor of approval and
adoption of the Merger Agreement and approval of the transactions contemplated
thereby.
As of April 30, 1996, directors and executive officers of SBC owned 1,150
shares of PAC Common Stock.
See "The Merger -- Interests of Certain Persons in the Merger."
VOTING AND REVOCATION OF PROXIES
Shares of SBC Common Stock and PAC Common Stock represented by a proxy
properly signed and received at or prior to the appropriate Special Meeting,
unless subsequently revoked, will be voted in accordance with the instructions
thereon. IF A PROXY 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 AND ADOPT THE MERGER AGREEMENT AND TO APPROVE THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE ISSUANCE OF SHARES OF SBC
COMMON STOCK PURSUANT TO THE MERGER AGREEMENT, AND SHARES OF PAC COMMON STOCK
REPRESENTED BY THE PROXY WILL BE VOTED FOR THE PROPOSAL TO APPROVE AND ADOPT THE
MERGER AGREEMENT AND TO APPROVE THE TRANSACTIONS CONTEMPLATED THEREBY. 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 with the Secretary of PAC, for PAC shareowners, prior to or at
the appropriate Special Meeting, or, with respect to a proxy given by a
shareowner of SBC, by voting in person at the SBC Special Meeting, although
attendance at the SBC 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 of SBC proxies should be addressed as
follows: SBC Communications Inc., 175 East Houston, San Antonio, Texas
78205-2233, Attention: Vice President and Secretary. All written notices of
revocation and other communications with respect to revocation of PAC proxies
should be addressed as follows: Pacific Telesis Group, 130 Kearny Street, San
Francisco, California 94108, Attention: Secretary.
If an SBC shareowner is a participant in SBC's Dividend Reinvestment Plan,
the SBC proxy card will serve as voting instructions with respect to the number
of full 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 SBC
Compensation and Benefit Plans (as defined under "-- Reasons for the Merger,
Recommendations of the Board of Directors -- PAC"): the SBC PAYSOP, the SBC
Savings Plan, or the SBC Savings and Security Plan, then the SBC proxy card
will, similarly, serve as a voting instruction for the trustees of those plans
where all accounts are registered in the same name. If proxy cards representing
shares of SBC Common Stock in the SBC PAYSOP, the SBC Savings Plan or the SBC
Savings and Security Plan are not received, those shares of SBC Common Stock
will be voted in the same proportion as the shares of SBC Common Stock for which
signed cards are returned by other participants in such SBC Compensation and
Benefit Plans. 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 sign and return every proxy card received.
If a PAC shareowner is a participant in PAC's Dividend Reinvestment and
Stock Purchase Plan, the PAC proxy card will serve as voting instructions with
respect to the number of full shares of PAC Common Stock in PAC's Dividend
Reinvestment Plan and Stock Purchase Plan account on the PAC Record Date as well
as other shares of PAC Common Stock registered in the participant's name. If a
PAC shareowner is a participant in any of the following PAC Compensation and
Benefit Plans: the PAC Supplemental Retirement and Savings Plan for Salaried
Employees, the PAC Supplemental Retirement and Savings Plan for Nonsalaried
Employees (the "PAC
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Savings Plans"), the PAC Leveraged Employee Stock Ownership Plan (the "PAC
LESOP"), or the PAC Employee Stock Ownership Plan (the "PAC ESOP"), the PAC
proxy card will also serve as a voting instruction for the trustees of those
plans where all accounts are registered in the same name. Shares of PAC Common
Stock in the PAC ESOP cannot be voted unless the PAC proxy card is signed and
returned. If proxy cards representing shares of PAC Common Stock held in the PAC
Savings Plans and the PAC LESOP are not returned, those shares will be voted by
the trustees in the same proportion as the shares for which signed proxy cards
are returned by other participants. If a PAC shareowner participates in any of
these plans or maintains other accounts under a different name (e.g. with and
without a middle initial), the PAC shareowner may receive more than one set of
Joint Proxy Statement/Prospectus materials. To ensure that all shares of PAC
Common Stock are voted, the PAC shareowner must sign and return every proxy card
received.
The SBC Board and the PAC Board are not currently aware of any business to
be acted upon at their respective Special Meeting, of their respective
shareowners, other than as described herein. If, however, other matters are
properly brought before either Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion to
vote or act thereon according to their best judgment. Such adjournment may be
for the purpose of soliciting additional proxies. Shares represented by proxies
voting against, in the case of SBC, approval and adoption of the Merger
Agreement and approval of the transactions contemplated thereby, including the
issuance of shares of SBC Common Stock pursuant to the Merger Agreement and, in
the case of PAC, approval and adoption of the Merger Agreement and the
transactions contemplated thereby, will be voted against a proposal to adjourn
the respective Special Meeting for the purpose of soliciting additional proxies.
Neither SBC nor PAC currently intends to seek an adjournment of its respective
Special Meeting.
Shareowners of SBC and PAC will not be entitled to present any matter for
consideration at either of the Special Meetings.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
SBC and PAC, none of whom will be specifically compensated for such services,
may solicit proxies from the shareowners of SBC and PAC, respectively,
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 proxy materials to
beneficial owners.
In addition, SBC and PAC have retained Georgeson & Company, Inc.
("Georgeson") and Corporate Investor Communications, Inc. ("CIC"), respectively,
to assist in the solicitation of proxies from their respective shareowners. The
fees to be paid to such firms for such services by each of SBC and PAC are not
expected to exceed $19,000, respectively, plus in each case reasonable
out-of-pocket costs and expenses. SBC and PAC have jointly retained Shareholder
Communication Corporation to act as information agent for the Merger at an
estimated cost of $168,000 to be borne equally by SBC and PAC. SBC and PAC each
will bear its own expenses in connection with the solicitation of proxies for
its Special Meeting, except that each will pay one-half of all printing, filing
and mailing costs and expenses incurred in connection with the Registration
Statement and this Joint Proxy Statement/Prospectus.
PAC SHAREOWNERS SHOULD NOT SEND PAC COMMON STOCK CERTIFICATES WITH
THEIR PROXY CARDS.
APPRAISAL RIGHTS
Holders of PAC Common Stock will not be entitled to any dissenters' or
appraisal rights under Section 92A.390 of the NPCL in connection with the
Merger. Holders of SBC Common Stock also will not be entitled to any dissenter's
or appraisal rights under Section 262 of the DGCL as a result of the matters to
be voted upon at the SBC Special Meeting.
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THE COMPANIES
SBC
SBC is a communications holding company, which in 1995 had operating
revenues of approximately $12.67 billion and income before extraordinary loss of
approximately $1.89 billion. At December 31, 1995, SBC had total assets of
approximately $22 billion. SBC's subsidiaries are engaged principally in
communications and information services, including the provision of
telecommunications services in Texas, Missouri, Oklahoma, Kansas and Arkansas.
SBC was incorporated under the laws of the State of Delaware in 1983 by AT&T as
one of seven regional holding companies formed to hold AT&T's local telephone
companies. AT&T divested SBC by means of a spin-off of stock to AT&T shareowners
on January 1, 1984. The divestiture was made pursuant to the Consent Decree.
PAC
PAC was incorporated under the laws of the State of Nevada in 1983 by AT&T
as one of seven regional holding companies formed to hold AT&T's local telephone
companies. AT&T divested PAC by means of a spin-off of stock to AT&T shareowners
on January 1, 1984. The divestiture was made pursuant to the Consent Decree. PAC
includes two wholly-owned operating telephone companies, Pacific Bell and Nevada
Bell, and certain diversified subsidiaries. PAC provides financial and strategic
planning and general administrative functions on its own behalf and on behalf of
its subsidiaries. In 1995, PAC had operating revenues of approximately $9.04
billion and income before extraordinary item of approximately $1.05 billion. At
December 31, 1995, PAC had total assets of approximately $16 billion.
Merger Sub
Merger Sub, a wholly-owned subsidiary of SBC, was formed by SBC solely for
the purpose of effecting the Merger.
THE MERGER
This section of the Joint Proxy Statement/Prospectus describes certain
aspects of the Merger. To the extent that it relates to the Merger Agreement,
the following description does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement, which is attached as Appendix
A to this Joint Proxy Statement/Prospectus and is incorporated herein by
reference. All shareowners are urged to read the Merger Agreement in its
entirety.
GENERAL
The Merger Agreement provides for a business combination between SBC and
PAC in which, subject to the satisfaction of the conditions therein, Merger Sub
will be merged with and into PAC and the holders of PAC Common Stock will be
issued SBC Common Stock in a transaction intended to qualify as a "pooling of
interests" for accounting purposes and as a reorganization within the meaning of
Section 368(a) of the Code for federal income tax purposes. In the Merger, each
outstanding share of PAC Common Stock (other than Excluded PAC Common Stock)
will be converted into the right to receive, and become exchangeable for, a
fraction of a share of SBC Common Stock equal to the Exchange Ratio, together
with the appropriate number of SBC Rights. The Exchange Ratio may be increased
or decreased in certain circumstances as set forth in the Merger Agreement and
as described herein under "-- Terms of the Merger." Each outstanding share of
SBC Common Stock will remain outstanding and be unaffected by the Merger. As a
result of the Merger, holders of PAC Common Stock immediately prior to the
Merger will own approximately 34% of the SBC Common Stock after the Merger
(based on the number of shares of SBC Common Stock and PAC Common Stock
outstanding as of March 31, 1996 and assuming the Exchange Ratio is equal to
0.733).
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BACKGROUND OF THE MERGER
The action of the PAC Board to approve the Merger Agreement was the
ultimate outcome of a process that began in the fall of 1994 in which PAC's
management and the PAC Board commenced consideration of the medium- and
longer-term outlook for the telecommunications industry and the means by which
PAC could be best positioned to meet anticipated challenges ahead. PAC's
management presented the view that PAC would need to substantially increase the
scale and scope of its operations to compete successfully against very large
national and international telecommunications companies that likely would be
entering PAC's markets and otherwise competing with PAC. PAC's management
believed that PAC's competitiveness would depend on such factors as its ability
to offer its customers a broad range of telecommunications products, to serve
its customers domestically and internationally, to have a competitive cost
structure and to be able to fund significant investments in new products and
services. During this early stage of PAC's strategic study, PAC's management
contemplated that one or more alliances with other telecommunications companies
would be necessary to increase PAC's scale and scope, but no specific form of
alliance or strategic partner was considered. This strategic study continued
through the fall of 1994 and early in 1995, including at meetings of the PAC
Board in December 1994 and February 1995. Following the February 1995 meeting of
the PAC Board, it was determined to defer the active consideration of strategic
alternatives until the legislative process which eventually led to the
Telecommunications Act of 1996 was closer to completion and the regulatory
environment was better defined.
In July and August of 1995, based on an improved outlook for
telecommunications reform, management of PAC and its financial advisor, Salomon,
met on several occasions to consider strategic alternatives. In late September
of 1995, at meetings of the Finance Committee of the PAC Board and of the PAC
Board, a wide-ranging discussion of strategic alternatives was conducted.
Alternatives considered included acquisitions, joint ventures or other
alliances, the sale of a substantial equity stake in PAC or a subsidiary of PAC
to a strategic investor (i.e., an investor with the ability to assist PAC in
expanding its offerings of telecommunications services) and a business
combination with a larger participant in the telecommunications industry. It was
PAC management's conclusion that a combination with another major
telecommunications company appeared to be the best alternative in order to
achieve PAC's objectives because, unlike the other alternatives considered, it
would immediately satisfy PAC's objective of increased scale and scope and would
create a strong foundation for subsequent strategic initiatives beneficial to
PAC's shareowners. By comparison, for example, an alliance or joint venture
involving particular products or services was considered less stable, would
involve greater operating expenses and would be more difficult to integrate with
existing operations, and a strategic investment or acquisition was considered
only an interim step because the size of such an investment or acquisition was
unlikely to create sufficient scale and scope without significant dilution of
earnings per share or, if PAC were to incur indebtedness to fund a significant
acquisition, additional financial constraints. At meetings of the PAC Board on
October 27 and 28, 1995, extensive consideration of these strategic alternatives
occurred and, on the basis of the preliminary results of its strategic review,
the PAC Board authorized Mr. Philip J. Quigley, PAC's Chairman of the Board and
Chief Executive Officer, to make preliminary inquiries of major
telecommunications companies to determine their level of interest in pursuing a
possible business combination.
In November 1995, Mr. Quigley contacted Mr. Edward E. Whitacre, Jr., SBC's
Chairman of the Board and Chief Executive Officer, to inquire whether SBC might
be interested in discussing a possible business combination between PAC and SBC.
At that time Mr. Whitacre indicated that SBC might be interested in discussing
such a transaction, but that he believed it would be preferable to defer any
discussions until after federal telecommunications law reforms then under
discussion became law and the companies' regulatory environment was clarified.
In addition, Mr. Quigley made preliminary inquiries of other major
telecommunications companies, only one of which indicated that it might be
interested in pursuing a combination transaction with PAC at that time. That
company, however, was involved in a separate strategic initiative. PAC
determined that, because of business conflicts and differing objectives, it
would not pursue further contacts with such company.
At the meeting of the PAC Board on December 15, 1995, a further
presentation was made by management to the PAC Board regarding the strategic
alternatives identified above. At such meeting, consideration was given to the
strategic visions of SBC and PAC. The PAC Board also considered Mr. Quigley's
presentation regarding his preliminary contacts with chief executive officers of
other significant participants in the telecommunications industry and PAC
management's views on regulatory and legal considerations bearing on the
feasibility of a
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business combination with various telecommunications companies. Based on such
considerations and SBC's attractiveness as a potential partner as discussed
below under "-- Reasons for the Merger; Recommendations of the Boards of
Directors -- PAC," it was concluded that discussions concerning a possible
business combination with SBC should be initiated when the regulatory
environment was clarified.
On February 8, 1996, the Telecommunications Act of 1996 was signed into law
by President Clinton, providing sufficient clarification of the regulatory
environment for SBC and PAC. Messrs. Whitacre and Quigley subsequently met in
late February to explore the possibility of a business combination transaction.
The two chief executive officers discussed, among other things, each company's
operations and their complementary strengths, the possible advantages of a
combination, and the opportunity to enter the domestic and international long
distance businesses to serve its customers, which was made possible by the new
telecommunications law. Messrs. Whitacre and Quigley concluded after that
meeting that there appeared to be sufficient mutual interest in pursuing such a
transaction to justify further discussions. Messrs. Whitacre and Quigley met
again in early March along with the General Counsels of SBC and PAC. At this
meeting, the participants discussed various matters, including, among others,
PAC's entry into wireless communications and wireless video businesses and the
opportunities in the event of a merger for the combined company to provide
international long distance service, particularly to the Pacific Rim, Mexico and
Latin America, and domestic long distance service. The participants also
discussed the terms that might be offered to PAC shareowners in connection with
the proposed transaction, the compatibility of the two companies in terms of
common culture and vision, and logistics related to negotiation of the terms of
a merger and each company's due diligence inquiry concerning the other.
Beginning March 8, 1996, and continuing through March 30, 1996, SBC and PAC
conducted mutual due diligence, including a review of each other's business
plans, budgets and capital requirements. The parties determined to commence
negotiation of a merger agreement on March 22 and continued negotiation along
with their respective counsels until shortly before the Merger Agreement was
signed on April 1, 1996. Negotiation and discussion of various aspects of the
proposed merger agreement by representatives of PAC and SBC, together with their
respective legal and financial advisors, continued daily throughout the period.
These negotiations and discussions focused on various aspects of the proposed
merger agreement, including (i) developing a mechanism to adjust the Exchange
Ratio to provide for sharing of the Regulatory Approval Costs between SBC
shareowners and PAC shareowners, (ii) what actions of SBC and PAC would be
prohibited pending closing of the Merger without the consent of the other, (iii)
the provisions for termination of the Merger Agreement, (iv) the circumstances
under which a termination fee would be paid and the amount of the termination
fee, (v) various provisions related to limitations on transactions with third
parties, and (vi) the extent of PAC representation on the SBC Board and how that
representation would be effected. During this time period Messrs. Whitacre and
Quigley had several discussions regarding an appropriate exchange ratio, with
Mr. Whitacre initially proposing an exchange ratio less than 0.733 and Mr.
Quigley initially seeking an exchange ratio greater than 0.733, with 0.733,
subject to increase or decrease in accordance with the terms of the Merger
Agreement, representing an ultimately mutually acceptable ratio.
On March 31, 1996, the PAC Board met to consider the Merger Agreement and
the transactions contemplated thereby, including the proposed consideration to
be paid to PAC shareowners. Members of PAC's senior management and
representatives of Pillsbury Madison & Sutro LLP, PAC's legal advisor, and
Salomon, PAC's financial advisor, made presentations to the PAC Board and
discussed with the PAC Board their views and analyses of various aspects of the
proposed transaction. The PAC Board reviewed and considered, among other things,
the background of the proposed transaction, PAC's strategic alternatives,
financial and valuation analyses of the transaction, the terms of the Merger
Agreement, and the other matters described below under "-- Reasons for the
Merger; Recommendations of the Boards of Directors -- PAC." In order to provide
additional time for reflection upon and consideration of the information
presented regarding the proposed transaction, the PAC Board adjourned its
meeting on March 31, 1996, without a vote being taken with respect to the
Merger, and agreed to reconvene the meeting on April 1, 1996, to further
consider the matter.
On April 1, 1996, the PAC Board reconvened. Salomon delivered its opinion
to the PAC Board to the effect that, as of such date, the Exchange Ratio was
fair to the holders of PAC Common Stock from a financial point of view. After
further deliberation, the PAC Board unanimously approved the Merger Agreement
and authorized the execution of the Merger Agreement.
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On March 29, 1996, the SBC Board met with representatives of its
management, Sullivan & Cromwell, SBC's legal advisor, and Lazard Freres, SBC's
financial advisor, to consider the Merger and the transactions contemplated
thereby including the consideration to be paid by SBC in the Merger. At this
meeting management of SBC and representatives of Lazard Freres made
presentations to the SBC Board and discussed with the SBC Board their views and
analyses of various aspects of the proposed transaction. The SBC Board reviewed
and considered, among other things, the background of the proposed transaction,
the strategic significance of the proposed transaction, background information
concerning PAC, financial and valuation analyses of the transaction and the
other matters described below under "-- Reasons for the Merger; Recommendations
of the Boards of Directors -- SBC." In order to provide additional time to
consider the information presented regarding the proposed transaction, the SBC
Board determined that it should meet again on March 31, 1996, to further
consider the proposed transaction.
On March 31, 1996, the SBC Board met again to consider the Merger and the
transactions contemplated thereby. At this meeting, after considering issues
raised during the due diligence process, the terms of the Merger Agreement and
the oral opinion of Lazard Freres to the effect that the Exchange Ratio is fair
to SBC from a financial point of view, the SBC Board unanimously determined (by
vote of all directors present) that the Merger Agreement and the transactions
contemplated thereby are fair to and in the best interests of its shareowners.
Mr. Knight and Dr. Mobley were unable to attend the March 31, 1996 meeting of
the SBC Board.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
SBC
The SBC 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, its shareowners. In reaching this determination, the SBC Board
concluded that the Merger was likely to increase the value of shareowners'
investment in SBC over what that value would have been had SBC not agreed to the
Merger, and that the opportunities created by the Merger to increase shareowner
value more than offset the risks inherent in the Merger. In reaching this
conclusion, the SBC Board considered that the Merger would:
(a) create one of the largest telecommunications company in the United
States, with the size, geographic and product diversity and complementary
competencies to serve customers better and to grow the business while
positioning SBC for a continuing leadership role in the telecommunications
industry of the 21st century;
(b) create opportunities to apply SBC's proven skills in marketing,
wireless operations and creating value added services for the PAC customer
base, including its new PCS business, and to apply PAC's proven skills in
expense reduction, process redesign and internet applications for the SBC
customer base;
(c) permit the realization of administrative and capital expense
efficiencies in connection with the joint development of SBC's and PAC's
interexchange long distance services once SBC and PAC receive required
regulatory approvals to provide such services;
(d) enable SBC to provide telecommunications services in the two
largest states in the United States, California and Texas;
(e) create a telecommunications enterprise with a strong focus on
Mexico and other parts of Latin America and on Asian telecommunications
markets; and
(f) enable SBC to add 15.8 million telephone access lines to its
existing 14.2 million telephone access lines.
The SBC Board weighed advantages and opportunities against the following
risks associated with the Merger:
(a) the challenges inherent in the combination of two business
enterprises of the size of SBC and PAC and the possible resulting diversion
of management attention for an extended period of time;
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(b) the possibility of significant adverse developments in the
California regulatory environment;
(c) the possibility that the competitive environment in California for
PAC's business will worsen due to the entrance of additional competitors,
strategic or product initiatives by existing competitors or regulatory
changes that impose an economic disadvantage on PAC relative to its
competitors; and
(d) the risks associated with the investments required by PAC's
wireless communications and wireless video businesses.
In reaching the determination that the terms of the Merger were fair to and
in the best interests of SBC shareowners, the SBC Board also considered a number
of additional factors, including its knowledge of SBC's business and discussions
with SBC's management concerning the results of SBC's due diligence
investigation of PAC, the economic and regulatory environment in California,
strategic, operational and financial opportunities and risks associated with the
Merger and the terms of the Merger Agreement, the historical and current market
prices of PAC Common Stock and the oral opinion of SBC's financial advisor,
Lazard Freres (which opinion was confirmed in writing on April 1, 1996, and as
of the date hereof), to the effect that, as of April 1, 1996, the Exchange Ratio
is fair to SBC from a financial point of view.
The foregoing discussion of the information and factors which were given
weight by the SBC Board is not intended to be exhaustive but is believed to
include all material factors considered by the SBC Board. 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 approved (by vote of all directors present) the Merger Agreement and
unanimously recommends to its shareowners that they approve and adopt the Merger
Agreement and approve the transactions contemplated thereby, including the
issuance of shares of SBC in the Merger. Mr. Knight and Dr. Mobley were unable
to attend the March 31, 1996 meeting of the SBC Board but have subsequently
confirmed that they approve the Merger Agreement and concur in the
recommendation of the SBC Board.
THE SBC BOARD UNANIMOUSLY RECOMMENDS THAT SBC SHAREOWNERS VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE ISSUANCE OF SHARES OF SBC COMMON STOCK
PURSUANT TO THE MERGER AGREEMENT.
PAC
The PAC 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, PAC and its shareowners. In reaching this determination, the PAC
Board gave significant consideration to a number of factors, including, without
limitation, the factors referred to below. In view of the wide variety of
factors bearing on its decision, the PAC Board did not consider it practical to,
nor did it attempt to, quantify or otherwise assign relative weight to the
factors it considered in reaching its decision. The Board of Directors received
the advice of independent counsel throughout its consideration of the Merger
Agreement.
Such factors considered by the PAC Board included the following:
(i) Management's View. The PAC Board considered management's view that
PAC's best strategic alternative is to combine with another major
telecommunications company to create an enterprise with the scale and scope of
operations necessary to compete effectively against the industry's much larger
worldwide companies. The PAC Board considered management's conclusion that such
a combined company would have an improved cost structure which would allow it to
meet competitive challenges in an industry that is likely to experience
consolidation and substantially increased competition. The PAC Board also
considered management's view that only companies of substantial scale and scope
will be able to offer a broad, integrated package of telecommunications services
that customers will demand, including local, long distance, wireless and video
services. In making its determination, the PAC Board also considered the view
expressed by management that companies with significant scale and scope will be
likely to attract the most desirable investment and partnering opportunities as
the telecommunications business continues to evolve. The PAC Board also
considered the
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conclusion of management that a significant alignment existed between the
strategic perspective in the core businesses of PAC and SBC, including the
mutual emphasis on a strong branded bundle of telecommunications products as
being critical to future success.
(ii) PAC's Business, Financial Condition and Prospects. In evaluating the
Merger, the PAC Board also considered information with respect to the business,
financial condition and results of operations of PAC, as well as PAC's prospects
for growth in view of industry and market conditions. The PAC Board considered
the constraints on PAC's ability to raise sufficient capital to take advantage
of attractive opportunities. In this regard, consideration was given to the
possibility that PAC's internal sources of cash could be reduced from historical
levels due to expected increases in competition in the coming years, PAC's
recent and expected capital expenditure levels, and the actions in 1995 of
various rating agencies relative to PAC's debt ratings, which included a
lowering of the ratings on PAC's bonds from AA to AA- by one agency and a
designation of the outlook on PAC's long-term debt as "negative" by two other
rating agencies. The PAC Board considered the desirability of its California
markets, the efficiency and quality of its services and the focus of PAC's
operations in a single region. It considered that the desirability of its
California markets would attract the highest level of competition. It also
considered that PAC's opportunities to combine with attractive partners on
desirable terms likely would decrease as industry consolidation accelerates.
(iii) SBC's Business, Financial Condition and Prospects. The PAC Board
considered, among other things, information provided by management and Salomon
with respect to the business, financial condition and results of operations of
SBC. The PAC Board considered, among other things, SBC's historically strong
earnings growth and prospects for continued growth, SBC's relatively stronger
borrowing capacity and lower capital costs, the strength and experience of its
senior management team, its substantial interests in expanding wireless and
international markets, the expertise SBC will bring to PAC's start-up wireless
communications operations and SBC's experience and position in international
markets. The PAC Board also considered PAC's ability to apply its strengths,
particularly in cost management and competitive response, to create value for
the combined company. The PAC Board also considered the attractiveness of SBC's
international diversification and the opportunities believed to exist for
expanded activity in Mexico through SBC's investment in Telmex and the nexus
between the principal markets of both PAC and SBC to that country. In this
regard, the PAC Board considered as favorable the successes of SBC in operating
varied domestic and international assets, including particularly wireless
assets.
The PAC Board also considered risks associated with the proposed Merger,
including, among others, the possibility that the Merger will not be consummated
as a result of unacceptable conditions imposed by regulatory authorities or
otherwise, diversion of management attention from operational matters as a
result of the proposed Merger, the impact of limitations in the Merger Agreement
on PAC's ability to undertake new initiatives prior to the Effective Time, the
effect of rising levels of competition on SBC's local telephone and wireless
businesses, and the possibility that expected operating benefits from the Merger
would be more difficult to achieve than expected.
(iv) Opinion of Salomon; Market Premium. The PAC Board viewed as favorable
to its decision the opinion of Salomon to the effect that as of April 1, 1996
the Exchange Ratio was fair to holders of PAC Common Stock from a financial
point of view. The PAC Board also considered the oral and written presentations
made to it by Salomon. See "-- Opinions of Financial Advisors -- PAC." A copy of
Salomon's written opinion to the PAC Board, dated as of the date hereof, is
attached as Appendix C to this Joint Proxy Statement/Prospectus.
The PAC Board reviewed the historical market prices and recent trading
activity of PAC Common Stock and SBC Common Stock. The PAC Board considered as
favorable to its decision that the per share value of the consideration to be
received by PAC shareowners in the Merger (which, as of March 29, 1996, was
$38.57 per share based on the closing sale price of SBC Common Stock on such
date and assuming an Exchange Ratio of 0.733) represented a premium of
approximately 38.9% over the closing sale price of PAC Common Stock on March 29,
1996. The PAC Board also considered the Exchange Ratio of 0.733, subject to
increase or decrease in accordance with the terms of the Merger Agreement.
(v) Strategic Alliance. The PAC Board also considered that the Merger would
create a strategic alliance between PAC and SBC for the benefit of their
respective shareowners. The combined company would be
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significantly more diversified than PAC, both geographically and in its lines of
business. In this regard, the PAC Board considered that the shareowners of PAC
would have the opportunity to participate in a strengthened combined company
which would be expected to have significant potential for growth and that there
could be expected to be significant values arising from such participation,
including, but not limited to, growth in future stock values and earnings per
share and an enhanced perception of the combined company by the financial
markets and rating agencies.
(vi) Commitment to California, Nevada and other Constituencies of PAC. The
PAC Board also reviewed the willingness of SBC to commit publicly in connection
with the proposed Merger to further the strategic alliance described above by,
among other things, committing to maintain and improve the quality of service to
customers in California and Nevada, to expand service to ethnic markets, to
maintain commitments to diversity in the work force, to continue support of
charitable and other community endeavors, to further the cause of improving the
quality of education in California and Nevada and to increase California
employment levels. The PAC Board considered the following specific examples of
such commitments: an increase of California employment within two years after
the Effective Time by at least 1,000 jobs above the level that otherwise would
have prevailed in the absence of the Merger; maintenance of the Pacific Bell and
Nevada Bell headquarters in their present locations; continued use of the
Pacific Bell and Nevada Bell brand names; and establishment of a new
headquarters in California for integrated support and administrative services,
long distance businesses, international businesses and a new internet company.
The PAC Board also regarded as favorable the opportunities in the combined
company for the employees and officers of PAC and the beneficial effects on
California and Nevada customers and vendors to PAC and its subsidiaries arising
from the above-described commitments. The PAC Board also regarded as favorable
the commitment of SBC in the Merger Agreement to honor, pursuant to their terms,
all employee benefit obligations to current and former employees under PAC's
Compensation and Benefit Plans, including obligations to officers of PAC under
existing employment and severance agreements. The PAC Board also considered the
commitment of SBC under the Merger Agreement to cause the Surviving Corporation
for at least two years after the Effective Time to provide or cause to be
provided to the employees of PAC and its subsidiaries compensation and benefit
plans that are at least as favorable, in the aggregate, as the PAC Compensation
and Benefit Plans, subject to adjustment in the event SBC implements widespread
increases or decreases in benefits or the cost thereof with respect to
compensation and benefit plans applicable to employees of SBC and its
subsidiaries.
(vii) Alternative Transactions. The PAC Board considered strategic
alternatives other than a combination. Included among these alternatives were
possible joint ventures with other companies in the telecommunications industry
or related businesses for development of specific services, acquisitions of
smaller participants in the industry both in the United States and abroad, the
sale of newly-issued shares of PAC capital stock to a strategic investor which
thereafter would own a substantial portion of the outstanding capital stock of
PAC and the sale to a strategic investor of an interest in certain PAC operating
subsidiaries, including its wireless subsidiary. It concurred with management's
view that none of these alternatives would offer as much value to PAC
shareowners as a combination with another major telecommunications company. It
also determined, taking into account, among other things, preliminary inquiries
of other possible merger candidates by PAC's Chief Executive Officer and
applicable regulatory and legal considerations, that it was unlikely that PAC
would be able to negotiate a combination with another company on terms superior
to the proposed Merger with SBC.
(viii) Terms of the Merger Agreement. The PAC Board reviewed presentations
from, and discussed the terms and conditions of the Merger Agreement with,
management and representatives of its financial and legal advisors. Among other
things, the PAC Board considered the fact that the Merger Agreement does not
provide a "collar" limiting the effect of changes in the price of SBC Common
Stock on the value of the consideration to be received by PAC shareowners and
the potential advantages and disadvantages associated therewith, and the fact
that the Merger Agreement contains an adjustment mechanism which could result in
a reduction in the Exchange Ratio based on costs incurred in connection with
required approvals from state regulatory authorities. The PAC Board also gave
consideration to the fact that the Merger would be a tax-free transaction to the
PAC shareowners and the fact that the Merger Agreement would permit continued
payment of dividends to the shareowners of PAC, at a reduced rate, prior to the
Effective Time of the Merger. The PAC Board also considered the possible effect
of interim operating covenants and restrictions which would apply to the
operations
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of PAC and certain of its subsidiaries during the period of time from the
signing of the Merger Agreement to the Effective Time. The PAC Board also
considered the operating covenants and restrictions applicable to SBC after the
signing of the Merger Agreement and prior to the Effective Time. The PAC Board
also considered the provisions in the Merger Agreement (a) that permit SBC to
terminate the Merger Agreement and receive a fee of up to $300 million in the
event that PAC enters into discussions or negotiations concerning an Alternative
Proposal and (b) that do not permit PAC to terminate the Merger Agreement and
accept a Superior Proposal without complying with a procedure that allows SBC to
submit a matching bid. The PAC Board found reasonable the views of its
management and advisors that such provisions were not preclusive of an
Alternative Proposal and were necessary to obtain SBC's agreement under the
circumstances. The PAC Board also gave consideration to the terms of the Merger
Agreement relating to the treatment of PAC Options and to the effect of the
Merger on entitlements of certain officers of PAC under employment agreements
and other employment arrangements and benefits plans. See "-- Interests of
Certain Persons in the Merger."
(ix) Regulatory Considerations. The PAC Board considered the likelihood of
the Merger being approved by the appropriate regulatory authorities. It also
considered the respective regulatory environments of SBC and PAC and their
respective subsidiaries and considered the possible effect of the pendency of
the Merger on existing regulatory proceedings involving PAC and its
subsidiaries. The PAC Board also considered the expected increase in competition
as a result of the Telecommunications Act of 1996 and the respective positions
of SBC and PAC thereunder.
THE PAC BOARD UNANIMOUSLY RECOMMENDS THAT PAC SHAREOWNERS VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE TRANSACTIONS
CONTEMPLATED THEREBY.
OPINIONS OF FINANCIAL ADVISORS
SBC
SBC has retained Lazard Freres to act as its financial advisor with respect
to the Merger. Lazard Freres delivered its written opinion to the SBC Board to
the effect that as of April 1, 1996, the Exchange Ratio is fair to SBC from a
financial point of view. Lazard Freres has confirmed its opinion as of the date
of this Joint Proxy Statement/Prospectus with its subsequent written opinion
dated as of the date hereof.
A copy of the full text of the opinion of Lazard Freres, dated as of the
date of this Joint Proxy Statement/Prospectus, which sets forth the assumptions
made, matters considered and limitations on the review undertaken in connection
with the opinion, is attached hereto as Appendix B and is incorporated herein by
reference. This summary discussion of the opinion of Lazard Freres is qualified
in its entirety by reference to the full text of the opinion. The engagement of
Lazard Freres and its opinion are for the benefit of the SBC Board, and its
opinion was rendered to the SBC Board in connection with its consideration of
the Merger. Lazard Freres' opinion is directed only to the fairness of the
Exchange Ratio from a financial point of view to SBC and does not address any
other aspect of the Merger. The opinion is not intended to, and does not
constitute, a recommendation to any holder of SBC Common Stock as to whether
such shareowner should vote for the Merger at the SBC Special Meeting.
SHAREOWNERS OF SBC COMMON STOCK ARE URGED TO READ THE OPINION OF LAZARD FRERES
IN ITS ENTIRETY.
In connection with rendering its opinion to the SBC Board, dated as of the
date of this Joint Proxy Statement/Prospectus, Lazard Freres reviewed and
analyzed, among other things, this Joint Proxy Statement/Prospectus, the
financial terms and conditions of the Merger Agreement; certain historical
business and financial information relating to SBC and PAC; various financial
forecasts and other data provided to Lazard Freres by SBC and PAC relating to
their respective businesses and the benefits projected by SBC to be realized in
connection with the Merger; public information with respect to certain other
companies in lines of business believed by it to be generally comparable to the
businesses of SBC and PAC; the financial terms of certain business combinations
involving companies in lines of business believed by Lazard Freres to be
generally comparable to those of SBC and PAC, and in other industries generally;
and historical stock prices and trading volumes of the SBC Common Stock and PAC
Common Stock. Lazard Freres also held discussions with members of the senior
management of each of SBC and PAC with respect to the businesses and prospects
of SBC and
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PAC, respectively, the strategic objectives of each, and possible benefits which
might be realized following the Merger. In addition, Lazard Freres conducted
such financial studies, analyses and investigations as it deemed appropriate.
The opinion of Lazard Freres is based on economic, monetary and market
conditions existing as of the date of the opinion.
Lazard Freres did not assume any responsibility for independent
verification of the accuracy or completeness of all of the financial and other
information reviewed by it for purposes of its opinion. Lazard Freres assumed
that the financial forecasts provided to it, including the potential benefits
projected to be realized following the Merger, were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of SBC and PAC as to the future financial performance of SBC and PAC,
respectively. Lazard Freres expressed no view as to such forecasts or the
assumptions on which they are based, and there cannot be any assurance that
actual results of SBC or PAC will not differ materially from those reflected in
the forecasts. In rendering its opinion, Lazard Freres assumed that the Merger
would be consummated on the terms described in the Merger Agreement without any
waiver of material terms or conditions by SBC that obtaining the necessary
regulatory approvals for the Merger would not have a material adverse effect on
SBC or on PAC, and that the projected benefits to be realized in connection with
the Merger would be realized substantially in accordance with such projections.
The following is a summary of certain of the financial and comparative
analyses performed by Lazard Freres in connection with providing its oral
opinion to the SBC Board and reviewed with the SBC Board at its meeting on March
29, 1996. Such analyses were prepared based upon the then proposed exchange
ratio of 0.73, and not on the Exchange Ratio. Such analyses were also prepared
based upon the stock prices of SBC and PAC as of March 27, 1996 and upon the
estimated outstanding numbers of shares of SBC Common Stock and PAC Common Stock
as of that date. Lazard Freres did not consider the revision in the exchange
ratio to be material to its analyses, and its written opinion dated as of April
1, 1996 and as of the date of this Joint Proxy Statement/Prospectus was not
affected by the revision.
Comparable Publicly Traded Companies Analysis. Lazard Freres reviewed and
compared certain actual and estimated financial, operating and stock market
information of companies in lines of businesses believed to be comparable to
those of SBC and PAC. Lazard Freres noted that, although there were no public
companies with precisely the same mix of businesses and financial condition as
SBC or PAC or, on a pro forma basis, SBC and PAC, Lazard Freres believed the
most relevant comparable companies to SBC and PAC to be the other Regional Bell
Operating Companies ("RBOCs") (Ameritech, Bell Atlantic, BellSouth, NYNEX, and U
S WEST Communications) and GTE (collectively, the "Communications Companies").
The analysis indicated that the enterprise value (determined as equity market
value plus net debt) of the Communications Companies as a multiple of 1995
revenue ranged from 2.3x to 3.0x, as a multiple of 1995 earnings before
interest, taxes, depreciation and amortization ("EBITDA") ranged from 5.2x to
7.0x, and as a multiple of 1995 earnings before interest and taxes ("EBIT")
ranged from 10.1x to 11.8x. The analysis also indicated that the public trading
market price per share of the Communications Companies as a multiple of 1995
earnings per share ranged from 14.0x to 16.9x, and as a multiple of 1996
estimated earnings (based on a compilation of industry analysts' estimates) per
share ranged from 13.1x to 15.6x. For the local telephone company segment of the
Communications Companies' businesses taken separately, based upon estimates of
industry analysts, the implied local telephone company segment enterprise value
as a multiple of 1995 revenue ranged from 1.9x to 2.7x, as a multiple of 1995
EBITDA ranged from 4.2x to 6.0x, as a multiple of 1995 EBIT ranged from 7.6x to
10.1x, and as a value for each access line ranged from $1,160 to $1,692.
Based upon the assumptions described above, the implied value of the Merger
to shareowners of PAC as a multiple of PAC's 1995 revenue was 2.6x, as a
multiple of PAC's 1995 EBITDA was 6.1x, as a multiple of PAC's 1995 EBIT was
11.8x, as a multiple of PAC's 1995 earnings was 16.2x, and as a multiple of
PAC's 1996 earnings, as estimated by SBC's management, was 16.0x. Based on the
same assumptions, the implied enterprise value of the Merger to the shareowners
of PAC with respect to the local telephone business alone of PAC, excluding the
estimated value of non-telephone business segments, was approximately 2.5x PAC's
1995 revenue, 5.8x PAC's 1995 EBITDA, 11.3x PAC's 1995 EBIT, and $1,213 for each
access line of PAC.
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Selected Precedent Transactions Analysis. Lazard Freres reviewed and
analyzed selected financial, operating and stock market information relating to
selected acquisition transactions in the telecommunications industry involving
local telephone businesses since July 1990, including the following:
PacifiCorp/Pacific Telecom Inc., Citizens Utilities Company/ALLTEL
Communications properties, Citizens Utilities Company/GTE Corporation
properties, ALLTEL Communications/GTE Corporation properties, Sprint
Corporation/Centel Corporation, Century Telephone Enterprises/Central Telephone
Company of Ohio, Rochester Telephone Corp./Centel Corporation and GTE
Corporation/Contel Corporation (the "Telecommunications Transactions"). Lazard
Freres noted that the reasons for, and circumstances surrounding, each of the
transactions analyzed were diverse and the characteristics of such transactions
and the companies involved were not directly comparable to the Merger and to SBC
and PAC. The aggregate consideration paid in the Telecommunications Transactions
ranged from $1,299 to $2,563 for each access line of the telephone businesses,
excluding the estimated value of non-telephone business segments (in
transactions involving non-telephone business segments), 2.4x to 3.6x revenues
of the acquired businesses, 5.7x to 11.1x EBITDA of the acquired businesses,
9.4x to 23.8x EBIT of the acquired businesses, and implied an equity value
ranging from 18.4x to 34.5x of the net income of the acquired businesses. Based
on an analysis of financial, operating and stock market information relating to
the local telephone businesses involved in the Telecommunications Transactions
alone, the implied aggregate consideration paid in the Telecommunications
Transactions for the local telephone businesses ranged from 2.3x to 3.5x
revenues of the acquired businesses, 5.6x to 10.3x EBITDA of the acquired
businesses, 9.0x to 16.7x EBIT, and implied an equity value of 23.1x to 23.5x
net income of the acquired businesses.
Based upon the assumptions described above, the implied value of the Merger
to shareowners of PAC as a multiple of PAC's 1995 revenue was 2.6x, as a
multiple of PAC's 1995 EBITDA was 6.1x, as a multiple of PAC's 1995 EBIT was
11.8x and as a multiple of PAC's 1995 earnings was 16.2x. Based on the same
assumptions, the implied enterprise value of the Merger to the shareowners of
PAC with respect to the local telephone business alone of PAC, excluding the
estimated value of non-telephone business segments, was approximately 2.5x PAC's
1995 revenue, 5.8x PAC's 1995 EBITDA, 11.3x PAC's 1995 EBIT, and $1,213 for each
access line of PAC.
Discounted Cash Flow Analysis. Based upon forecasts provided by the
management of SBC, Lazard Freres estimated the net present value of the future
cash flows of PAC. For its forecasts Lazard Freres assumed discount rates
ranging from 9.5% to 10.5% and perpetual growth rates of 2.5% to 3.5% for PAC's
business on a consolidated basis. This analysis indicated a net present value
per share of PAC Common Stock ranging from $35 to $40. Lazard Freres also
estimated the net present value of the aggregated future cash flows of PAC's
individual business segments, assuming discount rates ranging from 9.0% to 13.5%
and perpetual growth rates from 2.5% to 6.5%. This analysis indicated a value
per share of PAC Common Stock ranging from $35 to $42. In its analyses, Lazard
Freres assumed that the Merger would be consummated in 1997 and that benefits
would take place starting in 1997. In forecasting SBC's and PAC's performance,
Lazard Freres used forecasts prepared by SBC's management.
Contribution Analysis. Lazard Freres also considered the contribution of
each of SBC and PAC to revenue, EBITDA, EBIT, net income, total debt and capital
expenditures of the pro forma combined company using SBC management's estimates
for 1996. PAC's contribution was estimated to be 41% of revenue, 41% of EBITDA,
38% of EBlT, 35% of net income, 48% of total debt, and 45% of capital
expenditures. Based upon the assumptions described above, shareowners of PAC
Common Stock would own approximately 34% of the combined company upon
consummation of the Merger. The exchange ratios implied by PAC's estimated
contributions to revenue, EBITDA, EBIT, and net income were .98, .97, .86 and
.74, respectively.
Pro Forma Merger Analysis. Lazard Freres considered the effect the Merger
could have on the earnings per share ("EPS") of the combined company, compared
with the EPS of SBC on a stand-alone basis. Based on estimates of SBC's
management and after giving effect to the assumptions described above and
certain other assumptions, including a constant number of shares outstanding in
each respective period, the analysis indicated that the Merger would be slightly
dilutive to the projected standalone EPS of SBC in 1997 and 1998 and slightly
accretive to the EPS of SBC starting in 1999 and becomes increasingly accretive
thereafter. In this analysis, Lazard Freres assumed that both SBC and PAC would
perform substantially in accordance with earnings
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forecasts provided to Lazard Freres by SBC's management. The actual results
achieved by SBC following the Merger may vary from projected results and the
variations may be material.
Special Considerations. 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 the summary set forth above
without considering the analyses as a whole, could create an incomplete or
misleading view of the process underlying the opinion of Lazard Freres. No
company or transaction used in the above analyses as a comparison is identical
to SBC or PAC or the transaction contemplated by the Merger Agreement. The
analyses were prepared solely for purposes of Lazard Freres providing its
opinion to the SBC Board in connection with its consideration of the Merger and
do not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold, which may be significantly more
or less favorable than as set forth in these analyses. Similarly, any estimate
of values or forecast of future results contained in the analyses is not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses.
In connection with its review, Lazard Freres did not assume any
responsibility for independent verification of any of the information supplied
to it by SBC or PAC and assumed and relied on the completeness and accuracy of
such information in all material respects. Lazard Freres did not assume any
responsibility for an independent evaluation or appraisal of SBC or PAC or their
respective assets or liabilities (contingent or otherwise), nor was Lazard
Freres furnished with any such evaluations or appraisals. In addition, in
performing its analyses, Lazard Freres made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters. 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 SBC, Lazard Freres, or any other person assumes
responsibility if future results or actual values are materially different from
those forecasts or estimates contained in the analyses. As described above,
Lazard Freres' opinion to the SBC Board was one of many factors taken into
consideration by the SBC Board in making its determination to approve the Merger
Agreement. The foregoing summary does not purport to be a complete description
of the analyses performed by Lazard Freres and is qualified by reference to the
written opinion of Lazard Freres set forth in Appendix B hereto.
Lazard Freres is an internationally recognized investment banking firm and
is continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements, leveraged
buyouts, and valuations for estate, corporate and other purposes. Lazard Freres
was selected to act as financial advisor to the SBC Board because of its
expertise and its reputation in investment banking and mergers and acquisitions.
In connection with Lazard Freres' services as financial advisor to SBC,
including its rendering of the opinions summarized above, SBC has paid Lazard
Freres a fee of $3 million and has agreed to pay Lazard Freres additional fees
of $4 million upon the approval of the Merger by the shareowners of SBC and PAC
and $8 million upon, and subject to, the consummation of the Merger. SBC also
has agreed to reimburse Lazard Freres for its reasonable out-of-pocket expenses
(including fees and expenses of its legal counsel) and will indemnify Lazard
Freres and certain related parties against certain liabilities, including
certain liabilities arising under the federal securities laws.
Lazard Freres has from time to time in the past provided investment banking
and financial advisory services to SBC for which Lazard Freres has received
fees. In the ordinary course of its business, Lazard Freres and its affiliates
may actively trade in the securities of SBC for their own account and for the
account of their customers and, accordingly, may at any time hold a long or
short position in such securities. In addition, from January 1, 1994 through the
date of this Joint Proxy Statement/Prospectus, Lazard Freres and its affiliates
have invoiced financial advisory and investment banking fees of approximately
$500,000 to date, in connection with various projects on which it has or is
providing advice to SBC.
PAC
At the meeting of the PAC Board on April 1, 1996, at which meeting the PAC
Board approved the Merger Agreement, Salomon delivered its written opinion to
the effect that, as of such date, the Exchange Ratio is fair to
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the holders of PAC Common Stock from a financial point of view. No limitations
were imposed by the PAC Board upon Salomon with respect to the investigations
made or the procedures followed by Salomon in rendering its opinion. Salomon has
confirmed its opinion as of the date of this Joint Proxy Statement/Prospectus
with its written opinion dated as of such date.
The full text of the written opinion of Salomon, dated as of the date
hereof, is set forth as Appendix C to this Joint Proxy Statement/Prospectus and
sets forth the assumptions made, procedures followed, matters considered and
limitations on the scope of the review undertaken. PAC shareowners are urged to
read the opinion in its entirety. Salomon's opinion is directed only to the
fairness, from a financial point of view, of the Exchange Ratio and does not
constitute a recommendation concerning how such shareowners should vote with
respect to the Merger Agreement or the Merger. The summary of the opinion of
Salomon 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, dated as of the date of this
Joint Proxy Statement/Prospectus, Salomon reviewed and analyzed, among other
things, the following: (i) the Merger Agreement; (ii) this Joint Proxy
Statement/Prospectus; (iii) certain publicly available information concerning
PAC and SBC, including the Annual Reports on Form 10-K of PAC and SBC for each
of the years in the three-year period ended December 31, 1995; (iv) certain
other financial information, including financial forecasts, concerning the
business and operations of PAC and SBC that were provided to Salomon by PAC and
SBC, respectively; and (v) certain publicly available information with respect
to certain other companies that Salomon believed to be comparable in certain
respects to PAC and SBC and the trading markets for such other companies'
securities. Salomon also met with certain officers and employees of PAC and SBC
to discuss the foregoing, including the past and current business operations,
financial condition and prospects of PAC and SBC, as well as other matters
Salomon believed relevant to its inquiry, including matters relating to the
obtaining of regulatory approvals for the Merger. Salomon also considered such
other information, financial studies analyses, investigations and financial,
economic and market analyses, investigations and financial, economic and market
criteria that Salomon deemed relevant.
In Salomon's review and analysis and in arriving at its opinion, Salomon
assumed and relied upon the accuracy and completeness of all of the financial
and other information (including information relating to the obtaining of
regulatory approvals for the Merger) provided to Salomon or publicly available
and Salomon did not assume any responsibility for verifying any of such
information. With respect to the financial forecasts of PAC and SBC, Salomon
assumed that they had been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the respective managements of PAC
or SBC as to the future financial performance of PAC or SBC, respectively, and
Salomon expressed no opinion with respect to such forecasts or the assumptions
on which they are based. Salomon 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 PAC
or SBC.
In conducting its analysis and arriving at its opinion, Salomon considered
such financial and other factors as Salomon deemed appropriate under the
circumstances, including, among others, the following: (i) the historical and
current financial position and results of operations of PAC and SBC; (ii) the
historical and current market for the equity securities of PAC, SBC and certain
other companies that Salomon believed to be comparable in certain respects to
PAC or SBC; (iii) the nature and terms of the Telecommunications Transactions;
and (iv) the current and historical relationships between the trading levels of
the PAC Common Stock and SBC Common Stock. Salomon also took into account its
assessment of general economic, market and financial conditions and its
knowledge of the telecommunications industry and related industries, as well as
its experience in connection with similar transactions and securities valuation
generally. Salomon's opinion necessarily was based upon conditions as they
existed and could be evaluated on the date of its opinion, and Salomon assumed
no responsibility to update or revise its opinion based upon circumstances or
events occurring after the date hereof. Salomon's opinion did not imply any
conclusion as to the likely trading range for the SBC 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.
Salomon's opinion did not address PAC's underlying business decision to effect
the Merger.
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In rendering Salomon's opinion, Salomon assumed that in the course of
obtaining the necessary regulatory approvals for the Merger no restrictions
would be imposed that would have a material adverse effect on the contemplated
benefits of the Merger to SBC following the Merger.
The following is a summary of the report (the "Salomon Report") presented
by Salomon to the PAC Board of Directors in connection with the rendering of
Salomon's opinion:
(i) Historical Trading Analysis. Salomon examined the history of trading
prices for PAC Common Stock, SBC Common Stock, a composite index of selected
telecommunications companies and the Standard & Poor's Industrial Average of 400
Stocks in relation to each other and the relationship between price movements
thereof over the period from January 1, 1994 through March 21, 1996. The
composite index of similar companies consisted of the common stock of the
Communications Companies. Salomon observed that PAC Common Stock traded below
the index of telecommunications companies and the Standard & Poor's Industrial
Average of 400 Stocks, while SBC Common Stock generally traded consistent with
such indices.
(ii) Public Market Valuation. Salomon reviewed certain financial and
operating data relating to PAC and SBC, each on an independent basis, and the
financial and operating performance of PAC and SBC relative to the
Communications Companies. The data reviewed by Salomon for the Communications
Companies included multiples of stock trading prices to estimated 1996 earnings
per share (median multiple of 15.4x, with the corresponding multiples for PAC
and SBC representing a 28.6% discount and 2.6% premium, respectively, to the
median multiple) and multiples of firm values to each of EBITDA and EBIT (median
multiples of 6.4x and 11.9x, respectively, with the corresponding multiples for
PAC and SBC representing discounts of 26.6% and 24.4% and premiums of 15.6% and
5.0%, respectively, to the median multiples). Salomon also compared the
principal business units of each of PAC and SBC to the Communications Companies
with a view to determining the valuation that the public securities markets
would give to those units on a stand-alone basis. Based on this segment
analysis, Salomon calculated equity value reference ranges of $25 to $34 for
each share of PAC Common Stock and $46 to $56 for each share of SBC Common
Stock. No company used in the public market valuation analysis summarized above
is identical to PAC or SBC. Accordingly, any analysis of the value of the Merger
based upon the Communications Companies involves complex considerations and
judgments concerning differences in the potential financial and operating
characteristics of the Communications Companies and other factors in relation to
the trading and acquisition values of the Communications Companies.
(iii) Discounted Cash Flow Analysis. Using a discounted cash flow ("DCF")
methodology, Salomon valued each of PAC and SBC estimating the present value of
future free cash flows available to their respective debt and equity holders if
each of PAC and SBC were to perform on a stand-alone basis (without giving
effect to the Merger) in accordance with the management forecasts. This analysis
was performed for each major business unit of SBC and PAC on a stand-alone
basis. Free cash flow represents the amount of cash generated and available for
principal, interest and dividend payments after providing for ongoing business
operations. For each major business unit, Salomon aggregated (x) the present
value of the free cash flows over the applicable forecast period with (y) the
present value of the range of terminal values described below. The range of
terminal values was generally calculated by applying a range of multiples to
each business unit's EBITDA. This range of terminal values represented, for each
of PAC and SBC, their respective value beyond the applicable forecast period. As
part of the DCF analysis, Salomon used discount rates reflecting each business
unit's specific financial characteristics. This DCF analysis resulted in equity
value reference ranges of $34 to $43 for each share of PAC Common Stock and $54
to $66 for each share of SBC Common Stock.
(iv) Private Market Valuation. Salomon reviewed and analyzed selected
acquisition transactions involving other companies in the telecommunications
industry that it deemed relevant. Among other factors, Salomon indicated that
the merger and acquisition transaction environment varies over time because of
macroeconomic factors such as interest rate and equity market fluctuations and
microeconomic factors such as industry results and growth expectations. Salomon
noted that no transaction reviewed was identical to the Merger and that,
accordingly, an assessment of the results of the following analysis necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics of SBC and PAC and other factors that
would affect the acquisition value of the companies to which it is being
compared. The transactions reviewed by Salomon included the Telecommunications
Transactions. Salomon reviewed each acquiree's ratio of
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<PAGE> 42
firm value to target access lines (median ratio of $2,238:1), to target revenues
(median ratio of 2.7:1), to target EBITDA (median ratio of 6.6:1) and to target
EBIT (median ratio of 12.7:1). Based on these ratios, the prices paid in these
transactions and corresponding 1995 data for PAC, Salomon calculated an implied
equity value reference range of $35 to $43 for each share of PAC Common Stock.
(v) Pro Forma Combination Analysis. Salomon reviewed certain pro forma
financial effects resulting from the Merger for the projected 12-month periods
for 1997 and 1998. This analysis was based upon certain assumptions, including
that the projections provided to Salomon by PAC and SBC management were
accurate. Salomon estimated that, on a pro forma basis, the Merger would be
slightly dilutive to the EPS of SBC in 1997 and 1998, respectively.
The preparation of a fairness opinion is not susceptible to partial
analysis or summary descriptions. Salomon believes that its analysis and the
summary set forth above must be considered as a whole and that 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 the analysis set forth in its opinion and the Salomon Report. Salomon
has not indicated that any of the analyses which it performed had a greater
significance than any other. The ranges of valuations resulting from any
particular analysis described above should not be taken to be the view of
Salomon of the actual value of PAC and SBC.
In performing its analyses, Salomon 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 PAC or
SBC. The analyses which Salomon 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's analysis of the fairness, from a financial point of view, of
the consideration which the holders of PAC Common Stock would receive in the
Merger. 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.
Salomon is not affiliated with PAC or SBC. Salomon has previously rendered
certain financial advisory and investment banking services to PAC, for which
Salomon received customary compensation. Salomon has acted as agent and as an
underwriter for SBC and its subsidiary Southwestern Bell Telephone Company in
connection with debt offerings and also has provided other significant financial
advisory services to SBC for which it has received customary compensation. In
the ordinary course of its business, Salomon actively trades the debt and equity
securities of PAC and SBC 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. Pursuant to an engagement letter dated March 7, 1996, PAC agreed to
pay Salomon for its services in connection with the Merger a cash fee of
$26,000,000 subject to certain adjustments, of which $10,766,667 has been paid
to Salomon and the balance of which will be payable upon consummation of the
Merger. PAC also agreed to reimburse Salomon for certain out-of-pocket expenses
incurred by Salomon in connection with the Merger. PAC also agreed to indemnify
Salomon and certain related persons against certain liabilities, including
liabilities under the Federal securities law, relating to or arising out of its
engagement.
Salomon 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 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. The Board of Directors of PAC retained Salomon based on
Salomon's expertise in the valuation of companies as well as its familiarity
with PAC and other telecommunications companies.
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 PAC set forth under "-- Opinions of Financial Advisors." To that extent, SBC
and PAC claim the protection of the disclosure liability safe harbor for
forward-looking statements contained in the Private
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<PAGE> 43
Securities Litigation Reform Act of 1995. Readers are cautioned that the
following important factors, in addition to those discussed elsewhere herein and
the documents incorporated by reference herein, could affect the future results
of SBC and PAC and cause those results to differ materially from those expressed
in such forward-looking statements: future regulatory conditions in both
companies' operating areas, competition from others in the local service market,
the success of PAC's PCS roll-out and other new business ventures, including
internet access and video, growth of SBC's cellular business, the timing,
extent, and profitability of SBC's and PAC's entry into the long-distance
market, growth in local access lines and general economic conditions.
TERMS OF THE MERGER
At the Effective Time, SBC, Merger Sub and PAC will consummate the Merger
in which Merger Sub will be merged with and into PAC and the separate corporate
existence of Merger Sub will thereupon cease. PAC will be the Surviving
Corporation in the Merger, will be a wholly-owned subsidiary of SBC and will
continue to be governed by the laws of the State of Nevada. The Merger Agreement
provides that the Articles of Incorporation of PAC as in effect immediately
prior to the Effective Time will be amended as contemplated by the Merger
Agreement, and such Articles of Incorporation, as so amended, will be the
Articles of Incorporation of the Surviving Corporation. The Merger Agreement
provides that the by-laws of PAC in effect at the Effective Time will continue
as the by-laws of the Surviving Corporation following the Merger.
Pursuant to the Merger Agreement, at the Effective time, each share of PAC
Common Stock issued and outstanding immediately prior to the Effective Time
(other than Excluded PAC Common Stock) will be converted into the right to
receive, and become exchangeable for, a fraction of a share of SBC Common Stock
equal to the Exchange Ratio, together with an appropriate number of SBC Rights
attached thereto. In the event there are any net costs, fees and expenses and
other financial effects that have been or are to be incurred or sustained by
PAC, the Surviving Corporation or any subsidiary thereof in connection with or
as a result of state Governmental Consents (the "Regulatory Approval Costs"),
the Exchange Ratio will be adjusted at the Effective Time to reflect the
allocation of such Regulatory Approval Costs between SBC and PAC. Such
adjustment will be based on the respective market capitalizations of SBC and
PAC, based on assumed values of $53.875 per share of SBC Common Stock and $39.49
per share of PAC Common Stock, each reduced by the respective allocated portions
of the Regulatory Approval Costs. The mechanism for determining the allocation
of the Regulatory Approval Costs is described under "-- Regulatory Approval
Costs." The formula to accomplish the adjustment to the Exchange Ratio is set
forth below.
If there are no Regulatory Approval Costs, the Exchange Ratio will be 0.733. In
the event there are any Regulatory Approval Costs, the Exchange Ratio will be
adjusted to equal:
<TABLE>
<S> <C> <C>
Revised Ratio SBC Share Number
___________________ X _________________
1.000 - Revised Ratio PAC Share Number
</TABLE>
where,
SBC Share Number is equal to the outstanding number of shares of SBC
Common Stock as of a date within five days after the date on which the last
of the required Governmental Consents has been obtained or made in
accordance with the terms of the Merger Agreement or such condition has
been waived, or such earlier date as SBC and PAC may agree (the "Estimate
Date").
PAC Share Number is equal to the outstanding number of shares of PAC
Common Stock as of the Estimate Date.
Revised Ratio is equal to (a) the Revised PAC Value divided by (b) the
sum of the Revised PAC Value and the Revised SBC Value or, expressed as an
equation
<TABLE>
<S> <C> <C>
Revised PAC Value
Revised Ratio = ___________________________________
Revised PAC Value + Revised SBC Value
</TABLE>
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<PAGE> 44
Revised PAC Value is equal to (i) the PAC Share Number multiplied by
$39.49 (0.733 multiplied by $53.875 (equitably adjusted as a result of a
distribution, reclassification, stock dividend or similar transaction with
respect to SBC Common Stock or PAC Common Stock)), less (ii) the PAC Costs
or, expressed as an equation
<TABLE>
<S> <C> <C>
Revised PAC Value = (PAC Share Number X $39.49) - PAC Costs
</TABLE>
Revised SBC Value is equal to (i) the SBC Share Number multiplied by
$53.875 (equitably adjusted as a result of a distribution,
reclassification, stock split, stock dividend or similar transaction with
respect to SBC Common Stock), less (ii) the SBC Costs or, expressed as an
equation
<TABLE>
<S> <C> <C>
Revised SBC Value = (SBC Share Number X $53.875) - SBC Costs
</TABLE>
PAC Costs is equal to PAC's allocable share of the Regulatory Approval
Costs as determined in accordance with the procedures described under "--
Regulatory Approval Costs."
SBC Costs is equal to SBC's allocable share of the Regulatory Approval
Costs as determined in accordance with the procedures described under "--
Regulatory Approval Costs."
Assuming all other variables remain constant, an increase in the PAC Share
Number or a decrease in the SBC Share Number would result in an increase in the
Exchange Ratio. Conversely, an increase in the SBC Share Number or a decrease in
the PAC Share Number would will result in a decrease in the Exchange Ratio.
The Exchange Ratio is also affected by the relative allocation between SBC
and PAC of Regulatory Approval Costs. Assuming for illustrative purposes that
there is no change in the number of outstanding shares of SBC Common Stock and
PAC Common Stock between April 30, 1996 and the Estimate Date, the Exchange
Ratio will increase if PAC Costs are less than, and will decrease if the PAC
Costs are greater than, approximately 34% of the total Regulatory Approval
Costs, in either case as compared to an Exchange Ratio of 0.733. The magnitude
of any such increase or decrease will be affected by the total amount of
Regulatory Approval Costs. Changes in more than one variable may have offsetting
effects on the calculation of the Exchange Ratio.
In the event that the Exchange Ratio is adjusted to less than 0.667 (other
than as a result of certain equitable adjustments necessitated by a
distribution, reclassification, stock split, stock dividend or similar
transaction) in accordance with the terms of the Merger Agreement, PAC will, as
promptly as practicable after the determination of such Exchange Ratio, convene
another meeting of the shareowners of PAC at which the holders of PAC Common
Stock will be requested again to consider and vote upon the transactions
contemplated thereby, taking into account the Exchange Ratio, as so adjusted.
At the Effective Time, all shares of PAC Common Stock will no longer be
outstanding, will be cancelled and retired and will cease to exist, and each PAC
Certificate formerly representing any PAC Common Stock (other than Excluded PAC
Common Stock) will thereafter represent only the right to receive the number of
shares of SBC Common Stock determined in accordance with the Exchange Ratio,
together with the appropriate number of SBC Rights attached thereto, and the
right, if any, to receive cash in lieu of fractional shares into which such
shares of PAC Common Stock have been converted (as described below) and any
distribution or dividend with a record date after the Effective Time, in each
case without interest (which dividend or distribution will not be paid to a
holder of a PAC Certificate until the PAC Certificate is surrendered for
exchange in accordance with the terms of the Merger Agreement).
If at any time prior to the Effective Time there is a change in the number
of shares of PAC Common Stock or shares of SBC Common Stock or securities
convertible or exchangeable into or exercisable for shares of PAC 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 effect of such an event.
No fractional shares of SBC Common Stock will be issued in the Merger.
Instead, the Merger Agreement provides that each holder of PAC Common Stock who
would otherwise have been entitled to receive a fractional share of SBC Common
Stock will be entitled to receive, in lieu thereof, cash (without interest) in
an amount equal to the fraction of a share to which such holder would otherwise
have been entitled to receive multiplied by
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<PAGE> 45
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.
REGULATORY APPROVAL COSTS
The Merger Agreement further provides that within five days after the
Determination Date, each of SBC and PAC shall simultaneously exchange with the
other written notice of the dollar amount of the Regulatory Approval Costs that
it believes, in good faith, to be the appropriate amount of the Regulatory
Approval Costs for it to bear, which amount shall not exceed fifty percent (50%)
of the Regulatory Approval Costs (a "Tentative Share"). Thereafter, one of the
following will occur:
If the Tentative Share of each of SBC and PAC is fifty percent (50%)
of the Regulatory Approval Costs, then the SBC Costs and the PAC Costs
shall each equal fifty percent (50%) of the Regulatory Approval Costs.
If neither SBC nor PAC agree to a Tentative Share of fifty percent
(50%) of the Regulatory Approval Costs (a "Failure to Agree Event"), then
the Merger Agreement shall terminate.
If only one of SBC or PAC agrees to a Tentative Share of fifty percent
(50%) of the Regulatory Approval Costs (such party, the "Higher Party"),
then the Higher Party may elect to either:
(i) terminate the Merger Agreement after providing 10 days prior
written notice to the other party (the "Lower Party"), in which event
the Lower Party may have certain rights to avert such termination (as
discussed below); or
(ii) accept as its share of the Regulatory Approval Costs (which
shall be the SBC Costs if SBC is the Higher Party, or the PAC Costs if
PAC is the Higher Party) the difference between the Regulatory Approval
Costs and the greater of (a) the Lower Party's Tentative Share and (b)
the lesser of (i) fifty percent (50%) of the Regulatory Approval Costs
and (ii) the Termination Fee (as defined under "-- Certain Termination
Fees"). The greater of (a) and (b) is referred to as the "Lower Party's
Share," and will be the SBC Costs if SBC is the Lower Party, or the PAC
Costs if PAC is the Lower Party.
If the Lower Party's Tentative Share is within 80 percent of the
Higher Party's Tentative Share and the Higher Party has provided notice of
its intent to terminate the Merger Agreement, then the Lower Party may
elect (a "Lower Party Election") to avoid the termination of the Merger
Agreement by accepting as its share of the Regulatory Approval Costs (which
shall be the SBC Costs if SBC is the Lower Party, or the PAC Costs if PAC
is the Lower Party) the difference between the Regulatory Approval Costs
and the Lower Party's Share (in which event the Higher Party will bear the
remaining Regulatory Approval Costs).
EFFECTIVE TIME; CLOSING
The Merger will become effective at the Effective Time. The Merger
Agreement provides that the closing of the Merger (the "Closing") will take
place on the third business day after 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 PAC may
agree. The date on which the Closing will occur is herein called the "Closing
Date."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
PAC, SBC and Merger Sub, certain of which are qualified as to materiality. PAC
represents and warrants to SBC and Merger Sub, and SBC (on behalf of itself and
Merger Sub) represents and warrants to PAC regarding the following matters,
among others: (i) corporate existence and the 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 or
agreement to which it is a party, or violate any law, rule, regulation, any
governmental or non-governmental
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<PAGE> 46
permit or license or the organizational documents of it or of its Significant
Subsidiaries; (iv) consents, registrations, approvals, permits or authorizations
required by any Governmental Entity, including filings with applicable PUCs and
the FCC; (v) its financial statements; (vi) the conduct of its and its
subsidiaries' businesses since December 31, 1995; (vii) pending or threatened
civil, criminal or administrative suits, actions or proceedings and undisclosed
liabilities; (viii) with respect to PAC, the PAC Compensation and Benefit Plans
and, with respect to SBC, its compensation and benefit plans the ("SBC
Compensation and Benefit Plans"); (ix) compliance with laws; (x) environmental
matters; (xi) tax matters; (xii) compliance with laws relating to the employment
of labor and the absence of labor controversies; (xiii) with respect to PAC, it
having taken all necessary action with respect to all of the outstanding PAC
Rights (as defined below under "Comparison of Certain Rights of Shareowners of
SBC and PAC -- Rights Plans; PAC") so that neither SBC nor PAC will have any
obligations relating to the PAC Rights as a result of the Merger; (xiv) 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; and (xv) the
absence of any liability to any undisclosed person for any brokerage fees,
commissions or finders' fees.
CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME; CERTAIN COVENANTS; ACQUISITION
PROPOSALS
Operational Covenants
The Merger Agreement provides that, during the period from the date of the
Merger Agreement until the Effective Time, except as otherwise contemplated by
the Merger Agreement, as required by applicable law, rule or regulation, or
unless the other party shall otherwise approve: (i) each of SBC and PAC will,
and each of their respective subsidiaries will, conduct its business only in the
ordinary and usual course and, to the extent consistent therewith, it and its
subsidiaries shall use all reasonable 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) each of SBC and PAC will not (A) amend the SBC
Restated Certificate, in the case of SBC, or the Articles of Incorporation of
PAC (the "PAC Articles") in the case of PAC, or their respective by-laws, or
amend, modify or terminate the SBC Rights Agreement (as defined under
"Description of SBC Capital Stock -- Description of SBC Rights"), in the case of
SBC, or the PAC Rights Agreement (as defined under "Comparison of Certain Rights
of Shareowners of SBC and PAC -- Rights Plans -- PAC"), in the case of PAC,
other than, in the case of SBC, an amendment to the SBC Restated Certificate for
the purpose of increasing the authorized number of shares of SBC Common Stock as
contemplated by SBC's March 12, 1996 Proxy Statement; (B) split, combine,
subdivide or reclassify its outstanding shares of capital stock; (C) declare,
set aside or pay any dividend payable in cash, stock or property in respect of
any capital stock, other than (I) in the case of PAC, the quarterly dividend
declared on March 22, 1996, payable on May 1, 1996 to shareowners of record on
April 9, 1996, and, thereafter, per share regular quarterly cash dividends not
in excess of the Exchange Ratio multiplied by the dividend per share of SBC
Common Stock in such quarter and (II) in the case of SBC, regular quarterly cash
dividends not in excess of $0.43 per share of SBC Common Stock; or (D)
repurchase, redeem or otherwise acquire, except (I) in the case of PAC, in
connection with the PAC Stock Plans and (II) in the case of SBC, in connection
with the SBC Stock Plans, or permit any of its subsidiaries to purchase or
otherwise acquire, any shares of its capital stock or any securities convertible
into or exchangeable or exercisable for any shares of its capital stock; (iii)
neither SBC nor PAC nor any of their respective subsidiaries will 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 set forth in the Merger Agreement to become untrue in any material
respect; (iv) neither SBC nor PAC, nor any of their respective subsidiaries,
will terminate, establish, adopt, enter into or make any new grants or awards of
stock-based compensation or other benefits under, amend or otherwise modify, any
PAC or SBC Compensation and Benefit Plans or increase the salary, wage, bonus or
other compensation of any directors, officers or employees except (A) for grants
or awards to directors, officers and employees of it or its subsidiaries under
existing PAC or SBC 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 or (C) for actions necessary to satisfy existing contractual
obligations under PAC or SBC Compensation and Benefit Plans existing as of the
date of the Merger Agreement; and (v) neither SBC nor PAC, nor any of their
respective subsidiaries will authorize, or enter into an agreement to do any of
the foregoing. PAC
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<PAGE> 47
has consented to a waiver of the limitation contained in the Merger Agreement on
the amount of quarterly cash dividends payable by SBC.
Further, from the date of the Merger Agreement until the Effective Time,
neither SBC nor its subsidiaries will, except as approved by PAC, as
contemplated in the Merger Agreement or as required by applicable law, rule or
regulation: (i) issue any preferred stock or incur any indebtedness for borrowed
money or guarantee any such indebtedness if SBC should reasonably anticipate
that after such incurrence any of SBC's or any of its subsidiaries' outstanding
senior indebtedness would be rated BBB or lower by Standard & Poor's; (ii) make
any capital expenditures in any calendar year in an aggregate amount in excess
of 150% of the aggregate amount of capital expenditures reflected in SBC's
capital expenditure budget for such year; (iii) 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) in
public offerings for cash where the aggregate proceeds to SBC are less than $1
billion in any calendar year, (B) shares issuable pursuant to stock options and
other awards outstanding on the date of the Merger Agreement under SBC's stock
plans, awards of options and other awards granted after the date of the Merger
Agreement under the SBC's stock plans in accordance with the Merger Agreement
and shares issuable pursuant to such awards, and (C) to fund the cost of any
acquisition of a telecommunications business, whether by merger, consolidation,
purchase of assets or otherwise; (iv) other than in transactions between or
among themselves, sell or otherwise transfer any of its indirect investment in
AA shares of Telefonos de Mexico, S.A. de C.V.; (v) enter any business other
than the telecommunications business and those businesses traditionally
associated with the telecommunications business; or (vi) agree prior to the
Effective Time to do any of the foregoing after the Effective Time.
In addition, from the date of the Merger Agreement until the Effective
Time, neither PAC nor its subsidiaries will, except as SBC shall otherwise
approve, as otherwise expressly contemplated by the Merger Agreement or as
required by applicable law, rule or regulation: (i) issue any preferred stock or
incur any indebtedness for borrowed money or guarantee any such indebtedness if
PAC should reasonably anticipate that after such incurrence any of PAC's or any
of its subsidiaries' outstanding senior indebtedness would be rated BBB or lower
by Standard & Poor's; (ii) make any capital expenditures in any calendar year in
an aggregate amount in excess of the aggregate amount reflected in PAC's capital
expenditure budget for such year plus $250 million (provided, however, that this
restriction will not limit the ability of Pacific Bell or Nevada Bell (each a
subsidiary of PAC) to make or commit to capital expenditures with respect to any
aspect of their respective existing businesses); (iii) 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)
shares issued pursuant to options and other awards outstanding on the date of
the Merger Agreement under the PAC Stock Plans, awards of options and other
awards granted after the date of the Merger Agreement under the PAC Stock Plans
in accordance with the Merger Agreement and shares issuable pursuant to such
awards, and (B) up to an aggregate amount of $300 million of such stock in any
calendar year to fund, in whole or in part, any acquisition or acquisitions
described under clause (iv) below; (iv) spend in excess of $600 million in any
calendar year to acquire any business, whether by merger, consolidation,
purchase of property or assets or otherwise (except for acquisitions by Pacific
Bell and Nevada Bell of businesses which would be subject to regulation in
California or Nevada), unless such business is acquired directly by PAC and is
within PAC's existing lines of business (provided, however, neither PAC nor any
of its subsidiaries may acquire (A) any cellular, personal communications
services or wireless cable business servicing any territory outside of the
states of California and Nevada or (B) any business servicing any territory
outside the United States unless such business primarily consists of the long
distance telephone business, the internet services business, or the internet
hubbing business); (v) enter any business other than the telecommunications
business and those businesses traditionally associated with the
telecommunications business; or (vi) agree prior to the Effective Time to do any
of the foregoing after the Effective Time.
Acquisition Proposals
The Merger Agreement provides that neither SBC nor PAC nor any of their
respective subsidiaries nor any of their or their subsidiaries respective
officers and directors will, and they will use their respective best efforts to
cause their and their subsidiaries' employees, agents and representatives not
to, (i) initiate, solicit, encourage or
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<PAGE> 48
otherwise facilitate any inquiries or the making of any Acquisition Proposal or
(ii) have any discussion with or provide any confidential information or data to
any person relating to an Acquisition Proposal or engage in any negotiations
concerning an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal. The Merger Agreement does
not prohibit, however, either of SBC or PAC (A) from complying with Rule 14e-2
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 bona fide written Acquisition
Proposal to the shareowners of SBC or PAC, as the case may be, if and only to
the extent that, in such case referred to in clause (B) or (C), (i) the SBC
Board or PAC Board, as the case may be, concludes in good faith (after
consultation with its financial advisor) that such 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's or
PAC's shareowners from a financial point of view than the transaction
contemplated by the Merger Agreement (any such more favorable Acquisition
Proposal being referred to as a "Superior Proposal"), (ii) the SBC Board or the
PAC Board, as the case may be, determines in good faith after consultation with
outside legal counsel that such action is necessary for the SBC Board or the PAC
Board, as the case may be, to comply with its respective fiduciary duties under
applicable law and (iii) prior to providing any information or data to any
person in connection with an Acquisition Proposal by any such person, such board
of directors receives from such person an executed confidentiality agreement on
terms substantially similar to those contained in the confidentiality agreement
previously entered into between SBC and PAC in connection with their
consideration of the Merger. The Merger Agreement provides that SBC and PAC 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
will keep SBC or PAC, as the case may be, informed, on a current basis, of the
status and terms of any such proposals or offers and the status of any such
discussions or negotiations.
CERTAIN REGULATORY MATTERS
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 PAC each filed a
Notification and Report Form pursuant to the HSR Act with the DOJ and the FTC on
April 10, 1996. On May 10, 1996, each of SBC and PAC received requests from the
Antitrust Division of the DOJ for additional information and documents relating
to the Merger. Under the HSR Act, the Merger may not be consummated until 20
days after both SBC and PAC have substantially complied with such requests.
Although SBC and PAC believe the Merger complies with the antitrust laws, at any
time before or after the Effective Time, the DOJ 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 PAC. 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.
FCC
Before the Merger can be effected, SBC and PAC must obtain the approval of
the FCC pursuant to the Communications Act for transfer of control from PAC to
SBC of PAC's subsidiaries holding certain FCC licenses and authorizations. The
FCC is expected to evaluate whether SBC is qualified to control PAC and whether
the public interest, convenience and necessity will be served by the transfer of
control. On May 20 and May 30, 1996, SBC and PAC filed, with the FCC, transfer
of control applications with respect to the FCC licenses and authorizations held
by subsidiaries of PAC which SBC and PAC believe demonstrate compliance with the
FCC's standards. There can be no assurance that the requisite FCC approvals will
be obtained or that they will be obtained in a timely manner. In addition, there
can be no assurance that such approvals will not include conditions that will
result in the abandonment of the Merger.
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State PUCs
PAC's primary operating subsidiaries, Pacific Bell and Nevada Bell, are
public utilities subject to the respective jurisdictions of the CPUC and the
NPSC. SBC and PAC filed an application with the CPUC on April 26, 1996
requesting its authorization, to the extent required under Section 854, to
approve an indirect change in control of Pacific Bell, which will become an
indirect wholly-owned subsidiary of SBC. Before authorizing a change of control
under Section 854(b), the CPUC is required to find that the Merger provides
short- and long-term economic benefits to customers and to allocate equitably
these forecasted economic benefits, as found by the CPUC, between shareowners
and customers, with customers receiving not less than 50% of any such benefits.
The CPUC's determination of forecasted economic benefits is limited to services
within its jurisdiction and over which it exercises ratemaking authority. The
CPUC is not required to use any particular method for assuring that customers
receive any forecasted economic benefits and, in markets where competition
exists, the CPUC can rely on competition to produce the economic benefits. As of
the May 30, 1996 deadline for filing of protests, five protests to SBC's and
PAC's application were filed. These protests have variously asserted that the
Merger will adversely affect competition in California or that there will be
quantifiable forecasted economic benefits allocable to customers from the
Merger. During the course of the CPUC's proceedings regarding SBC's and PAC's
application, protestants may assert that there will be substantial forecasted
economic benefits from the Merger that should be allocated to customers, which
may result in refunds or mandated rate adjustments. SBC and PAC intend to
vigorously contest any such assertions. There can be no assurance, however, as
to the amount of forecasted economic benefits, if any, that might be allocated
to customers by the CPUC nor the method of such allocation.
The CPUC also is required under Section 854(b) to determine that a change
in control does not adversely affect competition in the provision of telephone
service in California and, in making that determination, it is required to
request an advisory opinion from the California Attorney General.
Under Section 854(c), the CPUC is required to consider eight separate
criteria, including whether the indirect change in control is fair and
reasonable to public utility employees and to shareowners. Based on its
consideration of those criteria, the CPUC is required to find that, on balance,
the change of control is in the public interest.
SBC and PAC believe that the application filed with CPUC demonstrates
compliance with Section 854, although it is not certain whether Section 854(b)
applies to a change in control of PAC, Pacific Bell's corporate parent. As noted
above, protests to the application have been filed by the CPUC Division of
Ratepayer Advocates, consumer groups and competitors. PAC and SBC are involved
in ongoing meetings with interested parties, including the CPUC staff, in an
effort to satisfy concerns about the transaction and to narrow potential areas
of controversy. It is expected that SBC and PAC will file written testimony
regarding the Section 854 requirements, the parties will conduct discovery and
hearings will be held on the application. PAC and SBC believe that any hearings
would be held on the application during the summer of 1996 and that the CPUC
should complete its review by the end of 1996.
SBC has committed in connection with the Merger to maintain and improve the
quality of service to customers in California and Nevada, to expand service to
ethnic markets, to maintain commitments to diversity in the work force, to
continue support of charitable and other community endeavors, to further the
cause of improving the quality of education in California and Nevada and to
increase California employment levels. Specific examples of such commitments
include: an increase of California employment within two years after the
Effective Time by at least 1,000 jobs above the level that otherwise would have
prevailed in the absence of the Merger; maintenance of the Pacific Bell and
Nevada Bell headquarters in their present locations; continued use of the
Pacific Bell and Nevada Bell brand names; and establishment of new headquarters
in California for integrated support and administrative services and the long
distance, international and internet businesses.
SBC and PAC believe that the Merger will produce benefits to the State of
California, to its citizens and to PAC's customers. SBC and PAC also believe
that the indirect change of control of Pacific Bell will not have an adverse
effect on competition in the provision of telephone service in California. For
these reasons, among others, SBC and PAC believe that the CPUC will approve the
indirect change of control of Pacific Bell. No assurance can be given that the
CPUC will authorize the indirect change of control of Pacific Bell, that the
CPUC
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proceedings will not delay the consummation of the Merger or that challenges to
the Merger may not cause SBC and PAC to abandon the Merger.
SBC and PAC do not believe that NPSC has the statutory authority to require
its approval of the indirect transfer of control of Nevada Bell from PAC to SBC
pursuant to the Merger. In order to avoid any potential disputes with the NPSC
regarding its jurisdiction and to assist the NPSC in evaluating the indirect
transfer of control, on May 22, 1996, SBC and PAC filed an application with the
NPSC requesting that it approve the indirect transfer of control of Nevada Bell
from PAC to SBC or find that such transfer is not subject to the NPSC's
jurisdiction.
The Merger Agreement provides that SBC and PAC will cooperate with each
other and use all their respective reasonable efforts to take all actions and do
all things necessary, proper or advisable on their part under the Merger
Agreement and applicable laws, rules and regulations to consummate the Merger
and the transactions contemplated by the Merger Agreement as soon as
practicable, including preparing and filing as promptly as practicable all
necessary applications, notices, petitions, filings and other documents and to
obtain as promptly as practicable all consents, registrations, approvals,
permits and authorizations necessary to be obtained from any third party and/or
any Governmental Entity in order to consummate the Merger. Notwithstanding the
foregoing, except as contemplated in connection with the allocation of
Regulatory Approval Costs (as described under "-- Regulatory Approval Costs"),
there is no provision of the Merger Agreement which requires either SBC or PAC
to proffer to, or agree to, any concession to any Governmental Entity that SBC
concludes is reasonably likely to materially reduce the economic or business
benefits SBC expects, as of the date of the Merger Agreement, to realize from
the Merger. Subject to applicable laws relating to the exchange of information,
the Merger Agreement provides that SBC and PAC will 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 PAC, as the case may be, that appears in any
filing made with, or written materials submitted to, any third party and/or any
Governmental Entity in connection with the Merger. The Merger Agreement provides
that SBC and PAC each will, upon request by the other, furnish the other with
all information concerning itself, its subsidiaries, directors, officers and
shareowners and such other matters as may be reasonably necessary in connection
with any statement, filing, notice or application made by or on behalf of SBC,
PAC or any of their respective subsidiaries to any third party and/or any
Governmental Entity in connection with the Merger.
In addition, the Merger Agreement requires that PAC and SBC each keep the
other apprised of the status of matters relating to completion of the
transactions contemplated by the Merger Agreement, including promptly furnishing
the other with copies of notice or other communications received by SBC or PAC,
as the case may be, from any third party and/or any Governmental Entity with
respect to the Merger. Pursuant to the terms of the Merger Agreement, each of
PAC 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.
EMPLOYEE BENEFITS
Pursuant to the Merger Agreement, each outstanding PAC Option, whether
vested or unvested, will be deemed to constitute an option to acquire the same
number of shares of SBC Common Stock as the holder of such PAC Option would have
been entitled to receive had such holder exercised such PAC Option in full
immediately prior to the Effective Time rounded down to the nearest whole number
at an exercise price per share equal to (x) the aggregate exercise price for the
PAC Common Stock otherwise purchasable pursuant to such PAC Option, divided by
(y) the number of full shares of SBC Common Stock deemed purchasable pursuant to
such PAC Option. At the Effective Time, SBC shall assume each PAC Option in
accordance with the terms of the PAC Stock Plan under which it was issued and
the stock option agreement by which it was evidenced.
Pursuant to the Merger Agreement, SBC will cause the Surviving Corporation
for at least two years after the Effective Time to provide or cause to be
provided to the employees of PAC and its subsidiaries compensation and benefit
plans that are no less favorable, in the aggregate, than PAC's Compensation and
Benefit Plans; provided, however, that 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
(other than the Surviving Corporation and its subsidiaries), the Surviving
Corporation shall proportionately adjust
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the benefits under PAC'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 in accordance with the
applicable collective bargaining agreement. At or prior to the Effective Time,
PAC shall make all necessary arrangements to cause any shares of PAC Common
Stock units under PAC's Compensation and Benefit Plans to be converted into
share units with respect to SBC Common Stock by multiplying the number of shares
of PAC Common Stock subject to such PAC share units by the fraction of a share
of SBC Common Stock equal to the Exchange Ratio. SBC has agreed to honor (and to
cause the Surviving Corporation to honor), pursuant to their terms, all employee
benefit obligations to current and former employees under PAC's Compensation and
Benefit Plans.
Pursuant to the Merger Agreement, each share of PAC Common Stock
outstanding immediately prior to the Effective Time that is restricted under
PAC's 1994 Stock Incentive Plan or PAC's Restricted Stock Plan will be converted
into the right to receive, and become exchangeable for a fraction of a share of
SBC Common Stock equal to the Exchange Ratio, having the same restrictions,
terms and conditions as were applicable to such restricted share of PAC Common
Stock.
In addition, pursuant to the Merger Agreement each stock unit outstanding
immediately prior to the Effective Time under the PAC Outside Directors'
Deferred Stock Unit Plan will be converted into the right to receive a stock
unit representing a fraction of a share of SBC Common Stock equal to the
Exchange Ratio and having the same terms and conditions as were applicable to
such stock unit before the Effective Time.
INDEMNIFICATION AND INSURANCE
Pursuant to the Merger Agreement, from and after the Effective Time, SBC
will indemnify and hold harmless each present and former director and officer of
PAC (determined as of the Effective Time) against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities 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, to the fullest extent that PAC would have been
permitted under Nevada law and its articles of incorporation or by-laws in
effect on the date of the Merger Agreement to indemnify such person. The
Surviving Corporation will maintain D&O Insurance for acts and omissions
occurring prior to the Effective Time with coverage in amount and scope at least
as favorable as PAC's existing D&O Insurance for a period of six years after the
Effective Time so long as the annual premium therefor is not in excess of the
Current Premium; provided, however, if the existing D&O Insurance expires, is
terminated or cancelled 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 of 175% of the Current Premium.
CONDITIONS
The respective obligation of SBC, Merger Sub and PAC 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) the Merger Agreement (including the
Exchange Ratio, as adjusted, if required to be approved at an additional PAC
Special Meeting) has been duly approved by holders of PAC Common Stock and has
been duly approved by the sole shareowner of Merger Sub, and the issuance of SBC
Common Stock pursuant to the Merger has been duly approved by the holders of
shares of SBC Common Stock; (b) the shares of SBC Common Stock issuable to PAC
shareowners pursuant to the Merger Agreement have 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 has expired or been terminated,
the decision and order of the CPUC authorizing the Merger and making any
required determinations under Section 854(a)-(c), including its determination as
to any required allocation of economic benefits, if any, of the Merger, between
shareowners and ratepayers, has become final, and other than the filing of the
Articles of Merger, all notices, reports and other filings required to be made
prior to the Effective Time by PAC or SBC with, and all consents, registrations,
approvals, permits and authorizations required to be obtained prior to the
Effective Time by PAC or SBC from, any Governmental Entity (collectively,
"Governmental Consents") in connection with the execution and delivery of the
Merger Agreement and the consummation of the Merger have been made or obtained
upon terms and conditions that are not reasonably likely to have a material
adverse effect
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on SBC or PAC (the parties to the Merger Agreement having agreed that in the
event the CPUC were to require by final decision and order that an allocation of
economic benefits to ratepayers is required under subsection (b) of Section 854,
the effect of any such final decision and order will not be considered to have a
material adverse effect on SBC or PAC); (d) no court or Governmental Entity of
competent jurisdiction has enacted, issued, promulgated, enforced or entered any
law, rule or regulation that is in effect and restrains, enjoins or otherwise
prohibits consummation of the Merger or that is, individually or in the
aggregate with all other such laws, rules or regulations reasonably likely to
have a material adverse effect on SBC or PAC (collectively, an "Order"), and no
Governmental Entity has instituted any proceeding or threatened to institute any
proceeding seeking any such Order; (e) the Registration Statement, of which this
Joint Proxy Statement/Prospectus is a part, has become effective under the
Securities Act, and no stop order suspending such effectiveness shall have been
issued, and no proceedings for that purpose shall have been initiated or be
threatened by the SEC; (f) SBC and PAC will each have received a letter from the
independent auditors of PAC, in the case of SBC, and SBC, in the case of PAC,
dated both the date that the Registration Statement became effective and the
Closing Date, in form and substance customary for "comfort" letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement, and SBC and PAC will 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) SBC has received all state securities and "blue sky" permits and approvals
necessary to consummate the transactions contemplated by the Merger Agreement;
and (h) the determination of SBC Costs and PAC Costs has been completed.
In addition, 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 PAC
set forth in the Merger Agreement are true and correct as of the date of the
Merger Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing Date, and SBC has received a
certificate signed on behalf of PAC by an executive officer of PAC to such
effect; (b) PAC has 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 SBC has received a certificate signed on behalf of PAC by an executive
officer of PAC to such effect; (c) PAC has obtained the consent or approval of
each person whose consent or approval was required in order to consummate the
transactions contemplated by the Merger Agreement under any contract to which
PAC 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 PAC or is not reasonably
likely to materially adversely affect the ability of PAC to consummate the
transactions contemplated by the Merger Agreement; and (d) SBC has received the
opinion of Sullivan & Cromwell, special 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 PAC will be a party to that reorganization within the
meaning of Section 368(b) of the Code.
Further, the obligation of PAC to effect the Merger is also subject to the
satisfaction or waiver by PAC 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 shall be true and correct as of the date of the
Merger Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing Date, and PAC has received a
certificate signed on behalf of SBC and Merger Sub by an executive officer of
SBC to such effect; (b) each of SBC and Merger Sub has 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 PAC has received a certificate
signed on behalf of SBC and Merger Sub by an executive officer of SBC to such
effect; (c) SBC has obtained the consent or approval of each person whose
consent or approval shall be required in order to consummate the transactions
contemplated by the Merger Agreement under any contract to which SBC or any of
its subsidiaries is a party, except those for which failure to obtain such
consents and approvals, individually or in the aggregate, is not reasonably
likely to have a material adverse effect on SBC or is not reasonably likely to
materially adversely affect the ability of SBC to consummate the transactions
contemplated by the Merger Agreement; and (d) PAC has received the opinion of
Pillsbury Madison & Sutro LLP, counsel to PAC, 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
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Section 368(a) of the Code, and that each of SBC, Merger Sub and PAC will be a
party to that reorganization within the meaning of Section 368(b) of the Code.
If, after shareowners of PAC and SBC have voted, any of the conditions to
effect the Merger are waived, including the receipt of the opinions with respect
to the federal income tax consequences of the Merger, no additional vote of
shareowners may be required.
MODIFICATION OR AMENDMENT; WAIVER OF CONDITIONS
The Merger Agreement provides that, subject to the provisions of applicable
law, at any time prior to the Effective Time, the parties to the Merger
Agreement may modify or amend the Merger Agreement by written agreement executed
and delivered by duly authorized officers of the respective parties. The Merger
Agreement also provides that the conditions to each of the parties' obligations
to consummate the Merger are for the sole benefit of each such party and may be
waived by such party in whole or in part to the extent permitted by applicable
law.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time (a) whether before or after any requisite
approval by the shareowners of SBC or PAC, by mutual written consent of SBC and
PAC, by action of the SBC Board and the PAC Board, or (b) by action of either
the SBC Board or the PAC Board if (i) the Merger has not been consummated by
March 31, 1997 (provided, however, that if SBC or PAC determines that additional
time is necessary in connection with obtaining a required approval of the CPUC,
such date may be extended by SBC or PAC from time to time by written notice to
the other party to a date not beyond December 31, 1997); (ii) the shareowners of
PAC fail to approve the matters required to be approved by such shareowners at
the PAC Special Meeting or, if the Exchange Ratio is decreased to below 0.667 at
any additional meeting of the shareowners of PAC to consider and vote upon the
transaction contemplated by the Merger Agreement taking into account the
Exchange Ratio, as so decreased; (iii) the shareowners of SBC fail to approve
the matters required to be approved by such shareowners 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
(whether before or after the approval by the shareowners of PAC or SBC). In
addition, the Merger Agreement will be automatically terminated upon the
occurrence of a Failure to Agree Event.
Further, the Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, by action of the PAC Board
(a) if (i) PAC is not in material breach of any of the terms of the Merger
Agreement, (ii) the PAC Board approves entering into a binding written agreement
concerning a transaction that constitutes a Superior Proposal and PAC notifies
SBC in writing that PAC wishes to enter into such agreement, (iii) SBC does not
make, within ten business days of receipt of PAC's written notification of its
desire to enter into a binding agreement for a Superior Proposal, an offer that
the PAC 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 PAC as the Superior Proposal and (iv) PAC, prior to such
termination pays to SBC any required termination fees (as described under
"-- Certain Termination Fees"); or (b) if (i) the SBC Board has withdrawn or
adversely modified its approval or recommendation of the Merger Agreement, (ii)
the restrictions set forth in the Merger Agreement with respect to Acquisition
Proposals have been breached by SBC in any material respect and SBC has failed
to promptly terminate the activity giving rise to such breach and use best
efforts to cure such breach upon notice thereof from PAC or SBC has breached the
notice requirements in connection with Acquisition Proposals, (iii) there has
been a material breach by SBC or Merger Sub of any representation, warranty,
covenant or agreement (other than the restrictions with respect to Acquisition
Proposals) contained in the Merger Agreement that is not curable or, if curable,
is not cured within 30 days after notice of such breach is given by PAC to the
breaching party, (iv) if SBC (or a representative of SBC) has taken any action
in respect of an Acquisition Proposal that would be proscribed by the Merger
Agreement but for the exception allowing certain actions to be taken by SBC in
response to a bona fide unsolicited written Superior Proposal, (v) the Incumbent
Directors and any additional members of the SBC Board whose election or
nomination for election as
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a director is supported by a majority of the Incumbent Directors (such
additional member of the SBC Board thereafter being an Incumbent Director)
ceasing to constitute a majority of the members of the SBC Board or any person
or "group" (as defined in Rule 13d-5 under the Exchange Act) owning capital
stock of SBC with voting power sufficient to cast a majority of the votes
entitled to be cast for the election of directors of SBC, (vi) SBC, in any
calendar year, enters into an agreement or agreements to spend in excess of $5
billion to acquire one or more businesses, whether by merger, consolidation,
purchase of property or assets or otherwise, or (vii) PAC is the Higher Party,
there is no Failure to Agree Event and SBC does not make a timely Lower Party
Election.
In addition, the Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time by action of the SBC Board if
(i) the PAC Board has withdrawn or adversely modified its approval or
recommendation of the Merger Agreement, (ii) the restrictions set forth in the
Merger Agreement with respect to Acquisition Proposals have been breached by PAC
in any material respect and PAC has failed to promptly terminate the activity
giving rise to such breach and use best efforts to cure such breach upon notice
thereof from SBC or PAC has breached the notice requirements in connection with
Acquisition Proposals, (iii) there has been a material breach by PAC of any
representation, warranty, covenant or agreement (other than the restrictions
with respect to Acquisition Proposals) contained in the Merger Agreement that is
not curable or, if curable, is not cured within 30 days after notice of such
breach is given by the non-breaching party, (iv) if PAC (or representative of
PAC) has taken any action in respect of an Acquisition Proposal that would be
proscribed by the Merger Agreement but for the exception allowing certain
actions to be taken by PAC in response to a bona fide unsolicited written
Superior Proposal; or (v) SBC is the Higher Party, there is no Failure to Agree
Event and PAC does not make a timely Lower Party Election.
In the event of termination of the Merger Agreement, the Merger Agreement
(other than certain provisions of the Merger Agreement relating to expenses and
confidentiality and other than as described below under "-- Certain Termination
Fees") shall become void and of no effect with no liability on the part of any
party thereto (or of any of their respective directors, officers, employees,
agents, legal or financial advisors or other representatives); provided,
however, that no such termination shall relieve any party thereto from any
liability for any breach of the Merger Agreement.
CERTAIN TERMINATION FEES
The Merger Agreement provides that in the event that (i) a bona fide
Acquisition Proposal shall have been made with respect to PAC or any of its
subsidiaries and made known to PAC shareowners generally or has been made
directly to PAC shareowners generally, or any person shall have publicly
announced an intention to make a bona fide Acquisition Proposal with respect to
PAC or any subsidiary of PAC and such Acquisition Proposal or announced
intention shall not be withdrawn prior to the PAC Special Meeting and thereafter
the Merger Agreement is terminated by either SBC or PAC as a result of the
failure of the shareowners of PAC to approve the matters required to be approved
by such shareowners at the PAC Special Meeting, or (ii) the Merger Agreement is
terminated (x) by PAC as a result of the PAC Board's approval of PAC entering
into a binding written agreement concerning a transaction that constitutes a
Superior Proposal in accordance with the terms set forth in the Merger Agreement
or (y) by SBC as a result of (I) PAC's Board's withdrawal or adverse
modification of its approval or recommendation of the Merger Agreement, (II) a
material breach by PAC of certain restrictions set forth in the Merger Agreement
with respect to Acquisition Proposals and PAC's failure to promptly terminate
the activity giving rise to such breach and use best efforts to cure such breach
upon notice thereof from SBC, (III) PAC's breach of the notice requirements in
connection with Acquisition Proposals, (IV) PAC (or a representative of PAC)
taking any action in respect of an Acquisition Proposal that would be proscribed
by the Merger Agreement but for the exception allowing certain actions to be
taken by PAC in response to a bona fide unsolicited written Superior Proposal or
(V) PAC's failure to make a timely Lower Party Election in the event that SBC is
the Higher Party, then PAC will pay SBC a fee equal to $300 million (the
"Termination Fee"), which amount shall be exclusive of any expenses to be paid
pursuant to the Merger Agreement; provided, however, no Termination Fee shall be
payable to SBC pursuant to preceding clause (i) unless and until, within 9
months of such termination, PAC or any subsidiary of PAC enters into any
agreement (I) pursuant to which any person (other than SBC) (an "Acquiring
Party") proposes to acquire, by purchase, merger, consolidation, sale,
assignment, lease, transfer or otherwise, thirty percent or more of the voting
power of the outstanding securities
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of PAC or any Significant Subsidiary of PAC or a majority of the assets of PAC
or any Significant Subsidiary of PAC, (II) pursuant to which there is proposed
to be consummated a merger, consolidation or similar transaction between PAC or
any of its subsidiaries and an Acquiring Party in which shareholders of PAC
immediately prior to such merger, consolidation or similar transaction would not
own securities representing at least seventy percent of the outstanding voting
power of the surviving entity of such merger, consolidation or similar
transaction immediately following the consummation thereof or (III) pursuant to
which any of the transactions described in (I) or (II) is proposed, assuming
that the references to thirty percent and seventy percent were both to fifty
percent; provided, further, however, that, no fee shall be payable in the case
of (I) and (II) above where the persons comprising the PAC Board prior to
entering into such agreement are intended to constitute after consummation a
majority of the members of the PAC Board, in the case of (I) or the surviving
entity in the case of (II).
The Merger Agreement similarly provides that in the event that (i) a bona
fide Acquisition Proposal shall have been made with respect to SBC or any of its
subsidiaries and made known to SBC shareowners generally or has been made
directly to shareowners generally, or any person shall have publicly announced
an intention to make a bona fide Acquisition Proposal with respect to SBC or any
subsidiary of SBC and thereafter the Merger Agreement is terminated by either
PAC or SBC as a result of the failure of the shareowners of SBC to approve the
matters required to be approved by such shareowners at the SBC Special Meeting,
or (ii) the Merger Agreement is terminated by PAC as a result of (a) SBC's
Board's withdrawal or adverse modification of its approval or recommendation of
the Merger Agreement, the breach by SBC of certain restrictions set forth in the
Merger Agreement with respect to Acquisition Proposals and SBC's failure to
promptly terminate the activity giving rise to such breach and use best efforts
to cure such breach upon notice thereof from PAC or SBC's breach of the notice
requirements in connection with Acquisition Proposals, (b) SBC (or a
representative of SBC) taking any action in respect of an Acquisition Proposal
that would be proscribed by the Merger Agreement but for the exception allowing
certain actions to be taken by SBC in response to a bona fide unsolicited
written Superior Proposal, (c) the Incumbent Directors and any additional
members of the SBC Board whose election or nomination as a director is supported
by a majority of the Incumbent Directors (such additional member of the SBC
Board thereafter being an Incumbent Director) ceasing to constitute a majority
of the members of the SBC Board or any person or "group" (as defined under Rule
13d-5 under the Exchange Act) owns capital stock of SBC with voting power
sufficient to cast a majority of the votes entitled to be cast for the election
of directors of SBC, (d) an agreement or agreements by SBC to spend in excess of
$5 billion in any calendar year to acquire one or more businesses, whether by
merger or otherwise, or (e) SBC's failure to make a timely Lower Party Election
in the event that PAC is the Higher Party, then SBC shall pay PAC a fee equal to
the Termination Fee, which amount shall be exclusive of any expenses to be paid
pursuant to the Merger Agreement; provided, however, no Termination Fee shall be
payable to PAC pursuant to preceding clause (i) unless and until, within 9
months of such termination, SBC or any Subsidiary of SBC enters into any
agreement (I) pursuant to which any person (other than PAC) (an "SBC Acquiring
Party") proposes to acquire, by purchase, merger, consolidation, sale,
assignment, lease, transfer or otherwise, thirty percent or more of the voting
power of the outstanding securities of SBC or any Significant Subsidiary of SBC
or a majority of the assets of SBC or any Significant Subsidiary of SBC, (II)
pursuant to which there is proposed to be consummated a merger, consolidation or
similar transaction between SBC or any of its subsidiaries and a SBC Acquiring
Party in which shareholders of SBC immediately prior to such merger,
consolidation or similar transaction would not own securities representing at
least seventy percent of the outstanding voting power of the surviving entity of
such consolidation, merger or similar transaction immediately following the
consummation thereof or (III) pursuant to which any of the transactions
described in (I) or (II) is proposed, assuming that the references to thirty
percent and seventy percent were both to fifty percent; provided, further,
however, that, no fee shall be payable in the case of (I) and (II) above where
the persons comprising the SBC Board prior to entering into such agreement are
intended to constitute after consummation a majority of the members of the SBC
Board, in the case of (I) or the surviving entity in the case of (II).
EXPENSES
Except as provided under "-- Certain Termination Fees" and "-- Regulatory
Approval Costs," pursuant to the Merger Agreement, whether or not the Merger is
consummated, all costs and expenses incurred in
44
<PAGE> 56
connection with the Merger Agreement will be paid by the party incurring such
cost or 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 PAC.
ACCOUNTING TREATMENT
SBC and PAC believe that the Merger will qualify as a "pooling of
interests" for accounting and financial reporting purposes, and have been so
advised by Ernst & Young LLP and Coopers & Lybrand L.L.P., their respective
independent public accountants. Under this method of accounting, SBC will
restate at the Effective Date its consolidated financial statements to include
the assets, liabilities, shareholders' equity and results of operations of PAC.
It is anticipated that following consummation of the Merger the fiscal year of
the combined company will be the calendar year.
Consummation of the Merger is conditioned upon the receipt by each of SBC
and PAC of a letter from their respective independent public accountants stating
that the Merger, in their respective opinions, will qualify as a "pooling of
interests" for accounting purposes. See "-- Conditions" and "Unaudited Pro Forma
Combined Condensed Financial Statements."
RESALE OF SBC CAPITAL STOCK
The shares of SBC Common Stock issuable to shareowners of PAC 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 SBC or PAC 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 PAC at the time of the PAC
Special Meeting. Shares of SBC Common Stock received by those shareowners of PAC
who are deemed to be "affiliates" of PAC may be resold without registration as
provided for by Rules 144 or 145, or as otherwise permitted, under the
Securities Act. This Joint Proxy Statement/Prospectus does not cover any resales
of SBC Common Stock received by affiliates of PAC or by certain of their family
members or related interests.
Pursuant to the Merger Agreement, each of PAC and SBC shall deliver to the
other a letter identifying all persons whom such party believes to be, as of the
date of their respective Special Meetings, "affiliates" of such party for
purposes of Rule 145 under the Securities Act. Each of PAC and SBC has agreed to
use all reasonable 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 their respective Special Meetings a written agreement providing that each
such person will agree not to sell, pledge, transfer or otherwise dispose of the
shares of SBC Common Stock to be received by such person in the Merger except in
compliance with the applicable provisions of the Securities Act and, if the
Merger qualifies for "pooling of interests" accounting treatment, until such
time as financial results covering at least 30 days of combined operations of
SBC and PAC shall have been published.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of PAC's Board, shareowners should be
aware that certain members of PAC's management and of the PAC Board have certain
interests in the Merger that are in addition to the interests of shareowners
generally and which may create potential conflicts of interest.
Employee Benefits
As described under "-- Employee Benefits," pursuant to the Merger
Agreement, each PAC Option, whether vested or unvested, will be deemed to
constitute an option to acquire the same number of shares of SBC Common Stock as
the holder of such PAC Option would have been entitled to receive had such
holder exercised such PAC Option in full immediately prior to the Effective Time
at an exercise price per share equal to (x) the aggregate exercise price of the
shares of PAC Common Stock otherwise purchasable pursuant to such PAC Option,
divided by (y) the number of full shares of SBC Common Stock deemed purchasable
pursuant to such PAC Option.
45
<PAGE> 57
Pursuant to the Merger Agreement, SBC will cause the Surviving Corporation
for at least two years after the Effective Time to provide or cause to be
provided to the employees of PAC and its subsidiaries compensation and benefit
plans that are no less favorable, in the aggregate, than PAC's Compensation and
Benefit Plans; provided, however, that 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 PAC'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 will be
provided in accordance with the applicable collective bargaining agreement. At
or prior to the Effective Time, PAC shall make all necessary arrangements to
cause any shares of PAC Common Stock units under PAC's Compensation and Benefit
Plans to be converted to share units with respect to SBC Common Stock by
multiplying the number of shares of PAC Common Stock subject to such PAC share
units by the Exchange Ratio.
Pursuant to the Merger Agreement, each outstanding share of PAC Common
Stock that is restricted under the PAC 1994 Stock Incentive Plan or PAC
Restricted Stock Plan shall be converted into the right to receive, and become
exchangeable for, a fraction of a share of SBC Common Stock equal to the
Exchange Ratio, having the same restrictions, terms and conditions as were
applicable to such restricted share of PAC Common Stock.
In addition, each outstanding stock unit under the PAC Outside Directors'
Deferred Stock Unit Plan shall be converted into the right to receive a stock
unit representing a fraction of a share of SBC Common Stock equal to the
Exchange Ratio and having the same terms and conditions as were applicable to
such stock unit before the Effective Time.
In addition, as described under "-- Employee Benefits," SBC has agreed to
honor (and to cause the Surviving Corporation to honor), pursuant to their
terms, all employee benefit obligations to current and former employees under
PAC's Compensation and Benefit Plans including obligations to certain officers
of PAC under existing employment and severance agreements.
The options held by the nonemployee directors of PAC that are not already
exercisable will become exercisable in full upon approval of the Merger
Agreement by PAC's shareowners. In addition, the options granted on March 22,
1996 to certain officers and employees of PAC will become exercisable in full at
the Effective Time.
If any payment made under the PAC 1994 Stock Incentive Plan will be
non-deductible by operation of Section 280G of the Code, the aggregate present
value of all such payments will be reduced to an amount which maximizes such
value without causing any such payment to be non-deductible.
PAC has entered into individual employment agreements with 8 officers of
PAC and its subsidiaries, including the Named Executive Officers and other
Executive Vice Presidents ("Tier I Agreements"), which provide for special
severance payments in the event of an involuntary termination (including a
"constructive termination", which is defined as (i) a material reduction in
salary or benefits, (ii) a material change in responsibilities, or (iii) certain
relocation requirements) within three years following a change in control (as
defined in the agreements). In addition, PAC has also entered into employment
agreements with 27 officers below the level of Executive Vice President ("Tier
II Agreements"). Shareowner approval of the Merger will constitute a change in
control under the Tier I and Tier II Agreements.
The special severance payment in the Tier I Agreements is equal to the sum
of (x) an amount equal to 200% of the Standard Award (within the meaning of the
PAC Short Term Incentive Plan) for the employee's position rate as of the date
of termination, plus (y) an amount equal to (i) the fair market value of a share
of PAC Common Stock on the date of termination, multiplied by (ii) the number of
Units (within the meaning of the PAC Senior Management Long Term Incentive Plan)
("LTIP Units") granted to the employee for the two performance periods ending
with the two calendar years following the year of termination. In addition, the
employee is entitled to three years of continuation coverage (or, if earlier,
until normal retirement date (as defined in the Tier I Agreements)) in the basic
and supplemental group term life insurance plan and the health care plan for
management employees (as if the employee was still an active employee).
46
<PAGE> 58
The Tier II Agreements provide that (i) the amount of the special severance
payment is equal to an amount equal to 100% of the employee's base compensation
in effect on the date of termination, plus an amount equal to 100% of the
Standard Award for the employee's position rate as of the date of termination,
plus an amount equal to (x) the fair market value of a Share of PAC Common Stock
on the date of termination, multiplied by (y) the number of LTIP Units granted
to the employee for the two performance periods ending with the two calendar
years following the year in which the employment termination occurs, and (ii)
continuation of life insurance and health benefits coverage is provided for two
years following the date of termination (or, if earlier, until normal retirement
date (as defined in the Tier II Agreements)).
These special severance payments described above are in addition to any
other payments under the agreements to the employee upon an involuntary
termination other than for "cause" or "disability" (each as defined under the
Tier I and Tier II Agreements). Such payments in the Tier I Agreements include
(i) a lump sum cash payment equal to (x) 1/12 of base compensation in effect on
the date of termination, multiplied by (y) the lesser of 36 or the number of
months remaining until normal retirement date, (ii) continuation of life
insurance and health benefits until the earlier of (a) the first anniversary of
the date of termination, (b) death, or (c) normal retirement date, (iii) payment
of 100% of the Standard Award applicable for the calendar year of termination
(if all LTIP Units are forfeited upon termination, PAC will also pay an amount
equal to the fair market value of a PAC Share of Common Stock on the date of
termination multiplied by the number of LTIP Units granted to the employee for
the performance period ending with the calendar year of termination), and (iv)
compensation for any nonstatutory stock options or SARs which terminate upon
termination of employment in an amount equal to the difference between the fair
market value of PAC Common Stock at the date of termination and the option price
(in the case of SARs, the difference between such fair market value and the
option price at which the stock option related to the SAR was granted).
The Tier II Agreements also provide similar benefits to those described in
the immediately preceding paragraph, except that for purposes of determining the
lump sum cash payment in clause (i) above, "36" is replaced by "12" in subclause
(y).
Any payments made under either Tier I or Tier II Agreements will be limited
to the amount which maximizes the aggregate present value of the payments
without causing any payment to be non-deductible because of Section 280G of the
Code.
The following table sets forth, with respect to Messrs. Quigley, Dorman,
Fitzpatrick, Odgers and Moberg, the named executive officers set forth in PAC's
1996 proxy statement for the annual meeting of its shareowners (the "Named
Executive Officers"), and all other executive officers of PAC as a group based
on a closing price per share of PAC Common Stock of $33.75 on April 1, 1996, (i)
the number of shares of PAC Common Stock subject to options held by such persons
that will become exercisable at the Effective Time, (ii) the weighted average
exercise price for such exercisable options held by such persons, (iii) the
aggregate value of such exercisable options based upon the per share price of
PAC Common Stock as of April 1, 1996 and (iv) the approximate amounts of
severance payments payable as of the date hereof, subject to reductions
necessary to prevent any payment from being non-deductible because of Section
280G of the Code, if their employment was terminated after a change in control
under circumstances entitling them to severance benefits under their respective
employment agreements.
<TABLE>
<CAPTION>
OPTIONS/SARS WEIGHTED MAXIMUM
WHICH BECOME AVERAGE POTENTIAL
EXERCISABLE EXERCISE CHANGE IN
AT THE PRICE AGGREGATE CONTROL
EFFECTIVE PER VALUE OF SEVERANCE
TIME SHARE OPTIONS/SARS PAYMENTS
------------ -------- ------------ -----------
<S> <C> <C> <C> <C>
P.J. Quigley..................... 180,000 $27.375 $1,147,500 $ 7,874,200
D.W. Dorman...................... 108,000 27.375 688,500 4,774,800
M.J. Fitzpatrick................. 69,000 27.375 439,875 3,397,500
R.W. Odgers...................... 54,000 27.375 344,250 2,678,700
J.R. Moberg...................... 54,000 27.375 344,250 2,678,700
All executive officers as a group
(7 persons in total)........... 543,000 27.375 3,461,625 25,207,100
</TABLE>
47
<PAGE> 59
Director and Officer Indemnification and Insurance
Pursuant to the Merger Agreement, from and after the Effective Time, SBC
will indemnify and hold harmless each present and former director and officer of
PAC (determined as of the Effective Time) against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities 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, to the fullest extent that PAC would have been
permitted under Nevada law and the PAC Articles or by-laws in effect on the date
of the Merger Agreement to indemnify such person. The Surviving Corporation will
maintain D&O Insurance with coverage in amount and scope at least as favorable
as PAC's existing D&O Insurance for a period of six years after the Effective
Time so long as the annual premium therefor is not in excess of the Current
Premium; provided, however, if the existing D&O Insurance expires, is terminated
or cancelled 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 of 175% of
the Current Premium.
Board of Directors; Management
Pursuant to the Merger Agreement, SBC has agreed to increase the size of
the SBC Board at the Effective Time in order to enable approximately one-third
of the SBC Board to be comprised of Director Designees and the SBC Board will
appoint each of the Director Designees to the SBC Board as of the Effective
Time, with such Director Designees to be divided as nearly as evenly as is
possible among the classes of directors of SBC. As of the date hereof, the SBC
Board is composed of 14 directors. Further, the Merger Agreement provides that
at the Effective Time Mr. Philip J. Quigley will be appointed President and
Chief Executive Officer of the Surviving Corporation and Vice Chairman of the
SBC Board. Certain other executive officers of PAC are expected to become
executive officers of the Surviving Corporation following the Merger.
APPRAISAL RIGHTS
The Merger Agreement provides that in accordance with Section 92A.390 of
the NPCL, no appraisal rights will be available to holders of PAC Common Stock
in connection with the Merger. Holders of SBC Common Stock will not be entitled
to any dissenters' or appraisal rights under Section 262 of the DGCL.
EXCHANGE OF CERTIFICATES
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 of a PAC Certificate (other than holders of PAC
Certificates in respect of Excluded PAC Common Stock) (i) a letter of
transmittal specifying that delivery shall be effected only upon delivery of the
PAC Certificates to the Exchange Agent and such other provisions as PAC and SBC
may agree, and (ii) instructions for exchanging the PAC Certificates for (A)
certificates representing shares of SBC Common Stock and (B) any unpaid
dividends and other distributions and cash in lieu of fractional shares. Upon
surrender of a PAC Certificate for cancellation to the Exchange Agent together
with such letter of transmittal, the holder of such PAC Certificate shall be
entitled to receive in exchange therefor (x) a certificate representing that
number of whole shares of SBC Common Stock that such holder is entitled to
receive pursuant to the terms of 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 plus (B) any unpaid non-stock dividends and any other
dividends or other distributions that such holder has the right to receive
pursuant to the terms of the Merger Agreement, and the PAC Certificate so
surrendered will be cancelled. No interest will be paid or accrued on any amount
payable upon due surrender of the PAC Certificates.
The Merger Agreement further 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 issuable pursuant to
the Merger Agreement. No dividends or other distributions in respect of the SBC
Common Stock will be paid to any holder of any unsurrendered PAC Certificate
until such PAC Certificate is surrendered for exchange in accordance with the
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<PAGE> 60
Merger Agreement. Following surrender of any such PAC Certificate, there shall
be issued and/or paid to the holder of the certificates representing whole
shares of SBC Common Stock issued in exchange therefor, without interest, (A) at
the time of such surrender, 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 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 shares of SBC Common Stock with a record date after the
Effective Time but with a payment date subsequent to surrender. 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.
In addition, pursuant to the Merger Agreement, holders of unsurrendered PAC
Certificates 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 PAC Certificates,
regardless of whether such holders have exchanged their PAC Certificates.
After the Effective Time, there will be no transfers on the stock transfer
books of PAC of shares of PAC Common Stock that were outstanding immediately
prior to the Effective Time.
Pursuant to the Merger Agreement, in the event any PAC Certificate is lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such PAC 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 PAC
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed PAC Certificate the shares of SBC Common Stock, any unpaid dividends
or other distributions and any cash payment in lieu of a fractional share in
respect thereof issuable and/or payable upon due surrender of and deliverable in
respect of PAC Common Stock represented by such PAC Certificate pursuant to the
Merger Agreement, in each case, without interest.
NEW YORK STOCK EXCHANGE LISTING; DE-LISTING OF PAC COMMON STOCK
Pursuant to the Merger Agreement, SBC will 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 Surviving Corporation will use its best efforts to cause PAC
Common Stock to be de-listed from the NYSE and de-registered under the Exchange
Act as soon as practicable following the Effective Time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary discusses the material federal income tax
consequences of the Merger. The summary is based upon the Code, applicable
Treasury Regulations thereunder and administrative rulings and judicial
authority as of the date hereof. All of the foregoing are subject to change,
possibly with retroactive effect, and any such change could affect the
continuing validity of the discussion. The discussion assumes that holders of
shares of PAC Common Stock hold such shares as a capital asset. Further, the
discussion does not address the tax consequences that may be relevant to a
particular shareowner subject to special treatment under certain federal income
tax laws, such as dealers in securities, banks, insurance companies, tax-exempt
organizations, non-United States persons, shareowners who acquired shares of PAC
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 PAC's benefit plans. This discussion does not address
any consequences arising under the laws of any state, locality or foreign
jurisdiction.
Neither PAC 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 opinions of counsel as to such federal income tax consequences
set forth below will not be binding on the IRS.
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<PAGE> 61
GENERAL
As of the date hereof, it is intended that the Merger will constitute a
reorganization pursuant to Section 368(a) of the Code and that for federal
income tax purposes no gain or loss will be recognized by SBC, PAC or Merger
Sub. The respective obligations of the parties to consummate the Merger are
conditioned on (i) the receipt by SBC of an opinion of Sullivan & Cromwell dated
the Closing Date confirming that the Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code and that each of SBC, PAC 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 PAC of an opinion of Pillsbury
Madison & Sutro LLP dated the Closing Date confirming that the Merger will
qualify as a reorganization within the meaning of Section 368(a) of the Code and
that each of SBC, PAC and Merger Sub will be a party to the reorganization
within the meaning of Section 368(b) of the Code. Such opinions will be based
upon, among other things, (i) representations of PAC, SBC, and certain
shareowners of PAC customarily given in transactions of this type and (ii) the
assumption that the Merger will be consummated in accordance with the terms of
the Merger Agreement.
The opinions of Pillsbury Madison & Sutro LLP and Sullivan & Cromwell set
forth below summarize the material federal income tax consequences of the
Merger, assuming that the Merger will qualify as a reorganization within the
meaning of Section 368(a) of the Code.
CONSEQUENCES TO PAC SHAREOWNERS
Under the reorganization provisions of the Code, no gain or loss will be
recognized by holders of PAC Common Stock with respect thereto as a result of
the surrender of their shares of PAC 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). The aggregate tax basis of the shares of SBC Common Stock received in
the Merger (including any fractional shares of SBC Common Stock deemed received)
will be the same as the aggregate tax basis of the shares of PAC Common Stock
surrendered in exchange therefor in the Merger. The holding period of the shares
of SBC Common Stock received (including the holding period of fractional shares
of SBC Common Stock deemed received) will include the holding period of shares
of PAC Common Stock surrendered in exchange therefor.
FRACTIONAL SHARES
If a holder of shares of PAC Common Stock receives cash in lieu of a
fractional share interest in SBC Common Stock in the Merger, such fractional
share interest will be treated as having been distributed to the holder, and
such cash amount will be treated as received in redemption of the fractional
share interest. Under Section 302 of the Code, if such redemption is "not
essentially equivalent to a dividend" after giving effect to the constructive
ownership rules of the Code, the holder 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 tax basis in shares of PAC Common
Stock surrendered that is allocable to the fractional share interest in SBC
Common Stock. Under these rules, a shareowner of PAC should 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.
CONSEQUENCES TO PAC, SBC, MERGER SUB AND HOLDERS OF SBC COMMON STOCK
None of PAC, SBC or Merger Sub or the holders of SBC Common Stock will
recognize gain or loss as a result of the Merger.
THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER. THUS, PAC
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, AND OTHER APPLICABLE TAX
LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
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<PAGE> 62
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
OF SBC COMMUNICATIONS INC. AND PACIFIC TELESIS GROUP
The following unaudited pro forma combined condensed financial statements
and notes thereto are presented assuming the Merger will be accounted for as a
"pooling of interests." For a description of pooling of interests accounting
with respect to the Merger, see "The Merger -- Accounting Treatment."
The following unaudited pro forma combined condensed financial statements
have been prepared using an assumed Exchange Ratio of 0.733. 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 PAC for the years
ended December 31, 1995, 1994 and 1993 and for the three months ended March 31,
1996. The unaudited pro forma combined condensed balance sheets reflect the
combination of the historical balance sheets of SBC and PAC at December 31, 1995
and at March 31, 1996. The information set forth in the financial statements
below should be read in conjunction with the financial statements which are
incorporated herein by reference.
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 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 and PAC
incorporated by reference in this Joint Proxy Statement/Prospectus.
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<PAGE> 63
SBC COMMUNICATIONS INC. AND PACIFIC TELESIS GROUP
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------- ------------------------
SBC PAC ADJUSTMENTS COMBINED
------- ------- ----------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 571 $ 65 $ $ 636
Accounts receivable - net 2,204 1,446 3,650
Other current assets 1,001 1,014 (46)(2a) 1,969
- ---------------------------------------------------------------------------------------------------
Total current assets 3,776 2,525 (46)(2a) 6,255
- ---------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT - Net 13,152 11,419 24,571
- ---------------------------------------------------------------------------------------------------
INTANGIBLE ASSETS - Net 2,623 968 3,591
- ---------------------------------------------------------------------------------------------------
OTHER ASSETS 2,621 946 (632)(2a) 2,935
- ---------------------------------------------------------------------------------------------------
TOTAL ASSETS $22,172 $15,858 $ (678) $37,352
- ---------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Debt maturing within one year $ 1,869 $ 912 $ $ 2,781
Other current liabilities 3,182 2,847 (46)(2a) 5,983
- ---------------------------------------------------------------------------------------------------
Total current liabilities 5,051 3,759 (46)(2a) 8,764
- ---------------------------------------------------------------------------------------------------
LONG-TERM DEBT 5,588 5,084 10,672
- ---------------------------------------------------------------------------------------------------
Postemployment benefit obligation 2,733 2,516 5,249
- ---------------------------------------------------------------------------------------------------
Other noncurrent liabilities 2,360 1,719 (632)(2a) 3,447
- ---------------------------------------------------------------------------------------------------
CORPORATION-OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY TRUST* - 500 500
- ---------------------------------------------------------------------------------------------------
SHAREOWNERS' EQUITY
Common shares 621 43 271 (2b) 935
Capital in excess of par value 6,305 3,500 (398)(2b) 9,407
Retained earnings (deficit) 879 (914) (35)
Guaranteed obligations of ESOPs (260) (222) (482)
Foreign currency translation adjustment (591) - (591)
Treasury shares (514) (127) 127 (2b) (514)
- ---------------------------------------------------------------------------------------------------
Total shareowners' equity 6,440 2,280 - 8,720
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $22,172 $15,858 $ (678) $37,352
- ---------------------------------------------------------------------------------------------------
</TABLE>
* The sole asset of the trust consists of $515.5 million in principal amount of
the 7.56% Subordinated Debentures due 2026 of PAC.
The accompanying notes are an integral part of these pro forma combined
condensed financial statements.
52
<PAGE> 64
SBC COMMUNICATIONS INC. AND PACIFIC TELESIS GROUP
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------- ------------------------
SBC PAC ADJUSTMENTS COMBINED
------- ------- ----------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 490 $ 76 $ $ 566
Accounts receivable - net 2,389 1,505 3,894
Other current assets 800 1,002 (24)(2a) 1,778
- --------------------------------------------------------------------------------------------------
Total current assets 3,679 2,583 (24) 6,238
- --------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT - NET 12,988 11,385 24,373
- --------------------------------------------------------------------------------------------------
INTANGIBLE ASSETS - NET 2,679 954 3,633
- --------------------------------------------------------------------------------------------------
OTHER ASSETS 2,657 919 (644)(2a) 2,932
- --------------------------------------------------------------------------------------------------
TOTAL ASSETS $22,003 $15,841 $(668) $37,176
- --------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Debt maturing within one year $ 1,679 $ 1,530 $ $ 3,209
Other current liabilities 3,377 3,111 (24)(2a) 6,464
- --------------------------------------------------------------------------------------------------
Total current liabilities 5,056 4,641 (24) 9,673
- --------------------------------------------------------------------------------------------------
LONG-TERM DEBT 5,672 4,737 10,409
- --------------------------------------------------------------------------------------------------
Postemployment benefit obligation 2,736 2,549 5,285
- --------------------------------------------------------------------------------------------------
Other noncurrent liabilities 2,283 1,724 (644) 3,363
- --------------------------------------------------------------------------------------------------
SHAREOWNERS' EQUITY
Common shares 621 43 271 (2b) 935
Capital in excess of par value 6,298 3,498 (398)(2b) 9,398
Retained earnings (deficit) 672 (982) (310)
Guaranteed obligations of ESOPs (273) (242) (515)
Foreign currency translation adjustment (581) - (581)
Treasury shares (481) (127) 127 (2b) (481)
- --------------------------------------------------------------------------------------------------
TOTAL SHAREOWNERS' EQUITY 6,256 2,190 - 8,446
- --------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $22,003 $15,841 $(668) $37,176
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these pro forma combined
condensed financial statements.
53
<PAGE> 65
SBC COMMUNICATIONS INC. AND PACIFIC TELESIS GROUP
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------- ------------------------
SBC PAC ADJUSTMENTS COMBINED
------ ------ ----------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total operating revenues $3,197 $2,334 $5,531
Total operating expenses 2,397 1,744 4,141
- ------------------------------------------------------------------------------------------------------
OPERATING INCOME 800 590 1,390
Interest expense (120) (93) (213)
Other income (expense) - net 49 (4) 45
- ------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 729 493 1,222
Income Taxes 265 195 460
- ------------------------------------------------------------------------------------------------------
NET INCOME $ 464 $ 298 $ 762
- ------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE: $ 0.76 $ 0.70 (2c) $ 0.83
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 609.2 428.4 (114.4)(2c) 923.2
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these pro forma combined
condensed financial statements.
54
<PAGE> 66
SBC COMMUNICATIONS INC. AND PACIFIC TELESIS GROUP
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------- -----------------------
SBC PAC ADJUSTMENTS COMBINED
------- ------- ----------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total operating revenues $12,670 $ 9,042 $21,712
Total operating expenses 9,633 7,031 16,664
- ----------------------------------------------------------------------------------------------------
OPERATING INCOME 3,037 2,011 5,048
Interest expense (515) (442) (957)
Other income - net 270 42 312
- ----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS 2,792 1,611 4,403
Income Taxes 903 563 1,466
- ----------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY LOSS 1,889 1,048 2,937
Extraordinary Loss (2,819) (3,360) (6,179)
- ----------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (930) $(2,312) $(3,242)
- ----------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE:
INCOME BEFORE EXTRAORDINARY LOSS $ 3.10 $ 2.46 (2c) $ 3.19
Extraordinary Loss (4.63) (7.89) (2c) (6.71)
- ----------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (1.53) $ (5.43) (2c) $ (3.52)
- ----------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 608.8 426.0 (113.7)(2c) 921.1
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these pro forma combined
condensed financial statements.
55
<PAGE> 67
SBC COMMUNICATIONS INC. AND PACIFIC TELESIS GROUP
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------ ------------------------
SBC PAC ADJUSTMENTS COMBINED
------- ------ ----------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total operating revenues $11,772 $9,235 $21,007
Total operating expenses 9,010 7,041 16,051
- ----------------------------------------------------------------------------------------------------
OPERATING INCOME 2,762 2,194 4,956
Interest expense (480) (455) (935)
Other income - net 152 55 207
- ----------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 2,434 1,794 4,228
Income Taxes 785 658 1,443
- ----------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 1,649 1,136 2,785
Income from spun-off operations - 23 23
- ----------------------------------------------------------------------------------------------------
NET INCOME $ 1,649 $1,159 $ 2,808
- ----------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE:
INCOME FROM CONTINUING OPERATIONS $ 2.74 $ 2.68 (2c) $ 3.05
Income from spun-off operations - 0.05 (2c) 0.03
- ----------------------------------------------------------------------------------------------------
NET INCOME $ 2.74 $ 2.73 (2c) $ 3.08
- ----------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 601.4 424.0 (113.2)(2c) 912.2
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these pro forma combined
condensed financial statements.
56
<PAGE> 68
SBC COMMUNICATIONS INC. AND PACIFIC TELESIS GROUP
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------- ------------------------
SBC PAC ADJUSTMENTS COMBINED
------- ------- ----------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total operating revenues $10,840 $ 9,244 $20,084
Total operating expenses 8,480 8,582 17,062
- --------------------------------------------------------------------------------------------------
OPERATING INCOME 2,360 662 3,022
Interest expense (496) (509) (1,005)
Other income - net 196 48 244
- --------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES, EXTRAORDINARY LOSS AND ACCOUNTING
CHANGES 2,060 201 2,261
Income Taxes 625 10 635
- --------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 1,435 191 1,626
Income from spun-off operations - 29 29
- --------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY LOSS AND ACCOUNTING
CHANGES 1,435 220 1,655
Extraordinary Loss (153) - (153)
Accounting Changes (2,127) (1,724) (3,851)
- --------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (845) $(1,504) $(2,349)
- --------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE:
INCOME FROM CONTINUING OPERATIONS $ 2.39 $ 0.46 (2c) $ 1.80
Income from spun-off operations - 0.07 (2c) 0.03
- --------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY LOSS AND ACCOUNTING
CHANGES 2.39 0.53 (2c) 1.83
Extraordinary Loss (0.25) (2c) (0.17)
Accounting Changes (3.55) (4.16) (2c) (4.26)
- --------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (1.41) $ (3.63) (2c) $ (2.60)
- --------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 599.8 414.2 (110.6)(2c) 903.4
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these pro forma combined
condensed financial statements.
57
<PAGE> 69
SBC COMMUNICATIONS INC. AND PACIFIC TELESIS GROUP
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
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 and PAC's
operations. 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 $70 million), nor do they consider any
reorganization costs that might occur as a result of the Merger. Differences in
accounting policies do not have a material effect on either the pro forma
financial position or pro forma results of operations and have not been
reflected in the unaudited pro forma combined condensed financial statements.
The unaudited pro forma combined condensed balance sheets reflect the Merger as
if it had occurred on December 31, 1995 or March 31, 1996. The unaudited pro
forma combined condensed statements of income reflect the Merger as if it had
been in effect on January 1, 1996, 1995, 1994 and 1993, 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 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 and PAC
incorporated by reference in this Joint Proxy Statement/Prospectus.
NOTE 2 -- PRO FORMA ADJUSTMENTS
a. Deferred income taxes -- Deferred income taxes were reclassified to
present a net asset or liability for both current and non-current amounts.
b. Shareowners' Equity -- The shareowners' equity accounts of PAC have been
adjusted to reflect the assumed issuance of approximately 314 million shares of
SBC Common Stock in exchange for all of the issued and outstanding PAC Common
Stock (assuming an Exchange Ratio of 0.733 of a share of SBC Common Stock for
each share of PAC Common Stock). 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 PAC Common Stock issued and outstanding immediately prior to the
consummation of the Merger and the Exchange Ratio determined as of the Effective
Date. See "The Merger -- Terms of the Merger."
c. Earnings per Common Share -- Pro forma combined earnings per common
share information for each period presented is based on the combined weighted
average shares outstanding in each period after conversion of PAC's weighted
average shares outstanding at a ratio of 0.733 shares of SBC Common Stock for
each share of PAC Common Stock.
d. Intercompany transactions -- There are no significant intercompany
transactions between SBC and PAC.
e. PAC has agreed that effective with the dividend for the second quarter
of 1996 its quarterly dividend per share will not exceed 0.733 multiplied by
SBC's quarterly dividend per share. Dividends per share of the combined company
are expected to be equivalent to the dividend per share of SBC Common Stock.
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.
58
<PAGE> 70
DESCRIPTION OF SBC CAPITAL STOCK
The following description of certain 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") which are incorporated
herein by reference.
The authorized capital stock of SBC currently consists of 2,200,000,000
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"). Each share of SBC
Common Stock trades with SBC Rights. See "-- Description of SBC Rights." As of
April 30, 1996, there were outstanding 609,158,765 shares of SBC Common Stock,
with an additional 11,324,536 shares issued and held in treasury. There are no
shares of SBC Preferred outstanding, but SBC has designated 4,000,000 shares as
SBC Participating Preferred.
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. As of April 30,
1996, there were 827,177 holders of record of SBC Common Stock.
Transfer Agent
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
The SBC Restated Certificate provides that the SBC Preferred 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 restriction on each series of 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 4,000,000 shares of SBC Participating Preferred. Upon
issuance, each share of SBC Participating Preferred 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 SBC Common Stock (other than
distributions of SBC Common Stock) since the last quarterly dividend payment
date. The SBC Participating Preferred is not redeemable by SBC.
Each share of SBC Participating Preferred is entitled to 200 votes (subject
to antidilution adjustments) on all matters submitted to a vote of the
shareholders of SBC, voting together as one class with SBC Common Stock. In
addition, if at any time dividends in an amount equal to six quarterly dividend
payments shall have accrued and be unpaid, the SBC Board shall be increased by
two directors and holders of the SBC Participating Preferred shall have the
right to elect two members to the SBC Board until dividends on the SBC
Participating Preferred have been declared and paid or set apart for payment.
Except as required by applicable law, holders of SBC Participating Preferred
have no other special voting rights. Whenever dividends or distributions on the
SBC Participating Preferred 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
59
<PAGE> 71
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 as
to dividends or upon liquidation only if declared or paid ratably with the SBC
Participating Preferred. 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, except pursuant to an exchange of parity stock for
stock ranking junior to the SBC Participating Preferred or pursuant to a
purchase offer to the SBC Participating Preferred and holders of parity stock on
terms the SBC Board determines to be fair and equitable.
The SBC Participating Preferred 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 shall provide otherwise.
Upon any liquidation, dissolution or winding up of SBC, the SBC
Participating Preferred 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. In the event of any shortfall in the assets available for
distribution, any such liquidating distribution shall be made ratably to the SBC
Participating Preferred 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 until each share of SBC Common Stock shall have received
$0.50 (subject to antidilution adjustments). Thereafter, any remaining assets
shall be distributed to each share of SBC Participating Preferred and each share
of SBC Common Stock in the ratio of 200 to 1 (subject to antidilution
adjustments).
DESCRIPTION OF SBC RIGHTS
SBC has adopted a Rights Agreement (the "SBC Rights Agreement") which 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 Record Date and the SBC Distribution Date
(as described below). After giving effect to a stock split in May 1993, 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-half of an SBC Right. Each SBC Right entitles the registered holder to
purchase from SBC one one-hundredth of a share (an "SBC Unit") of SBC's
Participating Preferred 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 the SBC Rights Agreement dated as
of January 27, 1989 and amended on August 5, 1992 and June 15, 1994 between SBC
and The Bank of New York, as Rights Agent. One-half of an SBC Right will be
distributed with each share of SBC Common Stock issued by SBC, including shares
of SBC Common Stock issued to holders of PAC 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 Board of
Directors, since the SBC Board may, at its option, redeem all, but not fewer
than all, of the then-outstanding SBC Rights. The SBC Rights should not
interfere with any merger (such as the 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 described below),
redeem all but not less than all of the then outstanding SBC Rights at a
redemption price of $.05 per share.
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
60
<PAGE> 72
announcement by SBC or the SBC Acquiring Person (as defined below) (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 impact 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. Following the occurrence of an SBC
Flip-in Event, SBC may substitute, without requiring payment, SBC Common Stock
and cash or other assets for an SBC Right.
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 such
unaffiliated and unassociated 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.
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 SBC Rights Holders in any manner,
except to amend the SBC Redemption Price, the SBC Final Expiration Date (as
defined below), the SBC Purchase Price and the number of SBC Units for which an
SBC Right is exercisable.
The SBC Rights Agreement expires on January 27, 1999 (the "SBC Final
Expiration Date").
The foregoing description of the SBC Rights is qualified in its entirety by
reference to the SBC Rights Agreement.
61
<PAGE> 73
COMPARISON OF CERTAIN RIGHTS OF
SHAREOWNERS OF SBC AND PAC
GENERAL
As a result of the Merger, holders of PAC Common Stock will become holders
of SBC Common Stock and the rights of all such former holders of PAC Common
Stock will thereafter be governed by the SBC Restated Certificate, the SBC
Bylaws and the DGCL. The rights of the holders of PAC Common Stock are presently
governed by the PAC Articles, the Bylaws of PAC (the "PAC Bylaws") and the NPCL.
The following summary, which does not purport to be a complete statement of the
general differences among the rights of the shareowners of SBC and PAC, sets
forth certain differences between the DGCL and the NPCL, between the SBC
Restated Certificate and the PAC Articles and between the SBC Bylaws and the PAC
Bylaws. This summary is qualified in its entirety by reference to the full text
of each of such documents, the DGCL and the NPCL. For information as to how such
documents may be obtained, see "Available Information."
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS; DIRECTOR DESIGNEES
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 twenty-one members. As of the date
hereof, the number of directors is 14. The SBC Restated Certificate also
provides 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 classified board provision and 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. Pursuant to the Merger Agreement, at the
Effective Time, the number of directors comprising the full SBC Board will be
increased in order to enable approximately one-third of the SBC Board to be
comprised of Director Designees.
PAC
The NPCL provides that a corporation's board of directors shall consist of
at least one member and the authorized number of directors may be fixed or
variable within a fixed minimum or maximum as provided in either the
corporation's articles of incorporation or in the bylaws. The PAC Articles
provide that the number of directors may from time to time be increased or
decreased by resolution of the board of directors, provided that the number of
directors shall not be reduced to less than three (3). The PAC Board is
currently comprised of 10 members.
The PAC Articles also provide that the PAC Board will be divided into three
classes, with each class to serve for a term of three years. Each year the term
of one class of directors expires, and therefore approximately one-third of the
directors are elected in any given year.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
SBC
Pursuant to the DGCL, any director or the entire SBC Board may be removed
only with cause by the affirmative vote of a majority of the outstanding shares
of SBC capital stock entitled to vote in the election of directors. The term
"cause" is not defined in the DGCL. Consequently, any question concerning the
legal standard for "cause" would have to be judicially determined, and such a
determination could be difficult, expensive and time-consuming. The SBC Bylaws
provide that any vacancy occurring on the SBC Board may be filled by the vote of
a majority of the directors remaining in office at the time of the vacancy. The
successors may serve the full or remaining term of the replaced directors.
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PAC
Under the NPCL, a director may be removed by the vote of the holders of not
less than two-thirds of the voting power of the voting stock of a corporation,
subject to certain restrictions concerning cumulative voting. However, a Nevada
corporation may include in its articles of incorporation a provision requiring
the approval of a larger percentage of the voting power to remove a director.
The PAC Articles provide that any director may be removed from office at any
time, upon the vote of the PAC shareowners representing not less than two-thirds
of the voting power of the shares entitled to vote thereon. Under the NPCL, any
vacancy in the board of directors may be filled by a majority of the remaining
directors, though less than a quorum.
ACTION BY WRITTEN CONSENT
SBC
Under the DGCL, unless otherwise provided in the 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. However, 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.
PAC
Under the NPCL, unless otherwise provided in the articles of incorporation
or the bylaws, shareowners may take action without a meeting, without prior
notice and without a vote, upon the written consent of shareowners having at
least a majority of the voting power, except that if a different proportion of
voting power is required for such an action at a meeting, then that proportion
is required. The PAC Bylaws provide, however, that no action required or
permitted to be taken at an annual or special meeting of the shareowners of the
corporation may be taken without a meeting, and the power of the shareowners to
consent in writing without a meeting to the taking of any action is specifically
denied.
MEETINGS OF SHAREOWNERS
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 Board of SBC. The SBC
Chairman of the 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 or represented at a meeting of SBC
shareowners, 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. The DGCL
provides that quorum and voting requirements may be increased or decreased by an
amendment to the SBC Restated Certificate or the SBC Bylaws (which bylaw
amendment may, pursuant to the SBC Restated Certificate, be effected by the SBC
Board), so long as the requirement for a quorum does not fall below one-third of
the shares entitled to vote and subject to provisions of the DGCL setting forth
voting requirements for certain specified actions, such as mergers.
PAC
Under PAC's Bylaws, except as otherwise required by law, a special meeting
of shareowners may be called only by PAC's Chairman of the Board or by PAC's
President and must be called by PAC's Chairman of the
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Board, PAC's President or the Secretary at the request in writing of a majority
of the PAC Board or the holders of sixty-six and two-thirds percent of the
shares entitled to vote at such meeting.
Under the NPCL, unless the articles of incorporation or bylaws provide
otherwise, shareowners holding at least a majority of the voting power are
necessary to constitute a quorum for the transaction of business. The PAC Bylaws
provide that the presence in person or by proxy of a majority of the voting
stock entitled to vote constitutes a quorum for the transaction of business.
SHAREOWNER PROPOSALS AND SHAREOWNER NOMINATIONS OF DIRECTORS
SBC
The SBC Bylaws establish procedures that must be followed for a shareowner
to submit a proposal (including voting on a slate of directors) 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 nor 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 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 or 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.
PAC
The PAC Bylaws establish similar procedures that must be followed for a
shareowner to submit a proposal to be voted on by the shareowners of PAC at its
annual meeting of shareowners. For business to be properly brought before an
annual meeting by a shareowner, the shareowner must have given notice to the
Secretary of PAC within the time specified in the federal proxy rules for timely
submission of a shareowner proposal or, if not within such time, then not less
than twenty-five days nor more than sixty days prior to the meeting; provided,
however, that in the event that less than fifty days' notice or prior public
disclosure of the date of the meeting is given or made to shareowners, notice by
the shareowner to be timely must be so received by the earlier of (i) the close
of business on the fifteenth day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made,
whichever first occurs, and (ii) two days prior to the date of the annual
meeting. The shareowner's notice must set forth (i) a brief description of the
proposal and the reasons for considering the proposal at the annual meeting,
(ii) the name and record address of the shareowner, (iii) the class and number
of shares of capital stock beneficially owned by the shareowner and (iv) any
material interest the shareowner has in the proposal. If the Chairman of the PAC
Board determines that the proposal was not properly brought before the meeting
in accordance with these procedures, he shall so declare at the meeting and the
proposal will not be considered.
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REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
SBC
Under the DGCL, the recommendation of the SBC Board and the approval of a
simple majority of the outstanding shares of SBC entitled to vote thereon are
required to effect a merger or consolidation or to sell, lease or exchange
substantially all of SBC's assets. Subject to the provisions of Section 203 of
the DGCL described below under "-- State Antitakeover Statutes," no vote of the
shareowners of SBC would be required if SBC were the surviving corporation of a
merger and (i) the merger agreement does not amend the SBC Restated Certificate,
(ii) each share of stock of SBC outstanding immediately before the merger is to
be an identical outstanding or treasury share of SBC stock after the merger and
(iii) the number of shares of SBC Common Stock to be issued in the merger (or to
be issuable upon conversion of any convertible instruments to be issued in the
merger) will not exceed twenty percent of the shares of SBC Common Stock
outstanding immediately before the merger. If SBC fails this test under the
DGCL, the recommendation of the SBC Board and the approval of a majority of the
outstanding shares of SBC entitled to vote thereon are required to effect a
merger.
PAC
Under the NPCL, for a plan of merger or exchange to be approved, the board
of directors must adopt the plan of merger or exchange and recommend it to the
shareowners for approval, unless the board determines that, due to a conflict of
interest or other special circumstances, it should make no recommendation and
communicates the basis for its determination to the shareowners. The plan of
merger must be approved by a majority of all votes entitled to vote on the plan
unless the NPCL, the PAC Articles, or the PAC Board require a greater vote by
classes of shareowners. Subject to the provisions of the PAC Articles and NPCL
Section 92A.130, no vote of the shareowners of a corporation is required if such
corporation will be the surviving corporation in the merger and (i) the articles
of incorporation of the surviving corporation will not differ from its articles
before the merger, (ii) each shareowner of the surviving corporation whose
shares were outstanding immediately before the merger will hold the same number
of shares, with identical designations, preferences, limitations, and relative
rights immediately after the merger and (iii) the number of shares of common
stock to be issued in the merger (or to be issuable upon conversion of any
convertible instruments to be issued in the merger) will not exceed twenty
percent of the aggregate amount of shares of common stock outstanding
immediately prior to the merger.
AMENDMENT OF CORPORATE CHARTER AND BYLAWS
SBC
Under the DGCL, an amendment to the 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 company's board of directors may amend the 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 states 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; Director Designees" and "-- Fair Price and Anti-Greenmail
Provisions."
PAC
Under the NPCL, a company's articles of incorporation may be amended by the
recommendation of the board of directors and the vote of shareowners holding at
least a majority of the voting power, unless a greater proportion of the voting
power is required in its articles of incorporation. The PAC Articles require the
affirmative vote of the holders of at least sixty-six and two-thirds percent of
the voting power of the shares entitled to vote thereon to amend or repeal the
articles relating to: (i) the composition, classification and number of
directors, (ii) directors' and officers' indemnification, and (iii) directors'
and officers' liability.
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Under the NPCL, a company's board of directors may amend the bylaws,
subject only to the power of the shareowners to amend the bylaws. The PAC Bylaws
provide that the PAC Board has the power to adopt, amend or repeal any of the
bylaws by the affirmative vote of a majority of the directors present, except as
otherwise required by the PAC Articles as described above. The PAC Bylaws may
also be altered, amended or repealed by action of the shareowners at any meeting
of the shareowners if notice of such alteration, amendment or repeal be
contained in the notice of such meeting; provided, however, that any alteration,
amendment or repeal of the PAC Bylaws by action of the shareowners must be
approved by the vote of at least sixty-six and two-thirds percent of the voting
power of the shares of PAC entitled to vote in the election of directors, voting
as one class.
APPRAISAL AND DISSENTERS' RIGHTS
SBC
The DGCL provides appraisal rights in the case of certain mergers and
consolidations. Appraisal rights are not available to holders of (i) shares
listed on a national securities exchange or held of record by more than 2,000
shareowners or (ii) shares of the constituent corporation surviving the merger,
if the merger did not require the approval of the shareowners of such
corporation, unless in any case, the holders of such stock are required pursuant
to the merger to accept anything other than (A) shares of stock of the surviving
corporation, (B) shares of stock of another corporation which will be either
listed on a national securities exchange or held by more than 2,000 holders or
(C) cash in lieu of fractional shares of the stock received. Appraisal rights
are not available for a sale of assets or an amendment to the certificate of
incorporation.
PAC
Under the NPCL, a shareowner is entitled to dissent from, and receive the
fair value of shares owned in the event of a plan of merger or exchange, if the
shareowner is entitled to vote on the transaction. However, there is no right to
dissent to a plan of merger or exchange in favor of the holders of shares of any
class or series, which (i) were listed on a national securities exchange or
designated as a national market security on an interdealer quotation system by
the National Association of Securities Dealers, Inc., or (ii) held by at least
2,000 shareowners of record, unless the articles of incorporation provide
otherwise or the holders are required to receive anything other than cash or
shares (or other owner's interests) of the surviving or acquiring entity or an
entity which is either listed on a national securities exchange or included
within the national market system by the National Association of Securities
Dealers, Inc. or held of record by at least 2,000 holders of shares (or other
owner's interests) or any combination of the foregoing.
FAIR PRICE AND ANTI-GREENMAIL PROVISIONS
SBC
The SBC Bylaws provide that certain "business combinations" involving
"interested stockholders" (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 (66 2/3%) of the then-outstanding shares of capital 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 stockholder (and those who became
directors after the time at which the interested stockholder 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 stockholder
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
stockholder in acquiring any share of SBC Common Stock during the two years
prior to such announcement date or in the transaction in which it became an
interested stockholder (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 stockholder became an interested stockholder (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
stockholder in
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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 stockholder acquired
any shares of SBC Common Stock. This provision 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.
The SBC Bylaws do not contain any "Anti-Greenmail" provision.
PAC
Neither the PAC Bylaws nor the PAC Articles contain any such "Fair Price"
or "Anti-Greenmail" provisions.
STATE ANTITAKEOVER STATUTES
SBC
Section 203 of the DGCL ("Section 203") prohibits a "business combination"
(as defined in Section 203, generally including mergers, sales and leases of
assets, issuances of securities and similar transactions) by SBC or a subsidiary
with an "interested stockholder" (as defined in Section 203, generally the
beneficial owner of 15 percent or more of SBC's voting stock) within three years
after the person or entity becomes an interested stockholder, unless (i) prior
to the person or entity becoming an interested stockholder, the business
combination or the transaction pursuant to which such person or entity became an
interested stockholder is approved by the SBC Board, (ii) upon the consummation
of the transaction in which the person or entity became an interested
stockholder, the interested stockholder holds at least 85 percent of the voting
stock of SBC (excluding for purposes of determining the number of shares
outstanding, shares held by persons who are both officers and directors of SBC
and shares held by certain employee benefit plans) or (iii) the business
combination is approved by the SBC Board and by the holders of at least
two-thirds of the outstanding voting stock of SBC, excluding shares held by the
interested stockholder.
PAC
The NPCL has three provisions designed to deter takeover attempts.
(i) Control Share Acquisition Provision. Under the NPCL, once a person has
acquired or offers to acquire one-fifth, one-third or a majority of the stock of
a corporation, a shareowners' meeting must be held after delivery of the
"offeror's statements," at offeror's expense, so the shareowners can vote on
whether the shares proposed to be acquired (the "control shares") may exercise
voting rights. Except as otherwise provided in a company's articles of
incorporation, the approval of a majority of the outstanding stock not held by
the offeror is required so that the stock held by the offeror will have voting
rights. The Control Share Acquisition Provisions are applicable to any
acquisition of a controlling interest unless the articles of incorporation or
bylaws of a corporation in effect on the tenth day following the acquisition of
a controlling interest by an acquiring person provide that the Control Share
Acquisition Provisions do not apply.
(ii) Combination Moratorium Provision. The NPCL provides that a corporation
may not engage in any "combination" (broadly defined to include mergers, sales
and leases of assets, issuances of securities, and similar transactions) with an
"interested stockholder" (defined as the beneficial owner of 10 percent or more
of the voting power of the company) and certain affiliates and associates for
three years after the interested stockholder's date of acquiring the shares,
unless the combination or the purchase of shares by the interested stockholder
is approved by the board of directors before the date the interested stockholder
acquires the shares. After the initial three year period, any combination must
still be approved by a majority of the voting power not beneficially owned by
the interested stockholder or the interested stockholder's affiliates or
associates, unless the aggregate amount of cash and the market value of
consideration other than cash to be received by shareowners as a result of the
combination meets certain minimum requirements set forth in the NPCL. Those
minimum requirements are met if the consideration received by the shareowners is
at least equal to the highest of the following: (i) the highest price per share
paid by the interested stockholder within the three year period immediately
preceding the date of announcement of the combination or in the transaction in
which he became an
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interested stockholder; (ii) the market value per share of each class or series
of shares, including the common shares, on the date of the announcement of the
combination or on the date the interested stockholder acquired his shares; or
(iii) for holders of preferred stock, the highest liquidation value of the
preferred stock.
(iii) Other Constituencies. Under the NPCL, the selection of a period for
the achievement of corporate goals is the responsibility of the directors. In
addition, the directors and officers, in exercising their respective powers with
a view to the interests of the corporation, may consider (i) the interests of
the corporation's employees, suppliers, creditors and customers, (ii) the
economy of the state and nation, (iii) the interests of the community and of
society and (iv) the long-term as well as short-term interests of the
corporation and its shareowners, including the possibility that these interests
may be best served by the continued independence of the corporation. The
directors also may resist a change or potential change in control of the
corporation if the directors by a majority vote of a quorum determine that the
change or potential change is opposed to or not in the best interests of the
corporation "upon consideration of the interests of the corporation's
stockholders" or for one of the other reasons described above. Finally, the
directors may take action to protect the interests of the corporation and its
shareowners by adopting or executing plans that deny rights, privileges, power
or authority to a holder of a specified number of shares or percentage of share
ownership or voting power. See "-- Duties of Directors," below.
Thus, holders of PAC Common Stock who become holders of SBC Common Stock
after the Merger is consummated will no longer be afforded certain statutory
protection provided by the NPCL in connection with the acquisition of a
controlling interest or other activities.
RIGHTS PLANS
SBC
Pursuant to the SBC Rights Agreement each share of SBC Common Stock has
attached to it one-half of an SBC Right which entitles the holder of such right
to purchase one share of SBC Participating Preferred for $160. Until the SBC
Distribution Date the SBC Rights remain attached to the Common Stock. Following
the 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 Rights will have
the right to purchase shares of SBC Common Stock having a market value of twice
the purchase price (i.e., $320 worth of SBC Common Stock for $160).
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 Capital Stock -- Description of SBC Rights."
PAC
The PAC Board declared a dividend distribution of rights ("PAC Rights") to
holders of outstanding Common Stock on October 10, 1989 pursuant to its Rights
Agreement (the "PAC Rights Agreement"). The PAC Rights and the PAC Rights
Agreement afford the holders of PAC Rights, rights similar to those held by
holders of SBC Rights. After the PAC Distribution Date (defined below), each PAC
Right entitles the holder to purchase from PAC one-one hundredth of a share of
Series A Participating Preferred Stock of PAC at a price of $150, subject to
adjustment for dilution. The Rights are not exercisable or separate from the PAC
Common Stock until the distribution date (the "PAC Distribution Date") which is
triggered in substantially the same manner as the SBC Rights Agreement. On April
1, 1996 the definitions of PAC Acquiring Person (generally, a person acquiring
beneficial ownership of 20% or more of the PAC Common Stock) and PAC Adverse
Person (a person having beneficial ownership of at least 10% of the PAC Common
Stock) were amended to exclude SBC from such definitions, thereby not causing a
PAC Distribution Date or a PAC Stock Acquisition Date (the date of a public
announcement that a person has become a PAC Acquiring Person) by the Merger
Agreement or any of the transactions thereby contemplated. In addition, the PAC
Rights Agreement has been amended to provide that the PAC Board may terminate
the PAC Rights at any time prior to a PAC Distribution Date or a PAC Stock
Acquisition Date.
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Upon the occurrence of certain events specified in the PAC Rights
Agreement, Rights holders will have the opportunity to purchase either shares of
PAC Common Stock or an acquiror's common stock having a market value of twice
the purchase price of a PAC Right for the purchase price of a PAC Right.
Anytime after the time a person becomes a PAC Acquiring Person or the time
a person becomes a PAC Adverse Person, for so long as no person (together with
affiliates and associates) beneficially owns 50% of the PAC Common Stock
outstanding, the PAC Board may exchange all of the outstanding Rights (except
voided Rights) at an exchange ratio of one share of PAC Common Stock for each
PAC Right.
The description of the PAC Rights Agreement specifying the terms of the PAC
Rights is incorporated herein by reference. See "Incorporation of Certain
Documents by Reference." The foregoing description of the PAC Rights is
qualified in its entirety by reference to the PAC Rights Agreement.
The PAC Rights will expire on October 10, 1999, unless earlier terminated.
LIMITATION ON DIRECTORS' LIABILITY
SBC
Section 102 of the DGCL allows a corporation to limit or eliminate the
personal liability of directors to the corporation and its shareowners for
monetary damages for breach of fiduciary duty as a director. However, this
provision excludes any limitation on liability (i) for any breach of the
director's duty of loyalty to the corporation or its shareowners, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for intentional or negligent payment of unlawful
dividends or stock purchase or redemption or (iv) for any transaction from which
the director derived an improper personal benefit. The SBC Restated Certificate
provides for the limitations on directors' liability as permitted by this
statute.
PAC
The PAC Articles provide that a director or officer shall not be personally
liable to PAC or its shareowners for damages for breach of fiduciary duty as a
director or officer to the fullest extent permitted under the NPCL, which
provides that a corporation's articles of incorporation may eliminate or limit
the personal liability of a director or officer to the corporation or its
shareowners for damages for breach of fiduciary duty as a director or officer,
but such a provision may not eliminate or limit the liability of a director or
officer for (a) acts or omissions which involve intentional misconduct, fraud or
a knowing violation of law; or (b) the payment of distributions in violation of
NPCL Section 78.300 (which permits distributions only in accordance with the
statute).
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 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.
PAC
Under the NPCL, a corporation may, and in certain circumstances must,
indemnify its officers, directors, employees or agents for expenses, judgments
or settlements, actually and reasonably incurred by them in connection with
suits and other legal proceedings, if they acted in good faith and in a manner
reasonably believed
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to be in or not opposed to the best interests of the corporation, and with
respect to criminal proceedings, had no reasonable cause to believe that their
conduct was unlawful. A corporation may adopt procedures for advancing expenses
to directors and officers prior to final adjudication, as long as they undertake
to repay the amounts advanced if it is ultimately determined that they were not
entitled to be indemnified. The PAC Articles permit the PAC Board to authorize
and approve indemnity agreements between the corporation and each director and
each officer which agreements provide that the corporation indemnify (and
advance expenses to) the indemnitee to the fullest extent permitted by
applicable law and which agreements shall provide that in any proceeding to
enforce the obligation to indemnify such person, the corporation shall have the
burden to establish that such indemnification is prohibited; provided, however,
that such agreements shall, in form and content acceptable to the PAC Board,
exclude from indemnification a judgment or other final adjudication adverse to
indemnitee that established (a) that his or her acts were committed in bad faith
or were the result of deliberate dishonesty, or (b) that he or she in fact
gained a financial advantage to which he or she was not legally entitled, in
which event that amount of the indemnification shall be reduced by the amount of
such financial advantage gained.
CUMULATIVE VOTING
Neither SBC nor PAC permits cumulative voting of shares.
CONFLICT-OF-INTEREST TRANSACTIONS
SBC
The DGCL generally permits transactions involving a Delaware corporation
and an interested director or officer of that corporation if (i) the material
facts are disclosed and a majority of disinterested directors consents, (ii) the
material facts are disclosed and a majority of shares entitled to vote thereon
consents or (iii) the transaction is fair to the corporation at the time it is
authorized by the board of directors, a committee, or the shareowners.
PAC
Similar to the DGCL, the NPCL generally permits transactions involving a
Nevada corporation and an interested director or officer of that corporation if
(i) the fact of the common directorship, office or financial interest is known
or disclosed to the board of directors and a majority of disinterested directors
consents, (ii) the fact of the common directorship, office or financial interest
is known or disclosed to the shareowners and a majority of shares entitled to
vote thereon consents, (iii) the fact of the common directorship, office or
financial interest is not disclosed or known to the director or officer at the
time the transaction is brought before the board of directors for action or (iv)
the contract or transaction is fair to the corporation at the time it is
authorized or approved.
DIVIDENDS AND OTHER DISTRIBUTIONS
SBC
The DGCL generally allows dividends to be paid out of surplus of the
corporation or, in case there is no surplus, out of the net profits of the
corporation for the current fiscal year and/or the prior fiscal year. No
dividends may be paid if it would result in the capital of the corporation being
less than the capital represented by the preferred stock of the corporation.
PAC
Under the NPCL, a corporation may pay dividends or make other distributions
with respect to its stock unless, after giving effect to the dividend or
distribution, either the corporation would not be able to pay its debts as they
become due in the usual course of business or, except as otherwise specifically
allowed by its articles of incorporation, the corporation's total assets would
be less than the sum of its total liabilities plus the amount that would be
needed, if the corporation were to be dissolved at that time, to satisfy the
preferential rights of shareowners whose rights are superior to those
shareowners receiving the dividend or distribution.
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DUTIES OF DIRECTORS
SBC
The DGCL does not contain a specific provision elaborating on the duties of
a board of directors with respect to the best interests of the corporation.
Delaware courts have permitted directors to consider various constituencies
provided that there be some rationally related benefit to the shareowners.
PAC
The NPCL permits a board of directors to consider, including in connection
with a change or potential change in control of the corporation, (i) the
interests of the corporation's employees, suppliers, creditors and customers,
(ii) the economy of the state and nation, (iii) the interests of the community
and of society and (iv) the long-term as well as short-term interests of the
corporation and its shareowners, including the possibility that these interests
may be best served by the continued independence of the corporation. The PAC
Articles provide that the PAC Board, when evaluating any offer of another party
to (a) tender or exchange for any equity security of PAC, (b) merge or
consolidate PAC with another corporation, or (c) purchase or otherwise acquire
all or substantially all of the properties and assets of PAC, may, in connection
with the exercise of its judgment in determining what is in the best interests
of PAC and its shareowners, give due consideration to (i) all relevant factors,
including without limitation the social, legal, environmental and economic
effects on the employees, customers, suppliers and other affected persons, firms
and corporations, and on the communities and geographical areas in which PAC and
its subsidiaries operate or are located and on any of the businesses and
properties of the corporation or any of its subsidiaries, as well as such other
factors as the directors deem relevant, (ii) not only the financial
consideration being offered in relation to the then current market price for
PAC's outstanding shares of capital stock, but also in relation to the then
current value of PAC in a freely negotiated transaction and in relation to the
PAC Board's estimate of the future value of PAC (including the unrealized value
of its properties and assets) as an independent going concern, and (iii) the
obligations of the corporation, and any of its subsidiaries, to provide stable,
reliable public utility services on a continuing or long-term basis.
ISSUANCE OF RIGHTS OR OPTIONS TO PURCHASE SHARES TO DIRECTORS, OFFICERS AND
EMPLOYEES
Neither the DGCL nor the NPCL contains any provision requiring the issuance
of rights or options to officers, directors and employees to be approved by a
shareowner vote.
LOANS TO DIRECTORS
Both the DGCL and the NPCL allow loans to and guarantees of obligations of
officers and directors without any shareowner approval.
EXPERTS
The consolidated financial statements and schedules of SBC at December 31,
1995 and 1994, and for the years ended December 31, 1995, 1994 and 1993,
incorporated by reference in this Joint Proxy Statement/Prospectus and
Registration Statement have been audited by Ernst & Young 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 such reports given upon the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements of PAC as of December 31, 1995 and
1994 and for the years ended December 31, 1995, 1994 and 1993, incorporated by
reference in this Joint Proxy Statement/Prospectus have been audited by Coopers
& Lybrand L.L.P., independent accountants. The financial statements audited by
Coopers & Lybrand L.L.P. have been incorporated herein by reference in reliance
upon their report given upon their authority 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 April 30, 1996, Mr. Ellis owned less than .1%
of the shares (and options representing shares) of SBC Common Stock.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
AMONG
PACIFIC TELESIS GROUP
SBC COMMUNICATIONS INC.
AND
SBC COMMUNICATIONS (NV) INC.
DATED AS OF APRIL 1, 1996
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"), dated
as of April 1, 1996, among Pacific Telesis Group, a Nevada corporation (the
"Company"), SBC Communications Inc., a Delaware corporation ("SBC"), and SBC
Communications (NV) Inc., a Nevada corporation and a wholly-owned subsidiary of
SBC ("Merger Sub," the Company and Merger Sub sometimes being hereinafter
collectively referred to as the "Constituent Corporations.")
RECITALS
WHEREAS, the respective boards of directors of each of SBC, Merger Sub and
the Company have approved the merger of Merger Sub with and into the Company
(the "Merger") and approved and adopted 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
Nevada, and the separate corporate existence of the Company with all its rights,
privileges, immunities, powers and franchises shall continue unaffected by the
Merger. The Merger shall have the effects specified in the Nevada Private
Corporations Law (the "NPCL").
1.2. Closing. The closing of the Merger (the "Closing") shall take place
(i) at the offices of Pillsbury Madison & Sutro LLP, San Francisco, California
at 9:00 A.M. on the third business day 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").
1.3. Effective Time. As soon as practicable following the Closing, the
Company and SBC will cause Articles of Merger (the "Articles of Merger") to be
signed, acknowledged and delivered for filing with the Secretary of State of
Nevada as provided in Section 92A.200 of the NPCL. The Merger shall become
effective at the time when the Articles of Merger have been duly filed with the
Secretary of State of Nevada or such other time as shall be agreed upon by the
parties and set forth in the Articles of Merger and in accordance with the NPCL
(the "Effective Time").
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ARTICLE II
ARTICLES OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION
2.1. The Articles of Incorporation. The articles of incorporation of the
Company as in effect immediately prior to the Effective Time shall be the
articles 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: "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." and (ii)
Article Fifth of the Charter shall be amended to read in its entirety as
follows: "The governing board of this corporation shall be known as the board of
directors and its members shall be known as directors, and the number of
directors may from time to time be increased or decreased by resolution of the
board of directors." The Articles of Merger shall set forth the amendments to
the articles of incorporation of the Surviving Corporation described in this
Section 2.1.
2.2. The By-Laws. The by-laws of the Company 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, DIRECTORS AND MANAGEMENT
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
approximately one-third of the SBC Board of Directors to be comprised of
directors selected by the SBC Board of Directors in consultation with the Chief
Executive Officer and Board of Directors of the Company from among the members
of the Company's Board of Directors (the "Director Designees"), to be appointed
to the SBC Board of Directors, 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 as evenly as is
possible among the classes of directors of SBC.
3.4 Management. At the Effective Time of the Merger, SBC shall cause Mr.
Philip J. Quigley to be appointed President and Chief Executive Officer of the
Surviving Corporation and Vice Chairman of the Board 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. Subject to Section 4.1(c) and Section 4.2(d),
each share of the Common Stock, par value $0.10 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
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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 the right to
receive, and become exchangeable for, the Exchange Ratio (as defined in Section
9.13) of a share (the "Merger Consideration") of Common Stock, par value $1 per
share, of SBC ("SBC Common Stock"). 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 Common Stock
pursuant to the SBC Rights Agreement (as defined in Section 5.1(b)(i)), 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 each certificate (a "Certificate") formerly representing any of
such Company Shares (other than Excluded Company Shares) shall thereafter
represent only the right to receive 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 Company Share issued and outstanding
immediately prior to the Effective Time and owned by any of the SBC Companies or
owned by the Company or any direct or indirect subsidiary of the Company (other
than Company Shares that are in each case owned on behalf of third parties),
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) Restricted Stock. Each Company Share issued and outstanding immediately
prior to the Effective Time that is restricted under the Company's 1994 Stock
Incentive Plan or Restricted Stock Plan shall be converted into the right to
receive, and become exchangeable for a fraction of a share of SBC Common Stock
equal to the Exchange Ratio, having the same restrictions, terms and conditions
as were applicable to such Company Share of restricted stock.
(d) Outside Directors Deferred Stock Unit Plan. Each stock unit outstanding
immediately prior to the Effective Time under the Outside Directors' Deferred
Stock Unit Plan and representing one Company Share shall be converted into the
right to receive a stock unit representing a fraction of a share of SBC Common
Stock equal to the Exchange Ratio and having the same terms and conditions as
were applicable to such stock unit before the Effective Time.
(e) 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 of a Certificate in respect of Company Shares
(other than holders of a Certificate in respect of Excluded Company Shares) (i)
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, 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 the
Certificates for (A) 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 surrender of a Certificate for
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor (x) 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 plus (B) any unpaid
non-stock 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 the Certificate so surrendered shall forthwith be cancelled. No interest
will be paid or accrued on any amount payable upon due surrender of the
Certificates. In the event of a transfer of ownership of Company Shares that is
not registered in the transfer records of the Company, a certificate
representing the proper number of shares of SBC Common Stock, together
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with a check for any cash to be paid upon due surrender of the Certificate and
any other dividends or distributions in respect thereof, may be issued and/or
paid to such a transferee if the Certificate formerly representing such Company
Shares is presented to the Exchange Agent, 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 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 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 certificates for
shares of SBC Common Stock in a name other than that of the registered holder of
the Certificate surrendered, 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)) or
other entity of any kind or nature.
(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 issuable pursuant to this Agreement. No dividends or other distributions
in respect of the SBC Common Stock shall be paid to any holder of any
unsurrendered Certificate until such Certificate is surrendered for exchange in
accordance with this Article IV herein. Subject to the effect of applicable
laws, following surrender of any such Certificate, there shall be issued and/or
paid to the holder of the certificates representing whole shares of SBC Common
Stock issued in exchange therefor, without interest, (A) at the time of such
surrender, 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. 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) Holders of unsurrendered Certificates 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, regardless of whether such holders have
exchanged their Certificates.
(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 a cash payment in
lieu thereof, which payment shall represent such holder's proportionate interest
in a share of SBC Common Stock based on 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 the SBC with the Exchange Agent
(including the proceeds of any investments thereof) that remains 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 surrender of their Certificates (or affidavits of loss
in lieu thereof), in each case, 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.
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(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, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed Certificate the shares of SBC Common Stock, any unpaid
dividends or other distributions and any cash payment in lieu of a fractional
share in respect thereof issuable and/or payable pursuant to this Article IV
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 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 92A.390 of the NPCL, 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), (e) and (h)(i) 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), (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
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 any Person, a material adverse effect on the total enterprise
value of such Person and its Subsidiaries, taken as a whole, other than general
changes in (A) the telecommunications industry, (B) economic conditions or (C)
the securities markets that, in any of (A), (B) or (C), affect the total
enterprise value of such Person and its Subsidiaries, taken as a whole, on the
one hand, and
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the other party and its Subsidiaries, on the other hand, substantially
proportionately relative to the other party, 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 1,100,000,000 Company Shares, of which 428,434,672 Company Shares
were issued and outstanding and 4,392,923 Company Shares were held in treasury
as of the close of business on March 29, 1996, and 50,000,000 shares of
Preferred Stock, par value $0.10 per share (the "Preferred Shares"), of which no
shares were outstanding as of the close of business on March 29, 1996. All of
the outstanding Company Shares have been duly authorized and are validly issued,
fully paid and nonassessable. Other than 6,000,000 Preferred Shares, designated
"Series A Participating Preferred Stock", reserved for issuance pursuant to the
Rights Agreement, dated as of September 22, 1989, 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
or Preferred Shares reserved for issuance. As of March 29, 1996, there were not
more than 16,500,000 Company Shares that the Company was obligated to issue
pursuant to the Company's Supplemental Retirement and Savings Plan for Salaried
Employees, Supplemental Retirement and Savings Plan for Nonsalaried Employees,
1994 Stock Incentive Plan, Restricted Stock Plan, Shareholder Dividend
Reinvestment and Stock Purchase Plan, Nonemployee Director Stock Option Plan,
Non-employee Directors Stock Grant Plan, Senior Management Long Term Incentive
Plan and Stock Option and Stock Appreciation Rights Plan (collectively the
"Stock Plans"). Each of the outstanding shares of capital stock or other
securities of each of the Company's "Significant Subsidiaries" (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, 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 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 ("Voting Debt").
(ii) The authorized capital stock of SBC consists of 1,100,000,000 shares
of SBC Common Stock, of which 609,069,574 shares were issued and outstanding and
11,413,727 shares were held in treasury as of the close of business on March 28,
1996, and 10,000,000 shares of Preferred Stock, par value $1.00 per share (the
"SBC Preferred Shares"), of which no shares were outstanding as of the close of
business on March 28, 1996. 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
issuance except that SBC has reserved 8,000,000 SBC Preferred Shares for
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 March 28, 1996,
there were not more than 24,000,000 shares of SBC Common Stock that SBC was
obligated to issue pursuant to SBC's Senior Management Long Term Incentive Plan,
Senior Management Incentive Award Deferral Plan, Restricted Stock Plan for
Non-Employee Directors, Stock Savings Program, 1994 Stock Option Plan, 1996
Stock and Incentive Plan, 1995 Management Stock Option Plan, Savings Plan and
the Savings and Security 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
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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 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 ("SBC Voting Debt").
(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 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 approval 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 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, Salomon Brothers Inc, 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 stockholder approval necessary to permit the issuance of SBC
Common Stock required to be issued pursuant to Article IV (the "SBC Requisite
Vote") and the SBC Required Consents (as defined in Section 5.1(d)), the Merger.
This Agreement 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, Lazard Freres & Co. LLC, in a customary form and to the
effect that the Merger Consideration to be paid by SBC in the Merger 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 filings and/or
notices (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) the necessary notices and, if any,
approvals of the Federal Communications Commission ("FCC") pursuant to the
Communications Act of 1934, as amended and (E) the necessary notices and
necessary approvals, if any, of the state and foreign public utility commissions
or similar state or foreign regulatory bodies (each a "PUC") identified in its
respective Disclosure Letter pursuant to applicable state or foreign laws
regulating the telephone, mobile cellular, paging, cable television or other
telecommunications business ("Utilities Laws") (such filings and/or notices of
SBC being the "SBC Required Consents" and of the Company being the "Company
Required Consents"), no notices, reports or other filings 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
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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 trans actions 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 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 its Contracts and Contracts of 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 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 delivered to the other party,
each registration statement, report, proxy statement or information statement
prepared by it since December 31, 1995 (the "Audit Date"), including its Annual
Report on Form 10-K for the year ended December 31, 1995 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 results of
operations, retained earnings and cash flows, as the case may be, of it and its
Subsidiaries for the periods set forth 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 generally
accepted accounting principles ("GAAP") consistently applied during the periods
involved, except as may be noted therein. Since December 31, 1992, 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 Securities Exchange Act of 1934.
(f) Absence of Certain Changes. Except as disclosed in its Reports filed
prior to the date hereof or as expressly contemplated 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,
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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; or (iv) any change by it in accounting
principles, practices or methods. Since the Audit Date, except as provided for
herein, in the Company Disclosure Letter or as disclosed in its Reports filed
prior to the date hereof, there has not been any increase in the compensation
payable or that could become payable by it or any of its Subsidiaries to
officers or key employees or any amendment of any of its 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 knowledge of its executive officers, threatened 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 or materially impair its ability to consummate
the transactions contemplated by this Agreement.
(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 it and
its Subsidiaries (its "Compensation and Benefit Plans") and any trust agreements
or insurance contracts forming a part of such Compensation and Benefit Plans has
been made available by it to the other party prior to the date hereof and each
such Compensation and Benefit Plan is listed in Section 5.1(h) of its respective
Disclosure Letter.
(ii) All of its Compensation and Benefit Plans are 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"), 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 knowledge of its
executive officers, threatened 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
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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.
(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) The consummation of the Merger (or its approval by its stockholders)
and the other transactions contemplated by this Agreement will not (x) entitle
any of its employees or directors or any employees of its Subsidiaries to
severance pay, directly or indirectly, upon termination of employment, (y)
accelerate the time of 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 its Compensation and Benefit Plans or (z) result
in any breach or violation of, or a default under, any of its 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 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 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 likely to have a Material
Adverse Effect on it or prevent 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 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 or
will take all appropriate and necessary actions such that Sections 78.378 et
seq. and 78.411 et seq. of the NPCL will not have any effect on the Merger or
the other transactions contemplated by this Agreement. No other "fair price,"
"moratorium,"
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"control share acquisition" or other similar anti-takeover statute or regulation
(each a "Takeover Statute") is, as of the date hereof, is applicable to 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; (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-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 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,
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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 knowledge
of its executive officers, threatened, 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 with the effect that neither SBC nor Merger Sub shall be deemed
to be either an (i) Acquiring Person or (ii) Adverse Person (as each 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.
(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 Salomon Brothers Inc 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 Lazard Freres & Co. LLC 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 and SBC each covenants and agrees
as to itself and its Subsidiaries that, after the date hereof and prior to the
Effective Time (unless SBC or the Company, as the case may be, shall otherwise
approve in writing, which approval shall not be unreasonably withheld or
delayed, and except as otherwise expressly contemplated by this Agreement or in
its respective Disclosure Letter or as 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 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 SBC Rights Agreement or the
Rights Agreement, as the case may be, other than, in the case of SBC, an
amendment to the certificate of incorporation of SBC for the purpose of
increasing the authorized number of shares of SBC Common Stock as
contemplated by SBC's March 12, 1996 Proxy Statement; (B) split, combine,
subdivide or reclassify its outstanding shares of capital stock; (C)
declare, set aside or pay any dividend payable in cash, stock or property
in respect of any capital stock, other than (I) in the case of the Company,
the quarterly dividend declared on March 22, 1996, payable on May 1, 1996
to stockholders of record on April 9, 1996 and per share regular quarterly
cash dividends thereafter not in excess of the
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Exchange Ratio multiplied by the dividend per share of SBC Common Stock in
such quarter, and (II) in the case of SBC, regular quarterly cash and
dividends not in excess of $0.43 per share of SBC Common Stock; or (D)
repurchase, redeem or otherwise acquire, except (I) in the case of the
Company, in connection with the Stock Plans and (II) in the case of SBC, in
connection with the SBC Stock Plans, or permit any of its Subsidiaries to
purchase or otherwise acquire, any shares of its capital stock or any
securities convertible into or exchangeable or exercisable for any shares
of its capital stock;
(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;
(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
Compensation and Benefit Plans or increase the salary, wage, bonus or other
compensation of any directors, officers or employees except (A) for grants
or awards to directors, officers and employees of it or its Subsidiaries
under existing 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 compensation and benefit increases and the provision of
individual Compensation of Benefit Plans consistent with past practice for
newly hired officers and employees and the adoption of Compensation and
Benefit Plans for employees of new Subsidiaries in amounts and on terms
consistent with past practice) or (C) for actions necessary to satisfy
existing contractual obligations under Compensation and Benefit Plans
existing as of the date hereof; and
(v) neither it nor any of its Subsidiaries will authorize, or enter
into an agreement to do any of the fore going.
(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 or
the SBC Disclosure Letter or as required by applicable Law):
(i) Neither SBC nor any of its Subsidiaries shall issue any preferred
stock or incur any indebtedness for borrowed money or guarantee any such
indebtedness if SBC should reasonably anticipate that after such incurrence
any of SBC's or any of its Subsidiaries' outstanding senior indebtedness
would be rated BBB or lower by Standard & Poor's;
(ii) Neither SBC nor any of its Subsidiaries shall make any capital
expenditures in any calendar year in an aggregate amount in excess of 150%
of the aggregate amount of capital expenditures reflected in SBC's capital
expenditure budget for such year, a copy of which has been provided to the
Company;
(iii) Neither SBC 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) in public offerings for cash where the aggregate
proceeds to SBC are less than $1 billion in any calendar year, (B) shares
issuable pursuant to stock 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 in accordance with this
Agreement and shares issuable pursuant to such awards, and (C) to fund the
cost of any acquisition of a telecommunications business, whether by
merger, consolidation, purchase of assets or otherwise;
(iv) Neither SBC nor any of its subsidiaries, other than in
transactions between themselves, shall sell or otherwise transfer, directly
or indirectly, any of its indirect investment in AA shares of Telefonos de
Mexico S.A. de C.V.;
(v) Neither SBC nor any of its Subsidiaries shall enter any business
other than the telecommunications business and those businesses
traditionally associated with the telecommunications business; and
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(vi) Neither SBC nor any of its Subsidiaries shall agree prior to the
Effective Time to do any of the foregoing after the Effective Time.
(c) 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 or
the Company Disclosure Letter or as required by applicable Law):
(i) Neither the Company nor any of its Subsidiaries shall issue any
preferred stock or incur any indebtedness for borrowed money or guarantee
any such indebtedness if the Company should reasonably anticipate that
after such incurrence any of the Company's or any of its Subsidiaries'
outstanding senior indebtedness would be rated BBB or lower by Standard &
Poor's;
(ii) Neither the Company nor any of its Subsidiaries shall make any
capital expenditures in any calendar year in an aggregate amount in excess
of the aggregate amount reflected in the Company's capital expenditure
budget for such year, a copy of which has been provided to SBC, plus $250
million; provided, however, that the foregoing shall not limit in any
respect the ability of Pacific Bell or Nevada Bell to make or commit to
capital expenditures with respect to any aspect of their respective
existing businesses;
(iii) Neither the Company 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) shares issued pursuant to options and other
awards outstanding on the date hereof under the Stock Plans, awards of
options and other awards granted hereafter under the Stock Plans in
accordance with this Agreement and shares issuable pursuant to such awards,
and (B) up to an aggregate amount of $300 million of such stock (valued at
its fair market value as of the date of the agreement to make such
acquisition) in any calendar year to fund, in whole or in part, the cost of
any acquisition or acquisitions permitted under clause (iv) below;
(iv) Neither the Company nor any of its Subsidiaries shall spend in
excess of $600 million in any calendar year 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), unless such business is
acquired directly by the Company and is within the Company's existing lines
of business. Notwithstanding the foregoing, neither the Company nor any of
its Subsidiaries shall acquire (A) any cellular, personal communications
services or wireless cable business servicing any territory outside of the
states of California and Nevada, or (B) any business servicing any
territory outside the United States unless such business primarily consists
of the long distance telephone business, the internet services business, or
the internet hubbing business. None of the foregoing shall limit in any
respect the ability of Pacific Bell and Nevada Bell to acquire businesses
which would be subject to regulation within California and Nevada,
respectively. For purposes of this clause (iv), 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;
(v) Neither the Company nor its Subsidiaries shall enter any business
other than the telecommunications business and those businesses
traditionally associated with the telecommunications business; and
(vi) Neither the Company nor any of its Subsidiaries shall agree prior
to the Effective Time to do any of the foregoing after the Effective Time.
(d) 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.
6.2. Acquisition Proposals. The Company and SBC each 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
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 and directors,
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employees, agents and representatives being the "SBC Representatives" and 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 all or any significant portion of the assets or any equity securities of, it
or any of its Subsidiaries that, in any such case, could reasonably be expected
to lead to a breach of this Agreement or otherwise interfere with the completion
of the Merger contemplated by this Agreement (any such proposal or offer being
hereinafter referred to as an "Acquisition Proposal"). The Company and SBC each
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 its and its Subsidiaries' employees, agents
and representatives (including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to, directly or indirectly, have
any discussion with or provide any confidential information or data to any
Person relating to an Acquisition Proposal or engage in any negotiations
concerning an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal; provided, however, that
nothing contained in this Agreement shall prevent either the Company or SBC or
its board of directors 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 bona fide written Acquisition
Proposal to the stockholders of the Company or SBC, as the case may be, 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 or SBC, as the case may be, concludes in good
faith (after consultation with its financial advisor) that such 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 or SBC's stockholders from a financial point of view
than the transaction contemplated by this Agreement (any such more favorable
Acquisition Proposal being referred to in this Agreement as a "Superior
Proposal"), (ii) the board of directors of the Company or SBC, as the case may
be, determines in good faith after consultation with outside legal counsel that
such action is necessary for its board of directors to comply with their
respective fiduciary duties under applicable law and (iii) prior to providing
any information or data to any Person in connection with an Acquisition Proposal
by any such Person, such board of directors receives from such Person an
executed confidentiality agreement on terms substantially similar to those
contained in the confidentiality agreement previously entered into between SBC
and the Company in connection with their consideration of the Merger. 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 Acquisition Proposal. 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 hereof of the
obligations undertaken in this Section 6.2. 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 keep SBC or the Company, as the case may be, informed, on a current basis,
of the status and terms of any such proposals or offers and the status of any
such discussions or negotiations. The Company also agrees that it will promptly
request each Person that has heretofore executed a confidentiality agreement in
connection with its consideration of any Acquisition Proposal 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.
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 "Stockholders
Meeting") as promptly as practicable after the S-4 Registration Statement is
declared effective to consider and vote upon the approval of this Agreement and
the Merger. 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 SBC Common Stock 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 in the Merger. In the event that,
after adjustment pursuant to Section 6.16, the Exchange Ratio shall be less than
0.667 of a share of SBC Common Stock (other than as a result of any adjustment
pursuant to Section 4.4), then the Company shall, as promptly as practicable
after the determination of the Exchange Ratio convene another Stockholders
Meeting in accordance with this Section at which the holders of Company Shares
shall be requested again to consider and vote upon the transactions contemplated
hereby taking into account the Exchange Ratio, as adjusted. SBC and the Company
shall cooperate in all reasonable respects to effectuate promptly the holding of
such additional Stockholders Meeting. Subject to fiduciary obligations under
applicable law, each of the Company's and SBC's board of directors shall
recommend approval of the transactions contemplated hereby 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 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 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 efforts to cause 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
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 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 necessary or advisable to be obtained from any third
party and/or any Governmental Entity in order to consummate the Merger or any of
the other transactions contemplated by this Agreement; provided, however, that,
except as contemplated by Section 6.16, nothing in this Section 6.5 shall
require, or be construed to require, SBC or the Company to proffer to, or agree
to, any concession to any Governmental Entity that SBC concludes is reasonably
likely to materially reduce the economic or business benefits SBC expects, as of
the date hereof, to realize from the Merger. 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.
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(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.
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 other's officers, employees,
counsel, accountants and other authorized representatives ("Representatives")
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
fore going 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 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.
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, "affiliates" of such party for purposes of Rule 145
under the 1933 Act. Each of the Company and SBC shall use all reasonable 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 Stockholders Meeting a
written agreement providing that each such Person will agree not to sell,
pledge, transfer or otherwise dispose of the shares of SBC Common Stock to be
received by such Person in the Merger except in compliance with the applicable
provisions of the 1933 Act and, if the Merger qualifies for pooling of interests
accounting treatment, until such time as financial results covering at least 30
days of combined operations of SBC and the Company shall have been published.
Prior to the Effective Time, each of the Company and SBC shall amend and
supplement such letter and use all reasonable efforts to cause each additional
Person who is identified as an "affiliate" to execute a written agreement as set
forth in this Section 6.7.
(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 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 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 each 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 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, 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) 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. At or prior to the Effective Time,
the Company shall make all necessary arrangements with respect to the 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 of
1933 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.
(ii) Effective at the Effective Time, SBC shall assume each Company
Option in accordance with the terms of the Stock Plan under which it was
issued and the stock option agreement by which it is evidenced.
(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 on 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 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 fraction of a share of SBC Common Stock equal to the Exchange Ratio. SBC
shall, and shall cause the Surviving Corporation to, honor, pursuant to their
terms, all employee benefit obligations to current and former employees under
the Compensation and Benefit Plans to the extent such Compensation and Benefit
Plans are disclosed on Section 6.10(b) of the Company Disclosure Letter.
6.11. Expenses. Except as otherwise provided in Section 8.5(b) and 8.5(c),
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 for
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expenses to be borne by SBC or the Company pursuant to Section 6.16 and 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 agrees that it will 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 pertain ing
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 that the Company would have been permitted under Nevada law and its
articles of incorporation or by-laws in effect on the date hereof to indemnify
such Person (and SBC 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 SBC thereof, but the failure
to so notify shall not relieve SBC of any liability it may have to such
Indemnified Party if such failure does not materially prejudice the indemnifying
party. In the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), (i) SBC or the Surviving
Corporation shall have the right to assume the defense thereof and SBC 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 SBC or 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
SBC or the Surviving Corporation and the Indemnified Parties, the Indemnified
Parties may retain counsel satisfactory to them, and SBC or 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 SBC 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) SBC 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 so long as the
annual premium therefor is not in excess of the last annual premium paid prior
to the date hereof (the "Current Premium"); provided, however, if the existing
D&O Insurance expires, is terminated or cancelled 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 the Surviving Corporation 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 the
Surviving Corporation 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
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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.
6.15. Confidentiality. The Company, SBC and Merger Sub each agrees not to
disclose or permit the disclosure for any purpose other than the transactions
contemplated hereby of any non-public, confidential or proprietary information
furnished to such party by another party hereto in connection with the
transactions contemplated by this Agreement, provided that such disclosure may
be made (a) to any Person who is an officer, director or employee of such party,
or to counsel, accountants and financial advisors to such party solely for their
use in evaluating the transactions contemplated by this Agreement, (b) with the
prior written consent of all parties to this Agreement or (c) pursuant to a
subpoena or order issued by a court, arbitrator or governmental body, agency or
official.
6.16. Determination of SBC and Company Costs. (a) Within five (5) days
after the Determination Date (as defined in Section 9.12) each of SBC and the
Company shall simultaneously exchange with the other written notice of the
dollar amount of the Regulatory Approval Costs which it believes, in good faith,
to be the appropriate amount of the Regulatory Approval Costs for it to bear,
which amount shall not exceed fifty percent (50%) of the Regulatory Approval
Costs (a "Tentative Share").
(b) In the event that SBC's Tentative Share and the Company's Tentative
Share both equal fifty percent (50%) of the Regulatory Approval Costs, then the
SBC Costs shall equal fifty percent (50%) of the Regulatory Approval Costs and
the Company Costs shall equal fifty percent (50%) of the Regulatory Approval
Costs, and the Exchange Ratio shall be adjusted to the Revised Exchange Ratio.
(c) In the event the Tentative Share of one party (the "Higher Party")
exceeds the Tentative Share of the other party (the "Lower Party") and neither
paragraph (b) nor (d) of this Section 6.16 would otherwise apply, then the
Higher Party shall elect, by providing written notice of such decision to the
Lower Party, to either: (i) accept as its share of the Regulatory Approval Costs
an amount equal to the difference between the Regulatory Approval Costs and the
greater of (A) the Tentative Share of the Lower Party and (B) the lesser of (X)
50% of the Regulatory Approval Costs and (Y) the Termination Fee (the greater of
(A) and (B) being the Lower Party's Share), and such amount shall constitute the
SBC Costs (if the Higher Party is SBC) or the Company Costs (if the Higher Party
is the Company), and the Tentative Share of the Lower Party shall constitute the
SBC Costs (if the Lower Party is SBC) or the Company Costs (if the Lower Party
is the Company); or (ii) subject to any Lower Party Election (as defined below)
terminate this Agreement pursuant to the applicable provisions of Section
8.3(b)(vii) or 8.4(v) hereof after providing the Lower Party with ten (10) days
prior written notice of its intent to so terminate the Agreement (the "Notice of
Proposed Termination") provided, however, that in the event the Higher Party
elects to terminate this Agreement as provided for in clause (ii), above, then
the Lower Party may, within five (5) days of receipt of notice of the Notice of
Proposed Termination, provide written notice to the Higher Party of the election
of the Lower Party (the "Lower Party Election") to bear as its share of the
Regulatory Approval Costs an amount equal to the difference between the
Regulatory Approval Costs and the Tentative Share of the Lower Party, and such
amount shall constitute the SBC Costs (if the Lower Party is SBC) or the Company
Costs (if the Lower Party is the Company), and the Tentative Share of the Lower
Party shall constitute the SBC Costs (if the Higher Party is SBC) or the Company
Costs (if the Higher Party is the Company); provided further, however, that the
Lower Party Election shall only be available if the Lower Party's Tentative
Share is at least 80% of Higher Party's Tentative Share. At the Effective Time,
the Exchange Ratio shall be adjusted to the Revised Exchange Ratio.
(d) In the event the Tentative Share of each of SBC and Company is smaller
than fifty percent (50%) of the Regulatory Approval Costs (a "Failure to Agree
Event"), then this Agreement shall terminate pursuant to Section 8.1(b).
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6.17. Control of the Company's Operations. Nothing contained in this
Agreement shall give SBC, directly or indirectly, rights to control or direct
the Company's operations prior to the Effective Time. Prior to the Effective
Time, 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 (including the Exchange Ratio
if required to be approved at an additional Stockholders Meeting by Section
6.4 hereof) shall have been duly approved by holders of Company Shares
constituting the Company Requisite Vote and have been duly approved by the
sole stockholder of Merger Sub, and the issuance of SBC Common Stock
pursuant to the Merger 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, the decision and order of the California Public Utilities
Commission ("CPUC") authorizing the Merger and making any required
determinations under Section 854(a)-(c) of the California Public Utilities
Code, including its determination as to any required allocation of economic
benefits, if any, of the Merger, between shareholders and ratepayers, shall
have become final, and other than the filing provided for in Section 1.3,
all notices, reports and other filings required to be made prior to the
Effective Time by the Company or SBC or any of their respective
Subsidiaries with, and all consents, registrations, approvals, permits and
authorizations required to be obtained prior to the Effective Time by, the
Company or SBC or any of their respective Subsidiaries from, any
Governmental Entity (collectively, "Governmental Consents") in connection
with the execution and delivery of this Agreement and the consummation of
the Merger and the other transactions contemplated hereby shall have been
made or obtained (as the case may be) upon terms and conditions that are
not reasonably likely to have a Material Adverse Effect on SBC or the
Company, it being understood that in the event the CPUC were to require by
final decision and order that an allocation of economic benefit to
ratepayers is required under Section 854(b) of the California Public
Utilities Code, the effect of any such final decision and order shall not
be considered to have a Material Adverse Effect on SBC or the Company.
(d) Litigation. No court or 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
threatened 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.
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(h) Allocation of Certain Costs. The determination of SBC and Company
Costs as provided in Section 6.16 shall have been completed.
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 shall be true and correct as of
the date of this Agreement and (except to the extent such representations
and warranties speak as of an earlier date) as of the Closing Date as
though made on and as of 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.
(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 or is not
reasonably likely to materially adversely affect the ability of the Company
to consummate the transactions contemplated by this Agreement.
(d) Tax Opinion. SBC shall have received the opinion of Sullivan &
Cromwell, special 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.
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 shall be true and correct
as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing 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) Consents Under Agreements. SBC 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 SBC or any of its Subsidiaries is a party, except
those for which failure to obtain such consents and approvals, individually
or in the aggregate, is not reasonably likely to have a Material Adverse
Effect on SBC or is not reasonably likely to materially adversely affect
the ability of SBC to consummate the transactions contemplated by this
Agreement.
(d) Tax Opinion. The Company shall have received the opinion of
Pillsbury Madison & Sutro LLP, 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.
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ARTICLE VIII
TERMINATION
8.1. Termination by Mutual Consent; Automatic Termination. (a) 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.
(b) This Agreement shall be terminated and the Merger shall be abandoned
upon the occurrence of a Failure to Agree Event as provided in Section 6.16(d).
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 March 31, 1997, 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 required approval of the CPUC, the
Termination Date may be extended by SBC or the Company from time to time by
written notice to the other party to a date not beyond December 31, 1997 (the
"Termination Date"), (ii) the approval of the Company's stockholders required by
Section 7.1(a) shall not have been obtained at a meeting duly convened therefor
or at any adjournment or postponement thereof, (iii) the approval of SBC's
stockholders as required by Section 7.1(a) shall not have been obtained at a
meeting duly convened therefor, 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 approval by the stockholders of
the Company or SBC); 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.
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 approval by 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 Company is not in material breach of any of the terms
of this Agreement, (ii) the board of directors of the Company approves
entering into a binding written agreement concerning a transaction that
constitutes a Superior Proposal and the Company notifies SBC in writing
that the Company wishes to enter into such agreement, (iii) SBC does not
make, within ten business days of receipt of the Company's written
notification of its desire to enter into a binding agreement for a Superior
Proposal, 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 Proposal and (iv) the Company prior to such
termination pays to SBC in immediately available funds any fees required to
be paid pursuant to Section 8.5. The Company agrees to notify SBC promptly
if its wish 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 SBC shall have withdrawn or
adversely modified its approval or recommendation of this Agreement or
failed to reconfirm its recommendation of this Agreement within fifteen
business days after a written request by the Company to do so, (ii) Section
6.2 shall be breached by SBC in any material respect and SBC shall have
failed to promptly terminate the activity giving rise to such breach and
use best efforts to cure such breach upon notice thereof from the Company
or SBC shall breach Section 6.2 by failing to promptly notify the Company
as required thereunder, (iii) there has been a material breach by SBC or
Merger Sub of any representation, warranty, covenant or agreement (other
than Section 6.2) contained in this Agreement that is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by the Company to the party committing such breach, (iv) if SBC or
any SBC Representatives shall take any of the actions that would be
proscribed by Section 6.2 but for the exception therein allowing certain
actions to be taken pursuant to clause (B) or (C) of the proviso thereof;
provided, that, the Company shall not have any right to terminate this
Agreement pursuant to this Section 8.3(b)(iv) as a result of the taking of
any such action during the first 45 days after the date hereof
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(the "45 Day Period") unless the Company exercises its right of termination
prior to the later of (x) the end of the 45 Day Period and (y) 15 business
days after the date the Company receives written notice from SBC of the
action giving rise to a right of termination, (v) the persons comprising
the members of the SBC Board of Directors as of the date hereof (the
"Incumbent Directors") and any additional members of SBC Board of Directors
whose election or nomination for election as a director is supported by a
majority of the Incumbent Directors (such additional member of SBC Board of
Directors thereafter being an Incumbent Director) shall cease to constitute
a majority of the members of the Board of Directors of SBC or any Person or
"group" (as defined in Rule 13d-5 under the Securities Exchange Act of
1934) shall own capital stock of SBC with voting power sufficient to cast a
majority of the votes entitled to be cast for the election of directors of
SBC, (vi) SBC, directly or through any of its Subsidiaries, shall, in any
calendar year, enter into an agreement or agreements to spend in excess of
$5 billion (valuing any non-cash consideration at its fair market value as
of the date of the agreement to make such acquisition) to acquire one or
more businesses, whether by merger, consolidation, purchase of property or
assets or otherwise, or (vii) pursuant to Section 6.16(c), the Company is
the Higher Party and neither paragraph (b) or (d) of Section 6.16 would
otherwise apply and SBC does not make a timely Lower Party Election.
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 if (i) the board of directors of the Company shall
have withdrawn or adversely modified its approval or recommendation of this
Agreement or failed to reconfirm its recommendation of this Agreement within
fifteen business days after a written request by SBC to do so, (ii) Section 6.2
shall be breached by the Company in any material respect and the Company shall
have failed to promptly terminate the activity giving rise to such breach and
use best efforts to cure such breach upon notice thereof from SBC or the Company
shall breach Section 6.2 by failing to promptly notify SBC as required
thereunder, (iii) there has been a material breach by the Company of any
representation, warranty, covenant or agreement (other than Section 6.2)
contained in this Agreement that is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by SBC to the party
committing such breach, (iv) if the Company or any Company Representative shall
take any of the actions that would be proscribed by Section 6.2 but for the
exception therein allowing certain actions to be taken pursuant to clause (B) or
(C) of the proviso thereof; provided, that, SBC shall not have any right to
terminate this Agreement pursuant to this Section 8.4(iv) as a result of the
taking of any such action during the 45 Day Period unless SBC exercises its
right of termination prior to the later of (x) the end of the 45 Day Period and
(y) 15 business days after the date SBC receives written notice from the Company
of the action giving rise to a right of termination or (v) pursuant to Section
6.16(c) SBC is the Higher Party and neither paragraph (b) or (d) of Section 6.16
would otherwise apply and the Company does not make a timely Lower Party
Election.
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 any breach of this Agreement.
(b) In the event that (i) a bona fide Acquisition Proposal with respect to
the Company or any Subsidiary of the Company shall have been made to the Company
or any of its Subsidiaries and made known to stockholders generally or has been
made directly to stockholders generally or any Person shall have publicly
announced an intention (whether or not conditional) to make a bona fide
Acquisition Proposal with respect to the Company or any Subsidiary of the
Company and such Acquisition Proposal or announced intention shall not have been
withdrawn prior to the Stockholders Meeting and thereafter this Agreement is
terminated by either SBC or the Company pursuant to Section 8.2(ii), 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(i), (ii), (iv) or (v), then the Company shall
promptly, but in no event later than two days after the date of such termination
(except as otherwise provided in Section 8.3(a), pay SBC a fee equal to $300
million (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;
provided, however, that no Termination Fee shall be payable to SBC pursuant to
clause (i) of this paragraph (b) or pursuant to a termination
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by SBC pursuant to Section 8.4(iv) as a result of the taking of any action
during the 45 Day Period unless and until within 9 months of such termination,
the Company or any Subsidiary of the Company enters into any agreement (I)
pursuant to which any Person (other than SBC) (an "Acquiring Party") proposes to
acquire, by purchase, merger, consolidation, sale, assignment, lease, transfer
or otherwise, thirty percent or more of the voting power of the outstanding
securities of the Company or any Significant Subsidiary of the Company or a
majority of the assets of the Company or any Significant Subsidiary of the
Company, (II) pursuant to which there is proposed to be consummated a merger,
consolidation or similar transaction between the Company or any of its
Subsidiaries and an Acquiring Party in which shareholders of the Company
immediately prior to such merger, consolidation or similar transaction would not
(if such transaction were consummated on the date of such agreement) own
securities representing at least seventy percent of the outstanding voting power
of the surviving entity (or, if applicable, any entity in control of such
Acquiring Party) of such merger, consolidation or similar transaction
immediately following the consummation thereof or (III) pursuant to which any of
the transactions described in (I) or (II) is proposed, assuming that the
references to thirty percent and seventy percent were both to fifty percent;
provided, further, however, that, no fee shall be payable in the case of (I) and
(II) above where the persons comprising the Board of Directors of the Company
prior to entering into such agreement are intended to constitute after
consummation a majority of the members of the Board of Directors of the Company,
in the case of (I) or the surviving entity (or, if applicable, any entity in
control of such Acquiring Party) in the case of (II). 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 promptly pay 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. In the event of a termination by SBC
pursuant to Section 8.4(iv) as a result of the taking of any action during the
45 Day Period, the Company shall promptly pay upon SBC's request all charges and
expenses incurred by SBC and Merger Sub in connection with this Agreement and
the transactions contemplated hereby, which payments shall be credited against
any Termination Fee that may subsequently become payable.
(c) In the event that (i) a bona fide Acquisition Proposal with respect to
SBC or any Subsidiary of SBC shall have been made to SBC or any of its
Subsidiaries and made known to stockholders generally or has been made directly
to stockholders generally or any Person shall have publicly announced an
intention (whether or not conditional) to make a bona fide Acquisition Proposal
with respect to SBC or any Subsidiary of SBC and thereafter this Agreement is
terminated by either the Company or SBC pursuant to Section 8.2(iii), or (ii)
this Agreement is terminated by the Company pursuant to Section 8.3(b)(i), (ii),
(iv), (v), (vi) or (vii), then SBC shall promptly, but in no event later than
two days after the date of such termination, 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; provided,
however, that no Termination Fee shall be payable to the Company pursuant to
clause (i) of this paragraph (c) or pursuant to a termination by the Company
pursuant to Section 8.3(iv) as a result of the taking of any action during the
45 Day Period unless and until, within 9 months of such termination, SBC or any
Subsidiary of SBC enters into any agreement (I) pursuant to which any Person
(other than the Company) (a "SBC Acquiring Party") proposes to acquire, by
purchase, merger, consolidation, sale, assignment, lease, transfer or otherwise,
thirty percent or more of the voting power of the outstanding securities of SBC
or any Significant Subsidiary of SBC or a majority of the assets of SBC or any
Significant Subsidiary of SBC, (II) pursuant to which there is proposed to be
consummated a merger, consolidation or similar transaction between SBC or any of
its Subsidiaries and a SBC Acquiring Party in which shareholders of SBC
immediately prior to such merger, consolidation or similar transaction would not
(if such transaction were consummated on the date of such agreement) own
securities representing at least seventy percent of the outstanding voting power
of the surviving entity (or, if applicable, any entity in control of such SBC
Acquiring Party) of such consolidation, merger or similar transaction
immediately following the consummation thereof or (III) pursuant to which any of
the transactions described in (I) or (II) is proposed, assuming that the
references to thirty percent and seventy percent were both to fifty percent;
provided, further, however, that except that, no fee shall be payable in the
case of (I) and (II) above where the persons comprising the Board of Directors
of SBC
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prior to entering into such agreement are intended to constitute after
consummation a majority of the members of the Board of Directors of SBC, in the
case of (I) or the surviving entity (or, if applicable, any entity in control of
such Acquiring Party) in the case of (II). 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 promptly pay
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. In the event of
a termination by the Company pursuant to Section 8.3(b)(iv) as a result of the
taking of any action during the 45 Day Period SBC shall promptly pay upon the
Company's request all charges and expenses incurred by the Company in connection
with this Agreement and the transactions contemplated hereby, which payments
shall be credited against any Termination Fee that may subsequently become
payable.
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 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.
9.2. Modification or Amendment. Subject to the provisions of the 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. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law.
9.4. Counterparts. This Agreement may be executed in any number of
counterparts, each such counter part 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
CALIFORNIA WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF, EXCEPT THAT
NEVADA LAW SHALL APPLY TO THE EXTENT REQUIRED IN CONNECTION WITH THE
EFFECTUATION OF THE MERGER. The parties hereby irrevocably submit to the
jurisdiction of the Federal courts of the United States of America located in
the States of California and Texas 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
thereby, 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 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.
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(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.
9.6. Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
if to SBC or Merger Sub
SBC Communications Inc.
175 E. Houston
San Antonio, Texas 78205-2233
Attention: Chairman and
Chief Executive Officer
Fax: (210) 351-2298
with copies to:
SBC Communications Inc.
175 E. Houston
San Antonio, Texas 78205-2233
Attention: Senior Executive Vice President
and General Counsel
Fax: (210) 351-2298
Benjamin F. Stapleton, Esq.
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Fax: (212) 558-3588
if to the Company
Pacific Telesis Group
130 Kearny Street
San Francisco, California 94108
Attention: President and
Chief Executive Officer
Fax: (415) 362-2913
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with copies to:
Pacific Telesis Group
130 Kearny Street
San Francisco, California 94108
Attention: Executive Vice President,
General Counsel, External Affairs
and Secretary
Fax: (415) 362-2913
James M. Canty, Esq.
Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, California 94104
Fax: (415) 983-1200
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
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 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."
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9.12. Certain Costs. Within five (5) days after the date upon which the
conditions set forth in Section 7.1(c) have been satisfied or waived (or such
earlier date as the parties may otherwise agree) (the "Estimate Date"), SBC and
Company shall determine the present value as of the Estimate Date in the manner
hereinafter set forth of the net costs, fees and expenses and other financial
effects which have been or are to be incurred or sustained by the Company, the
Surviving Corporation or any Subsidiary thereof in connection with or as a
result of state Governmental Consents (the "Regulatory Approval Costs"). Such
present value shall be calculated on an after-tax basis using an assumed
combined tax rate of forty-one percent (41%), a discount rate of ten percent
(10%) and a term equal to the period over which such amounts are likely to be
incurred or sustained (but in all events the parties hereto agree that the term,
for purposes of such calculation, shall not exceed 5.6 years after the Estimate
Date unless the use of such term would materially distort the economic impact to
the parties). If SBC and the Company do not for any reason agree on the present
value of the Regulatory Approval Costs within ten (10) days of the Estimate
Date, then each of SBC and Company shall select a nationally recognized public
accounting firm, other than a firm then employed as an auditor of either SBC or
Company (each, an "Independent Accounting Firm") within ten (10) days after the
Estimate Date and such accounting firms shall jointly select within five (5)
additional days a third similarly qualified public accounting firm (the "Third
Firm"), and each such accounting firm shall be instructed to provide, within ten
(10) days after the selection of the Third Firm (or such later date as the
parties may mutually agree) (the "Determination Date"), written notice of each
such accounting firm's estimate of the present value of the Regulatory Approval
Costs (each of the amounts so determined by the Independent Accounting Firms, an
"Estimated Cost Amount," and the amount so determined by the Third Firm, the
"Third Firm Estimate") simultaneously to each of SBC and Company. If the Third
Firm Estimate is less than the amount of the smaller Estimated Cost Amount, or
larger than the amount of the higher Estimated Cost Amount, then the Regulatory
Approval Costs shall be the Estimated Cost Amount closest to the Third Firm
Estimate. If the Third Firm Estimate is less than the amount of the higher
Estimated Cost Amount and larger than the amount of the smaller Estimated Cost
Amount, then the Regulatory Approval Costs shall equal the average of the Third
Party Estimate and the Estimated Cost Amount closest to the Third Party
Estimate. Each party will bear the fees, costs and expenses of the Independent
Accounting Firm selected by such party and shall jointly bear the fees, costs
and expenses of the Third Firm.
9.13. Certain Defined Terms. For purposes of this Agreement, the following
capitalized terms shall have the following meanings:
"Company Costs" means the Company's share of the Regulatory Approval
Costs, as determined pursuant to Section 6.16 hereof.
"Company Value" means $53.875 multiplied by 0.733 (equitably adjusted
for any event effecting SBC Common Stock or Company Shares of the type
referred to in Section 4.4 hereof, occurring after the date hereof and up
to and including the Estimate Date) multiplied by the number of outstanding
Company Shares as of the Estimate Date (the "Company Share Number").
"Exchange Ratio" means 0.733 of a share of SBC Common Stock (or, in
the event of an adjustment pursuant to Section 6.16 hereof, the Revised
Exchange Ratio).
"Revised Company Value" means Company Value less Company Costs.
"Revised Exchange Ratio" means (i)(A) the Revised Ratio divided by (B)
1.000 minus the Revised Ratio, multiplied by (ii) the SBC Share Number
divided by the Company Share Number.
"Revised Ratio" means (i) the Revised Company Value divided by (ii)
the sum of the Revised SBC Value and the Revised Company Value.
"Revised SBC Value" means SBC Value less SBC Costs.
"SBC Costs" means SBC's share of the Regulatory Approval Costs, as
determined pursuant to Section 6.16 hereof.
"SBC Value" means $53.875 (equitably adjusted for any event affecting
SBC Common Stock of the type referred to in Section 4.4 hereof, occurring
after the date hereof and up to and including the Estimate
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<PAGE> 114
Date) multiplied by the number of outstanding shares of SBC Common Stock as
of the Estimate Date (the "SBC Share Number").
9.14. Assignment. This Agreement shall not be assignable by operation of
law or otherwise; provided, however, that SBC may designate, by written notice
to the Company, another wholly-owned direct or indirect Subsidiary to be a
Constituent Corporation in lieu of Merger Sub, in which event all references
herein to Merger Sub shall be deemed references to such other Subsidiary except
that all representations and warranties made herein with respect to Merger Sub
as of the date of this Agreement shall be deemed representations and warranties
made with respect to such other subsidiary as of the date of such designation.
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.
PACIFIC TELESIS GROUP
By: /s/ P. J. QUIGLEY
Name: P. J. Quigley
Title:
SBC COMMUNICATIONS INC.
By: /s/ EDWARD E. WHITACRE, JR.
Name: Edward E. Whitacre, Jr.
Title:
SBC COMMUNICATIONS (NV) INC.
By: /s/ EDWARD E. WHITACRE, JR.
Name: Edward E. Whitacre, Jr.
Title:
A-31
<PAGE> 115
APPENDIX B
[LETTERHEAD OF LAZARD FRERES & CO. LLC]
JUNE 3, 1996
THE BOARD OF DIRECTORS
SBC COMMUNICATIONS INC.
175 EAST HOUSTON
SAN ANTONIO, TX 78205
DEAR MEMBERS OF THE BOARD:
We understand that SBC Communications Inc. (the "Company") and Pacific
Telesis Group (the "Subject Company") have entered into an Agreement and Plan of
Merger dated as of April 1, 1996 (the "Agreement") pursuant to which a
wholly-owned subsidiary of the Company will be merged with and into the Subject
Company (the "Merger") as a result of which the Subject Company will become a
wholly-owned subsidiary of the Company. Pursuant to the Agreement, each share of
common stock of the Subject Company outstanding immediately prior to the
effective time of the Merger will be converted into 0.733 shares of common stock
of the Company (the "Exchange Ratio"), which is subject to possible downward
adjustment as set forth in the Agreement.
You have requested our opinion as to the fairness, from a financial point
of view, to the Company of the Exchange Ratio. In connection with this opinion,
we have:
(i) Reviewed the Joint Proxy Statement/Prospectus in the form to be
provided to the stockholders of the Company and the Subject Company in
connection with their consideration of the Merger;
(ii) Reviewed the financial terms and conditions of the Agreement;
(iii) Analyzed certain historical business and financial information
relating to the Company and the Subject Company;
(iv) Reviewed various financial forecasts and other data provided to
us by the Company and the Subject Company relating to their respective
businesses and the benefits projected by the Company to be realized in
connection with the Merger.
(v) Held discussions with members of the senior management of each
of the Company and the Subject Company with respect to the businesses and
prospects of the Company and the Subject Company, respectively, the
strategic objectives of each, and possible benefits which might be realized
following the Merger;
(vi) Reviewed public information with respect to certain other
companies in lines of business we believe to be generally comparable to the
businesses of the Company and the Subject Company;
(vii) Reviewed the financial terms of certain business combinations
involving companies in lines of business we believe to be generally
comparable to those of the Company and the Subject Company, and in other
industries generally;
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LAZARD FRERES &CO. LLC
(viii) Reviewed the historical stock prices and trading volumes of the
common stock of the Company and the Subject Company; and
(ix) Conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the foregoing
information and have not assumed any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of the Company or the Subject Company. With
respect to financial forecasts, including the benefits projected to be realized
following the Merger, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of
management of the Company and the Subject Company as to the future financial
performance of the Company and the Subject Company, respectively. We assume no
responsibility for and express no view as to such forecasts or the assumptions
on which they are based.
Further, our opinion is necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
In rendering our opinion, we have assumed that the Merger will be
consummated on the terms described in the Agreement without any waiver of any
material term or condition by the Company and that obtaining the necessary
regulatory approvals for the Merger will not have a material adverse effect on
the Company or the Subject Company and that the projected benefits of the Merger
are realized substantially in accordance with such projections.
Lazard Freres & Co. LLC is acting as financial advisor to the Company in
connection with the Merger and will receive a fee for our services, a
substantial portion of which is contingent upon the closing of the Merger. We
have in the past provided and are currently providing financial advisory
services to the Company. In addition, the Company has agreed to indemnify us for
certain liabilities that may arise out of the rendering of this opinion.
Our engagement and the opinion expressed herein are for the benefit of the
Company's Board of Directors and our opinion is rendered to the Company's Board
in connection with its consideration of the Merger. This opinion is not intended
to and does not constitute a recommendation to any holder of common stock of the
Company as to whether such stockholder should vote for the Merger. It is
understood that this letter may not be disclosed or otherwise referred to
without our prior consent, except as may otherwise be required by law or by a
court of competent jurisdiction.
Based on and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Exchange Ratio is fair to the Company from a financial
point of view.
/s/ MICHAEL PRICE
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APPENDIX C
[SALOMON BROTHERS INC LETTERHEAD]
June 3, 1996
Board of Directors, Pacific Telesis Group
Pacific Telesis Group
130 Kearny Street
San Francisco, CA 94108
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the holders of common stock, par value $0.10
per share ("Company Common Stock"), of Pacific Telesis Group (the "Company") of
the consideration to be received by such holders in connection with the proposed
merger (the "Merger") of the Company with SBC Communications (NV), Inc. ("Sub"),
a wholly owned subsidiary of SBC Communications Inc. ("Parent"), pursuant to an
Agreement and Plan of Merger, dated as of April 1, 1996 (the "Merger
Agreement"), among the Company, Parent and Sub. Upon the effectiveness of the
Merger, each issued and outstanding share of Company Common Stock (other than
shares owned by Parent, Sub or any other subsidiary of Parent and shares owned
by the Company or any subsidiary of the Company) will be converted into and
represent the right to receive 0.733, subject to adjustment as described in the
Merger Agreement (the "Exchange Ratio"), of a share of the common stock of
Parent, par value $1.00 per share ("Parent Common Stock").
In connection with rendering our opinion, we have reviewed and analyzed,
among other things, the following: (i) the Merger Agreement; (ii) the Joint
Proxy Statement/Prospectus dated June 3, 1996, relating to the Merger; (iii)
certain publicly available information concerning the Company and Parent,
including the Annual Reports on Form 10-K of the Company and Parent for each of
the years in the three-year period ended December 31, 1995; (iv) certain other
financial information, including financial forecasts, concerning the business
and operations of the Company and Parent that were provided to us by the Company
and Parent, respectively; and (v) certain publicly available information with
respect to certain other companies that we believe to be comparable in certain
respects to the Company and Parent and the trading markets for such other
companies' securities. We have also met with certain officers and employees of
the Company and Parent to discuss the foregoing, including the past and current
business operations, financial condition and prospects of the Company and
Parent, as well as other matters we believe relevant to our inquiry, including
matters relating to the obtaining of regulatory approvals for the Merger. 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 all of the financial and other
information (including information relating to the obtaining of regulatory
approvals for the Merger) provided us or publicly available, and we have not
assumed any responsibility for verifying any of such information. With respect
to the financial forecasts of the Company and Parent, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the respective management of the Company or Parent as
to the future financial performance of the Company or Parent, respectively, and
we express no opinion with respect to such forecasts or the assumptions on which
they are based. 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 the Company or
Parent.
[SALOMON BROTHERS INC FOOTER]
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<PAGE> 118
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate under the circumstances, including, among others, the following: (i)
the historical and current financial position and results of operations of the
Company and Parent; (ii) the historical and current market for the equity
securities of the Company, Parent and certain other companies that we believe to
be comparable in certain respects to the Company or Parent; (iii) the nature and
terms of certain other acquisition transactions that we believe to be relevant;
and (iv) the current and historical relationships between the trading levels of
the Company Common Stock and Parent Common Stock. We have also taken into
account our assessment of general economic, market and financial conditions and
our knowledge of the telecommunications industry and related industries, as well
as our experience in connection with similar transactions and securities
valuation generally. Our opinion necessarily is based upon conditions as they
exist and can be evaluated on the date hereof, and we assume no responsibility
to update or revise our opinion based upon circumstances or events occurring
after the date hereof. Our opinion as expressed below does not imply any
conclusion as to the likely trading range for 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 the Company'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 and does not constitute a
recommendation concerning how holders of Company Common Stock should vote with
respect to the Merger Agreement or the Merger.
In rendering our opinion we have assumed that in the course of obtaining
the necessary regulatory approvals for the Merger no restrictions will be
imposed that would have a material adverse affect on the contemplated benefits
of the Merger to the Parent following the Merger. We understand that the Merger
will qualify as a tax-free reorganization under the Internal Revenue Code and
that, for accounting purposes, the Merger will be accounted for as a pooling of
interests.
As you are aware, we will receive a fee from the Company for delivery of
this fairness opinion, a portion of which is contingent upon consummation of the
Merger. We have previously rendered significant financial advisory and
investment banking services to Parent, as well as certain of such services to
the Company, for which we received customary compensation. In addition, in the
ordinary course of our business, we may actively trade the securities of the
Company and Parent 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.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof, the Exchange Ratio is fair to the holders of the Company Common
Stock from a financial point of view.
Very truly yours,
/s/ SALOMON BROTHERS INC
SALOMON BROTHERS INC
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A special merger information number has been established for shareowners.
The Information Agent for the Merger is:
Shareholder Communications Corporation
17 State Street 27th and 28th Floors
New York, New York 10004
Call Toll Free 1-800-813-3797
LOGO
Printed on recycled paper with soy based inks.
<PAGE> 120
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
SBC's Bylaws provide that SBC shall indemnify any person who was or is a
party or is threatened to be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative (including any action
or suit by or in the right of SBC) by reason of the fact that such person is or
was a director, officer, employee or agent of SBC or is or was serving at the
request of SBC as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, but in each case only if and to the extent permitted under
applicable state or federal law.
SBC's Bylaws further state that the indemnification provided therein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs, and
personal representatives of such a person.
Section 145 of the DGCL permits a corporation to indemnify its directors
and officers against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlements actually and reasonably incurred by them in
connection with any action, suit or proceeding brought by third parties, if such
directors or officers acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reason to believe
their conduct was unlawful. In a derivative action, i.e., one by or in the right
of the corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors and officers in connection with the defense or
settlement of an action or suit, and only with respect to a matter as to which
they shall have acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made if such person shall have been adjudged liable to
the corporation, unless and only to the extent that the court in which the
action or suit was brought shall determine upon application that the defendant
officers or directors are fairly and reasonably entitled to indemnity for such
expenses despite such adjudication of liability.
The SBC Restated Certificate provides that no director of SBC shall be
liable to SBC or its shareowners for monetary damages for breach of fiduciary
duty as a director, except for liability (1) for any breach of the director's
duty of loyalty to SBC or its shareowners; (2) for acts or omissions not in good
faith or which involve intentional misconduct or knowing violation of the law;
(3) under Section 174 of the DGCL; or (4) for any transaction from which a
director derived an improper benefit.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Exhibits identified in parenthesis below, on file with the Securities and
Exchange Commission, are incorporated herein by reference as exhibits hereto.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- --------------------
<C> <S>
2 -- Agreement and Plan of Merger, among PAC, SBC and
Merger Sub dated as of April 1, 1996. (Exhibit 2 to
Report on Form 8-K (File No. 1-8610), dated April 1,
1996.)
3-a -- Restated Certificate of Incorporation of SBC, filed
with the Secretary of State of Delaware on April 28,
1995. (Exhibit 3 to Form 10-Q (File No. 1-8610) for the
first quarter 1995.)
3-b -- Bylaws of SBC dated June 28, 1991. (Exhibit 3-b to Form
10-Q (File No. 1-8610) for the second quarter 1991.)
4-a -- Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), no
instrument which defines the rights of holders of
long-term debt of SBC or any of its consolidated
subsidiaries is filed herewith. Pursuant to this
regulation, SBC hereby agrees to furnish a copy of any
such instrument to the SEC upon request.
4-b -- Form of Rights Agreement, dated as of January 27, 1989,
between SBC and American Transtech, Inc., as Rights
Agent, which includes as Exhibit B thereto the form of
Rights Certificate. (Exhibit 4-a to Form 8-A (File No.
1-8610), dated February 9, 1989.)
4-c -- Amendment of Rights Agreement, dated as of August 5,
1992, among SBC, American Transtech, Inc., and The Bank
of New York, the successor Rights Agent, which includes
the Form of Rights Certificate as an attachment
identified as Exhibit B. (Exhibit 4-a to Form 8-K (File
No. 1-8610), dated August 7, 1992.)
4-d -- Form of Rights Certificate (included in the attachment
to the Amendment of Rights Agreement and identified as
Exhibit B.) (Exhibit 4-b to Form 8-K (File No. 1-8610),
dated August 7, 1992.)
4-e -- Second Amendment of Rights Agreement, dated June 15,
1994, between SBC and The Bank of New York, as
successor Rights Agent. (Exhibit 4-e to Form 8-A/A
(File No. 1-8610), dated June 22, 1994.)
5 -- Opinion of James D. Ellis, Senior Executive Vice
President and General Counsel of SBC, regarding
validity of securities being registered.
8-a -- Opinion of Sullivan & Cromwell regarding certain
federal income tax matters.
8-b -- Opinion of Pillsbury Madison & Sutro LLP regarding
certain federal income tax matters.
10-a -- Support Agreement, dated November 10, 1986, between
SBC and Southwestern Bell Capital Corporation (Exhibit
4-b to Registration Statement No. 33-11669).
10-b -- Senior Management Short Term Incentive Plan, revised
January 1, 1991. (Exhibit 10-a to Form 10-K (File No.
1-8610) for 1990.)
10-c -- Senior Management Long Term Incentive Plan, revised
effective January 1, 1993. (Exhibit 10-b to Form 10-K
(File No. 1-8610) for 1992.)
10-d -- Senior Management Survivor Benefit Plan. (Exhibit 10-c
to Form 10-K (File No. 1-8610) for 1986.)
10-e -- Senior Management Supplemental Retirement Income Plan,
revised effective January 1, 1993. (Exhibit 10-d to
Form 10-K (File No. 1-8610) for 1992.)
10-f -- Senior Management Deferred Compensation Plan (effective
for Units of Participation Having a Unit Start Date
Prior to January 1, 1988 or later), revised July 30,
1993. (Exhibit 10.5 to Registration Statement No.
33-54795.)
10-g -- Senior Management Deferred Compensation Plan of 1988
(effective for Units of Participation Having a Unit
Start Date of January 1, 1988 or later), revised July
30, 1993. (Exhibit 10.6 to Registration Statement No.
33-54795.)
10-h -- Senior Management Long Term Disability Plan. (Exhibit 10-f to Form
10-K (File No. 1-8610) for 1986.)
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- --------------------
<C> <S>
10-i -- Senior Management Incentive Award Deferral Plan. (Exhibit 10-g to
Form 10-K (File No. 1-8610) for 1986.)
10-j -- Senior Management Financial Counseling Program. (Exhibit 10-h to Form
10-K (File No. 1-8610) for 1986.)
10-k -- Senior Management Executive Health Plan, effective January 1, 1987.
(Exhibit 10-i to Form 10-K (File No. 1-8610) for 1986.)
10-l -- Retirement Plan for Non-Employee Directors. (Exhibit 10-t to Form
10-K (File No. 1-8610) for 1986.)
10-m -- Form of Indemnity Agreement, effective July 1, 1986, between SBC and
each of its directors and officers. (Appendix 1 to Definitive Proxy
Statement (File No. 1-8610) dated March 18, 1987.)
10-n -- Form of Change of Control Severance Agreements for all Officers and
certain Officers of SBC's subsidiaries. (Exhibit 10-p to Form 10-K
(File No. 1-8610) for 1988.)
10-o -- Stock Savings Plan, revised effective February 1, 1994. (Appendix A
to Definitive Proxy Statement (File No. 1-8610) dated March 18,
1994.)
10-p -- 1992 Stock Option Plan, revised effective December 1, 1993. (Exhibit
10.15 to Registration Statement No. 33-54795.)
10-q -- Key Executive Officer Short Term Incentive Plan. (Appendix B to
Definitive Proxy Statement (File No. 1-8610) dated March 18, 1994.)
10-r -- Restricted Stock Plan for Non-Employee Directors. (Exhibit 10.17 to
Registration Statement No. 33-54795.)
10-s -- Officer Retirement Savings Plan. (Exhibit 10.18 to Registration
Statement No. 33-54795.)
10-t -- 1996 Stock and Incentive Plan. (Appendix to Definitive Proxy
Statement (File No. 1-8610) dated March 12, 1996.)
21-a -- Subsidiaries of SBC (Exhibit 21a to Form 10-K (File No. 1-8610) for
1995).
23-a -- Consent of Ernst & Young LLP
23-b -- Consent of Coopers & Lybrand L.L.P.
23-c -- Consent of James D. Ellis, Senior Executive Vice President and
General Counsel of SBC. (Included in the opinion filed as Exhibit 5
to this Registration Statement and incorporated herein by reference)
23-d -- Consent of Sullivan & Cromwell. (Included in the opinion filed as
Exhibit 8-a to this Registration Statement and incorporated herein by
reference)
23-e -- Consent of Pillsbury Madison & Sutro LLP. (Included in the opinion
filed as Exhibit 8-b to this Registration Statement and incorporated
herein by reference)
23-f -- Consent of Salomon Brothers Inc
23-g -- Consent of Lazard Freres & Co. LLC
23-h -- Consent of Person Named as About to Become a Director
24 -- Powers of Attorney*
99-a -- Form of Proxy of SBC
99-b -- Form of Proxy of PAC
</TABLE>
- ---------------
* Previously Filed.
II-3
<PAGE> 123
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes
- -- (1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933,
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) The undersigned registrant hereby undertakes that, for the purpose
of determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) The undersigned Registrant hereby undertakes to remove from
registration by means of a post-effective amendment any of the securities
which remain unsold at the termination of the offering.
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Securities and
Exchange Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned registrant hereby undertakes that every prospectus
(i) that is filed pursuant to paragraph (1) immediately preceding, or (ii)
that purports to meet the requirements of Section 10(a)(3) of the Act and
is used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the Registration Statement and
will not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-4
<PAGE> 124
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 125
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Amendment No. 3 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Antonio, State of Texas, on the
3rd day of June, 1996.
SBC COMMUNICATIONS INC.
By: /s/ DONALD E. KIERNAN
----------------------------------
(Donald E. Kiernan
Senior Vice President, Treasurer
and Chief Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<S> <C>
Principal Executive Officer:
Edward E. Whitacre, Jr.*
Chairman and
Chief Executive Officer
Principal Financial and
Accounting Officer:
Donald E. Kiernan
Senior Vice President, Treasurer
and Chief Financial Officer
/s/ DONALD E. KIERNAN
------------------------------------------
Directors (Donald E. Kiernan, as attorney-in-fact
and on his own behalf as Principal
Edward E. Whitacre, Jr.* Financial Officer and Principal
Clarence C. Barksdale* Accounting Officer)
James E. Barnes*
Jack S. Blanton*
August A. Busch III* June 3, 1996
Ruben R. Cardenas*
Martin K. Eby, Jr.*
Tom C. Frost*
Jess T. Hay*
Bobby R. Inman*
Charles F. Knight*
Haskell M. Monroe, Jr.*
Carlos Slim Helu*
Patricia P. Upton*
</TABLE>
* By power of attorney
II-6
<PAGE> 1
[Letterhead of SBC Communications Inc.]
Exhibit 5
June 3, 1996
SBC Communications Inc.
175 East Houston
San Antonio, Texas 78205-2233
Dear Sirs:
In connection with the registration under the Securities Act
of 1933 (the "Act") of 317,389,000 shares (the "Securities") of Common Stock,
par value $1.00 per share, of SBC Communications Inc., a Delaware corporation
(the "Company"), and the related preferred stock purchase rights (the "Rights")
to be issued pursuant to the Rights Agreement, dated as of January 27, 1989,
between the Company and American Transtech, Inc. ("ATI"), as amended by the
Amendment to Rights Agreement, dated as of August 5, 1992, by and among the
Company, ATI and The Bank of New York (the "Rights Agent"), as successor Rights
Agent, and as further amended by the Second Amendment to Rights Agreement,
dated as of June 15, 1994, by and between the Company and the
<PAGE> 2
Rights Agent (as amended, the "Rights Plan"), to be issued in connection with
the Agreement and Plan of Merger, dated as of April 1, 1996, among Pacific
Telesis Group, the Company and SBC Communications (NV) Inc. (the "Merger
Agreement"), I, as General Counsel, have examined such corporate records,
certificates and other documents, and such questions of law, as I have
considered necessary or appropriate for the purposes of this opinion. Upon the
basis of such examination, I am of the opinion that:
(1) When the registration statement relating to the
Securities and the Rights (the "Registration Statement") has become
effective under the Act and the Securities have been duly issued and
delivered in connection with the Merger Agreement as contemplated by
the Registration Statement, the Securities will be validly issued,
fully paid and nonassessable.
(2) Assuming that the Rights Agreement has been duly
authorized, executed and delivered by the Rights Agent, then when the
Registration Statement has become effective under the Act and the
Securities have been validly issued as contemplated by the
Registration Statement, the Rights attributable to the Securities will
be validly issued.
The foregoing opinion is limited to the federal laws of the
United States and the General Corporation Law of the State of Delaware, and I
am expressing no opinion as to the effect of the laws of any other
jurisdiction.
<PAGE> 3
SBC Communications Inc.
-3-
I have relied as to certain matters on information obtained
from public officials, officers of the Company and other sources believed by me
to be responsible.
I hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to me under the heading
"Validity of Shares" in the Registration Statement. In giving such consent, I
do not thereby admit that I am in the category of persons whose consent is
required under Section 7 of the Act.
Very truly yours,
/s/ JAMES D. ELLIS
--------------------------
James D. Ellis
<PAGE> 1
[LETTERHEAD OF SULLIVAN & CROMWELL]
EXHIBIT 8-a
June 3, 1996
SBC Communications Inc.,
175 East Houston,
San Antonio, Texas 78205.
Ladies and Gentlemen:
We have acted as counsel to SBC Communications Inc. ("SBC")
in connection with the Registration Statement (Registration No. 333-02587) on
Form S-4 of SBC filed with the Securities and Exchange Commission on June 3,
1996 (the "Registration Statement") and hereby confirm to you our opinion set
forth under the heading "Certain Federal Income Tax Consequences of the Merger"
in the Joint Proxy Statement/Prospectus included in the Registration Statement,
subject to the assumptions set forth under such heading and in this letter.
Capitalized terms used but not defined herein have the meanings specified in the
Agreement and Plan of Merger dated as of April 1, 1996.
In connection with our opinion, we have assumed the following
with your consent and the consent of Pacific Telesis Group ("PAC"):
(1) At the Effective Time, there will be no intercorporate
indebtedness existing between SBC (or any of its subsidiaries) and PAC (or any
of its subsidiaries).
(2) At the Effective Time, PAC will not own any assets as
to which unrealized gain or loss is required to be recognized for federal
income tax purposes at the end of each taxable year under a mark-to-market
system.
We hereby consent to the filing with the Securities and
Exchange Commission of this letter as an exhibit to the Registration Statement
and to the reference to us under the caption "Certain Federal Income Tax
Consequences of the Merger" in the Registration Statement and the Joint Proxy
Statement/Prospectus included therein. In giving such consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Sullivan & Cromwell
<PAGE> 1
[LETTERHEAD OF PILLSBURY MADISON & SUTRO LLP]
EXHIBIT 8-B
June 3, 1996
Pacific Telesis Group
130 Kearny Street
San Francisco, California 94108
Ladies and Gentlemen:
With reference to the Registration Statement on Form S-4 (the "Registration
Statement") filed by SBC Communications Inc., a Delaware corporation ("SBC"),
with the Securities and Exchange Commission in connection with the registration
under the Securities Act of 1933, as amended, of shares of its common stock, par
value $1.00 per share ("SBC Common Stock"), to be issued in connection with the
transactions contemplated by the Agreement and Plan of Merger (the "Merger
Agreement") dated as of April 1, 1996 among Pacific Telesis Group, a Nevada
corporation ("PAC"), SBC and SBC Communications (NV) Inc., a Nevada corporation
and a wholly owned subsidiary of SBC, which Merger Agreement is described
therein and filed as an annex to the Joint Proxy Statement/Prospectus contained
in the Registration Statement, we hereby confirm to you our opinion set forth
under the caption "Certain Federal Income Tax Consequences of the Merger" in the
Registration Statement, subject to the assumptions set forth under such caption.
We hereby consent to the filing of this opinion as Exhibit 8-b to the
Registration Statement and to the use of our name in the Registration Statement
and in the Prospectus included therein.
Very truly yours,
/s/ Pillsbury Madison & Sutro LLP
<PAGE> 1
EXHIBIT 23-A
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the captions "Experts" and
"Selected Historical and Pro Forma Combined Financial Data" in the Amendment No.
3 to the Registration Statement on Form S-4 and related Joint Proxy
Statement/Prospectus of SBC Communications Inc. (SBC) for the registration of
shares of SBC Common Stock and to the incorporation by reference therein of our
reports dated February 9, 1996, with respect to the consolidated financial
statements and schedules of SBC included in or incorporated by reference in its
Annual Report (Form 10-K) for the year ended December 31, 1995, filed with the
Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
------------------------------------
San Antonio, Texas
June 3, 1996
<PAGE> 1
EXHIBIT 23-B
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Amendment No. 3 to the
registration statement of SBC Communications Inc. on Form S-4 of our reports
dated February 22, 1996 on our audits of the consolidated financial statements
and the financial statement schedule of Pacific Telesis Group as of December 31,
1995 and 1994 and for the years ended December 31, 1995, 1994 and 1993, which
reports are included or incorporated by reference in Pacific Telesis Group's
1995 Annual Report on Form 10-K. We also consent to the references to our Firm
under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
------------------------------------
San Francisco, California
June 3, 1996
<PAGE> 1
EXHIBIT 23-F
CONSENT OF SALOMON BROTHERS INC
We hereby consent to the use of our name and to the description of our
opinion letter dated April 1, 1996 and our opinion letter dated June 3, 1996
under the caption "The Merger -- Opinions of Financial Advisors" in, and to the
inclusion of our opinion letter as Annex C to, the Joint Proxy
Statement/Prospectus of SBC Communications Inc./Pacific Telesis Group, which
Joint Proxy Statement/Prospectus is part of the Registration Statement on Form
S-4 of SBC Communications Inc. By giving consent we do not thereby admit that we
are experts with respect to any part of such Registration Statement within the
meaning of the term "expert" as used in, or that we come within the category of
persons whose consent is required under, the Securities Act of 1933 or the rules
and regulations of the Securities and Exchange Commission promulgated
thereunder.
SALOMON BROTHERS INC
By: /s/ FRANK D. YEARY
------------------------------------
New York, New York
June 3, 1996
<PAGE> 1
[LETTERHEAD OF LAZARD FRERES & CO. LLC]
EXHIBIT 23-g
June 3, 1996
The Board of Directors
SBC Communications Inc.
175 East Houston
San Antonio, TX 78205
Re: Joint Proxy Statement/Prospectus of
SBC Communications Inc. and Pacific
Telesis Group and
Related Registration Statement on
Form S-4 of SBC Communications Inc.
Dear Members of the Board:
Reference is made to our opinion letter dated June 3, 1996 with respect
to the fairness, from a financial point of view, to SBC Communications Inc.
("SBC") of the Exchange Ratio as defined in the first paragraph of such opinion
letter pursuant to the Agreement referred to therein.
The foregoing opinion letter is for the information and assistance of
the Board of Directors of SBC in connection with its consideration of the
transactions contemplated therein and is not to be used, circulated, quoted or
otherwise referred to for any other purposes, nor is it to be filed with or
referred to in whole or in part in any registration statement, proxy statement
or any other document, except in accordance with our prior written consent.
In that regard, we hereby consent to the reference to the opinion of
our firm under the captions "Summary -- Opinions Financial Advisors -- SBC" and
"The Merger -- Opinions of Financial Advisors -- SBC" and to the inclusion of
the foregoing opinion in the above-referenced Joint Proxy Statement/Prospectus
included in the above-referenced Registration Statement. In giving such consent,
we do not thereby admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933 or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
Lazard Freres & Co. LLC
By: /s/ MICHAEL PRICE
--------------------------------
Managing Director
<PAGE> 1
Exhibit 23-h
CONSENT OF A PERSON NAMED
AS ABOUT TO BECOME A DIRECTOR
I hereby consent to my being named in the Registration
Statement on Form S-4 of SBC Communications Inc. (the "Company") as a person
who will become a director of the Company upon consummation of the transactions
described therein.
June 3, 1996 /s/ PHILIP J. QUIGLEY
-----------------------------------
Philip J. Quigley
<PAGE> 1
EXHIBIT 99-a
Edward E. Whitacre, Jr. [SBC LOGO]
Chairman and Chief Executive Officer
Dear Shareowner:
It is my pleasure to invite you to a special meeting of shareowners of SBC
Communications Inc. ("SBC") to vote on the approval and adoption of the
Agreement and Plan of Merger among SBC, Pacific Telesis Group, and SBC
Communications (NV) Inc. (a wholly-owned subsidiary of SBC) and approval of the
transactions contemplated thereby, including the issuance of shares of SBC
Common Stock pursuant to the Agreement. The meeting will be held at 9:30 a.m.
on Wednesday, July 31, 1996, in the Travis Conference Center at the Sheraton
Gunter Hotel, 205 East Houston, San Antonio, Texas. Admission to the meeting
will begin at 8:30 a.m. A map showing directions to the meeting site is shown
on the other side of this admission ticket. If you plan to attend the meeting,
please bring this ticket for your admission to the meeting.
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THIS MEETING, WHETHER OR
NOT YOU ATTEND THE MEETING IN PERSON AND REGARDLESS OF THE NUMBER OF SHARES
YOU OWN. TO BE SURE YOUR SHARES ARE REPRESENTED, WE URGE YOU TO COMPLETE AND
MAIL THE ATTACHED PROXY CARD AS SOON AS POSSIBLE. IF YOU ATTEND THE MEETING AND
WISH TO VOTE IN PERSON, THE BALLOT THAT YOU SUBMIT AT THE MEETING WILL
SUPERSEDE YOUR PROXY.
Sincerely,
EDWARD E. WHITACRE, JR.
- -----------------------
Edward E. Whitacre, Jr.
June 1996
DETACH PROXY CARD HERE
YOUR DIRECTORS RECOMMEND A VOTE "FOR" THE PROPOSAL.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
1. Approve and adopt an Agreement and Plan of Merger (the "Merger Agreement"),
among Pacific Telesis Group, a Nevada corporation, SBC Communications Inc., a
Delaware corporation ("SBC") and SBC Communications (NV) Inc., a Nevada
corporation and a wholly-owned subsidiary of SBC, dated as of April 1, 1996,
and to approve the transactions contemplated by the Merger Agreement,
including the issuance of shares of Common Stock, par value $1.00 per share,
of SBC pursuant to the Merger Agreement.
Please sign exactly as name or
names appear on this proxy. If
stock is held jointly, each holder
should sign. If signing as
attorney, trustee, executor,
administrator, custodian, guardian
or corporate officer, please give
full title.
DATE _____________________________
SIGNATURE(S):
__________________________________
__________________________________
(Continued from reverse) Votes must be indicated
(x) in Black or Blue ink. [ ]
<PAGE> 2
[MAP OF SAN ANTONIO] [MAP OF DOWNTOWN SAN ANTONIO]
The Travis Conference Center is located
at the Sheraton Gunter Hotel, 205 E.
Houston. Parking is available in the
hotel lot.
[SBC COMMUNICATIONS INC. LOGO] PROXY CARD/VOTING INSTRUCTION CARD
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE SPECIAL
MEETING ON JULY 31, 1996.
The undersigned hereby appoints Edward E. Whitacre, Jr., Ruben R. Cardenas, Tom
C. Frost, and each of them, proxies, with full power of substitution, to vote
all shares of SBC Communications Inc. common stock, par value $1.00 per share
("Common Stock"), of the undersigned at the Special Meeting of SBC and at any
postponement or adjournment thereof, upon all subjects that may properly come
before the meeting including the matters described in the joint proxy
statement/prospectus furnished herewith, subject to the directions indicated on
the reverse side of this card. IF SPECIFIC VOTING DIRECTIONS ARE NOT GIVEN WITH
RESPECT TO THE MATTERS TO BE ACTED UPON AND THE SIGNED CARD IS RETURNED, THE
PROXIES WILL VOTE ALL COMMON STOCK OF THE UNDERSIGNED IN ACCORDANCE WITH THE
BOARD OF DIRECTORS' RECOMMENDATIONS ON THE SUBJECT LISTED ON THE REVERSE SIDE OF
THIS CARD, AND AT THE PROXIES' DISCRETION ON ANY OTHER MATTER THAT MAY PROPERLY
COME BEFORE THE MEETING.
The Board of Directors recommend a vote "FOR" the proposal appearing on the
reverse side of this card.
Please sign on the reverse side of this card and return promptly to P.O. Box
1138, Newark, N.J. 07101-9758. A return envelope is enclosed for your use. If
you do not sign and return a proxy, or attend the meeting and vote by ballot,
your shares cannot be voted.
This card will also serve as voting instructions for Common Stock held in the
Dividend Reinvestment Plan and, if registrations are identical, for shares held
in the Savings Plan, Savings and Security Plan, and PAYSOP. If registrations
for your accounts in the foregoing plans are not identical, you may receive
more than one set of proxy materials. Please sign and return all cards you
receive to ensure all of your shares are properly voted.
SBC COMMUNICATIONS INC.
P.O. BOX 1138
NEWARK, N.J. 07101-9758
(Continued, and to be signed and dated on reverse side)
<PAGE> 1
EXHIBIT 99-b
(PACIFIC TELESIS LOGO HERE)
June 1996
Dear Shareowner:
Enclosed is Pacific Telesis Group's Joint Proxy Statement/Prospectus relating to
our Special Meeting of Shareowners to approve and adopt the Agreement and Plan
of Merger with SBC Communications Inc. The Board has unanimously approved the
Merger Agreement and unanimously recommends that shareowners vote FOR approval
and adoption of the Merger Agreement.
The Special Meeting will be held at the San Jose Scottish Rite Center, 2455
Masonic Drive, San Jose, California on July 31, 1996 at 2:00 p.m. Whether or
not you plan to attend the meeting, it is important that you exercise your
right to vote as a shareowner of Pacific Telesis Group. PLEASE VOTE YOUR
PREFERENCES ON THE PROXY CARD BELOW, DETACH IT FROM THIS LETTER AND RETURN IT
PROMPTLY IN THE ENVELOPE PROVIDED.
Sincerely,
Philip J. Quigley
Chairman of the Board
ADMISSION TICKET ON REVERSE
DETACH PROXY CARD HERE
<PAGE> 2
[X] PLEASE MARK VOTE AS
IN THIS EXAMPLE.
(Continued from reverse side.)
Directors Recommend a Vote "FOR"
To Approve and Adopt the Agreement FOR WITHHOLD ABSTAIN
and Plan of Merger among Pacific [ ] [ ] [ ]
Telesis Group, SBC Communications Inc.
and SBC Communications (NV) Inc.,
dated as of April 1, 1996, and to approve
the transactions contemplated thereby.
Please sign this proxy and return it promptly whether or not you plan to attend
the meeting. If signing for a corporation or partnership, or as agent, attorney
or fiduciary, indicate the capacity in which you are signing. If you do attend
the meeting and decide to vote by ballot, such vote will supersede this proxy.
Please keep [ ] Will [ ]
my vote attend
confidential meeting
Sign here as name(s) appears at left.
Signature:____________ Date:_________ Signature:____________ Date:_________
<PAGE> 3
ADMISSION TICKET
Please present this ticket for admittance of shareowner(s) named on reverse and
a guest.
SPECIAL MEETING OF SHAREOWNERS
July 31, 1996
San Jose Scottish Rite Center
2455 Masonic Drive
San Jose, California
Doors Open at 1:30 p.m.
Meeting starts at 2:00 p.m.
DIRECTIONS
FROM NORTH BAY, SAN FRANCISCO OR PENINSULA:
Take I-280 South, exit at 87 Guadalupe Pkwy South
(far right lane). Continue on Guadalupe Pkwy
South and exit at Curtner Ave. Turn right on
Curtner and immediately get in the left lane. Turn
left on Canoas Garden Ave. Go one block to
Masonic Dr. and turn right.
Take Hwy 101 South, exit at 87 Guadalupe Pkwy
South. Continue South on Guadalupe Pkwy
through Downtown San Jose and exit at Curtner
Ave. Turn right on Curtner and immediately get in
the left lane. Turn left on Canoas Garden Ave. Go
one block to Masonic Dr. and turn right.
FROM EAST BAY:
Take I-680 South, exit at 87 Guadalupe Pkwy South.
Continue on Guadalupe Pkwy South and exit at
Curtner Ave. Turn right on Curtner and
immediately get in the left lane. Turn left on
Canoas Garden Ave. Go one block to Masonic Dr.
and turn right.
From I-880 South, take Hwy 101 South. Take
I-280 North; exit at 87 Guadalupe Pkwy South.
Continue on Guadalupe Pkwy South and exit at
Curtner Ave. Turn right on Curtner and
<PAGE> 4
immediately get in the left lane. Turn left on
Canoas Garden Ave. Go one block to Masonic Dr.
and turn right.
DETACH PROXY CARD HERE
<PAGE> 5
(PACIFIC TELESIS LOGO HERE)
PROXY/VOTING INSTRUCTION CARD
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE SPECIAL
MEETING OF SHAREOWNERS ON JULY 31, 1996.
The undersigned hereby appoints Philip J. Quigley, William E. Downing and
Richard W. Odgers, and each of them, as proxies, each with the power to appoint
his substitute, and hereby authorizes them to represent and to vote as
designated herein all the shares of Common Stock of Pacific Telesis Group
represented hereby and held of record by the undersigned on June 3, 1996 at the
Special Meeting of Shareowners to be held at the San Jose Scottish Rite Center,
2455 Masonic Drive, San Jose, California, on July 31, 1996 at 2:00 p.m., or
any adjournments thereof, upon all subjects that may properly come before the
meeting, including the matters described in the proxy statement furnished
herewith. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREOWNER AND IN ACCORDANCE WITH THE
DETERMINATION OF THE NAMED PROXIES, OR ANY OF THEM, ON ANY OTHER MATTERS THAT
MAY PROPERLY COME BEFORE THE MEETING. This proxy also provides voting
instructions for shares held in the Shareowner Dividend Reinvestment and Stock
Purchase Plan and, if registrations are identical, shares held in the various
employee savings and benefit plans. IF THIS PROXY IS SIGNED AND RETURNED AND NO
DIRECTIONS ARE GIVEN, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL TO APPROVE
AND ADOPT THE MERGER AGREEMENT AND TO APPROVE THE TRANSACTIONS CONTEMPLATED
THEREBY ON THE REVERSE OF THIS CARD, AND IN ACCORDANCE WITH THE DETERMINATION
OF THE NAMED PROXIES, OR ANY OF THEM, ON ANY OTHER MATTERS THAT MAY PROPERLY
COME BEFORE THE MEETING.
YOUR VOTE IS IMPORTANT. PLEASE SIGN AND DATE ON THE REVERSE AND PROMPTLY RETURN
C/O BOSTON EQUISERVE L.P., P.O. BOX 9018, BOSTON, MA 02205-8650.
(CONTINUED ON REVERSE SIDE.)
