<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SBC COMMUNICATIONS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6719 43-1301883
(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 78205-2233
(210) 821-4105
(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 78205-2233
(210) 821-4105
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C> <C> <C>
MADELYN M. DEMATTEO
SOUTHERN NEW ENGLAND ROBERT A. KINDLER
BENJAMIN F. STAPLETON WAYNE WIRTZ TELECOMMUNICATIONS CRAVATH, SWAINE & MOORE
SULLIVAN & CROMWELL SBC COMMUNICATIONS INC. CORPORATION WORLDWIDE PLAZA
125 BROAD STREET 175 EAST HOUSTON 227 CHURCH STREET 825 EIGHTH AVENUE
NEW YORK, NEW YORK 10004 SAN ANTONIO, TEXAS 78205-2233 NEW HAVEN, CONNECTICUT 06510 NEW YORK, NEW YORK 10019
</TABLE>
------------------------
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. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================================
PROPOSED MAXIMUM
OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PER SHARE OF AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED COMMON STOCK OFFERING PRICE FEE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $1.00 per share,
together with Preferred Stock Purchase
Rights(1).................................... 63,733,455(2) N.A. $4,734,298,640(3) $572,286.84(4)
===========================================================================================================================
</TABLE>
(1) Preferred stock purchase rights are attached to and trade with the common
stock, par value $1.00 per share ("SBC Common Stock"), of SBC Communications
Inc. ("SBC"). The value attributable to such rights, if any, is reflected in
the market price of SBC Common Stock.
(2) Represents the maximum amount of SBC Common Stock estimated to be issuable
upon the consummation of the merger (the "Merger") of SBC (CT), Inc., a
wholly-owned subsidiary of SBC, with and into Southern New England
Telecommunications Corporation ("SNET").
(3) Pursuant to Rules 457(f)(1) and 457(c) under the Securities Act and solely
for the purpose of calculating the registration fee, the proposed maximum
aggregate offering price is equal to the market value of the common stock,
par value $1.00 per share ("SNET Common Stock"), of SNET to be canceled in
the Merger and is based upon $65.25, the average of the high and low sale
prices of SNET Common Stock on the New York Stock Exchange Composite Tape on
February 6, 1998.
(4) Computed in accordance with Rule 457(f) under the Securities Act to be
$1,396,618.10, which is .000295 multiplied by the proposed maximum aggregate
offering price of $4,734,298,640. In accordance with such Rule 457, the fee
of $824,331.26 paid by SNET pursuant to Section 14(g)(1)(A) of the
Securities Exchange Act of 1934, upon the filing of its preliminary proxy
materials on January 22, 1998 has been credited against the registration fee
payable in connection with this filing. The remaining amount of the fee has
been paid by SBC under the reference "SBC Communications Inc. S-4."
----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
[SNET LOGO]
SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION
227 CHURCH STREET
NEW HAVEN, CONNECTICUT 06510
February 9, 1998
To Our Shareholders:
You are cordially invited to attend a special meeting of shareholders (the
"Special Meeting") of Southern New England Telecommunications Corporation
("SNET") to be held March 27, 1998, at 10:00 a.m., local time, at the Italian
Center of Stamford, 1620 Newfield Avenue, Stamford, Connecticut 06905.
At the Special Meeting, you will be asked to consider and vote upon a
proposal (the "Merger Proposal") to approve an Agreement and Plan of Merger (as
it may be amended, supplemented or otherwise modified from time to time, the
"Merger Agreement") pursuant to which SBC (CT), Inc. ("Merger Sub"), a wholly-
owned subsidiary of SBC Communications Inc. ("SBC"), will be merged (the
"Merger") with and into SNET and SNET will become a wholly-owned subsidiary of
SBC. Upon the Merger becoming effective, each share of common stock, par value
$1.00 per share, of SNET ("SNET Common Stock") will be converted into 1.7568
shares of common stock, par value $1.00 per share, of SBC ("SBC Common Stock")
(after giving effect to the two-for-one split of the SBC Common Stock to be
effected on March 19, 1998), together with the appropriate number of preferred
stock purchase rights attached thereto.
The Board of Directors of SNET has carefully reviewed and considered the
terms and conditions of the Merger Agreement. In addition, the Board of
Directors of SNET has received a written opinion from its financial advisor,
Salomon Brothers Inc, to the effect that, as of January 4, 1998, the
consideration to be received by the holders of SNET Common Stock in the proposed
Merger was fair to such holders from a financial point of view.
SNET'S BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE BEST INTERESTS OF,
SNET AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD HAS ADOPTED THE MERGER
AGREEMENT AND RECOMMENDS THAT ALL SHAREHOLDERS VOTE FOR THE MERGER PROPOSAL.
I urge you to review and consider carefully the accompanying Notice of
Special Meeting of Shareholders and Proxy Statement/Prospectus, which contain
information about SNET and SBC and describe the Merger and certain other matters
relating to the Merger.
The affirmative vote of the holders of at least two-thirds of the shares of
SNET Common Stock outstanding on the record date for the Merger is necessary for
approval of the Merger Proposal. If the Merger Proposal is approved and the
Merger is consummated, you will be sent a letter of transmittal with
instructions for surrendering your certificates representing shares of SNET
Common Stock. Please do not send your share certificates until you receive these
materials.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE SPECIAL MEETING, YOU
ARE URGED TO PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN
THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
Failure to return a properly completed proxy or to vote at the Special Meeting
would have the same effect as a vote against the Merger Proposal. Your prompt
cooperation will be appreciated.
Sincerely,
/s/Daniel J. Miglio
DANIEL J. MIGLIO
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 3
[SNET LOGO]
SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION
227 CHURCH STREET
NEW HAVEN, CONNECTICUT 06510
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 27, 1998
------------------------
To the Shareholders of Southern New England Telecommunications Corporation:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (including
any adjournments or postponements thereof, the "Special Meeting") of Southern
New England Telecommunications Corporation, a Connecticut corporation ("SNET"),
will be held March 27, 1998 at 10:00 a.m., local time, at the Italian Center of
Stamford, 1620 Newfield Avenue, Stamford, Connecticut 06905. The purpose of the
Special Meeting is to consider and vote upon the following proposal (the "Merger
Proposal"):
To approve an Agreement and Plan of Merger (as it may be amended,
supplemented or otherwise modified from time to time, the "Merger
Agreement") among SNET, SBC Communications Inc., a Delaware corporation
("SBC"), and SBC (CT), Inc., a Connecticut corporation and a wholly-owned
subsidiary of SBC ("Merger Sub"), dated as of January 4, 1998, pursuant to
which Merger Sub will be merged with and into SNET (the "Merger") and SNET
will become a wholly-owned subsidiary of SBC.
Except as set forth above, no other business will be transacted at the Special
Meeting.
Notwithstanding shareholder approval of the Merger Proposal, SNET reserves
the right to abandon the Merger at any time prior to the consummation thereof,
subject to the terms and conditions of the Merger Agreement.
Holders of common stock, par value $1.00 per share, of SNET ("SNET Common
Stock") who do not vote their shares of SNET Common Stock for the Merger
Proposal and who deliver to SNET prior to the time the vote is taken on the
Merger Proposal a notice of intent to demand payment for such holders' shares if
the Merger is consummated will be entitled to assert dissenters' rights of
appraisal under Sections 33-855 to 33-872, inclusive, of the Connecticut
Business Corporation Act. A description of these sections is contained in, and a
copy of these sections is attached as Annex D to, the accompanying Proxy
Statement/Prospectus.
The Board of Directors of SNET has fixed the close of business on February
6, 1998, as the record date for the determination of shareholders entitled to
notice of, and to vote at, the Special Meeting, and only shareholders of record
at such time will be entitled to notice of, and to vote at, the Special Meeting.
Approval of the Merger Proposal requires the affirmative vote of the
holders of at least two-thirds of the shares of SNET Common Stock outstanding on
the record date for the Merger.
A form of proxy and a Proxy Statement/Prospectus containing more detailed
information with respect to the Merger Proposal (including a copy of the Merger
Agreement attached as Annex A thereto) accompany and form a part of this notice.
Whether or not you plan to attend the Special Meeting, please promptly
complete, sign, date and return the accompanying proxy in the enclosed
self-addressed, stamped envelope. If you attend the Special Meeting and desire
to revoke your proxy in writing and vote in person, you may do so; in any event,
a proxy may be revoked in writing at any time before it is exercised.
<PAGE> 4
THE BOARD OF DIRECTORS OF SNET HAS ADOPTED THE MERGER AGREEMENT AND
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE MERGER PROPOSAL.
By Order of the Board of Directors
[SIGNATURE]
MADELYN M. DEMATTEO
Secretary
New Haven, Connecticut
February 9, 1998
The Proxy Solicitor For SNET:
(LOGO)
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll-Free: (800) 223-2064
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
<PAGE> 5
<TABLE>
<S> <C>
[SNET LOGO] [SBC LOGO]
SOUTHERN NEW ENGLAND SBC COMMUNICATIONS INC.
TELECOMMUNICATIONS CORPORATION
PROXY STATEMENT PROSPECTUS
</TABLE>
------------------------
This Proxy Statement/Prospectus is being furnished to the shareholders of
Southern New England Telecommunications Corporation, a Connecticut corporation
("SNET"), in connection with the solicitation of proxies by the Board of
Directors of SNET from holders of outstanding shares of common stock, par value
$1.00 per share, of SNET ("SNET Common Stock"), for use at a special meeting of
shareholders of SNET to be held March 27, 1998 at 10:00 a.m., local time, at the
Italian Center of Stamford, 1620 Newfield Avenue, Stamford, Connecticut 06905
(including any adjournments or postponements thereof, the "Special Meeting").
At the Special Meeting, shareholders of SNET will be asked to consider and
vote upon a proposal (the "Merger Proposal") to approve an Agreement and Plan of
Merger, dated as of January 4, 1998, among SNET, SBC Communications Inc. ("SBC")
and SBC (CT), Inc., a Connecticut 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"). The Merger Agreement is attached as
Annex A to this Proxy Statement/Prospectus and is incorporated herein by
reference. The Merger Agreement provides for the merger (the "Merger") of Merger
Sub with and into SNET, with SNET being the surviving corporation in the Merger
(sometimes referred to in this Proxy Statement/Prospectus as the "Surviving
Corporation") and becoming a wholly-owned subsidiary of SBC. Upon the Merger
becoming effective, each share of SNET Common Stock issued and outstanding
immediately prior to such time (other than (i) shares of SNET Common Stock that
are owned by SBC or Merger Sub, (ii) shares of SNET Common Stock that are owned
by SNET, in each case (i) and (ii) not held on behalf of third parties, or (iii)
shares of SNET Common Stock ("Dissenting Shares") that are owned by shareholders
("Dissenting Shareholders") who satisfy all of the requirements to demand
payment for such shares in accordance with Sections 33-855 through 33-872 of the
Connecticut Business Corporation Act (collectively, "Excluded SNET Common
Stock")) will be converted into 1.7568 shares of common stock, par value $1.00
per share, of SBC ("SBC Common Stock") (after giving effect to the two-for-one
split of the SBC Common Stock to be effected on March 19, 1998). See "The
Merger -- Terms of the Merger." Each share of SBC Common Stock issued in the
Merger will be accompanied by the appropriate number of preferred stock purchase
rights of SBC attached thereto. See "Description of SBC Capital
Stock -- Description of SBC Rights."
SBC has filed a Registration Statement on Form S-4 (including exhibits and
amendments thereto, the "Registration Statement") pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), covering the shares of SBC Common
Stock (and accompanying SBC preferred stock purchase rights) issuable upon
consummation of the Merger. This Proxy Statement/Prospectus constitutes the
Proxy Statement of SNET relating to the solicitation of proxies for use at the
Special Meeting and the Prospectus of SBC filed as part of the Registration
Statement. This Proxy Statement/Prospectus and the accompanying proxy are first
being provided to shareholders of SNET on or about February 10, 1998.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS 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
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
The date of this Proxy Statement/Prospectus is February 9, 1998.
<PAGE> 6
AVAILABLE INFORMATION
Each of SBC and SNET 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 SNET with the SEC can be
inspected and copied at the SEC's public reference room located at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
public reference facilities in the SEC's regional offices located at: 7 World
Trade Center, 13th Floor, New York, New York 10048, and Suite 1400, Northwestern
Atrium Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can be obtained at prescribed rates by writing to the Securities and
Exchange Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC maintains a Website that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the SEC, which registrants include SBC and SNET. The address
of such site is http://www.sec.gov. The shares of SBC Common Stock and SNET
Common Stock are listed on the New York Stock Exchange (the "NYSE") and The
Pacific Exchange (the "PSE") and the shares of SBC Common Stock are also listed
on the Chicago Stock Exchange (the "CSE"). As such, the periodic reports, proxy
statements and other information filed with the SEC by SBC and SNET 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,
in the case of SBC, the offices of the CSE, 440 South LaSalle Street, Chicago,
Illinois 60605.
This 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, SNET 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 PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO SBC,
EXCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED HEREIN BY REFERENCE, ARE AVAILABLE WITHOUT CHARGE UPON REQUEST TO
SPECIALIST-EXTERNAL REPORTING, SBC COMMUNICATIONS INC., 175 EAST HOUSTON, SAN
ANTONIO, TEXAS 78205-2233. TELEPHONE REQUESTS MAY BE DIRECTED TO
SPECIALIST-EXTERNAL REPORTING AT (210) 351-3049. DOCUMENTS RELATING TO SNET,
EXCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED HEREIN BY REFERENCE, ARE AVAILABLE WITHOUT CHARGE UPON REQUEST TO
SNET'S TRANSFER AGENT AND REGISTRAR, STATE STREET BANK AND TRUST COMPANY, P.O.
BOX 8200, BOSTON, MASSACHUSETTS 02266-8200. TELEPHONE REQUESTS MAY BE DIRECTED
TO SNET'S TRANSFER AGENT AND REGISTRAR AT (800) 243-1110. IN ORDER TO ENSURE
TIMELY DELIVERY OF ANY OF SUCH DOCUMENTS IN ADVANCE OF THE SPECIAL MEETING TO
WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES, ANY REQUEST SHOULD BE MADE BY
MARCH 20, 1998.
The following documents filed with the SEC by SBC (File No. 1-8610) are
incorporated herein by reference: (a) SBC's Annual Report on Form 10-K for the
year ended December 31, 1996 (the "1996 SBC 10-K"); (b) SBC's Quarterly Reports
on Form 10-Q for the quarterly periods ended March 31, 1997, June 30, 1997 and
September 30, 1997; (c) SBC's Current Reports on Form 8-K, filed on March 14,
1997, March 31, 1997, April 1, 1997, May 9, 1997, June 19, 1997, January 5, 1998
and February 5, 1998; (d) SBC's proxy statement for its 1997 annual meeting of
shareholders; (e) the description of SBC Common Stock contained in SBC's
Registration Statement on Form 10, dated November 15, 1983; and (f) SBC's
Registration Statement on Form 8-A, dated February 9, 1989, together with
amendments thereto.
The following documents filed with the SEC by SNET (File No. 1-9157) are
incorporated herein by reference: (a) SNET's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (together
ii
<PAGE> 7
with Amendment No. 1 thereto, dated June 12, 1997, the "1996 SNET 10-K"); (b)
SNET's Quarterly Reports on Form 10-Q for the quarterly periods ended March 31,
1997, June 30, 1997 and September 30, 1997; (c) SNET's Current Reports on Form
8-K, filed January 21, 1997, April 23, 1997, June 25, 1997, July 24, 1997,
October 23, 1997, January 5, 1998 and January 27, 1998; (d) SNET's proxy
statement for its 1997 annual meeting of shareholders; (e) the description of
SNET Common Stock contained in SNET's Registration Statement on Form S-4, dated
March 18, 1986, together with Amendment No. 1 thereto, dated March 21, 1986; and
(f) SNET's Registration Statement on Form 8-A, dated December 13, 1996, together
with amendments thereto.
All documents filed by either SBC or SNET pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated herein by reference and to be a part hereof from the
date of filing of such document. Any statement contained herein or in a document
incorporated or deemed to be incorporated herein by reference 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 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 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
SNET. This Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this 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 Proxy Statement/
Prospectus nor any distribution of the securities made under this Proxy
Statement/Prospectus hereunder shall, under any circumstances, create an
implication that there has been no change in the affairs of SBC or SNET since
the date of this Proxy Statement/Prospectus other than as set forth in the
documents incorporated herein by reference.
iii
<PAGE> 8
TABLE OF CONTENTS
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PAGE
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Available Information........................... ii
Incorporation of Certain Information by
Reference..................................... ii
Summary......................................... 1
The Companies................................. 1
Recent Developments........................... 1
The Special Meeting........................... 2
The Merger.................................... 3
Dissenters' Rights of Appraisal............... 10
Accounting Treatment.......................... 10
Certain Tax Consequences of the Merger........ 11
Certain Effects of the Merger on the Rights of
Holders of SNET Common Stock................ 11
Comparative Stock Prices...................... 11
Selected Historical and Pro Forma Combined Per
Share Financial Data........................ 13
The Special Meeting............................. 14
General....................................... 14
Date, Place and Time.......................... 14
Record Date................................... 14
Vote Required................................. 14
Voting and Revocation of Proxies.............. 15
Solicitation of Proxies....................... 15
The Companies................................... 15
Recent Developments............................. 16
The Merger...................................... 17
General....................................... 17
Background of the Merger...................... 18
Reasons for the Merger; Recommendation of the
SNET Board of Directors..................... 19
Opinion of Salomon Smith Barney............... 22
Cautionary Statement Concerning
Forward-Looking Statements.................. 29
Terms of the Merger........................... 29
Closing; Effective Time....................... 30
Exchange of SNET Certificates for Shares of
SBC Common Stock............................ 30
Dissenters' Rights of Appraisal............... 31
Representations and Warranties................ 31
Certain Covenants............................. 32
Certain Regulatory Filings and Approvals...... 34
Stock Exchange Listing and De-listing......... 36
Employee Benefits............................. 36
Expenses...................................... 37
Indemnification; Directors' and Officers'
Insurance................................... 37
Dividends..................................... 37
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SBC Board of Directors Following the Merger... 38
Conditions.................................... 38
Termination................................... 39
Certain Termination Fees...................... 40
The Stock Option Agreement.................... 41
Resale of SBC Common Stock.................... 43
Interests of Certain Persons in the Merger.... 43
Dissenters' Rights of Appraisal................. 46
Accounting Treatment............................ 47
Certain Tax Consequences of the Merger.......... 47
General....................................... 48
Fractional Shares............................. 49
Transfer Taxes................................ 49
Description of SBC Capital Stock................ 50
SBC Common Stock.............................. 50
SBC Preferred Stock........................... 50
Description of SBC Rights..................... 51
Comparison of Certain Rights of Shareholders of
SBC and SNET.................................. 53
General....................................... 53
Size and Classification of the Board of
Directors................................... 53
Removal of Directors; Filling Vacancies on the
Board of Directors.......................... 54
Action by Written Consent..................... 54
Meetings of Shareholders...................... 54
Shareholder Proposals and Shareholder
Nominations of Directors.................... 55
Required Vote for Authorization of
Certain Actions............................. 56
Amendment of Corporate Charter and Bylaws..... 57
Appraisal and Dissenters' Rights.............. 58
Certain Fair Price Provisions................. 58
State Antitakeover Statutes................... 59
Rights Plans.................................. 60
Limitation on Directors' Liability............ 61
Indemnification of Officers and Directors..... 61
Cumulative Voting............................. 62
Conflict-of-Interest Transactions............. 62
Dividends and Other Distributions............. 62
Duties of Directors........................... 63
Experts......................................... 63
Validity of Shares.............................. 64
Shareholder Proposals........................... 64
Index of Defined Terms.......................... 65
</TABLE>
ANNEX A: Agreement and Plan of Merger
ANNEX B: Stock Option Agreement
ANNEX C: Opinion of Salomon Brothers Inc, dated as of January 4, 1998
ANNEX D: Sections 33-855 through 33-872 of the Connecticut Business Corporation
Act
iv
<PAGE> 9
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/ Prospectus, does not purport to be complete and is
qualified in its entirety by reference to the full text of this Proxy
Statement/Prospectus, including the Annexes attached hereto and the documents
incorporated herein by reference. The information contained in this Proxy
Statement/Prospectus with respect to SBC and Merger Sub has been supplied by
SBC, and such information with respect to SNET has been supplied by SNET.
THE COMPANIES
SBC
SBC is a holding company whose subsidiaries and affiliates operate
predominantly in the communications services industry. SBC's subsidiaries and
affiliates provide landline and wireless telecommunications services and
equipment and directory advertising and publishing services. SBC's subsidiaries
and affiliates provide landline telecommunications services and related services
in Texas, Missouri, Oklahoma, Kansas, Arkansas, California and Nevada and
wireless telecommunications services and related services in those markets as
well as in Illinois, Maryland, Massachusetts, New Hampshire, New York, Virginia,
Washington, D.C. and West Virginia. 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 shareholders 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 mailing address of SBC's principal executive offices is 175 East
Houston, San Antonio, Texas 78205-2233, and its telephone number is (210)
821-4105.
SNET
SNET was incorporated under the laws of the State of Connecticut in 1986.
SNET is a holding company engaged through its subsidiaries in operations
principally in Connecticut with cellular services in Rhode Island and certain
areas in Massachusetts. SNET has business units in the following
telecommunications product groups: wireline; wireless; and information and
entertainment. The wireline business unit includes The Southern New England
Telephone Company's telecommunications services; SNET America, Inc. (providing
national and international long-distance services to Connecticut customers); and
SNET Diversified Group, Inc. (providing premium telecommunications services and
the selling and leasing of communications equipment to residential and business
customers). The wireless business unit includes SNET Cellular, Inc. and SNET
Mobility, Inc. The information and entertainment business unit includes SNET
Information Services, Inc. (providing publishing and internet services) and SNET
Personal Vision, Inc. (providing cable television service). Other activities
include those of SNET Real Estate, Inc. (engaging in leasing commercial real
estate) and of the SNET holding company (engaging in financial and strategic
planning for SNET and its subsidiaries).
The mailing address of SNET's principal executive offices is 227 Church
Street, New Haven, Connecticut 06510, and its telephone number is (203)
771-5200.
Merger Sub
Merger Sub, a wholly-owned subsidiary of SBC, was formed by SBC solely for
the purpose of effecting the Merger. The mailing address of Merger Sub's
principal executive offices is 175 East Houston, San Antonio, Texas 78205-2233,
and its telephone number is (210) 821-4105.
RECENT DEVELOPMENTS
SBC
On January 28, 1998, SBC released its operating results for the year ended
December 31, 1997. SBC reported net income of $1.474 billion, or basic earnings
per share of $1.61 and earnings per share, assuming
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dilution, of $1.60. SBC's operating revenues for 1997 were $24.856 billion, and
operating expenses were $21.686 billion.
SBC's net income for 1997 includes after-tax charges of approximately $2.0
billion reflecting strategic initiatives resulting from a comprehensive review
of operations of the company after the merger with Pacific Telesis Group, the
impact of several regulatory rulings during the second quarter of 1997, costs
incurred for customer number portability since the merger with Pacific Telesis
Group and charges for ongoing merger integration costs. Excluding these items,
SBC reported net income of $3.487 billion for 1997. Net income for 1997 was also
favorably affected by $33 million representing SBC's portion of the after-tax
gain on the sale of Bell Communications Research, Inc. and a first quarter 1997
$90 million after-tax settlement gain at Pacific Telesis Group associated with
lump-sum pension payments that exceeded the projected service and interest costs
for 1996 retirements. Excluding these additional items, SBC reported an adjusted
net income for 1997 of $3.364 billion or a basic earnings per share of $3.68 and
earnings per share, assuming dilution, of $3.65.
The above per share information is based on weighted average common shares
outstanding of 914 million for the year ended December 31, 1997, and has not
been restated to reflect SBC's two-for-one stock split to be effected in the
form of a stock dividend discussed under the caption "Recent Developments -- SBC
Stock Split."
Also, on January 30, 1998, SBC declared a dividend of $0.23375 per share
taking the SBC Stock Split (as defined herein) into account, payable May 1,
1998, to shareholders of record on April 10, 1998. Without giving effect to the
SBC Stock Split the dividend would be $0.4675 per share. The increase represents
a dividend increase of approximately 4.5%.
SNET
On January 27, 1998, SNET released its operating results for the year ended
December 31, 1997. SNET reported net income of $193.8 million, or basic earnings
per share of $2.93, and earnings per share, assuming dilution, of $2.92. SNET's
operating revenues for 1997 were $2.022 billion, and its operating expenses for
1997 were $1.193 billion.
SNET's net income for 1997 includes an after-tax charge of approximately
$3.7 million from the early redemption of certain debt. Excluding this item,
SNET reported net income of $197.5 million for 1997.
The above per share information is based on weighted average common shares
outstanding of 66.2 million for the year ended December 31, 1997.
SBC Stock Split
On January 30, 1998, the SBC Board declared a two-for-one split of the SBC
Common Stock. The stock split will be in the form of a special dividend on the
SBC Common Stock pursuant to which one share of SBC Common Stock is to be issued
on March 19, 1998, to each holder of record of SBC at the close of business on
February 20, 1998 (the "SBC Stock Split"). The exchange ratio originally agreed
to by SBC and SNET was 0.8784, which will be adjusted to reflect the SBC Stock
Split, pursuant to Section 4.4 of the Merger Agreement. Accordingly, such
original exchange ratio will be multiplied by two and thereby adjusted to the
Exchange Ratio of 1.7568.
THE SPECIAL MEETING
The Special Meeting to consider and vote upon the Merger Proposal will be
held March 27, 1998 at 10:00 a.m., local time, at the Italian Center of
Stamford, 1620 Newfield Avenue, Stamford, Connecticut 06905. Only holders of
record of SNET Common Stock at the close of business on February 6, 1998 (the
"Record Date") will be entitled to vote at the Special Meeting. On the Record
Date, there were 67,256,301 shares of SNET Common Stock outstanding and entitled
to vote. Each share of SNET Common Stock is entitled to one vote at the Special
Meeting.
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Approval of the Merger Proposal requires the affirmative vote of the
holders of at least two-thirds of the shares of SNET Common Stock outstanding on
the Record Date. No approval by shareholders of SBC is required to effect the
Merger.
For additional information relating to the Special Meeting, see "The
Special Meeting."
THE MERGER
The Merger Agreement provides for a business combination of SBC and SNET in
which, subject to the satisfaction of the conditions therein, at the effective
time of the Merger (the "Effective Time"), Merger Sub will be merged with and
into SNET and SNET will thereby become a wholly-owned subsidiary of SBC in a
transaction intended to qualify as a "pooling of interests" for accounting
purposes and as a tax-free "reorganization" under the Internal Revenue Code of
1986, as amended (the "Code"), for federal income tax purposes. As a consequence
of the Merger, each share of SNET Common Stock issued and outstanding
immediately prior to the Effective Time (other than Excluded SNET Common Stock)
will be converted into 1.7568 shares (the "Exchange Ratio") of SBC Common Stock,
together with the appropriate number of preferred stock purchase rights (the
"SBC Rights") attached thereto (collectively, the "Merger Consideration"). SBC
and SNET originally agreed to an exchange ratio of 0.8784, which, as adjusted to
reflect the SBC Stock Split, equals the Exchange Ratio of 1.7568. As a result of
this adjustment, the SBC Stock Split will not change the value of the shares of
SBC Common Stock which holders of shares of SNET Common Stock will receive in
the Merger. The value of 1.7568 shares of SBC Common Stock after giving effect
to the SBC Stock Split equals the value of 0.8784 of a share of SBC Common Stock
without giving effect to the SBC Stock Split. Each outstanding share of SBC
Common Stock will remain outstanding and be unaffected by the Merger. As a
result of the Merger, holders of SNET Common Stock immediately prior to the
Effective Time will own approximately 6% of SBC Common Stock (based on the
number of shares of SBC Common Stock and SNET Common Stock outstanding as of
December 31, 1997 (but after giving effect to the SBC Stock Split) and the
Exchange Ratio).
No fractional shares of SBC Common Stock will be issued in the Merger.
Instead, the Merger Agreement provides that each holder of SNET Common Stock who
would otherwise have been entitled to receive a fractional share of SBC Common
Stock in the Merger will be entitled to receive, in lieu thereof, an amount in
cash (without interest) determined by multiplying such fraction (rounded to the
nearest one-hundredth of a share) by the closing price of a share of SBC Common
Stock, as reported in The Wall Street Journal, New York City edition, for the
last trading day prior to the Effective Time.
Reasons for the Merger; Recommendation of the SNET Board of Directors
SBC
The Board of Directors of SBC (the "SBC Board") has determined by the
unanimous vote of the directors in attendance that the Merger Agreement and the
transactions contemplated thereby are fair to, and in the best interests of, SBC
and the shareholders of SBC. Accordingly, the Board of Directors of SBC, the
sole shareholder of Merger Sub, has adopted the Merger Agreement by the
unanimous vote of the directors in attendance and SBC has approved the Merger.
See "The Merger -- Reasons for the Merger; Recommendation of the SNET Board of
Directors -- SBC."
SNET
The Board of Directors of SNET (the "SNET Board") has determined by the
unanimous vote of the directors in attendance that the terms of the Merger
Agreement and the transactions contemplated thereby are fair to, and in the best
interests of, SNET and its shareholders. Accordingly, the SNET Board has adopted
the Merger Agreement and recommends that the shareholders of SNET vote FOR the
Merger Proposal. The recommendation of the SNET Board is based on a number of
considerations described in "The Merger -- Reasons for the Merger;
Recommendation of the SNET Board of Directors -- SNET."
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Opinion of Salomon Smith Barney
Salomon Brothers Inc ("Salomon Smith Barney") has delivered its written
opinion, dated as of January 4, 1998, to the SNET Board to the effect that, as
of such date, the consideration to be received by holders of SNET Common Stock
in the proposed Merger was fair to such holders from a financial point of view.
See "The Merger -- Opinion of Salomon Smith Barney." A copy of the opinion of
Salomon Smith Barney, dated January 4, 1998, which sets forth the assumptions
made, procedures followed, matters considered and limitations on the scope of
review by Salomon Smith Barney in rendering its opinion, is attached as Appendix
C to this Proxy Statement/Prospectus. YOU ARE URGED TO, AND SHOULD, READ SALOMON
SMITH BARNEY'S OPINION IN ITS ENTIRETY.
Effective Time
The Effective Time will occur when the certificate of merger (the
"Certificate of Merger") has become effective in accordance with the Connecticut
Business Corporation Act (the "CBCA"). See "The Merger -- Closing; Effective
Time."
Exchange of Certificates
Promptly after the Effective Time, the Exchange Agent (as defined herein)
will mail to each shareholder of record of SNET Common Stock at the Effective
Time (other than holders of shares of Excluded SNET Common Stock) a letter of
transmittal specifying that delivery of the Merger Consideration will be
effected only upon surrender of SNET Common Stock certificates (each, "a
Certificate") to the Exchange Agent and instructions for surrendering
Certificates in exchange for uncertificated shares of SBC Common Stock
registered on the stock transfer of SBC in the name of such holder ("Registered
SBC Common Stock") or certificates representing SBC Common Stock (each, an "SBC
Certificate"), any unpaid dividends and other distributions and cash in lieu of
any fractional shares. Procedures relating to the exchange of uncertificated
shares of SNET Common Stock for the Merger Consideration will also be described
in such letter of transmittal. See "The Merger -- Terms of the Merger" and "The
Merger -- Exchange of SNET Certificates for Shares of SBC Common Stock."
Certain Covenants
Interim Operations
Pursuant to the Merger Agreement, SNET has agreed as to itself and its
Subsidiaries (as defined herein), that during the period from the date of the
Merger Agreement to the Effective Time, it will, among other things, (i) conduct
its business in the ordinary and usual course; (ii) not declare, set aside or
pay any dividend payable in cash, stock or property in respect of any capital
stock, other than per share regular quarterly cash dividends not in excess of
$0.44 per share of SNET Common Stock; (iii) not knowingly take any action that
would prevent the Merger from qualifying for "pooling of interests" accounting
treatment or as a tax-free "reorganization" within the meaning of Section 368(a)
of the Code; (iv) subject to certain exceptions, not issue any preferred stock
or incur any indebtedness for borrowed money or guarantee any such indebtedness
if it should reasonably anticipate that as a result of such incurrence any of
its or any of its Subsidiaries' outstanding senior indebtedness would be rated
lower than A by Standard & Poor's; (v) not, and not permit its Subsidiaries to,
make any capital expenditures in any calendar year in an aggregate amount in
excess of the aggregate amount reflected in its capital expenditure budget for
such year, plus $100 million; (vi) not spend in excess of $50 million in any
calendar year to acquire any business; (vii) subject to certain exceptions, not
enter any business other than the telecommunications business and those
businesses traditionally associated with the telecommunications business or
enter into or extend any telecommunications business outside the geographic
areas served by it and its Subsidiaries as of the date of the Merger Agreement.
See "The Merger -- Certain Covenants -- Interim Operations."
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Acquisition Proposals
Pursuant to the Merger Agreement, SNET has agreed that neither it nor any
of its Subsidiaries nor any of its or its Subsidiaries' officers and directors
will, and that it will direct and use its best efforts to cause its and its
Subsidiaries' 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 it, or any purchase of, or tender offer for, 15%
or more of the equity securities of it or certain of its Subsidiaries or 15% or
more of its and its Subsidiaries' assets (based on the fair market value
thereof) taken as a whole (any such proposal or offer being referred to as an
"Acquisition Proposal"). SNET has further agreed that neither it nor any of its
Subsidiaries nor any of its or its Subsidiaries' officers and directors will,
and that it will direct and use its best efforts to cause its and its
Subsidiaries' representatives not to, directly or indirectly, have any
discussions 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. Notwithstanding the foregoing, the Merger
Agreement does not prevent SNET or the SNET Board from (A) complying with Rule
14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal;
(B) making any disclosure to SNET's shareholders if, in the good faith judgment
of the SNET Board, failure so to disclose would be inconsistent with its
obligations under applicable law; (C) engaging in any discussions or
negotiations with, or providing any information to, any person in response to a
bona fide written Acquisition Proposal by any such person received after the
date of the Merger Agreement that was not solicited by SNET after the date of
the Merger Agreement; or (D) recommending such an Acquisition Proposal to the
shareholders of SNET if and only to the extent that, in such cases referred to
in clause (C) or (D), the SNET Board 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 shareholders of SNET
from a financial point of view than the Merger (any such more favorable
Acquisition Proposal being referred to as a "Superior Proposal").
In addition, pursuant to the Merger Agreement, SNET has agreed to notify
SBC promptly if any of the inquiries, proposals or offers referred to in the
previous paragraph 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 SNET's representatives indicating, in connection with such notice,
the name of such person and the material terms and conditions of any proposals
or offers and thereafter to keep SBC informed, on a current basis, of the status
and material terms of any such proposals or offers and the status of any such
discussions or negotiations.
Certain Regulatory Filings and Approvals
Pursuant to the Merger Agreement, each of SNET and SBC has agreed to
cooperate with the other and use (and cause their respective Subsidiaries to
use) their respective best efforts to take or cause to be taken all actions, and
do or cause to be done all things, necessary, proper or advisable on its part
under the Merger Agreement and the Stock Option Agreement (as defined herein)
and applicable laws to consummate and make effective the Merger and the other
transactions contemplated by the Merger Agreement and the Stock Option Agreement
as soon as practicable after the execution of the Merger Agreement, including
preparing and filing as promptly as practicable after the date of the Merger
Agreement all documentation to effect all necessary applications, notices,
petitions, filings and other documents and to obtain as promptly as practicable
all consents, registrations, approvals, permits and authorizations necessary or
advisable to be obtained from any third party and/or any Governmental Entity (as
defined herein) in order to consummate the Merger or any of the other
transactions contemplated by the Merger Agreement or the Stock Option Agreement.
However, the Merger Agreement also provides that the terms of the Merger
Agreement do not require that either SBC or SNET proffer, or agree to, any
concession to any Governmental Entity if (i) such concession is reasonably
likely to have a Material Adverse Effect (as defined herein) on SNET following
the Effective Time or (ii) such concession is reasonably likely to have a
Material Adverse Effect on SBC following the Effective Time (with materiality
for this purpose being determined with reference to the total enterprise value
of SNET and its Subsidiaries, taken as a whole, rather than that of SBC and its
Subsidiaries, taken as a whole,
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and taking into account any material restrictions on the ability of SBC or any
of its Significant Subsidiaries (as defined herein) to conduct its operations as
currently conducted or as proposed to be conducted by it).
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 SNET 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 January 22, 1998. The HSR Act waiting period
will expire on February 21, 1998 (30 days after notification). At any time
before or after the Effective Time, the FTC, the DOJ or others could take action
under the antitrust laws with respect to the Merger, including requesting
additional information about the Merger, thereby extending the waiting period,
and seeking to enjoin the consummation of the Merger, to rescind the Merger or
to require divestiture of substantial assets of SBC or SNET. 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.
SBC and SNET are also required to file notices with, and/or obtain
approvals or consents from, the Federal Communications Commission (the "FCC")
pursuant to the Communications Act of 1934, as amended (the "Communications
Act"), the Connecticut Department of Public Utility Control (the "DPUC") and
various other state public utility commissions ("PUCs"), as more fully described
below.
SBC and SNET must obtain the approval of the FCC pursuant to the
Communications Act for the transfer of control from SNET to SBC of certain FCC
licenses and authorizations held by certain of SNET's Subsidiaries before the
Merger can be consummated. These licenses and authorizations include various
microwave authorizations currently held by SNET's local exchange and cellular
operations, numerous cellular authorizations, authorizations to provide long
distance service and other authorizations used in connection with the businesses
of such Subsidiaries. SBC and SNET intend to file transfer of control
applications with the FCC that will seek the FCC's approval to transfer the
above-described FCC licenses and authorizations. See "The Merger -- Certain
Regulatory Filings and Approvals -- FCC."
SNET has three operating company Subsidiaries (collectively, the "Public
Service Companies") that are subject to the jurisdiction of the DPUC as public
service companies (as defined under Connecticut law): The Southern New England
Telephone Company and The Woodbury Telephone Company, which are "telephone
companies," and SNET Personal Vision, Inc., which provides cable television
service. SBC and the Public Service Companies and, if required, SNET intend to
file a joint application with the DPUC (the "DPUC Application") requesting the
necessary approvals for SNET to consummate the Merger and for SBC to indirectly
control the Public Service Companies. Not later than 30 business days after the
filing of the DPUC Application, the DPUC must give the applicants notice of a
public hearing. Pursuant to the provisions of Section 16-47 of the Connecticut
general statutes, the public hearing is required to begin not later 30 business
days after that filing. Furthermore, the DPUC is required to issue its
determination on the DPUC Application as soon as practicable but not later than
120 days after the filing of the application unless the applicants agree to an
extension. Such an extension may occur. See "The Merger -- Certain Regulatory
Filings and Approvals -- DPUC."
SNET is authorized to provide interexchange services in 47 states. For the
majority of these states these authorizations have been utilized solely to
provide calling card services to SNET's Connecticut-based customers traveling in
the respective states. SNET does, however, provide long distance service to a
small number of customers in the states of California, Nevada, Texas, Missouri
and Kansas where SBC is an incumbent local exchange carrier (as defined by the
Telecommunications Act of 1996). SNET may be required to modify or withdraw its
interexchange authorizations in the states of California, Nevada, Texas,
Missouri, Kansas, Arkansas and Oklahoma depending upon the status of SBC's
efforts to obtain authority to provide long distance service in these states.
Furthermore, authorizations may be required from a number of other states to
allow SNET to transfer its existing long distance authorizations to SBC. See
"The Merger -- Certain Regulatory Filings and Approvals -- State PUCs."
There can be no assurance that the requisite approvals from the FCC, the
DPUC and PUCs 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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Stock Exchange Listing
SBC has agreed to use its best efforts to cause the shares of SBC Common
Stock to be issued in the Merger to be approved for listing on the NYSE, subject
to official notice of issuance, prior to the closing date of the Merger (the
"Closing Date").
Employee Benefits
Stock Options
The Merger Agreement provides that at the Effective Time, each outstanding
option to purchase shares of SNET Common Stock (a "SNET Option") under the Stock
Plans (as defined under the caption "The Merger -- Certain Covenants -- Interim
Operations"), whether vested or unvested, will be deemed to constitute an option
to acquire, on the same terms and conditions as were applicable under such SNET
Option, after giving effect to any provision requiring vesting of any SNET
Options as a result of the transactions contemplated by the Merger Agreement,
the same number of shares of SBC Common Stock as the holder of such SNET Option
would have been entitled to receive pursuant to the Merger had such holder
exercised such SNET 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 shares of SNET Common Stock otherwise
purchasable pursuant to such SNET Option divided by (z) the number of full
shares of SBC Common Stock underlying such Substitute Option.
Benefit Plans
The Merger Agreement provides that, subject to certain exceptions, for at
least two years after the Effective Time, SBC will cause the Surviving
Corporation to provide or cause to be provided to employees of SNET and its
Subsidiaries compensation and benefit plans that are no less favorable, in the
aggregate, than the existing employee compensation and benefit plans of SNET
(the "SNET Compensation and Benefit Plans").
Expenses
Except as otherwise provided in the Merger Agreement with respect to
transfer taxes and the Termination Fee (as defined herein), the Merger Agreement
provides that whether or not the Merger is consummated, all costs and expenses
incurred in connection with the Merger Agreement and the Merger and the other
transactions contemplated by 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
Proxy Statement/Prospectus and the Registration Statement and the filing fee
under the HSR Act will be shared equally by SBC and SNET.
Indemnification; Directors' and Officers' Insurance
The Merger Agreement provides that, from and after the Effective Time, SBC
will indemnify and hold harmless each present and former director and officer of
SNET (when acting in such capacity) determined as of the Effective Time (each,
an "Indemnified Party") against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "Costs") incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring at
or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent that SNET would have been
permitted under Connecticut law and its certificate of incorporation or bylaws
in effect on the date of the Merger Agreement to indemnify such person (and SBC
will also advance expenses as incurred to the fullest extent permitted under
applicable law, if 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).
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The Merger Agreement also provides that SBC or the Surviving Corporation
will maintain a policy of officers' and directors' liability insurance for acts
and omissions occurring prior to the Effective Time ("D&O Insurance") with
coverage in amount and scope at least as favorable as SNET's existing directors'
and officers' liability insurance coverage for a period of six years after the
Effective Time. However, if the existing D&O Insurance expires, is terminated or
cancelled, or if the annual premium therefor is increased to an amount in excess
of 175% of the last annual premium paid prior to the date of the Merger
Agreement (the "Current Premium"), in each case during such six year period, SBC
or 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.
Conditions
The respective obligations of SNET, SBC and Merger Sub to effect the Merger
are subject to the satisfaction or waiver at or prior to the Effective Time of a
number of conditions including the following: (a) the Merger Agreement having
been duly approved by the requisite vote of holders of SNET Common Stock; (b)
the shares of SBC Common Stock issuable to the shareholders of SNET pursuant to
the Merger Agreement having been approved for listing on the NYSE, subject to
official notice of issuance; (c) the waiting period applicable to the
consummation of the Merger under the HSR Act having expired or been terminated
and all material SNET Required Consents (as defined herein) and SBC Required
Consents (as defined herein) from or with the FCC, the DPUC, PUCs or any other
Governmental Entity having been made or obtained pursuant to a Final Order (as
defined herein), free of any conditions materially adverse to SNET or SBC (other
than certain conditions described under the caption "The Merger -- Conditions");
(d) no Governmental Entity of competent jurisdiction having enacted, issued,
promulgated, enforced or entered any law or injunction (whether temporary,
preliminary or permanent) that is in effect and restrains, enjoins or otherwise
prohibits consummation of the Merger or the other transactions contemplated by
the Merger Agreement or that is, individually or in the aggregate with all other
such laws or injunctions, reasonably likely to have a Material Adverse Effect
(as defined herein) on SBC or SNET (collectively, an "Order"), and none of the
DOJ, the FTC, the FCC or the DPUC having instituted any proceeding or threatened
in writing or publicly announced its intention to institute any proceeding
seeking any such Order; and (e) the Registration Statement having become
effective under the Securities Act. See "The Merger -- Conditions."
The Merger Agreement also provides that 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 a number of conditions including the
following: (a) the representations and warranties of SNET set forth in the
Merger Agreement being true and correct, subject to the qualifications described
under the caption "The Merger -- Representations and Warranties"; (b) SNET
having performed all material obligations required to be performed by it under
the Merger Agreement at or prior to the Closing Date; (c) SBC having received
the opinion of Sullivan & Cromwell, dated the Closing Date, to the effect that
the Merger will be treated for federal income tax purposes as a "reorganization"
within the meaning of Section 368(a) of the Code, and that each of SBC, Merger
Sub and SNET will be a party to that "reorganization" within the meaning of
Section 368(b) of the Code; (d) the number of Dissenting Shares having not
exceeded 9% of the aggregate number of shares of SNET Common Stock outstanding
immediately prior to the Effective Time (this condition may be deemed to be
waived by SBC under certain circumstances); and (e) SBC having received a letter
from its independent public accounting firm to the effect that the Merger will
qualify for "pooling of interests" accounting treatment (this condition may be
deemed to be waived by SBC under certain circumstances). See "The
Merger -- Conditions."
The Merger Agreement further provides that the obligation of SNET to effect
the Merger is also subject to the satisfaction or waiver by SNET at or prior to
the Effective Time of a number of conditions including the following: (a) the
representation and warranties of SBC set forth in the Merger Agreement being
true and correct, subject to the qualifications described under the caption "The
Merger -- Representations and Warranties"; (b) each of SBC and Merger Sub having
performed all material obligations required to be performed by it under the
Merger Agreement at or prior to the Closing Date; and (c) SNET having received
the opinion of Cravath, Swaine & Moore, dated the Closing Date, to the effect
that the Merger will be treated
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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 SNET will be a
party to that "reorganization" within the meaning of Section 368(b) of the Code.
See "The Merger -- Conditions."
Termination
The Merger 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
shareholders of SNET at the Special Meeting, by mutual written consent of SNET
and SBC, by action of their respective boards of directors. Further, the Merger
Agreement may be terminated and the Merger may be abandoned at any time prior to
the Effective Time by action of either the SBC Board or the SNET Board if (i)
the Merger has not been consummated by December 31, 1998 (the "Termination
Date") whether such date is before or after the date of approval by the
shareholders of SNET (provided, however, that if SNET or SBC determines that
additional time is necessary in connection with obtaining a SNET Required
Consent or a SBC Required Consent from or with the FCC, the DPUC or any other
Governmental Entity, the Termination Date may be extended to a date no later
than June 30, 1999 (the "Extended Termination Date")), (ii) the approval of the
shareholders of SNET required by the Merger Agreement has not been obtained or
(iii) any Order permanently restraining, enjoining or otherwise prohibiting
consummation of the Merger becomes final and non-appealable. See "The Merger --
Termination."
Further, the Merger 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 shareholders of SNET at the Special Meeting, by action of the SNET
Board: (a) if (i) SNET has not willfully breached any of the terms of the Merger
Agreement in a manner resulting in failure of a condition to closing under the
Merger Agreement relating to either the representations and warranties of SNET
or the performance of its obligations under the Merger Agreement, (ii) the SNET
Board approves entering into a binding written agreement concerning a
transaction that constitutes a Superior Proposal and SNET notifies SBC in
writing that it wishes to enter into such agreement, (iii) SBC does not make,
within five business days of receipt of SNET's written notification of its
desire to enter into a binding agreement for a Superior Proposal, an offer that
the SNET Board believes, in good faith after consultation with its financial
advisors, is at least as favorable, from a financial point of view, to the
shareholders of SNET as the Superior Proposal, and that contains terms and
conditions (other than with respect to type or amount of consideration) that do
not differ materially from either the terms and conditions of the Merger
Agreement or the terms and conditions of the proposed agreement for such
Superior Proposal and (iv) SNET prior to such termination pays to SBC the
Termination Fee (as defined herein) in immediately available funds or (b) if
there has been a breach by SBC or Merger Sub of any representation, warranty,
covenant or agreement contained in the Merger Agreement which (i) would result
in a failure of a condition relating to either the representations and
warranties of SBC or the performance of its obligations under the Merger
Agreement and (ii) cannot be cured prior to the Extended Termination Date. See
"The Merger -- Termination."
In addition, the Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time by action of the SBC Board if
(i) the SNET Board withdraws or adversely modifies its approval or
recommendation of the Merger Agreement or fails to reconfirm its recommendation
of the Merger Agreement within ten business days after a written request by SBC
to do so (provided that such a request is made after the SNET Board has taken
certain actions relating to an Acquisition Proposal and such Acquisition
Proposal has not been rejected by the SNET Board or withdrawn), (ii) there has
been a breach by SNET of any representation, warranty, covenant or agreement
contained in the Merger Agreement which (A) would result in a failure of a
condition relating to either the representations and warranties of SNET or the
performance of its obligations under the Merger Agreement and (B) cannot be
cured prior to the Extended Termination Date or (iii) if SNET or any of its
representatives takes any of the actions that would be proscribed by the
non-solicitation provisions of the Merger Agreement described under "The
Merger -- Certain Covenants -- Acquisition Proposals" but for the exception
described therein allowing certain actions to be taken in response to a bona
fide written unsolicited Superior Proposal. See "The Merger -- Termination."
9
<PAGE> 18
Certain Termination Fees
If the Merger Agreement is terminated (i) by either SNET or SBC because
shareholders of SNET fail to approve the Merger Agreement under certain
circumstances and within nine months after such termination SNET enters into an
agreement to consummate a Substantial Transaction (as defined herein), (ii) by
SNET pursuant to the terms of the Merger Agreement permitting it to terminate in
order to enter into an agreement concerning a transaction that constitutes a
Superior Proposal or (iii) by SBC pursuant to the terms of the Merger Agreement
permitting it to terminate (A) because the SNET Board has withdrawn or adversely
modified its approval or recommendation of the Merger Agreement, (B) because of
a willful and intentional breach of the non-solicitation provisions of the
Merger Agreement described under "The Merger -- Certain Covenants -- Acquisition
Proposals" or (C) because SNET or any of its representatives has taken any of
the actions that would be proscribed by the non-solicitation provisions of the
Merger Agreement described under "The Merger -- Certain Covenants -- Acquisition
Proposals" but for the exception described therein allowing certain actions to
be taken in response to a bona fide written unsolicited Superior Proposal, then
SNET will be required to pay SBC a fee equal to $125 million (the "Termination
Fee"). See "The Merger -- Certain Termination Fees."
The Stock Option Agreement
Concurrently with the execution of the Merger Agreement, SBC and SNET also
entered into a Stock Option Agreement, dated as of January 4, 1998 (the "Stock
Option Agreement"). Pursuant to the Stock Option Agreement, SNET granted SBC an
option to purchase, subject to the terms thereof, up to 13,266,587 (subject to
possible adjustment as provided therein) fully paid and nonassessable shares of
SNET Common Stock at a price per share in cash equal to $65.00 in the event that
the Merger Agreement is terminated and SBC then or thereafter becomes entitled
to receive the Termination Fee. The Stock Option Agreement provides that SBC's
Total Profit (as defined herein) plus any Termination Fee shall not exceed
$175,000,000. See "The Merger -- The Stock Option Agreement."
Interests of Certain Persons in the Merger
In considering the recommendations of SNET's Board, shareholders should be
aware that certain members of management of SNET and of the SNET Board have
certain interests in the Merger that are in addition to the interests of
shareholders generally and may create potential conflicts of interest. See "The
Merger -- Interests of Certain Persons in the Merger."
DISSENTERS' RIGHTS OF APPRAISAL
In connection with the proposal to approve the Merger Agreement, Dissenting
Shareholders who properly perfect dissenters' rights of appraisal under the CBCA
will be entitled to be paid the fair value of their shares of SNET Common Stock
in cash. Shareholders of SNET should be aware that such payment could be less
than the equivalent value of the shares of SBC Common Stock to be issued in the
Merger. See "Dissenters' Rights of Appraisal."
ACCOUNTING TREATMENT
Based on the advice of their respective independent public accountants, SBC
and SNET believe that the Merger will qualify as a "pooling of interests" for
accounting purposes. Under this method of accounting, SBC will restate its
consolidated financial statements at the Effective Time to include the assets,
liabilities, shareholders' equity and results of operations of SNET.
Consummation of the Merger is conditioned upon the receipt by SBC of a letter
from its independent public accountants stating that the Merger will qualify as
a "pooling of interests" for accounting purposes. This condition may be deemed
to be waived by SBC under certain circumstances. See "The Merger -- Conditions"
and "Accounting Treatment."
10
<PAGE> 19
CERTAIN TAX CONSEQUENCES OF THE MERGER
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 SNET
Common Stock with respect thereto on the surrender of their SNET 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, Merger Sub or
SNET. Under the Merger Agreement, it is a condition precedent to the respective
obligations of SBC and SNET to consummate the Merger that each of SBC and SNET
will have received an opinion of its respective counsel 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 SNET, 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 certain
tax consequences of the Merger, see "Certain Tax Consequences of the Merger."
CERTAIN EFFECTS OF THE MERGER ON THE RIGHTS OF HOLDERS OF SNET COMMON STOCK
Upon consummation of the Merger, holders of shares of SNET Common Stock
will become shareholders of SBC. The internal affairs of SBC are governed by the
General Corporation Law of the State of Delaware (the "DGCL"), the Restated
Certificate of Incorporation of SBC (the "SBC Restated Certificate") and the
Bylaws of SBC (the "SBC Bylaws"). For a description of certain differences
between the rights holders of SNET Common Stock currently have and those they
will have as holders of SBC Common Stock, see "Description of SBC Capital Stock"
and "Comparison of Certain Rights of Shareholders of SBC and SNET."
COMPARATIVE STOCK PRICES
The shares of SBC Common Stock and SNET Common Stock are each listed on the
NYSE as well as on certain other exchanges. SBC is listed on the NYSE under the
symbol "SBC" and SNET is listed under the symbol "SNG." The following table sets
forth, for the periods indicated, the high and low sale prices per share of SBC
Common Stock and SNET Common Stock as reported on the NYSE Composite
Transactions Tape.
<TABLE>
<CAPTION>
SBC SNET
COMMON COMMON
STOCK(1) STOCK
------------- -------------
CALENDAR QUARTER HIGH LOW HIGH LOW
- ---------------------------------------------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
1996
First Quarter................................................. $30 1/8 $24 7/8 $43 3/4 $37 1/2
Second Quarter................................................ 25 3/8 23 1/8 45 1/2 40 1/2
Third Quarter................................................. 25 1/2 23 42 3/4 36 3/4
Fourth Quarter................................................ 27 5/8 23 1/2 41 1/8 36
1997
First Quarter................................................. 29 1/8 24 13/16 39 1/8 34 3/4
Second Quarter................................................ 30 15/16 24 5/8 42 3/8 35 5/8
Third Quarter................................................. 31 1/8 26 25/32 41 1/2 38 1/4
Fourth Quarter................................................ 38 1/16 30 51 1/2 41
1998
First Quarter (through February 5, 1998)...................... 39 1/2 35 3/8 66 9/16 49 5/16
</TABLE>
- ---------------
(1) Amounts for the SBC Common Stock reflect the effect of the SBC Stock Split.
On January 2, 1998, the last trading day before the public announcement of
the Merger Agreement, the closing prices of SBC Common Stock and SNET Common
Stock as reported on the NYSE Composite Transactions Tape were 37 15/32 (giving
effect to the SBC Stock Split) per share and $49 5/8 per share, respectively.
Based on the Exchange Ratio, the pro forma equivalent per share value of SNET
Common Stock
11
<PAGE> 20
on January 2, 1998 was approximately $65.83 per share. The pro forma equivalent
per share value of SNET Common Stock on any date equals the closing sale price
of SBC Common Stock on such date multiplied by an exchange ratio of 0.8784,
without giving effect to the SBC Stock Split to be effected on March 19, 1998,
or the Exchange Ratio of 1.7568, giving effect to the SBC Stock Split to be
effected on March 19, 1998.
On February 5, 1998, the closing sale prices of the shares of SBC Common
Stock and SNET Common Stock as reported on the NYSE Composite Transactions Tape
were $38 15/32 per share (giving effect to the SBC Stock Split) and $65 per
share ($67.58 on a pro forma equivalent per share basis), respectively.
Shareholders are urged to obtain current quotations for the market prices
of SBC Common Stock and SNET Common Stock.
No assurance can be given as to the market price of the SBC Common Stock at
the Effective Time. Because the Exchange Ratio is fixed in the Merger Agreement,
the market value of the shares of SBC Common Stock that holders of SNET Common
Stock will receive at the time they exchange their Certificates may vary
significantly from the market value of the shares of SBC Common Stock that
holders of SNET Common Stock would receive if the Merger were consummated on the
date of this Proxy Statement/Prospectus.
12
<PAGE> 21
SELECTED HISTORICAL AND PRO FORMA COMBINED PER SHARE FINANCIAL DATA
The following table presents selected historical financial data of SBC and
SNET and selected unaudited pro forma combined per share financial data after
giving effect to the Merger as a "pooling of interests" transaction. SBC and
SNET selected historical data as of or for each of the five years in the period
ended December 31, 1996 have been derived from audited financial statements
filed with the SEC. The pro forma combined per share financial data are
presented for illustrative purposes only and are not necessarily indicative of
what such amounts would have been or will be upon consummation of the Merger.
Where applicable, the following selected financial data should be read in
conjunction with the related historical financial statements and notes thereto
incorporated by reference or included herein. See "Incorporation of Certain
Information by Reference."
<TABLE>
<CAPTION>
AS OF OR FOR THE
NINE MONTHS
ENDED AS OF OR FOR THE YEARS ENDED DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------
1997 1996 1995 1994 1993 1992
---------------- ------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
SBC -- HISTORICAL
Operating revenues.................. $ 18,272 $23,486 $21,712 $21,006 $20,084 $19,258
Income from continuing operations... $ 886 $ 3,189 $ 2,958 $ 2,777 $ 1,589 $ 2,455
Income from continuing operations
per common share(1)............... $ 0.48 $ 1.73 $ 1.61 $ 1.52 $ 0.88 $ 1.37
Total assets........................ $ 42,056 $39,485 $37,112 $46,113 $47,695 $45,588
Long-term debt...................... $ 11,636 $10,930 $10,409 $10,746 $10,588 $10,923
Dividends per common share(1)....... $0.67125 $ 0.86 $ 0.825 $ 0.79 $ 0.755 $ 0.73
Book value per common share(1)...... $ 5.21 $ 5.28 $ 4.57 $ 7.29 $ 8.34 $ 9.75
Network access lines................ 33.05 31.84 30.32 29.15 29.23 27.47
SNET -- HISTORICAL
Operating revenues.................. $ 1,494 $ 1,942 $ 1,816 $ 1,718 $ 1,657 $ 1,629
Income from continuing operations... $ 145 $ 193 $ 169 $ 178 $ (44) $ 159
Income from continuing operations
per common share.................. $ 2.20 $ 2.94 $ 2.60 $ 2.77 $ (.68) $ 2.56
Total assets........................ $ 2,774 $ 2,671 $ 2,724 $ 3,505 $ 3,762 $ 3,485
Long-term debt...................... $ 1,184 $ 1,170 $ 1,182 $ 952 $ 984 $ 1,048
Dividends per common share.......... $ 1.32 $ 1.76 $ 1.76 $ 1.76 $ 1.76 $ 1.76
Book value per common share......... $ 8.50 $ 7.05 $ 5.42 $ 14.77 $ 13.38 $ 19.79
Network access lines................ 2.26 2.16 2.07 2.01 1.96 1.94
PRO FORMA COMBINED PER SHARE DATA
Income from continuing operations
per common share(1)............... $ 0.53 $ 1.73 $ 1.60 $ 1.52 $ 0.80 $ 1.38
Dividends per common share(1)(2).... $0.67125 $ 0.86 $ 0.825 $ 0.79 $ 0.755 $ 0.73
Book value per common share(1)...... $ 5.19 $ 5.20 $ 4.48 $ 7.35 $ 8.30 $ 9.84
SNET -- EQUIVALENTS(3)
Income from continuing operations
per common share.................. $ 0.92 $ 3.03 $ 2.82 $ 2.68 $ 1.41 $ 2.42
Dividends per common share.......... $ 1.18 $ 1.51 $ 1.45 $ 1.39 $ 1.33 $ 1.28
Book value per common share......... $ 9.11 $ 9.14 $ 7.88 $ 12.92 $ 14.58 $ 17.28
</TABLE>
- ---------------
(1) This per share data has been adjusted to reflect the SBC Stock Split and
reflects basic earnings per share.
(2) The unaudited pro forma combined cash dividends declared per common share
are assumed to be the same as cash dividends declared by SBC on an
historical basis.
(3) The SNET -- Equivalents per share amounts are calculated by multiplying the
pro forma combined per share amounts, after giving effect to the SBC Stock
Split, by the Exchange Ratio of 1.7568.
13
<PAGE> 22
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of SNET
Common Stock in connection with the solicitation of proxies by the SNET Board
for use at the Special Meeting, to be held March 27, 1998, and any adjournments
or postponements thereof, for such holders to consider and vote upon the Merger
Proposal. No other business will be transacted at the Special Meeting.
THE SNET BOARD HAS ADOPTED THE MERGER AGREEMENT AND RECOMMENDS THAT THE
SNET SHAREHOLDERS VOTE FOR THE MERGER PROPOSAL.
Each copy of this Proxy Statement/Prospectus mailed to holders of SNET
Common Stock is accompanied by a form of proxy for use at the Special Meeting.
This Proxy Statement/Prospectus is also furnished to SNET shareholders as a
prospectus in connection with the issuance by SBC of shares of SBC Common Stock
in connection with the Merger.
DATE, PLACE AND TIME
The Special Meeting will be held March 27, 1998 at 10:00 a.m., local time,
at the Italian Center of Stamford, 1620 Newfield Avenue, Stamford, Connecticut
06905.
RECORD DATE
The SNET Board has fixed the close of business on February 6, 1998 as the
Record Date for the determination of the holders of SNET Common Stock entitled
to receive notice of and to vote at the Special Meeting and at any adjournments
or postponements thereof.
VOTE REQUIRED
As of the Record Date, there were 67,256,301 shares of SNET Common Stock
issued and outstanding. Each share of SNET Common Stock outstanding on the
Record Date is entitled to one vote on the Merger Proposal being submitted at
the Special Meeting. The affirmative vote of the holders of at least two-thirds
of the shares of SNET Common Stock outstanding on the Record Date is required to
approve the Merger Proposal. Any failure to be present at the Special Meeting,
in person or by proxy, any abstention and any broker non-vote will have the same
effect as a vote against the Merger Proposal. Under the rules of the NYSE,
brokers who hold shares in street name for customers will not have authority to
vote on the Merger Proposal unless they receive specific instructions from the
beneficial owners of such shares.
The presence, in person or by proxy, of a majority of the votes entitled to
be cast at the Special Meeting will constitute a quorum for the transaction of
business. Abstentions will be counted as present for the purposes of determining
whether a quorum is present. A majority of the shares of SNET Common Stock
present at the Special Meeting, in person or by proxy, whether or not
constituting a quorum, may vote to adjourn or postpone the Special Meeting from
time to time without further notice, including for the purpose of soliciting
additional proxies. Proxies containing a vote against the Merger Proposal will
not be voted in favor of such adjournment.
As of the Record Date, directors and executive officers of SNET and their
affiliates owned beneficially an aggregate of 597,162 shares of SNET 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 SNET Common Stock
outstanding on such date. The directors and executive officers of SNET have
indicated their intention to vote their shares of SNET Common Stock for the
Merger Proposal. See "The Merger -- Interests of Certain Persons in the Merger."
As of the Record Date, directors and executive officers of SBC and its
affiliates owned beneficially an aggregate of 2,000 shares of SNET Common Stock.
All such 2,000 shares are owned beneficially by Clarence C. Barksdale, a
director of SBC.
14
<PAGE> 23
No approval by the shareholders of SBC is required to effect the Merger.
VOTING AND REVOCATION OF PROXIES
Shares of SNET Common Stock represented by a proxy properly signed and
received at or prior to the 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 SNET COMMON STOCK
REPRESENTED BY THE PROXY WILL BE VOTED FOR THE MERGER PROPOSAL. A shareholder
submitting a proxy may revoke it at any time before it is voted, either by
voting in person at the meeting, or by executing and delivering a later dated
proxy or written instrument revoking such proxy. All written notices of
revocation and other communications with respect to revocation of proxies should
be addressed as follows: Southern New England Telecommunications Corporation,
227 Church Street, New Haven, CT 06510, Attention: Secretary.
In accordance with SNET's bylaws, three inspectors will be appointed by the
SNET Board to act as a committee on proxies at the Special Meeting. Such
inspectors will receive and take in charge the proxies, shall decide all
questions concerning the qualification of voters, the validity of proxies and
the acceptance or rejection of votes and will count the votes cast and report to
the officer presiding at the Special Meeting the result of the vote.
Shareholders of SNET will not be entitled to present any matter for
consideration at the Special Meeting, and no business is to be acted upon at the
Special Meeting other than as set forth in the Notice of Special Meeting of
Shareholders.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
SNET, none of whom will be specifically compensated for such services, may
solicit proxies from the shareholders of SNET 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, SNET has retained Georgeson & Company Inc. ("Georgeson") to
assist in the solicitation of proxies from its shareholders. The fees to be paid
to Georgeson for such services by SNET are not expected to exceed $12,500 plus
reasonable out-of-pocket costs and expenses. SNET will bear its own expenses in
connection with the solicitation of proxies for the Special Meeting, except that
SBC and SNET will share equally all expenses incurred in connection with the
filing fee for the Registration Statement and printing and mailing this Proxy
Statement/Prospectus and the Registration Statement.
SNET SHAREHOLDERS SHOULD NOT SEND SNET COMMON STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
THE COMPANIES
SBC
SBC is a holding company whose subsidiaries and affiliates operate
predominantly in the communications services industry. SBC's subsidiaries and
affiliates provide landline and wireless telecommunications services and
equipment and directory advertising and publishing services. SBC's subsidiaries
and affiliates provide landline telecommunications services and related services
in Texas, Missouri, Oklahoma, Kansas, Arkansas, California and Nevada and
wireless telecommunications services and related services in those markets as
well as in Illinois, Maryland, Massachusetts, New Hampshire, New York, Virginia,
Washington, D.C. and West Virginia. 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 shareholders 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.
15
<PAGE> 24
The mailing address of SBC's principal executive offices is 175 East
Houston, San Antonio, Texas 78205-2233, and its telephone number is (210)
821-4105.
SNET
SNET was incorporated under the laws of the State of Connecticut in 1986.
SNET is a holding company engaged through its subsidiaries in operations
principally in Connecticut with cellular services in Rhode Island and certain
areas in Massachusetts. SNET has business units in the following
telecommunications product groups: wireline; wireless; and information and
entertainment. The wireline business unit includes The Southern New England
Telephone Company's telecommunications services; SNET America, Inc. (providing
national and international long-distance services to Connecticut customers); and
SNET Diversified Group, Inc. (providing premium telecommunications services and
the selling and leasing of communications equipment to residential and business
customers). The wireless business unit includes SNET Cellular, Inc. and SNET
Mobility, Inc. The information and entertainment business unit includes SNET
Information Services, Inc. (providing publishing and internet services) and SNET
Personal Vision, Inc. (providing cable television service). Other activities
include those of SNET Real Estate, Inc. (engaging in leasing commercial real
estate) and of the SNET holding company (engaging in financial and strategic
planning for SNET and its subsidiaries).
The mailing address of SNET's principal executive offices is 227 Church
Street, New Haven, Connecticut 06510, and its telephone number is (203)
771-5200.
Merger Sub
Merger Sub, a wholly-owned subsidiary of SBC, was formed by SBC solely for
the purpose of effecting the Merger. The mailing address of Merger Sub's
principal executive offices is 175 East Houston, San Antonio, Texas 78205-2233
and its telephone number is (210) 821-4105.
RECENT DEVELOPMENTS
SBC
On January 28, 1998, SBC released its operating results for the year ended
December 31, 1997. SBC reported net income of $1.474 billion, or basic earnings
per share of $1.61 and earnings per share, assuming dilution, of $1.60. SBC's
operating revenues for 1997 were $24.856 billion, and operating expenses were
$21.686 billion.
SBC's net income for 1997 includes after-tax charges of approximately $2.0
billion reflecting strategic initiatives resulting from a comprehensive review
of operations of the company after the merger with Pacific Telesis Group, the
impact of several regulatory rulings during the second quarter of 1997, costs
incurred for customer number portability since the merger with Pacific Telesis
Group and charges for ongoing merger integration costs. Excluding these items,
SBC reported net income of $3.487 billion for 1997. Net income for 1997 was also
favorably affected by $33 million representing SBC's portion of the after-tax
gain on the sale of Bell Communications Research, Inc. and a first quarter 1997
$90 million after-tax settlement gain at Pacific Telesis Group associated with
lump-sum pension payments that exceeded the projected service and interest costs
for 1996 retirements. Excluding these additional items, SBC reported an adjusted
net income for 1997 of $3.364 billion or a basic earnings per share of $3.68 and
earnings per share, assuming dilution, of $3.65.
The above per share information is based on weighted average common shares
outstanding of 914 million for the year ended December 31, 1997, and has not
been restated to reflect the SBC Stock Split.
Also, on January 30, 1998, SBC declared a dividend of $0.23375 per share
taking the SBC Stock Split (as defined herein) into account, payable May 1,
1998, to shareholders of record on April 10, 1998. Without giving effect to the
SBC Stock split the dividend would be $0.4675 per share. The increase represents
a dividend increase of approximately 4.5%.
16
<PAGE> 25
SNET
On January 27, 1998, SNET released its operating results for the year ended
December 31, 1997. SNET reported net income of $193.8 million, or basic earnings
per share of $2.93, and earnings per share, assuming dilution, of $2.92. SNET's
operating revenues for 1997 were $2.022 billion, and its operating expenses for
1997 were $1.193 billion.
SNET's net income for 1997 includes an after-tax charge of approximately
$3.7 million from the early redemption of certain debt. Excluding this item,
SNET reported net income of $197.5 million for 1997.
The above per share information is based on weighted average common shares
outstanding of 66.2 million for the year ended December 31, 1997.
SBC STOCK SPLIT
On January 30, 1998, the SBC Board declared a two-for-one split of the SBC
Common Stock. The SBC Stock Split will be in the form of a special dividend on
the SBC Common Stock pursuant to which one share of SBC Common Stock is to be
issued on March 19, 1998, to each holder of record of SBC at the close of
business on February 20, 1998. The exchange ratio originally agreed to by SBC
and SNET was 0.8784, which will be adjusted to reflect the SBC Stock Split,
pursuant to Section 4.4 of the Merger Agreement. Accordingly, such original
exchange ratio will be multiplied by two and thereby adjusted to the Exchange
Ratio of 1.7568.
THE MERGER
This section of this 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 Annex A to
this Proxy Statement/Prospectus and is incorporated herein by reference. All
shareholders of SNET are urged to read the Merger Agreement in its entirety.
GENERAL
The Merger Agreement provides for a business combination between SBC and
SNET in which, subject to the satisfaction of the conditions therein, Merger Sub
will be merged with and into SNET, and SNET will thereby become a wholly-owned
subsidiary of SBC in a transaction intended to qualify as a "pooling of
interests" for accounting and financial reporting purposes and as a tax free
"reorganization" within the meaning of Section 368(a) of the Code for federal
income tax purposes. In the Merger, each outstanding share of SNET Common Stock
(other than Excluded SNET Common Stock) will be converted into 1.7568 shares of
SBC Common Stock, after giving effect to the SBC Stock Split, together with the
appropriate number of SBC Rights. SBC and SNET originally agreed to an exchange
ratio of 0.8784, which, as adjusted to reflect the SBC Stock Split, equals the
Exchange Ratio of 1.7568. As a result of this adjustment, the SBC Stock Split
will not change the value of the shares of SBC Common Stock which holders of
shares of the SNET Common Stock will receive in the Merger. The value of 1.7568
shares of SBC Common Stock after giving effect to the SBC Stock Split equals the
value of 0.8784 of a share of SBC Common Stock without giving effect to the SBC
Stock Split. Each outstanding share of SBC Common Stock will remain outstanding
and be unaffected by the Merger. As a result of the Merger, holders of SNET
Common Stock at the Effective Time will own approximately 6% of the SBC Common
Stock (based on the number of shares of SBC Common Stock and SNET Common Stock
outstanding as of December 31, 1997 (but after giving effect to the SBC stock
split) and the Exchange Ratio).
No fractional shares of SBC Common Stock will be issued in the Merger.
Instead, the Merger Agreement provides that each holder of SNET 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, an amount in cash (without
interest) determined by multiplying such fraction (rounded to the nearest
one-hundredth of a share)
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by the closing price of a share of SBC Common Stock, as reported in The Wall
Street Journal, New York City edition, for the last trading day prior to the
Effective Time.
BACKGROUND OF THE MERGER
The process leading to the SNET Board's adoption of the Merger Agreement
began in late 1996, when the SNET Board and the senior management of SNET
commenced a review of the SNET's strategic goals in the context of rising costs
(including non-recurring items such as year 2000 costs) and a rapidly changing
regulatory environment. At the meetings of the SNET Board in November and
December of 1996, the SNET Board concluded that SNET would need to substantially
increase the scale and scope of its operations in order to continue to compete
successfully and in a cost-effective manner in the increasingly competitive
telecommunications industry and to provide SNET's customers with the broad range
of telecommunications products and services they would demand and to meet the
goals of its shareholders.
During the first eight months of 1997, at the direction of the SNET Board,
the management of SNET explored possibilities for various joint ventures and
business alliances in specific product areas with a view toward increasing the
scale and scope of SNET's operations. During this period, SNET commenced
negotiations with SBC relating to a possible alliance of their respective A-band
cellular properties. SNET also considered pursuing strategic acquisitions and
investments. SNET did not consummate any material transaction of this type.
Toward the end of this period, the senior management of SNET began to consider
whether a more fundamental strategic change, including a possible business
combination with a significantly larger telecommunications company, was needed
in order to meet SNET's strategic and financial objectives.
SNET's senior management ultimately concluded that a combination with a
major telecommunications company was the best alternative in order to achieve
SNET's objectives because, unlike the other alternatives considered, it would
immediately satisfy SNET's primary objective of increased scale and scope and
would create a strong foundation for subsequent strategic initiatives beneficial
to SNET's shareholders. Furthermore, management considered a strategic
investment or acquisition to be 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. In addition, any significant
investment or acquisition would likely result in increased indebtedness, and
therefore, less financial flexibility. At the meeting of the SNET Board on
September 10, 1997, the directors of SNET considered the various strategic
alternatives and, although no decision was made at that time to pursue any
strategic alternative, the SNET Board directed Mr. Daniel J. Miglio, SNET's
Chairman and Chief Executive Officer, to make preliminary inquiries of a limited
number of major telecommunications companies to determine their level of
interest in pursuing a possible business combination with SNET.
Mr. Miglio and representatives of Salomon Smith Barney contacted
representatives of several large telecommunications companies during the fall of
1997, including Mr. Edward E. Whitacre, Jr., SBC's Chairman and Chief Executive
Officer. At that time, Mr. Whitacre indicated that SBC might be interested in
discussing a business combination between SNET and SBC. Mr. Miglio updated the
SNET Board on these preliminary inquiries at its October 8, 1997 meeting.
On October 10, 1997, Messrs. Miglio and Whitacre met to explore the
possibility of a business combination transaction. The two chief executive
officers discussed, among other things, each company's operations, their
complementary strengths and the possible advantages of a combination. Based on
this discussion, they agreed that it would be appropriate for other senior
officers of their respective companies, principally the Senior Vice
President-Chief Financial Officer of SNET and the Senior Vice President,
Corporate Development, of SBC, to meet to explore the various issues raised by
the possible transaction. On October 22, 1997, SBC and SNET entered into a
confidentiality agreement governing their exchange of confidential information.
Discussions among the senior management of SNET and SBC were held in
November and December of 1997. Mr. Miglio updated the directors of SNET with
respect to these discussions at the meetings of the SNET Board held on November
12, 1997 and December 10, 1997.
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On December 16, 1997, Messrs. Miglio and Whitacre again met and discussed
the consideration that might be offered to the shareholders of SNET in
connection with the proposed transaction and the compatibility of the two
companies. On December 17, 1997, Mr. Miglio held a conference call with the SNET
Board to inform them of the status of these discussions.
On December 18 and 19, 1997, Messrs. Miglio and Whitacre had additional
discussions regarding an appropriate exchange ratio and certain other material
terms of the proposed transaction. Messrs. Miglio and Whitacre eventually
concluded that a fixed exchange ratio approximating the Exchange Ratio was
likely to be mutually acceptable, subject to the satisfactory completion of
mutual due diligence, agreement with respect to other outstanding issues and to
the approval of their respective boards of directors.
Beginning on December 23, 1997, SBC and SNET conducted more extensive
mutual due diligence, including a review of each other's business plans, budgets
and capital requirements. The parties commenced negotiating the terms of a
merger agreement on December 28, 1997. Negotiations and discussions of various
terms of the proposed merger agreement by representatives of SBC and SNET,
together with their respective legal and financial advisors, continued daily
until shortly before the Merger Agreement was executed on January 4, 1998. In
the context of these negotiations and discussions, the exchange ratio was fixed
at 0.8784 (which equals 1.7568, after giving effect to the SBC Stock Split) on
January 1, 1998, subject to approval of the SNET and SBC boards of directors.
Discussions were also held during November and December of 1997 between
senior management of SNET and other potentially interested telecommunications
companies. By January 4, 1998, such discussions had not progressed to the point
of resulting in significant business opportunities for consideration by the SNET
Board.
On January 4, 1998 the SNET Board met to consider the Merger Agreement, the
Stock Option Agreement and the transactions contemplated thereby, including the
proposed consideration to be paid to shareholders of SNET and the effects of the
proposed transaction on SNET's other constituencies, including its employees,
customers and the communities in which it does business. Members of SNET's
senior management and representatives of Cravath, Swaine & Moore, counsel to
SNET, and Day, Berry & Howard, Connecticut counsel to SNET, as well as Salomon
Smith Barney, made presentations to the SNET Board and discussed with the SNET
Board their views and analyses of various aspects of the proposed transaction.
The SNET Board reviewed and considered the matters described under "-- Reasons
for the Merger; Recommendation of the SNET Board of Directors -- SNET." Salomon
Smith Barney delivered its oral opinion (subsequently confirmed in writing) to
the SNET Board to the effect that, as of such date, the consideration to be
received by holders of shares of SNET Common Stock in the Merger was fair from a
financial point of view to such holders. After deliberation, the SNET Board
adopted the Merger Agreement and authorized the execution and delivery of the
Merger Agreement.
On January 4, 1998, the SBC Board met to consider the Merger Agreement, the
Stock Option Agreement and the transactions contemplated thereby, including the
proposed consideration to be paid in the Merger. After deliberation, the SBC
Board authorized the execution and delivery of the Merger Agreement and approved
the Merger Agreement. The SBC Board reviewed and considered the matters set
forth under "-- Reasons for the Merger; Recommendation of the SNET Board of
Directors -- SBC."
REASONS FOR THE MERGER; RECOMMENDATION OF THE SNET BOARD OF DIRECTORS
SBC
The SBC Board has determined by the unanimous vote of the directors in
attendance that the terms of the Merger Agreement and the transactions
contemplated thereby are fair to, and in the best interests of, SBC and SBC's
shareholders. Accordingly, the Board of Directors of SBC, the sole shareholder
of Merger Sub, has adopted the Merger Agreement by the unanimous vote of the
directors in attendance and SBC has approved the Merger. In reaching its
determination, the SBC Board concluded that the Merger was likely to increase
the value of shareholders' investment in SBC over what that value would have
been had SBC not agreed to the
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Merger and that the opportunities created by the Merger to increase shareholder
value more than offset the risks inherent in the Merger. In reaching this
conclusion, the SBC Board considered that the Merger will:
(a) further enhance SBC's position as one of the largest
telecommunications companies in the United States and further position 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 and
wireless operations, SBC's financial resources, and SBC's purchasing
economies of scale to the SNET operations;
(c) permit the realization of efficiencies in the development of SBC's
long distance services by applying the current long distance skills of
SNET; and
(d) enable SBC to add 2.3 million telephone access lines to its
existing 32 million telephone access lines.
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.
SNET
THE SNET BOARD HAS DETERMINED THAT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST INTERESTS OF SNET AND HAS
ADOPTED THE MERGER AGREEMENT. THE SNET BOARD RECOMMENDS THAT THE SHAREHOLDERS OF
SNET VOTE FOR THE MERGER PROPOSAL.
The determination of the SNET Board to adopt the Merger Agreement was based
upon consideration of a number of factors, including the following potentially
positive factors:
(i) the relationship of the Exchange Ratio to the historical market
prices for SNET Common Stock, including the fact that the Exchange Ratio
would provide a premium of approximately 33% to SNET shareholders based on
the trading prices of SNET Common Stock and SBC Common Stock on the trading
day immediately prior to the announcement of the execution of the Merger
Agreement;
(ii) the ability of SNET shareholders to participate as equity holders
of SBC on a tax free basis (see "Certain Tax Consequences of the Merger");
(iii) the ability of SNET shareholders to sell their shares of SBC
Common Stock following the Merger (see "-- Resale of SBC Common Stock");
(iv) the relatively greater financial, technological, marketing and
sales resources of SBC and the likelihood that such resources would enable
SNET to accelerate its long-term growth strategy, to facilitate the
introduction of new products and to compete more effectively in its
targeted markets;
(v) the view of the SNET Board that the telecommunications industry
has begun to, and will continue to, experience a rapid consolidation in
response to regulatory and other developments; that only companies of
substantial scale will be able to offer on a cost-effective basis a broad,
integrated package of telecommunications services that customers will
demand; and that only such companies will be likely to attract the most
desirable investment and partnering opportunities following the ongoing
consolidation of the telecommunications industry;
(vi) the strength and expertise of SBC's senior management team and
its experience in successfully completing business combinations and
integrating geographically diverse businesses;
(vii) the strength of each of SBC and SNET in local wireline service
in their respective areas of operation;
(viii) the complementary nature of the wireless operations of SBC and
SNET;
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(ix) the likelihood that SNET's existing operations would benefit from
SBC's purchasing economies of scale and SBC's wireless and marketing
expertise, and the likelihood that SBC's existing and future operations
would benefit from SNET's long distance expertise;
(x) the likelihood that, based on existing trends, the amount of the
regularly quarterly dividend to be paid on SBC Common Stock would exceed
the regularly quarterly dividend to be paid on SNET Common Stock (after
adjustment based on the Exchange Ratio) as early as 2000 or 2001 (see
"-- Dividends");
(xi) SBC's expressed commitment to the communities served by SNET; and
(xii) the SNET Board's belief, after consultation with its legal
counsel, that the required regulatory approvals would be obtained for the
Merger (see "-- Certain Regulatory Filings and Approvals").
The SNET Board also considered a number of potentially negative factors in
determining whether to adopt the Merger Agreement, including the following:
(i) the possibility that the value of the consideration that would be
received by shareholders of SNET in the Merger (which is determined by a
fixed Exchange Ratio) may diminish prior to the closing of the Merger (the
"Closing") if the market value of SBC Common Stock declines during the
period prior to the Closing;
(ii) the obligations of SNET under certain circumstances set forth in
the Merger Agreement to pay a termination fee of $125 million to SBC and to
issue SNET Common Stock to SBC pursuant to the Stock Option Agreement
(which would result in the unavailability of pooling of interest accounting
treatment for an alternative transaction) (see "-- Certain
Covenants -- Acquisition Proposals;" "-- Termination;" "-- Certain
Termination Fees;" and "-- The Stock Option Agreement");
(iii) the fact that the amount of the regular quarterly dividend
currently paid on SBC Common Stock is less than the amount of the regular
quarterly dividend currently paid on SNET Common Stock (after adjustment
based on the Exchange Ratio) (see "-- Dividends");
(iv) the effect of regulatory developments on the businesses of SBC;
and
(v) SBC's right under the Merger Agreement to take actions that could
result in the Merger being treated as a purchase accounting transaction
instead of a pooling of interests transaction for financial reporting
purposes (see "-- Conditions").
In addition, in determining whether to adopt the Merger Agreement, the SNET
Board considered, among other things, (i) the financial condition, results of
operations and cash flows of SBC and SNET on a historical and on a prospective
basis, (ii) the current and historical market prices of SNET Common Stock and
SBC Common Stock, (iii) the strategic benefits of the Merger and the other
strategic options available to SNET, including possible joint ventures, business
alliances, acquisitions and business combinations, (iv) the prospects of SNET on
a stand-alone basis and the prospects of a combined SBC/SNET entity, (v)
continuing upward pressures on developing new technologies and expenses and
downward pressures on operating margins within the telecommunications industry,
(vi) the current and anticipated regulatory environment with respect to SNET's
operations, (vii) the potential impact of the Merger on shareholders, employees,
customers, creditors and suppliers of SNET and the communities served by SNET,
(viii) the judgment, advice and analyses of SNET management, (ix) the judgment
and advice of, and the analyses prepared by, Salomon Smith Barney, (x) the terms
and conditions of the Merger Agreement and the Stock Option Agreement, (xi) the
likelihood of receiving regulatory clearance for the Merger and the timing with
respect thereto, (xii) the potential for alternative transactions and (xiii) the
business and financial information received by SNET from SBC in connection with
SNET's review of SBC.
The foregoing discussion of the information and factors considered by the
SNET Board is not intended to be exhaustive but is believed to include all
material factors considered by the SNET Board. In view of the variety of factors
considered in connection with its evaluation of the Merger Agreement, the SNET
Board did
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not find it practicable to, and did not, quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination.
OPINION OF SALOMON SMITH BARNEY
At the meeting of the SNET Board held on January 4, 1998, Salomon Smith
Barney delivered its oral opinion, subsequently confirmed in writing, that, as
of such date, the consideration to be received by holders of shares of SNET
Common Stock in the Merger was fair, from a financial point of view, to such
holders. No limitations were imposed by the SNET Board upon Salomon Smith Barney
with respect to the investigation made or the procedures followed by Salomon
Smith Barney in rendering its opinion.
The full text of the written opinion of Salomon Smith Barney is set forth
as Annex C to this Proxy Statement/Prospectus and sets forth the assumptions
made, procedures followed and matters considered by Salomon Smith Barney.
Holders of SNET Common Stock are urged to read Salomon Smith Barney's opinion in
its entirety. The summary of the opinion as set forth in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion, which is incorporated herein by reference.
In connection with rendering its opinion, Salomon Smith Barney reviewed and
analyzed, among other things, the following: (i) the Merger Agreement; (ii)
certain publicly available information concerning SNET, including the Annual
Reports on Form 10-K of SNET for each of the years in the three-year period
ended December 31, 1996 and the Quarterly Reports on Form 10-Q of SNET for the
quarters ended March 31, June 30 and September 30, 1997; (iii) certain internal
information, primarily financial in nature, including projections, concerning
the business and operations of SNET, prepared by SNET's management and furnished
to Salomon Smith Barney by SNET for purposes of Salomon Smith Barney's analysis;
(iv) certain publicly available information concerning the trading of, and the
trading market for, SNET Common Stock; (v) certain publicly available
information concerning SBC, including the Annual Reports on Form 10-K of SBC for
each of the years in the three-year period ended December 31, 1996 and the
Quarterly Reports on Form 10-Q of SBC for the quarters ended March 31, June 30
and September 30, 1997; (vi) certain other information, primarily financial in
nature, including projections, concerning the business and operations of SBC,
prepared by SBC's management and furnished to Salomon Smith Barney by SBC for
purposes of Salomon Smith Barney's analysis; (vii) certain publicly available
information concerning the trading of, and the trading market for, SBC Common
Stock; (viii) certain publicly available information with respect to certain
other companies that Salomon Smith Barney believed to be comparable to SNET or
SBC and the trading markets for certain of such other companies' securities; and
(ix) certain publicly available information concerning the nature and terms of
certain other transactions that Salomon Smith Barney considered relevant to its
inquiry. Salomon Smith Barney also considered such other information, financial
studies, analyses, investigations and financial, economic and market criteria
that it deemed relevant. Salomon Smith Barney also met with certain officers and
employees of SNET and SBC to discuss the foregoing as well as other matters it
believed relevant to its inquiry.
In its review and analysis and in arriving at its opinion, Salomon Smith
Barney assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to Salomon Smith Barney or publicly
available and neither attempted independently to verify nor assumed any
responsibility for verifying any of such information. With respect to financial
projections and forecasts, Salomon Smith Barney was advised by the management of
SNET and SBC and assumed that such projections and forecasts were reasonably
prepared and reflect the best currently available estimates and judgment of
SNET's or SBC's management, as the case may be, as to the future financial
performance of SNET or SBC, as the case may be, and Salomon Smith Barney
expressed no view with respect to such projections or forecasts or the
assumptions on which they were based. Salomon Smith Barney also assumed the
Merger would be consummated in a timely manner and in accordance with the terms
of the Merger Agreement. Salomon Smith Barney has not conducted a physical
inspection of any of the properties or facilities of SNET or SBC, nor has
Salomon Smith Barney made or obtained or assumed any responsibility for making
or obtaining any independent evaluations or appraisals of any of such properties
or facilities, nor has Salomon Smith Barney been furnished with any such
evaluations or appraisals.
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In conducting its analysis and arriving at its opinion, Salomon Smith
Barney considered such financial and other factors as it deemed appropriate
under the circumstances including, among others, the following: (i) the
historical and current financial position and results of operations of SNET and
SBC; (ii) the business prospects of SNET and SBC; (iii) the historical and
current market for SNET Common Stock, SBC Common Stock and for the equity
securities of certain other companies that Salomon Smith Barney believed to be
comparable to SNET or SBC; and (iv) the nature and terms of certain other
acquisition transactions that Salomon Smith Barney believed to be relevant.
Salomon Smith Barney also took into account its assessment of general economic,
market and financial conditions as well as its experience in connection with
similar transactions and securities valuation generally. Salomon Smith Barney's
opinion necessarily is based upon conditions as they existed and could be
evaluated on the date thereof and Salomon Smith Barney assumed no responsibility
to update or revise its opinion based upon circumstances or events occurring
after the date thereof. Salomon Smith Barney's opinion is, in any event, limited
to the fairness, from a financial point of view, of the consideration to be
received by the holders of shares of SNET Common Stock in the Merger and does
not address SNET's underlying business decision to effect the Merger or
constitute a recommendation to any holder of shares of SNET Common Stock as to
how such holder should vote with respect to the Merger. Salomon Smith Barney's
opinion also does not constitute an opinion or imply any conclusion as to the
price at which SBC Common Stock would trade upon the public announcement or the
consummation of the Merger.
In connection with its opinion, Salomon Smith Barney performed certain
financial analyses, which it discussed with the SNET Board on January 4, 1998.
The material portions of the analyses performed by Salomon Smith Barney in
connection with the rendering of its opinion dated as of January 4, 1998 are
summarized in the six sections below.
(i) Historical Stock Price Performance. Salomon Smith Barney reviewed the
relationship between movements of SNET Common Stock, SBC Common Stock, an index
of independent telcos (the "Independent Index"), which included Aliant
Communications Inc., ALLTEL Corporation, Century Telephone Enterprises, Inc. and
Cincinnati Bell Inc. (the "Independents"), an index of regional holding
companies (the "RHC Index"), which included Ameritech Corporation, Bell Atlantic
Corporation, BellSouth Corporation, U S WEST Communications Group, Inc. and GTE
Corporation (the "RHCs") and the Standard & Poor's 400 Index for the period from
January 1995 through December 1997 and the trading volume and price history of
SNET Common Stock and SBC Common Stock for the period from January 1995 through
December 1997.
(ii) Consolidated Comparables Analysis. Salomon Smith Barney compared the
financial and market performance of SNET and SBC with that of the Independents
and RHCs, including: the projected five year growth in earnings per share
("EPS") based on First Call estimates; the ratio ("P/E Ratio") of current stock
prices per share to the 1997 and 1998 EPS estimates provided by First Call; and
the ratio of the current dividend per share to the current stock prices per
share ("Dividend Yield"). This analysis showed: projected five year EPS growth
rates ranging from 9% to 18% (median of 13%) for the Independents and 5% to 10%
(median of 9%) for the RHCs as compared to 6% for SNET and 10% for SBC; 1997 P/E
Ratios ranging from 19.5x to 21.9x (median of 20.9x) for the Independents and
17.5x to 20.0x (median of 18.3x) for the RHCs as compared to 17.1x for SNET and
20.6x for SBC; 1998 P/E Ratios ranging from 18.0x to 20.7x (median of 19.2x) for
the Independents and 16.6x to 18.2x (median of 17.1x) for the RHCs as compared
to 16.9x for SNET and 17.7x for SBC; Dividend Yields ranging from 0.7% to 2.8%
(median of 1.7%) for the Independents and 2.6% to 4.7% (median of 3.4%) for the
RHCs as compared to 3.5% for SNET and 2.4% for SBC. Salomon Smith Barney noted
that the best comparable for SNET was U S WEST Communications Group which had a
projected five year EPS growth rate of 5%, a 1997 P/E Ratio of 17.5x, a 1998 P/E
Ratio of 16.6x and a dividend yield of 4.7%.
(iii) SNET Segment Valuation Analysis. Salomon Smith Barney arrived at a
range of values for SNET by performing separate valuation analyses with respect
to its (a) local telecommunications business segment ("SNET Telco"), (b)
directory business segment ("SNET Directory"), (c) cellular business segment
("SNET Cellular") and (d) long distance business segment ("SNET Long Distance").
Salomon Smith Barney utilized three principal valuation methodologies in valuing
these business segments: a public market
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comparable companies analysis, a precedent transactions analysis and a
discounted cash flow analysis. A public market comparable companies analysis
analyzes a segment's operating performance and outlook relative to a group of
publicly traded peer companies to determine an implied unaffected market trading
value. A precedent transactions analysis provides a valuation range based upon
financial information of peer companies, in the same or similar industries as
the business segment, which have been acquired in selected recent transactions.
A discounted cash flow ("DCF") analysis determines the net present value of the
projected cash flows for a business or segment. In the SNET DCF analysis Salomon
Smith Barney aggregated for each segment (x) the present value of the unlevered
free cash flows for the 1998 through 2000 forecast period (based on the plans
prepared by SNET's management which excluded the effects of the Merger) with (y)
the present value of a range of terminal values. This range of terminal values
represented the value beyond the applicable forecast period. No company used in
the public market comparable companies analyses described below is identical to
the respective business segment of SNET and no transaction used in the precedent
transaction analyses described below is identical to the Merger. Accordingly,
the analysis described below necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the business segments and other facts that could affect the public trading value
or the acquisition value of the companies to which they are being compared.
(a) SNET Telco. Salomon Smith Barney arrived at a firm value reference
range for SNET Telco equal to $2.7 billion to $3.1 billion.
Telco Public Market Comparable Companies Analysis. Salomon Smith Barney
compared certain financial information of SNET Telco with the following group of
companies that Salomon Smith Barney believed to be appropriate for comparison:
the Independents, RHCs and SBC Telco (as defined herein). The financial and
valuation data for the comparable companies was adjusted by Salomon Smith Barney
to exclude the operating results and the value of non-telecommunications
operations. Salomon Smith Barney reviewed, among other things, the ratio of:
latest twelve months ("LTM") earnings before interest, taxes, depreciation and
amortization ("EBITDA") to LTM revenues ("EBITDA Margin"), LTM earnings before
interest and taxes ("EBIT") to LTM revenues ("EBIT Margin"), firm value to LTM
EBITDA and firm value to LTM EBIT. This analysis showed: EBITDA Margins ranging
from 37.5% to 55.1% (median of 51.2%) for the Independents (along with Telephone
And Data Systems, Inc.) and 41.9% to 48.6% (median of 46.4%) for the RHCs as
compared to 41.5% for SNET (excluding the cable results) and 41.8% for SBC; EBIT
Margins ranging from 19.5% to 34.7% (median of 32.0%) for the Independents
(along with Telephone And Data Systems, Inc.) and 24.9% to 29.6% (median of
26.5%) for the RHCs as compared to 19.1% for SNET (excluding the cable results)
and 22.6% for SBC; the ratio of firm value to LTM EBITDA ranging from 5.7x to
8.5x (median of 7.3x) for the Independents and 5.4x to 7.2x (median of 6.2x) for
the RHCs as compared to 4.3x (including the cable results) for SNET and 6.6x for
SBC; the ratio of firm value to LTM EBIT ranging from 10.5x to 13.6x (median of
11.9x) for the Independents and 9.8x to 11.9x (median of 10.4x) for the RHCs as
compared to 10.1x (including the cable results) for SNET and 12.2x for SBC. Due
to the capital intensive nature of the business and the lower SNET margins,
Salomon Smith Barney focused on the multiples of EBIT in arriving at ranges of
SNET Telco's firm value. The analysis above suggested ranges of SNET Telco's
firm value equal to 10.0x to 11.0x LTM EBIT or $2.480 to $2.728 billion based on
LTM EBIT including the cable results ($2.760 to $3.036 billion if the cable
results are excluded).
Telco Precedent Transactions Analysis. Salomon Smith Barney reviewed and
analyzed certain financial, operating and stock market information relating to
selected mergers and acquisitions of local telecommunications companies,
including: Century Telephone Enterprises, Inc.'s acquisition of Pacific Telecom,
Inc.; Ameritech Corporation's acquisition of Century Telephone Company of
Illinois; Bell Atlantic's acquisition of NYNEX Corporation; SBC's acquisition of
Pacific Telesis Group; PacifiCorp, Inc.'s acquisition of Pacific Telecom, Inc.;
Citizens Utilities Company's acquisition of assets of ALLTEL Corporation;
Citizens Utilities Company's acquisition of assets of GTE; ALLTEL Corporation's
acquisition of assets of GTE; Sprint Corporation's acquisition of Centel
Corporation; Century Telephone Enterprises, Inc.'s acquisition of Centel
Corporation's Ohio local telephone assets; Rochester Telephone Corporation's
acquisition of Centel Corporation's Minnesota and Iowa local telephone
operations and GTE's acquisition of Contel Corporation. This analysis showed:
multiples of firm value to LTM EBITDA ranging from 4.5x to 10.5x (median of
5.6x) and
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multiples of firm value to LTM EBIT ranging from 7.0x to 17.7x (median of
11.1x). Salomon Smith Barney noted that the most comparable transaction was the
acquisition of Pacific Telesis Group by SBC (5.6x LTM EBITDA and 10.9x LTM
EBIT). The analysis above suggested ranges of SNET Telco's firm value equal to:
4.5x to 5.5x LTM EBITDA or $2.583 to $3.157 billion based on LTM EBITDA
including the cable results ($2.700 to $3.300 billion if the cable results are
excluded) and 10.0x to 12.0x LTM EBIT or $2.480 to $2.976 billion based on LTM
EBIT including the cable results ($2.760 to $3.312 billion if the cable results
are excluded).
Telco Discounted Cash Flow Analysis. In valuing SNET Telco based on a DCF
analysis, Salomon Smith Barney applied a range of weighted average costs of
capital equal to 9.0% to 10.0% and terminal multiples of Year 2000 EBITDA
ranging from 4.0x to 5.5x (or 8.9x to 12.2x Year 2000 EBIT). The DCF analysis
suggested a range of firm values for SNET Telco equal to: $2.400 to $2.900
billion if the cable results are included, $2.750 to $3.250 billion if the cable
results are excluded and $2.650 to $3.150 billion if only the 1998 cable results
are included.
(b) SNET Directory. Salomon Smith Barney arrived at a firm value reference
range for SNET Directory equal to $900 to $1,100 million.
Directory Public Market Comparable Companies Analysis. Salomon Smith
Barney compared certain financial information of SNET Directory with the
following group of companies that Salomon Smith Barney believed to be
appropriate for comparison: Central Newspapers, Inc., Gannett Company, Inc.,
Knight-Ridder, Inc. and McClatchy Newspapers, Inc. (the "Directory Comparable
Companies"). Salomon Smith Barney reviewed, among other things, the multiples of
firm value to LTM EBITDA and projected 1998 EBITDA. This analysis showed:
multiples of firm value to LTM EBITDA ranging from 6.9x to 11.9x (median of
8.9x) and multiples of firm value to projected 1998 EBITDA ranging from 6.4x to
9.9x (median of 8.1x). The analysis above suggested ranges of SNET Directory
firm value equal to: 8.0x to 10.0x LTM EBITDA or $872 to $1,090 million and 7.5x
to 9.5x 1998 EBITDA or $833 to $1,055 million.
Directory Precedent Transactions Analysis. Salomon Smith Barney reviewed
and analyzed certain financial, operating and stock market information relating
to selected mergers and acquisitions of directory companies, including: Verenigd
Bezit VNU's acquisition of ITT World Directories, Inc.; McClatchy Newspapers
Inc.'s acquisition of Cowles Media Company; US West Media Group's acquisition of
US West Deus West Communications, Inc.; McLeod, Inc.'s acquisition of Telecom
USA Publishing Group, Inc.; Investor Group's acquisition of Petersen Publishing
Company, L.L.C.; Media General, Inc.'s acquisition of Register Publishing
Company Incorporated; Johnston Press plc's acquisition of EMAP Newspaper &
Printing Limited; The Thompson Corporation's acquisition of West Publishing
Company; Harte-Hanks Communications, Inc.'s acquisition of DiMark, Inc.;
McClatchy Newspapers Inc.'s acquisition of The News & Observer Publishing
Company and EMAP plc's acquisition of Rogers Communications Inc. Salomon Smith
Barney reviewed, among other things, the multiples of firm value to LTM EBITDA
which ranged from 8.9x to 16.8x (median of 11.8x). The most comparable
transactions were the ITT and US WEST acquisitions in 1997 (9.8x and 8.9x LTM
EBITDA, respectively). The analysis above suggested a range of SNET Directory
firm values equal to 9.0x to 10.0x LTM EBITDA or $981 to $1,090 million.
Directory Discounted Cash Flow Analysis. In valuing SNET Directory based
on a DCF analysis, Salomon Smith Barney applied a range of weighted average
costs of capital equal to 9.0% to 10.0% and terminal multiples of Year 2000
EBITDA ranging from 8.0x to 10.0x. The DCF analysis suggested a range of firm
values for SNET Directory equal to $900 to $1,100 million.
(c) SNET Cellular. Salomon Smith Barney arrived at a firm value reference
range for SNET Cellular equal to $1.0 to $1.2 billion.
Cellular Public Market Comparable Companies Analysis. Salomon Smith Barney
compared certain financial information of SNET Cellular with the following group
of companies that Salomon Smith Barney believed to be appropriate for
comparison: Airtouch Communications, Inc., 360 Degrees Communications Company,
Vanguard Cellular Systems, Inc. and Western Wireless Corporation (the "Cellular
Comparable Companies"). Salomon Smith Barney reviewed, among other things, the
LTM 9/30/97 penetration rates, the
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LTM 9/30/97 revenue per subscriber per month, the LTM 9/30/97 EBITDA Margins,
the firm value per POP multiples and the multiples of firm value to 1997 EBITDA
and 1998 EBITDA. This analysis showed: LTM 9/30/97 penetration rates ranging
from 7.1% to 10.0% (median of 8.6%) for the Cellular Comparable Companies as
compared to 8.3% for SNET and 11.0% for SBC at 12/31/97; LTM 9/30/97 revenue per
subscriber per month ranging from $46 to $61 (median of $53) for the Cellular
Comparable Companies as compared to $42 for SNET and $55 for SBC at 12/31/97;
LTM 9/30/97 EBITDA Margins ranging from 34% to 46% (median of 35%) as compared
to 31% for SNET and 39% for SBC at 12/31/97; firm value per POP multiples
ranging from $151 to $256 (median of $172) for the Cellular Comparable
Companies; multiples of firm value to 1997 EBITDA ranging from 8.7x to 12.2x
(median of 9.7x) for the Cellular Comparable Companies; multiples of firm value
to 1998 EBITDA ranging from 7.2x to 9.1x (median of 7.9x) for the Cellular
Comparable Companies. The analysis above suggested ranges of SNET Cellular firm
value equal to: $150 to $200 per POP or $829 million to $1,105 million; 9.0x to
12.0x 1997 EBITDA or $603 to $804 million; 7.5x to 9.5x 1998 EBITDA or $795 to
$1,007 million.
Cellular Precedent Transactions Analysis. Salomon Smith Barney reviewed
and analyzed certain financial, operating and stock market information relating
to selected mergers and acquisitions of cellular companies, including the
acquisition of Palmer Wireless, Inc. by Price Communications Corporation
(announced 5/22/97) (the "Palmer Transaction") and the acquisition of Commnet
Cellular, Inc. by Blackstone Capital Partners (announced 5/28/97) (the "Commnet
Transaction"). Salomon Smith Barney reviewed, among other things, the
penetration rates, revenue per subscriber per month, EBITDA Margins, firm value
per POP multiples and the multiples of firm value to trailing and forward EBITDA
at the time of announcement. This analysis showed: penetration rates of 8.3% and
5.9% for Palmer and Commnet, respectively; revenue per subscriber per month of
$51 and $59 for Palmer and Commnet, respectively; EBITDA Margins of 44% and 36%
for Palmer and Commnet, respectively; firm value per POP multiples of $231 and
$211 for Palmer and Commnet, respectively; multiples of firm value to trailing
EBITDA (LTM at announcement) of 12.8x and 16.0x for Palmer and Commnet,
respectively; multiples of firm value to forward EBITDA (1997) of 10.9x and
12.1x for Palmer and Commnet, respectively. The analysis above suggested ranges
of SNET Cellular firm value equal to: $200 to $225 per POP or $1,105 to $1,243
million; 13.0x to 16.0x LTM 9/30/97 EBITDA or $728 to $896 million; 13.0x to
16.0x 1997 EBITDA or $871 to $1,072 million; 11.0x to 12.0x 1998 EBITDA or
$1,166 to $1,272 million.
Cellular Discounted Cash Flow Analysis. In valuing SNET Cellular based on
a DCF analysis, Salomon Smith Barney applied a range of weighted average costs
of capital equal to 11.0% to 12.0% and terminal multiples of Year 2000 EBITDA
ranging from 8.0x to 10.0x. The DCF analysis suggested a range of firm values
for SNET Cellular equal to $1,000 to $1,200 million.
(d) SNET Long Distance. Salomon Smith Barney arrived at a firm value
reference range for SNET Long Distance equal to $300 to $350 million.
Long Distance Public Market Comparable Companies Analysis. Salomon Smith
Barney compared certain financial information of SNET Long Distance with the
following group of companies that Salomon Smith Barney believed to be
appropriate for comparison: AT&T Corporation, MCI Communications Corporation
("MCI"), Sprint Corporation, WorldCom, Inc., ACC Corporation, Excel
Communications Inc., Frontier Corporation ("Frontier"), General Communications,
Inc., LCI International Inc. ("LCI") and Tel-Save Holdings, Inc. Salomon Smith
Barney reviewed, among other things, the multiples of firm value to LTM revenue
and projected 1998 revenue. This analysis showed: multiples of firm value to LTM
revenue ranging from 1.1x to 4.7x (median of 2.1x) and multiples of firm value
to projected 1998 revenue ranging from 1.0x to 2.1x (median of 1.7x). The
analysis above suggested a SNET Long Distance firm value range equal to $250 to
$350 million (1.9x to 2.7x LTM revenues and 1.5x to 2.0x 1998 revenues).
Long Distance Precedent Transactions Analysis. Salomon Smith Barney
reviewed and analyzed certain financial, operating and stock market information
relating to selected mergers and acquisitions of long distance companies,
including: IXC Communications Inc.'s acquisition of Network Long Distance Inc.;
Intermedia Communications Inc.'s acquisition of LDS Communication Group;
Teleport Communications Group Inc.'s acquisition of ACC Corporation; WorldCom,
Inc.'s acquisition of MCI; LCI's acquisition of USLD
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Communications Corp.; Excel Communications Inc.'s acquisition of Telco
Communication Group, Inc.; British Telecommunications plc's ("BT") proposed
acquisition of MCI; ACC Corporation's acquisition of ACC TelEnterprises, Ltd.;
Tel-Save Holdings, Inc.'s acquisition of TOTAL-TEL USA Communications, Inc.;
LCI's acquisition of Teledial America, Inc. d/b/a U.S. Signal Corporation;
Deutsche Telekom AG/France Telecom's investment in Sprint Corporation;
Frontier's acquisition of Schneider Communications, Inc.; LCI's acquisition of
Corporate Telemanagement Group Inc.; Frontier's acquisition of Enhanced Tele
Management, Inc.; Frontier's acquisition of ALC Communications Corporation;
Frontier's acquisition of American Sharecom, Inc.; Frontier's acquisition of WCT
Communications, Inc.; LDDS Communications, Inc.'s ("LDDS") acquisition of
Williams Telecommunications Group, Inc.; LDDS's acquisition of ACC Corporation;
BT's investment in MCI; Metromedia Communications Corporation's acquisition of
Resurgens Communications Group Inc. ("Resurgens"); LDDS's acquisition of
Resurgens; BCE, Inc.'s investment in Mercury Communications; LDDS's acquisition
of Advanced Telecommunications Corporation; Sprint Corporation's acquisition of
GTE's interest in Spring Long Distance and Resurgens' acquisition of ComSystems,
Inc. Salomon Smith Barney reviewed, among other things, the multiples of firm
value to LTM revenue which ranged from 0.5x to 3.2x (median of 1.7x). The
multiples paid in the 1997 transactions, excluding WorldCom's proposed
acquisition of MCI, ranged from 1.8x to 2.8x (median of 2.2x). The analysis
above suggested that the precedent transaction multiples were generally
consistent with the public market trading benchmarks.
Long Distance Discounted Cash Flow Analysis. In valuing SNET Long Distance
based on a DCF analysis, Salomon Smith Barney applied a range of weighted
average costs of capital equal to 11.0% to 12.0% and terminal multiples of Year
2000 EBITDA ranging from 6.0x to 8.0x. The DCF analysis suggested a range of
firm values for SNET Long Distance equal to $290 to $375 million.
Total SNET Valuation. The segment analysis resulted in (i) a range of firm
values for SNET Telco equal to $2.7 billion to $3.1 billion, (ii) a range of
firm values for SNET Directory equal to $900 to $1,100 million, (iii) a range of
firm values for SNET Cellular equal to $1,000 to $1,200 million and (iv) a range
of firm values for SNET Long Distance equal to $300 to $350 million. Based on
these segment valuations, with certain adjustments for leveraged leases ($75
million) and net debt, Salomon Smith Barney arrived at a range of SNET values
equal to $54.00 to $65.00 per share.
(iv) SBC Segment Valuation Analysis. Salomon Smith Barney arrived at a
range of values for SBC by separately valuing its local telecommunications
business segment ("SBC Telco"), cellular business segment ("SBC Cellular"),
directory business segment ("SBC Directory"), personal communications services
business segment ("SBC PCS") along with certain investments.
SBC Telco. Salomon Smith Barney arrived at a range of firm values equal to
$43 to $52 billion based on a DCF analysis of the SBC Telco projections (through
the Year 2000) prepared by SBC's management, adjusted to hold the EBITDA margins
constant at 1997 levels. The DCF analysis was based on a range of weighted
average costs of capital equal to 9% to 10% and a range of terminal multiples of
Year 2000 EBITDA equal to 4.0x to 6.0x. If the projected EBITDA margin
improvements are included, the margins increase from 42% to 53% (by the Year
2000) and the DCF value increases by $12 to $14 billion. The $43 to $52 billion
range represents 5.2x to 6.3x 1997 EBITDA and 9.7x to 11.7x 1997 EBIT (these
multiples are consistent with those of the Independent and RHC public
comparables).
SBC Cellular. Salomon Smith Barney arrived at a range of firm values equal
to $10.7 to $12.0 billion (adjusted for SBC's ratio of net to gross POPs in
consolidated markets of 88.9%) based on a DCF analysis of the SBC Cellular
projections (through the Year 2000) prepared by SBC's management. The DCF
analysis was based on a range of weighted average costs of capital equal to 11%
to 12% and a range of terminal multiples of Year 2000 EBITDA equal to 7.0x to
9.0x. The $10.7 to $12.0 billion range represents 8.9x to 10.0x 1997 EBITDA and
7.6x to 8.5x 1998 EBITDA (these multiples are consistent with those of the
Cellular Comparable Companies).
SBC Directory. Salomon Smith Barney arrived at a range of firm values
equal to $8.0 to $10.0 billion based on a DCF analysis of the SBC Directory
projections (through the Year 2000) prepared by SBC's management, adjusted to
hold the EBITDA margins constant at 1997 levels. The DCF analysis was based on
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a range of weighted average costs of capital equal to 9% to 10% and a range of
terminal multiples of Year 2000 EBITDA equal to 8.0x to 10.0x. If the projected
EBITDA margin improvements are included, the margins increase from 46% to 51%
(by the Year 2000) and the DCF value increases by approximately $1.0 billion.
The $8.0 to $10.0 billion range represents 8.2x to 10.3x 1997 EBITDA (these
multiples are consistent with those of the Directory Comparable Companies).
SBC PCS. Salomon Smith Barney compared certain financial information of
SBC PCS with the following group of companies that Salomon Smith Barney believed
to be appropriate for comparison: Aerial Communications, Inc., Nextel
Communications, Inc., Omnipoint Corporation ("Omnipoint") and PowerTel, Inc.
("PowerTel"). The best publicly traded comparables, Omnipoint and PowerTel, were
trading at $28 and $30 per POP of license value, respectively. Based on the
comparables and SBC's extensive wireless presence and operational experience,
Salomon Smith Barney valued the SBC PCS operations at $30 to $40 per POP of
license value for the 35.2 million A and B Block POPs and $15 to $20 per POP of
license value for the 2.2 million POPs covered by 10 MHZ licenses ($1.7 to $2.1
billion of total value based on net PP&E of $645 million at 12/31/97).
SBC Investments. Salomon Smith Barney valued the SBC investments at $6.264
million. The investments included: Telefonos de Mexico ($2.3 billion based on
market prices), Cegetel of France ($1.4 billion based on the 1997 investment
pricing), Telkom SA of South Africa ($756 million based on the historical cost)
and Media Ventures ($637 million based on the sale price).
Total SBC Valuation. Based on the segment valuations, with certain
adjustments for the expected margin increases in the Telco and Directory
segments (valued at 50% of the DCF value or $6.5 to $7.5 billion) along with the
net debt and preferred stock, Salomon Smith Barney arrived at a range of SBC
values equal to $66.00 to $80.00 per share (or $33 to $40 per share, after
giving effect to the SBC Stock Split).
(v) Implied Exchange Ratio. Based on the SNET private market reference
range of $54.00 to $65.00 per share of SNET Common Stock on a stand-alone basis
and the SBC public market reference range of $66.00 to $80.00 per share (or $33
to $40 per share, after giving effect to the SBC Stock Split) of SBC Common
Stock on a stand-alone basis, Salomon Smith Barney arrived at a range of implied
exchange ratios equal to 0.68 to 0.98 (or 1.36 to 1.96, after giving effect to
the SBC Stock Split). Salomon Smith Barney noted that the high, low and average
exchange ratios over the last three years was 0.93, 0.61 and 0.73, respectively
(or 1.86, 1.22 and 1.46, respectively, after giving effect to the SBC Stock
Split).
(vi) Pro Forma Merger Consequences. Salomon Smith Barney analyzed certain
pro forma effects on SBC for the 1998 through 2000 period resulting from the
merger. This analysis, based upon plans prepared by the managements of SNET and
SBC, showed 0.8% to 1.5% SBC EPS dilution (excluding the impact of any
synergies). Salomon Smith Barney noted that SBC's funds from operations interest
coverage, net cash flow to average debt and debt to total capitalization credit
ratios would not materially change as a result of the transaction.
The preparation of a fairness opinion is a complex process not susceptible
to partial analysis or summary descriptions. The summary set forth above is not
and does not purport to be a complete description of the analyses underlying
Salomon Smith Barney's opinion or its presentation to the SNET Board. Salomon
Smith Barney believes that its analyses 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 such analyses and factors,
could create an incomplete view of the processes underlying the analyses set
forth in its opinion.
In performing its analyses, Salomon Smith Barney made numerous assumptions
with respect to industry performance, general business, financial, market and
economic conditions and other matters, many of which are beyond the control of
SNET or SBC. The analyses which Salomon Smith Barney performed are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of Salomon Smith Barney's analysis of the
fairness, from a financial point of view, of the consideration to be received by
holders of shares of SNET Common Stock in the Merger. The analyses do not
purport to be appraisals or to reflect the
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prices at which a company might actually be sold or the prices at which any
securities may trade at the present time or at any time in the future.
Pursuant to an engagement letter dated January 18, 1996, and amended as of
December 22, 1997, for purposes of the proposed Merger, SNET agreed to pay to
Salomon Smith Barney a fee equal to 0.25% of the aggregate consideration (as
defined in the engagement letter) payable in connection with the Merger
contingent upon the consummation of the Merger and payable at the closing
thereof. SNET also agreed, under certain circumstances, to reimburse Salomon
Smith Barney for all reasonable fees and disbursements of Salomon Smith Barney's
counsel and all of Salomon Smith Barney's reasonable travel and other
out-of-pocket expenses incurred in connection with the Merger, and agreed to
indemnify Salomon Smith Barney and certain related persons against various
liabilities, including liabilities under the Federal securities laws, relating
to or arising out of its engagement.
Salomon Smith Barney is an internationally recognized investment banking
firm that provides financial services in connection with a wide range of
business transactions. As part of its business, Salomon Smith Barney regularly
engages in the valuation of companies and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and other purposes. In the past, Salomon Smith Barney has rendered certain
investment banking and financial advisory services to SNET and SBC for which
Salomon Smith Barney received customary compensation. In addition, in the
ordinary course of its business, Salomon Smith Barney may actively trade the
securities of SNET 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. Salomon Smith Barney and its affiliates (including Travelers Group
Inc.) may have other business relationships with SBC and SNET. The SNET Board
retained Salomon Smith Barney based on Salomon Smith Barney's expertise in the
valuation of companies as well as its substantial experience in transactions
such as the Merger.
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 SNET set forth under "-- Opinion of Salomon Smith Barney." To that extent,
SBC and SNET claim the protection of the disclosure liability safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. Readers are cautioned that the following important factors in
addition to those discussed elsewhere herein and the documents incorporated by
reference herein, could affect the future results of SBC and SNET 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, integration of the
businesses, growth of SBC's and SNET's cellular businesses, the timing, extent,
and profitability of SBC's entry into the long-distance market, growth in local
access lines and general economic conditions.
TERMS OF THE MERGER
At the Effective Time, Merger Sub shall be merged with and into SNET and
the separate corporate existence of Merger Sub will thereupon cease. SNET will
be the Surviving Corporation, will continue to be governed by the laws of the
State of Connecticut and will become a wholly-owned subsidiary of SBC. The
Merger Agreement provides that the restated certificate of incorporation of SNET
(the "SNET Restated Certificate") as in effect immediately prior to the
Effective Time will be amended as contemplated by the Merger Agreement and, as
so amended, will be the certificate of incorporation of the Surviving
Corporation and that the by-laws of SNET (the "SNET Bylaws") in effect at the
Effective Time will be amended as contemplated by the Merger Agreement and, as
so amended, will be the by-laws of the Surviving Corporation.
Pursuant to the Merger Agreement, at the Effective Time, each share of SNET
Common Stock issued and outstanding immediately prior to the Effective Time
(other than Excluded SNET Common Stock) will be converted into 0.8784 of a share
of SBC Common Stock (which equals 1.7568 shares of SBC Common Stock after giving
effect to the SBC Stock Split), together with an appropriate number of
corresponding SBC
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Rights. The Merger Agreement further provides that at the Effective Time, all
shares of SNET Common Stock will no longer be outstanding, will be cancelled and
retired and shall cease to exist, and each Certificate formerly representing any
shares of SNET Common Stock (other than Excluded SNET Common Stock) will
thereafter represent only the right to receive the number of shares of SBC
Common Stock into which such shares have been converted in accordance with the
Exchange Ratio and the right, if any, to receive cash in lieu of fractional
shares and any distribution or dividend on SBC Common Stock with a record date
at or after the Effective Time. In addition, each share of SNET Common Stock
issued and outstanding immediately prior to the Effective Time and owned
directly by SBC, Merger Sub or SNET (other than shares held for third parties)
will be cancelled and retired without payment of any consideration therefor and
shall cease to exist. After the Effective Time, there will be no transfers on
the stock transfer books of SNET of any shares of SNET Common Stock. Dissenting
Shares will be cancelled and retired at the Effective Time and paid for in
accordance with Section 33-865 of the CBCA.
The Merger Agreement provides that in the event that prior to the Effective
Time there is a change in the number of shares of SNET Common Stock or shares of
SBC Common Stock or securities convertible or exchangeable into or exercisable
for shares of SNET Common Stock or shares of SBC Common Stock issued and
outstanding as a result of a distribution, reclassification, stock split
(including a reverse split), stock dividend or distribution, or other similar
transaction, the Exchange Ratio will be equitably adjusted to eliminate the
effects of such event. In accordance with this provision, the Exchange Ratio has
been adjusted to equal 1.7568 as a result of the SBC Stock Split.
No fractional shares of SBC Common Stock will be issued in the Merger.
Instead, the Merger Agreement provides that each holder of SNET Common Stock who
would otherwise have been entitled to receive a fractional share of SBC Common
Stock in the Merger will be entitled to receive, in lieu thereof, cash (without
interest) representing such holder's proportionate interest in a share of SBC
Common Stock (rounded to the nearest one-hundredth of a share) based for the
closing price of a share of SBC Common Stock, as reported in The Wall Street
Journal, New York City edition, on the last trading day prior to the Effective
Time.
CLOSING; EFFECTIVE TIME
The Merger Agreement provides that the Closing will take place on the
second 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 SNET may
agree. As soon as practicable following the Closing, SNET and SBC will cause the
Certificate of Merger to be signed, acknowledged and delivered for filing with
the Secretary of the State of Connecticut as provided in Section 33-819 of the
CBCA. The Merger will become effective at the Effective Time when the
Certificate of Merger has become effective in accordance with the CBCA.
EXCHANGE OF SNET CERTIFICATES FOR SHARES OF SBC COMMON STOCK
Procedures. The Merger Agreement provides that promptly after the
Effective Time, the Surviving Corporation will cause an exchange agent selected
by SBC with SNET's prior approval (the "Exchange Agent"), to mail to each holder
of record of SNET Common Stock (other than holders of record of Excluded SNET
Common Stock) (i) a letter of transmittal specifying that delivery will be
effected, and that risk of loss and title to the Certificates formerly
representing shares of SNET Common Stock will 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 SNET may reasonably agree, and (ii) instructions for surrendering the
Certificates. Except as otherwise provided in the Merger Agreement, upon
surrender of a Certificate for cancellation to the Exchange Agent together with
such letter of transmittal, duly executed, the holder of such Certificate will
be entitled to receive in exchange therefor (x) uncertificated shares of SBC
Common Stock registered on the stock transfer books of SBC in the name of such
holder ("Registered SBC Shares") or, at the election of such holder, a
certificate, representing that number of whole shares of SBC Common Stock that
such holder is entitled to receive, (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-
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stock dividends and any other dividends or other distributions that such holder
has the right to receive. No interest will be paid or accrued on any amount
payable upon due surrender of the Certificates. Procedures relating to the
exchange of uncertificated shares of SNET Common Stock for the Merger
Consideration will also be described in such letter of transmittal. Certain
additional requirements and procedures set forth in such letter of transmittal
will apply if SBC Common Stock is to be issued (i) to a transferee of SNET
Common Stock that is not registered in the transfer records of SNET or (ii) in a
name other than that in which the Certificate surrendered in exchange therefor
is registered.
Distributions with Respect to Unexchanged Shares; Voting. The Merger
Agreement provides that whenever a dividend or other distribution is declared by
SBC in respect of SBC Common Stock, the record date for which is at or after the
Effective Time, that declaration will include dividends or other distributions
in respect of all shares issuable pursuant to the Merger Agreement and includes
procedures for the payment thereof. The Merger Agreement provides that for
purposes of dividends or other distributions in respect of shares of SBC Common
Stock, all shares of SBC Common Stock to be issued pursuant to the Merger will
be deemed issued and outstanding as of the Effective Time. However, the Merger
Agreement further provides that no dividends or other distributions in respect
of the SBC Common Stock will be paid to any holder of any unsurrendered
Certificate until such Certificate is surrendered for exchange in accordance
with the terms of the Merger Agreement. In addition, the Merger Agreement
provides that holders of unsurrendered Certificates will be entitled to vote
after the Effective Time at any meeting of shareholders of SBC 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.
DISSENTERS' RIGHTS OF APPRAISAL
The Merger Agreement provides that no Dissenting Shareholder will be
entitled to shares of SBC Common Stock or cash in lieu of fractional shares
thereof or any dividends or other distributions pursuant to the terms of the
Merger Agreement unless and until the holder thereof has failed to perfect or
has effectively withdrawn or lost such holder's right to dissent from the Merger
under the CBCA, and any Dissenting Shareholder will be entitled to receive only
the payment provided by Section 33-865 of the CBCA with respect to shares of
SNET Common Stock owned by such Dissenting Shareholder. The Merger Agreement
also provides that if any person who would otherwise be deemed a Dissenting
Shareholder has failed properly to perfect or has effectively withdrawn or lost
the right to dissent with respect to any shares of SNET Common Stock, such
shares will thereupon be treated as though such shares had been converted into
shares of SBC Common Stock pursuant to the terms of the Merger Agreement and any
cash in lieu of fractional shares, dividends or other distributions as provided
in the Merger Agreement. See "Dissenters' Rights of Appraisal."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
SNET, SBC and Merger Sub, certain of which are qualified as to materiality and
certain of which are subject to certain exceptions disclosed to the other such
party by SNET or SBC, as the case may be. SNET represents and warrants to SBC
and Merger Sub, and SBC (on behalf of itself and Merger Sub) represents and
warrants to SNET regarding the following matters, among others: (i) its
corporate existence, its and its Subsidiaries' foreign qualifications and power
and authority to own and operate its properties and assets and to carry on its
business, (ii) the notices, reports or other filings that are required to be
made by it to or with, and the consents, registrations, approvals, permits or
authorizations required to be obtained by it from, any governmental or
regulatory authority, court, agency, commission, body or other governmental
entity (each a "Governmental Entity"), in connection with the execution and
delivery of the Merger Agreement and the Stock Option Agreement by it and the
consummation by it of the Merger and the other transactions contemplated by the
Merger Agreement and the Stock Option Agreement, including those notifications,
filings and approvals required to made pursuant to the HSR Act, or obtained from
the FCC, the DPUC and PUCs (those required to be made or obtained by SBC, being
"SBC Required Consents" and those required to be made or obtained by SNET, being
"SNET Required Consents"), (iii) that the execution, delivery and performance of
the Merger Agreement and the Stock Option Agreement will not contravene its
certificate of incorporation and the comparable governing
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instruments of its "Significant Subsidiaries" (as such term is defined in Rule
1.02(w) of Regulation S-X promulgated under the Exchange Act), contracts
pursuant to which it and its Subsidiaries are parties and governmental or
non-governmental permits or licenses to which it or any of its Subsidiaries is
subject, (iv) its financial statements and filings with the SEC, the FCC, the
DPUC and various PUCs, (v) the conduct of its and its Subsidiaries' businesses
and the absence of certain changes to its and its Subsidiaries' businesses since
December 31, 1996, (vi) pending or known threatened civil, criminal or
administrative actions, suits, claims, hearings, investigations or proceedings
and its obligations or liabilities, whether or not accrued, contingent or
otherwise, (vii) the absence of actions, facts or circumstances, 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 from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code, (viii) tax
matters, (ix) compliance with laws and necessary permits and the absence of
investigations and reviews of it by any Governmental Entity, (x) its
capitalization, (xi) corporate power and authority to execute, deliver and
perform its obligations under the Merger Agreement and the Stock Option
Agreement, and approval of the transactions contemplated thereby by its board of
directors and (xii) the absence of any liability to any undisclosed person for
any brokerage fees, commissions or finders' fees in connection with the Merger
or the other transactions contemplated in the Merger Agreement and the Stock
Option Agreement.
SNET has also made additional representations and warranties in the Merger
Agreement, certain of which are qualified as to materiality and certain
exceptions disclosed by SNET to SBC, including representations and warranties
regarding the following matters, among others: (i) its compensation and benefit
plans and other employee benefits matters, (ii) the applicability of and actions
taken with respect to certain anti-takeover statutes and other provisions of the
CBCA, (iii) environmental matters, (iv) labor matters, (v) amendments to the
SNET Rights Agreement (see "Comparison of Certain Rights of Shareholders of SBC
and SNET -- Rights Plans -- SNET"), (vi) intellectual property matters and (vii)
the absence of any payments to any of the officers and employees of SNET that
would be subject to the deduction limitations under Section 280G of the Code.
As used in the Merger Agreement, "Subsidiary" means, with respect to SNET,
SBC or Merger Sub, as the case may be, any entity, whether incorporated or
unincorporated, of which at least fifty percent of the securities or ownership
interests having by their terms ordinary voting power to elect at least fifty
percent of the board of directors or other persons performing similar functions
is directly or indirectly owned by such party or by one or more of its
respective Subsidiaries or by such party and any one or more of its respective
Subsidiaries.
CERTAIN COVENANTS
Interim Operations. Pursuant to the Merger Agreement, SNET has agreed as
to itself and its Subsidiaries that, after the date of the Merger Agreement and
prior to the Effective Time, except as expressly contemplated by the Merger
Agreement or as required by applicable law or unless SBC otherwise approves in
writing: (i) its and its Subsidiaries' businesses will be conducted in the
ordinary and usual course and, to the extent consistent therewith, it and its
Subsidiaries will 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 will not (A) amend its certificate of
incorporation or by-laws or amend, modify or terminate the SNET Rights
Agreement; (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 per share regular
quarterly cash dividends not in excess of $0.44 per share of SNET Common Stock;
or (D) repurchase, redeem or otherwise acquire, or permit any of its
Subsidiaries (other than its Employee Stock Ownership Plan (as defined in the
Merger Agreement)) 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 will
knowingly take any action that would prevent the Merger from qualifying for
"pooling of interests" accounting treatment or as a tax-free "reorganization"
within the meaning of Section 368(a) of the Code or that would cause any of its
representations and warranties contained in the Merger Agreement to become
untrue in any material respect; (iv) neither it nor any of its Subsidiaries will
terminate, establish,
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adopt, enter into, make any new grants or awards under, amend or otherwise
modify, any SNET 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 it and its Subsidiaries' directors, officers and
employees under existing SNET 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, the Merger Agreement provides, includes normal
periodic performance reviews and related compensation and benefit increases and
the provision of individual grants or awards under existing SNET Compensation
and Benefit Plans consistent with past practice for promoted or newly hired
officers and employees and the adoption of SNET 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 SNET Compensation and Benefit Plans existing as of the date of
the Merger Agreement; (v) neither it nor any of its Subsidiaries will issue any
preferred stock or incur any indebtedness for borrowed money (other than
indebtedness incurred solely for the purpose of funding the Escrow Account (as
defined in the Merger Agreement) in order to pay all Dissenting Shareholders who
satisfy all applicable requirements under the CBCA or the replacement or
refinancing of existing short-term indebtedness) or guarantee any such
indebtedness if it should reasonably anticipate that as a result of such
incurrence any of its or any of its Subsidiaries' outstanding senior
indebtedness would be rated lower than A by Standard & Poor's; (vi) neither it
nor any of its Subsidiaries will make any capital expenditures in any calendar
year in an aggregate amount in excess of the aggregate amount reflected in its
capital expenditure budget for such year, plus $100 million; (vii) except as
otherwise contemplated by the Merger Agreement, neither it nor any of its
Subsidiaries will issue, deliver, sell, or encumber shares of any class of its
common stock or any securities convertible into, or any rights, warrants or
options to acquire, any such shares except the option granted under the Stock
Option Agreement, options outstanding on the date of the Merger Agreement under
its incentive stock option plans (the "Stock Plans"), awards of options and
restricted stock granted hereafter under the Stock Plans in the ordinary course
of business in accordance with the Merger Agreement and shares issuable pursuant
to such options and awards; (viii) neither it nor any of its Subsidiaries will
spend in excess of $50 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); (ix) neither it nor its Subsidiaries will
enter any business other than the telecommunications business and those
businesses traditionally associated with the telecommunications business or
enter into or extend any telecommunications business outside the geographic
areas served by it and its Subsidiaries as of the date of the Merger Agreement;
and (x) neither it nor any of its Subsidiaries will agree prior to the Effective
Time to do any of the foregoing after the Effective Time. In addition, SNET has
agreed to notify SBC in advance of any issuance by SNET or any of its
Subsidiaries of any long-term debt or preferred stock.
Pursuant to the Merger Agreement, SBC has agreed as to itself and its
Subsidiaries that, after the date of the Merger Agreement and prior to the
Effective Time, except as expressly contemplated by the Merger Agreement or as
required by applicable law or unless SNET otherwise approves in writing: (i) it
will not (A) amend its certificate of incorporation or by-laws in any manner
that would prohibit or hinder, impede or delay in any material respect the
Merger or the consummation of the transactions contemplated by the Merger
Agreement; (B) declare, set aside or pay any dividend or other distribution
payable in cash or property (other than SBC Common Stock) in respect of any
capital stock, other than per share regular quarterly cash dividends; or (C)
repurchase, redeem or otherwise acquire, or permit any of its Subsidiaries to
purchase or otherwise acquire, except in open market transactions or in
connection with SBC's stock and stock option plans (the "SBC Stock Plans"), any
shares of its capital stock or any securities convertible into or exchangeable
for any shares of its capital stock; (ii) neither it nor any of its Subsidiaries
will knowingly take any action that would prevent the Merger from qualifying as
a tax-free "reorganization" within the meaning of Section 368(a) of the Code or
that would cause any of its representations and warranties in the Merger
Agreement to become untrue in any material respect; and (iii) neither it nor any
of its Subsidiaries will authorize or enter into an agreement to do any of the
foregoing.
Acquisition Proposals. Pursuant to the Merger Agreement, SNET has agreed
that neither it nor any of its Subsidiaries nor any of its or its Subsidiaries'
officers and directors will, and that it will direct and use its best efforts to
cause its and its Subsidiaries' representatives not to, directly or indirectly,
initiate, solicit,
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encourage or otherwise facilitate any inquiries or the making of any Acquisition
Proposal. SNET has further agreed that neither it nor any of its Subsidiaries
nor any of its or its Subsidiaries' officers and directors will, and that it
will direct and use its best efforts to cause its and its Subsidiaries'
representatives not to, directly or indirectly, have any discussions 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, however, prevent SNET or
the SNET Board from (A) complying with Rule 14e-2 promulgated under the Exchange
Act with regard to an Acquisition Proposal; (B) making any disclosure to SNET's
shareholders if, in the good faith judgment of the SNET Board, failure so to
disclose would be inconsistent with its obligations under applicable law; (C)
engaging in any discussions or negotiations with, or providing any information
to, any person in response to a bona fide written Acquisition Proposal by any
such person received after the date of the Merger Agreement that was not
solicited by SNET after the date of the Merger Agreement; or (D) recommending
such an Acquisition Proposal to the shareholders of SNET if and only to the
extent that, in such cases referred to in clauses (C) or (D), the SNET Board
concludes in good faith (after consultation with its financial advisor) that
such Acquisition Proposal is a Superior Proposal.
In addition, pursuant to the Merger Agreement, SNET has agreed to notify
SBC promptly if any of the inquiries, proposals or offers referred to in the
previous paragraph 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 SNET's representatives indicating, in connection with such notice,
the name of such person and the material terms and conditions of any proposals
or offers and thereafter to keep SBC informed, on a current basis, of the status
and material terms of any such proposals or offers and the status of any such
discussions or negotiations.
Information Supplied. The Merger Agreement provides that SNET 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 the Registration Statement will, at the time the Registration
Statement becomes effective under the Securities Act, and this Prospectus/Proxy
Statement and any amendment or supplement thereto will, at the date of mailing
to SNET shareholders and at the time of the Special Meeting, in any such 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 the light of the circumstances under which they were made, not
misleading.
The Special Meeting. SNET has agreed in the Merger Agreement to take all
action necessary to convene the Special Meeting as promptly as practicable after
the Registration Statement of which this Proxy Statement/Prospectus forms a part
is declared effective. SNET has further agreed that unless the SNET Board
determines in good faith after consultation with outside legal counsel that to
do so would result in a failure to comply with its fiduciary duties under
applicable law, the SNET Board will recommend approval of the Merger Agreement
and the Merger.
CERTAIN REGULATORY FILINGS AND APPROVALS
Pursuant to the Merger Agreement, each of SNET and SBC has agreed to
cooperate with the other and use (and cause their respective Subsidiaries to
use) their respective best efforts to take or cause to be taken all actions, and
do or cause to be done all things, necessary, proper or advisable on its part
under the Merger Agreement and the Stock Option Agreement and applicable laws to
consummate and make effective the Merger and the other transactions contemplated
by the Merger Agreement and the Stock Option Agreement as soon as practicable
after the execution of the Merger Agreement, including preparing and filing as
promptly as practicable after the date of the Merger Agreement all documentation
to effect all necessary applications, notices, petitions, filings and other
documents and to obtain as promptly as practicable all consents, registrations,
approvals, permits and authorizations 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 the Merger Agreement or the
Stock Option Agreement. However, the Merger Agreement also provides that the
terms of the Merger Agreement do not require that either SBC or SNET proffer, or
agree to, any concession to any Governmental Entity if (i) such concession is
reasonably likely to have a Material Adverse Effect on SNET following the
Effective Time or (ii) such concession is reasonably likely to
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have a Material Adverse Effect on SBC following the Effective Time (with
materiality for this purpose being determined with reference to the total
enterprise value of SNET and its Subsidiaries, taken as a whole, rather than
that of SBC and its Subsidiaries, taken as a whole, and taking into account any
material restrictions on the ability of SBC or any of its Significant
Subsidiaries to conduct its operations as currently conducted or as proposed to
be conducted by it).
As used herein and in the Merger Agreement, "Material Adverse Effect",
generally, 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 effects or changes resulting from the execution of the Merger
Agreement or the announcement thereof or relating to (I) the telecommunications
industry generally, (II) the national economy generally or (A) with respect to
SBC only, the economy of the southwestern United States and California, taken
together, generally or (B) with respect to SNET only, the economy of New England
generally or (III) the securities markets generally.
HSR
Under the HSR Act and the rules promulgated thereunder, certain
transactions, including the Merger, may not be consummated unless certain
waiting period requirements have been satisfied. SBC and SNET each filed a
Notification and Report Form pursuant to the HSR Act with the DOJ and the FTC on
January 22, 1998. The HSR Act waiting period will expire on February 21, 1998
(30 days after notification). At any time before or after the Effective Time,
the FTC, the DOJ or others could take action under the antitrust laws with
respect to the Merger, including requesting additional information about the
Merger, thereby extending the waiting period, and seeking to enjoin the
consummation of the Merger, to rescind the Merger or to require divestiture of
substantial assets of SBC or SNET. 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 consummated, SBC and SNET must obtain the approval
of the FCC pursuant to the Communications Act for transfer of control from SNET
to SBC of certain FCC licenses and authorizations held by certain of SNET's
Subsidiaries. These licenses and authorizations include various microwave
authorizations currently held by SNET's local exchange and cellular operations,
numerous cellular authorizations, authorizations to provide long distance
service and other authorizations used in connection with the businesses of such
Subsidiaries. The FCC is expected to evaluate whether SBC is qualified to
control SNET and whether the public interest, convenience, and necessity will be
served by the transfer of control that will be effected upon consummation of the
Merger. SBC and SNET intend to file transfer of control applications with the
FCC that will seek the FCC's approval to transfer the above-described FCC
licenses and authorizations. SBC and SNET believe that these applications will
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.
DPUC
The Public Service Companies are subject to the jurisdiction of the DPUC as
public service companies as defined under Connecticut law. The Southern New
England Telephone Company and the Woodbury Telephone Company are public service
companies because they are "telephone companies" providing "noncompetitive" or
"emerging competitive" telecommunications services, as such terms are defined
under Connecticut law. SNET Personal Vision, Inc. is a public service company
due to its provision of cable television service in Connecticut. SBC and the
Public Service Companies and, if required, SNET intend to file the DPUC
Application with the DPUC requesting its authorization (i) if required, pursuant
to Section 16-43 of the Connecticut general statutes authorizing a public
service company to merge indirectly with another company and (ii) pursuant to
Section 16-47 thereof authorizing SBC to indirectly control the Public Service
Companies and to directly control their parent holding company, SNET. In
analyzing the transfer of control
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under Section 16-47, the DPUC will take into consideration the financial,
technological and managerial suitability and responsibility of SBC, the ability
of the Public Service Companies to provide safe, adequate and reliable service
to the public through such companies' plant, equipment and operations assuming
the DPUC Application is approved and, with respect to the telephone operating
Subsidiaries only, the effect of the approval on the location and accessibility
of management and operations and on the proportions and number of state resident
employees in Connecticut. In analyzing the Section 16-43 indirect merger, the
DPUC will follow a public interest standard, expected to be based on the same
types of considerations as the Section 16-47 analysis.
Not later than 30 business days after the filing of the DPUC Application,
the DPUC must give the applicants notice of a public hearing. Pursuant to the
provisions of Section 16-47, the public hearing is required to begin not later
30 business days after that filing. Furthermore, the DPUC is required to issue
its determination on the DPUC Application as soon as practicable but not later
than 120 days after the filing of the application unless the applicants agree to
an extension. Such an extension may occur.
SBC and SNET believe that the DPUC Application will demonstrate compliance
with Section 16-43 and Section 16-47. Oppositions to the DPUC Application are
expected to be filed by various parties. The Office of Consumer Counsel, the
statutory representative of Connecticut utility consumer interests, is expected
to be designated as a party to the DPUC proceeding. SBC and SNET will file
written testimony regarding the requirements of Section 16-43 and Section 16-47.
The parties will conduct discovery, and hearings will be held on the DPUC
Application. There can be no assurance that the requisite DPUC 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.
State PUCs
SNET is authorized to provide interexchange services in 47 states. For the
majority of these states outside of Connecticut, these authorizations have been
utilized solely to provide calling card services to SNET's Connecticut based
customers traveling in the respective states. SNET does, however, provide long
distance service to a small number of customers in the states of California,
Nevada, Texas, Missouri and Kansas where SBC is an incumbent local exchange
carrier as defined by the Telecomunications Act of 1996. SNET may be required to
modify or withdraw its interexchange authorizations in the states of California,
Nevada, Texas, Missouri, Kansas, Arkansas and Oklahoma depending upon the status
of SBC's efforts to obtain authority to provide long distance service in these
states. Furthermore, authorizations may be required from a number of other
states to allow SNET to transfer its existing long distance authorizations to
SBC.
STOCK EXCHANGE LISTING AND DE-LISTING
SBC has agreed to use its best efforts to cause the shares of SBC Common
Stock to be issued in the Merger to be approved for listing on the NYSE, subject
to official notice of issuance, prior to the Closing Date. The Merger Agreement
provides that the Surviving Corporation will use its best efforts to cause the
shares of SNET Common Stock to be de-listed from the NYSE and the PSE and
de-registered under the Exchange Act as soon as practicable following the
Effective Time.
EMPLOYEE BENEFITS
Stock Options. The Merger Agreement provides that at the Effective Time,
each SNET Option under the Stock Plans, whether vested or unvested, will be
deemed to constitute an option to acquire, on the same terms and conditions as
were applicable under such SNET Option, after giving effect to any provisions
requiring vesting of any SNET Options as a result of the transactions
contemplated by the Merger Agreement, 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 shares of SNET Common Stock otherwise purchasable
pursuant to such SNET Option divided by (z) the number of full shares of SBC
Common Stock underlying such Substitute Option. The Merger Agreement further
provides that no later than five business days after the Effective Time SBC is
obligated to register under the Securities Act on Form S-8 or other appropriate
form (and use its best
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efforts to maintain the effectiveness thereof) shares of SBC Common Stock
issuable pursuant to all Substitute Options.
Benefit Plans. The Merger Agreement provides that for at least two years
after the Effective Time, SBC will cause the Surviving Corporation to provide or
cause to be provided to employees of SNET and its Subsidiaries compensation and
benefit plans that are no less favorable, in the aggregate, than the existing
SNET Compensation and Benefit Plans. However, the Merger Agreement provides 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 will proportionately adjust the
benefits under the SNET Compensation and Benefit Plans or the cost thereof to
participants, and with respect to employees who are subject to collective
bargaining, all benefits will be provided in accordance with the applicable
collective bargaining agreement.
EXPENSES
Except as otherwise provided in the Merger Agreement with respect to
transfer taxes and the Termination Fee, the Merger Agreement provides that
whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger Agreement and the Merger and the other transactions
contemplated by 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 Proxy
Statement/Prospectus and the Registration Statement and the filing fee under the
HSR Act will be shared equally by SBC and SNET.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
The Merger Agreement provides that, from and after the Effective Time, SBC
will indemnify and hold harmless each Indemnified Party against any costs
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that SNET would have been permitted under
Connecticut law and its certificate of incorporation or bylaws in effect on the
date of the Merger Agreement to indemnify such person (and SBC will also advance
expenses as incurred to the fullest extent permitted under applicable law, if
the person to whom expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such person is not entitled to
indemnification).
The Merger Agreement also provides that SBC or the Surviving Corporation
will maintain D&O Insurance with coverage in amount and scope at least as
favorable as SNET's existing directors' and officers' liability insurance
coverage for a period of six years after the Effective Time. However, if the
existing D&O Insurance expires, is terminated or cancelled, or if the annual
premium therefor is increased to an amount in excess of the Current Premium, in
each case during such six year period, SBC or 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.
DIVIDENDS
The Merger Agreement provides that SNET will coordinate with SBC the
declaration, setting of record dates and payment dates of dividends on shares of
SNET Common Stock so that holders of SNET Common Stock do not receive dividends
on both SNET Common Stock and SBC Common Stock received in the Merger in respect
of any calendar quarter or fail to receive a dividend on either SNET Common
Stock or SBC Common Stock received in the Merger in respect of any calendar
quarter.
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SBC BOARD OF DIRECTORS FOLLOWING THE MERGER
SBC has agreed pursuant to the Merger Agreement that at the Effective Time
SBC will increase the size of the SBC Board by one member. The SBC Board will,
in consultation with the Chief Executive Officer of SNET, select from among the
members of the SNET Board a nominee for such additional directorship and the SBC
Board will appoint such person to the SBC Board as of the Effective Time. Such
person will serve in the director group determined in accordance with the SBC
Bylaws.
CONDITIONS
The respective obligations of SNET, SBC and Merger Sub to effect the Merger
are subject to the satisfaction or waiver at or prior to the Effective Time of
each of the following conditions: (a) the Merger having been duly approved by
the requisite vote of holders of SNET Common Stock; (b) the shares of SBC Common
Stock issuable to the shareholders of SNET pursuant to the Merger Agreement
having been approved for listing on the NYSE subject to official notice of
issuance; (c) the waiting period applicable to the consummation of the Merger
under the HSR Act having expired or been terminated and all material SNET
Required Consents and SBC Required Consents from or with the FCC, the DPUC or
any other Governmental Entity having been made or obtained pursuant to a Final
Order (as defined below) free of any conditions adverse to SNET or SBC (other
than conditions that (i) are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on SNET following the Effective
Time, or (ii) are not reasonably likely to have a Material Adverse Effect on SBC
following the Effective Time (the Merger Agreement provides that for this
purpose materiality is determined with reference to the total enterprise value
of SNET and its Subsidiaries, taken as a whole, rather than that of SBC and its
Subsidiaries, taken as a whole, and taking into account any material
restrictions on the ability of SBC or any of its Significant Subsidiaries to
conduct its operations as currently conducted or as proposed to be conducted by
it)); (d) no Governmental Entity of competent jurisdiction having enacted,
issued, promulgated, enforced or entered any Order, and none of the DOJ, the
FTC, the FCC or the DPUC having instituted any proceeding or threatened in
writing or publicly announced its intention to institute any proceeding seeking
any such Order; and (e) the Registration Statement having become effective under
the Securities Act and no stop order suspending the effectiveness of the
Registration Statement having been issued, and no proceedings for that purpose
having been initiated or threatened by the SEC.
For purposes of the Merger Agreement, "Final Order" means an action or
decision that has been granted as to which (a) no request for a stay or any
similar request is pending, no stay is in effect, the action or decision has not
been vacated, reversed, set aside, annulled or suspended and any deadline for
filing such a request that may be designed by statute or regulation has passed,
(b) no petition for rehearing or reconsideration or application for review is
pending and the time for the filing of any such petition or application has
passed, (c) none of the FCC, the DPUC or any other Governmental Entity has the
action or decision under reconsideration on its own motion and the time within
which it may effect such reconsideration has passed and (d) no appeal is pending
(including other administrative or judicial review) or in effect and any
deadline for filing any such appeal that may be specified by statute or rule has
passed, which in any such case (a), (b), (c) or (d) is reasonably likely to
result in vacating, reversing, setting aside, annulling, suspending or modifying
such action or decision (in any such case in a manner which would have a
Material Adverse Effect on SBC or SNET following the Effective Time).
The Merger Agreement provides that 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 SNET set forth in the Merger Agreement (i) to the extent
qualified by Material Adverse Effect, being true and correct and (ii) to the
extent not qualified by Material Adverse Effect, being true and correct, except
that for purposes of clause (ii) the condition will be deemed satisfied so long
as any failures of such representations and warranties to be true and correct,
taken together, do not have a Material Adverse Effect on SNET, in each case (i)
and (ii), as of the date of the Merger Agreement and as of the Closing Date, as
though made on and as of the Closing Date, except in each case (i) and (ii) to
the extent such representations and warranties speak as of specified date in
which case such representations and warranties must be true and correct as of
such specified date, and SBC having received a certificate signed on
38
<PAGE> 47
behalf of SNET by an executive officer of SNET to such effect; (b) SNET having
performed all material obligations required to be performed by it under the
Merger Agreement at or prior to the Closing Date, and SBC having received a
certificate signed on behalf of SNET by an executive officer of SNET to such
effect; (c) SBC having received the opinion of Sullivan & Cromwell, dated the
Closing Date, to the effect that the Merger will be treated for federal income
tax purposes as a "reorganization" within the meaning of Section 368(a) of the
Code, and that each of SBC, Merger Sub and SNET will be a party to that
"reorganization" within the meaning of Section 368(b) of the Code; (d) the
number of Dissenting Shares having not exceeded 9% of the aggregate number of
shares of SNET Common Stock outstanding immediately prior to the Effective Time
(this condition will be deemed to be waived by SBC if the condition set forth in
clause (e) below is deemed to be waived); and (e) SBC having received a letter
from its independent public accounting firm to the effect that the Merger will
qualify for "pooling of interests" accounting treatment (this condition will be
deemed to be waived by SBC if SBC's independent accounting firm fails to deliver
such letter solely as a result of one or more SBC Pooling Actions).
For purposes of the Merger Agreement, "SBC Pooling Action" means (i) any
action taken by SBC or any of its Subsidiaries after the date of the Merger
Agreement that would prevent the Merger from qualifying for "pooling of
interests" accounting treatment if any of the executive officers of SBC actually
knew or, after appropriate inquiry, should have known that such action would
prevent the Merger from qualifying for "pooling of interests" accounting
treatment, (ii) the escrow arrangements relating to Dissenting Shares provided
in the Merger Agreement, if SNET's obligation to make such arrangements has not
been waived by SBC in accordance with the Merger Agreement, and (iii) any
condition existing on the date hereof which, with reference only to SBC and its
Subsidiaries, would prevent the Merger from qualifying for "pooling of
interests" accounting treatment under the currently published and effective
guidelines and interpretations of the American Institute of Certified Public
Accountants, the Financial Accounting Standards Board and the SEC relating to
"pooling of interests" accounting treatment.
The Merger Agreement further provides that the obligation of SNET to effect
the Merger is also subject to the satisfaction or waiver by SNET at or prior to
the Effective Time of the following conditions: (a) the representations and
warranties of SBC set forth in the Merger Agreement (i) to the extent qualified
by Material Adverse Effect, being true and correct and (ii) to the extent not
qualified by Material Adverse Effect, being true and correct, except that for
purposes of clause (ii) the condition will be deemed satisfied so long as any
failures of such representations and warranties to be true and correct, taken
together, do not have a Material Adverse Effect on SBC, in each case (i) and
(ii), as of the date of the Merger Agreement and as of the Closing Date, as
though made on and as of the Closing Date, except in each case (i) and (ii) to
the extent such representations and warranties speak as of specified date in
which case such representations and warranties must be true and correct as of
such specified date, and SNET having 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 having performed all material obligations required to be
performed by it under the Merger Agreement at or prior to the Closing Date, and
SNET having received a certificate signed on behalf of SBC and Merger Sub by an
executive officer of SBC to such effect; and (c) SNET having received the
opinion of Cravath, Swaine & Moore, 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 SNET will be a party to that "reorganization" within the meaning of
Section 368(b) of the Code.
TERMINATION
The Merger 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
shareholders of SNET at the Special Meeting, by mutual written consent of SNET
and SBC, by action of their respective boards of directors. Further, the Merger
Agreement may be terminated and the Merger may be abandoned at any time prior to
the Effective Time by action of either the SBC Board or the SNET Board if (i)
the Merger has not been consummated by the Termination Date, whether such date
is before or after the date of approval by the shareholders of SNET (provided,
however, that if SNET or SBC determines that additional time is necessary in
connection with
39
<PAGE> 48
obtaining a SNET Required Consent or a SBC Required Consent from or with the
FCC, the DPUC or any other Governmental Entity, the Termination Date may be
extended by SNET or SBC from time to time by written notice to the other party
to a date no later than the Extended Termination Date) unless the party seeking
to terminate the Merger Agreement has breached in any material respect its
obligations under the Merger Agreement in any manner that has proximately
contributed to the failure of the Merger to be consummated, (ii) the approval of
the shareholders of SNET required by the Merger Agreement has not been obtained
at a meeting duly convened therefor or at any adjournment or postponement
thereof or (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 shareholders of SNET).
Further, the Merger 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 the shareholders of SNET at the Special Meeting, by action of the
SNET Board: (a) if (i) SNET has not willfully breached any of the terms of the
Merger Agreement in a manner resulting in failure of a condition to closing
under the Merger Agreement relating to either the representations and warranties
of SNET or the performance of its obligations under the Merger Agreement, (ii)
the SNET Board approves entering into a binding written agreement concerning a
transaction that constitutes a Superior Proposal and SNET notifies SBC in
writing that it wishes to enter into such agreement, (iii) SBC does not make,
within five business days of receipt of SNET's written notification of its
desire to enter into a binding agreement for a Superior Proposal, an offer that
the SNET Board believes, in good faith after consultation with its financial
advisors, is at least as favorable, from a financial point of view, to the
shareholders of SNET as the Superior Proposal, and that contains terms and
conditions (other than with respect to type or amount of consideration) that do
not differ materially from either the terms and conditions of the Merger
Agreement or the terms and conditions of the proposed agreement for such
Superior Proposal and (iv) SNET prior to such termination pays to SBC the
Termination Fee in immediately available funds or (b) if there has been a breach
by SBC or Merger Sub of any representation, warranty, covenant or agreement
contained in the Merger Agreement which (i) would result in a failure of a
condition relating to either the representations and warranties of SBC or the
performance of its obligations under the Merger Agreement and (ii) cannot be
cured prior to the Extended Termination Date. SNET has agreed in the Merger
Agreement to notify SBC promptly if its desire to enter into a written agreement
referred to in its notification described in clause (a)(iii) above shall change
at any time after giving such notification.
In addition, the Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time by action of the SBC Board if
(i) the SNET Board withdraws or adversely modifies its approval or
recommendation of the Merger Agreement or fails to reconfirm its recommendation
of the Merger Agreement within ten business days after a written request by SBC
to do so (provided that such a request is made after the SNET Board has taken
certain actions relating to an Acquisition Proposal and such Acquisition
Proposal has not been rejected by the SNET Board or withdrawn), (ii) there has
been a breach by SNET of any representation, warranty, covenant or agreement
contained in the Merger Agreement which (A) would result in a failure of a
condition relating to either the representations and warranties of SNET or the
performance of its obligations under the Merger Agreement and (B) cannot be
cured prior to the Extended Termination Date or (iii) if SNET or any of its
representatives takes any of the actions that would be proscribed by the
non-solicitation provisions of the Merger Agreement described above under
"-- Certain Covenants -- Acquisition Proposals" but for the exception described
therein allowing certain actions to be taken in response to a bona fide written
unsolicited Superior Proposal.
CERTAIN TERMINATION FEES
The Merger Agreement provides that in the event that (i) after the date of
the Merger Agreement a bona fide Acquisition Proposal with respect to SNET or
any Subsidiary of SNET that was not solicited by SNET after the date of the
Merger Agreement shall have been made to SNET or any of its Subsidiaries and
made known to shareholders generally or shall have been made directly to
shareholders generally or any person shall have publicly announced an intention
(whether or not conditional) to make a bona fide Acquisition Proposal with
respect to SNET or any Subsidiary of SNET and such Acquisition Proposal or
announced intention has not been withdrawn prior to the Special Meeting and
thereafter the Merger Agreement is terminated by either
40
<PAGE> 49
SBC or SNET because the shareholders of SNET failed to approve the Merger
Agreement and within nine months after such termination SNET enters into an
agreement to consummate a transaction that would constitute an Acquisition
Proposal within the meaning of such term in the Merger Agreement or (ii) the
Merger Agreement is terminated (x) by SNET pursuant to the terms of the Merger
Agreement permitting it to terminate in order to enter into an agreement
concerning a transaction that constitutes a Superior Proposal or (y) by SBC
pursuant to the provisions of the Merger Agreement permitting it to terminate
(A) because the SNET Board has withdrawn or adversely modified its approval or
recommendation of the Merger Agreement, (B) because of a willful and intentional
breach of the non-solicitation provisions of the Merger Agreement described
above under "-- Certain Covenants -- Acquisition Proposals" or (C) because SNET
or any of its representatives has taken any of the actions that would be
proscribed by the non-solicitation provisions of the Merger Agreement described
above under "-- Certain Covenants -- Acquisition Proposals" but for the
exception described therein allowing certain actions to be taken in response to
a bona fide written unsolicited Superior Proposal, then SNET will promptly, but
in no event later than two days after the date of such termination or, in the
case of a termination pursuant to a failure of the shareholders to approve the
Merger Agreement (assuming that the Termination Fee is otherwise payable), two
days after SNET enters into an agreement to consummate a transaction that would
constitute an Acquisition Proposal within the meaning of such term in the Merger
Agreement, pay SBC a Termination Fee of $125 million, which amount will be
exclusive of any expenses to be paid pursuant to the Merger Agreement. The
Merger Agreement provides that solely for purposes of determining if a
Termination Fee is payable, the term "Acquisition Proposal" has the meaning
otherwise assigned to such term in the Merger Agreement, except that references
to "15%" in the definition of "Acquisition Proposal" in the Merger Agreement are
deemed to be references to 35% and the reference in such definition to various
Subsidiaries of SNET are deemed to be a reference to The Southern New England
Telephone Company.
THE STOCK OPTION AGREEMENT
Concurrently with the execution of the Merger Agreement, SBC and SNET also
entered into the Stock Option Agreement. The following description of the Stock
Option Agreement does not purport to be complete and is qualified in its
entirety by reference to the Stock Option Agreement, which is attached as Annex
B to this Proxy Statement/Prospectus.
Pursuant to the Stock Option Agreement, SNET granted SBC an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms thereof, up
to 13,266,587 (subject to possible adjustment as provided therein) fully paid
and nonassessable shares of SNET Common Stock at a price per share in cash equal
to $65.00 (the "Option Price"); provided, however, that in no event shall the
number of shares for which the Option is exercisable exceed 19.9% of the shares
of SNET Common Stock issued and outstanding at the time of exercise (without
giving effect to the shares of SNET Common Stock issued or issuable under the
Option). The Stock Option Agreement provides that SBC may exercise the Option,
in whole or in part, by delivering a written notice thereof (in accordance with
the terms of the Stock Option Agreement) within 90 days following the occurrence
of a Triggering Event (as defined below), unless the Effective Time has occurred
prior to such Triggering Event. The Option will terminate upon either (i) the
occurrence of the Effective Time or (ii) the close of business on the earlier of
(x) the day 90 days after the date that SBC becomes entitled to receive the
Termination Fee and (y) the date that SBC is no longer potentially entitled to
receive the Termination Fee, in each case under the Merger Agreement. The Stock
Option Agreement is intended to increase the likelihood that the Merger will be
consummated in accordance with the Merger Agreement. Certain provisions of the
Stock Option Agreement could have the effect of discouraging persons who now or
prior to the Effective Time might be interested in acquiring all or a
significant interest in SNET from considering or proposing such an acquisition
and would likely increase the cost to the acquiror of any such acquisition.
For purposes of the Stock Option Agreement, a "Triggering Event" will be
deemed to have occurred if the Merger Agreement is terminated and SBC then or
thereafter becomes entitled to receive the Termination Fee in accordance with
the Merger Agreement.
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<PAGE> 50
Pursuant to the Stock Option Agreement, if SBC is entitled to and wishes to
exercise the Option, it has agreed to send SNET a written notice (the date of
which is referred to as the "Notice Date") specifying (i) the total number of
shares of SNET Common Stock that it will purchase pursuant to such exercise and
(ii) a place and date (an "Option Closing Date") not earlier than three business
days nor later than 60 business days from the Notice Date for the closing of
such purchase. However, the Stock Option Agreement provides that if a filing is
required under the HSR Act, or prior notification to or approval of the FCC, the
DPUC or any other Governmental Entity is required in connection with such
purchase, SBC or SNET, as the case may be, has agreed to promptly after the
giving of such notice file the required notice or application for approval and
expeditiously process the same. The period of time referred to in clause (ii)
above will commence on the date on which SBC furnishes to SNET a supplemental
written notice setting forth the Option Closing Date, which SBC is required to
furnish as promptly as practicable after all required notification periods have
expired or been terminated and all required approvals have been obtained and all
requisite waiting periods have expired. Each of SBC and SNET has agreed to use
all reasonable efforts to cooperate with and provide information to SNET or SBC,
as the case may be, for the purpose of any required notice or application for
approval.
The Stock Option Agreement further provides that following the occurrence
of a Triggering Event but prior to the termination of the Option (i) at the
request of SBC, SNET will repurchase the Option in whole or in part, at a price
equal to the number of shares of SNET Common Stock then purchasable upon
exercise of the Option (or such lesser number of shares as may be designated in
the Repurchase Notice (as defined in the Stock Option Agreement)) multiplied by
the amount by which the "market/offer price" (as defined below) exceeds the
Option Price, and (ii) at the request of SBC, SNET will repurchase such number
of shares of SNET Common Stock from SBC as SBC designates in the Repurchase
Notice at a price equal to the number of shares designated multiplied by the
market/offer price. For purposes of the Stock Option Agreement, the term
"market/offer price" means the highest of (x) the price per share of SNET Common
Stock at which a tender or exchange offer for SNET Common Stock has been made,
(y) the price per share of SNET Common Stock to be paid by any third party
pursuant to an agreement with SNET and (z) the highest closing price for shares
of SNET Common Stock on the NYSE (or, if the SNET Common Stock is not then
listed on the NYSE, any other national securities exchange or automated
Quotation system on which the SNET Common Stock is then listed or quoted) within
the six-month period immediately preceding the delivery of the Repurchase
Notice.
In addition, the Stock Option Agreement provides that, notwithstanding any
other provision of the Stock Option Agreement, in no event will SBC's Total
Profit (as defined below) plus any Termination Fee paid to SBC exceed in the
aggregate $175 million and, if it otherwise would exceed such amount, SBC, at
its sole election, is required to (a) reduce the number of shares of SNET Common
Stock subject to the Option, (b) deliver to SNET for cancellation Option Shares
(as defined in the Stock Option Agreement) previously purchased by SBC, (c) pay
cash to SNET, or (d) any combination thereof, so that SBC's actually realized
Total Profit plus the Termination Fee so paid to SBC does not exceed $175
million after taking into account the foregoing actions. For purposes of the
Stock Option Agreement, "Total Profit" means the aggregate amount (before taxes)
of the following: (i) (x) the amount received by SBC pursuant to SNET's
repurchase of the Option (or any portion thereof) or any Option Shares, less, in
the case of any repurchase of Option Shares, (y) SBC's purchase price for such
Option Shares, as the case may be, (ii) (x) the net cash amounts received by SBC
pursuant to the sale of Option Shares (or any other securities into which such
Option Shares are converted or exchanged) to any unaffiliated party, less (y)
SBC's purchase price of such Option Shares, and (iii) the net cash amounts
received by SBC on the transfer of the Option (or any portion thereof) to any
unaffiliated party.
The Stock Option Agreement also provides that, notwithstanding any other
provision of the Stock Option Agreement to the contrary, the Option may not be
exercised for a number of shares as would, as of the date of exercise, result in
a Notional Total Profit (as described below) which, together with any
Termination Fee theretofore paid to SBC, would exceed $175 million. For purposes
of the Stock Option Agreement, the term "Notional Total Profit" with respect to
any number of shares as to which SBC may propose to exercise the Option will be
the Total Profit determined as of the date of such proposal assuming that the
Option was
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<PAGE> 51
exercised on such date for such number of shares and assuming that such shares,
together with all other Option Shares held by SBC and its affiliates as of such
date, were sold for cash at the closing market price for SNET Common Stock as of
the close of business on the preceding trading day (less customary brokerage
commissions).
RESALE OF SBC COMMON STOCK
The shares of SBC Common Stock issuable to shareholders of SNET in
connection with the Merger have been registered under the Securities Act. Such
shares may be traded freely and without restriction by those shareholders not
deemed to be "affiliates" of SNET prior to the date of the Special Meeting, or
SBC following the Effective Time, as that term is defined in the rules under the
Securities Act. "Affiliates" are generally defined as persons who control, are
controlled by or are under common control with SNET at the time of the Special
Meeting or SBC following the Effective Time. Shares of SBC Common Stock received
by those shareholders of SNET who are deemed to be "affiliates" of SNET may be
resold without registration as provided for by Rules 144 or 145, or as otherwise
permitted, under the Securities Act. This Proxy Statement/Prospectus does not
cover any resales of SBC Common Stock received by affiliates of SNET in the
Merger or by certain of their family members or related interests.
Pursuant to the Merger Agreement, each of SNET and SBC has agreed to
deliver to the other a letter identifying all persons whom such company believes
to be, as of the date of the Special Meeting, "affiliates" of such company for
purposes of applicable interpretations regarding use of the pooling-of-interests
accounting method and, in the case of "affiliates" of SNET, for purposes of Rule
145 under the Securities Act. Each of SNET 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 the Special
Meeting a written agreement in the appropriate form as attached to the Merger
Agreement (in the case of affiliates of SNET, a "SNET Affiliates Letter" and, in
the case of affiliates of SBC, a "SBC Affiliates Letter"). The provisions of the
SNET Affiliates Letter restrict certain sales of securities of SBC by such
affiliates of SNET prior to and following the Effective Time and sales of
securities of SNET at certain times prior to the Effective Time. The provisions
of the SBC Affiliates Letter restrict sales of securities of SBC by affiliates
of SBC at certain times prior to and following the Effective Time.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of SNET's Board, shareholders should be
aware that certain members of management of SNET and of the SNET Board have
certain interests in the Merger that are in addition to the interests of
shareholders generally and which may create potential conflicts of interest.
Board of Directors following the Merger. SBC has agreed pursuant to the
Merger Agreement that at the Effective Time, SBC will increase the size of the
SBC Board by one member. The SBC Board will, in consultation with the Chief
Executive Officer of SNET, select from among the members of the SNET Board a
nominee for such additional directorship and the SBC Board will appoint such
person to the SBC Board as of the Effective Time. Such person will serve in the
class of directors determined in accordance with the SBC Bylaws.
Severance Agreements. Severance agreements (the "Severance Agreements")
have been entered into with certain executives of SNET designed to afford these
executives limited employment and compensation protection in the event of a
substantial change in ownership of SNET. SNET has agreed to continue to employ
the affected executives for a period of two years following such a change in
ownership, and, in the event of termination of the executive's employment during
that period by SNET without "cause" (as defined in the Severance Agreements) or
by the executive under certain circumstances, to pay severance benefits equal to
two times the executive's salary and incentive compensation (reduced, if
applicable, by certain severance plan and bonus payments), together with certain
cash payments for pension and defined contribution plan benefits and
contributions which would have been paid for two years following such
termination, a cash payment for long-term incentive compensation awards which
the executive would have received during the two years following such
termination, and payment of the cost of certain life, health and
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<PAGE> 52
disability benefits. The Merger will constitute such a change in ownership under
the Severance Agreements. SNET has entered into Severance Agreements with Daniel
J. Miglio, Fred T. Page, Ronald M. Serrano, Donald R. Shassian, Madelyn M.
DeMatteo, John J. Miller, Linda D. Hershman, Robert R. Laundy and Karin A.
Mayhew. SBC and SNET have agreed that any termination of employment of the
executives following the consummation of the Merger will constitute a reduction
in responsibilities for purposes of the Severance Agreements entitling such
persons to receive severance benefits. Pursuant to the Severance Agreements, the
aggregate severance obligations to these officers could equal as much as $14.1
million (assuming, among other things, that the Merger is consummated on
November 1, 1998, and that the employment of all such officers is terminated on
December 31, 1998).
SNET and SBC have also agreed that SNET may amend its Management Severance
Pay Plan (the "Management Severance Plan") to provide for the mandatory payment
of severance benefits to all management employees of SNET (other than those
employees who have entered into Severance Agreements or employees that are
covered by the Executive Severance Plan described below) who are terminated
without cause by SNET (or its successors) after the Effective Time and on or
before the second anniversary of the Effective Time. It is anticipated that the
severance benefits under the amended Management Severance Plan will be equal to
the following percentage of a covered employee's base salary as of such
employee's date of termination: 0-2 years of service -- 25%; 2-5 years of
service -- 50%; 5+ years of service -- 100%.
SNET and SBC have also agreed that SNET may adopt an executive severance
pay plan (the "Executive Severance Plan") that will provide severance benefits
to qualifying executive level employees who are not a party to a Severance
Agreement upon their termination of employment by SNET without cause. It is
anticipated that the Executive Severance Plan will be identical to the
Management Severance Plan except that (i) benefits will be equal to 100% of the
sum of a covered employee's base salary and target short-term bonus opportunity
for the year of termination (or such larger amount actually earned under the
applicable plan provisions) and (ii) it will apply only to terminations within
one year of the Effective Time.
Stay Bonus Program. SNET and SBC have also agreed that SNET may adopt a
stay bonus program (the "Program") that will provide additional compensation for
individuals subject to a Severance Agreement and certain other employees who are
employed on the Effective Time. It is anticipated that each stay bonus to be
paid under the Program will be equal to 100% of the sum of a covered employee's
base salary and target short-term bonus opportunity for 1998 (or such larger
amount actually earned under the applicable bonus plan).
Outstanding Equity Awards. Under the existing terms of the Stock Plans,
the vesting of all outstanding SNET Options will be accelerated at the Effective
Time. As of the Record Date, the following SNET directors and executive officers
held the following unvested SNET Options under the Stock Plans:
<TABLE>
<CAPTION>
AVERAGE PRICE
NAME UNVESTED OPTIONS PER SHARE
------------------------------------------------ ---------------- -------------
<S> <C> <C>
Madelyn M. DeMatteo............................. 50,000 $ 36.46
Karin D. Mayhew................................. 9,000 $ 36.72
Daniel J. Miglio................................ 218,500 $ 36.64
Fred T. Page.................................... 72,500 $ 38.01
Ronald M. Serrano............................... 76,250 $ 36.28
Donald R. Shassian.............................. 81,250 $ 36.08
</TABLE>
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<PAGE> 53
Under the existing terms of the Stock Plans, the vesting of all grants of
restricted SNET Common Stock will be accelerated at the Effective Time. As of
the Record Date, the following directors of SNET have the following number of
shares of restricted SNET Common Stock:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
------------------------------------------------------------- ----------------
<S> <C>
William F. Andrews........................................... 625.024
Richard H. Ayers............................................. 1,908.279
Robert L. Bennett............................................ 600.000
Barry M. Bloom............................................... 1,303.181
Frank J. Connor.............................................. 1,088.169
William R. Fenoglio.......................................... 1,336.207
Claire L. Gaudiani........................................... 897.909
Ira D. Hall.................................................. 1,777.977
Burton G. Malkiel............................................ 878.182
Frank R. O'Keefe, Jr......................................... 893.746
Joyce M. Roche............................................... 342.000
</TABLE>
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<PAGE> 54
DISSENTERS' RIGHTS OF APPRAISAL
In accordance with the provisions of Sections 33-855 to 33-872 of the CBCA,
a copy of which is set forth in Annex D to this Proxy Statement/Prospectus, each
SNET shareholder is entitled to dissent from, and shall have the right to be
paid the fair value of, all shares of SNET Common Stock owned by such
shareholder in the event of, consummation of the Merger. As provided in CBCA
Section 33-861(a), any SNET shareholder who wishes to assert dissenters' rights
(i) must deliver to SNET before the vote is taken on the Merger Proposal written
notice of such shareholder's intent to demand payment for such shareholder's
shares if the Merger is consummated and (ii) must not vote such shares for the
Merger Proposal. Such notice may be addressed to SNET's registered agent at its
registered office or to SNET or its secretary at the following address: 227
Church Street, New Haven, Connecticut 06510. The rights of a holder of shares of
SNET Common Stock to be paid the value of his shares pursuant to Sections 33-855
to 33-872 of the CBCA shall be his exclusive remedy as a holder of such shares
with respect to the Merger, whether or not he proceeds as provided in such
sections.
As provided in CBCA Section 33-862, if the Merger Proposal is approved and
the Merger is consummated, no later than ten days after such consummation, SNET
shall deliver a written dissenters' notice to all shareholders who have
satisfied the above described requirements of CBCA Section 33-861(a). Such
dissenters' notice shall (i) state where the payment demand must be sent and
where and when certificates for certificated shares must be deposited; (ii)
inform holders of uncertificated shares to what extent transfer of the shares
will be restricted after the payment demand is received; (iii) supply a form for
demanding payment that includes the date of the first announcement to news media
or to shareholders of the terms of the Merger Agreement and requires that each
shareholder asserting dissenters' rights certify whether or not such shareholder
acquired beneficial ownership of the shares before that date; (iv) set a date by
which SNET must receive the payment demand, which date may not be fewer than 30
nor more than 60 days after the date that the written dissenters' notice is
delivered by SNET; and (vi) be accompanied by a copy of CBCA Sections 33-855 to
33-872.
As provided in CBCA Section 33-863(a), a shareholder sent a dissenters'
notice must (i) demand payment, (ii) certify whether such shareholder acquired
beneficial ownership of such shares before the date of the first announcement to
news media or to shareholders of the terms of the Merger Agreement as set forth
in the dissenters' notice and (iii) deposit the certificate or certificates
representing such shareholder's shares in accordance with the terms of the
dissenters' notice. A shareholder who does not demand payment or deposit his
share certificates, each by the date set forth in the dissenters' notice, is not
entitled to payment for his shares under CBCA Sections 33-855 to 33-872.
Except as provided below, upon receipt of a payment demand, SNET shall pay
each shareholder who makes a proper demand for payment pursuant to CBCA Section
33-863(a) the amount SNET estimates to be the fair value of such shareholder's
shares, plus accrued interest, as provided in CBCA Section 33-865(a). Such
payment shall be accompanied by: (i) SNET's balance sheet as of the end of a
fiscal year ending not more than sixteen months before the date of payment, an
income statement for that year and a statement of changes in shareholders'
equity for that year; and the latest available interim financial statements, if
any; (ii) a statement of SNET's estimate of the fair value of the shares); (iii)
an explanation of how the interest was calculated; (iv) a statement of the
shareholder's right to demand payment under CBCA Section 33-860; and (v) a copy
of CBCA Sections 33-855 to 33-872.
Pursuant to CBCA Section 33-868, a Dissenting Shareholder may notify SNET
in writing of such shareholder's own estimate of the fair value of his shares
and the amount of interest due, and demand payment of his estimate, less any
payment by SNET under CBCA Section 33-865, if: (i) such shareholder believes
that the amount paid under CBCA Section 33-865 is less than the fair value of
such shareholder's shares or that the interest due is incorrectly calculated; or
(ii) SNET fails to make payment under CBCA Section 33-865 within 60 days after
the date set for such shareholder's demand payment. A Dissenting Shareholder
waives his right to demand payment under CBCA Section 33-868 unless he notifies
SNET of his demand in writing within 30 days after SNET makes payment for such
shareholder's shares.
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Pursuant to CBCA Section 33-871(a) and (b), if a Dissenting Shareholder's
demand for payment under CBCA Section 33-868 remains unsettled, SNET shall
commence a proceeding within 60 days after receipt of such shareholder's demand
for payment and petition the superior court for the judicial district where
SNET's principal office is located to determine the fair value of such
shareholder's shares and accrued interest. If SNET fails to timely commence such
proceeding, SNET shall pay each Dissenting Shareholder whose demand remains
unsettled the amount demanded. All Dissenting Shareholders making such demand
for payment as described above, whose demands remain unsettled, wherever
residing, shall be made parties to the proceeding and all parties must be served
with a copy of the petition. Dissenting Shareholders not resident in Connecticut
may be served by registered or certified mail or by publication as provided by
law. The jurisdiction of the court shall be plenary and exclusive. The court
may, if it so elects, appoint one or more persons as appraisers to receive
evidence and recommend a decision on the question of fair value. The appraisers
shall have the powers described in the order appointing them, or in any
amendment to it. Each SNET shareholder made a party to the proceeding is
entitled to judgment for the amount, if any, by which the court finds the fair
value of such shareholder's shares, plus interest, exceeds the amount paid by
SNET. The costs and expenses, including the reasonable compensation and expenses
of court-appointed appraisers, of any such proceeding shall be determined by the
court and shall be assessed against SNET, except that the court may assess costs
against all or some Dissenting Shareholders, in amounts the court finds
equitable, to the extent the court finds that they acted arbitrarily,
vexatiously or not in good faith in demanding payment under CBCA Section 33-868.
The court may also assess the fees and expenses of counsel and experts employed
by any party, in amounts the court finds equitable: (i) against SNET in favor of
any or all Dissenting Shareholders if the court finds that SNET failed to
substantially comply with the requirements of CBCA Sections 33-860 to 33-868,
inclusive, or (ii) against either SNET or a Dissenting Shareholder, in favor of
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to rights provided by CBCA Sections 33-855 to 33-872, inclusive. If the
court finds that the services of counsel for any Dissenting Shareholder were of
substantial benefit to other Dissenting Shareholders similarly situated, and
that such fees should not be assessed against SNET, the court may award to these
counsel reasonable fees to be paid out of the amounts awarded to the Dissenting
Shareholders who were benefitted.
The foregoing is only a summary of the dissenters' rights of holders of
SNET Common Stock. Any holder of SNET Common Stock who intends to exercise
dissenters' rights should carefully review the text of the applicable provisions
of the CBCA set forth in Annex D to this Proxy Statement/Prospectus and should
also consult with such holder's attorney. The failure of a holder of SNET Common
Stock to follow precisely the procedures summarized above and set forth in Annex
D may result in loss of dissenters' rights. No further notice of the events
giving rise to dissenters' rights or any steps associated therewith will be
furnished to holders of SNET Common Stock, except as otherwise required by law.
ACCOUNTING TREATMENT
Based on the advice of their respective independent public accountants, SBC
and SNET believe that the Merger will qualify as a "pooling of interests" for
accounting purposes. Under this method of accounting, SBC will restate its
consolidated financial statements at the Effective Time to include the assets,
liabilities, shareholders' equity and results of operations of SNET.
Consummation of the Merger is conditioned on receipt by SBC of a letter from its
independent auditor to the effect that the Merger will qualify as a "pooling of
interests" for accounting purposes. This condition may be deemed to be waived by
SBC under certain circumstances. See "The Merger -- Conditions."
CERTAIN TAX CONSEQUENCES OF THE MERGER
In the opinion of Cravath, Swaine & Moore, tax counsel to SNET, 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 (collectively, "Currently Applicable Law"), and certain representations
as to factual matters made or to be
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made by SNET and SBC (such representations, the "Factual Representations"). Any
change in Currently Applicable Law, which may or may not be retroactive, or
failure of the Factual Representations to be true, correct and complete in all
material respects could affect the continuing validity of this discussion. The
discussion assumes that holders of shares of SNET Common Stock hold such shares
as a capital asset within the meaning of Section 1221 of the Code. Further, the
discussion does not address the tax consequences that may be relevant to a
particular shareholder subject to special treatment under certain federal income
tax laws, such as dealers in securities or foreign currency, banks, trusts,
insurance companies, tax-exempt organizations, persons that hold SNET Common
Stock as part of a straddle, a hedge against currency risk or a constructive
sale or conversion transaction, persons that have a functional currency other
than the U.S. dollar, investors in pass-through entities, non-United States
persons, shareholders who acquired shares of SNET 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 SNET's benefit plans. Other than the discussion of the CCITT (as defined
herein), this discussion does not address any consequences arising under the
laws of any state, locality or foreign jurisdiction.
Neither SNET 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. As a result, there can be no
assurance that the IRS will not disagree with or challenge any of this
conclusions set forth in the discussion.
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, SNET or Merger
Sub. The obligations of SBC and Merger Sub, on the one hand, and SNET, on the
other hand, to consummate the Merger are respectively conditioned on (i) the
receipt by SBC of an opinion of Sullivan & Cromwell, dated the Closing Date, to
the effect that the Merger will be treated for federal income tax purposes as a
"reorganization" within the meaning of Section 368(a) of the Code, and that each
of SBC, SNET 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 SNET of an
opinion of Cravath, Swaine & Moore, 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, SNET 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)
Factual Representations dated as of the Closing Date and (ii) the assumption
that the Merger will be consummated in accordance with the terms of the Merger
Agreement.
Assuming the Merger is consummated in accordance with the terms of the
Merger Agreement and as described in this Proxy Statement/Prospectus, and based
upon Currently Applicable Law and the Factual Representations, the Merger will
be treated as a "reorganization" within the meaning of Section 368(a) of the
Code, and SNET, SBC and Merger Sub will each be parties to that "reorganization"
within the meaning of Section 368(b) of the Code. As a result, (i) no gain or
loss will be recognized by holders of SNET Common Stock with respect thereto as
a result of the surrender of their shares of SNET Common Stock in exchange for
shares of SBC Common Stock (including the receipt of SBC Rights) pursuant to the
Merger (except as discussed below with respect to cash received in lieu of
fractional shares), (ii) the aggregate adjusted tax basis of the shares of SBC
Common Stock received in the Merger (including any fractional shares of SBC
Common Stock deemed received) will be the same as the aggregate adjusted tax
basis of the shares of SNET Common Stock surrendered in exchange therefor in the
Merger, (iii) 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 SNET Common Stock
surrendered in exchange therefor, (iv) no gain or loss will be recognized by
holders of SBC Common Stock as a result of the Merger, and (v) no gain or loss
will be recognized by SNET, SBC or Merger Sub as a result of the Merger.
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FRACTIONAL SHARES
If a holder of shares of SNET 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 adjusted tax basis in shares of
SNET Common Stock surrendered that is allocable to the fractional share interest
in SBC Common Stock. Under these rules, a minority shareholder of SNET 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. Under recently enacted legislation, long-term
gain of an individual holder is subject to a maximum tax rate of 28% in respect
of property held for more than one year. The maximum rate is reduced to 20% in
respect of property held for more than 18 months.
TRANSFER TAXES
SNET will pay all transfer taxes related to the Merger, including any taxes
imposed as a result of the Connecticut controlling interest transfer tax (the
"CCITT"). The CCITT is a real estate transfer tax imposed on transferors of a
controlling interest in a corporation that owns Connecticut real property and is
generally assessed at a rate of 1.11% of the true and actual value of the
Connecticut real estate directly owned by the controlled entity. Because SNET
shareholders are required to pay the CCITT, SNET will treat its payment of the
CCITT as a deemed dividend from SNET shareholders in proportion to their
relative ownership of SNET Common Stock. Generally, the amount received as a
deemed dividend will be includible in SNET shareholders' income as ordinary
income. The amount of the CCITT is not expected to be material.
THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER. THUS, SNET
SHAREHOLDERS 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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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 documents are filed
or incorporated by reference as exhibits to the Registration Statement of which
this Proxy Statement/Prospectus are a part.
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 Stock"). Each share of
SBC Common Stock trades with one half of a SBC Right. See "-- Description of SBC
Rights." As of December 31, 1997, there were outstanding 918,640,606 shares of
SBC Common Stock, with an additional 13,817,697 shares issued and held in
treasury. There are no shares of SBC Preferred Stock outstanding, but SBC has
designated 8,000,000 shares as SBC Participating Preferred Stock.
SBC COMMON STOCK
The holders of SBC Common Stock are entitled to one vote per share for each
share held of record on all matters voted on by shareholders, 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.
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 STOCK
The SBC Restated Certificate provides that the SBC Preferred Stock may be
issued from time to time in one or more series. The SBC Board is specifically
authorized to establish the number of shares in any series and to set the
designation of any series and the powers, preferences, and rights and the
qualifications, limitations or restriction on each series of SBC Preferred
Stock. The holders of SBC Preferred Stock will have no preemptive rights.
In connection with the SBC Rights Agreement, the SBC Board has authorized
the issuance of up to 8,000,000 shares of SBC Participating Preferred Stock
("SBC Participating Preferred Stock"). Upon issuance, each share of SBC
Participating Preferred Stock is entitled to quarterly cash dividends equal to
the greater of $5 or 200 times (subject to antidilution adjustments for stock
dividends and stock splits) the aggregate value of all dividends or other
distributions declared on a share of SBC Common Stock (other than distributions
of SBC Common Stock) since the last quarterly dividend payment date. The SBC
Participating Preferred Stock is not redeemable by SBC.
Each share of SBC Participating Preferred Stock is entitled to 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 Stock shall have
the right to elect two members to the SBC Board until dividends on the SBC
Participating Preferred Stock have been declared and paid or set apart for
payment. Except as required by applicable law, holders of SBC Participating
Preferred Stock have no other special voting rights. Whenever dividends or
distributions on the SBC Participating Preferred Stock are in arrears,
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SBC is prohibited from declaring or paying dividends or distributions on, and
SBC and any subsidiary are prohibited from redeeming or acquiring for value, any
stock ranking junior as to dividends or upon liquidation. During any such
arrearage, SBC may declare or pay dividends on stock ranking on a parity with
the SBC Participating Preferred Stock as to dividends or upon liquidation only
if declared or paid ratably with the SBC Participating Preferred Stock. During
any such arrearage, SBC and any subsidiary are prohibited from redeeming or
acquiring for value any such parity stock or any SBC Participating Preferred
Stock, except pursuant to an exchange of parity stock for stock ranking junior
to the SBC Participating Preferred Stock or pursuant to a purchase offer to the
SBC Participating Preferred Stock and holders of parity stock on terms the SBC
Board determines to be fair and equitable.
The SBC Participating Preferred Stock ranks junior to all other series of
SBC's preferred stock as to the payment of dividends and the distribution of
assets, unless the terms of any such series shall provide otherwise.
Upon any liquidation, dissolution or winding up of SBC, the SBC
Participating Preferred Stock is entitled to a liquidation preference of $100
per share plus any accrued but unpaid dividends, subject to the prior rights of
any series of preferred stock ranking in liquidation senior to the SBC
Participating Preferred Stock. In the event of any shortfall in the assets
available for distribution, any such liquidating distribution shall be made
ratably to the SBC Participating Preferred Stock and any other series of
preferred stock ranking on a parity in proportion to their relative liquidation
preferences. Following such payment, no additional liquidating distributions may
be made on the SBC Participating Preferred Stock until each share of SBC Common
Stock shall have received $0.50 (subject to antidilution adjustments).
Thereafter, any remaining assets shall be distributed to each share of SBC
Participating Preferred Stock 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 shareholders in the event of unsolicited offers or attempts
to acquire SBC, including offers that do not treat all shareholders equally,
acquisitions in the open market of shares constituting control without offering
fair value to all shareholders and other coercive or unfair takeover tactics
that could impair the SBC Board's ability to represent shareholders' 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
shareholders of record at the close of business on February 16, 1989 (the "SBC
Rights Record Date"), and authorized the issuance of one SBC Right (as adjusted
pursuant to the SBC Rights Agreement, as described below) for each share of SBC
Common Stock issued between the SBC Rights Record Date and the SBC Distribution
Date (as defined below). After giving effect to a stock split in May 1993 and
the SBC Stock Split, effected in the form of a stock dividend, each share of SBC
Common Stock outstanding or to be issued prior to the SBC Distribution Date has
or will have attached one-quarter of an SBC Right. Each SBC Right entitles the
registered holder to purchase from SBC one one-hundredth of a share (an "SBC
Unit") of SBC's Participating Preferred Stock at a price of $160 per SBC Unit,
subject to adjustment, which is not exercisable until after an SBC Distribution
Date. The description and terms of the SBC Rights are set forth in 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-quarter
of an SBC Right will be attached to each share of SBC Common Stock issued by SBC
( including shares of SBC Common Stock issued to holders of SNET 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 shareholders as determined by the SBC Board and
should not interfere with any merger or other business combination approved by
the SBC Board since the SBC Board may, at its option, at any time until 10 days
following the SBC Stock Acquisition Date (as defined below), redeem all but not
less than all of the then outstanding SBC Rights at a redemption price of $0.05
per share, except that in certain circumstances a majority of directors not
affiliated with an SBC Acquiring Person (as defined below) or an
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SBC Adverse Person (as defined below) who were elected by a majority of
unaffiliated directors may need to approve the redemption.
Initially, the SBC Rights are and will be attached to all certificates
representing SBC Common Stock (including shares issued in the Merger) at the
time outstanding. The SBC Rights will separate from the SBC Common Stock on the
SBC Distribution Date, which is defined as (i) 10 business days after the public
announcement by SBC or the SBC Acquiring Person (the date of such public
announcement, the "SBC Stock Acquisition Date") that a person (an "SBC Acquiring
Person") has acquired 20% or more of the then outstanding SBC Common Stock, (ii)
10 business days following commencement of a tender offer or exchange offer for
20% or more of the then outstanding SBC Common Stock or (iii) 10 business days
after an owner of 10% or more of the then outstanding SBC Common Stock is
determined to be an "SBC Adverse Person" by the SBC Board of Directors and a
majority of SBC's independent directors that are not officers of SBC. An SBC
Adverse Person is one who intends to have SBC repurchase such person's ownership
interest, who intends to pressure SBC into action for the short-term financial
gain of such person and such action is not in the best long-term interests of
SBC or its shareholders or whose ownership is likely to cause a material adverse
effect on the business or prospects of SBC (including, but not limited to,
impairment of SBC's (i) relationships with customers, (ii) relationships with
regulators or (iii) ability to maintain its competitive position).
If an "SBC Flip-in Event" occurs, the holder of an SBC Right is entitled to
receive SBC Common Stock or other property of SBC valued at two times the
exercise price of the SBC Right. An SBC Flip-in Event occurs if a person
acquires 20% or more of the SBC Common Stock (except offers to acquire all of
the SBC Common Stock deemed by a majority of the SBC Board that are not officers
of SBC and who are not representatives, nominees or associates of an SBC
Acquiring Person to be fair and in the best interests of SBC) or if a person is
determined to be an SBC Adverse Person. Following the occurrence of a Flip-in
Event, SBC may exchange at its option, without requiring payment therefrom, 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 unaffiliated
directors may need to approve the redemption.
If an "SBC Flip Over Event" occurs, the holder of an SBC Right is entitled
to receive common stock of a company that has acquired SBC valued at two times
the exercise price of the SBC Right. An SBC Flip Over Event occurs if SBC is
acquired in a merger or other business combination in which SBC is not the
survivor or if 50% or more of SBC's assets, cash flow or earning power is sold
or transferred.
Following the occurrence of an SBC Flip-in Event or SBC Flip Over Event,
all SBC Rights that are beneficially owned by an SBC Acquiring Person or an SBC
Adverse Person or any transferee thereof will be null and void.
The SBC Rights Agreement may be amended at any time prior to an SBC
Distribution Date, without the approval of holders of SBC Rights in any manner,
except to amend the Redemption Price (as defined in the SBC Rights Agreement),
the SBC 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, which is filed or incorporated by
reference as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part.
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COMPARISON OF CERTAIN RIGHTS OF SHAREHOLDERS
OF SBC AND SNET
GENERAL
As a result of the Merger, holders of SNET Common Stock will become holders
of SBC Common Stock and the rights of all such former holders of SNET Common
Stock will thereafter be governed by the SBC Restated Certificate, the SBC
Bylaws and the DGCL. The rights of the holders of SNET Common Stock are
presently governed by the SNET Restated Certificate, the SNET Bylaws and the
CBCA. The following summary, which does not purport to be a complete statement
of the differences among the rights of the shareholders of SBC and SNET, sets
forth certain differences between the DGCL, the SBC Restated Certificate and the
SBC Bylaws, on the one hand, and the CBCA, the SNET Restated Certificate and the
SNET Bylaws on the other hand. This summary is qualified in its entirety by
reference to the full text of each of such documents, the DGCL and the CBCA.
Section 33-601 of the CBCA provides that whether or not a section of the
CBCA contains the words "unless the certificate of incorporation or bylaws
otherwise provide", or words with a similar meaning, no provision of a
certificate of incorporation or bylaw will be held invalid on the ground that it
is inconsistent with a section of the CBCA unless such section expressly
prohibits variations therefrom or prescribes minimum or maximum numerical
requirements or a substantial interest of the state or third parties is
adversely affected thereby.
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
SBC
The SBC Bylaws provide that the number of directors of SBC will be
determined from time to time by a majority of the SBC Board, but in no event
will the SBC Board be comprised of more than 21 members. The current number of
directors is 18. 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 by one in order to
enable one member of the SNET Board to become a member of the SBC Board.
SNET
The CBCA provides that a corporation's board of directors must consist of
one or more members, with the number specified in or fixed in accordance with
the certificate of incorporation or bylaws. In addition, the CBCA provides that
the number of directors may be increased or decreased from time to time by
amendment to, or in the manner provided in, the certificate of incorporation or
bylaws. The SNET Restated Certificate provides that the number of directors must
from time to time be fixed by the board of directors by a resolution adopted by
a majority of the entire board of directors. The SNET Bylaws provide that the
SNET Board will have not less than three or more than 17 directors. The SNET
Board is currently comprised of 12 members.
Under the CBCA, the certificate of incorporation may provide for staggering
the terms of directors by dividing the total number of directors into up to five
groups, with each group containing approximately the same percentage of the
total, as near may be. The SNET Restated Certificate provides that the SNET
Board will be divided into three classes as nearly equal in number as possible
with each director to be elected to a three-year term.
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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 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 remaining terms of the replaced directors.
SNET
Under the CBCA, a director may be removed by shareholders with or without
cause unless the certificate of incorporation provides that directors may be
removed only for cause. The SNET Bylaws provide that any director may be removed
from office at any time, either by the affirmative vote of the SNET shareholders
representing at least 80% of the voting power of all of the shares of SNET then
entitled to vote generally in the election of directors or by the SNET Board for
cause pursuant to a resolution approved by a majority of the entire SNET Board
upon not less than 10 nor more than 60 days written notice of the meeting at
which said resolution is to be presented. Under the CBCA, a director may be
removed by shareholders only at a meeting called for the purpose of removing
such director, and the meeting notice must state that the purpose or one of the
purposes of the meeting is removal of the director.
Under the CBCA, unless a corporation's certificate of incorporation
provides otherwise, any vacancy in a board of directors may be filled, (i) by
the shareholders, (ii) by such board of directors, or (iii) if the directors
remaining in office constitute fewer than a quorum of such board, by the
affirmative vote of a majority of all the directors remaining in office. Under
the SNET Bylaws any vacancy in the SNET Board will be filled by a majority vote
of the directors then in office even though less than a quorum of the SNET
Board.
The effectiveness of the provisions of the SNET Bylaws concerning removal
of directors and filling vacancies on the board of directors would depend upon
the application of Section 33-601 of the CBCA.
ACTION BY WRITTEN CONSENT
SBC
Under the DGCL, unless otherwise provided in the certificate of
incorporation, shareholders may take action without a meeting, without prior
notice and without a vote, upon the written consent of shareholders 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 shareholders 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.
SNET
Under the CBCA, shareholders may take action without a meeting (i) by
unanimous written consent of all of the persons who would be entitled to vote
upon such action at a meeting, or (ii) if the certificate of incorporation so
provides, by written consent of persons holding a designated proportion, not
less than a majority, of the voting power of shares entitled to vote thereon or
to take such action. The SNET Restated Certificate provides that shareholders
may take action without a meeting only by unanimous written consent of all of
the persons who would be entitled to vote on such action at a meeting.
MEETINGS OF SHAREHOLDERS
SBC
Pursuant to the SBC Bylaws, a special meeting of shareholders may be called
at any time by either the SBC Board or the Chairman of the SBC Board. The
Chairman of the Board of SBC is required to call a
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special meeting whenever requested to do so by shareholders 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 the
shareholders of SBC, the vote of a majority of the votes cast will decide any
question brought before the meeting, unless the question is one upon which by
express provision of the DGCL, the SBC Restated Certificate or the SBC Bylaws a
different vote is required, in which case such express provision will govern and
control the decision of such question brought before the meeting. The DGCL
provides that quorum and voting requirements may be increased or decreased by a
provision of a corporation's certificate of incorporation or bylaws, 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.
SNET
Under the CBCA, a corporation is required to hold a special meeting of
shareholders if called by the board of directors of such corporation or if
shareholders holding at least thirty-five percent of all votes entitled to be
cast at the proposed special meeting demand a special meeting; provided that
such corporation has a class of voting stock registered under Section 12 of the
Exchange Act and no person held ten percent or more of such votes on February 1,
1988. Under the SNET Restated Certificate and the SNET Bylaws a special meeting
of shareholders may be called only by the SNET Board pursuant to a resolution
approved by a majority of the entire SNET Board.
Under the CBCA, unless the certificate of incorporation or the CBCA
provides otherwise, a majority of the votes entitled to be cast on a matter
constitute a quorum for action on that matter. The SNET Bylaws provide that,
unless otherwise provided by law, shareholders entitled to vote present at any
meeting of the shareholders constitute a quorum for such meeting, but a lesser
number may adjourn the meeting to a day and time fixed by the Chairman of the
SNET Board. The CBCA provides that unless the CBCA or the certificate of
incorporation requires a greater number of affirmative votes, if a quorum
exists, action on a matter, other than the election of directors, is approved if
the votes cast favoring the action exceed the votes cast opposing the action.
Under the SNET Bylaws, except as otherwise provided by law, the SNET Restated
Certificate or the SNET Bylaws, at any duly constituted meeting the vote of a
majority in interest of the stock represented thereat and entitled to vote will
be sufficient to elect directors and to pass any measure.
The effectiveness of the provisions of the SNET Bylaws concerning special
meetings of shareholders would depend upon the application of Section 33-601 of
the CBCA.
SHAREHOLDER PROPOSALS AND SHAREHOLDER NOMINATIONS OF DIRECTORS
SBC
The SBC Bylaws establish procedures that must be followed for a shareholder
to submit a proposal (including voting on a slate of directors) to be voted on
by the shareholders of SBC at its annual meeting of shareholders and a
substantially similar procedure to be followed for the nomination and election
of directors. No business may be proposed by a shareholder at the annual meeting
of shareholders 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 shareholders, notice by the shareholder
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
shareholder's notice must set forth (i) the name and record address of such
shareholder and (ii) the class or series and number of shares of capital stock
of SBC which are owned beneficially or of record by such shareholder. In
addition, with respect to business to be brought before an annual meeting, the
shareholder'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
shareholder has in the proposal.
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Shareholder's 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 shareholder 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.
SNET
The SNET Bylaws establish similar procedures that must be followed for a
shareholder to submit a proposal to be voted on by the shareholders of SNET at
its annual meeting of shareholders. For business to be properly brought before
an annual meeting by a shareholder, the shareholder's notice must be delivered
in writing to and received at the principal executive offices of SNET, not less
than 60 days nor more than 90 days prior to the first anniversary of the
preceding year's meeting; provided, however, that if the date of the annual
meeting is advanced by more than 30 days or delayed by more than 60 days from
such anniversary date, notice by the shareholder to be timely must be so
delivered not earlier than the 90th day prior to such annual meeting and not
later than the close of business on the later of the 60th day prior to such
annual meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made. The shareholder's notice must set forth
as to each matter the shareholder proposes to bring before the annual meeting
(i) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and address, as they appear on SNET's books, of the shareholder
proposing such business, (iii) the class and number of shares of SNET
beneficially owned by the shareholder and (iv) any other information which would
be required to be included in the proxy statement filed with the SEC pursuant to
the Exchange Act. Shareholder's notices relating to director nominations must
set forth (i) the name, age, business address and residence address of such
nominee, (ii) the principal occupation or employment of such nominee, (iii) the
class and number of shares of SNET Common Stock which are beneficially owned by
such nominee, and (iv) any other information relating to such nominee that is
required to be disclosed in solicitations of proxies for election of directors
under the Exchange Act. The SNET Bylaws also provide that if the presiding
officer of an annual meeting determines that the business was not properly
brought before the meeting in accordance with these procedures, he shall so
declare at the meeting and such business shall not be transacted. The CBCA
provides that only business within the purpose or purposes described in the
notice of the meeting may be conducted at a special meeting of shareholders.
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
shareholders 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.
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SNET
Under the CBCA, 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
shareholders 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 shareholders. For
corporations incorporated before January 1, 1997, including SNET, a plan of
merger must be approved by each voting group entitled to vote separately on the
plan by at least two-thirds of the voting power of such voting group, unless the
certificate of incorporation provides otherwise. The SNET Restated Certificate
has no provision with respect to voting on a plan of merger; therefore, the
two-thirds vote requirement applies. Action by shareholders of the surviving
corporation on a plan of merger is not required if (i) the certificate of
incorporation of such surviving corporation will not differ, except for
amendments enumerated in Section 33-796 of the CBCA, from its certificate of
incorporation before the merger, (ii) each shareholder of the surviving
corporation whose shares were outstanding immediately before the effective date
of the merger will hold the same number of shares with identical designations,
preferences, limitations and relative rights, immediately thereafter; (iii) the
number of voting shares outstanding immediately after the merger, plus the
number of voting shares issuable as a result of the merger, will not exceed by
more than 20% the total number of voting shares of the surviving corporation
outstanding immediately before the merger, and (iv) the number of participating
shares (as defined in the CBCA) outstanding immediately after the merger, plus
the number of participating shares issuable as a result of the merger, will not
exceed by more than 20% the total number of participating shares outstanding
immediately before 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 shareholders 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 shareholders,
except for certain SBC Bylaws described under "-- Size and Classification of the
Board of Directors" and "-- Certain Fair Price Provisions."
SNET
Under the CBCA, a corporation's certificate of incorporation may be amended
in certain limited respects by the board of directors of such corporation
without shareholder action. A corporation's certificate of incorporation may
also be amended in any respect by recommendation of the board of directors
(unless the board determines that because of conflict of interest or other
special circumstances it should make no recommendation and communicates the
basis for its determination to the shareholders with the amendment) and, unless
the certificate of incorporation or directors require a greater vote, by
approval of (i) a majority of the votes entitled to be cast on the amendment by
each voting group, if any, with respect to which the amendment would create
dissenters' rights, and (ii) a majority of the votes cast by every other voting
group entitled to vote on the amendment. The SNET Restated Certificate requires
the affirmative vote of the holders of at least 80% of the voting power of all
of the shares then entitled to vote generally in the election of directors to
amend, repeal or adopt any provisions of the SNET Restated Certificate
inconsistent with the provisions of the SNET Restated Certificate relating to:
(i) the classification and the term of office of directors, (ii) special
meetings of shareholders, (iii) shareholder action without a meeting, and (iv)
amendment of the SNET Restated Certificate unless no shareholder beneficially
owns more than 10% of the voting power of SNET and two-thirds of the directors
recommend an amendment, in which case the 80%
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requirement will not apply and amendment of the SNET Restated Certificate will
only require the applicable vote specified in the CBCA.
Under the CBCA, a corporation's board of directors may amend or repeal the
bylaws unless the corporation's certificate of incorporation or the CBCA
reserves this power exclusively to the shareholders in whole or in part or
unless in amending or repealing a particular bylaw the shareholders have
expressly provided that the board of directors may not amend or repeal such
bylaw. The SNET Bylaws provide that SNET Bylaws may be amended by the SNET Board
or the SNET shareholders, provided that the amendment or repeal of provisions in
the SNET Bylaws relating to meetings of SNET shareholders and to the SNET Board
and amendment of such provisions requires the affirmative vote of the holders of
at least 80 percent of the voting power of all of the shares of SNET then
entitled to vote generally in the election of directors. The SNET Restated
Certificate contains no provisions with respect to the amendment of the SNET
Bylaws.
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
shareholders or (ii) shares of the constituent corporation surviving the merger,
if the merger did not require the approval of the shareholders 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.
SNET
Under the CBCA, a shareholder is entitled to dissent from, and receive the
fair value of shares owned in the event of a plan of merger or share exchange to
which the corporation is a party as the corporation whose shares will be
acquired, if shareholder approval is required for the merger or the share
exchange and the shareholder is entitled to vote on the transaction. See
"Dissenters' Rights of Appraisal." The CBCA also provides for appraisal rights
(i) in the case of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business if the shareholder is entitled to vote thereon but not including a sale
pursuant to a court order or a sale for cash all of the net proceeds of which
will be distributed to shareholders within one year of the sale, (ii) in the
case of amendments to the certificate of incorporation that materially and
adversely affects the dissenters' rights in respect of such dissenters' shares
and (iii) any corporate action taken pursuant to a shareholder vote to the
extent the certificate of incorporation, bylaws or a resolution of the board of
directors provides that shareholders are entitled to dissent and obtain payment
for their shares. Neither the SNET Restated Certificate nor the SNET Bylaws
contain provisions concerning appraisal and dissenters' rights.
CERTAIN FAIR PRICE PROVISIONS
SBC
The SBC Bylaws provide that certain "business combinations" involving
"interested shareholders" (defined generally to be beneficial owners of 10% or
more of the voting stock of SBC or any person acquiring any voting stock, in the
two year period prior to the business combination, from such a person in a
non-public offering) require approval by a vote of the holders of at least
two-thirds of the then-outstanding shares of capital 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 shareholder (and those who became directors after
the time at which the interested shareholder 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 shareholders must be either cash or the
same type of consideration paid by the interested shareholder in
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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 shareholder in
acquiring any share of SBC Common Stock during the two years prior to the
announcement date of the proposed business combination or in the transaction in
which it became an interested shareholder (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 shareholder became an interested
shareholder (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 shareholder in acquiring any share of SBC Common Stock during
the two years prior to such announcement to (b) the fair market value per share
of SBC Common Stock on the first day in such two-year period upon which the
interested shareholder acquired any shares of SBC Common Stock. This provision
may only be amended or repealed by a vote of the holders of at least two-thirds
of the then-outstanding shares of capital stock of SBC entitled to vote
generally for the election of directors, voting as a single class.
SNET
Neither the SNET Restated Certificate nor the SNET Bylaws contain any such
"Fair Price" provision. The CBCA has certain fair price provisions. See
"-- State Antitakeover Statutes -- SNET."
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 a corporation or a
subsidiary with an "interested stockholder" (as defined in Section 203,
generally the beneficial owner of 15 percent or more of a corporation'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 board of
directors of the target, (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 the corporation
(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) after the person becomes an interested
shareholder 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.
SNET
The CBCA provides that any business combination (as generally defined in
Section 33-840(4) of the CBCA, to include (i) mergers, consolidations or share
exchanges with, (ii) sales, exchanges, leases, mortgage pledges, transfers or
other dispositions, other than in the usual and regular course of business, of
any assets of the corporation or any of its subsidiaries having an aggregate
book value of 10% or more of the total market value of the outstanding shares of
the corporation or of its net worth to, (iii) issuance or transfer by the
corporation or any of its subsidiaries of any equity securities of the
corporation or any of its subsidiaries which have an aggregate market value of
5% or more of the total market value of the outstanding shares of the
corporation to, an "interested shareholder" (generally defined as the beneficial
owner of 10% or more of the voting power of the outstanding shares of voting
stock of a corporation) or its affiliates or associates, in each case subject to
certain limitations) must, with certain exceptions, be approved by affirmative
vote of at least the holders of 80% of the voting power of the outstanding
shares of the voting stock of the corporation and the holders of two-thirds of
the voting power of the outstanding shares of voting stock of the corporation
other than voting stock held by the interested shareholder who is, or whose
affiliate or associate is, a party to the business combination or held by an
affiliate or associate of the interested shareholder. This supermajority voting
provision will not be applicable if either certain fair price criteria set forth
in Section 33-842(b) of the
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CBCA are met or, unless the certificate of incorporation otherwise provides, the
board of directors approves the business combination prior to the time the
interested shareholder became such.
The CBCA has a second business combination statute set forth in Sections
33-843 to 33-845. Pursuant to this statute a resident domestic corporation (as
defined in Section 33-843(11) of the CBCA) may not engage in a business
combination (which is defined similarly to the definition contained in Section
33-840(4) of the CBCA) with an interested shareholder of such corporation for a
period of five years following the date that the interested shareholder became
such unless such business combination or the purchase of stock made by such
interested person on the date that the interested shareholder became such is
approved by the board of directors of such corporation and by a majority of the
nonemployee directors, of which there must be at least two, prior to such
interested shareholder's stock acquisition date.
RIGHTS PLANS
SBC
Pursuant to the SBC Rights Agreement each share of SBC Common Stock has
attached to it after giving effect to the SBC Stock Split one-quarter of an SBC
Right. Each SBC Right entitles the holder thereof to purchase one one-hundredth
of a share of SBC Participating Preferred Stock for $160. Until the SBC
Distribution Date the SBC Rights remain attached to the Common Stock. Following
the SBC Distribution Date, the SBC Rights will separate. After the occurrence of
an SBC Flip-in Event or an SBC Flip Over Event the holders of the Rights will
have the right to purchase shares of SBC Common Stock or shares of common stock
of an SBC Acquiring Person or SBC Adverse Person, as the case may be, having a
market value of twice the purchase price (i.e., $320 worth of SBC Common Stock
or common stock of an SBC Acquiring Person or SBC Adverse Person, as the case
may be, for $160). See "Description of SBC Capital Stock -- Description of SBC
Rights."
The SBC Board may, at its option, redeem the SBC Rights at a redemption
price of $0.05 per SBC Right, generally at any time prior to an SBC Stock
Acquisition Date. The SBC Rights will terminate on January 27, 1999. See
"Description of SBC Capital Stock -- Description of SBC Rights."
SNET
Under SNET's shareholders' rights plan (the "SNET Rights Plan"), effective
February 11, 1997, SNET shareholders have similar rights to those of SBC
shareholders under the SBC Rights Plan. Pursuant to the SNET Rights Plan each
share of SNET Common Stock has an accompanying purchase right (the "SNET
Rights") that entitles the holder to purchase one one-hundredth of a share of
preference stock (the "SNET Preference Stock") at an exercise price of $180.00.
The rights are not exercisable or transferable apart from the SNET Common Stock
until a person or group has acquired or has made an offer for, 20 percent or
more of the outstanding SNET Common Stock (a "SNET Acquiring Person"). In the
event that a person or group acquires 20 percent or more of the outstanding SNET
Common Stock, each outstanding right, other than those held by the SNET
Acquiring Person, is entitled to purchase, at the exercise price of the rights,
a number of shares of SNET Common Stock having a market value of two times the
exercise price of the right. In addition, in the event that, at any time after a
person has become a SNET Acquiring Person, any person will consolidate with, or
merge with and into SNET and SNET will be the continuing or surviving
corporation of such merger and, in connection with such merger, all or part of
the SNET Common Stock will be changed into or exchanged for stock or other
securities of any other person or cash or any other property, each outstanding
SNET Right, other than those held by the SNET Acquiring Person, is entitled to
purchase, at the exercise price of the SNET Rights, a number of shares of common
stock of such other person having a market value of two times the exercise price
of the SNET Rights. At any time after any person has become a SNET Acquiring
Person, and prior to the acquisition by such person or group of 50 percent or
more of the SNET Common Stock, the Board may exchange the SNET Rights (other
than the SNET Rights held by such SNET Acquiring Person), in whole or in part,
at an exchange ratio of one share of SNET Common Stock or one one-hundredth of a
share of SNET Preference Stock per SNET Right. The SNET Rights are redeemable at
one cent each prior to public announcement that a person or group has become a
SNET Acquiring Person.
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The rights issued under the SNET Rights Plan will expire on February 11, 2007,
unless earlier terminated. On January 4, 1998, the definition of SNET Acquiring
Person was amended to exclude SBC and its affiliates from such definition.
The description of the SNET Rights Agreement specifying the terms of the
SNET Rights is incorporated herein by reference. See "Incorporation of Certain
Information by Reference." The foregoing description of the SNET Rights is
qualified in its entirety by reference to the SNET Rights Agreement.
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 shareholders 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 shareholders, (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 to the extent permitted by
such Section 102.
SNET
Section 33-636 of the CBCA allows a corporation to limit the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of duty as a director to an amount that is not less than the
compensation received by the director for serving the corporation during the
year of the violation if such breach did not (A) involve a knowing and culpable
violation of law by the director, (B) enable the director or an associate to
receive an improper personal economic gain, (C) show a lack of good faith and a
conscious disregard for the duty of the director to the corporation under
circumstances in which the director was aware that his conduct or omission
created an unjustifiable risk of serious injury to the corporation, (D)
constitute a sustained and unexcused pattern of inattention that amounted to an
abdication of the director's duty to the corporation, or (E) create liability
for unlawful distributions. The SNET Restated Certificate provides for the
limitation on directors' liability permitted by Section 33-636.
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.
SNET
Under the CBCA, unless the certificate of incorporation provides otherwise,
a corporation formed prior to January 1, 1997 shall indemnify its officers,
directors, employees or agents against liability incurred by them in connection
with proceedings, if they acted in good faith and, in the case of conduct in
their official capacity, in a manner they reasonably believed to be in the best
interests of the corporation and, in all other cases, that their conduct was at
least not opposed to the best interest of the corporation, and with respect to
criminal proceedings, had no reasonable cause to believe that their conduct was
unlawful. A corporation may advance
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expenses to its officers, directors, employees or agents prior to final
adjudication, as long as they deliver to the corporation a written affirmation
of their good faith belief that they have satisfied the required standard of
conduct and undertake to repay the amounts advanced if it is ultimately
determined that they were not entitled to be indemnified. There are no
provisions in the SNET Restated Certificate or the SNET Bylaws concerning
indemnification of directors and officers.
CUMULATIVE VOTING
Neither SBC nor SNET permits cumulative voting of shares.
CONFLICT-OF-INTEREST TRANSACTIONS
SBC
The DGCL permits transactions involving a Delaware corporation and an
interested director or officer of that corporation so long as (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 shareholders.
SNET
Similar to the DGCL, the CBCA permits transactions involving a Connecticut
corporation and an interested director of that corporation so long as (i) the
transaction is approved by an affirmative vote of a majority, but no fewer than
two, of those qualified directors (as defined in the CBCA) on the board of
directors or on a duly empowered committee thereof who voted on the transaction
after the existence and nature of the director's conflicting interest and all
facts known to him respecting the subject matter of the conflicting interest
transaction that an ordinarily prudent person would reasonably believe to be
material to a judgment about whether or not to proceed with the transaction are
known or disclosed to them, (ii) a majority of the votes entitled to be cast by
the holders of all qualified shares (as defined in the CBCA) were cast in favor
of the transaction after the existence and nature of the director's conflicting
interest and all facts known to the interested director respecting the subject
matter of the conflicting interest transaction that an ordinarily prudent person
would reasonably believe to be material to a judgment about whether or not to
proceed with the transaction are known or disclosed to the holders of such
shares, or (ii) the transaction, judged according to the circumstances at the
time of commitment, is established to have been fair to the corporation. Unlike
the DGCL, the CBCA contains no provisions explicitly treating
conflict-of-interest transactions to be undertaken by officers of a corporation.
DIVIDENDS AND OTHER DISTRIBUTIONS
SBC
The DGCL provides that the directors of every corporation, subject to any
restrictions in its certificate of incorporation, may declare and pay dividends
either 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. The SBC Restated Certificate does not contain any limitation on
such powers. 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.
SNET
Under the CBCA, a corporation may make distributions, including dividends,
to its shareholders subject to restriction by its certificate of incorporation
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 the corporation's total assets would be less than the sum
of its total liabilities plus, unless its certificate of incorporation permits
otherwise, the amount that would be needed, if the corporation were to be
dissolved at that time, to satisfy the preferential rights of shareholders whose
rights are superior to those shareholders
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receiving the dividend or distribution. Neither the SNET Restated Certificate
nor the SNET Bylaws contain a limitation of such powers.
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. Nor
does the SBC Restated Certificate or the SBC Bylaws. The scope of the fiduciary
duties of the Board of Directors of SBC is thus determined by the courts of
Delaware. In connection with business combination transactions, Delaware courts
have permitted directors to consider various constituencies provided that there
be some rationally related benefit to the shareholders.
SNET
The CBCA requires that a director of a corporation discharge his duties as
a director in good faith, with the care an ordinarily prudent person in a like
position would exercise under similar circumstances, and in a manner such
director reasonably believes to be in the best interests of the corporation. In
connection with the directors' consideration of certain business combination
transactions, the CBCA requires that a director consider, in determining what
such director reasonably believes to be in the best interests of the
corporation, (1) the long-term as well as the short-term interests of the
corporation, (2) the interests of the shareholders, long-term as well as
short-term, including the possibility that those interests may be best served by
the continued independence of the corporation, (3) the interests of the
corporation's employees, customers, creditors and suppliers, and (4) community
and societal considerations including those of any community in which any office
or other facility of the corporation is located. A director may also in such
director's discretion consider any other factors he reasonably considers
appropriate in determining what he reasonably believes to be in the best
interests of the corporation with respect to such a business combination
transaction. Under the SNET Bylaws, as long as SNET owns or controls 80% or more
of the shares of common stock of The Southern New England Telephone Company or
any successor thereof, the SNET Board is authorized to consider in exercising
its judgment on any decision which may come before it, the effect of such
decision on (i) the ratepayers of such company, (ii) the employees of such
company, (iii) the economy and residents of the communities served by such
company, and (iv) the ability of such company to carry out its duties as a
public service company. There is no provision in the SNET Restated Certificate
concerning duties of directors.
EXPERTS
The consolidated financial statements and schedules of SBC at December 31,
1996 and 1995, and for the years ended December 31, 1996, 1995 and 1994,
incorporated by reference in this 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 and schedules of Pacific Telesis
Group and Subsidiaries as of December 31, 1996 and 1995, and for the years ended
December 31, 1996, 1995 and 1994, incorporated by reference in this Proxy
Statement/Prospectus and Registration Statement have been audited by Coopers &
Lybrand L.L.P., 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 and schedules of SNET as of December
31, 1996 and 1995 and for the years ended December 31, 1996, 1995 and 1994,
incorporated by reference in this Proxy Statement/Prospectus have been audited
by Coopers & Lybrand L.L.P., independent accountants, as set forth in
63
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their reports thereon, which are incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon authority of such firm as experts in accounting and auditing.
VALIDITY OF SHARES
The validity of the SBC Common Stock to be issued pursuant to the Merger
will be passed upon for SBC by James D. Ellis, Senior Executive Vice President
and General Counsel of SBC. As of the date of this Proxy Statement/Prospectus,
Mr. Ellis owned less than 0.1% of the shares (including options representing
certain rights to purchase shares) of SBC Common Stock.
SHAREHOLDER PROPOSALS
The date by which shareholder proposals were required to have been received
by SNET for inclusion in the proxy materials relating to the 1998 annual meeting
of shareholders of SNET was November 20, 1997.
64
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------- ----
<S> <C>
1996 SBC 10-K.......................... ii
1996 SNET 10-K......................... iii
Acquisition Proposal................... 5
Affiliates............................. 43
AT&T................................... 1
BT..................................... 27
CBCA................................... 4
CCITT.................................. 49
Cellular Comparable Companies.......... 25
Certificate............................ 4
Certificate of Merger.................. 4
Closing................................ 21
Closing Date........................... 7
Code................................... 3
Commnet Transaction.................... 26
Communications Act..................... 6
Costs.................................. 7
CSE.................................... ii
Current Premium........................ 8
Currently Applicable Law............... 47
D&O Insurance.......................... 8
DCF.................................... 24
DGCL................................... 11
Directory Comparable Companies......... 25
Dissenting Shareholders................ i
Dissenting Shares...................... i
Dividend Yield......................... 23
DOJ.................................... 6
DPUC................................... 6
DPUC Application....................... 6
EBIT................................... 24
EBIT Margin............................ 24
EBITDA................................. 24
EBITDA Margin.......................... 24
Effective Time......................... 3
Employee Stock Ownership Plan.......... 32
EPS.................................... 23
Escrow Account......................... 33
Exchange Act........................... ii
Exchange Agent......................... 30
Exchange Ratio......................... 3
Excluded SNET Common Stock............. i
Executive Severance Plan............... 44
Extended Termination Date.............. 9
Factual Representations................ 48
FCC.................................... 6
<CAPTION>
TERM PAGE
- --------------------------------------- ----
<S> <C>
Final Order............................ 38
Frontier............................... 26
FTC.................................... 6
Georgeson.............................. 15
Governmental Entity.................... 31
HSR Act................................ 6
Indemnified Party...................... 7
Independent Index...................... 23
Independents........................... 23
IRS.................................... 48
LCI.................................... 26
LDDS................................... 27
LTM.................................... 24
Management Severance Plan.............. 44
market/offer price..................... 42
Material Adverse Effect................ 35
MCI.................................... 26
Merger................................. i
Merger Agreement....................... i
Merger Consideration................... 3
Merger Proposal........................ i
Merger Sub............................. i
Notice Date............................ 42
Notification and Report Form........... 6
Notional Total Profit.................. 42
NYSE................................... ii
Omnipoint.............................. 28
Option................................. 41
Option Closing Date.................... 42
Option Price........................... 41
Option Shares.......................... 42
Order.................................. 8
P/E Ratio.............................. 23
Palmer Transaction..................... 26
PowerTel............................... 28
Program................................ 44
PSE.................................... ii
Public Service Companies............... 6
PUCs................................... 6
Record Date............................ 2
Redemption Price....................... 52
Registered SBC Common Stock............ 4
Registered SBC Shares.................. 30
Registration Statement................. i
Repurchase Notice...................... 42
Resurgens.............................. 27
</TABLE>
65
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<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------- ----
<S> <C>
RHC Index.............................. 23
RHCs................................... 23
Salomon Smith Barney................... 4
SBC.................................... i
SBC Acquiring Person................... 52
SBC Adverse Person..................... 52
SBC Affiliates Letter.................. 43
SBC Board.............................. 3
SBC Bylaws............................. 11
SBC Cellular........................... 27
SBC Certificate........................ 4
SBC Common Stock....................... i
SBC Directory.......................... 27
SBC Distribution Date.................. 52
SBC Final Expiration Date.............. 52
SBC Flip Over Event.................... 52
SBC Flip-in Event...................... 52
SBC Participating Preferred............ 50
SBC Participating Preferred Stock...... 50
SBC PCS................................ 27
SBC Pooling Action..................... 39
SBC Preferred Stock.................... 50
SBC Required Consents.................. 31
SBC Restated Certificate............... 11
SBC Rights............................. 3
SBC Rights Agreement................... 51
SBC Rights Record Date................. 51
SBC Stock Acquisition Date............. 52
SBC Stock Plans........................ 33
SBC Stock Split........................ 2
SBC Telco.............................. 27
SBC Unit............................... 51
SEC.................................... ii
TERM PAGE
- --------------------------------------- ----
Section 203............................ 59
Securities Act......................... i
Severance Agreements................... 43
Significant Subsidiaries............... 32
SNET................................... i
SNET Acquiring Person.................. 60
SNET Affiliates Letter................. 43
SNET Board............................. 3
SNET Bylaws............................ 29
SNET Cellular.......................... 23
SNET Common Stock...................... i
SNET Compensation and Benefit Plans.... 7
SNET Long Distance..................... 23
SNET Directory......................... 23
SNET Option............................ 7
SNET Preference Stock.................. 60
SNET Required Consents................. 31
SNET Restated Certificate.............. 29
SNET Rights............................ 60
SNET Rights Plan....................... 60
SNET Telco............................. 23
Special Meeting........................ i
Stock Option Agreement................. 10
Stock Plans............................ 33
Subsidiary............................. 32
Substitute Option...................... 7
Superior Proposal...................... 5
Surviving Corporation.................. i
Termination Date....................... 9
Termination Fee........................ 10
Total Profit........................... 42
Triggering Event....................... 41
</TABLE>
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ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION,
SBC COMMUNICATIONS INC.
AND
SBC (CT), INC.
DATED AS OF JANUARY 4, 1998
A-1
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
RECITALS............................................................................. A-8
ARTICLE I
The Merger; Closing; Effective Time................................................ A-8
1.1. The Merger................................................................... A-8
1.2. Closing...................................................................... A-8
1.3. Effective Time............................................................... A-8
ARTICLE II
Certificate of Incorporation and By-Laws of the Surviving Corporation.............. A-9
2.1. The Certificate of Incorporation............................................. A-9
2.2. The By-Laws.................................................................. A-9
ARTICLE III
Officers, Directors and Management................................................. A-9
3.1. Directors of Surviving Corporation........................................... A-9
3.2. Officers of Surviving Corporation............................................ A-9
3.3. Election to SBC's Board of Directors......................................... A-9
ARTICLE IV
Effect of the Merger on Capital Stock; Exchange of Certificates.................... A-9
4.1. Effect on Capital Stock...................................................... A-9
(a) Merger Consideration..................................................... A-9
(b) Cancellation of Shares................................................... A-10
(c) Restricted Stock......................................................... A-10
(d) Merger Sub............................................................... A-10
4.2. Exchange of Certificates for Shares.......................................... A-10
(a) Exchange Procedures...................................................... A-10
(b) Distributions with Respect to Unexchanged Shares; Voting................. A-11
(c) Transfers................................................................ A-11
(d) Fractional Shares........................................................ A-11
(e) Termination of Exchange Period; Unclaimed Stock.......................... A-11
(f) Lost, Stolen or Destroyed Certificates................................... A-12
(g) Affiliates............................................................... A-12
4.3. Dissenters' Rights........................................................... A-12
4.4. Adjustments to Prevent Dilution.............................................. A-12
4.5. Escrow Account for Payment of Dissenters' Demands and Transfer Taxes......... A-12
ARTICLE V
Representations and Warranties..................................................... A-13
5.1. Representations and Warranties of the Company, SBC and Merger Sub............ A-13
(a) Organization, Good Standing and Qualification............................ A-13
(b) Governmental Filings; No Violations...................................... A-13
</TABLE>
A-2
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<TABLE>
<CAPTION>
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<S> <C>
(c) Reports; Financial Statements............................................ A-14
(d) Absence of Certain Changes............................................... A-15
(e) Litigation and Liabilities............................................... A-15
(f) Accounting, Tax and Regulatory Matters................................... A-15
(g) Taxes.................................................................... A-15
(h) Compliance with Laws..................................................... A-16
5.2. Representations and Warranties of the Company................................ A-16
(a) Capital Structure........................................................ A-16
(b) Corporate Authority; Approval and Fairness............................... A-17
(c) Employee Benefits........................................................ A-17
(d) Takeover Statutes........................................................ A-18
(e) Environmental Matters.................................................... A-19
(f) Labor Matters............................................................ A-19
(g) Rights Agreement......................................................... A-19
(h) Brokers and Finders...................................................... A-19
(i) Intellectual Property................................................... A-19
(j) Severance Payments...................................................... A-20
5.3. Representations and Warranties of SBC and Merger Sub......................... A-20
(a) Capital Structure........................................................ A-20
(b) Corporate Authority; Approval and Fairness............................... A-21
(c) Brokers and Finders...................................................... A-21
ARTICLE VI
Covenants.......................................................................... A-21
6.1. Interim Operations........................................................... A-21
6.2. Acquisition Proposals........................................................ A-23
6.3. Information Supplied......................................................... A-24
6.4. Shareholders Meeting......................................................... A-24
6.5. Filings; Other Actions; Notification......................................... A-24
6.6. Access; Consultation......................................................... A-25
6.7. Affiliates................................................................... A-26
6.8. Stock Exchange Listing and De-listing........................................ A-26
6.9. Publicity.................................................................... A-26
6.10. Benefits..................................................................... A-27
(a) Stock Options........................................................... A-27
(b) Employee Benefits....................................................... A-27
6.11. Expenses..................................................................... A-27
6.12. Indemnification; Directors' and Officers' Insurance.......................... A-27
6.13. Takeover Statute............................................................. A-28
6.14. Dividends.................................................................... A-28
6.15. Confidentiality.............................................................. A-28
6.16. Control of the Company's Operations.......................................... A-29
6.17. Tax Representation Letters................................................... A-29
6.18. Transfer Taxes............................................................... A-29
</TABLE>
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<TABLE>
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ARTICLE VII
Conditions......................................................................... A-29
7.1. Conditions to Each Party's Obligation to Effect the Merger................... A-29
(a) Shareholder Approval..................................................... A-29
(b) NYSE Listing............................................................. A-29
(c) Governmental Consents.................................................... A-29
(d) Laws and Orders.......................................................... A-30
(e) S-4...................................................................... A-30
7.2. Conditions to Obligations of SBC and Merger Sub.............................. A-30
(a) Representations and Warranties........................................... A-30
(b) Performance of Obligations of the Company................................ A-30
(c) Tax Opinion.............................................................. A-30
(d) Dissenting Shares........................................................ A-30
(e) Accountants' Letter...................................................... A-30
7.3. Conditions to Obligation of the Company...................................... A-31
(a) Representations and Warranties........................................... A-31
(b) Performance of Obligations of SBC and Merger Sub......................... A-31
(c) Tax Opinion.............................................................. A-31
ARTICLE VIII
Termination........................................................................ A-31
8.1. Termination by Mutual Consent................................................ A-31
8.2. Termination by Either SBC or the Company..................................... A-31
8.3. Termination by the Company................................................... A-32
8.4. Termination by SBC........................................................... A-32
8.5. Effect of Termination and Abandonment........................................ A-32
ARTICLE IX
Miscellaneous and General.......................................................... A-33
9.1. Survival..................................................................... A-33
9.2. Modification or Amendment.................................................... A-33
9.3. Waiver of Conditions......................................................... A-33
9.4. Counterparts................................................................. A-34
9.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL................................ A-34
9.6. Notices...................................................................... A-35
9.7. Entire Agreement............................................................. A-35
9.8. No Third Party Beneficiaries................................................. A-35
9.9. Obligations of SBC and of the Company........................................ A-35
9.10. Severability................................................................. A-36
9.11. Interpretation............................................................... A-36
9.12. Assignment................................................................... A-36
</TABLE>
A-4
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
- ----------------------------------------------------------------------------- ---------------
<S> <C>
Acquiring Party.............................................................. 8.5(b)
Acquisition Proposal......................................................... 6.2
Affiliate.................................................................... 5.1(g)
Affiliates Letter............................................................ 6.7
Agreement.................................................................... preamble
Audit Date................................................................... 5.1(e)
Bankruptcy and Equity Exception.............................................. 5.2(b)
By-Laws...................................................................... 2.2
CBCA......................................................................... 1.1
Certificate.................................................................. 4.1(a)
Certificate of Merger........................................................ 1.3
Charter...................................................................... 2.1
Closing...................................................................... 1.2
Closing Date................................................................. 1.2
Code......................................................................... recitals
Company...................................................................... preamble
Company Affiliate's Letter................................................... 6.7(a)
Company Disclosure Letter.................................................... 5.1
Company Option............................................................... 6.10(a)(i)
Company Required Consents.................................................... 5.1(b)(i)
Company Requisite Vote....................................................... 5.2(b)
Company Shares............................................................... 4.1(a)
Compensation and Benefit Plans............................................... 5.2(c)(i)
Confidentiality Agreement.................................................... 6.15
Contracts.................................................................... 5.1(b)(ii)
Costs........................................................................ 6.12
CPUC......................................................................... 8.2(f)
Current Premium.............................................................. 6.12(c)
D&O Insurance................................................................ 6.12(c)
Director Designee............................................................ 3.3
Disclosure Letter............................................................ 5.1
Dissenting Shares............................................................ 4.1(a)
Dissenting Shareholders...................................................... 4.1(a)
Effective Time............................................................... 1.3
Environmental Law............................................................ 5.2(e)
ERISA........................................................................ 5.2(c)(i)
ERISA Affiliate.............................................................. 5.2(c)(iii)
ERISA Affiliate Plan......................................................... 5.2(c)(iii)
Escrow Account............................................................... 4.5
Escrow Agent................................................................. 4.5
Escrow Agreement............................................................. 4.5
Exchange Act................................................................. 5.1(b)(ii)
Exchange Agent............................................................... 4.2(a)
Exchange Ratio............................................................... 4.1(a)
Excluded Company Shares...................................................... 4.1(a)
Extended Termination Date.................................................... 8.2
</TABLE>
A-5
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<TABLE>
<CAPTION>
TERM SECTION
- ----------------------------------------------------------------------------- ---------------
<S> <C>
FCC.......................................................................... 5.1(b)
Final Order.................................................................. 7.1(c)
GAAP......................................................................... 5.1(c)
Governmental Entity.......................................................... 5.1(b)(i)
Hazardous Substance.......................................................... 5.2(e)
HSR Act...................................................................... 5.1(b)
Indemnified Parties.......................................................... 6.12(a)
Initial 15 Day Period........................................................ 8.4
IRS.......................................................................... 5.2(c)(ii)
Laws......................................................................... 5.1(h)
Litigation................................................................... 5.1(e)
Material Adverse Effect...................................................... 5.1(a)
Merger....................................................................... recitals
Merger Consideration......................................................... 4.1(a)
Merger Sub................................................................... preamble
NYSE......................................................................... 6.8
Order........................................................................ 7.1(d)
Owned Intellectual Property Rights........................................... 5.2(i)(ii)(B)
Pension Plan................................................................. 5.2(c)(ii)
Person....................................................................... 4.2(a)
Permits...................................................................... 5.1(h)
Preference Shares............................................................ 5.2(a)
Preference Shares............................................................ 5.2(a)
Preferred Shares............................................................. 5.2(a)
Prospectus/Proxy Statement................................................... 6.3
PUC.......................................................................... 5.1(b)
Reports...................................................................... 5.1(c)
Registered Silver Shares..................................................... 4.2(a)
Representatives.............................................................. 6.6(a)
Rights Agreement............................................................. 5.2(a)
S-4 Registration Statement................................................... 6.3
SBC.......................................................................... preamble
SBC Affiliate's Letter....................................................... 6.7(a)
SBC Common Stock............................................................. 4.1(a)
SBC Disclosure Letter........................................................ 5.1
SBC Pooling Action........................................................... 7.2(c)
SBC Preferred Shares......................................................... 5.3(a)
SBC Required Consents........................................................ 5.1(b)
SBC Requisite Vote........................................................... 5.1(c)
SBC Rights................................................................... 4.1(a)
SBC Rights Agreement......................................................... 5.3(a)
SBC Stock Plans.............................................................. 5.3(a)
SBC Voting Debt.............................................................. 5.1(b)(ii)
SEC.......................................................................... 5.1(c)
Securities Act............................................................... 5.1(b)(i)
Shareholders Meeting......................................................... 6.4
Significant Subsidiaries..................................................... 5.1(b)(ii)
Stock Option Agreement....................................................... recitals
</TABLE>
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<TABLE>
<CAPTION>
TERM SECTION
- ----------------------------------------------------------------------------- ---------------
<S> <C>
Stock Plans.................................................................. 5.2(a)
Subsidiary................................................................... 5.1(a)
Substitute Option............................................................ 6.10(a)(i)
Superior Proposal............................................................ 6.2
Surviving Corporation........................................................ 1.1
Takeover Statute............................................................. 5.2(d)
Tax.......................................................................... 5.1(g)
Taxes........................................................................ 5.1(g)
Taxable...................................................................... 5.1(g)
Tax Return................................................................... 5.1(g)
Termination Date............................................................. 8.2
Termination Fee.............................................................. 8.5(b)
Third-Party Intellectual Property Right...................................... 5.2(i)(ii)(A)
Transfer Taxes............................................................... 6.18
Utilities Laws............................................................... 5.1(d)
</TABLE>
A-7
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"), dated
as of January 4, 1998, among Southern New England Telecommunications
Corporation, a Connecticut corporation (the "Company"), SBC Communications Inc.,
a Delaware corporation ("SBC"), and SBC (CT), Inc., a Connecticut corporation
and a wholly-owned subsidiary of SBC ("Merger Sub").
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 adopted this Agreement;
WHEREAS, it is intended that, for federal income tax purposes, the Merger
shall qualify as a "tax-free" 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";
WHEREAS, as an inducement to the willingness of SBC to enter into this
Agreement, the board of directors of the Company has approved the grant to SBC
of an option to purchase shares of common stock of the Company pursuant to a
stock option agreement, substantially in the form of Exhibit A (the "Stock
Option Agreement"), and each of the Company and SBC have duly authorized,
executed and delivered the Stock Option Agreement; 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
Connecticut, and the Merger shall have the effects specified in the Connecticut
Business Corporation Act (the "CBCA").
1.2. Closing. The closing of the Merger (the "Closing") shall take place
(i) at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York
10004 at 9:00 A.M. local time on the second business day after the date on which
the last to be fulfilled or waived of the conditions set forth in Article VII
(other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the fulfillment or waiver of those conditions) shall be
satisfied or waived in accordance with this Agreement or (ii) at such other
place and time and/or on such other date as the Company and SBC may agree in
writing (the "Closing Date").
1.3. Effective Time. As soon as practicable following the Closing, the
Company and SBC will cause a certificate of merger (the "Certificate of Merger")
to be signed, acknowledged and delivered for filing with the Secretary of the
State of Connecticut as provided in Section 33-819 of the CBCA. The Merger shall
become effective at the time when the Certificate of Merger shall have become
effective in accordance with the CBCA (the "Effective Time").
A-8
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ARTICLE II
CERTIFICATE OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION
2.1. The Certificate of Incorporation. The certificate of incorporation of
the Company as in effect immediately prior to the Effective Time shall be the
certificate of incorporation of the Surviving Corporation (the "Charter"), until
duly amended as provided therein or by applicable law, except that (i) Section 3
of the Charter shall be amended to read in its entirety as follows: "The
authorized capital stock of the Corporation shall consist of one thousand shares
of common stock having a par value of one dollar per share.", and (ii) Section 4
of the Charter shall be amended to read in its entirety as follows: "The number
of directors of the Corporation shall be fixed from time to time by the Board of
Directors or the Shareholders in accordance with the By-laws of the Corporation.
A director shall hold office until the next annual meeting of shareholders of
the Corporation following his election and until his successor shall be elected
and shall qualify."
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
duly amended as provided therein or by applicable law, except that the By-Laws
shall be amended as set forth in Exhibit B.
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 shall have been duly elected or
appointed and shall have 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 shall have been duly elected or
appointed and shall have 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 by one. The
nominee for such additional directorship shall be 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 Designee"), and the SBC Board of Directors shall
appoint the Director Designee to the SBC Board of Directors as of the Effective
Time, with such Director Designee to serve in the director group determined in
accordance with Article II of the by-laws of SBC as in effect on the date hereof
until his or her successor shall have been duly elected or appointed and shall
have qualified or until his or her earlier death, resignation or removal in
accordance with the certificate of incorporation and the by-laws of SBC.
ARTICLE IV
EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES
4.1. Effect on Capital Stock. At the Effective Time, as a result of the
Merger and without any action on the part of the holder of any capital stock of
the Company:
(a) Merger Consideration. Each share of the common stock, having a
par value of one dollar per share (each a "Company Share" and together the
"Company Shares"), of the Company issued and outstanding immediately prior
to the Effective Time (other than (i) Company Shares that are owned by SBC
or Merger Sub, (ii) Company Shares that are owned by the Company, in each
case (i) and (ii) not held on behalf of third parties, or (iii) Company
Shares ("Dissenting Shares") that are owned by shareholders ("Dissenting
Shareholders") who satisfy all of the requirements to demand payment for
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such shares in accordance with Sections 33-855 through 33-872 of the CBCA
(collectively, "Excluded Company Shares")) shall be converted into 0.8784
of a share (the "Exchange Ratio") of Common Stock, par value $1 per share,
of SBC ("SBC Common Stock"), subject to adjustment as provided in Section
4.4 (the "Merger Consideration"). All references in this agreement to SBC
Common Stock to be issued pursuant to the Merger shall be deemed to include
the corresponding rights ("SBC Rights") to purchase shares of SBC Common
Stock pursuant to the SBC Rights Agreement (as defined in Section 5.3(a)),
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 Company Shares (other than Excluded Company
Shares) shall thereafter represent only the right to the Merger
Consideration and the right, if any, to receive pursuant to Section 4.2(d)
cash in lieu of fractional shares into which such Company Shares have been
converted pursuant to this Section 4.1(a) and any distribution or dividend
pursuant to Section 4.2(b), in each case without interest.
(b) Cancellation of Shares. Each Company Share issued and outstanding
immediately prior to the Effective Time and owned directly by SBC, Merger
Sub or the Company (other than shares held for 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. Dissenters'
Shares shall be cancelled and retired at the Effective Time and paid for in
accordance with Section 33-865 of the CBCA.
(c) Restricted Stock. Each Company Share issued and outstanding
immediately prior to the Effective Time that, after giving effect to any
provision in the plans referred to below providing for the termination or
lapse of any restriction resulting from the transactions contemplated by
this Agreement, is restricted under the Company's 1995 Stock Incentive
Plan, Non-Employee Director Stock Plan or 1996 Non-Employee Director Stock
Plan shall be converted into 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) 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 Company Shares (other than holders of record
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 surrendering the Certificates in exchange for (A)
uncertificated shares of SBC Common Stock registered on the stock transfer books
of SBC in the name of such holder ("Registered SBC Shares") or, at the election
of such holder, certificates representing shares of SBC Common Stock and (B) any
unpaid dividends and other distributions and cash in lieu of fractional shares.
Subject to Section 4.2(g), upon 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)
Registered SBC Shares or, at the election of such holder, a certificate,
representing that number of whole shares of SBC Common Stock that such holder is
entitled to receive pursuant to this Article IV, (y) a check in the amount
(after giving effect to any required tax withholdings) of (A) any cash in lieu
of fractional shares 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
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Company Shares that is not registered in the transfer records of the Company,
the Registered SBC Shares or certificate, as the case may be, representing the
proper number of shares of SBC Common Stock, together 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 Registered SBC Shares or any certificate for shares of SBC Common
Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it shall be a condition of such
exchange that the Person (as defined below) requesting such exchange shall pay
any transfer or other taxes required by reason of the issuance of Registered SBC
Shares or 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(b)) 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. 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 Registered SBC Shares or certificates, as the case may be,
representing whole shares of SBC Common Stock issued in exchange for such
Certificate, without interest, (A) at the time of such surrender, the dividends
or other distributions with a record date at or 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 at or 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 record of Company Shares entitled to receive a fractional share of SBC
Common Stock but for this Section 4.2(d) shall be entitled to receive an amount
in cash (without interest) determined by multiplying such fraction (rounded to
the nearest one-hundredth of a share) by the closing price of a share of SBC
Common Stock, as reported in The Wall Street Journal, New York City edition, for
the last trading day 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
payable with respect to the SBC Common Stock pursuant to Section 4.1, Section
4.2(b) and Section 4.2(d) (including the proceeds of any investments thereof)
that remains unclaimed by the shareholders of the Company 180 days after the
Effective Time shall be paid to SBC. Any shareholders of the Company who have
not theretofore complied with this Article IV shall 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,
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without any interest thereon. Notwithstanding the foregoing, none of SBC, the
Surviving Corporation, the Exchange Agent or any other Person shall be liable to
any former holder of Company Shares for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(f) Lost, Stolen or Destroyed Certificates. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such Certificate to be lost, stolen or
destroyed and the posting by such Person of a bond in the form customarily
required by SBC as indemnity against any claim that may be made against it with
respect to such Certificate, SBC will issue the shares of SBC Common Stock, and
the Exchange Agent will issue any unpaid dividends or other distributions and
any cash payment in lieu of a fractional share in respect thereof, issuable
and/or payable in exchange for such lost, stolen or destroyed Certificate
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. No Dissenting Shareholder shall be entitled to
shares of SBC Common Stock or cash in lieu of fractional shares thereof or any
dividends or other distributions pursuant to this Article IV unless and until
the holder thereof shall have failed to perfect or shall have effectively
withdrawn or lost such holder's right to dissent from the Merger under the CBCA,
and any Dissenting Shareholder shall be entitled to receive only the payment
provided by Section 33-856 of the CBCA with respect to Company Shares owned by
such Dissenting Shareholder. Unless the obligation of the Company under Section
4.5 to establish an Escrow Account has been waived by SBC, such payment shall be
made from the Escrow Account in accordance with Section 4.5. If any Person who
would otherwise be deemed a Dissenting Shareholder shall have failed properly to
perfect or shall have effectively withdrawn or lost the right to dissent with
respect to any Company Shares, such shares shall thereupon be treated as though
such shares had been converted into shares of SBC Common Stock pursuant to
Section 4.1 hereof and any cash in lieu of fractional shares, dividends or other
distributions as provided in Section 4.2 hereof. The Company shall give SBC (i)
prompt written notice of any dissenters' demands for payment, attempted
withdrawals of such demands and any other instruments served pursuant to
applicable law received by the Company relating to dissenters' rights and (ii)
the opportunity to direct all negotiations with respect to dissenters under the
CBCA. The Company shall not, without the prior written consent of SBC,
voluntarily make any payment with respect to any demands for payment by
Dissenting Shareholders, offer to settle or settle any such demands or approve
any withdrawal of such demands.
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.
4.5. Escrow Account for Payment of Dissenters' Demands and Transfer
Taxes. Pursuant to an escrow agreement to be entered into by the Company with
an escrow agent selected by mutual agreement of the Company and SBC (the "Escrow
Agent"), in a form reasonably acceptable to SBC (the "Escrow Agreement"), unless
SBC shall elect, in its sole discretion, to waive the Company's obligations
under this Section 4.5 and shall notify the Company of such election, the
Company shall, immediately prior to the Effective Time, deposit in an account
with the Escrow Agent (the "Escrow Account") funds sufficient in the aggregate
to pay all Dissenting Shareholders who as of such time shall have satisfied all
applicable requirements under the CBCA to demand payment for their Dissenting
Shares the amounts the Company estimates to be the fair value of such Dissenting
Shares plus accrued interest in accordance with Section 33-865(a) of the CBCA,
and any Transfer Taxes (as defined herein) attributable to the Merger. These
funds will be released from the Escrow Account, upon certification by the
Company, (i) to make any payment to which a Dissenting Shareholder shall then be
entitled under the CBCA, whether pursuant to the procedures specified in Part
XIII thereof, a final judgment of a court of competent jurisdiction or any other
agreement
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with such Dissenting Shareholder; (ii) to pay any Transfer Taxes that become
payable under any applicable state, local, foreign or provincial law; or (iii)
to the Company, upon the Company's reasonable determination and certification
that the Company's obligations in respect of the amounts specified in clause (i)
(with respect to all Dissenting Shareholders) and clause (ii) of this Section
4.5 have been fully satisfied. All payments pursuant to clause (i) above shall
include interest accrued since the Effective Time in accordance with the CBCA.
The Escrow Agreement shall permit the Escrow Agent to invest the funds in the
Escrow Account as directed by the Company.
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 references in subparagraphs (a), (b)(ii) and (c) below to
documents made available or disclosed by SBC to the Company) hereby represents
and warrants to SBC and Merger Sub, and SBC (except for references in
subparagraphs (a), (b)(ii) and (c) below to documents made available or
disclosed 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 effects or changes resulting
from the execution of this Agreement or the announcement thereof or
relating to (I) the telecommunications industry generally, (II) the
national economy generally or (A) with respect to SBC only, the economy of
the southwestern United States and California, taken together, generally or
(B) with respect to the Company only, the economy of New England generally
or (III) the securities markets generally, and (iii) reference to "the
other party" means, with respect to the Company, SBC and means, with
respect to SBC, the Company.
(b) Governmental Filings; No Violations. (i) Other than (A) the
filings pursuant to Section 1.3, (B) the notification 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) the filings and/or notices to comply with state
securities or "blue-sky" laws, (D) the necessary notices to and, if any,
approvals of the Federal Communications Commission ("FCC") pursuant to the
Communications Act of 1934, as amended, and (E) the necessary notices to
and necessary approvals, if any, of the state public utility commissions or
similar state regulatory bodies (each a "PUC") identified in its respective
Disclosure Letter pursuant to applicable state laws regulating the
telephone, mobile cellular,
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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 to or with,
nor are any consents, registrations, approvals, permits or authorizations
required to be obtained by it from, any governmental or regulatory
authority, court, agency, commission, body or other governmental entity
("Governmental Entity"), in connection with the execution and delivery of
this Agreement and the Stock Option Agreement by it and the consummation by
it of the Merger and the other transactions contemplated hereby and
thereby, 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 to prevent, or materially impair its ability to
effect, the consummation by it of the transactions contemplated by this
Agreement or the Stock Option Agreement.
(ii) The execution, delivery and performance of this Agreement and the
Stock Option Agreement by it do not, and the consummation by it of the
Merger and the other transactions contemplated hereby and thereby 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", as such term is
defined in Rule 1.02(w) of Regulation S-X promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (B) a breach or
violation of, 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(h)) 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 to prevent, or
materially impair its ability to effect, the consummation by it of the
transactions contemplated by this Agreement or the Stock Option 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 all Contracts of it and its Subsidiaries required to be filed as
material contract exhibits under the Exchange Act and pursuant to which
consents or waivers are or may be required prior to consummation of the
transactions contemplated by this Agreement or the Stock Option Agreement
(whether or not subject to the exception set forth with respect to clauses
(B) and (C) above).
(c) Reports; Financial Statements. It has made available to the other
party each registration statement, report, proxy statement or information
statement prepared by it since December 31, 1996 (the "Audit Date"),
including its Annual Report on Form 10-K for the year ended December 31,
1996 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 the light of the circumstances in which they were made, not
misleading. Each of the consolidated balance sheets included in or
incorporated by reference into its Reports (including the related notes and
schedules) fairly presents the consolidated financial position of it and
its Subsidiaries as of its date and each of the consolidated statements of
income and of cash flows included in or incorporated by reference into its
Reports (including any related notes and schedules) fairly presents the
consolidated results of operations and cash flows 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 the
Audit Date, it and each of its Subsidiaries 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
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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 to prevent, or materially impair its ability to effect, the
consummation by it of the transactions contemplated by this Agreement or
the Stock Option Agreement. To its knowledge, as of the date hereof, no
Person or "group" "beneficially owns" 5% or more of its outstanding voting
securities, with the terms "beneficially owns" and "group" having the
meanings ascribed to them under Rule 13d-3 and Rule 13d-5 under the
Exchange Act.
(d) 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 the ordinary and usual course of such
businesses, and there has not been (i) any change in the financial
condition, 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, after taking into
account any insurance coverage, to have a Material Adverse Effect on it;
(iii) any declaration, setting aside or payment of any dividend or other
distribution in respect of its capital stock, except publicly announced
regular quarterly cash dividends on its common stock and, in the case of
SBC, dividends in SBC Common Stock; or (iv) any change by it in accounting
principles, practices or methods except as required by GAAP.
(e) 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 ("Litigation") pending or, to the actual 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, including
those relating to matters involving any Environmental Law (as defined in
Section 5.2(e)), 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 to prevent, or materially impair
its ability to effect, the consummation by it of the transactions
contemplated by this Agreement or the Stock Option Agreement; provided,
that for purposes of this paragraph (e) no Litigation arising after the
date hereof shall be deemed to have a Material Adverse Effect if and to the
extent such Litigation (or any relevant part thereof) is based on this
Agreement or the transactions contemplated hereby.
(f) Accounting, Tax and Regulatory 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 from
qualifying as a "reorganization" within the meaning of Section 368(a) of
the Code.
(g) 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
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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.
As used in this Agreement, (x) the term "Tax" (including, with
correlative meaning, the terms "Taxes", and "Taxable") includes all
federal, state, local and foreign income, profits, franchise, gross
receipts, environmental, customs duty, capital stock, severance, stamp,
payroll, sales, employment, unemployment, disability, use, property,
withholding, excise, production, value added, transfer, 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 (y) the term
"Tax Return" includes all returns, amended returns and reports (including
elections, declarations, disclosures, schedules, estimates and information
returns) required to be supplied to a Tax authority relating to Taxes.
(h) 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 that are not, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect on it or to prevent, or
materially impair its ability to effect, the consummation by it of the
transactions contemplated by this Agreement or the Stock Option Agreement.
Except as set forth in its Reports filed prior to the date hereof, as of
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 to prevent, or materially
impair its ability to effect, the consummation by it of the transactions
contemplated by this Agreement or the Stock Option Agreement. To the actual
knowledge of its executive officers, as of the date hereof 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 to prevent, or materially
impair its ability to effect, the consummation by it of the transactions
contemplated by this Agreement or the Stock Option 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.
5.2. Representations and Warranties of the Company. Except as set forth in
the corresponding sections or subsections of the Company Disclosure Letter, the
Company hereby represents and warrants to SBC and Merger Sub that:
(a) Capital Structure. The authorized capital stock of the Company
consists of 300,000,000 Company Shares, of which 66,666,268 Company Shares
were issued and outstanding and 2,230,586 Company Shares were held in
treasury as of the close of business on December 31, 1997; 2,000,000 shares
of preferred stock, par value $50.00 per share (the "Preferred Shares"), of
which no shares were outstanding as of the close of business on December
31, 1997; and 50,000,000 shares of preference stock, par value $1.00 per
share (the "Preference Shares"), of which no shares were outstanding as of
December 31, 1997. All of the outstanding Company Shares have been duly
authorized and are validly issued, fully paid and nonassessable. Other than
2,000,000 Preference Shares, designated "Series A Junior Participating
Preference Stock", reserved for issuance pursuant to the Rights Agreement,
dated as of December 11, 1996, between the Company and State Street Bank
and Trust Company, as Rights Agent (the "Rights Agreement"), Company Shares
reserved for issuance pursuant to the Stock Option Agreement and Company
Shares reserved for issuance as set forth below or which may be issued in
accordance with Section 6.1(a), the Company has no Company Shares,
Preferred Shares or Preference
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Shares reserved for issuance. As of December 31, 1997, there were not more
than 6,650,000 Company Shares reserved for issuance pursuant to the
Company's 1986 Stock Option Plan, 1995 Stock Incentive Plan, Non-Employee
Director Stock Plan, Incentive Award Deferral Plan and 1996 Non-Employee
Director Stock Plan (collectively, the "Stock Plans"). Each of the
outstanding shares of capital stock or other securities of each of the
Company's Significant Subsidiaries is duly authorized, validly issued,
fully paid and nonassessable and owned by the Company or a direct or
indirect wholly-owned Subsidiary of the Company, free and clear of any
lien, pledge, security interest, claim or other encumbrance. Except as set
forth above and except for Company Shares and options to purchase Company
Shares which may be issued in accordance with Section 6.1(a), neither the
Company nor any of its Subsidiaries has any obligation with respect to any
preemptive or other outstanding rights (other than stock appreciation
rights in respect of not more than 40,000 Company Shares), 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 Shares issuable
pursuant to the Stock Option Agreement have been duly reserved for issuance
by the Company, and upon any issuance of such Company Shares in accordance
with the terms of the Stock Option Agreement, such Company Shares will be
duly and validly issued and fully paid and nonassessable. 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 shareholders of the
Company on any matter.
(b) Corporate Authority; Approval and Fairness. 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 the Stock Option Agreement and to consummate, subject
only to approval of this Agreement by the holders of two-thirds of the
outstanding Company Shares (the "Company Requisite Vote") and the Company
Required Consents, the Merger. Each of this Agreement and the Stock Option
Agreement has been duly executed and delivered by the Company and is a
valid and binding agreement of the Company enforceable against the Company
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles (the "Bankruptcy and Equity Exception"). The board of
directors of the Company (A) has adopted this Agreement and approved the
Merger and the other transactions contemplated hereby, (B) has approved the
execution and delivery of the Stock Option Agreement and (C) has received
the opinion of its financial advisors, Salomon Smith Barney 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.
(c) 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 material 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 the Company
to SBC prior to the date hereof and each such Compensation and Benefit Plan
is listed in Section 5.2(c) of the Company 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") with the
exception of any instances of non-compliance that are not, individually or
in the aggregate, reasonably likely to have a Material Adverse Effect on
the Company. Each of its Compensation and Benefit Plans that is an
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA
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(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. As of the date hereof, there is no pending or, to the
knowledge of its executive officers, threatened in writing material
litigation relating to its Compensation and Benefit Plans. Neither it nor
any Subsidiary has engaged in a transaction with respect to any of its
Compensation and Benefit Plans that, assuming the taxable period of such
transaction expired as of the date hereof, would subject it or any of its
Subsidiaries to a material tax or penalty imposed by either Section 4975 of
the Code or Section 502 of ERISA and that is reasonably likely to have a
Material Adverse Effect on the Company.
(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)(5) 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"). No notice of a "reportable event", within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not
been waived, has been required to be filed for any of its Pension Plans or
any of its ERISA Affiliate Plans within the 12-month period ending on the
date hereof or will be required to be filed in connection with the
transactions contemplated by this Agreement.
(iv) Neither any of its Pension Plans nor 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) The consummation of the Merger (or its approval by its
shareholders) and the other transactions contemplated by this Agreement and
the Stock Option 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.
(vi) Since the Audit Date, except as provided for herein, in the
Company Disclosure Letter or as disclosed in the Company's 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 other than increases or amendments in the
ordinary course.
(d) Takeover Statutes. The Board of Directors of the Company,
including a majority of the non-employee directors of the Company, has duly
adopted resolutions approving the Merger, the Stock Option Agreement and
the transactions contemplated hereby and thereby and specifically naming
SBC and its existing and future affiliates or associates (as such terms are
defined under Section 33-840 and 33-843 of the CBCA). Such resolutions
satisfy the requirements of Sections 33-842(c)(1) and 33-844(a) of the
CBCA, are by their terms irrevocable, and have not been amended or modified
in any manner. The provisions of Sections 33-841 and 33-844 of the CBCA do
not and will not apply to the Merger or the other transactions contemplated
by this Agreement or the Stock Option Agreement. No other "fair price,"
"moratorium," "control share acquisition" or other similar anti-takeover
statute or regulation (each a "Takeover Statute") as in effect on the date
hereof or any anti-takeover provision in the Company's certificate of
incorporation and by-laws is applicable to the Company, the Company Shares,
the Merger or the other transactions contemplated by this Agreement or the
Stock Option Agreement.
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(e) Environmental Matters. Except as disclosed in its Reports filed
prior to the date hereof and except for such matters that, individually 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, any groundwater underlying such properties, surface water, buildings
or other structures) are not contaminated with any Hazardous Substances (as
defined below) at levels that require investigation or cleanup under
applicable Environmental Laws; (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 has
received written notice that it is subject to liability for any Hazardous
Substance disposal or contamination on any third party property; (v)
neither it nor any Subsidiary has been responsible for any release or
threat of release of any Hazardous Substance; (vi) as of the date hereof
neither it nor any Subsidiary has received any written 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;
and (vii) neither it nor any of its Subsidiaries is subject to any binding
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.
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, friable asbestos-containing
material, lead-containing paint, polychlorinated biphenyls, radioactive
materials or radon.
(f) Labor Matters. As of the date hereof, neither it nor any of its
Subsidiaries is the subject of any material proceeding asserting that it or
any of its Subsidiaries has committed an unfair labor practice or is
seeking to compel it to bargain with any labor union or labor organization
nor is there pending or, to the actual knowledge of its executive officers,
threatened, 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.
(g) Rights Agreement. The Company has amended the Rights Agreement to
provide that neither SBC nor Merger Sub shall be deemed to be an Acquiring
Person (as 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 become separable, distributable, unredeemable or
exercisable as a result of entering into this Agreement, the Stock Option
Agreement or consummating the Merger and/or the other transactions
contemplated hereby and thereby.
(h) 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 and the Stock Option Agreement except that the Company has
employed Salomon Smith Barney Inc. as its financial advisor, the
arrangements with which have been disclosed to SBC prior to the date
hereof.
(i) Intellectual Property. (i) The Company and/or each of its
Subsidiaries owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service
marks, copyrights, and any applications therefor, technology, know-how,
computer software programs or applications, and tangible or intangible
proprietary information or materials that are used in its or any of its
Subsidiaries' businesses as currently conducted, and to the actual
knowledge of its executive officers all patents, trademarks, trade names,
service marks and copyrights held by it and/or its Subsidiaries are valid
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and subsisting, except for any failures to so own, be licensed or possess
or to be valid and subsisting, as the case may be, that, individually or in
the aggregate, are not reasonably likely to have a Material Adverse Effect
on it.
(ii) Except as disclosed in its Reports filed prior to the date hereof
or as is not reasonably likely to have a Material Adverse Effect on the
Company:
(A) it and its Subsidiaries are not, nor will any of them be as a
result of the execution and delivery of this Agreement or the
performance of its obligations hereunder, in violation of any licenses,
sublicenses and other agreements as to which it or any of its
Subsidiaries is a party and pursuant to which it or any Subsidiary is
authorized to use any third-party patents, trademarks, service marks,
and copyrights ("Third-Party Intellectual Property Right");
(B) to the actual knowledge of the Company, no claims as of the
date hereof with respect to (I) the patents, registered and material
unregistered trademarks and service marks, registered copyrights, trade
names, and any applications therefor owned by it or any its Subsidiaries
(the "Owned Intellectual Property Rights"); (II) any trade secrets
material to it; or (III) Third-Party Intellectual Property Rights are
currently pending or, to the knowledge of its executive officers, are
threatened by any Person; and
(C) to the actual knowledge of its executive officers, there is no
unauthorized use, infringement or misappropriation of any of the Owned
Intellectual Property Rights by any third party, including any of its or
any of its Subsidiaries' employees or former employees.
(j) Severance Payments. No payments to be made to any of the officers
and employees of the Company or its Subsidiaries as a result of the
consummation of the Merger will be subject to the deduction limitations
under Section 280G of the Code.
5.3. Representations and Warranties of SBC and Merger Sub. Except as set
forth in the corresponding sections or subsections of the SBC Disclosure Letter,
SBC, on behalf of itself and Merger Sub, hereby represents and warrants to the
Company that:
(a) Capital Structure. (i) The authorized capital stock of SBC
consists of 2,200,000,000 shares of SBC Common Stock, of which 918,627,275
shares were issued and outstanding and 13,831,028 shares were held in
treasury as of the close of business on December 30, 1997; 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 December 31, 1997. 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 no more than
10,000,000 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"). 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 pursuant to SBC's Senior Management Long
Term Incentive Plan, Incentive Award Deferral Plan, Non-Employee Directors
Stock and Deferral Plan, Stock Savings Plan, 1994 Stock Option Plan, 1996
Stock and Incentive Plan, 1995 Management Stock Option Plan, Savings Plan,
Savings and Security Plan and stock plans assumed by SBC pursuant to the
merger of SBC Communications (NV), Inc. with and into Pacific Telesis Group
consummated on April 1, 1997 (collectively, the "SBC Stock Plans"), neither
SBC nor any of its Subsidiaries has any obligation with respect to any
preemptive or other outstanding rights, options, warrants, conversion
rights, stock appreciation rights, redemption rights, repurchase rights,
agreements, arrangements or commitments to issue or to sell any shares of
capital stock or other securities of SBC or any of its Significant
Subsidiaries
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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.
(ii) 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.
(b) Corporate Authority; Approval and Fairness. 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 the Stock Option Agreement and to
consummate, subject only to the SBC Required Consents, the Merger. Each of
this Agreement and the Stock Option Agreement has been duly executed and
delivered by SBC and Merger Sub and is a valid and binding agreement of SBC
and Merger Sub, enforceable against each of SBC and Merger Sub in
accordance with its terms, subject to the Bankruptcy and Equity Exception.
SBC has received the opinion of its financial advisors, Lazard Freres &
Co., 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.
(c) 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 and the Stock Option Agreement except that SBC and Merger Sub
have employed Lazard Freres & Co. as their financial advisor.
ARTICLE VI
COVENANTS
6.1. Interim Operations. (a) The Company covenants and agrees as to itself
and its Subsidiaries that, after the date hereof and prior to the Effective Time
(unless SBC shall otherwise approve in writing, which approval shall not be
unreasonably withheld or delayed, and except as otherwise expressly contemplated
by this Agreement or the Stock Option Agreement, in the Company 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 Rights Agreement; (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
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stock, other than per share regular quarterly cash dividends not in excess
of $0.44 per Company Share; or (D) repurchase, redeem or otherwise acquire,
or permit any of its Subsidiaries (other than the Company's Employee Stock
Ownership Plan) 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 tax-free "reorganization" within
the meaning of Section 368(a) of the Code or that would cause any of its
representations and warranties herein to become untrue in any material
respect;
(iv) neither it nor any of its Subsidiaries shall terminate,
establish, adopt, enter into, make any new grants or awards 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 and Benefit
Plans consistent with past practice for promoted or 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;
(v) neither it nor any of its Subsidiaries shall issue any preferred
stock or incur any indebtedness for borrowed money (other than indebtedness
incurred solely for the purpose of funding the Escrow Account or the
replacement or refinancing of existing short-term indebtedness) or
guarantee any such indebtedness if the Company should reasonably anticipate
that as a result of such incurrence any of the Company's or any of its
Subsidiaries' outstanding senior indebtedness would be rated lower than A
by Standard & Poor's;
(vi) neither it 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 $100 million;
(vii) except as contemplated by Section 6.1(a)(iv), 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 the
option granted under the Stock Option Agreement, options outstanding on the
date hereof under the Stock Plans, awards of options and restricted stock
granted hereafter under the Stock Plans in the ordinary course of business
in accordance with this Agreement and shares issuable pursuant to such
options and awards;
(viii) neither it nor any of its Subsidiaries shall spend in excess of
$50 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). For purposes of this clause (viii), the
amount spent with respect to any acquisition shall be deemed to include the
aggregate amount of capital expenditures that the Company is obligated to
make at any time or plans to make as result of such acquisition within two
years after the date of acquisition;
(ix) neither it nor its Subsidiaries shall enter any business other
than the telecommunications business and those businesses traditionally
associated with the telecommunications business or enter into or extend any
telecommunications business outside the geographic areas served by it and
its Subsidiaries as of the date of this Agreement; and
(x) neither it nor any of its Subsidiaries shall agree prior to the
Effective Time to do any of the foregoing after the Effective Time.
(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
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unreasonably withheld or delayed, and except as otherwise expressly contemplated
by this Agreement or in the SBC Disclosure Letter or as required by applicable
Law):
(i) it shall not (A) amend its certificate of incorporation or by-laws
in any manner that would prohibit or hinder, impede or delay in any
material respect the Merger or the consummation of the transactions
contemplated hereby; (B) declare, set aside or pay any dividend or other
distribution payable in cash or property (other than SBC Common Stock) in
respect of any capital stock, other than per share regular quarterly cash
dividends; or (C) repurchase, redeem or otherwise acquire, or permit any of
its Subsidiaries to purchase or otherwise acquire, except in open market
transactions or in connection with the SBC Stock Plans, any shares of its
capital stock or any securities convertible into or exchangeable for any
shares of its capital stock;
(ii) neither it nor any of its Subsidiaries shall knowingly take any
action that would prevent the Merger from qualifying as a tax-free
"reorganization" within the meaning of Section 368(a) of the Code or that
would cause any of its representations and warranties herein to become
untrue in any material respect, provided, however, that nothing contained
herein shall limit the ability of SBC to exercise its rights under the
Stock Option Agreement; and
(iii) neither it nor any of its Subsidiaries will authorize or enter
into an agreement to do any of the foregoing.
(c) SBC and the Company agree that any written approval obtained under this
Section 6.1 may be relied upon by the other party if signed by the Chief
Executive Officer, Chief Financial Officer, chief legal officer or another
executive officer of the other party.
6.2. Acquisition Proposals. (a) The Company 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' 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 it, or any purchase of,
or tender offer for, 15% or more of the equity securities of it or any of its
Subsidiaries listed on Schedule 1 or 15% or more of its and its Subsidiaries'
assets (based on the fair market value thereof) taken as a whole (any such
proposal or offer being hereinafter referred to as an "Acquisition Proposal").
The Company 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 Representatives not to, directly or
indirectly, have any discussions 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 the Company or
its board of directors from (A) complying with Rule 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal; (B) making any disclosure
to the Company's shareholders if, in the good faith judgment of the board of
directors of the Company, failure so to disclose would be inconsistent with its
obligations under applicable law; (C) engaging in any discussions or
negotiations with or providing any information to, any Person in response to a
bona fide written Acquisition Proposal by any such Person received after the
date hereof that was not solicited by the Company after the date hereof; or (D)
recommending such an Acquisition Proposal to the shareholders of the Company if
and only to the extent that, in such case referred to in clause (C) or (D), the
board of directors of the Company 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
shareholders 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"). The Company 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 also agrees that it will promptly
request each Person that has heretofore executed a confidentiality agreement
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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.
(b) The Company 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 agrees that it will
notify SBC promptly 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 the Company's
Representatives indicating, in connection with such notice, the name of such
Person and the material terms and conditions of any proposals or offers and
thereafter shall keep SBC informed, on a current basis, of the status and
material terms of any such proposals or offers and the status of any such
discussions or negotiations.
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
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 shareholders and at the time of the Shareholders Meeting, in
any such 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 the light of the circumstances under which they were
made, not misleading. If at any time prior to the Effective Time any information
relating to SBC or the Company, or any of their respective affiliates, officers
or directors, should be discovered by SBC or the Company which should be set
forth in an amendment or supplement to any of the S-4 Registration Statement or
the Prospectus/Proxy Statement, so that any of such documents would not include
any misstatement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, the party which discovers such information shall
promptly notify the other parties hereto and an appropriate amendment or
supplement describing such information shall be promptly filed with the SEC and,
to the extent required by law, disseminated to the shareholders of the Company.
6.4. Shareholders Meeting. 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 "Shareholders
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. Unless the board of directors of the Company determines in good
faith after consultation with outside legal counsel that to do so would result
in a failure to comply with its fiduciary duties under applicable law, the
Company's board of directors shall recommend approval of this Agreement and the
Merger 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 shareholders of the Company. 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 (i) letters of its independent
auditors, dated (A) the date on which the S-4 Registration Statement shall
become effective and (B) 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, and (ii) a letter from its
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independent auditors addressed to SBC and the Company, dated as of the Closing
Date, stating their opinion that the Merger will qualify for
pooling-of-interests accounting treatment.
(c) The Company and SBC shall cooperate with the other and use (and shall
cause their respective Subsidiaries to use) their respective best efforts to
take or cause to be taken all actions, and do or cause to be done all things,
necessary, proper or advisable on its part under this Agreement and the Stock
Option Agreement and applicable Laws to consummate and make effective the Merger
and the other transactions contemplated by this Agreement and the Stock Option
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 or the Stock Option Agreement; provided, however, that nothing in
this Section 6.5 shall require, or be construed to require, SBC or the Company
to proffer, or agree to, any concession to any Governmental Entity if (i) such
concession is reasonably likely to have a Material Adverse Effect on the Company
following the Effective Time, (ii) such concession is reasonably likely to have
a Material Adverse Effect on SBC following the Effective Time (it being
understood that, for this purpose, materiality shall be determined with
reference to the total enterprise value of the Company and its Subsidiaries,
taken as a whole, rather than that of SBC and its Subsidiaries, taken as a
whole, and taking into account any material restrictions on the ability of SBC
or any of its Significant Subsidiaries to conduct its operations as currently
conducted or as proposed to be conducted by it). 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 appears 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 or the Stock Option Agreement. In exercising the foregoing right,
each of the Company and SBC shall act reasonably and as promptly as practicable.
(d) Subject to applicable laws relating to the exchange of information, 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 or the Stock Option 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 notices 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 or the
Stock Option Agreement. Each of the Company and SBC shall give prompt notice to
the other of any change that is reasonably likely to result in a Material
Adverse Effect on it or of any failure of any of the conditions to the other
party's obligations to effect the Merger set forth in Article VII.
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 and the other's
Subsidiaries' employees, agents and representatives (including any investment
banker, attorney or accountant retained by the other or any of the other's
Subsidiaries)(such officers, directors, employees, agents and representatives
being referred to in this Agreement, with respect to the Company or SBC, as the
context requires, as such party's "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
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Merger Sub hereunder, and provided, further, that the foregoing shall not
require the Company or SBC to permit any inspection, or to disclose any
information, that in the reasonable judgment of the Company or SBC, as the case
may be, would violate applicable law or any of its obligations with respect to
confidentiality or would result in the disclosure of any trade secrets of third
parties 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. All information provided pursuant to this Section 6.6 shall be governed
by the terms of the Confidentiality Agreement.
(b) Subject to the Confidentiality Agreement and to Section 6.16, from the
date hereof to the Effective Time, SBC and the Company agree to consult with
each other on a regular basis on a schedule to be agreed with regard to their
respective operations.
(c) From the date hereof to the Effective Time, the Company agrees to
notify SBC in advance of any issuance by the Company or any of its Subsidiaries
of any long-term debt or preferred stock.
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 Shareholders Meeting, "affiliates" of such party for purposes of
applicable interpretations regarding use of the pooling-of-interests accounting
method and, in the case of "affiliates" of the Company, for purposes of Rule 145
under the 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 Shareholders Meeting a
written agreement, in the form attached hereto as Exhibit C, in the case of
affiliates of the Company (the "Company Affiliate's Letter"), and Exhibit D, in
the case of affiliates of SBC (the "SBC Affiliate's Letter"). Prior to the
Effective Time, each of the Company and SBC shall use all reasonable efforts to
cause each additional Person who is identified as an "affiliate" to execute the
applicable 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 shall have been published within the meaning of Section
201.01 of the SEC's Codification of Financial Reporting Policies, regardless of
whether each such affiliate has provided the written agreement referred to in
this Section, except to the extent permitted by, and in accordance with, SEC
Accounting Series Release 135 and SEC Staff Accounting Bulletins 65 and 76. Any
Company Shares held by any such affiliate shall not be transferable, regardless
of whether such affiliate has provided the applicable written agreement referred
to in this Section, if such transfer, either alone or in the aggregate with
other transfers by affiliates, would preclude SBC's ability to account for the
business combination to be effected by the Merger as a pooling of interests. The
Company shall not register the transfer of any Certificate, unless such transfer
is made in compliance with the foregoing.
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 NYSE, subject to official notice of issuance, prior
to the Closing Date. The Surviving Corporation shall use its best efforts to
cause the Company Shares to be de-listed from the NYSE and the Pacific Exchange
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 the Stock Option 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.
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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, after
giving effect to any provision requiring the vesting of any Company Option
as a result of the transactions contemplated by this Agreement, the same
number of shares of SBC Common Stock as the holder of such Company Option
would have been entitled to receive pursuant to the Merger had such holder
exercised such Company Option in full immediately prior to the Effective
Time (rounded down to the nearest whole number) (a "Substitute Option"), at
an exercise price per share (rounded up to the nearest whole cent) 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, including any necessary amendments thereto, to permit the assumption
of the unexercised Company Options by SBC pursuant to this Section and no
later than five business days after the Effective Time SBC shall 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. As promptly as
practicable after the Effective Time, the Company shall deliver to the
participants in the Stock Plans appropriate notices setting forth such
participants' rights pursuant to such assumed Company Options.
(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's
Compensation and Benefit Plans; 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. 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.
6.11. Expenses. Except as otherwise provided in Section 6.18 or 8.5(b),
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 cost or
expense, except that expenses incurred in connection with the filing fee for the
S-4 Registration Statement and printing and mailing the Prospectus/Proxy
Statement and the S-4 Registration Statement and the filing fee under the HSR
Act shall be shared equally by SBC and the Company.
6.12. Indemnification; Directors' and Officers' Insurance. (a) From and
after the Effective Time, SBC 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 pertaining
to matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent that the Company would have been permitted under Connecticut law and its
certificate of
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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 SBC. 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, (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) SBC or the Surviving Corporation shall maintain a policy of officers'
and directors' liability insurance for acts and omissions occurring prior to the
Effective Time ("D&O Insurance") with coverage in amount and scope at least as
favorable as the Company's existing directors' and officers' liability insurance
coverage for a period of six years after the Effective Time; provided, however,
if the existing D&O Insurance expires, is terminated or cancelled, or if the
annual premium therefor is increased to an amount in excess of 175% of the last
annual premium paid prior to the date hereof (the "Current Premium"), in each
case during such six year period, SBC or the Surviving Corporation will use its
best efforts to obtain D&O Insurance in an amount and scope as great as can be
obtained for the remainder of such period for a premium not in excess (on an
annualized basis) of 175% of the Current Premium.
(d) If SBC or 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 SBC or the Surviving Corporation, as the case may be, 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 or the Stock Option Agreement, each party hereto 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 the Stock Option Agreement or by the
Merger and otherwise act to eliminate or minimize the effects of such statute or
regulation on such transactions.
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 and SBC each acknowledges and confirms
that it has entered into a Confidentiality and Non-Disclosure Agreement, dated
October 22, 1997 (the "Confidentiality Agreement"),
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and that the Confidentiality Agreement shall remain in full force and effect in
accordance with its terms, whether or not the Merger is consummated.
6.16. 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.
6.17. Tax Representation Letters. For purposes of the tax opinions
described in Sections 7.2(c) and 7.3(c) of this Agreement, each of the Company
and SBC shall provide representation letters, in form and substance reasonably
satisfactory to the Company and SBC, each dated as of the date that is two
business days prior to the date the Prospectus/Proxy Statement is first mailed
to shareholders of the Company and reissued as of the Closing Date.
6.18. Transfer Taxes. All state, local, foreign or provincial sales, use,
real property transfer, stock transfer or similar Taxes (including any interest
or penalties with respect thereto) attributable to the Merger (collectively, the
"Transfer Taxes") shall be timely paid by the Company, which payments, if any,
shall be made from the Escrow Account if required by Section 4.5.
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) Shareholder Approval. This Agreement shall have been duly
approved by holders of Company Shares constituting the Company Requisite
Vote;
(b) NYSE Listing. The shares of SBC Common Stock issuable to the
Company shareholders pursuant to this Agreement shall have been approved
for listing on the NYSE subject to official notice of issuance.
(c) Governmental Consents. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated and all material Company Required Consents and SBC Required
Consents from or with the FCC, the DPUC or any other Governmental Entity
shall have been made or obtained pursuant to a Final Order, free of any
conditions adverse to the Company or SBC (other than for conditions that
(i) are not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on the Company following the Effective Time, or
(ii) are not reasonably likely to have a Material Adverse Effect on SBC
following the Effective Time (it being understood that, for this purpose,
materiality shall be determined with reference to the total enterprise
value of the Company and its Subsidiaries, taken as a whole, rather than
that of SBC and its Subsidiaries, taken as a whole, and taking into account
any material restrictions on the ability of SBC or any of its Significant
Subsidiaries to conduct its operations as currently conducted or as
proposed to be conducted by it)). For the purposes of this Agreement,
"Final Order" means an action or decision that has been granted as to which
(a) no request for a stay or any similar request is pending, no stay is in
effect, the action or decision has not been vacated, reversed, set aside,
annulled or suspended and any deadline for filing such a request that may
be designated by statute or regulation has passed, (b) no petition for
rehearing or reconsideration or application for review is pending and the
time for the filing of any such petition or application has passed, (c)
none of the FCC, the DPUC or any other Governmental Entity has the action
or decision under reconsideration on its own motion and the time within
which it may effect such reconsideration has passed and (d) no appeal is
pending (including other administrative or judicial review) or in effect
and any deadline for filing any such appeal that may be specified by
statute or rule has passed, which in any such case (a), (b), (c) or (d) is
reasonably likely to result in vacating, reversing, setting aside,
annulling,
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suspending or modifying such action or decision (in any such case in a
manner which would have a Material Adverse Effect on SBC or the Company
following the Effective Time).
(d) Laws and Orders. No Governmental Entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any Law
(whether temporary, preliminary or permanent) that is in effect and
restrains, enjoins or otherwise prohibits consummation of the Merger or the
other transactions contemplated by this Agreement or that is, individually
or in the aggregate with all other such Laws, reasonably likely to have a
Material Adverse Effect on SBC or the Company (collectively, an "Order"),
and none of the Department of Justice, the Federal Trade Commission, the
FCC or the DPUC shall have instituted any proceeding or threatened in
writing or publicly announced its intention 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.
7.2. Conditions to Obligations of SBC and Merger Sub. The obligations of
SBC and Merger Sub to effect the Merger are also subject to the satisfaction or
waiver by SBC at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement (i) to the extent
qualified by Material Adverse Effect shall be true and correct and (ii) to
the extent not qualified by Material Adverse Effect shall be true and
correct, except that this clause (ii) shall be deemed satisfied so long as
any failures of such representations and warranties to be true and correct,
taken together, do not have a Material Adverse Effect on the Company, in
each case (i) and (ii), as of the 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 all material 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) 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; it being
understood that in rendering such opinion, such tax counsel shall be
entitled to rely upon representations provided by the parties hereto in the
representation letters referred to in Section 6.17.
(d) Dissenting Shares. The Dissenting Shares shall not constitute
more than 9% of the aggregate number of Company Shares outstanding
immediately prior to the Effective Time provided, however, that this
condition shall be deemed to be waived by SBC if the condition set forth in
Section 7.2(e) is deemed waived by SBC pursuant to the proviso to Section
7.2(e).
(e) Accountants' Letter. SBC shall have received a letter from its
independent public accounting firm to the effect that the Merger will
qualify for "pooling-of-interests" accounting treatment; provided, however,
that this condition shall be deemed to be waived by SBC if SBC's
independent accounting firm shall have failed to deliver such letter solely
as a result of one or more SBC Pooling Actions.
For purposes of this Section 7.2(e), "SBC Pooling Action" shall mean (i)
any action taken by SBC or any of its Subsidiaries after the date hereof that
would prevent the Merger from qualifying for "pooling-of-interests" accounting
treatment if any of the executive officers of SBC actually knew or, after
appropriate inquiry, should have known that such action would prevent the Merger
from qualifying for "pooling-of-
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interests" accounting treatment, (ii) the escrow arrangements referred to in
Section 4.5 hereof, if the Company's obligation to make such arrangements has
not been waived by SBC in accordance with Section 4.5 and (iii) any condition
existing on the date hereof which, with reference only to SBC and its
Subsidiaries, would prevent the Merger from qualifying for
"pooling-of-interests" accounting treatment under the currently published and
effective guidelines and interpretations of the American Institute of Certified
Public Accountants, the Financial Accounting Standards Board and the SEC
relating to "pooling-of-interests" accounting treatment.
7.3. Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is also subject to the satisfaction or waiver by
the Company at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of SBC and Merger Sub set forth in this Agreement (i) to the
extent qualified by Material Adverse Effect shall be true and correct, and
(ii) to the extent not qualified by Material Adverse Effect shall be true
and correct, except that this clause (ii) shall be deemed satisfied so long
as any failures of such representations and warranties to be true and
correct, taken together, do not have a Material Adverse Effect on SBC, in
each case (i) and (ii), as of the 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 all material obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and
the Company shall have received a certificate signed on behalf of SBC and
Merger Sub by an executive officer of SBC to such effect.
(c) Tax Opinion. The Company shall have received the opinion of
Cravath, Swaine & Moore, counsel to the Company, dated the Closing Date, to
the effect that the Merger will be treated for Federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code, and
that each of SBC, Merger Sub and the Company will be a party to that
reorganization within the meaning of Section 368(b) of the Code; it being
understood that in rendering such opinion, such tax counsel shall be
entitled to rely upon representations provided by the parties hereto in the
representation letters referred to in Section 6.17.
ARTICLE VIII
TERMINATION
8.1. Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval by shareholders of the Company referred to in
Section 7.1(a), by mutual written consent of the Company and SBC, by action of
their respective boards of directors.
8.2. Termination by Either SBC or the Company. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the board of directors of either SBC or the Company if (i) the
Merger shall not have been consummated by December 31, 1998, whether such date
is before or after the date of approval by the shareholders of the Company (the
"Termination Date"); provided, however, that if the Company or SBC determines
that additional time is necessary in connection with obtaining a Company
Required Consent or a SBC Required Consent from or with the FCC, the DPUC or any
other Governmental Entity, the Termination Date may be extended by the Company
or SBC from time to time by written notice to the other party to a date no later
than June 30, 1999 (the "Extended Termination Date"), (ii) the approval of the
Company's shareholders required by Section 7.1(a) shall not have been obtained
at a meeting duly convened therefor or at any adjournment or postponement
thereof or (iii) any Order permanently restraining, enjoining or otherwise
prohibiting consummation of the Merger shall become final and nonappealable
(whether before or after the approval by the shareholders of the Company);
provided,
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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 shareholders 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 shall not have willfully breached any of the
terms of this Agreement in a manner resulting in failure of a condition set
forth in Section 7.2(a) or 7.2(b), (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 five 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 shareholders
of the Company as the Superior Proposal, and that contains terms and
conditions (other than with respect to type or amount of consideration)
that do not differ materially from either the terms and conditions of this
Agreement or the terms and conditions of the proposed agreement for such
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 desire to
enter into a written agreement referred to in its notification shall change
at any time after giving such notification.
(b) If there has been a breach by SBC or Merger Sub of any
representation, warranty, covenant or agreement contained in this Agreement
which (i) would result in a failure of a condition set forth in Section
7.3(a) or 7.3(b) and (ii) cannot be cured prior to the Extended Termination
Date.
8.4. Termination by SBC. 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 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 ten business
days after a written request by SBC to do so, provided that such a request is
made after the board of directors of the Company has taken any of the actions
specified in clause (C) or (D) of the proviso of Section 6.2 with respect to an
Acquisition Proposal and such Acquisition Proposal has not been rejected by such
board of directors or withdrawn, (ii) there has been a breach by the Company of
any representation, warranty, covenant or agreement contained in this Agreement
which (A) would result in a failure of a condition set forth in Section 7.2(a)
or 7.2(b) and (B) cannot be cured prior to the Extended Termination Date or
(iii) if the Company or any of its 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 (C) or (D) of the proviso thereof
(other than any such actions taken pursuant to such clause (C) with respect to
any bona fide written Acquisition Proposal (received after the date hereof that
was not solicited by the Company after the date hereof) taken during the ten
calendar day period following receipt of such Acquisition Proposal by the
Company if, and only if, the Company receives such Acquisition Proposal during
the Initial 15 Day Period). For purposes of this Agreement, the "Initial 15 Day
Period" shall mean the 15 calendar day period commencing with the first calendar
day after which this Agreement shall have been filed by SBC or the Company with
the SEC as an exhibit to a Current Report on Form 8-K under the Exchange Act.
8.5. 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, except as otherwise
provided herein, no such termination shall relieve any party hereto of any
liability or damages resulting from any willful and intentional breach of this
Agreement (in any such case in which SBC is not the breaching party, to the
extent any such liability or damages exceed any Termination Fee which may have
been paid to SBC pursuant to Section 8.5(b)).
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(b) In the event that (i) after the date hereof a bona fide Acquisition
Proposal with respect to the Company or any Subsidiary of the Company that was
not solicited by the Company after the date hereof shall have been made to the
Company or any of its Subsidiaries and made known to shareholders generally or
has been made directly to shareholders 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 Shareholders Meeting and thereafter this Agreement is
terminated by either SBC or the Company pursuant to Section 8.2(ii) and within
nine months after such termination the Company shall have entered into an
agreement to consummate a transaction that would constitute an Acquisition
Proposal if it were the subject of a proposal, or (ii) this Agreement is
terminated (x) by the Company pursuant to Section 8.3(a) or (y) by SBC pursuant
to Section 8.4(i), (ii) (solely with respect to a willful and intentional breach
of Section 6.2) or (iii), 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)) or, in the case of a termination pursuant to Section 8.2(ii),
two days after the relevant agreement is entered into, pay SBC a fee equal to
$125 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. 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. Solely for purposes of Section 8.5(b)(i), the term "Acquisition
Proposal" shall have the meaning assigned to such term in Section 6.2(a) except
that references to "15%" in the definition of "Acquisition Proposal" in Section
6.2(a) shall be deemed to be references to 35% and the reference in such
definition to "or any of its Subsidiaries listed on Schedule 1" shall be deemed
to be a reference to "or the Southern New England Telephone Company".
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1. Survival. This Article IX (other than Sections 9.2 and 9.4) and the
agreements of the Company, SBC and Merger Sub contained in Sections 6.10
(Benefits), 6.11 (Expenses) and 6.12 (Indemnification; Directors' and Officers'
Insurance) shall survive the consummation of the Merger. This Article IX (other
than Section 9.2 (Modification or Amendment), Section 9.3 (Waiver of Conditions)
and Section 9.14 (Assignment)) and the agreements of the Company, SBC and Merger
Sub contained in Section 6.11 (Expenses), Section 6.15 (Confidentiality) and
Section 8.5 (Effect of Termination and Abandonment) shall survive the
termination of this Agreement. All other representations, warranties, covenants
and agreements in this Agreement shall not survive the consummation of the
Merger or the termination of this Agreement.
9.2. Modification or Amendment. Subject to the provisions of applicable
law, at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties.
9.3. Waiver of Conditions. (a) Any provision of this Agreement may be
waived prior to the Effective Time if, and only if, such waiver is in writing
and signed by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. Except as otherwise herein
provided, the rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
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9.4. Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
9.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT
SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED,
CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF
DELAWARE, WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF, EXCEPT THAT
THE MERGER SHALL BE GOVERNED BY AND IN ACCORDANCE WITH THE CBCA, TO THE EXTENT
APPLICABLE. The parties hereby irrevocably submit to the jurisdiction of the
Federal courts of the United States of America located in the State of Delaware
solely in respect of the interpretation and enforcement of the provisions of
this Agreement and of the documents referred to in this Agreement, and in
respect of the transactions contemplated hereby and 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.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.5.
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9.6. Notices. Notices, requests, instructions or other documents to be
given under this Agreement shall be in writing and shall be deemed given, (i)
three business days following sending by registered or certified mail, postage
prepaid, (ii) when sent if sent by facsimile, provided that the fax is promptly
confirmed by telephone confirmation thereof, (iii) when delivered, if delivered
personally to the intended recipient, and (iv) one business day later, if sent
by overnight delivery via a national courier service, and in each case,
addressed to a party at the following address for such party:
if to SBC or Merger Sub
SBC Communications Inc.
175 E. Houston
San Antonio, Texas 78205
Attention: James D. Ellis, Esq.
with copies to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004-2498
Attention: Benjamin F. Stapleton, Esq.
if to the Company
Southern New England Telecommunications Corporation
227 Church Street
New Haven, Connecticut 06510
Attention: Madeline DeMatteo, Esq.
with copies to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019
Attention: Robert A. Kindler, Esq.
Robert I. Townsend III, Esq.
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
Stock Option Agreement, the Confidentiality Agreement, the Company Disclosure
Letter and the SBC Disclosure Letter constitute the entire agreement, and
supersede all other prior agreements, understandings, representations and
warranties both written and oral, among the parties with respect to the subject
matter hereof. EACH PARTY HERETO AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND
WARRANTIES CONTAINED IN THIS AGREEMENT AND THE STOCK OPTION 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
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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."
9.12. Assignment. This Agreement shall not be assignable by operation of
law or otherwise; provided, however, that SBC may designate prior to the
Effective Time, by written notice to the Company, another wholly owned direct or
indirect Subsidiary to be a party to the Merger in lieu of Merger Sub, in which
event all references herein to Merger Sub shall be deemed references to such
other Subsidiary (except with respect to representations and warranties made
herein with respect to Merger Sub as of the date hereof) and all representations
and warranties made herein with respect to Merger Sub as of the date hereof
shall be also made with respect to such other subsidiary as of the date of such
designation. Any assignment in contravention of the preceding sentence shall be
null and void.
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.
SOUTHERN NEW ENGLAND
TELECOMMUNICATIONS CORPORATION
By: /s/ DANIEL J. MIGLIO
------------------------------------
Name: Daniel J. Miglio
Title: Chairman of the Board and
Chief Executive Officer
SBC COMMUNICATIONS INC.
By: /s/ EDWARD E. WHITACRE, JR.
------------------------------------
Name: Edward E. Whitacre, Jr.
Title: Chairman of the Board and
Chief Executive Officer
SBC (CT), INC.
By: /s/ EDWARD E. WHITACRE, JR.
------------------------------------
Name: Edward E. Whitacre, Jr.
Title: President
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ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of the 4th day of January, 1998 (this
"Agreement"), between Southern New England Telecommunications Corporation, a
Connecticut corporation ("Issuer"), and SBC Communications Inc., a Delaware
corporation ("Grantee").
RECITALS
(a) The Merger Agreement. Prior to the entry into this Agreement and prior
to the grant of the Option (as defined in Section 1(a)), Grantee, SBC (CT),
Inc., a wholly-owned subsidiary of Grantee ("Merger Sub"), and Issuer have
entered into an Agreement and Plan of Merger, dated as of the date hereof (the
"Merger Agreement"), pursuant to which Grantee and Issuer intend to effect a
merger of Merger Sub with and into Issuer (the "Merger").
(b) The Option Agreement. As an inducement and condition to Grantee's and
Merger Sub's willingness to enter into the Merger Agreement, and in
consideration thereof, the board of directors of Issuer has approved the grant
to Grantee of the Option pursuant to this Agreement; provided, that such grant
was expressly conditioned upon, and made of no effect until after, execution and
delivery by Issuer, Grantee and Merger Sub of the Merger Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. The Option. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to 13,266,587 fully paid and nonassessable shares of common stock, having a par
value of one dollar per share ("Common Stock"), of Issuer at a price per share
in cash equal to $65.00 (the "Option Price"); provided, however, that in no
event shall the number of shares for which the Option is exercisable exceed
19.9% of the shares of Common Stock issued and outstanding at the time of
exercise (without giving effect to the shares of Common Stock issued or issuable
under the Option) (the "Maximum Applicable Percentage"). The number of shares of
Common Stock purchasable upon exercise of the Option and the Option Price are
subject to adjustment as set forth herein.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement), the aggregate number of shares of Common Stock
purchasable upon exercise of the Option (inclusive of shares, if any, previously
purchased upon exercise of the Option) shall automatically be increased (without
any further action on the part of Issuer or Grantee being necessary) so that,
after such issuance, it equals the Maximum Applicable Percentage. Any such
increase shall not affect the Option Price.
2. Exercise; Closing. (a) Conditions to Exercise; Termination. Grantee
or any other person that shall become a holder of all or a part of the Option in
accordance with the terms of this Agreement (each such person being referred to
herein as the "Holder") may exercise the Option, in whole or in part, by
delivering a written notice thereof as provided in Section 2(d) within 90 days
of the occurrence of a Triggering Event (as defined in Section 2(b)) unless
prior to such Triggering Event the Effective Time (as defined in the Merger
Agreement) shall have occurred. The Option shall terminate upon either (i) the
occurrence of the Effective Time or (ii) the close of business on the earlier of
(x) the day 90 days after the date that Grantee becomes entitled to receive the
Termination Fee (as defined in the Merger Agreement) and (y) the date that
Grantee is no longer potentially entitled to receive the Termination Fee, in
each case under Section 8.5(b) of the Merger Agreement.
(b) Triggering Event. A "Triggering Event" shall have occurred if the
Merger Agreement is terminated and Grantee then or thereafter becomes entitled
to receive the Termination Fee pursuant to Section 8.5(b) of the Merger
Agreement.
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(c) Notice of Triggering Event by Issuer. Issuer shall notify Grantee
promptly in writing of the occurrence of any Triggering Event, it being
understood that the giving of such notice by Issuer shall not be a condition to
the right of the Holder to exercise the Option.
(d) Notice of Exercise by Grantee. If a Holder shall be entitled to and
wishes to exercise the Option, it shall send to Issuer a written notice (the
date of which is referred to herein as the "Notice Date") specifying (i) the
total number of shares that the Holder will purchase pursuant to such exercise
and (ii) a place and date (a "Closing Date") not earlier than three business
days nor later than 60 business days from the Notice Date for the closing of
such purchase (a "Closing"); provided, that if a filing is required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), or prior notification to or approval of the FCC, the CDPUC or any other
regulatory authority is required in connection with such purchase, the Holder or
Issuer, as required, promptly after the giving of such notice shall file the
required notice or application for approval and shall expeditiously process the
same and the period of time referred to in clause (ii) shall commence on the
date on which the Holder furnishes to Issuer a supplemental written notice
setting forth the Closing Date, which notice shall be furnished as promptly as
practicable after all required notification periods shall have expired or been
terminated and all required approvals shall have been obtained and all requisite
waiting periods shall have passed. Each of the Holder and the Issuer agrees to
use all reasonable efforts to cooperate with and provide information to Issuer
or Holder, as the case may be, for the purpose of any required notice or
application for approval.
(e) Payment of Purchase Price. At each Closing, the Holder shall pay to
Issuer the aggregate purchase price for the shares of Common Stock purchased
pursuant to the exercise of the Option in immediately available funds by a wire
transfer to a bank account designated by Issuer; provided, that failure or
refusal of Issuer to designate such a bank account shall not preclude the Holder
from exercising the Option, in whole or in part.
(f) Delivery of Common Stock. At such Closing, simultaneously with the
payment of the purchase price by the Holder, Issuer shall deliver to the Holder
a certificate or certificates representing the number of shares of Common Stock
purchased by the Holder and, if the Option shall be exercised in part only, a
new Option evidencing the rights of the Holder to purchase the balance (as
adjusted pursuant to Section 1(b)) of the shares then purchasable hereunder.
(g) Restrictive Legend. Certificates for Common Stock delivered at a
Closing may be endorsed with a restrictive legend that shall read substantially
as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder hereof
and Issuer, a copy of which agreement is on file at the principal office of
Issuer, and to resale restrictions arising under the Securities Act of
1933, as amended. A copy of the aforementioned agreement will be mailed to
the holder hereof without charge promptly after receipt by Issuer of a
written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "Securities Act"), in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if the Holder shall have delivered to Issuer a copy of a letter from
the staff of the Securities and Exchange Commission, or a written opinion of
counsel, in form and substance reasonably satisfactory to Issuer, to the effect
that such legend is not required for purposes of the Securities Act; (ii) the
reference to the provisions of this Agreement in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
shares have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) both are satisfied. In
addition, such certificates shall bear any other legend as may be required by
applicable law.
(h) Ownership of Record; Tender of Purchase Price; Expenses. Upon the
giving by the Holder to Issuer of a written notice of exercise referred to in
Section 2(e) and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed
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or that certificates representing such shares of Common Stock shall not have
been delivered to the Holder. Issuer shall pay all expenses, and any and all
United States federal, state and local taxes and other charges that may be
payable in connection with the preparation, issue and delivery of stock
certificates under this Section 2 in the name of the Holder or its assignee,
transferee or designee.
3. Covenants of Issuer. In addition to its other agreements and covenants
herein, Issuer agrees:
(a) Shares Reserved for Issuance. To maintain, free from preemptive
rights, sufficient authorized but unissued or treasury shares of Common
Stock so that the Option may be fully exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights of third parties to
purchase shares of Common Stock from Issuer, or to issue the appropriate
number of shares of Common Stock pursuant to the terms of this Agreement;
(b) No Avoidance. Not to avoid or seek to avoid (whether by charter
amendment or through reorganization, consolidation, merger, issuance of
rights, dissolution or sale of assets, or by any other voluntary act) the
observance or performance of any of the covenants, agreements or conditions
to be observed or performed hereunder by Issuer; and
(c) Further Assurances. Promptly after the date hereof to take all
actions as may from time to time be required (including (i) complying with
all applicable premerger notification, reporting and waiting period
requirements under the HSR Act and (ii) in the event that prior approval of
or notice to the FCC, the CDPUC or any other regulatory authority is
necessary under any applicable federal, state or local law before the
Option may be exercised, cooperating fully with the Holder in preparing and
processing the required applications or notices) in order to permit each
Holder to exercise the Option and purchase shares of Common Stock pursuant
to such exercise and to take all action necessary to protect the rights of
the Holder against dilution.
4. Representations and Warranties of Issuer. Issuer hereby makes each of
the representations and warranties contained in Sections 5.1(b)(ii), 5.2(a) and
5.2(b) of the Merger Agreement as they relate to this Agreement as if such
representations and warranties were set forth herein. Issuer hereby further
represents and warrants to Grantee that all shares of Common Stock, upon
issuance pursuant to the Option, will be delivered free and clear of all claims,
liens, encumbrances, and security interests (other than those created by this
Agreement) and not subject to any preemptive rights.
5. Representations and Warranties of Grantee. Grantee hereby represents
and warrants to Issuer that Grantee 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 the
transactions contemplated hereby; this Agreement has been duly and validly
executed and delivered by Grantee and constitutes a valid and binding agreement
of Grantee enforceable against Grantee 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.
6. Exchange; Replacement. This Agreement and the Option granted hereby
are exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Agreement at the principal office of Issuer,
for other Agreements providing for Options of different denominations entitling
the holder thereof to purchase in the aggregate the same number of shares of
Common Stock purchasable at such time hereunder, subject to corresponding
adjustments in the number of shares of Common Stock purchasable upon exercise so
that the aggregate number of such shares under all Stock Option Agreements
issued in respect of this Agreement shall not exceed the Maximum Applicable
Percentage. Unless the context shall require otherwise, the terms "Agreement"
and "Option" as used herein include any Stock Option Agreements and related
Options for which this Agreement (and the Option granted hereby) may be
exchanged. Upon (i) receipt by Issuer of evidence reasonably satisfactory to it
of the loss, theft, destruction, or mutilation of this Agreement, (ii) receipt
by Issuer of reasonably satisfactory indemnification in the case of loss, theft
or destruction and (iii) surrender and cancellation of this Agreement in the
case of mutilation, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an
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additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by any person other than the holder of the new Agreement.
7. Adjustments. In addition to the adjustment to the total number of
shares of Common Stock purchasable upon exercise of the Option pursuant to
Section 1(b), the total number of shares of Common Stock purchasable upon the
exercise hereof and the Option Price shall be subject to adjustment from time to
time as follows:
(a) In the event of any change in the outstanding shares of Common
Stock by reason of stock dividends, split-ups, mergers, recapitalizations,
combinations, subdivisions, conversions, exchanges of shares or the like,
the type and number of shares of Common Stock purchasable upon exercise of
the Option shall be appropriately adjusted, and proper provision shall be
made in the agreements governing any such transaction, so that (i) any
Holder shall receive upon exercise of the Option the number and class of
shares, other securities, property or cash that such Holder would have
received in respect of the shares of Common Stock purchasable upon exercise
of the Option if the Option had been exercised and such shares of Common
Stock had been issued to such Holder immediately prior to such event or the
record date therefor, as applicable; and (ii) in the event any additional
shares of Common Stock are to be issued or otherwise become outstanding as
a result of any such change (other than pursuant to an exercise of the
Option), the number of shares of Common Stock purchasable upon exercise of
the Option shall be increased so that, after such issuance and together
with shares of Common Stock previously issued pursuant to the exercise of
the Option (as adjusted on account of any of the foregoing changes in the
Common Stock), the number of shares so purchasable equals the Maximum
Applicable Percentage of the number of shares of Common Stock issued and
outstanding immediately after the consummation of such change; and
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 7, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the
numerator of which is equal to the number of shares of Common Stock
purchasable prior to the adjustment and the denominator of which is equal
to the number of shares of Common Stock purchasable after the adjustment.
8. Registration. (a) Upon the occurrence of a Triggering Event prior to
an Exercise Termination Event, Issuer shall, at the request of Grantee delivered
in the written notice of exercise of the Option provided for in Section 2(e), as
promptly as practicable prepare, file and keep current a shelf registration
statement under the Securities Act covering any or all shares issued and
issuable pursuant to the Option and shall use its best efforts to cause such
registration statement to become effective and remain current in order to permit
the sale or other disposition of any shares of Common Stock issued upon total or
partial exercise of the Option ("Option Shares") in accordance with any plan of
disposition requested by Grantee; provided, however, that Issuer may postpone
filing a registration statement relating to a registration request by Grantee
under this Section 8 for a period of time (not in excess of 30 days) if in its
judgment such filing would require the disclosure of material information that
Issuer has a bona fide business purpose for preserving as confidential. Issuer
will use its best efforts to cause such registration statement first to become
effective and then to remain effective for 270 days from the day such
registration statement first becomes effective or until such earlier date as all
shares registered shall have been sold by Grantee. In connection with any such
registration, Issuer and Grantee shall provide each other with representations,
warranties, indemnities and other agreements customarily given in connection
with such registrations. If requested by Grantee in connection with such
registration, Issuer shall become a party to any underwriting agreement relating
to the sale of such shares, but only to the extent of obligating Issuer in
respect of representations, warranties, indemnities, contribution and other
agreements customarily made by issuers in such underwriting agreements.
(b) In the event that Grantee so requests, the closing of the sale or other
disposition of the Common Stock or other securities pursuant to a registration
statement filed pursuant to Section 8(a) shall occur substantially
simultaneously with the exercise of the Option.
9. Repurchase of Option and/or Shares. (a) Repurchase; Repurchase
Price. Upon the occurrence of a Triggering Event prior to an Exercise
Termination Event, (i) at the request of a Holder, delivered in
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writing within 180 days of such occurrence (or such later period as provided in
Section 2(e) with respect to any required notice or application or in Section
10), Issuer shall repurchase the Option from the Holder, in whole or in part, at
a price (the "Option Repurchase Price") equal to the number of shares of Common
Stock then purchasable upon exercise of the Option (or such lesser number of
shares as may be designated in the Repurchase Notice (as defined below))
multiplied by the amount by which the market/offer price (as defined below)
exceeds the Option Price and (ii) at the request of a Holder or any person who
has been a Holder (for purposes of this Section 9 only, each such person being
referred to as a "Holder"), delivered in writing within 180 days of such
occurrence (or such later period as provided in Section 2(e) with respect to any
required notice or application or in Section 10), Issuer shall repurchase such
number of Option Shares from such Holder as the Holder shall designate in the
Repurchase Notice at a price (the "Option Share Repurchase Price") equal to the
number of shares designated multiplied by the market/offer price. The term
"market/offer price" shall mean the highest of (x) the price per share of Common
Stock at which a tender or exchange offer for Common Stock has been made, (y)
the price per share of Common Stock to be paid by any third party pursuant to an
agreement with Issuer and (z) the highest closing price for shares of Common
Stock on the NYSE (or, if the Common Stock is not then listed on the NYSE, any
other national securities exchange or automated quotation system on which the
Common Stock is then listed or quoted) within the six-month period immediately
preceding the delivery of the Repurchase Notice. In the event that a tender or
exchange offer is made for the Common Stock or an agreement is entered into for
a merger, share exchange, consolidation or reorganization involving
consideration other than cash, the value of the securities or other property
issuable or deliverable in exchange for the Common Stock shall be determined in
good faith by a nationally recognized investment banking firm selected by
Issuer.
(b) Method of Repurchase. A Holder may exercise its right to require
Issuer to repurchase the Option, in whole or in part, and/or any Option Shares
then owned by such Holder pursuant to this Section 9 by surrendering for such
purpose to Issuer, at its principal office, this Agreement or certificates for
Option Shares, as applicable, accompanied by a written notice or notices stating
that the Holder elects to require Issuer to repurchase the Option and/or such
Option Shares in accordance with the provisions of this Section 9 (each such
notice, a "Repurchase Notice"). Within two business days after the surrender of
the Option and/or certificates representing Option Shares and the receipt of the
Repurchase Notice relating thereto, Issuer shall deliver or cause to be
delivered to the Holder the applicable Option Repurchase Price and/or the Option
Share Repurchase Price or, in either case, the portion thereof that Issuer is
not then prohibited under applicable law and regulation from so delivering. In
the event that the Repurchase Notice shall request the repurchase of the Option
in part, Issuer shall deliver with the Option Repurchase Price a new Stock
Option Agreement evidencing the right of the Holder to purchase that number of
shares of Common Stock purchasable pursuant to the Option at the time of
delivery of the Repurchase Notice minus the number of shares of Common Stock
represented by that portion of the Option then being repurchased.
(c) Effect of Statutory or Regulatory Restraints on Repurchase. To the
extent that, upon or following the delivery of a Repurchase Notice, Issuer is
prohibited under applicable law or regulation from repurchasing the Option (or
portion thereof) and/or any Option Shares subject to such Repurchase Notice (and
Issuer hereby undertakes to use its reasonable best efforts to obtain all
required regulatory and legal approvals and to file any required notices as
promptly as practicable in order to accomplish such repurchase), Issuer shall
immediately so notify the Holder in writing and thereafter deliver or cause to
be delivered, from time to time, to the Holder the portion of the Option
Repurchase Price and the Option Share Repurchase Price that Issuer is no longer
prohibited from delivering, within 2 business days after the date on which it is
no longer so prohibited; provided, however, that upon notification by Issuer in
writing of such prohibition, the Holder may, within 5 days of receipt of such
notification from Issuer, revoke in writing its Repurchase Notice, whether in
whole or to the extent of the prohibition, whereupon, in the latter case, Issuer
shall promptly (i) deliver to the Holder that portion of the Option Repurchase
Price and/or the Option Share Repurchase Price that Issuer is not prohibited
from delivering; and (ii) deliver to the Holder, as appropriate, (A) with
respect to the Option, a new Stock Option Agreement evidencing the right of the
Holder to purchase that number of shares of Common Stock for which the
surrendered Stock Option Agreement was exercisable at the time of delivery of
the Repurchase Notice less the number of shares as to which the Option
Repurchase Price has theretofore been delivered to the Holder, and/or (B) with
respect to Option Shares, a certificate for the Option Shares as
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to which the Option Share Repurchase Price has not theretofore been delivered to
the Holder. Notwithstanding anything to the contrary in this Agreement,
including, without limitation, the time limitations on the exercise of the
Option, the Holder may exercise the Option for 180 days after a notice of
revocation has been issued pursuant to this Section 9(c).
(d) Acquisition Transactions. In addition to any other restrictions or
covenants, Issuer hereby agrees that, in the event that a Holder delivers a
Repurchase Notice, it shall not enter or agree to enter into any Acquisition
Transaction unless the other party or parties thereto agree to assume in writing
Issuer's obligations under Section 9(a) and, notwithstanding any notice of
revocation delivered pursuant to the proviso to Section 9(c), a Holder may
require such other party or parties to perform Issuer's obligations under
Section 9(a) unless such party or parties are prohibited by law or regulation
from such performance, in which case such party or parties shall be subject to
the obligations of the Issuer under Section 9(c).
10. Extension of Exercise Periods. The 180-day periods for exercise of
certain rights under Sections 2 and 9 shall be extended in each such case at the
request of the Holder to the extent necessary to avoid liability by the Holder
under Section 16(b) of the Exchange Act by reason of such exercise.
11. Assignment. Neither party hereto may assign any of its rights or
obligations under this Agreement or the Option to any other person without the
express written consent of the other party except that, in the event that a
Triggering Event shall have occurred, Grantee may assign the Option, in whole or
in part. Any attempted assignment in contravention of the preceding sentence
shall be null and void.
12. Filings; Other Actions. Each of Grantee and Issuer will use its best
efforts to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary for the consummation of the transactions
contemplated by this Agreement.
13. Specific Performance. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties hereto shall be specifically
enforceable through injunctive or other equitable relief.
14. Severability; Etc. If any term, provision, covenant, or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the terms, provisions, covenants, and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired, or invalidated. If for any reason such court or regulatory
agency determines that the Holder is not permitted to acquire, or Issuer is not
permitted to repurchase pursuant to Section 9, the full number of shares of
Common Stock provided in Section 1(a) hereof (as adjusted pursuant to Sections
1(b) and 7 hereof), it is the express intention of Issuer to allow the Holder to
acquire or to require Issuer to repurchase such lesser number of shares as may
be permissible, without any amendment or modification hereof.
15. Notices. All notices, requests, instructions, or other documents to
be given hereunder shall be in writing and shall be deemed given (i) three
business days following sending by registered or certified mail, postage
prepaid, (ii) when sent if sent by facsimile, provided that the fax is promptly
confirmed by telephone confirmation thereof, (iii) when delivered, if delivered
personally to the intended recipient, and (iv) one business day later, if sent
by overnight delivery via a national courier service, in each case at the
respective addresses of the parties set forth in the Merger Agreement.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN
ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE
WITH THE LAW OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES THEREOF, EXCEPT TO THE EXTENT THAT THE CONNECTICUT BUSINESS
CORPORATION ACT IS APPLICABLE HERETO.
17. Expenses. Except as otherwise expressly provided herein or in the
Merger Agreement, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated by this Agreement shall be paid by
the party incurring such expense, including fees and expenses of its own
financial consultants, investment bankers, accountants, and counsel.
18. Entire Agreement, Etc. This Agreement and the Merger Agreement
constitute the entire agreement, and supersede all other prior agreements,
understandings, representations and warranties, both written and oral, between
the parties, with respect to the subject matter hereof. The terms and conditions
of this
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Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties hereto, and their respective successors and permitted assigns,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
19. Limitation on Profit. (a) Notwithstanding any other provision of this
Agreement, in no event shall the Grantee's Total Profit (as hereinafter defined)
plus any Termination Fee paid to Grantee pursuant to Section 8.5(b) of the
Merger Agreement exceed in the aggregate $175 million and, if it otherwise would
exceed such amount, the Grantee, at its sole election, shall either (i) reduce
the number of shares of Common Stock subject to this Option, (ii) deliver to the
Issuer for cancellation Option Shares previously purchased by Grantee, (iii) pay
cash to the Issuer, or (iv) any combination thereof, so that Grantee's realized
Total Profit, when aggregated with such Termination Fee so paid to Grantee shall
not exceed $175 million after taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this Option may
not be exercised for a number of shares as would, as of the date of exercise,
result in a Notional Total Profit (as defined below) which, together with any
Termination Fee theretofore paid to Grantee would exceed $175 million; provided,
that nothing in this sentence shall restrict any exercise of the Option
permitted hereby on any subsequent date.
(c) As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of the following: (i) (x) the amount received by Grantee pursuant
to Issuer's repurchase of the Option (or any portion thereof) or any Option
Shares pursuant to Section 9, less, in the case of any repurchase of Option
Shares, (y) the Grantee's purchase price for such Option Shares, as the case may
be, (ii) (x) the net cash amounts received by Grantee pursuant to the sale of
Option Shares (or any other securities into which such Option Shares are
converted or exchanged) to any unaffiliated party, less (y) the Grantee's
purchase price of such Option Shares, and (iii) the net cash amounts received by
Grantee on the transfer of the Option (or any portion thereof) to any
unaffiliated party.
(d) As used herein, the term "Notional Total Profit" with respect to any
number of shares as to which Grantee may propose to exercise this Option shall
be the Total Profit determined as of the date of such proposal assuming that
this Option were exercised on such date for such number of shares and assuming
that such shares, together with all other Option Shares held by Grantee and its
affiliates as of such date, were sold for cash at the closing market price for
the Common Stock as of the close of business on the preceding trading day (less
customary brokerage commissions).
20. Captions. The Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
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.
SOUTHERN NEW ENGLAND
TELECOMMUNICATIONS CORPORATION
By: /s/ DANIEL J. MIGLIO
------------------------------------
Name: Daniel J. Miglio
Title: Chairman of the Board and
Chief Executive Officer
SBC COMMUNICATIONS INC.
By: /s/ EDWARD E. WHITACRE, JR.
------------------------------------
Name: Edward E. Whitacre, Jr.
Title: Chairman of the Board and
Chief Executive Officer
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ANNEX C
[SALOMON BROTHERS LETTERHEAD]
January 4, 1998
Board of Directors
Southern New England Telecommunications Corporation
227 Church Street
New Haven, CT 06510
Ladies and Gentlemen:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the holders of shares (the "Shares") of
common stock, par value $1.00 per share (the "Company Common Stock"), of
Southern New England Telecommunications Corporation (the "Company") of the
consideration to be received by such holders in the proposed acquisition of the
Company by SBC Communications Inc. ("SBC"), pursuant to an Agreement and Plan of
Merger dated January 4, 1998 (the "Agreement"), among the Company, SBC, and SBC
(CT), Inc. ("Merger Sub").
As more specifically set forth in the Agreement, and subject to the terms
and conditions thereof, Merger Sub will merge (the "Proposed Merger") with and
into the Company, and each issued and outstanding Share (other than Shares owned
by SBC, Merger Sub or the Company and shareholders who properly dissent from the
Proposed Merger) will be converted in the Proposed Merger into the right to
receive 0.8784 of a share of common stock, par value $1.00 per share (the "SBC
Common Stock"), of SBC and associated rights to purchase SBC Common Stock
pursuant to the Rights Agreement, dated as of January 27, 1989, between SBC and
American Transtech, Inc., as Rights Agent, as such agreement has been amended.
As you are aware, Salomon Brothers Inc. doing business as Salomon Smith
Barney (collectively with all other entities doing business as Salomon Smith
Barney, ("Salomon Smith Barney"), is acting as financial advisor to the Company
in connection with the Proposed Merger and will receive a fee for such services,
a substantial portion of which is contingent upon consummation of the Proposed
Merger. Additionally, Salomon Smith Barney or its affiliates have previously
rendered certain investment banking and financial advisory services to the
Company and SBC, for which we received customary compensation. In addition, in
the ordinary course of business, Salomon Smith Barney may actively trade the
securities of the Company and SBC for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. Salomon Smith Barney and its affiliates (including Travelers
Group Inc.) may have other business relationships with SBC and the Company.
In connection with rendering our opinion, we have reviewed and analyzed,
among other things, the following: (i) the Agreement; (ii) certain publicly
available information concerning the Company, including the Annual Reports on
Form 10-K of the Company for each of the years in the three-year period ended
December 31, 1996 and the Quarterly Reports on Form 10-Q of the Company for the
quarters ended March 31, June 30 and September 30, 1997; (iii) certain internal
information, primarily financial in nature, including projections, concerning
the business and operations of the Company, prepared by the Company's management
and furnished to us by the Company for purposes of our analysis; (iv) certain
publicly available information concerning the trading of, and the trading market
for, the Company Common Stock; (v) certain publicly available information
concerning SBC, including the Annual Reports on Form 10-K of SBC for each of the
years in the three-year period ended December 31, 1996 and the quarterly Reports
on Form 10-Q of SBC for the quarters ended March 31, June 30 and September 30,
1997; (vi) certain other information, primarily financial in nature, including
projections, concerning the business and operations of SBC, prepared by SBC's
management and furnished to us by SBC for purposes of our analysis; (vii)
certain publicly available information concerning the trading of, and the
trading market for, the SBC Common Stock; (viii) certain publicly available
information with respect to certain other companies that we believe to be
comparable to the Company or SBC and the trading markets for certain of such
other companies' securities; and (ix) certain publicly available information
concerning the nature and terms of certain other transactions that we consider
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relevant to our inquiry. We also have considered such other information,
financial studies, analyses, investigations and financial, economic and market
criteria that we deemed relevant. We also have met with certain officers and
employees of the Company and SBC to discuss the foregoing as well as other
matters we believe relevant to our inquiry.
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 provided to us or publicly available and have neither attempted
independently to verify nor assumed any responsibility for verifying any of such
information. With respect to financial projections and forecasts, we have been
advised by the management of the Company and SBC and have assumed that they were
reasonably prepared and reflect the best currently available estimates and
judgment of the Company's or SBC's management, as the case may be, as to the
future financial performance of the Company or SBC, as the case may be, and we
express no view with respect to such projections or forecasts or the assumptions
on which they were based. We also have assumed the Proposed Merger will be
consummated in a timely manner and in accordance with the terms of the
Agreement. We have not conducted a physical inspection of any of the properties
or facilities of the Company or SBC, nor have we made or obtained or assumed any
responsibility for making or obtaining any independent evaluations or appraisals
of any of such properties or facilities, nor have we been furnished with any
such evaluations or appraisals.
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 SBC; (ii) the business prospects of the Company and SBC; (iii) the
historical and current market for the Company Common Stock, the SBC Common Stock
and for the equity securities of certain other companies that we believe to be
comparable to the Company or SBC; and (iv) the nature and terms of certain other
acquisition transactions that we believe to be relevant. We have also taken into
account our assessment of general economic, market and financial conditions as
well as our experience in connection with similar transactions 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 is, in any event, limited to the fairness, from a
financial point of view, of the consideration to be received by the holders of
Shares in the Proposed Merger and does not address the Company's underlying
business decision to effect the Proposed Merger or constitute a recommendation
to any holder of Shares as to how such holder should vote with respect to the
Proposed Merger. Nor does our opinion constitute an opinion or imply any
conclusion as to the price at which SBC Common Stock will trade upon the public
announcement or the consummation of the Proposed Merger.
This opinion is intended solely for the benefit and use of the Company
(including its management and directors) in considering the transaction to which
it relates and may not be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in any manner or for any
purpose without the prior written consent of Salomon Smith Barney, except that
this opinion may be reproduced in full in, and references to the opinion and to
Salomon Smith Barney and its relationship with the Company (in each case in such
form as Salomon Smith Barney shall approve) may be included in, the proxy
statement the Company distributes to holders of Company Common Stock in
connection with the Proposed Merger.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that as of the date hereof, the consideration to be received by the
holders of Shares in the Proposed Merger is fair, from a financial point of
view, to such holders.
Very truly yours,
/s/ SALOMON SMITH BARNEY
--------------------------------------
Salomon Smith Barney
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ANNEX D
SECTIONS 33-855 THROUGH 33-872
OF THE
CONNECTICUT BUSINESS CORPORATION ACT
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
SECTION 33-855. DEFINITIONS. As used in Sections 33-855 to 33-872, inclusive:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 33-856 and who exercises that right when and in
the manner required by sections 33-860 to 33-868, inclusive.
(3) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
SECTION 33-856. RIGHT TO DISSENT. (a) A shareholder is entitled to dissent
from, and obtain payment of the fair value of his shares in the event of, any of
the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party (A) if shareholder approval is required for the merger by section
33-817 or the certificate of incorporation and the shareholder is entitled
to vote on the merger or (B) if the corporation is a subsidiary that is
merged with its parent under section 33-818;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(4) An amendment of the certificate of incorporation that materially
and adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares; (B) creates,
alters or abolishes a right in respect of redemption, including a provision
respecting a sinking fund for the redemption or repurchase, of the shares;
(C) alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities; (D) excludes or limits the right of the
shares to vote on any matter, or to cumulate votes, other than a limitation
by dilution through issuance of shares or other securities with similar
voting rights; or (E) reduces the number of shares owned by the shareholder
to a fraction of a share if the fractional share so created is to be
acquired for cash under section 33-668; or
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(5) Any corporate action taken pursuant to a shareholder vote to the
extent the certificate of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
(b) Where the right to be paid the value of shares is made available to a
shareholder by this section, such remedy shall be his exclusive remedy as holder
of such shares against the corporate transactions described in this section,
whether or not he proceeds as provided in sections 33-855 to 33-872, inclusive.
SECTION 33-857. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.(a) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if: (1) He submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and (2) he does so with
respect to all shares of which he is the beneficial shareholder or over which he
has power to direct the vote.
SECTIONS 33-858 AND 33-859. RESERVED FOR FUTURE USE.
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
SECTION 33-860. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate action
creating dissenters' rights under section 33-856 is submitted to a vote at a
shareholders' meeting, the meeting notice shall state that shareholders are or
may be entitled to assert dissenters' rights under sections 33-855 to 33-872,
inclusive, and be accompanied by a copy of said sections.
(b) If corporate action creating dissenters' rights under section 33-856 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in section 33-862.
SECTION 33-861. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed corporate
action creating dissenters' rights under section 33-856 is submitted to a vote
at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights (1) shall deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action is
effectuated and (2) shall not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
of this section is not entitled to payment for his shares under sections 33-855
to 33-872, inclusive.
SECTION 33-862. DISSENTERS' NOTICE. (a) If proposed corporate action creating
dissenters' rights under section 33-856 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of section 33-861.
(b) The dissenters' notice shall be sent no later than ten days after the
corporate action was taken and shall:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial ownership
of the shares before that date;
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(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days
after the date the subsection (a) of this section notice is delivered; and
(5) Be accompanied by a copy of sections 33-855 to 33-872, inclusive.
SECTION 33-863. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a dissenters'
notice described in section 33-862 must demand payment, certify whether he
acquired beneficial ownership of the shares before the date required to be set
forth in the dissenters' notice pursuant to subdivision (3) of subsection (b) of
said section and deposit his certificates in accordance with the terms of the
notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) of this section retains all other rights of a shareholder
until these rights are cancelled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under sections 33-855 to 33-872,
inclusive.
SECTION 33-864. SHARE RESTRICTIONS. (a) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is taken or the restrictions
released under section 33-866.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
SECTION 33-865. PAYMENT. (a) Except as provided in section 33-867, as soon as
the proposed corporate action is taken, or upon receipt of a payment demand, the
corporation shall pay each dissenter who complied with section 33-863 the amount
the corporation estimates to be the fair value of his shares, plus accrued
interest.
(b) The payment shall be accompanied by: (1) The corporation's balance
sheet as of the end of a fiscal year ending not more than sixteen months before
the date of payment, an income statement for that year, a statement of changes
in shareholders' equity for that year and the latest available interim financial
statements, if any; (2) a statement of the corporation's estimate of the fair
value of the shares; (3) an explanation of how the interest was calculated; (4)
a statement of the dissenter's right to demand payment under section 33-860; and
(5) a copy of sections 33-855 to 33-872, inclusive.
SECTION 33-866. FAILURE TO TAKE ACTION. (a) If the corporation does not take
the proposed action within sixty days after the date set for demanding payment
and depositing share certificates, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 33-862 and repeat the payment demand procedure.
SECTION 33-867. AFTER-ACQUIRED SHARES. (a) A corporation may elect to withhold
payment required by section 33-865 from a dissenter unless he was the beneficial
owner of the shares before the date set forth in the dissenters' notice as the
date of the first announcement to news media or to shareholders of the terms of
the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated and a statement of the dissenter's right to demand payment under
section 33-868.
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<PAGE> 123
SECTION 33-868. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER. (a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate, less any payment under section 33-865, or reject the
corporation's offer under section 33-867 and demand payment of the fair value of
his shares and interest due, if:
(1) The dissenter believes that the amount paid under section 33-865
or offered under section 33-867 is less than the fair value of his shares
or that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under section 33-865 within
sixty days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (a)
of this section within thirty days after the corporation made or offered payment
for his shares.
JUDICIAL APPRAISAL OF SHARES
SECTION 33-871. COURT ACTION. (a) If a demand for payment under section 33-868
remains unsettled, the corporation shall commence a proceeding within sixty days
after receiving the payment demand and petition the court to determine the fair
value of the shares and accrued interest. If the corporation does not commence
the proceeding within the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the superior court for
the judicial district where a corporation's principal office or, if none in this
state, its registered office is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the superior court for the judicial district where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment
(1) for the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation, or (2) for
the fair value, plus accrued interest, of his after-acquired shares for which
the corporation elected to withhold payment under section 33-867.
SECTION 33-872. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal
proceeding commenced under section 33-871 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously or not in good faith in demanding
payment under section 33-868.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable: (1) Against
the corporation and in favor of any or all dissenters if the court
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<PAGE> 124
finds the corporation did not substantially comply with the requirements of
sections 33-860 to 33-868, inclusive; or (2) against either the corporation or a
dissenter, in favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted arbitrarily, vexatiously
or not in good faith with respect to the rights provided by sections 33-855 to
33-872, inclusive.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefitted.
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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 shareholders 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 shareholders; (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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------
<C> <S>
2 Agreement and Plan of Merger, among SNET, SBC and Merger Sub, dated as of January
4, 1998 (included as Annex A to the Proxy Statement/Prospectus contained in this
Registration Statement).
3-a Restated Certificate of Incorporation of registrant, filed with the Secretary of
State of the State of Delaware on April 29, 1996 (incorporated herein by reference
to Exhibit 3 to Form 10-Q (File No. 1-8610), dated March 31, 1996).
3-b By-Laws of Registrant, dated January 30, 1998 (incorporated herein by reference to
Exhibit 3 to Form 8-K (File No. 1-8610), dated February 5, 1998).
4 See Exhibits 3-a and 3-b for provisions of Restated Certificate of Incorporation
and By-laws of SBC defining rights of holders of common stock of SBC.
</TABLE>
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<PAGE> 126
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------
<C> <S>
5 Opinion of James D. Ellis, Senior Executive Vice President and General Counsel of
SBC, regarding validity of securities being registered.
8 Opinion of Cravath, Swaine & Moore regarding certain federal income tax matters.
23-a Consent of Ernst & Young LLP.
23-b Consent of Coopers & Lybrand L.L.P. (San Francisco, CA).
23-c Consent of Coopers & Lybrand L.L.P. (Hartford, CT).
23-d 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-e Consent of Cravath, Swaine & Moore. (Included in the opinion filed as Exhibit 8 to
this Registration Statement and incorporated herein by reference).
23-f Consent of Salomon Brothers Inc.
24 Powers of Attorney.
99-a Form of Proxy Cards of SNET.
99-b Opinion of Salomon Brothers Inc (included as Annex C to the Proxy
Statement/Prospectus contained in this Registration Statement).
99-c Stock Option Agreement, between SNET and SBC, dated as of January 4, 1998
(included as Annex B to the Proxy Statement/Prospectus contained in this
Registration Statement).
</TABLE>
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) 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) 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
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<PAGE> 127
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.
(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.
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<PAGE> 128
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 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 9th day of
February, 1998.
SBC COMMUNICATIONS INC.
(Registrant)
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
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
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
By: /s/ DONALD E. KIERNAN
------------------------------------
Donald E. Kiernan, as
attorney-in-fact for
Mr. Whitacre, the Directors, and on
his own behalf as Principal
Financial
Officer and Principal Accounting
Officer
DIRECTORS: February 9, 1998
Edward E. Whitacre, Jr.*
Clarence C. Barksdale*
James E. Barnes*
August A. Busch III*
Royce S. Caldwell*
Ruben R. Cardenas*
William P. Clark*
Martin K. Eby, Jr.*
Herman E. Gallegos*
Jess T. Hay*
Bobby R. Inman*
Charles F. Knight*
Mary S. Metz*
Haskell M. Monroe, Jr.*
Toni Rembe*
S. Donley Ritchey*
Richard M. Rosenberg*
Patricia P. Upton*
- ---------------
* By power of attorney
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<PAGE> 129
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
2 Agreement and Plan of Merger, among SNET, SBC and Merger Sub, dated as
of January 4, 1998 (included as Annex A to the Proxy
Statement/Prospectus contained in this Registration Statement). ........
3-a Restated Certificate of Incorporation of registrant, filed with the
Secretary of State of the State of Delaware on April 29, 1996
(incorporated herein by reference to Exhibit 3 to Form 10-Q (File No.
1-8610), dated March 31, 1996). ........................................
3-b By-Laws of Registrant, dated January 30, 1998 (incorporated herein by
reference to Exhibit 3 to Form 8-K (File No. 1-8610), dated February 5,
1998).
4 See Exhibits 3-a and 3-b for provisions of Restated Certificate of
Incorporation and By-laws of SBC defining rights of holders of common
stock of SBC. ..........................................................
5 Opinion of James D. Ellis, Senior Executive Vice President and General
Counsel of SBC, regarding validity of securities being registered. .....
8 Opinion of Cravath, Swaine & Moore regarding certain federal income tax
matters. ...............................................................
23-a Consent of Ernst & Young LLP. ..........................................
23-b Consent of Coopers & Lybrand L.L.P. (San Francisco, CA). ...............
23-c Consent of Coopers & Lybrand L.L.P. (Hartford, CT). ....................
23-d 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-e Consent of Cravath, Swaine & Moore. (Included in the opinion filed as
Exhibit 8 to this Registration Statement and incorporated herein by
reference). ............................................................
23-f Consent of Salomon Brothers Inc. .......................................
24 Powers of Attorney. ....................................................
99-a Form of Proxy Cards of SNET. ...........................................
99-b Opinion of Salomon Brothers Inc (included as Annex C to the Proxy
Statement/Prospectus contained in this Registration Statement). ........
99-c Stock Option Agreement, between SNET and SBC, dated as of January 4,
1998 (included as Annex B to the Proxy Statement/Prospectus contained in
this Registration Statement). ..........................................
</TABLE>
<PAGE> 1
Exhibit 5
February 9, 1998
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 63,733,455 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 Rights Agent (as amended, the
"Rights Plan"), to be issued in connection with the Agreement and Plan of
Merger, dated as of January 4, 1998, among Southern New England
Telecommunications Corporation, the Company and SBC (CT), 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
<PAGE> 2
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.
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
-2-
<PAGE> 1
[Letterhead of]
CRAVATH, SWAINE & MOORE
[New York Office]
February 6, 1998
Agreement and Plan of Merger
dated as of January 4, 1998,
By and Among SBC Communications Inc., SBC (CT), Inc. and
Southern New England Telecommunications Corporation
Ladies and Gentlemen:
We have acted as special counsel for Southern New England
Telecommunications Corporation, a Connecticut corporation (the "Company"), in
connection with the proposed merger (the "Merger") of SBC (CT), Inc. ("Sub"), a
Connecticut corporation and a wholly-owned subsidiary of SBC Communications
Inc., a Delaware corporation ("Parent"), with and into the Company, pursuant to
an Agreement and Plan of Merger dated as of January 4, 1998 (the "Merger
Agreement"), by and among Parent, Sub and the Company. In the Merger, each
issued and outstanding share of Company common stock, par value $1 per share
(the "Common Stock"), not owned directly or indirectly by the Company, Parent or
Sub will be converted into common stock of Parent ("Parent Common Stock").
In that connection, you have requested our opinion regarding
the material Federal income tax consequences of the Merger. In providing our
opinion, we have examined the Merger Agreement, the registration statement on
Form S-4 (the "Registration Statement"), which includes the Proxy
Statement/Prospectus of the Company and Parent, as filed
<PAGE> 2
with the Securities and Exchange Commission (the "SEC"), and such other
documents and corporate records as we have deemed necessary or appropriate for
purposes of our opinion. In addition, we have assumed that (i) the Merger will
be consummated in the manner contemplated by the Registration Statement and in
accordance with the provisions of the Merger Agreement, (ii) the statements
concerning the Merger set forth in the Merger Agreement and the Registration
Statement are true, correct and complete and will continue to be true, correct
and complete at all times up to and including the Closing Date, (iii) the
representations made to us by the Company and Parent in their respective letters
to us each dated the date hereof, and delivered to us for purposes of this
opinion are true, correct and complete and will continue to be true, correct and
complete at all times up to and including the Closing Date (such letters, the
"Representation Letters"), and (iv) any representations made in the
Representation Letters or in the Merger Agreement "to the best knowledge of" or
similarly qualified are correct, and will continue to be true, correct and
complete at all times up to and including the Closing Date, in each case without
such qualification. If any of the above-described assumptions are untrue for any
reason or if the Merger is consummated in a manner that is inconsistent with the
manner in which it is described in the Merger Agreement or the Registration
Statement, our opinions as expressed below may be adversely affected and may not
be relied upon.
The opinions expressed herein are based upon existing
statutory, regulatory and judicial authority, any of which may be changed at any
time with retroactive effect. Our opinions are limited to the tax matters
specifically covered hereby, and we have not been asked to address, nor have we
addressed, any other tax consequences of the Merger or any other transactions.
Based upon the foregoing, we are of opinion that the
discussion contained in the Registration Statement under the caption "Certain
Federal Income Tax Consequences" represents an accurate summary of the material
Federal income tax consequences of the Merger.
<PAGE> 3
We express no opinion on any issue relating to Federal income
tax consequences other than those described under the caption "Certain Federal
Income Tax Consequences." We are furnishing this opinion in connection with the
filing of the Registration Statement with the SEC, and this opinion is not to be
used, circulated, quoted or otherwise referred to for any other purpose without
our express written permission. This opinion is expressed as of the date hereof,
and we disclaim any undertaking to advise you of any subsequent changes of the
matters stated, represented or assumed herein or any subsequent changes in
applicable law, regulations or interpretations thereof.
We consent to the filing of this opinion as Exhibit 8 to the
Registration Statement and to the reference to our firm name therein. In giving
this consent, we do not admit that we are within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules or regulations of the SEC promulgated thereunder.
Very truly yours,
/s/ Cravath, Swaine & Moore
Southern New England Telecommunications Corporation
227 Church Street
New Haven, CT 06510
<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 Per Share Financial Data" in the
Registration Statement on Form S-4 and related Proxy Statement/Prospectus of
Southern New England Telecommunications Corporation and SBC Communications Inc.
(SBC) for the registration of shares of SBC Common Stock and to the
incorporation by reference therein of our report dated February 14, 1997, except
for Note 3 as to which the date is April 1, 1997, with respect to the
consolidated financial statements and schedules of SBC included in or
incorporated by reference in its Current Report (Form 8-K) dated May 9, 1997 and
its Annual Report (Form 10-K) for the year ended December 31, 1996, filed with
the Securities and Exchange Commission.
/s/ Ernst & Young LLP
San Antonio, Texas
February 6, 1998
<PAGE> 1
EXHIBIT 23-B
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) of SBC Communications Inc. and the related
Proxy Statement/Prospectus of Southern New England Telecommunications
Corporation and to the incorporation by reference therein of our report dated
February 27, 1997 on our audits of the consolidated financial statements and
financial statement schedule of Pacific Telesis Group and Subsidiaries as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996, which is included in Pacific Telesis Group's Annual Report on
Form 10-K for the year ended December 31, 1996.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
February 6, 1998
<PAGE> 1
EXHIBIT 23-C
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
of SBC Communications Inc. on Form S-4 and the related Proxy
Statement/Prospectus of Southern New England Telecommunications Corporation and
SBC Communications Inc. of our reports dated January 21, 1997, which include an
explanatory paragraph related to the discontinuance of SFAS No. 71 "Accounting
for Certain Types of Regulation", effective January 1, 1996, on our audits of
the consolidated financial statements and the financial statement schedule of
Southern New England Telecommunications Corporation ("SNET") as of December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996, which reports are included or incorporated by reference in SNET's 1996
Annual Report on Form 10-K. We also consent to the reference to our Firm under
the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
Hartford, Connecticut
February 6, 1998
<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 January 4, 1998, under the caption "The Merger-Opinion of
Salomon Smith Barney" in, and to the inclusion of such opinion letter as Annex C
to, the Proxy Statement/Prospectus of SBC Communications Inc. and Southern New
England Telecommunications Corporation, which Proxy Statement/Prospectus is part
of the Registration Statement on Form S-4 of SBC Communications Inc. By giving
such 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, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
/s/ Salomon Brothers Inc
----------------------------------
Salomon Brothers Inc
New York, New York
February 5, 1998
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter
referred to as the "Corporation," proposes to file with the Securities and
Exchange Commission at Washington, D.C., under the provisions of the Securities
Act of 1933, as amended, a Registration Statement on Form S-4 for the issuance
of shares of the Corporation's Common Stock pursuant to the merger agreement
among Southern New England Telecommunications Corporation, the Corporation, and
SBC (CT), Inc., dated January 4, 1998; and
WHEREAS, the undersigned is an officer and a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints James D.
Ellis, Donald E. Kiernan, Alfred G. Richter, Jr., Roger W. Wohlert, or any one
of them, all of the City of San Antonio and State of Texas, his attorneys for
him and in his name, place and stead, and in each of his offices and capacities
in the Corporation, to execute and file such Registration Statement, and
thereafter to execute and file any and all amended supplements to any of the
foregoing, hereby giving and granting to said attorneys full power and authority
to do and perform each and every act and thing whatsoever requisite and
necessary to be done in and concerning the premises, as fully to all intents and
purposes as the undersigned might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys may or shall
lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand the date set
forth below.
<TABLE>
<S> <C>
/s/ EDWARD E. WHITACRE, JR. January 30, 1998
- -------------------------------------------- --------------------------------------------
Edward E. Whitacre, Jr. Date
Chairman of the Board, and
Chief Executive Officer
</TABLE>
<PAGE> 2
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter
referred to as the "Corporation," proposes to file with the Securities and
Exchange Commission at Washington, D.C., under the provisions of the Securities
Act of 1933, as amended, a Registration Statement on Form S-4 for the issuance
of shares of the Corporation's Common Stock pursuant to the merger agreement
among Southern New England Telecommunications Corporation, the Corporation, and
SBC (CT), Inc., dated January 4, 1998; and
WHEREAS, the undersigned is an officer and a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints James D.
Ellis, Donald E. Kiernan, Alfred G. Richter, Jr., Roger W. Wohlert, or any one
of them, all of the City of San Antonio and State of Texas, his attorneys for
him and in his name, place and stead, and in each of his offices and capacities
in the Corporation, to execute and file such Registration Statement, and
thereafter to execute and file any and all amended supplements to any of the
foregoing, hereby giving and granting to said attorneys full power and authority
to do and perform each and every act and thing whatsoever requisite and
necessary to be done in and concerning the premises, as fully to all intents and
purposes as the undersigned might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys may or shall
lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand the date set
forth below.
<TABLE>
<S> <C>
/s/ ROYCE S. CALDWELL January 30, 1998
- -------------------------------------------- --------------------------------------------
Royce S. Caldwell Date
President -- SBC Operations and Director
</TABLE>
<PAGE> 3
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation, hereinafter
referred to as the "Corporation," proposes to file with the Securities and
Exchange Commission at Washington, D.C., under the provisions of the Securities
Act of 1933, as amended, a Registration Statement on Form S-4 for the issuance
of shares of the Corporation's Common Stock pursuant to the merger agreement
among Southern New England Telecommunications Corporation, the Corporation, and
SBC (CT), Inc., dated January 4, 1998; and
WHEREAS, the undersigned is a director of the Corporation;
NOW, THEREFORE, each of the undersigned hereby constitutes and appoints
Edward E. Whitacre, Jr., James D. Ellis, Donald E. Kiernan, Alfred G. Richter,
Jr., Roger W. Wohlert, or any one of them, all of the City of San Antonio and
State of Texas, the undersigned's attorneys for the undersigned and in the
undersigned's name, place and stead, and in the undersigned's offices and
capacities in the Corporation, to execute and file such Registration Statement,
and thereafter to execute and file any and all amended registration statements
and amended prospectuses or amendments or supplements to any of the foregoing,
hereby giving and granting to said attorneys full power and authority to do and
perform each and every act and thing whatsoever requisite and necessary to be
done in and concerning the premises, as fully to all intents and purposes as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand the
date set forth below.
<TABLE>
<S> <C>
/s/ CLARENCE C. BARKSDALE January 30, 1998
- -------------------------------------------- --------------------------------------------
Clarence C. Barksdale Date
Director
/s/ JAMES E. BARNES January 30, 1998
- -------------------------------------------- --------------------------------------------
James E. Barnes Date
Director
/s/ AUGUST A. BUSCH III January 30, 1998
- -------------------------------------------- --------------------------------------------
August A. Busch III Date
Director
/s/ RUBEN R. CARDENAS January 30, 1998
- -------------------------------------------- --------------------------------------------
Ruben R. Cardenas Date
Director
/s/ WILLIAM P. CLARK January 30, 1998
- -------------------------------------------- --------------------------------------------
William P. Clark Date
Director
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
/s/ MARTIN K. EBY, JR. January 30, 1998
- -------------------------------------------- --------------------------------------------
Martin K. Eby, Jr. Date
Director
/s/ HERMAN E. GALLEGOS January 30, 1998
- -------------------------------------------- --------------------------------------------
Herman E. Gallegos Date
Director
/s/ JESS T. HAY January 30, 1998
- -------------------------------------------- --------------------------------------------
Jess T. Hay Date
Director
/s/ BOBBY R. INMAN January 30, 1998
- -------------------------------------------- --------------------------------------------
Bobby R. Inman Date
Director
/s/ CHARLES F. KNIGHT January 30, 1998
- -------------------------------------------- --------------------------------------------
Charles F. Knight Date
Director
/s/ MARY S. METZ January 30, 1998
- -------------------------------------------- --------------------------------------------
Mary S. Metz Date
Director
/s/ HASKELL M. MONROE, JR. January 30, 1998
- -------------------------------------------- --------------------------------------------
Haskell M. Monroe, Jr. Date
Director
/s/ TONI REMBE January 30, 1998
- -------------------------------------------- --------------------------------------------
Toni Rembe Date
Director
/s/ S. DONLEY RITCHEY January 30, 1998
- -------------------------------------------- --------------------------------------------
S. Donley Ritchey Date
Director
/s/ RICHARD M. ROSENBERG January 30, 1998
- -------------------------------------------- --------------------------------------------
Richard M. Rosenberg Date
Director
/s/ PATRICIA P. UPTON January 30, 1998
- -------------------------------------------- --------------------------------------------
Patricia P. Upton Date
Director
</TABLE>
<PAGE> 1
SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION
227 CHURCH STREET
NEW HAVEN, CONNECTICUT 06510
The undersigned hereby (1) acknowledges receipt of the Notice of Special Meeting
of Shareholders of Southern New England Telecommunications Corporation, a
Connecticut corporation ("SNET"), to be held March 27, 1998 at 10:00 a.m., local
time, at the Italian Center of Stamford, 1620 Newfield Avenue, Stamford,
Connecticut (including any adjournments or postponements thereof, the "Special
Meeting"), and the Proxy Statement/Prospectus furnished in connection therewith,
and (2) appoints Barry M. Bloom, Daniel J. Miglio and Ira D. Hall, and each of
them, as his or her proxies (with full power of substitution) for and in the
name, place and stead of the undersigned, to vote upon and act with respect to
all shares of Common Stock, par value $1.00 per share, of SNET (the "SNET Common
Stock"), standing in the name of the undersigned, or with respect to which the
undersigned is entitled to vote and act, at the Special Meeting. The purpose of
the Special Meeting is to consider and vote upon a proposal (the "Merger
Proposal") to approve an Agreement and Plan of Merger (as it may be amended,
supplemented or otherwise modified from time to time, the "Merger Agreement")
among SNET, SBC Communications Inc., a Delaware corporation ("SBC"), and SBC
(CT), Inc., a Connecticut corporation and a wholly-owned subsidiary of SBC,
dated as of January 4, 1998, pursuant to which SBC (CT), Inc. will be merged
with and into SNET (the "Merger") and SNET will become a wholly-owned subsidiary
of SBC.
THIS PROXY, WHEN PROPERLY EXECUTED AND DELIVERED, WILL BE VOTED AS SPECIFIED ON
THE REVERSE SIDE. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE
MERGER PROPOSAL. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN
THIS CARD.
Notwithstanding shareholder approval of the Merger Proposal, SNET reserves the
right to abandon the Merger at any time prior to the consummation of the Merger,
subject to the terms and conditions of the Merger Agreement.
Holders of SNET Common Stock who do not vote their shares of SNET Common Stock
for the Merger Proposal and who deliver to SNET prior to the time the vote is
taken on the Merger Proposal a notice of intent to demand payment for such
holders' shares if the Merger is effectuated are entitled to assert dissenters'
rights of appraisal pursuant to Sections 33-855 to 33-872, inclusive, of the
Connecticut Business Corporation Act.
The undersigned hereby revokes any proxy previously given to vote or act with
respect to the SNET Common Stock and hereby ratifies and confirms all that the
proxies named above, their substitutes, or any of them may lawfully do by virtue
hereof.
In their discretion, the proxies are authorized to vote on any adjournment or
postponement of the Special Meeting.
HAS YOUR ADDRESS CHANGED?
- ----------------------------------------------------------------
- ----------------------------------------------------------------
PLEASE MARK YOUR VOTE
X AS IN THIS EXAMPLE
- ---------------------------------------------------------------------
SOUTHERN NEW ENGLAND
TELECOMMUNICATIONS CORPORATION
- ---------------------------------------------------------------------
Mark box at right if an address change has been noted on the
reverse side of this card.
RECORD DATE SHARES:
---------------------
Date
Please be sure to sign and date this Proxy.
- ---------------------------------------------------------------------
- ----------- Stockholder sign here------------Co-owner sign here
<TABLE>
<S> <C> <C> <C>
The undersigned directs that this proxy be voted
on the Merger
Proposal as follows:
For Against Abstain
1. To approve the Merger Agreement among SNET,
SBC and SBC (CT), Inc., a Connecticut
corporation and a wholly-owned subsidiary of
SBC, dated as of January 4, 1998, pursuant to
which SBC (CT), Inc. will be merged with and
into SNET and SNET will become a wholly-owned
subsidiary of SBC.
The Board of Directors recommends a vote FOR
the Merger Proposal.
PLEASE PROMPTLY COMPLETE, SIGN, DATE AND RETURN THIS PROXY IN THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED.
PLEASE DATE THIS PROXY AND SIGN YOUR NAME EXACTLY AS IT APPEARS HEREON.
WHERE THERE IS MORE THAN ONE OWNER, EACH SHOULD SIGN. WHEN SIGNING AS AN
ATTORNEY, ADMINISTRATOR, EXECUTOR, GUARDIAN OR TRUSTEE, PLEASE ADD YOUR
TITLE AS SUCH. IF EXECUTED BY A CORPORATION, THE PROXY SHOULD BE SIGNED BY
A DULY AUTHORIZED OFFICER AND STATE THE FULL NAME OF THE CORPORATION.
</TABLE>
DETACH CARD
<PAGE> 2
SOUTHERN NEW ENGLAND TELECOMMUNICATIONS CORPORATION
SPECIAL MEETING OF SHAREHOLDERS -- MARCH 27, 1998
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
BOSTON SAFE DEPOSIT AND TRUST COMPANY, TRUSTEE UNDER THE SNET EMPLOYEE STOCK
PLANS
RETURN THIS FORM PROMPTLY IN THE ENCLOSED, POSTAGE-PAID ENVELOPE TO:
BOSTON SAFE DEPOSIT AND TRUST COMPANY, TRUSTEE,
BOX 1997 G.P.O.
NEW YORK, N.Y. 10117-0024
I hereby instruct the Trustee to vote all the shares of Common Stock of Southern
New England Telecommunications Corporation credited to my accounts, indicated
below, under the SNET Management Retirement Savings Plan ("MRSP"), the SNET
Bargaining Unit Retirement Savings Plan ("BRSP"), the Employee Stock Ownership
Plan ("ESOP") incorporated in the MRSP and BRSP, and the Tax Reduction Act Stock
Ownership Plan ("TRASOP") at the Special Meeting of its shareholders to be held
on March 27, 1998, and at any adjournment thereof, on the proposal (the "Merger
Proposal") described in the Proxy Statement/Prospectus furnished herewith.
If signed and returned, the shares represented by these voting instructions will
be voted in accordance with the specifications given. Shares which are not
allocated and shares for which no written instruction is received by March 27,
1998, for the MRSP, BRSP and ESOP will be voted by the Trustee with respect to
each plan in the same proportion as it votes shares of other participants of
such plan for which instructions are received. YOUR SHARES IN TRASOP WILL NOT BE
VOTED BY THE TRUSTEE UNLESS YOU SIGN AND RETURN THIS FORM AND IT IS RECEIVED BY
THE TRUSTEE BY 10:00 A.M. ON MARCH 27, 1998.
The Board of Directors recommends a vote FOR the Merger Proposal and the shares
represented by this voting instruction will be so voted unless otherwise
indicated.
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
MRSP SHARES MRSP ESOP SHARES BRSP SHARES BRSP ESOP SHARES TRASOP SHARES
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
[X]Please mark your vote as in this example
THE BOARD RECOMMENDS A VOTE FOR THE MERGER PROPOSAL
To approve an Agreement and Plan of Merger (as it may be amended,
supplemented or otherwise modified from time to time) among SNET, SBC
Communications Inc., a Delaware corporation ("SBC"), and SBC (CT), Inc., a
Connecticut corporation and a wholly owned subsidiary of SBC, dated as of
January 4, 1998, pursuant to which SBC (CT), Inc. will be merged with and
into SNET and SNET will become a wholly-owned subsidiary of SBC.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
---------------------------------- ----------------------------------
SIGNATURE DATE
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON.
BE SURE TO SIGN AND DATE THIS FORM.
FOLD IT IN HALF AND MAIL PROMPTLY IN THE ENVELOPE PROVIDED.
