<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
MEDIAONE GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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August 27, 1999
<PAGE>
[MEDIAONE GROUP LOGO]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The Board of Directors of MediaOne Group, Inc. has approved a merger
agreement that provides for the merger of MediaOne Group with and into Meteor
Acquisition Inc., a wholly owned subsidiary of AT&T Corp. The merger will join
AT&T, a worldwide communications leader, with MediaOne Group, a leader in the
broadband communications industry, to create the leading carrier of end-to-end
communications services for consumers and businesses. We believe that the
combined company will be well-positioned to create and provide
nationally-branded broadband services and to service new markets and exploit
business opportunities.
In the merger, holders of MediaOne Group common stock will receive, at their
election, for each share of MediaOne Group common stock:
- 1.4912 shares of AT&T common stock;
- $85.00 in cash; or
- $30.85 in cash and 0.95 of a share of AT&T common stock.
Each stockholder's election may be subject to proration depending on the
consideration other stockholders elect to receive in the merger. The proration
will ensure that AT&T issues a total number of AT&T shares equal to 0.95 times
the number of outstanding MediaOne Group shares. If too many MediaOne Group
stockholders elect all stock, those holders will receive cash for some of their
MediaOne Group shares notwithstanding their election. If too many MediaOne Group
stockholders elect all cash, those holders will receive AT&T shares for some of
their MediaOne Group shares notwithstanding their election. Holders who elect
the cash and stock combination will always receive what they elect. We will
treat holders who make no election as if they elected the cash and stock
combination.
In addition, to the extent the price of AT&T's common stock is less than
$57.00 per share during a prescribed measurement period shortly prior to the
closing, stockholders receiving AT&T common stock in the merger will also
receive an additional cash payment to account for the difference between the
actual price of AT&T common stock (subject to a floor of $51.30) and $57.00. For
shares subject to the cash and stock election, the maximum additional cash
payment will be $5.42 per share, and for shares subject to the all-stock
election, the maximum additional cash payment will be $8.50 per share.
AT&T will list the AT&T common stock issued in the merger on the New York
Stock Exchange under the symbol "T."
We are asking holders of MediaOne Group common stock to approve the adoption
of the merger agreement. Your board of directors recommends that you vote in
favor of the adoption of the merger agreement. We have scheduled a special
meeting for our stockholders to vote on this proposal.
The date, time and place of the meeting is:
October 21, 1999
10:00 A.M., LOCAL TIME
THE TERRACE GARDENS AT DOVE VALLEY
EVENT AND CONFERENCE CENTER
13065 EAST BRIARWOOD AVENUE
ENGLEWOOD, COLORADO 80112
/S/ CHARLES M. LILLIS
Charles M. Lillis
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
MEDIAONE GROUP, INC.
SEE "RISK FACTORS" ON PAGE I-20 FOR A DISCUSSION OF THE RISKS THAT
STOCKHOLDERS SHOULD CONSIDER WITH RESPECT TO THE MERGER. Neither the Securities
and Exchange Commission nor any state securities commission has approved or
disapproved the shares of AT&T capital stock to be issued in the merger, or
determined if this proxy statement/prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Proxy statement/prospectus dated August 27, 1999, and first mailed to
stockholders on or about September 7, 1999.
<PAGE>
[MEDIAONE GROUP LOGO]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 21, 1999
To MediaOne Group Stockholders:
We invite you to attend the MediaOne Group special meeting of stockholders,
to be held on October 21, 1999 at 10:00 a.m., Mountain Time, at The Terrace
Gardens at Dove Valley Event and Conference Center, 13065 East Briarwood Avenue,
Englewood, Colorado 80112. At the meeting, we will ask you to consider and vote
upon a proposal to approve the adoption of the merger agreement between MediaOne
Group, Meteor Acquisition Inc. and AT&T Corp., as we describe in the attached
proxy statement/prospectus. Your board of directors recommends that you vote in
favor of the proposal.
The close of business on September 2, 1999 is the record date for this
meeting. Holders of all classes of MediaOne Group capital stock on the record
date are entitled to notice of this meeting, but only holders of MediaOne Group
common stock on the record date are entitled to vote at the meeting.
The proxy statement/prospectus provides you with detailed information about
the proposal to approve the adoption of the merger agreement. Whether or not you
plan to attend the meeting, please take the time to vote by proxy. You may vote
by proxy by:
- returning the enclosed proxy card
- calling the toll-free number listed on your proxy card or
- accessing the web site listed on your proxy card.
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR STOCK AT THIS TIME.
By order of the Board of Directors,
/s/ FRANK M. EICHLER
Frank M. Eichler
EXECUTIVE VICE PRESIDENT--LAW AND
PUBLIC POLICY, GENERAL COUNSEL AND
SECRETARY
August 27, 1999
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE PROMPTLY COMPLETE, DATE AND RETURN YOUR PROXY CARD IN THE ENCLOSED
ENVELOPE, OR AUTHORIZE THE INDIVIDUALS NAMED ON YOUR PROXY TO VOTE YOUR SHARES
BY CALLING THE TOLL-FREE TELEPHONE NUMBER OR BY USING THE INTERNET AS DESCRIBED
ON YOUR PROXY CARD.
SHOULD YOU HAVE ANY QUESTIONS REGARDING THE SPECIAL MEETING OR THE ATTACHED
PROXY STATEMENT/PROSPECTUS, PLEASE CALL OUR PROXY SOLICITOR, D.F. KING & CO., AT
1-800-848-3405.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Chapter One--Overview........................ I-1
Questions and Answers About the Merger....... I-1
Summary...................................... I-3
The Companies................................ I-3
MediaOne Group's Reasons for the Merger...... I-3
Recommendation to Stockholders............... I-4
The Merger................................... I-4
Summary Selected Historical and Pro Forma
Financial Data............................. I-11
How We Prepared the Financial Statements..... I-11
Purchase of a Business Accounting
Treatment.................................. I-11
Merger-Related Expenses...................... I-11
Selected Historical Financial Data of AT&T... I-11
Selected Historical Financial Data of
MediaOne Group............................. I-15
Selected Pro Forma Condensed Financial
Information................................ I-17
Unaudited Comparative Per Share
Data....................................... I-18
Risk Factors................................. I-20
Value of AT&T Common Stock to be Received in
the Merger May Fluctuate; All Holders May
Not Receive the Same Value................. I-20
Stockholders May Receive a Form of
Consideration Different from What They
Elect...................................... I-21
AT&T and MediaOne Group May Encounter
Difficulties in Integrating Operations and
May Not Achieve Cost Savings and Strategic
and Other Benefits......................... I-21
Regulatory Agencies May Impose Conditions on
Approvals Relating to the Merger........... I-22
<CAPTION>
PAGE
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<S> <C>
Risks Relating to MediaOne Group's Interest
in Time Warner Entertainment Company,
L.P........................................ I-22
Cautionary Statements Relating to
Forward-Looking Statements................. I-23
Chapter Two--The Transaction................. II-1
The Companies................................ II-1
MediaOne Group, Inc.......................... II-1
AT&T Corp.................................... II-1
Meteor Acquisition Inc....................... II-1
The Merger Transaction....................... II-1
General...................................... II-1
Background of the Merger..................... II-2
MediaOne Group's Reasons for the Merger...... II-5
Factors Considered by, and Recommendation of,
the MediaOne Group Board................... II-7
AT&T's Reasons for the Merger................ II-9
Accounting Treatment......................... II-9
Material U.S. Federal Income Tax Consequences
of the Merger.............................. II-10
Antitrust Matters............................ II-11
Federal Communications Commission............ II-12
State and Local Governmental Authorities..... II-12
Foreign Regulatory Filings................... II-13
Other Regulatory Filings..................... II-14
Appraisal Rights............................. II-14
Federal Securities Laws Consequences......... II-18
Comparative Per Share Market Price and
Dividend Information....................... II-19
Unaudited Pro Forma Condensed Combined
Financial Statements....................... II-20
Opinion of Financial Advisor................. II-29
Comparable Trading Analysis.................. II-32
Discounted Cash Flow Analysis................ II-32
Precedent Transaction Analysis............... II-33
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Interests of Certain Persons in the Merger... II-34
General...................................... II-34
Change of Control Severance Agreements....... II-35
Stock Plans.................................. II-36
Other Executive Benefit Plans................ II-36
Maintenance of Benefits for MediaOne Group
Employees.................................. II-37
Directors and Officers....................... II-37
Indemnification and Insurance................ II-37
Chapter Three--The Merger
Agreement.................................. III-1
Structure of the Merger...................... III-1
Timing of Closing............................ III-1
Merger Consideration......................... III-1
Treatment of MediaOne Group Stock Options.... III-5
Election Procedure; Exchange of Shares....... III-7
Appraisal Rights............................. III-7
Principal Covenants.......................... III-8
Representations and Warranties............... III-13
Conditions to the Completion of the Merger... III-14
Termination of the Merger Agreement.......... III-16
Other Expenses............................... III-18
Amendments; Waivers.......................... III-18
Chapter Four--The Meeting and
Voting..................................... IV-1
Information About the Meeting and Voting..... IV-1
Matters Relating to the Meeting.............. IV-1
Vote Necessary to Approve Merger Proposal.... IV-2
Proxies...................................... IV-2
Other Business; Adjournments................. IV-4
Chapter Five--Certain Legal Information...... V-1
Comparison of Stockholder Rights............. V-1
<CAPTION>
PAGE
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<S> <C>
Business Combinations........................ V-1
State Takeover Legislation................... V-3
Rights of Dissenting Stockholders............ V-4
Amendments to Charters....................... V-5
Amendments to Bylaws......................... V-6
No Preemptive Rights......................... V-7
Redemption of Capital Stock.................. V-7
Dividend Sources............................. V-7
Duration of Proxies.......................... V-8
Stockholder Action........................... V-8
Stockholder Proposals........................ V-9
Meetings of Stockholders..................... V-9
Cumulative Voting............................ V-9
Number and Election of Directors............. V-10
Removal of Directors......................... V-10
Vacancies.................................... V-11
Indemnification of Directors and Officers.... V-12
Limitation of Personal Liability of
Directors.................................. V-14
Description of AT&T Capital Stock............ V-15
Authorized Capital Stock..................... V-15
AT&T Common Stock............................ V-15
AT&T Preferred Stock......................... V-19
Legal Matters................................ V-24
Experts...................................... V-24
Chapter Six--Additional Information for
Stockholders............................... VI-1
Future Stockholder Proposals................. VI-1
Where You Can Find More
Information................................ VI-1
Annexes
Annex A Merger Agreement A-1
Annex B Opinion of Lehman Brothers Inc. B-1
Annex C Section 262 of the General
Corporation Law of the State of
Delaware C-1
</TABLE>
ii
<PAGE>
CHAPTER ONE
OVERVIEW
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHEN AND WHERE IS THE STOCKHOLDER MEETING?
A: The meeting will take place on October 21, 1999 in Englewood, Colorado. The
exact location for the meeting is listed on page IV-1.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
document, please fill out, sign and mail your signed proxy card in the enclosed
return envelope or give your proxy by telephone or the Internet as soon as
possible, so that we may vote your shares at the MediaOne Group meeting.
In order to assure that we obtain your vote, please give your proxy as
instructed on your proxy card even if you currently plan to attend the meeting
in person.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: Send in a later-dated, signed proxy card to MediaOne Group's Secretary or
vote again by telephone or the Internet before the MediaOne Group meeting. Or,
you can attend the MediaOne Group meeting in person and vote. You may also
revoke your proxy by sending a notice of revocation to MediaOne Group's
Secretary, by calling the toll-free number listed on the enclosed proxy card or
by using the Internet, as instructed on the proxy card.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: If you do not provide your broker with instructions on how to vote your
"street name" shares, your broker cannot vote them on the proposal. You should
therefore be sure to provide your broker with instructions on how to vote your
shares. Please check the voting form used by your broker to see if it offers
telephone or Internet voting.
If you do not give voting instructions to your broker, you will, in effect, be
voting against the merger unless you appear in person at the MediaOne Group
meeting with a proxy from your broker authorizing you to vote your "street name"
shares, and vote in favor of the merger.
Q: IF I AM A PARTICIPANT IN THE MEDIAONE GROUP SAVINGS PLAN/EMPLOYEE STOCK
OWNERSHIP PLAN, HOW DO I VOTE MY SHARES?
A: If you are a participant in the MediaOne Group Savings Plan/ESOP, a proxy
will serve as a voting instruction card for the trustees of the Savings
Plan/ESOP with respect to the shares of MediaOne Group common stock held in your
account. The trustees will vote shares held in the Savings Plan/ESOP for which
proxies are not received, as well as shares held in the suspense account of the
Savings Plan/ESOP, in the same proportion as the shares for which proxies are
received, although the trustees will, in any event, exercise voting obligations
consistent with their fiduciary duties under the Employee Retirement Income
Security Act of 1974, as amended.
Q: WHAT HAPPENED TO THE MERGER WITH COMCAST CORPORATION?
A: We terminated the merger agreement between MediaOne Group and Comcast so that
we could accept the AT&T merger proposal. AT&T, on behalf of MediaOne Group,
funded the $1.5 billion termination fee to Comcast required under the Comcast
merger agreement.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After we complete the merger, we will send stockholders written
instructions for exchanging their share certificates.
Q: HOW DO I INDICATE WHETHER I WOULD PREFER TO RECEIVE CASH, SHARES OF AT&T
COMMON STOCK OR A COMBINATION OF CASH AND SHARES OF AT&T COMMON STOCK?
A: MediaOne Group stockholders will be able to indicate whether they would
prefer to receive all cash, all shares of AT&T common stock or a combination of
cash and shares of AT&T common stock, or to indicate that they have no
preference. We will mail forms to the MediaOne Group stockholders for this
purpose shortly after
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CHAPTER ONE - OVERVIEW
the closing of the merger. We will then allocate the cash and AT&T common stock
consideration among the holders of MediaOne Group common stock based on the
preferences indicated in the elections that they submit, subject to proration
based on the amount of cash and AT&T common stock available.
Q: WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A: MediaOne Group does not currently pay cash dividends on its common stock.
Following the merger, AT&T expects to continue to pay its regular quarterly
dividend on AT&T common stock at its current rate, subject to any change that
AT&T's Board of Directors may determine. For information on the cash dividends
paid by AT&T, see page II-19.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO HOLDERS OF MEDIAONE GROUP
COMMON STOCK?
A: It depends on the form of consideration that you receive. For U.S. federal
income tax purposes, generally you will be taxed on the cash portion of
consideration received in the merger (including cash received in lieu of
fractional shares) but the receipt of AT&T common stock will be tax free.
Because of possible proration and the fact that cash will be paid in lieu of
fractional shares, even if you elect to receive your consideration all in AT&T
common stock, you may receive some cash, the receipt of which may be taxable. To
review the material U.S. federal income tax consequences to stockholders in
greater detail, see page II-10.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We currently expect to complete the merger in the first quarter of 2000.
Because the merger is subject to government approvals and other conditions, we
cannot predict the exact timing.
Q: WHOM DO I CALL IF I HAVE QUESTIONS ABOUT THE MEETING OR THE MERGER?
A: Stockholders may call our proxy solicitor, D.F. King, at 1-800-848-3405.
I-2
<PAGE>
Chapter One - Overview
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD READ THIS DOCUMENT AND THE DOCUMENTS WE HAVE REFERRED YOU TO
CAREFULLY. SEE "ADDITIONAL INFORMATION FOR STOCKHOLDERS--WHERE YOU CAN FIND MORE
INFORMATION" ON PAGE VI-1.
THE COMPANIES (SEE PAGE II-1)
MEDIAONE GROUP, INC.
188 Inverness Drive West
Englewood, Colorado 80112
Tel: (303) 858-3000
MediaOne Group is one of the world's largest broadband communications companies,
bringing the power of broadband to more than eight million customers in the
United States, Europe and Asia. MediaOne Group also has interests in some of the
world's fastest-growing wireless communications businesses, serving more than
five million customers outside the United States. Internet users can obtain
information about MediaOne Group and its services at
HTTP://WWW.MEDIAONEGROUP.COM.
AT&T CORP.
32 Avenue of the Americas
New York, New York 10013-2412
Tel: (212) 387-5400
AT&T is among the world's communications leaders, providing voice, data and
video communications services to large and small businesses, consumers and
government entities. AT&T and its subsidiaries furnish domestic long distance,
international long distance, regional, local and wireless telecommunications
services, and cable television and Internet communications transmission
services. AT&T also provides billing, directory, and calling card services to
support its communications business. Internet users can obtain information about
AT&T and its services at
HTTP://WWW.ATT.COM.
METEOR ACQUISITION INC.
c/o AT&T Corp.
32 Avenue of the Americas
New York, New York 10013-2412
Tel: (212) 387-5400
Meteor Acquisition Inc. (MERGER SUB) is a Delaware corporation formed and wholly
owned by AT&T in Delaware solely for the purpose of merging with MediaOne Group.
MEDIAONE GROUP'S REASONS FOR THE MERGER
- GREATER VALUE TO MEDIAONE GROUP STOCKHOLDERS. The value to MediaOne Group
stockholders of the AT&T merger is greater than the value MediaOne Group
stockholders would have received in the Comcast merger. Comcast had
offered to exchange 2.2 shares of its stock for each share of MediaOne
Group common stock, with a value per MediaOne Group share of approximately
$72.26 as of April 30, 1999. By contrast, in the AT&T merger, MediaOne
Group stockholders can elect to receive 1.4912 shares of AT&T common
stock, $85.00 in cash or $30.85 in cash and 0.95 of a share of AT&T common
stock for each share of MediaOne Group common stock, which had a total
value per MediaOne Group share of $84.25 as of April 30, 1999. In
addition, to the extent the price of AT&T common stock is less than $57.00
during a prescribed measurement period shortly prior to the closing,
stockholders receiving AT&T common stock in the merger will also receive
an additional cash payment to account for the difference between the
actual price of AT&T common stock (subject to a floor of $51.30) and
$57.00.
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CHAPTER ONE - OVERVIEW
For shares subject to a mixed cash and stock election, the maximum
additional cash payment will be $5.42 per share and for shares subject to
an all-stock election, the maximum additional cash payment will be $8.50
per share.
- OPPORTUNITY TO PARTICIPATE AS STOCKHOLDERS OF AT&T. We believe that the
merger will:
- create a company that offers consumers and businesses "one-stop
shopping" for all of their video entertainment, information and
communications needs;
- result in a company with more diversified sources of revenues and less
reliance on cable subscriber revenues;
- allow stockholders to participate in the growth of AT&T's business,
including local telephone service through the broadband
infrastructure; and
- create opportunities for significant operational and financial cost
savings through the integration of our operations.
Of course, these benefits depend on our ability to obtain the necessary
approvals for the merger and to integrate the businesses of AT&T and MediaOne
Group successfully after the merger, and on other uncertainties described on
page I-20.
To review our reasons for the merger in greater detail, see "The
Transaction--The Merger Transaction--MediaOne Group's Reasons for the Merger" on
page II-5.
RECOMMENDATION TO STOCKHOLDERS
The MediaOne Group Board believes that the merger is advisable and fair to you
and in your best interest and recommends that you vote FOR approval of the
adoption of the merger agreement.
THE MERGER
The merger agreement is attached as Annex A to this document. We encourage you
to read the merger agreement as it is the legal document that governs the
merger.
WHAT MEDIAONE GROUP COMMON STOCKHOLDERS WILL RECEIVE (SEE PAGE III-1)
In the merger, MediaOne Group common stockholders will have the right to make
one of the following elections, subject to proration in the case of an all-stock
election or an all-cash election:
- an all-stock election to receive per share (1) 1.4912 shares of AT&T
common stock and (2) if AT&T's stock price is less than $57.00, cash equal
to 1.4912 times the difference between $57.00 and the AT&T stock price, up
to a maximum of $8.50;
- an all-cash election to receive per share $85.00 in cash; or
- a mixed cash and stock election to receive per share (1) 0.95 of a share
of AT&T common stock, (2) $30.85 in cash and (3) if AT&T's stock price is
less than $57.00, cash equal to 0.95 times the difference between $57.00
and the AT&T stock price, up to a maximum of $5.42.
For determining whether any additional cash payment is due, we will measure
AT&T's stock price by the volume-weighted average trading price of AT&T common
stock for the 20 trading days ending on the third trading day prior to the
closing of the merger.
The potential additional cash payments (commonly referred to as a "collar") are
designed to ensure a value of $85.00 per share of MediaOne Group common stock as
long as the AT&T stock price is between $57.00 and $51.30. If the AT&T stock
price is lower than $51.30, a stockholder making an all-stock election or a
mixed cash and stock election will receive less than $85.00 in value; if the
AT&T stock price is greater than $57.00, a stockholder making an all-stock
election or a mixed cash and stock election will
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CHAPTER ONE - OVERVIEW
receive more than $85.00 in value. A stockholder making an all-cash election, by
contrast, will receive $85.00 in value regardless of the AT&T stock price
(assuming no proration).
Additionally, in the event that the relative aggregate value of the stock and
cash portions of the merger consideration are such that counsel to either
MediaOne Group or AT&T cannot give the required tax opinions (which would only
happen if the price of AT&T common stock fell below $31.24 per share), then AT&T
will issue additional shares of AT&T common stock in the merger to the extent
necessary to permit counsel to give these opinions. Please read the more
detailed description of the merger consideration on pages III-1 to III-7.
EXAMPLES (SUBJECT TO PRORATION):
CHOOSING ALL STOCK. If you own 100 shares and elect to receive all AT&T common
stock, you will receive shares of AT&T common stock equal to 1.4912 multiplied
by 100, or 149 shares; additionally, you will receive a cash payment equal to
.12 of the market price of a share of AT&T common stock in lieu of the remaining
fractional share.
CHOOSING ALL CASH. If you own 100 shares and elect to receive all cash, you will
receive $85.00 multiplied by 100, or $8,500.
CHOOSING STOCK AND CASH. If you own 100 shares and elect the mix of stock and
cash, you will receive $30.85 multiplied by 100, or $3,085, and shares of AT&T
common stock equal to 0.95 multiplied by 100, or 95 shares.
ADDITIONAL CASH PAYMENTS. If AT&T's stock price during a measurement period
prior to the merger is below $57.00 per share, holders who elect all stock or
the mix of stock and cash will receive the additional cash payments that we
describe above.
PRORATION:
AT&T has agreed to pay a set amount of cash and AT&T common stock in the merger.
If MediaOne Group stockholders and optionholders as a group elect to receive
more AT&T common stock or more cash in the merger than the amount available,
those stockholders and optionholders who made an election for the oversubscribed
category will receive a prorated amount of cash and AT&T common stock. MediaOne
Group stockholders who elect the mix of stock and cash will not be subject to
proration.
EXAMPLE 1:
If you elect all AT&T common stock and too many other holders elect all AT&T
common stock, then you and all MediaOne Group stockholders who elected to
receive all AT&T common stock will receive as much AT&T common stock as is
available for this group, prorated, and the rest of your consideration in cash.
You will also receive a prorated piece of the additional cash payment, if any,
that we describe above. In this event, holders who elect all cash will receive
all cash. If you elect the mix of cash and stock, your consideration will not be
subject to proration.
EXAMPLE 2:
If you elect all cash and too many other holders elect all cash, then you and
all MediaOne Group stockholders who elected to receive all cash will receive as
much cash as is available for this group, prorated, and the rest of your
consideration in AT&T common stock. You will also receive a prorated piece of
the additional cash payment, if any, that we describe above. In this event,
holders who elect all AT&T common stock will receive all AT&T common stock (and
an additional cash payment, if any). Again, if you elect the mix of cash and
stock, your consideration will not be subject to proration.
WHAT MEDIAONE GROUP PREFERRED STOCKHOLDERS WILL RECEIVE (SEE PAGE III-4)
In the merger:
- each share of MediaOne Group Series C preferred stock will become one
share of newly created AT&T Series C preferred stock with substantially
the same rights as the shares of MediaOne Group Series C preferred stock;
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CHAPTER ONE - OVERVIEW
- each share of MediaOne Group Series D preferred stock will become one
share of newly created AT&T Series D preferred stock with substantially
the same rights as the shares of MediaOne Group Series D preferred stock
and will be convertible into the right to receive the same consideration
to be received in the merger by a holder of the number of shares of
MediaOne Group common stock into which a share of MediaOne Group Series D
preferred stock is then convertible based upon the election of
consideration alternatives made by the holder of the largest number of
shares of MediaOne Group Series D preferred stock; and
- each share of MediaOne Group Series E preferred stock will become one
share of newly created AT&T Series E preferred stock with substantially
the same rights as the MediaOne Group Series E preferred stock and will be
convertible into the right to receive the same consideration to be
received in the merger by a holder of the number of shares of MediaOne
Group common stock into which a share of MediaOne Group Series E preferred
stock is then convertible based upon the election of consideration
alternatives made by the holder of the largest number of shares of
MediaOne Group Series E preferred stock.
MediaOne Group has agreed to redeem the MediaOne Group Series C preferred stock
and the MediaOne Group Series D preferred stock as promptly as possible under
the terms of each series of preferred stock. We expect this to occur prior to
the closing of the merger. As a result, we do not expect any shares of MediaOne
Group Series C preferred stock or MediaOne Group Series D preferred stock to be
outstanding at the closing of the merger.
NO FRACTIONAL SHARES
AT&T will not issue any fractional shares of AT&T common stock in the merger.
Holders of MediaOne Group common stock will receive a check for any fractional
shares in an amount based on the market value of AT&T common stock on the last
full trading day prior to the merger.
YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATES FOR EXCHANGE UNTIL WE INSTRUCT
YOU TO DO SO AFTER WE COMPLETE THE MERGER.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
AT&T common stock trades on the New York Stock Exchange, Inc. (the NYSE).
MediaOne Group common stock also trades on the NYSE. On March 19, 1999, the last
full trading day prior to the public announcement of the Comcast merger
agreement, the last reported closing price on the NYSE Composite Transaction
Tape for MediaOne Group common stock was $60.75. On April 21, 1999, the last
full trading day prior to the public announcement by AT&T of its offer to
purchase MediaOne Group, the last reported closing price on the NYSE Composite
Transaction Tape for AT&T common stock was $57.00 and the last reported closing
price on the NYSE Composite Transaction Tape for MediaOne Group common stock was
$66.94. On April 30, 1999, the last full trading day prior to the public
announcement of MediaOne Group's approval of the proposed AT&T merger, the last
reported closing price on the NYSE Composite Transaction Tape for AT&T common
stock was $50.50 and the last reported closing price on the NYSE Composite
Transaction Tape for MediaOne Group common stock was $81.63. On August 26, 1999,
the most recent available date prior to the printing of this document, the last
reported closing price on the NYSE Composite Transaction Tape for AT&T common
stock was $49.94, and the last reported closing price on the NYSE Composite
Transaction Tape for MediaOne Group common stock was $70.94.
I-6
<PAGE>
CHAPTER ONE - OVERVIEW
LISTING OF AT&T COMMON STOCK AND AT&T SERIES D PREFERRED STOCK
AT&T will list the shares of AT&T common stock issued in the merger on the NYSE
under the symbol "T."
The shares of AT&T Series D preferred stock issued in the merger, if any, will
be listed on the NYSE.
OWNERSHIP OF AT&T AFTER THE MERGER
AT&T will issue approximately 575.9 million shares of AT&T common stock to
MediaOne Group common stockholders in the merger. This will represent
approximately 15.3% of the outstanding AT&T common stock after the merger. This
information is based on the number of shares of AT&T common stock and shares of
MediaOne Group common stock outstanding on June 30, 1999, and does not take into
account preferred stock, stock options or other equity-based awards of MediaOne
Group or AT&T.
STOCKHOLDER VOTE REQUIRED
Approval of the adoption of the merger agreement requires a majority of the
total votes represented by the outstanding shares of MediaOne Group common
stock. As a result, a MediaOne Group stockholder that abstains or does not vote
on the merger is effectively voting against the merger.
Each share of MediaOne Group common stock is entitled to one vote. Holders of
MediaOne Group preferred stock have no voting rights with respect to the merger.
SHARE OWNERSHIP OF MANAGEMENT
On August 24, 1999, directors and executive officers of MediaOne Group and their
affiliates owned and were entitled to vote 5,046,771 shares of MediaOne Group
common stock, or less than 1% of the outstanding shares of MediaOne Group common
stock. These individuals and their affiliates have indicated that they will vote
in favor of adoption of the merger agreement.
APPRAISAL RIGHTS
The holders of MediaOne Group common stock, MediaOne Group Series C preferred
stock (if not redeemed prior to the merger) and MediaOne Group Series E
preferred stock have the right to an appraisal of the value of their shares in
connection with the merger. For information about the appraisal rights available
in connection with the merger, see "The Transaction--The Merger
Transaction--Appraisal Rights" on page II-14.
OPINION OF FINANCIAL ADVISOR (SEE PAGE II-29)
In deciding to approve the merger, the MediaOne Group Board considered the
opinion of its financial advisor. The MediaOne Group Board received an opinion
from Lehman Brothers Inc. that, as of the date of the opinion, the merger
consideration was fair to MediaOne Group common stockholders from a financial
point of view. The opinion was based upon and subject to the assumptions,
limitations and qualifications stated in the opinion. The opinion is attached as
Annex B to this document. We encourage you to read the opinion.
BOARD OF DIRECTORS OF AT&T AND RELATED MATTERS AFTER THE MERGER (SEE PAGE
III-11)
Following the merger, the AT&T Board will be increased by one member to include
one current MediaOne Group director selected by AT&T. At least until and
including the second AT&T annual meeting after the merger, the AT&T Board will
nominate such person for re-election to the AT&T Board.
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGE II-34)
When you consider the MediaOne Group Board's recommendation that MediaOne Group
stockholders vote in favor of the merger, you should be aware that a number of
MediaOne Group officers and directors may have interests in the merger that may
be different from, or in addition to, yours.
I-7
<PAGE>
CHAPTER ONE - OVERVIEW
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE II-10)
In the opinion of Weil, Gotshal & Manges LLP, counsel to MediaOne Group, and
Wachtell, Lipton, Rosen & Katz, counsel to AT&T, the merger will qualify as a
reorganization for U.S. federal income tax purposes under the provisions of the
U.S. federal income tax law that deal with tax-free reorganizations. As such, no
gain or loss will be recognized by the stockholders of MediaOne Group on the
exchange of their shares solely for shares of AT&T common stock. A MediaOne
Group stockholder who receives a combination of cash and AT&T common stock in
the merger in exchange for shares of MediaOne Group common stock will recognize
gain in an amount equal to the lesser of the amount of cash received and the
total gain realized by such stockholder in the merger. A MediaOne Group
stockholder who receives solely cash in the merger will recognize gain or loss
equal to the difference between such stockholder's tax basis in the MediaOne
Group common stock surrendered and the cash received in the merger.
Additionally, a stockholder may have to recognize gain in connection with any
cash received in lieu of fractional shares.
THIS TAX TREATMENT MAY NOT APPLY TO EVERY MEDIAONE GROUP STOCKHOLDER.
DETERMINING THE ACTUAL TAX CONSEQUENCES OF THE MERGER TO YOU MAY BE VERY
COMPLICATED AND DEPEND ON YOUR SPECIFIC SITUATION. YOU SHOULD CONSULT WITH YOUR
OWN TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER
TO YOU.
CONDITIONS TO THE COMPLETION OF THE MERGER (SEE PAGE III-14)
The completion of the merger depends upon meeting a number of conditions,
including the following:
- adoption of the merger agreement by the MediaOne Group stockholders;
- expiration or termination of the relevant waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR
ACT);
- absence of (1) any law or court order prohibiting the merger or (2) any
governmental action, statute or regulation materially restraining the
business of the combined company;
- if necessary, expiration of up to one year following the August 3, 1999
delivery by MediaOne Group of a termination notice relating to the
non-competition restrictions contained in the Time Warner Entertainment
Company, L.P. (TWE) partnership agreement; and
- receipt by MediaOne Group of all required consents and waivers unless the
failure to obtain such consents and the limitations or conditions placed
on such consents would not be reasonably expected to result in a material
adverse effect on MediaOne Group, or, in certain circumstances on AT&T,
after the merger.
REGULATORY APPROVALS (SEE PAGE II-11)
AT&T and MediaOne Group have made filings and taken other actions, and will
continue to take actions necessary to obtain approval of the proposed merger
from governmental authorities, including U.S. and foreign antitrust authorities,
cable television franchising authorities, state regulatory authorities and the
Federal Communications Commission (the FCC).
Under the HSR Act, we cannot complete the merger until AT&T and MediaOne Group
give information and materials to the U.S. Department of Justice and wait for a
required waiting period to expire or terminate. AT&T and MediaOne Group
submitted pre-merger notification and report forms effective on June 22, 1999.
On July 21, 1999, AT&T and MediaOne Group received a request from the U.S.
Department of Justice for additional information and documentary material which,
unless earlier terminated or extended by AT&T and MediaOne Group, extends the
waiting period until 20 days after both AT&T and MediaOne Group substantially
comply with the request.
I-8
<PAGE>
CHAPTER ONE - OVERVIEW
Under the regulations of the Council of the European Union, we cannot complete
the merger until the Commission of the European Communities (the EUROPEAN
COMMISSION) has granted its approval of the merger. AT&T and MediaOne Group
filed the required notification with the European Commission on June 9, 1999. On
July 23, 1999, the European Commission approved the merger. Regulatory filings
and approvals in countries outside the United States and European Union may also
be required or advisable before we can complete the merger. We are currently in
the process of determining which other foreign competition filings are required
or advisable, and we will promptly make those additional filings.
AT&T and MediaOne Group have agreed to cooperate with each other and use their
best efforts to take all actions needed to complete the merger. In addition,
AT&T has agreed unconditionally to obtain necessary FCC consents in connection
with the change of control and/or assignment of MediaOne Group's or its
subsidiaries' FCC licenses and to obtain the expiration or termination of the
HSR Act waiting period.
AT&T and MediaOne Group are working to obtain the required regulatory approvals
and consents. However, we can give no assurance as to when or whether these
approvals and consents will be obtained or the terms and conditions that may be
imposed.
AT&T and MediaOne Group are not required to close the merger unless we satisfy
the regulatory conditions to completion of the merger.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE III-16)
1. Either AT&T or MediaOne Group can terminate the merger agreement if any of
the following occurs:
- we do not complete the merger by March 31, 2000--however, that date will
become September 30, 2000 if we do not close by March 31, 2000 solely
because (a) regulatory or legal conditions have not been satisfied or (b)
the requisite consents or waivers have not been obtained.
- MediaOne Group stockholders do not approve the adoption of the merger
agreement; or
- a law or court order permanently prohibits the merger.
2. AT&T can terminate the merger agreement if any of the following occurs:
- the MediaOne Group Board (a) fails to recommend adoption of the merger
agreement, (b) withdraws or modifies its approval or recommendation of the
merger or (c) fails to call the MediaOne Group stockholder meeting;
- MediaOne Group breaches (a) its obligation to call the MediaOne Group
meeting, (b) its obligation to recommend the merger or (c) the
restrictions on its ability to solicit or to engage in discussions with a
third party relating to an alternative transaction; or
- MediaOne Group breaches the merger agreement and its breach causes a
failure to satisfy a closing condition that cannot be cured prior to March
31, 2000--or September 30 if the time to complete the merger is extended.
3. In addition, MediaOne Group can terminate the merger agreement if AT&T
breaches the merger agreement and its breach causes a failure to satisfy a
closing condition that cannot be cured prior to March 31, 2000--or September
30 if the time to complete the merger is extended.
4. Finally, AT&T and MediaOne Group can mutually agree to terminate the merger
agreement.
TERMINATION FEES (SEE PAGE III-17)
1. MediaOne Group must pay AT&T a termination fee of $1.6 billion in cash if:
I-9
<PAGE>
CHAPTER ONE - OVERVIEW
- AT&T terminates the merger agreement as described in either of the first
two bullet points of paragraph 2 above; or
- either AT&T or MediaOne Group terminates the merger agreement because
MediaOne Group stockholders do not approve the adoption of the merger
agreement and:
- prior to the MediaOne Group meeting, a third party has made a proposal
for an alternative transaction involving MediaOne Group and that
proposal is not withdrawn prior to the MediaOne Group meeting; and
- within one year of the MediaOne Group meeting, either:
- MediaOne Group enters into an alternative transaction with a third
party that results in a change of control of MediaOne Group; or
- a third party acquires a majority of MediaOne Group common stock
through a tender offer.
2. MediaOne Group must repay AT&T the $1.5 billion loaned by AT&T to MediaOne
Group in connection with the termination by MediaOne Group of the Comcast
merger agreement if the merger agreement is terminated for any reason other
than:
- by mutual agreement of MediaOne Group and AT&T;
- because there is a permanent legal prohibition to closing the merger,
unless such prohibition results from a private action that is not an
antitrust action;
- MediaOne Group stockholders' failure to approve the merger agreement at a
duly held meeting, except if the conditions set forth in the second bullet
point of paragraph 1 above apply;
- a breach by AT&T of any of its obligations under the merger agreement that
causes a failure to satisfy a closing condition; or
- as a result of the failure to satisfy certain regulatory conditions to the
merger agreement.
I-10
<PAGE>
Chapter One - Overview
SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
HOW WE PREPARED THE FINANCIAL STATEMENTS
We are providing the following information to aid you in your analysis of
the financial aspects of the merger. We derived this information from the
consolidated financial statements of AT&T and of MediaOne Group. The information
is only a summary and you should read it together with AT&T's and MediaOne
Group's historical financial statements and related notes contained in the
underlying reports and other information that AT&T and MediaOne Group have filed
with the SEC and incorporated by reference. See "Additional Information for
Stockholders--Where You Can Find More Information" on page VI-1.
PURCHASE OF A BUSINESS ACCOUNTING TREATMENT
The merger will be accounted for by AT&T as a purchase of a business. This
means that, for accounting and financial reporting purposes, the assets and
liabilities of MediaOne Group will be recorded at their fair value, and any
excess of AT&T's purchase price over the fair value of MediaOne Group's tangible
net assets will be recorded as intangible assets, including goodwill. See "The
Transaction--The Merger Transaction--Accounting Treatment" on page II-9.
We have presented unaudited pro forma condensed combined financial
information that reflects the purchase method of accounting to give you a better
understanding of what our businesses might have looked like had they been
combined since January 1, 1998. The companies may have performed differently had
they always been combined. You should not rely on the unaudited pro forma
condensed combined financial information as being indicative of the historical
results that we would have had or the future results that we will experience
after the merger. See "The Transaction--Unaudited Pro Forma Condensed Combined
Financial Statements" on page II-20.
MERGER-RELATED EXPENSES
We estimate that merger-related fees and expenses, consisting primarily of
SEC filing fees, fees and expenses of investment bankers, attorneys and
accountants, and financial printing and other related charges, will be
approximately $345 million. After the merger, AT&T may also incur charges and
expenses relating to integrating the operations of MediaOne Group.
SELECTED HISTORICAL FINANCIAL DATA OF AT&T
In the table below, we provide you with selected historical consolidated
financial data of AT&T. AT&T prepared this information using its consolidated
financial statements as of the dates indicated and for each of the fiscal years
in the five-year period ended December 31, 1998 and for the six-month periods
ended June 30, 1999 and 1998. AT&T derived the consolidated income statement
data below for each of the three years ended December 31, 1998, and the
consolidated balance sheet data at December 31, 1998 and 1997 from financial
statements audited by PricewaterhouseCoopers LLP, independent accountants. AT&T
derived the remaining data from unaudited consolidated financial statements.
This information is only a summary and you should read it together with the
financial information incorporated by reference in this document. See
"Additional Information for Stockholders--Where You Can Find More Information"
on page VI-1.
Income from continuing operations for the six months ended June 30, 1999
includes $641 million of nonoperational items, primarily including an in-process
research and development charge associated with AT&T's merger with
Tele-Communications, Inc., equity losses associated with investments in At
I-11
<PAGE>
CHAPTER ONE - OVERVIEW
Home Corporation and Cablevision Systems Corporation, and gains on the sale of
businesses. Income from continuing operations for the six months ended June 30,
1998 and for the year ended December 31, 1998 includes nonoperational items of
$1.6 billion and $1.1 billion, respectively, including restructuring and other
charges as well as benefits from gains on sales. Income from continuing
operations for 1995 includes $2.0 billion of restructuring and other charges.
The number of shares of AT&T common stock outstanding and per share data have
been adjusted to reflect the AT&T three-for-two stock split paid on April 15,
1999. The number of shares of Liberty Media Group tracking stock outstanding and
per share data reflect a two-for-one stock split paid on June 11, 1999.
I-12
<PAGE>
CHAPTER ONE - OVERVIEW
AT&T--SELECTED HISTORICAL FINANCIAL INFORMATION
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS ENDED JUNE 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------- -----------------------------------------------------
1999(1) 1998 1998 1997 1996 1995 1994
---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................. $ 29,787 $ 26,042 $ 53,223 $ 51,577 $ 50,688 $ 48,449 $ 46,063
Operating income..................... 5,141 945 7,487 6,836 8,709 5,169 7,393
Income from continuing operations.... 2,063 1,124 5,235 4,249 5,458 2,981 4,230
Income from continuing
operations--available to AT&T
common shareowners................. 2,664 1,124 5,235 4,249 5,458 2,981 4,230
Weighted average AT&T common shares
and potential common shares........ 3,043 2,720 2,700 2,683 2,651 2,612 2,571
Per AT&T common share-- basic:
Income from continuing
operations(2).................... $ 0.90 $ 0.42 $ 1.96 $ 1.59 $ 2.07 $ 1.15 $ 1.65
Per AT&T common share-- diluted:
Income from continuing
operations(3).................... 0.88 0.41 1.94 1.59 2.07 1.14 1.64
Cash dividends declared per AT&T
common share....................... 0.44 0.44 0.88 0.88 0.88 0.88 0.88
Loss from continuing operations
available to Liberty Media Group
shareowners........................ (601) -- -- -- -- -- --
Weighted average Liberty Media Group
shares............................. 1,250 -- -- -- -- -- --
Per Liberty Media Group
share--basic....................... (0.48) -- -- -- -- -- --
Per Liberty Media Group
share--diluted..................... (0.48) -- -- -- -- -- --
Cash dividends declared per Liberty
Media Group share.................. -- -- -- -- -- -- --
---------- --------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Total assets....................... $ 145,238 $ 61,085 $ 59,550 $ 61,095 $ 57,348 $ 62,864 $ 57,817
Long-term debt..................... 22,152 7,161 5,556 7,857 8,878 8,913 9,138
Shareowners' equity................ 73,488 25,736 25,522 23,678 21,092 17,400 18,100
</TABLE>
- ------------------------
(1) On March 9, 1999, the TCI merger closed. The TCI merger was recorded as a
purchase. In conjunction with the TCI merger, AT&T issued Liberty Media
Group tracking stock to reflect the
I-13
<PAGE>
CHAPTER ONE - OVERVIEW
separate economic performance of the Liberty Media Group. AT&T does not have
a controlling financial interest in the Liberty Media Group, therefore the
Liberty Media Group is accounted for as an equity investment. As a separate
tracking stock, all of the earnings or losses related to the Liberty Media
Group are excluded from the earnings available to the holders of AT&T common
stock.
(2) Basic earnings from continuing operations per AT&T common share prior to the
three-for-two stock split, for the five years ended December 31, 1998
through December 31, 1994, respectively, were $2.93, $2.39, $3.10, $1.72 and
$2.48, respectively. For the period ended June 30, 1998, pre-split basic
earnings from continuing operations per AT&T common share were $0.63.
(3) Diluted earnings from continuing operations per AT&T common share prior to
the three-for-two stock split, for the five years ended December 31, 1998
through December 31, 1994, respectively, were $2.91, $2.38, $3.09, $1.71 and
$2.47, respectively. For the period ended June 30, 1998, pre-split diluted
earnings from continuing operations per AT&T common share were $0.62.
I-14
<PAGE>
Chapter One - Overview
SELECTED HISTORICAL FINANCIAL DATA OF MEDIAONE GROUP
We derived the following selected historical financial data for each of the
years ended December 31, 1994 through 1998 from MediaOne Group's audited
consolidated financial statements. Financial data at and for the six-month
period ended June 30, 1999 and 1998 was derived from MediaOne Group's unaudited
consolidated financial statements. This information is only a summary and you
should read it together with MediaOne Group's historical financial statements
and related notes contained in the annual reports and other information that we
have filed with the SEC and incorporated by reference. See "Additional
Information for Stockholders--Where You Can Find More Information" on page VI-1.
On June 12, 1998, U S WEST, Inc. separated its businesses into two
independent public companies. Sometimes in this document we will refer to U S
WEST, Inc. prior to the separation as OLD U S WEST. Prior to this separation,
Old U S WEST conducted its businesses through two groups: U S WEST Media Group
and U S WEST Communications Group. Upon the separation, Old U S WEST was renamed
"MediaOne Group, Inc." and retained the businesses of U S WEST Media Group,
except for U S WEST Dex, Inc., the domestic directory business. The
telecommunications businesses of U S WEST Communications Group became an
independent public company and retained the "U S WEST, Inc." name. Sometimes we
refer to that company as NEW U S WEST. In addition, U S WEST Dex was aligned
with New U S WEST. MediaOne Group has accounted for the distribution to
stockholders of New U S WEST as a discontinuance of the businesses comprising
New U S WEST.
I-15
<PAGE>
CHAPTER ONE - OVERVIEW
MEDIAONE GROUP--SELECTED HISTORICAL FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTH PERIOD
ENDED OR AS OF JUNE
30
(UNAUDITED) YEAR ENDED OR AS OF DECEMBER 31,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996(1) 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................. $ 1,327 $ 1,613 $ 2,882 $ 3,847 $ 1,837 $ 1,330 $ 925
Operating (loss) income.............. (149) (53) (239) 30 44 -- (9)
Income (loss) from continuing
operations before extraordinary
items(2)........................... (287) 1,952 1,430 (827) (357) (102) 23
Income from discontinued
operations(3)...................... -- 25,208 25,208 1,524 1,535 1,423 1,403
Extraordinary items(4)............... 17 (333) (333) -- -- (4) --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).................... $ (270) $ 26,827 $ 26,305 $ 697 $ 1,178 $ 1,317 $ 1,426
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
BASIC EARNINGS (LOSS) FOR COMMON
STOCKHOLDERS PER COMMON SHARE:(5)
Income (loss) from continuing
operations before extraordinary
items.............................. $ (0.52) $ 3.08 $ 2.18 $ (1.45) $ (0.74) $ (0.22)
Income from discontinued
operations......................... -- 40.45 40.51 0.57 0.58 0.52
Extraordinary items.................. 0.03 (0.55) (0.55) -- -- (0.01)
--------- --------- --------- --------- --------- ---------
Net income (loss).................... $ (0.49) $ 42.98 $ 42.14 $ (0.88) $ (0.16) $ 0.29
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
DILUTED EARNINGS (LOSS) FOR COMMON
STOCKHOLDERS PER COMMON SHARE:(5)
Income (loss) from continuing
operations before extraordinary
items.............................. $ (0.52) $ 2.91 $ 2.10 $ (1.45) $ (0.74) $ (0.22)
Income from discontinued
operations......................... -- 37.72 37.70 0.57 0.58 0.52
Extraordinary items.................. 0.03 (0.51) (0.51) -- -- (0.01)
--------- --------- --------- --------- --------- ---------
Net income (loss).................... $ (0.49) $ 40.12 $ 39.29 $ (0.88) $ (0.16) $ 0.29
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Cash dividends declared per share.... -- -- -- -- -- -- --
BALANCE SHEET DATA:
Total assets......................... $ 30,511 $ 25,389 $ 28,192 $ 26,783 $ 27,727 $ 11,847 $ 10,331
Long-term debt(6).................... $ 6,245 $ 3,040 $ 4,853 $ 8,228 $ 8,635 $ 1,263 $ 585
Shareowners' equity.................. $ 12,000 $ 13,004 $ 12,789 $ 11,324 $ 11,549 $ 7,948 $ 7,382
</TABLE>
I-16
<PAGE>
CHAPTER ONE - OVERVIEW
(1) In November 1996, MediaOne Group acquired Continental Cablevision, Inc., the
third largest cable operator in the United States. MediaOne Group has
accounted for the acquisition under the purchase method. Continental
Cablevision was consolidated effective November 15, 1996.
(2) During the six month period of 1999, MediaOne Group incurred pretax
merger-related costs of $1,522 ($1,512 after tax, and $2.50 per share of
MediaOne Group common stock), including the termination fee of $1,500 paid
to Comcast as a result of the termination of the Comcast merger. In
addition, effective on June 30, 1999, AirTouch Communications, Inc. merged
its operations into Vodafone Group Public Limited Company. As a result,
MediaOne Group exchanged its investment in AirTouch common and preferred
stock for a similar investment in Vodafone, resulting in a pretax gain of
$2,482 ($1,530 after tax, and $2.52 per share of MediaOne Group common
stock). On April 6, 1998, MediaOne Group sold its domestic wireless
operations to AirTouch. As a result of the sale, MediaOne Group recognized a
pre-tax gain of $3,869 ($2,257 after tax, and $3.71 per share of MediaOne
Group common stock) during the year ended December 31, 1998.
(3) Income from discontinued operations includes income related to the
businesses of U S WEST Communications Group and U S WEST Dex. 1998 income
from discontinued operations also includes a gain on the separation of
$24,461 ($40.25 per share of MediaOne Group common stock).
(4) These items represent a gain and charges incurred upon the early
extinguishment of debt. The item in 1998 was incurred as a result of the
separation.
(5) Effective with the separation of New U S WEST and MediaOne Group discussed
above, on June 12, 1998 each outstanding share of U S WEST Media Group
common stock remains outstanding and represents one share of MediaOne Group
common stock. In addition, all shares of U S WEST Communications Group stock
were cancelled. The average shares of MediaOne Group common stock
outstanding for the year ended December 31, 1996 include 151 million shares
issued in connection with the acquisition of Continental Cablevision. In a
recapitalization plan effective November 1, 1995, each share of common stock
of Old U S WEST was converted into one share each of U S WEST Communications
Group stock and U S WEST Media Group stock. Earnings per common share for
1995 have been presented on a pro forma basis to reflect the two classes of
stock as if they had been outstanding since January 1, 1995.
(6) In addition to long-term debt, MediaOne Group also has outstanding
company-obligated mandatorily redeemable preferred securities of subsidiary
trusts holding solely company-guaranteed debentures of $1,060 and $569 at
June 30, 1999 and 1998, respectively, $1,061 at December 31, 1998, $1,080 at
December 31, 1997 and 1996, and $600 at December 31, 1995; preferred stock
subject to mandatory redemption of $100 at June 30, 1999 and 1998, and
December 31, 1998 and 1997, and $51 at December 31, 1996, 1995 and 1994; and
minority interest in Centaur Funding Corporation of $1,107 at June 30, 1999,
and $1,099 at December 31, 1998.
SELECTED PRO FORMA CONDENSED FINANCIAL INFORMATION
In the table below, we provide you with unaudited selected pro forma
condensed financial information for AT&T as if the merger had been completed on
January 1, 1998 for income statement purposes and on June 30, 1999 for balance
sheet purposes. In addition, this information reflects the TCI merger as if it
had been completed on January 1, 1998 for income statement purposes. TCI is
reflected in AT&T's balance sheet as of June 30, 1999, therefore there is no TCI
pro forma impact on the balance sheet.
I-17
<PAGE>
Chapter One - Overview
This unaudited selected pro forma condensed financial information should be
read in conjunction with the separate historical financial statements and
accompanying notes of AT&T and of MediaOne Group, which are incorporated by
reference in this document. See "Additional Information for Stockholders--Where
You Can Find More Information" on page VI-1. You should not rely on the
unaudited selected pro forma financial information as an indication of the
results of operations or financial position that would have been achieved if the
merger had taken place earlier or of the results of operations or financial
position of AT&T after the completion of the merger.
Income from continuing operations attributable to AT&T common shareowners
excludes the results of the Liberty Media Group and dividend requirements on
AT&T preferred stock. The merger will have no effect on Liberty Media Group
tracking stock.
We have included detailed unaudited pro forma financial statements on page
II-20.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE
DATA)
UNAUDITED PRO FORMA CONDENSED INCOME STATEMENT DATA:
Revenues...................................................................... $ 32,055 $ 62,308
Operating income.............................................................. $ 4,405 $ 6,545
Income from continuing operations attributable to AT&T common shareowners..... $ 2,956 $ 4,267
Weighted average shares and potential shares of AT&T common stock............. 3,881 3,874
Basic earnings per AT&T common share--Income from continuing operations....... $ 0.78 $ 1.14
Diluted earnings per AT&T common share--Income from continuing operations..... $ 0.77 $ 1.10
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------
<S> <C> <C>
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET DATA:
Total assets.................................................................. $ 233,881
Long-term debt................................................................ 28,485
Shareowners' equity--AT&T shareowners......................................... 74,211
Shareowners' equity--Liberty Media Group shareowners.......................... 35,286
</TABLE>
UNAUDITED COMPARATIVE PER SHARE DATA
In the table below, we provide you with historical and pro forma per share
information for AT&T and historical and pro forma equivalent per share
information for MediaOne Group as of and for the six months ended June 30, 1999
and as of and for the year ended December 31, 1998. We have assumed for purposes
of the AT&T pro forma financial information that the merger, and the TCI merger,
had been completed on January 1, 1998 for income statement purposes, and that
the merger had been completed on June 30, 1999 for balance sheet purposes.
The MediaOne Group pro forma equivalent information presents AT&T pro forma
per share data multiplied by the unadjusted all-stock election exchange ratio of
1.4912.
I-18
<PAGE>
CHAPTER ONE - OVERVIEW
It is important that when you read this information, you read along with it
the financial statements and accompanying notes of AT&T and MediaOne Group
included in the documents that are described on page VI-1 of this document under
"Additional Information for Stockholders--Where You Can Find More Information"
and are incorporated herein by reference. You should not rely on the unaudited
selected pro forma financial information as an indication of the results of
operations or financial position that would have been achieved if the merger had
taken place earlier or of the results of operations or financial position of
AT&T after the completion of the merger.
The per share data presented below for AT&T historical and pro forma amounts
has been adjusted to reflect the AT&T three-for-two stock split paid on April
15, 1999.
The per share data presented below for AT&T pro forma amounts is calculated
based on shares of AT&T common stock, not including shares of Liberty Media
Group tracking stock. The merger will have no effect on Liberty Media Group
tracking stock.
<TABLE>
<CAPTION>
MEDIAONE
MEDIAONE GROUP PRO
GROUP AT&T AT&T PRO FORMA
HISTORICAL HISTORICAL FORMA EQUIVALENT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Book value per common share:
June 30, 1999..................................................... $ 19.80 $ 11.95 $ 19.48 $ 29.05
December 31, 1998(1).............................................. 21.19 9.70 -- --
Income from continuing operations:
Earnings (loss) per common share--basic:
For the six months ended June 30, 1999............................ $ (0.52) $ 0.90 $ 0.78 $ 1.16
For the year ended December 31, 1998(2)........................... 2.18 1.96 1.14 1.70
Income for continuing operations:
Earnings (loss) per common share--diluted:
For the six months ended June 30, 1999............................ $ (0.52) $ 0.88 $ 0.77 $ 1.15
For the year ended December 31, 1998(2)........................... 2.10 1.94 1.10 1.64
</TABLE>
- ------------------------
(1) AT&T historical book value per common share as of December 31, 1998 prior to
adjustment for the three-for-two stock split AT&T paid on April 15, 1999 was
$14.55.
(2) MediaOne Group's historical earnings per share during 1998 include $3.71
basic earnings per common share and $3.47 diluted earnings per common share
related to the sale of its domestic wireless operations during the year.
I-19
<PAGE>
Chapter One - Overview
RISK FACTORS
You should carefully consider the following important factors, in addition
to those discussed elsewhere in this document and in the documents that we have
filed with the SEC incorporated by reference to determine whether to vote for
the proposals relating to the merger.
VALUE OF AT&T COMMON STOCK TO BE RECEIVED IN THE MERGER MAY FLUCTUATE; ALL
HOLDERS MAY NOT RECEIVE THE SAME VALUE
Upon consummation of the merger, all outstanding shares of MediaOne Group
common stock will be converted into cash, AT&T common stock or a combination of
cash and AT&T common stock. Holders who elect to receive all cash will, subject
to proration, receive $85.00 for each MediaOne Group share. Because the price of
the AT&T common stock fluctuates, the value of the merger consideration received
by any holder of MediaOne Group common stock receiving AT&T common stock could
fluctuate and be less than or greater than $85.00 per share. If the market price
of AT&T common stock at the effective time of the merger is less than $51.30,
the value to holders of MediaOne Group common stock who receive AT&T common
stock in the merger will be less than $85.00 per share. However, if the AT&T
Price is less than $57.00 but not less than $51.30, holders of MediaOne Group
common stock who receive AT&T common stock in the merger will receive an
additional cash payment such that holders will receive a value of $85.00 per
MediaOne Group share. If the market price of AT&T common stock at the effective
time of the merger is greater than $57.00 per share, holders of MediaOne Group
common stock who receive AT&T common stock in the merger will receive a value in
excess of $85.00 per MediaOne Group share.
If the market price of AT&T common stock at the effective time of the merger
is less than $51.30, the value of the merger consideration to be received by
holders of MediaOne Group common stock who elected all stock (assuming less than
100% of the shares of MediaOne Group common stock are subject to an all-stock
election) will be less than the value of the merger consideration to be received
by holders of MediaOne Group common stock making an all-cash election or a mixed
cash and stock election and the value of the merger consideration to be received
by holders of MediaOne Group common stock making a mixed cash and stock election
will be less than the value of the merger consideration to be received by
holders of MediaOne Group common stock making an all-cash election. Conversely,
if the market price of AT&T common stock at the effective time of the merger is
greater than $57.00, the value of the merger consideration to be received by the
holders of MediaOne Group common stock making an all-stock election (assuming
less than 100% of the shares of MediaOne Group common stock are subject to an
all-stock election) will be greater than the value of the merger consideration
to be received by holders of MediaOne Group common stock making an all-cash
election or a mixed cash and stock election and the value of the merger
consideration to be received by holders of MediaOne Group common stock making a
mixed cash and stock election will be greater than the value of the merger
consideration to be received by holders of MediaOne Group common stock making an
all-cash election. Accordingly, there can be no assurance that all holders of
MediaOne Group common stock will receive the same value of consideration in the
merger.
The merger will occur at a date later than the date of the stockholder
meeting and there can be no assurance that the market price of AT&T common stock
on the date of the stockholder meeting will reflect the market price of AT&T
common stock received in the merger. The market price of AT&T common stock is
affected by various factors including those we discuss under "--Cautionary
Statements Relating to Forward Looking Statements." For historical and current
market prices of AT&T common
I-20
<PAGE>
CHAPTER ONE - OVERVIEW
stock and MediaOne Group common stock, see "The Transaction--Comparative Per
Share Market Price and Dividend Information" on page II-19.
STOCKHOLDERS MAY RECEIVE A FORM OF CONSIDERATION DIFFERENT FROM WHAT THEY ELECT
Because of possible proration, holders of MediaOne Group common stock may
not receive the type of consideration they elect to receive in the merger. If a
holder elects all cash and cash is oversubscribed, then the holder will receive
a portion of the merger consideration in AT&T common stock. Similarly, if a
holder elects all AT&T common stock and AT&T common stock is oversubscribed,
then the holder will receive a portion of the merger consideration in cash. As a
result, unless a stockholder elects the mix of cash and stock, we cannot assure
stockholders that they will receive all of the type of consideration that they
elect. In addition, because the receipt of cash in the merger may be taxable to
a stockholder, no assurance can be given that any stockholder can exchange
shares of MediaOne Group in an entirely tax-free transaction.
AT&T AND MEDIAONE GROUP MAY ENCOUNTER DIFFICULTIES IN INTEGRATING OPERATIONS AND
MAY NOT ACHIEVE COST SAVINGS AND STRATEGIC AND OTHER BENEFITS
The merger will combine two companies that have previously operated
independently. We expect to realize cost savings and other financial and
operating benefits as a result of the merger. However, we cannot predict with
certainty when these cost savings and benefits will occur, or the extent to
which they actually will be achieved. There are a large number of systems that
must be integrated, including management information, purchasing, accounting and
finance, sales, billing, payroll and benefits and regulatory compliance. The
integration of AT&T and MediaOne Group will also require substantial attention
from management. The diversion of management attention and any difficulties
associated with integrating AT&T and MediaOne Group could have a material
adverse effect on the revenues, the levels of expenses and the operating results
of the combined company and the value of AT&T common stock.
We also expect to realize strategic and other benefits as a result of the
merger that we describe in this document under "The Transaction--The Merger
Transaction--MediaOne Group's Reasons for the Merger" and "The Transaction--The
Merger Transaction--AT&T's Reasons for the Merger." However, we cannot predict
with certainty whether, or to what extent, we will realize these benefits. The
following are factors that may prevent us from realizing these benefits:
- we may have to alter sales and marketing campaigns to gain market
acceptance of the combined company's strategy of providing bundled
packages of communications and entertainment services;
- the technological and administrative difficulties that the internal
infrastructure of the combined company will experience in bundling these
services, and in providing efficient billing and customer care platforms
for these services, may be greater than we expect;
- deployment of this strategy may require more technical and ground support
than the combined company currently has employed or contracted;
- changes in technology may increase the number of competitors that the
combined company faces or may require significant capital expenditures to
provide competitive services; and
- adverse changes may occur in the securities markets that hinder our
ability to raise the necessary capital to implement technological changes.
I-21
<PAGE>
CHAPTER ONE - OVERVIEW
REGULATORY AGENCIES MAY IMPOSE CONDITIONS ON APPROVALS RELATING TO THE MERGER
A condition to AT&T's and MediaOne Group's obligations to complete the
merger is that we receive, without any material restrictions or conditions, all
material required regulatory consents and approvals. Additionally, AT&T and
MediaOne Group have agreed to cooperate with each other and use their best
efforts to obtain all such regulatory consents and approvals, except that AT&T
has an unconditional and unqualified obligation in the merger agreement to
obtain FCC consents in connection with the change of control and/or assignment
of MediaOne Group's or its subsidiaries' FCC licenses and to obtain the
expiration or termination of the HSR Act waiting period.
It is possible that third parties will request that the FCC condition its
approval of the merger on requiring AT&T and MediaOne Group to unbundle their
cable facilities and make them available to competitors. There can be no
assurance that, if such requests are made, the FCC will not impose such
obligations on AT&T and MediaOne Group as a condition to the FCC's approval of
the merger or at some later date. Similarly, local franchise authorities that
must consent to the change of control of MediaOne Group may impose similar
unbundling obligations as a condition to their consent to the merger or at a
later date. Although AT&T and MediaOne Group believe that it is unlawful for
local franchise authorities to impose these obligations, there can be no
assurance that franchise authorities will not seek to impose them.
If the FCC or local franchise authorities impose unbundling requirements as
a condition to approval of the merger, completion of the merger may be delayed
or jeopardized. In addition, imposition of unbundling requirements may reduce
the expected benefits of the merger, the operating results of the combined
company and the value of AT&T common stock.
RISKS RELATING TO MEDIAONE GROUP'S INTEREST IN TIME WARNER ENTERTAINMENT
COMPANY, L.P.
MediaOne Group currently holds a 25.51% interest in TWE, the second largest
cable television system operator in the United States. The remaining interest in
TWE is owned by Time Warner Inc.
In order to avoid disputes as to whether the merger would violate the
non-competition provisions of the TWE partnership agreement, on August 3, 1999,
MediaOne Group sent a notice of termination to TWE which will terminate these
non-competition provisions as to MediaOne Group. The non-competition provisions
will continue to apply to Time Warner. Delivery of the notice of termination
permitted TWE to terminate most of MediaOne Group's management rights in TWE,
which it did on August 4, 1999. Most of these rights would have terminated in
any event upon the change of control of MediaOne Group in the merger. The
delivery of the termination notice and the resulting termination of management
rights is irrevocable, however, even if the merger does not occur. The loss of
these management rights may have a material adverse effect on the value of
MediaOne Group's interest in TWE. Notwithstanding the notice of termination,
MediaOne Group retains certain rights under the partnership agreement, including
the right to approve such matters as the merger of TWE, TWE's entrance into new
lines of business and the issuance of new partnership interests.
In addition, Time Warner has expressed its view that, absent Time Warner's
consent, completion of the merger will violate the TWE partnership agreement
unless AT&T and MediaOne Group delay completion at least until August 3, 2000,
one year following delivery of the termination notice. While AT&T and MediaOne
disagree with this view, if Time Warner's view prevails and if Time Warner does
not consent to an earlier closing, AT&T and MediaOne may have to delay
completing the merger to August 3, 2000. Any such delay could delay our ability
to realize the expected financial and operating benefits of the merger.
I-22
<PAGE>
CHAPTER ONE - OVERVIEW
CAUTIONARY STATEMENTS RELATING TO FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 regarding the financial
condition, results of operations, cash flows, dividends, financing plans,
business strategies, operating efficiencies or synergies, budgets, capital and
other expenditures, competitive positions, growth opportunities for existing
products, benefits from new technology, plans and objectives of management,
markets for stock of AT&T and MediaOne Group and other matters. Statements in
this document that are not historical facts are hereby identified as
"forward-looking statements" for the purpose of the safe harbor provided by
Section 21E of the Securities Exchange Act of 1934, as amended and Section 27A
of the Securities Act of 1933, as amended. Such forward-looking statements,
including, without limitation, those relating to the future business prospects,
revenues, working capital, liquidity, capital needs, interest costs and income,
in each case relating to AT&T and MediaOne Group, wherever they occur in this
document, are necessarily estimates reflecting the best judgment of the senior
management of AT&T and MediaOne Group and involve a number of risks and
uncertainties that could cause actual results to differ materially from those
suggested by the forward-looking statements. Such forward-looking statements
should, therefore, be considered in light of various important factors,
including those set forth in this document. Important factors that could cause
actual results to differ materially from estimates or projections contained in
the forward-looking statements include, without limitation:
- the effects of vigorous competition in the markets in which these entities
operate, including the impact on revenues and earnings of competitive
changes to existing price structures;
- the ability to enter into agreements to, and the cost of entering new
territories necessary to, provide nationwide services;
- the ability of AT&T to establish a significant presence in new geographic
and service areas;
- requirements imposed on these entities or latitude allowed to their
competitors by the FCC or state regulatory commissions under the
Telecommunications Act of 1996 or other applicable laws and regulations;
- changes in technology that may increase the number of competitors AT&T or
MediaOne Group faces or require significant capital expenditures to
provide competitive services;
- general economic or business conditions that may be less favorable than
expected, resulting in, among other things, lower than expected revenues;
- costs or difficulties related to the integration of the businesses of AT&T
and MediaOne Group may be greater than expected;
- costs or difficulties related to the integration of the businesses of
other entities acquired by AT&T, including the business of TCI, with that
of AT&T may be greater than expected;
- legislative or regulatory changes may adversely affect the businesses in
which AT&T and MediaOne Group are engaged;
- the rate of customer bankruptcies and other defaults may increase;
- necessary technological changes (including changes to address "Year 2000"
data systems issues) may be more difficult or expensive to make than
anticipated; and
- adverse changes may occur in the securities markets.
I-23
<PAGE>
CHAPTER ONE - OVERVIEW
The words "estimate," "project," "intend," "expect," "believe" and similar
expressions are intended to identify forward-looking statements. These
forward-looking statements are found at various places throughout this document
and the other documents incorporated herein by reference, including, but not
limited to, the December 31, 1998 Annual Report on Form 10-K of AT&T (including
any amendments thereto) and the December 31, 1998 Annual Report on Form 10-K of
MediaOne Group (including any amendments thereto). Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date thereof. Neither AT&T nor MediaOne Group undertakes any obligation to
publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
I-24
<PAGE>
CHAPTER TWO
THE TRANSACTION
THE COMPANIES
MEDIAONE GROUP, INC.
MediaOne Group is one of the world's largest broadband communications
companies, bringing the power of broadband to more than eight million customers
in the United States, Europe and Asia. MediaOne Group also has interests in some
of the world's fastest-growing wireless communications businesses, serving more
than five million customers outside the United States. MediaOne Group was
incorporated in 1995 under the laws of the State of Delaware and has its
principal executive offices at 188 Inverness Drive West, Englewood, Colorado
80112 (telephone number (303) 858-3000). Internet users can obtain information
about MediaOne Group and its services at HTTP://WWW.MEDIAONEGROUP.COM.
AT&T CORP.
AT&T is among the world's communications leaders, providing voice, data and
video communications services to large and small businesses, consumers and
government entities. AT&T and its subsidiaries furnish domestic long distance,
international long distance, regional, local and wireless telecommunications
services, and cable television and Internet communications transmission
services. AT&T also provides billing, directory and calling card services to
support its communications business.
AT&T common stock is divided into two groups, with each group intended to
reflect the separate performance of a specified group of assets and businesses
of AT&T: (1) AT&T common stock, which is intended to reflect the performance of
the "AT&T COMMON STOCK GROUP," which consists of the assets of AT&T prior to its
acquisition of TCI and TCI's domestic cable and telecommunications businesses,
and (2) Liberty Media Group tracking stock, which is intended to reflect the
performance of the "LIBERTY MEDIA GROUP," which consists primarily of the
programming assets, principal international assets and businesses and
substantially all of the non-cable and non-programming assets of TCI.
AT&T was incorporated in 1885 under the laws of the State of New York and
has its principal executive offices at 32 Avenue of the Americas, New York, New
York 10013-2412 (telephone number (212) 387-5400). Internet users can obtain
information about AT&T and its services at HTTP://WWW.ATT.COM.
METEOR ACQUISITION INC.
Merger Sub is a Delaware corporation formed by AT&T in April 1999 solely for
the purpose of having MediaOne Group merge into Merger Sub. Merger Sub is wholly
owned by AT&T. The mailing address of Merger Sub's principal executive offices
is c/o AT&T Corp., 32 Avenue of the Americas, New York, New York 10013-2412
(telephone number (212) 387-5400).
THE MERGER TRANSACTION
GENERAL
The MediaOne Group Board is using this proxy statement/prospectus to solicit
proxies from the holders of MediaOne Group common stock for use at the MediaOne
Group meeting. At the MediaOne Group meeting, we will ask holders of MediaOne
Group common stock to approve the adoption of the merger agreement.
II-1
<PAGE>
CHAPTER TWO - THE TRANSACTION
BACKGROUND OF THE MERGER
Prior to June 12, 1998, MediaOne Group, which was known as "U S WEST, Inc.",
conducted its business through two groups: U S WEST Media Group and U S WEST
Communications Group. On June 12, 1998, Old U S WEST was separated into two
independent publicly traded companies: MediaOne Group, which retained the
broadband and media businesses of Old U S WEST and New U S WEST, which retained
the telecommunications businesses and domestic telephone directory business of
Old U S WEST and the "U S WEST, Inc." name.
Following the separation, MediaOne Group sought to accelerate the
implementation of its competitive strategy of becoming a leading provider of
video, telephony and high-speed data services over its cable networks. Faced
with increasing consolidation within the cable industry, MediaOne Group decided
that expanding the geographical reach of its cable networks and increasing the
number of its cable clusters in key geographical areas were critical for the
implementation of its competitive broadband strategy. As a number of significant
cable acquisitions were announced, including AT&T's acquisition of TCI, it
became apparent that MediaOne Group should acquire additional cable systems to
more effectively implement its broadband strategy. As a result, in the second
half of 1998, MediaOne Group had preliminary discussions with various cable
companies regarding a possible acquisition by MediaOne Group. Many of the cable
companies, however, did not fit into MediaOne Group's strategy from a
geographical or technological standpoint or were not available for sale because
they had controlling stockholders who were unwilling to sell. None of these
discussions resulted in an agreement with respect to such a transaction.
In December 1998, as part of its efforts to expand its residential telephony
business, MediaOne Group entered into an agreement with Comcast and Cox
Communications, Inc. to jointly negotiate with AT&T regarding a possible joint
venture that would enable AT&T to deliver consumer telecommunications services
over their cable networks. In January 1999, Mr. Brian L. Roberts, the President
of Comcast, raised the possibility with Mr. Charles M. Lillis, the Chairman and
Chief Executive Officer of MediaOne Group, of combining the domestic cable
operations of MediaOne Group and Comcast.
On March 2, 1999, Comcast suggested entering into a business combination
with MediaOne Group in which shares of MediaOne Group common stock would be
exchanged for shares of Comcast Class A Special common stock. The MediaOne Group
Board was informed of the developments with Comcast at its regular board meeting
held on March 10, 11 and 12, 1999. The MediaOne Group Board, after reviewing
such developments, authorized its management to continue discussions with
Comcast with respect to a possible business combination.
Beginning on March 16, 1999, representatives of MediaOne Group met with
representatives of Comcast to discuss Comcast's proposal, perform due diligence
and commence negotiation of a merger agreement. A confidentiality agreement was
executed by the two companies on March 16, 1999 to facilitate the exchange of
certain non-public information. On March 19, 1999, the MediaOne Group Board held
a special meeting by teleconference at which the MediaOne Group Board reviewed,
together with its legal and financial advisors, various legal and business
issues relating to the proposed transaction, including the limitations requested
by Comcast on MediaOne Group's ability to solicit proposals for alternative
transactions following execution of the Comcast merger agreement. At this
meeting, representatives of Lehman Brothers presented Lehman Brothers'
preliminary financial analysis of the proposed Comcast merger. After discussion,
the MediaOne Group Board authorized its management to continue negotiations with
Comcast. Negotiations and due diligence continued between representatives of
MediaOne Group and Comcast on March 20 and 21, 1999 and the Comcast merger
agreement was finalized on March 21, 1999.
II-2
<PAGE>
CHAPTER TWO - THE TRANSACTION
On March 21, 1999, the MediaOne Group Board held a special meeting to
consider the proposed Comcast merger. At this meeting, MediaOne Group's
management gave an overview of the transaction and reviewed with the MediaOne
Group Board the terms of the proposed Comcast merger, including the concept of a
fixed exchange ratio, the lack of a collar, MediaOne Group's inability to
solicit other offers and its ability to consider alternative transactions for a
limited period of time, and MediaOne Group's right to terminate the merger
agreement upon payment of a $1.5 billion fee in order to accept an alternative
superior proposal. Weil, Gotshal & Manges LLP, MediaOne Group's legal counsel,
reviewed the terms of the proposed Comcast merger agreement. In addition,
Cadwalader, Wickersham & Taft reviewed the directors' fiduciary duties under
Delaware law with respect to the proposed Comcast merger, including with respect
to the MediaOne Group Board's ability to consider alternative transactions.
Lehman Brothers made a presentation as to the financial analyses performed in
connection with its opinion, and rendered its opinion to the MediaOne Group
Board to the effect that, as of the date of the meeting and based upon and
subject to the assumptions, limitations and qualifications stated in the
opinion, the exchange ratio of 2.2 shares of Comcast Class A Special common
stock for each share of MediaOne Group common stock was fair to the holders of
MediaOne Group common stock from a financial point of view. The MediaOne Group
Board concluded that the terms of the merger agreement with Comcast were fair to
and in the best interests of MediaOne Group stockholders and voted to approve
the Comcast merger and the Comcast merger agreement and recommended that the
MediaOne Group stockholders approve the adoption of the Comcast merger
agreement.
After the MediaOne Group Board meeting concluded, on March 22, 1999,
MediaOne Group and Comcast executed the Comcast merger agreement and issued a
joint press release announcing the execution of the merger agreement.
On March 25, 1999, MediaOne Group received a letter from Mr. Amos B.
Hostetter, Jr., a significant MediaOne Group stockholder, expressing his
concerns regarding the proposed Comcast merger, and requesting that MediaOne
Group release him from certain standstill restrictions that Mr. Hostetter was
subject to so that he could work with others to develop an alternative
transaction that would be more favorable to MediaOne Group stockholders than the
proposed Comcast merger. In response to Mr. Hostetter's request, MediaOne Group
granted a limited waiver of the existing standstill restrictions to allow Mr.
Hostetter to attempt to develop a superior proposal.
Following receipt of this waiver, Mr. Hostetter had conversations with AT&T,
among others, as to the possibility of making a proposal to MediaOne Group.
Following these discussions, and subsequent internal reviews by AT&T and the
AT&T Board, the AT&T Board met on April 22, 1999 to consider a possible
acquisition proposal for MediaOne Group. At this meeting, the AT&T Board heard
and considered presentations from AT&T's management and financial and legal
advisors. At the conclusion of the meeting, the AT&T Board authorized AT&T to
make a proposal to acquire MediaOne Group.
Following the meeting of the AT&T Board, on April 22, 1999, AT&T made an
unsolicited offer to MediaOne Group to acquire each share of MediaOne Group
common stock for $85.00 per share consisting of 0.95 of a share of AT&T common
stock plus $30.85 in cash. In addition, the AT&T proposal included a collar
feature that would have the effect of increasing the amount of cash to be
received per share of MediaOne Group common stock to the extent that AT&T's
stock price was less than $57.00 per share. Under the AT&T proposal, the
increase in the amount of cash received was limited to $5.42 per share.
On April 23, 1999, the MediaOne Group Board met to review the AT&T proposal
and determined that its fiduciary duties under Delaware law required the
MediaOne Group Board to negotiate with
II-3
<PAGE>
CHAPTER TWO - THE TRANSACTION
AT&T. MediaOne Group subsequently notified Comcast, as required by the Comcast
merger agreement, that it intended to negotiate with AT&T. On April 26, 1999,
MediaOne Group entered into a confidentiality agreement with AT&T.
During the week of April 26, 1999, MediaOne Group and AT&T engaged in
discussions regarding the AT&T proposal and negotiated the terms of a definitive
agreement relating to a merger with AT&T. Members of the MediaOne Group Board
were kept apprised of the status of negotiations. In addition, MediaOne Group
continued to communicate with Comcast regarding the status of negotiations with
AT&T, and, at Comcast's request, on April 28 and 29, 1999, entered into
confidentiality agreements with, and provided confidential information to,
Microsoft Corporation and America Online, Inc., respectively.
On May 1, 1999, the MediaOne Group Board held a special meeting to consider
the AT&T proposal. At this meeting, MediaOne Group's management gave an overview
of the negotiations resulting from the AT&T proposal, and described the process
of negotiations with AT&T and the communications with Comcast and the other
parties involved in discussions with MediaOne Group. MediaOne Group's management
reviewed the circumstances of the Comcast merger agreement and the AT&T
proposal, including that Comcast would have a five-day period to make a
counter-offer to MediaOne Group, the termination of the 45-day initial period to
negotiate with other parties under the Comcast merger agreement, the procedure
for terminating the Comcast merger agreement, AT&T's willingness to make a
binding offer to execute a merger agreement with MediaOne Group if the MediaOne
Group Board notified Comcast of its intent to terminate the Comcast merger
agreement and AT&T's offer to loan the $1.5 billion termination fee to MediaOne
Group.
At the meeting, Weil, Gotshal & Manges LLP reviewed the terms of the AT&T
merger agreement, highlighting the differences between the proposed AT&T merger
agreement and the existing Comcast merger agreement. In addition, Cadwalader,
Wickersham & Taft reviewed the directors' fiduciary duties under Delaware law
with respect to the termination of the Comcast merger agreement and entry into a
merger agreement with AT&T. Lehman Brothers made a presentation as to the
financial analyses performed in connection with its opinion, and rendered its
oral opinion, which was subsequently confirmed in writing, that, as of such date
and based upon and subject to the assumptions, limitations and qualifications
stated in the opinion, the consideration to be received by holders of MediaOne
Group common stock under the AT&T merger agreement was fair from a financial
point of view.
Following the presentations by MediaOne Group's management and financial and
legal advisors, the MediaOne Group Board concluded that the terms of the merger
with AT&T constituted a "superior proposal" under the Comcast merger agreement,
and that the terms of the AT&T merger agreement were advisable and fair to, and
in the best interest of, MediaOne Group stockholders. In accordance with this
determination, the MediaOne Group Board unanimously voted to authorize the
termination of the Comcast merger agreement in order to enter into the AT&T
merger agreement, and recommended that MediaOne Group stockholders approve the
adoption of the AT&T merger agreement.
After the MediaOne Group Board meeting concluded, AT&T delivered a binding
offer by which it agreed to enter into the AT&T merger agreement and to loan the
payment of the $1.5 billion termination fee to MediaOne Group in consideration
for MediaOne Group terminating the Comcast merger agreement. By its terms, the
AT&T offer was to expire on May 10, 1999 unless Comcast did not make a
counter-offer for MediaOne Group, in which case the AT&T offer was to expire on
May 7, 1999.
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On May 1, 1999, following receipt of the AT&T binding offer, MediaOne Group
delivered a notice to Comcast in accordance with the Comcast merger agreement
indicating MediaOne Group's intention to terminate the Comcast merger agreement.
The notice to Comcast commenced a five-day period for Comcast to make a
counter-offer to MediaOne Group.
On May 3, 1999, representatives of AT&T and representatives of Comcast met
to negotiate a possible transaction under which Comcast would agree not to
interfere with AT&T's effort to acquire MediaOne Group, and AT&T and Comcast
would agree to exchange cable properties that would result in a net increase in
Comcast's cable subscribers of about two million subscribers. Over the course of
May 3 and May 4, 1999, AT&T and Comcast reached an agreement with respect to
this transaction, and they signed and announced the agreement on the evening of
May 4, 1999. Following execution of this agreement, Comcast notified MediaOne
Group that it did not intend to make a counter-offer and that it would accept
termination of the Comcast merger agreement upon receipt of the $1.5 billion
termination fee.
Also commencing on May 3, 1999, representatives of AT&T and representatives
of Microsoft met to negotiate a possible transaction under which, among other
things, Microsoft would acquire $5 billion of securities from AT&T, Microsoft
and AT&T would work together in a technology strategic alliance, and Microsoft
would purchase MediaOne Group's 29.9% interest in Telewest Communications plc in
a tax-free exchange for Microsoft shares (either following AT&T's acquisition of
MediaOne Group or earlier with MediaOne Group's consent). Over the course of May
3 through May 6, 1999, AT&T and Microsoft reached agreement with respect to
these transactions, and they signed and announced their agreement on the morning
of May 6, 1999. In this agreement, Microsoft also agreed not to interfere with
AT&T's effort to acquire MediaOne Group.
Later on May 6, 1999, MediaOne Group terminated the Comcast merger
agreement, AT&T loaned to MediaOne Group the $1.5 billion termination fee paid
to Comcast and MediaOne Group executed the AT&T merger agreement. Also on that
date, Lehman Brothers confirmed in writing its opinion rendered at the May 1,
1999 MediaOne Group Board meeting.
On July 21, 1999, Mr. Hostetter was elected to the AT&T Board.
In order to avoid disputes as to whether the AT&T merger would violate the
non-competition provisions of the TWE partnership agreement, on August 3, 1999,
MediaOne Group sent a notice of termination to TWE which will terminate these
non-competition provisions as to MediaOne Group. The non-competition provisions
will continue to apply to Time Warner. On August 4, 1999, TWE accepted MediaOne
Group's notice of termination and, as permitted under the TWE partnership
agreement as a result of MediaOne Group's notice, TWE irrevocably terminated
most of MediaOne Group's management rights in TWE.
MEDIAONE GROUP'S REASONS FOR THE MERGER
MediaOne Group is pursuing the merger for the following reasons:
- GREATER VALUE TO MEDIAONE GROUP STOCKHOLDERS. The value to MediaOne Group
stockholders of the consideration to be received in the AT&T merger is
greater than the value MediaOne Group stockholders would have received in
the Comcast merger. Comcast had offered to exchange 2.2 shares of its
stock for each share of MediaOne Group common stock, with a value per
MediaOne Group share of approximately $72.26 as of April 30, 1999. By
contrast, in the AT&T merger, MediaOne Group stockholders can elect to
receive 1.4912 shares of AT&T common stock, $85.00 in cash or $30.85 in
cash and 0.95 of an AT&T share for each share of
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MediaOne Group common stock, which has a total value per MediaOne Group
share of $84.25 as of April 30, 1999. In addition, to the extent the price
of AT&T common stock is less than $57.00 during a prescribed measurement
period prior to the closing, stockholders receiving AT&T common stock in
the merger will also receive an additional cash payment to account for the
difference between the actual price of AT&T common stock (subject to a
floor of $51.30) and $57.00. For shares subject to a mixed cash and stock
election, the maximum additional cash payment will be $5.42 per share,
and, for shares subject to an all-stock election, the maximum additional
cash payment will be $8.50 per share.
- BUNDLED SERVICES. MediaOne Group believes that the ability to offer
customers bundled packages of communications and entertainment services
will increase customer satisfaction and drive subscriber penetration.
MediaOne Group believes that the combined company's ability to offer
customers "one-stop shopping" for all of their video entertainment,
information, Internet and communication needs will be a significant
advantage to AT&T following the merger, and that stockholders will
ultimately benefit from increases in sales and customer satisfaction that
may result from this ability.
- AT&T BRAND AND MARKETING. AT&T is acknowledged to have a strong and
well-recognized brand that consumers associate with reliable services. Use
of such brand in connection with the delivery of local telephony, video
entertainment and Internet services could improve subscriber
identification of the services. AT&T also has a strong marketing presence
in many of the local markets in which MediaOne Group operates, and
utilizing the capabilities of AT&T's marketing force along with the
bundling of various service offerings could provide operating efficiencies
as well as improved customer acquisition.
- PARTICIPATION IN POTENTIAL GROWTH OF AT&T'S BUSINESSES. MediaOne Group
believes that the provision of local telephone service through the
broadband infrastructure is a tremendous business opportunity that
MediaOne Group alone would not be able to exploit successfully in the near
term due to capital as well as other constraints. The combination of
MediaOne Group's and AT&T's broadband infrastructure and AT&T's national
brand, marketing capability, free cash flow and access to capital markets
should enable the combined company to take better advantage of this
opportunity than MediaOne Group could independently, although there can be
no assurance as to the combined company's success in this area.
- INCREASED FINANCIAL STRENGTH; DIVERSIFICATION OF REVENUE SOURCES. The
MediaOne Group Board believes that the merger will benefit MediaOne Group
stockholders because the combined company will have a greater capital
resources and financial strength than MediaOne Group on its own. The
MediaOne Group Board believes that, as a result of the merger, MediaOne
Group will have access to AT&T's financial resources to finance the
capital improvements required for cable system upgrades and the provision
of advanced services. Additionally, AT&T's diversified sources of revenue
will result in less reliance upon cable subscriber revenue as a primary
source of revenue. Currently, MediaOne Group derives most of its total
revenue from the provision of cable television services to subscribers.
These revenues are used primarily to finance operations as well as the
upgrade of cable plant and equipment of MediaOne Group cable systems and
for debt service. Because revenues from cable television services will
account for a significantly smaller portion of the total revenue of AT&T,
the timing of cable system upgrades will not be solely dependent upon
subscriber revenue sources.
- CERTAINTY OF CLOSING THE MERGER. In the merger agreement, AT&T has taken
on a great proportion of the regulatory risks associated with the merger
by unconditionally agreeing to obtain all
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necessary FCC consents in connection with the change of control and/or
assignment of MediaOne Group's or its subsidiaries' FCC licenses and to
obtain the expiration or termination of the HSR Act waiting period.
- OPERATIONAL AND CAPITAL COST SAVINGS AND OTHER BENEFITS. We expect that
the merger will result in operational and capital cost savings and other
benefits totaling approximately $175 million to $200 million. Although we
expect to realize cost savings and other financial and operating benefits
as a result of the merger, we cannot predict with certainty when these
cost savings and benefits will occur, or the extent to which they will
actually be achieved.
FACTORS CONSIDERED BY, AND RECOMMENDATION OF, THE MEDIAONE GROUP BOARD
At a meeting of the MediaOne Group Board held on May 1, 1999, after due
consideration, the MediaOne Group Board unanimously:
- determined that the terms of the AT&T merger agreement are advisable and
fair to and in the best interests of the stockholders of MediaOne Group;
- voted to approve the merger with AT&T, the AT&T merger agreement and the
related transactions; and
- determined to recommend that the MediaOne Group stockholders approve the
adoption of the AT&T merger agreement.
In reaching its decision to approve the merger agreement and the merger, and
to recommend that MediaOne Group stockholders approve the adoption of the merger
agreement, the MediaOne Group Board consulted with MediaOne Group's management
and its financial and legal advisors and considered certain factors, including
the following:
- the reasons described under "--MediaOne Group's Reasons for the Merger";
- the terms of the AT&T merger agreement compared to the terms of the
Comcast merger agreement, including, but not limited to:
- the premium to MediaOne Group stockholders represented by the AT&T
offer compared to the Comcast offer and compared to the historical
trading price of MediaOne Group common stock; and
- the fact that, unlike in the proposed Comcast transaction, the AT&T
common stock to be received by MediaOne Group stockholders in the
merger will have voting rights;
- the strategic fit between AT&T and MediaOne Group, and the belief that the
combined company has the potential to enhance stockholder value through
additional opportunities and operating efficiencies, although such
opportunities and efficiencies may not be realized;
- current industry trends, including the likelihood of continuing
consolidation and increasing competition in the cable television and
broadband industries, and the corresponding decrease in the number of
suitable or available merger partners for MediaOne Group;
- the ability of the combined company to utilize its enhanced market
position to capitalize on e-commerce, programming and other Internet and
broadband opportunities;
- the likelihood of AT&T's ability to finance the cash portion of the merger
consideration;
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CHAPTER TWO - THE TRANSACTION
- the collar feature included in the AT&T proposal that has the effect of
protecting MediaOne Group stockholders against a decline of up to 10% in
the value of AT&T common stock offered in the merger from $57.00 per share
of AT&T common stock;
- the ownership by MediaOne Group stockholders of approximately 15.3% of
AT&T's common equity value and approximately 14.6% of AT&T's voting power
after the merger;
- the historical performance and substantial liquidity of AT&T's common
stock and the fact that AT&T has historically paid dividends on AT&T
common stock;
- the tax-free nature of the merger to MediaOne Group common stockholders
for U.S. federal income tax purposes of the stock portion of the
consideration received in the merger, and the taxable nature of the merger
with respect to the cash portion of the consideration received;
- the analysis and presentation of Lehman Brothers, and Lehman Brothers'
oral opinion, subsequently confirmed in writing, to the effect that, as of
that date, and based upon and subject to the assumptions, limitations and
qualifications set forth in its opinion, the consideration to be received
in the merger was fair, from a financial point of view, to MediaOne Group
common stockholders;
- information concerning the financial performance and condition, prospects,
business operations, debt capacity and asset quality of MediaOne Group and
AT&T and of the two companies on a combined basis;
- the familiarity of the MediaOne Group Board with the business, properties
and prospects of MediaOne Group, including the opportunities and
alternatives available to MediaOne Group if the merger were not to be
undertaken; and
- the interests of the directors and executive officers in the merger as
described in "--Interests of Certain Persons in the Merger" on page II-34.
The MediaOne Group Board also considered the following potential risks
relating to the merger:
- the challenges and potential costs of combining the businesses of two
major companies of this size and the attendant risks of not achieving the
expected operating efficiencies or improvements in earnings and of
diverting management focus and resources from other strategic
opportunities and from operational matters for an extended period of time;
- the terms and conditions of the merger agreement, including, but not
limited to:
- the obligation of MediaOne Group to pay a termination fee of $1.6
billion to AT&T under certain circumstances upon termination of the
merger agreement, and to repay $1.5 billion loaned by AT&T to MediaOne
Group in connection with the termination of the Comcast merger
agreement;
- the prohibition against solicitation of alternative transactions and
the prohibition against engaging in discussions with third parties
regarding alternative transactions; and
- the limitations upon the interim business operations of MediaOne Group
imposed by the merger agreement and the risks to MediaOne Group's
continuing businesses if the merger is not consummated;
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Chapter Two - The Transaction
- the risk that the merger will not be consummated;
- the risk that, because of potential proration, MediaOne Group stockholders
may receive a form of consideration in the merger different from that
which they elected to receive, and the potential tax consequences to such
MediaOne Group stockholders;
- the impact of the merger on MediaOne Group's customers and employees and
the potential negative impact on the ability of MediaOne Group to retain
key employees if the merger is not consummated;
- the risk that MediaOne Group's management rights pursuant to the TWE
partnership agreement may have to be terminated up to one year prior to
closing of the merger in order to complete the merger; the risk that
MediaOne Group will lose these management rights even if the merger is not
completed; and the risks of extending the length of time it would take to
close the merger as a result of the one-year notice period under the TWE
partnership agreement; and
- the other risks described under "Risk Factors" on page I-20.
The foregoing discussion of the information and factors considered and given
weight by the MediaOne Group Board is not intended to be exhaustive, but
includes the factors considered material by the MediaOne Group Board. The
MediaOne Group Board relied on the experience and expertise of Lehman Brothers,
its financial advisor, for quantitative analysis of the financial terms of the
merger. See "--Opinion of Financial Advisor" on page II-29. In reaching its
decision to approve the merger agreement and the merger and to recommend
approval of the adoption of the merger agreement to MediaOne Group stockholders,
the MediaOne Group Board did not assign any relative or specific weights to the
various factors considered. Instead, the MediaOne Group Board conducted an
overall analysis of the factors described above, including through discussions
with and asking questions of MediaOne Group's management and legal and financial
advisors. In considering the factors described above, individual directors may
have given different weight to different factors.
For the reasons discussed above, the MediaOne Group Board has unanimously
approved and deemed advisable and in the best interests of MediaOne Group
stockholders the merger agreement and the merger, and recommends that MediaOne
Group stockholders vote FOR approval of the adoption of the merger agreement.
AT&T'S REASONS FOR THE MERGER
AT&T believes that the merger is in the best interests of AT&T and its
shareowners. AT&T expects that, by combining MediaOne Group's cable systems with
AT&T's existing network, the merger will facilitate AT&T's strategy of gaining
accelerated entry into residential local telephony, residential Internet
services and other online and electronic and diversified digital data and video
services for consumers on a nationwide basis.
ACCOUNTING TREATMENT
This merger will be accounted for by AT&T as a purchase of a business. Under
this method of accounting, the assets and liabilities of MediaOne Group will be
recorded at their fair value, and any excess of AT&T's purchase price over the
fair value of MediaOne Group's tangible net assets will be recorded as
intangible assets, including goodwill. The revenues and expenses of MediaOne
Group will be included in AT&T's consolidated financial statements from the date
the merger is completed.
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CHAPTER TWO - THE TRANSACTION
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion of the material U.S. federal income tax
consequences of the merger to the holders of MediaOne Group common stock and to
MediaOne Group, AT&T and Merger Sub is based on the opinions of Weil, Gotshal &
Manges LLP, counsel to MediaOne Group, and Wachtell, Lipton, Rosen & Katz,
counsel to AT&T. The opinions are based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "CODE"), existing regulations thereunder,
current administrative rulings and court decisions, all of which are subject to
change. No attempt has been made to comment on all U.S. federal income tax
consequences of the merger that may be relevant to particular holders, including
holders that are subject to special tax rules, such as dealers in securities,
foreign persons, mutual funds, insurance companies, tax-exempt entities, persons
holding shares of MediaOne Group common stock or AT&T common stock as part of a
hedging, straddle, conversion or other transaction, holders whose functional
currency is not the U.S. dollar, holders subject to the U.S. alternative minimum
tax, holders who acquired shares of MediaOne Group common stock pursuant to an
employee stock option or otherwise as compensation, and holders who do not hold
their shares as capital assets. HOLDERS OF MEDIAONE GROUP COMMON STOCK ARE
ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER IN LIGHT OF THEIR PERSONAL CIRCUMSTANCES AND THE
CONSEQUENCES UNDER APPLICABLE U.S. STATE AND LOCAL AND FOREIGN TAX LAWS.
MediaOne Group has received from its counsel, Weil, Gotshal & Manges LLP, an
opinion to the effect that the merger will be treated for U.S. federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code. AT&T has received from its counsel, Wachtell, Lipton, Rosen & Katz, an
opinion to the effect that the merger will be treated for U.S. federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code. In rendering their opinions, counsel to each of MediaOne Group and AT&T
have assumed that the merger will be completed in the manner described in the
merger agreement and this proxy statement/prospectus and have relied upon
representations made by MediaOne Group and AT&T. No ruling has been or will be
sought from the Internal Revenue Service as to the U.S. federal income tax
consequences of the merger, and the opinions of counsel are not binding upon the
Internal Revenue Service or any court. Accordingly, there can be no assurances
that the Internal Revenue Service will not contest the conclusions expressed in
the opinions or that a court will not sustain such contest.
Assuming the merger is treated as a reorganization within the meaning of
Section 368(a) of the Code:
- no gain or loss will be recognized for U.S. federal income tax purposes by
MediaOne Group, AT&T or Merger Sub as a result of the merger;
- holders of MediaOne Group common stock who exchange their shares solely
for shares (including fractional share interests) of AT&T common stock
will not recognize gain or loss on the exchange of such shares in the
merger;
- holders of MediaOne Group common stock who exchange their shares for a
combination of AT&T common stock and cash will recognize gain, but not
loss, in the exchange. The gain, if any, that the holder will recognize
will equal the lesser of (1) the amount of cash received in the exchange
and (2) the amount of gain that the holder realizes in the exchange. The
amount of gain that the holder realizes in the exchange will equal the
excess of (1) the sum of the cash plus the fair market value of the AT&T
common stock received in the exchange over (2) the tax basis of the
MediaOne Group common stock surrendered. Any gain recognized will be
treated as capital gain except in the unusual case in which the receipt of
the cash has the effect of the
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CHAPTER TWO - THE TRANSACTION
distribution of a dividend for U.S. federal income tax purposes (under
tests set forth in Section 302 of the Code), in which case such recognized
gain generally will be treated as ordinary dividend income. Any gain that
is treated as capital gain will be long term capital gain if the MediaOne
Group common stock was held for longer than one year at the time of the
merger;
- holders of MediaOne Group common stock who exchange their shares solely
for cash (including pursuant to the exercise of appraisal rights) will
recognize gain or loss equal to the difference between the tax basis of
the MediaOne Group common stock surrendered and the amount of cash
received therefor;
- the aggregate tax basis of the AT&T common stock received by holders of
MediaOne Group common stock will be the same as the aggregate tax basis of
the MediaOne Group common stock exchanged in the merger, reduced by the
amount of cash received and increased by the amount of gain recognized in
the merger;
- the holding period of the AT&T common stock will include the holding
period of the MediaOne Group common stock exchanged in the merger,
provided that such shares of MediaOne Group common stock are held as
capital assets at the time of the merger; and
- holders of MediaOne Group common stock who receive cash in lieu of a
fractional share of AT&T common stock will recognize gain or loss equal to
the difference, if any, between the amount of cash received and their tax
basis in the fractional share interest.
In addition, holders of MediaOne Group common stock who exchange their
shares for a combination of AT&T common stock and cash or solely for cash will
be taxed at ordinary income rates on their pro rata share of the interest or
other return earned on the cash portion of the merger consideration to be
received by such holder. See "The Merger Agreement--Election Procedure; Exchange
of Shares" on page III-7.
Under the Code, a holder of MediaOne Group common stock may be subject,
under certain circumstances, to backup withholding at a rate of 31% with respect
to the amount of cash, if any, received in the merger (including cash received
in lieu of fractional shares and upon exercise of appraisal rights) unless the
holder provides proof of an applicable exemption or correct taxpayer
identification number and otherwise complies with applicable requirements of the
backup withholding rules. Any amounts withheld under the backup withholding
rules are not additional tax and may be refunded or credited against the
holder's U.S. federal income tax liability, so long as the required information
is furnished to the Internal Revenue Service.
It is a condition to MediaOne Group's and AT&T's obligation to complete the
merger that their counsel each issues an opinion to the effect described above
at the effective time of the merger. It is a further condition to each party's
obligation to complete the merger that it receives an opinion from its counsel
to the effect that the merger should not cause the separation of MediaOne Group
from New U S WEST on June 12, 1998 to fail to qualify as a tax-free transaction
under Section 355(a) and (c) of the Code. In rendering such opinions, counsel
will rely upon representations made by MediaOne Group and AT&T.
ANTITRUST MATTERS
Under the HSR Act and the related rules, the merger may not be completed
until notifications have been given, certain information has been furnished to
the Antitrust Division of the U.S. Department of Justice, and specified waiting
period requirements have been satisfied. Effective on
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CHAPTER TWO - THE TRANSACTION
June 22, 1999, AT&T and MediaOne Group each filed the required notification and
report forms under the HSR Act with the Antitrust Division and the U.S. Federal
Trade Commission. The review of the merger was assigned to the Antitrust
Division.
The HSR Act further provides that, if, within the initial 30-calendar day
waiting period, the Antitrust Division or Federal Trade Commission issues a
request for additional information or documents, the waiting period will be
extended until 11:59 p.m. on the 20th day after the date of substantial
compliance by the filing parties with such request, unless earlier terminated.
On July 21, 1999, the Antitrust Division issued such a request to AT&T and
MediaOne Group in connection with the merger. Only one such extension of the
initial waiting period is permitted under the HSR Act; however, the filing
parties may voluntarily extend the waiting period. If the Antitrust Division or
Federal Trade Commission believes that the merger would violate the U.S. federal
antitrust laws by substantially lessening competition in any line of commerce
affecting U.S. consumers, they have the authority to challenge the merger on
antitrust grounds by seeking a federal court order temporarily enjoining the
transaction pending conclusion of a full trial of those issues. The Antitrust
Division may also proceed with a court action if the injunction is denied, and,
if the merger is found to be anticompetitive, challenge it after the fact.
We can give no assurance that a challenge to the merger will not be made or,
if such a challenge is made, that it would be unsuccessful. Expiration or
termination of the HSR Act waiting period is a condition to the merger. However,
in the merger agreement, AT&T has an unconditional and unqualified obligation to
obtain the expiration or termination of the HSR Act waiting period. See "The
Merger Agreement--Principal Covenants--Best Efforts Covenant" on page III-11.
FEDERAL COMMUNICATIONS COMMISSION
AT&T and MediaOne Group are required to obtain approvals from the FCC in
connection with the merger. On July 7, 1999, AT&T and MediaOne Group filed the
required applications with the FCC seeking approval of the transfer of control
to AT&T of the FCC licenses and authorizations held by certain MediaOne Group
subsidiaries. In evaluating such applications, the FCC will consider whether
AT&T is qualified to control such licenses and authorizations and whether the
public interest, convenience and necessity will be served by such transfer of
control. As required, the FCC is seeking public comments on the applications.
Initial comments by interested parties are due on August 23, 1999 and reply
comments are due on September 17, 1999.
Under the merger agreement, AT&T has an unconditional and unqualified
obligation to obtain necessary FCC consents in connection with the change of
control and/or assignment of MediaOne Group's or its subsidiaries' FCC licenses.
STATE AND LOCAL GOVERNMENTAL AUTHORITIES
The merger is also subject to certain U.S. state and local governmental
approvals or actions. MediaOne Group and AT&T have filed applications and formal
notifications in connection with the merger in five states and with
approximately 500 local franchising authorities. The filings seek the level of
review appropriate under each state's laws or local franchise authority's
franchise agreement. Where approval or consent is required for transfers of
control of cable television franchises, the governing legal standard addresses
the legal, technical and financial and, in Massachusetts, managerial
qualifications of the company acquiring control. Where approval is required for
transfers of control of regulated telephony service providers, the governing
legal standard is typically whether the transaction is "in the public interest."
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CHAPTER TWO - THE TRANSACTION
In addition, several parties have advocated to various local franchise
authorities that must consent to the change of control in MediaOne Group that
such local franchise authorities impose that AT&T and MediaOne Group unbundle
their cable facilities and make them available to competitors as a condition to
their approval. AT&T and MediaOne Group firmly believe that such action by a
local franchise authority would be unlawful as a result of, among other things,
preemption by the Communication Act of 1934, as amended. However, there can be
no assurance that local franchise authorities will not seek to impose such a
condition. The imposition of such a condition could reduce the economic benefits
to combined company of the merger. MediaOne Group and AT&T intend to contest any
such conditions imposed by local franchise authorities, as AT&T has done in
connection with such a condition imposed on AT&T's cable systems in Portland,
Oregon, Multnomah County, Oregon and on July 26, 1999 in Broward County,
Florida. If these types of conditions were imposed and if it were ultimately
determined that AT&T's or MediaOne Group's failure to comply with any such
condition were unlawful, the combined company could face financial penalties or
potential loss of the applicable local franchise.
A condition to AT&T's and MediaOne Group's obligation to complete the merger
is that all required U.S. state and local governmental authorizations be
obtained, without limitations or conditions, unless the failure to obtain such
authorizations and the limitations or conditions placed on the authorizations,
individually or in the aggregate, would not be reasonably expected to result in
a material adverse effect on MediaOne Group. See "The Merger
Agreement--Conditions to the Completion of the Merger" on page III-14.
As a result, depending on the nature of any conditions imposed by local
franchise authorities, these conditions could jeopardize or delay completion of
the merger. In addition, if AT&T and MediaOne Group decide to complete the
merger notwithstanding any conditions imposed by local franchising authorities,
the expected benefits of the merger may be reduced.
FOREIGN REGULATORY FILINGS
Under Regulation (EEC) No. 4064/89 of the Council of the European Union, the
merger may not be consummated until the European Commission has granted its
approval thereof. The requisite notification was filed with respect to the
merger with the European Commission on June 9, 1999. On July 23, 1999, the
European Commission approved the merger.
AT&T and MediaOne Group are not aware of any other foreign governmental
approvals or actions that may be required for consummation of the merger.
However, AT&T and MediaOne Group conduct operations in a number of foreign
countries, some of which have voluntary and/or post-merger notification systems.
Should any other approval or action be required, AT&T and MediaOne Group
currently contemplate that such approval or action would be sought. The failure
to make any such filings or to obtain any such approvals is not anticipated to
have a material effect on the merger or the combined company.
AT&T and MediaOne Group believe that they will obtain all material required
regulatory approvals prior to the MediaOne Group meeting. However, it is not
certain that all such approvals will be received by such time and governmental
authorities may impose unfavorable conditions for granting the required
approvals.
II-13
<PAGE>
Chapter Two - The Transaction
OTHER REGULATORY FILINGS
AT&T and MediaOne Group conduct operations in a number of jurisdictions
where other regulatory filings or approvals may be required or advisable in
connection with the completion of the merger. AT&T and MediaOne Group are
currently in the process of reviewing whether other filings or approvals may be
required or desirable in these other jurisdictions. If AT&T and MediaOne Group
conclude other filings or approvals are required or desirable, it is anticipated
that such filings will be completed and such approvals will be sought; however,
the failure to complete such filings or to obtain such approvals is not expected
to have a material effect on the combined company.
APPRAISAL RIGHTS
MediaOne Group is a Delaware corporation. Section 262 of the Delaware
General Corporation Law provides appraisal rights (sometimes referred to as
"dissenters' rights") under certain circumstances to stockholders of a Delaware
corporation that is involved in a merger.
Record holders of MediaOne Group common stock, MediaOne Group Series C
preferred stock (if such shares are not redeemed prior to the merger) and
MediaOne Group Series E preferred stock that follow the appropriate procedures
are entitled to appraisal rights under Section 262 in connection with the
Merger.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO APPRAISAL RIGHTS UNDER THE DELAWARE GENERAL CORPORATION LAW AND IS QUALIFIED
IN ITS ENTIRETY BY THE FULL TEXT OF SECTION 262, WHICH IS REPRINTED IN ITS
ENTIRETY AS ANNEX C TO THIS PROXY STATEMENT/PROSPECTUS. ALL REFERENCES IN
SECTION 262 TO A "STOCKHOLDER" AND IN THIS DISCUSSION TO A "RECORD HOLDER" OR A
"HOLDER OF MEDIAONE GROUP STOCK" ARE TO THE RECORD HOLDER OF THE SHARES OF
MEDIAONE GROUP COMMON STOCK, MEDIAONE GROUP SERIES C PREFERRED STOCK (IF SUCH
SHARES ARE NOT REDEEMED PRIOR TO THE MERGER) AND MEDIAONE GROUP SERIES E
PREFERRED STOCK IMMEDIATELY PRIOR TO THE EFFECTIVE TIME OF THE MERGER AS TO
WHICH APPRAISAL RIGHTS ARE ASSERTED. A PERSON HAVING A BENEFICIAL INTEREST IN
SHARES HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A BROKER OR
NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW THE STEPS
SUMMARIZED BELOW PROPERLY AND IN A TIMELY MANNER TO PERFECT APPRAISAL RIGHTS.
Under the Delaware General Corporation Law, record holders of MediaOne Group
common stock, MediaOne Group Series C preferred stock and/or MediaOne Group
Series E preferred stock that follow the procedures set forth in Section 262 and
that have not voted in favor of the approval and adoption of the merger
agreement will be entitled to have their shares of MediaOne Group appraised by
the Delaware Court of Chancery and to receive payment of the "fair value" of
such shares, exclusive of any element of value arising from the accomplishment
or expectation of the merger, together with a fair rate of interest, as
determined by the Delaware Court of Chancery.
Under Section 262, where a merger agreement is to be submitted for approval
and adoption at a meeting of stockholders, as in the case of the MediaOne Group
meeting, not less than 20 days prior to the meeting, MediaOne Group must notify
each of its stockholders entitled to appraisal rights that such appraisal rights
are available and include in each such notice a copy of Section 262. THIS PROXY
STATEMENT/PROSPECTUS CONSTITUTES SUCH NOTICE TO THE HOLDERS OF MEDIAONE GROUP
COMMON STOCK. Any holder of MediaOne Group common stock, MediaOne Group Series C
preferred stock and/or MediaOne Group Series E preferred stock who wishes to
exercise appraisal rights or wishes to preserve such holder's right to do so
should review the following discussion and Annex C carefully because
II-14
<PAGE>
CHAPTER TWO - THE TRANSACTION
failure to timely and properly comply with the procedures specified in Section
262 will result in the loss of appraisal rights under the Delaware General
Corporation Law.
A holder of MediaOne Group common stock, MediaOne Group Series C preferred
stock and/or MediaOne Group Series E preferred stock wishing to exercise such
holder's appraisal rights must deliver to MediaOne Group, before the vote on the
approval and adoption of the merger agreement at the MediaOne Group meeting, a
written demand for appraisal of such holder's MediaOne Group common stock,
MediaOne Group Series C preferred stock and/or MediaOne Group Series E preferred
stock and must reasonably inform MediaOne Group of the identity of the holder of
record as well as the intention of the holder to demand an appraisal of the fair
value of the shares held. In addition, a holder of MediaOne Group common stock,
MediaOne Group Series C preferred stock and/or MediaOne Group Series E preferred
stock wishing to exercise appraisal rights or wishing to preserve such holder's
right to do so must hold of record such shares on the date the written demand
for appraisal is made, must continue to hold such shares through the effective
time of the merger and must either vote against or abstain from voting on the
approval and adoption of the merger agreement.
Only a holder of record of MediaOne Group common stock, MediaOne Group
Series C preferred stock and/or MediaOne Group Series E preferred stock is
entitled to assert appraisal rights for MediaOne Group common stock, MediaOne
Group Series C preferred stock and/or MediaOne Group Series E preferred stock
registered in such holder's name. A demand for appraisal should be executed by
or on behalf of the holder of record, fully and correctly, as such holder's name
appears on such holder's stock certificates, and must state that such holder
intends thereby to demand appraisal of such holder's shares of MediaOne Group
common stock, MediaOne Group Series C preferred stock and/or MediaOne Group
Series E preferred stock. A proxy or vote against the approval and adoption of
the merger agreement will not constitute a demand for appraisal.
If the shares of MediaOne Group common stock, MediaOne Group Series C
preferred stock and/ or MediaOne Group Series E preferred stock are owned of
record in a fiduciary capacity, such as by a trustee, guardian or custodian,
execution of the demand should be made in that capacity, and, if the shares of
MediaOne Group common stock, MediaOne Group Series C preferred stock and/or
MediaOne Group Series E preferred stock are owned of record by more than one
person, as in a joint tenancy or tenancy in common, the demand should be
executed by or on behalf of all joint owners. An authorized agent, including one
or more joint owners, may execute a demand for appraisal on behalf of all joint
owners. An authorized agent, including one or more joint owners, may execute a
demand for appraisal on behalf of a holder of record; however, the agent must
identify the record owner or owners and expressly disclose the fact that, in
executing the demand, the agent is agent for such owner or owners. A record
holder, such as a broker who holds MediaOne Group common stock, MediaOne Group
Series C preferred stock and/or MediaOne Group Series E preferred stock as
nominee for several beneficial owners, may exercise appraisal rights with
respect to the shares of MediaOne Group common stock, MediaOne Group Series C
preferred stock and/or MediaOne Group Series E preferred stock held for one or
more beneficial owners while not exercising such rights with respect to the
shares of MediaOne Group common stock, MediaOne Group Series C preferred stock
and/or MediaOne Group Series E preferred stock held for other beneficial owners.
In such case, however, the written demand should set forth the number of shares
of MediaOne Group common stock, MediaOne Group Series C preferred stock and/or
MediaOne Group Series E preferred stock as to which appraisal is sought. If no
number of shares of MediaOne Group common stock, MediaOne Group Series C
preferred stock and/or MediaOne Group Series E preferred stock is expressly
mentioned, the demand will be presumed to cover all MediaOne Group common stock,
MediaOne Group Series C preferred stock and/or MediaOne Group Series E preferred
stock held in the name of the record owner. Holders of
II-15
<PAGE>
CHAPTER TWO - THE TRANSACTION
MediaOne Group common stock, MediaOne Group Series C preferred stock and/or
MediaOne Group Series E preferred stock who hold their shares in brokerage
accounts or other nominee forms and who wish to exercise appraisal rights are
urged to consult with their brokers to determine the appropriate procedures for
making of a demand for appraisal by such nominee.
All written demands for appraisal of MediaOne Group common stock, MediaOne
Group Series C preferred stock and/or MediaOne Group Series E preferred stock
should be mailed or delivered to MediaOne Group at 188 Inverness Drive West,
Englewood, Colorado 80112, Attention: Corporate Secretary, so as to be received
before the vote on the approval and adoption of the merger agreement at the
MediaOne Group meeting.
Within 10 days after the effective time of the merger, Merger Sub, as the
surviving corporation in the merger, must send a notice as to the effectiveness
of the merger to each person that satisfied the appropriate provisions of
Section 262. Within 120 days after the effective time of the merger, but not
thereafter, MediaOne Group, or any holder of MediaOne Group common stock,
MediaOne Group Series C preferred stock and/or MediaOne Group Series E preferred
stock entitled to appraisal rights under Section 262 and who has complied with
the foregoing procedures, may file a petition in the Delaware Court of Chancery
demanding a determination of the fair value of such shares. MediaOne Group is
not under any obligation, and has no present intention, to file a petition with
respect to the appraisal of the fair value of the MediaOne Group common stock,
MediaOne Group Series C preferred stock and/or MediaOne Group Series E preferred
stock. Accordingly, it is the obligation of the holders of the shares of
MediaOne Group common stock, MediaOne Group Series C preferred stock and/or
MediaOne Group Series E preferred stock to initiate all necessary action to
perfect their appraisal rights within the time prescribed in Section 262.
Within 120 days after the effective time of the merger, any record holder of
MediaOne Group common stock, MediaOne Group Series C preferred stock and/or
MediaOne Group Series E preferred stock that has complied with the requirements
for exercise of appraisal rights will be entitled to request in writing a
statement from MediaOne Group setting forth the aggregate number of shares of
MediaOne Group common stock, MediaOne Group Series C preferred stock and/or
MediaOne Group Series E preferred stock with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such statement must be mailed within 10 days after the written request has been
received by MediaOne Group or within 10 days after expiration of the period for
delivery of demands for appraisal, whichever is later.
If a holder of MediaOne Group common stock, MediaOne Group Series C
preferred stock and/or MediaOne Group Series E preferred stock timely files a
petition for appraisal and serves a copy of such petition upon MediaOne Group,
MediaOne Group will then be obligated, within 20 days, to file with the Delaware
Register in Chancery a duly verified list containing the names and addresses of
all stockholders who have demanded an appraisal of their shares and with whom
agreements as to the value of their shares have not been reached. After notice
to such stockholders as required by the Delaware Court of Chancery, the Delaware
Court of Chancery is empowered to conduct a hearing on such petition to
determine those stockholders that have complied with Section 262 and that have
become entitled to appraisal rights. The Delaware Court of Chancery may require
the holders of shares of MediaOne Group common stock, MediaOne Group Series C
preferred stock and/or MediaOne Group Series E preferred stock that demanded
payment for their shares to submit their stock certificates to the Delaware
Register in Chancery for notation of the pendency of the appraisal proceeding.
If any stockholder fails to comply with such direction, the Delaware Court of
Chancery may dismiss the proceedings as to such stockholder.
II-16
<PAGE>
CHAPTER TWO - THE TRANSACTION
After determining the holders of MediaOne Group common stock, MediaOne Group
Series C preferred stock and/or MediaOne Group Series E preferred stock entitled
to appraisal, the Delaware Court of Chancery will appraise the fair value of
their shares of MediaOne Group common stock, MediaOne Group Series C preferred
stock and/or MediaOne Group Series E preferred stock, exclusive of any element
of value arising from the accomplishment or expectation of the merger, together
with a fair rate of interest, if any, to be paid upon the amount determined to
be the fair value. Holders considering seeking appraisal should be aware that
the fair value of their MediaOne Group common stock, MediaOne Group Series C
preferred stock and/or MediaOne Group Series E preferred stock as determined
under Section 262 could be more than, the same as or less than the value of the
consideration that they would otherwise receive in the merger if they did not
seek appraisal of their MediaOne Group common stock, MediaOne Group Series C
preferred stock and/or MediaOne Group Series E preferred stock, and that
investment banking opinions as to fairness from a financial point of view are
not necessarily opinions as to fair value under Section 262. The Delaware
Supreme Court has stated that "proof of value by any techniques or methods that
are generally considered acceptable in the financial community and otherwise
admissible in court" should be considered in the appraisal proceedings. More
specifically, the Delaware Supreme Court has stated that: "Fair value, in an
appraisal context, measures 'that which has been taken from the stockholder,
viz., his proportionate interest in a going concern.' In the appraisal process
the corporation is valued 'as an entity,' not merely as a collection of assets
or by the sum of the market price of each share of its stock. Moreover, the
corporation must be viewed as an on-going enterprise, occupying a particular
market position in the light of future prospects." In addition, Delaware courts
have decided that the statutory appraisal remedy, depending on factual
circumstances, may or may not be a stockholder's exclusive remedy. The Delaware
Court of Chancery will also determine the amount of interest, if any, to be paid
upon the amounts to be received by persons whose shares of MediaOne Group common
stock, MediaOne Group Series C preferred stock and/or MediaOne Group Series E
preferred stock have been appraised. The costs of the action may be determined
by the Delaware Court of Chancery and taxed upon the parties as the Delaware
Court of Chancery deems equitable. The Delaware Court of Chancery may also order
that all or a portion of the expenses incurred by any holder of MediaOne Group
common stock, MediaOne Group Series C preferred stock and/or MediaOne Group
Series E preferred stock in connection with an appraisal, including, without
limitation, reasonable attorneys' fees and the fees and expenses of experts
utilized in the appraisal proceeding, be charged PRO RATA against the value of
all of the shares of MediaOne Group common stock, MediaOne Group Series C
preferred stock and/or MediaOne Group Series E preferred stock entitled to
appraisal.
Any holder of MediaOne Group common stock, MediaOne Group Series C preferred
stock and/or MediaOne Group Series E preferred stock that has duly demanded an
appraisal in compliance with Section 262 will not, after the effective time of
the merger, be entitled to vote such stockholder's shares of MediaOne Group
common stock, MediaOne Group Series C preferred stock and/or MediaOne Group
Series E preferred stock subject to such demand for any purpose or be entitled
to the payment of dividends or other distributions on those shares (except
dividends or other distributions payable to holders of record of MediaOne Group
common stock, MediaOne Group Series C preferred stock and/ or MediaOne Group
Series E preferred stock as of a date prior to the effective time of the
merger).
If any holder of MediaOne Group common stock, MediaOne Group Series C
preferred stock and/ or MediaOne Group Series E preferred stock that demands
appraisal of such holder's shares of MediaOne Group common stock, MediaOne Group
Series C preferred stock and/or MediaOne Group Series E preferred stock under
Section 262 fails to perfect, or effectively withdraws or loses such holder's
right to appraisal, as provided in the Delaware General Corporation Law, the
MediaOne
II-17
<PAGE>
CHAPTER TWO - THE TRANSACTION
Group common stock, MediaOne Group Series C preferred stock and/or MediaOne
Group Series E preferred stock of such holder will be converted into AT&T common
stock in accordance with the merger agreement (without interest), as more fully
described under "The Merger Agreement--Merger Consideration." A holder of
MediaOne Group common stock, MediaOne Group Series C preferred stock and/or
MediaOne Group Series E preferred stock will fail to perfect, or will
effectively lose, the right to appraisal if no petition for appraisal is filed
within 120 days after the effective time of the merger. A holder may withdraw a
demand for appraisal by delivering to MediaOne Group a written withdrawal of the
demand for appraisal and an acceptance of the Merger. Any such attempt to
withdraw made more than 60 days after the effective time of the merger will,
however, require the written approval of AT&T. Further, once a petition for
appraisal is filed, the appraisal proceeding may not be dismissed as to any
holder absent court approval.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR PERFECTING APPRAISAL
RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH EVENT A HOLDER OF
MEDIAONE GROUP COMMON STOCK, MEDIAONE GROUP SERIES C PREFERRED STOCK AND/OR
MEDIAONE GROUP SERIES E PREFERRED STOCK WILL BE ENTITLED TO RECEIVE ONLY THE
CONSIDERATION SET FORTH IN THE MERGER AGREEMENT FOR EACH SHARE OF MEDIAONE GROUP
COMMON STOCK, MEDIAONE GROUP SERIES C PREFERRED STOCK AND/OR MEDIAONE GROUP
SERIES E PREFERRED STOCK ISSUED AND OUTSTANDING IMMEDIATELY PRIOR TO THE
EFFECTIVE TIME OF THE MERGER OWNED BY SUCH HOLDER).
The foregoing is a summary of certain of the provisions of Section 262 and
is qualified in its entirety by reference to the full text of such Section 262,
a copy of which is attached as Annex C to this proxy statement/prospectus.
MediaOne Group has agreed to redeem MediaOne Group Series C preferred stock
as promptly as practicable. If the MediaOne Group Series C preferred stock is
redeemed prior to the merger, there will be no appraisal rights for holders of
those shares.
FEDERAL SECURITIES LAWS CONSEQUENCES
This proxy statement/prospectus does not cover any resales of AT&T capital
stock to be received by MediaOne Group stockholders upon the effective time of
the merger and no person is authorized to make any use of this proxy
statement/prospectus in connection with any such resale.
All shares of AT&T capital stock received by MediaOne Group stockholders in
the merger will be freely transferable, except that shares of AT&T common stock
received by persons who are deemed to be "affiliates" of MediaOne Group for
purposes of Rule 145 under the Securities Act at the time of the MediaOne Group
meeting may be resold by them only in transactions permitted by Rule 145 under
the Securities Act or as otherwise permitted under the Securities Act. Persons
who may be deemed to be affiliates of MediaOne Group for such purposes generally
include individuals or entities that control, are controlled by or are under
common control with MediaOne Group and include directors and executive officers
of MediaOne Group. Pursuant to the merger agreement, MediaOne Group has
delivered to AT&T a letter identifying all persons that may be deemed affiliates
of MediaOne Group. The merger agreement requires MediaOne Group to use its best
efforts to obtain from each such affiliate a written agreement to the effect
that such persons will not offer, sell or otherwise dispose of any of the shares
of AT&T common stock issued to them in the merger in violation of the Securities
Act or the related SEC rules.
II-18
<PAGE>
Chapter Two - The Transaction
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
AT&T common stock trades on the NYSE under the symbol "T." MediaOne Group
common stock trades on the NYSE under the symbol "UMG."
The following table sets forth the high and low sale prices for a share of
AT&T common stock and for a share of MediaOne Group common stock, rounded up to
the nearest sixteenth, and, in the case of AT&T common stock, the dividends
declared, for the periods indicated. MediaOne Group does not currently pay cash
dividends to its stockholders. The prices are, in each case, as reported on the
NYSE Composite Transaction Tape and are based on published financial sources.
The AT&T share price and cash dividend per share information set forth below
has been adjusted for the AT&T three-for-two stock split that was paid on April
15, 1999.
<TABLE>
<CAPTION>
AT&T SHARES
----------------------------------------- MEDIAONE GROUP
CASH SHARES
DIVIDENDS --------------------
HIGH LOW PER SHARE HIGH LOW
------------- ------------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
1997
First Quarter......................... $ 28 7/16 $ 22 3/4 $0.22 $ 20 5/8 $ 17 5/8
Second Quarter........................ 25 11/16 20 1/2 0.22 22 3/8 16
Third Quarter......................... 30 3/4 22 11/16 0.22 24 1/4 19 13/16
Fourth Quarter........................ 42 11/16 28 11/16 0.22 29 1/8 22 5/16
1998
First Quarter......................... $ 45 11/16 $ 38 1/4 $0.22 $ 37 3/16 $ 27
Second Quarter........................ 44 15/16 37 7/16 0.22 44 1/4 34 3/16
Third Quarter......................... 40 15/16 32 1/4 0.22 50 1/8 40
Fourth Quarter........................ 52 11/16 37 1/2 0.22 47 33 7/16
1999
First Quarter......................... $ 64 1/8 $ 50 5/8 $0.22 $ 70 $ 46 1/8
Second Quarter........................ 63 50 1/16 0.22 81 13/16 60
Third Quarter (through August 26,
1999)............................... 59 46 3/8 78 15/16 67 1/16
</TABLE>
On March 19, 1999, the last full trading day prior to the public
announcement of the Comcast merger agreement, the last reported closing price on
the NYSE Composite Transaction Tape for MediaOne Group common stock was $60.75.
On April 21, 1999, the last full trading day prior to the public announcement by
AT&T of its offer to purchase MediaOne Group, the last reported closing price on
the NYSE Composite Transaction Tape for AT&T common stock was $57.00 and the
last reported closing price on the NYSE Composite Transaction Tape for MediaOne
Group common stock was $66.94. On April 30, 1999, the last full trading day
prior to the public announcement of the proposed AT&T merger, the last reported
closing price on the NYSE Composite Transaction Tape for AT&T common stock was
$50.50 and the last reported closing price on the NYSE Composite Transaction
Tape for MediaOne Group common stock was $81.63. On August 26, 1999, the most
recent available date prior to the printing of this proxy statement/prospectus,
the last reported closing price on the NYSE Composite Transaction Tape for AT&T
shares was $49.94 per share, and the last reported closing price on the NYSE
Composite Transaction Tape for MediaOne Group shares was $70.94 per share. WE
URGE YOU TO OBTAIN CURRENT MARKET QUOTATIONS PRIOR TO MAKING ANY DECISION WITH
RESPECT TO THE MERGER.
Following the merger, AT&T common stock will continue to be listed and
traded on NYSE under the symbol "T."
II-19
<PAGE>
CHAPTER TWO - THE TRANSACTION
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma information set forth below for AT&T gives effect to
the merger as if it had been completed on January 1, 1998 for income statement
purposes, and as if it had been completed on June 30, 1999 for balance sheet
purposes, subject to the assumptions and adjustments in the accompanying notes
to the pro forma information. The unaudited pro forma condensed income
statements for the year ended December 31, 1998 and the six months ended June
30, 1999 give effect to the TCI merger as if the TCI merger had been completed
on January 1, 1998. As a result of the TCI merger, AT&T is accounting for the
Liberty Media Group under the equity method of accounting because AT&T does not
have a controlling financial interest in the Liberty Media Group.
The pro forma adjustments do not reflect any operating efficiencies and cost
savings that may be achieved with respect to the combined company. The pro forma
adjustments do not include any adjustments to historical sales for any future
price changes nor any adjustments to selling, marketing or any other expenses
for any future operating changes. Upon the closing of the merger, AT&T may incur
certain integration related expenses not reflected in the pro forma financial
statements as a result of the elimination of duplicate facilities, operational
realignment and related workforce reductions. Such costs would generally be
recognized by AT&T as a liability assumed as of the merger date resulting in
additional goodwill in accordance with Emerging Issues Task Force No. 95-3,
Recognition of Liabilities in Connection with a Purchase Business Combination
("EITF 95-3"). The assessment of integration related expenses is ongoing. The
following pro forma information is not necessarily indicative of the financial
position or operating results that would have occurred had the merger, and the
TCI merger, been consummated on the dates, or at the beginning of the periods,
for which such transactions are being given effect. The pro forma adjustments
reflecting the consummation of the merger are based upon the assumptions set
forth in the notes hereto, including the exchange of all of the outstanding
shares of MediaOne Group for an aggregate of approximately 613 million shares of
AT&T common stock not including AT&T stock options.
AT&T will account for the merger under the purchase method of accounting.
Accordingly, AT&T will establish a new basis for MediaOne Group's assets and
liabilities based upon the fair values thereof and the AT&T purchase price
including the costs of the merger. The purchase accounting adjustments made in
connection with the development of the pro forma combined financial statements
are preliminary and have been made solely for purposes of developing such pro
forma combined financial information. Such preliminary adjustments include the
allocation of consideration to certain investments of MediaOne Group identified
as "assets held for sale" by the AT&T Board based upon fair value as determined
by AT&T in conjunction with its financial advisors.
AT&T currently knows of no events other than those disclosed in these pro
forma notes that would require a material change to the preliminary purchase
price allocation. However, a final determination of required purchase accounting
adjustments will be made upon the completion of a study to be undertaken by AT&T
in conjunction with independent appraisers to determine the fair value of
certain of MediaOne Group's assets and liabilities, including intangible assets
and in-process research and development. Refer to note 3 for a discussion of the
sensitivity to earnings that may occur as a result of the final determination of
fair value. Assuming completion of the merger, the actual financial position and
results of operations will differ, perhaps significantly, from the pro forma
amounts reflected herein because of a variety of factors, including access to
additional information, changes in value not currently identified and changes in
operating results between the dates of the pro forma financial data and the date
on which the merger takes place.
II-20
<PAGE>
Chapter Two - The Transaction
AT&T
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF JUNE 30, 1999
(IN MILLIONS)
<TABLE>
<CAPTION>
MEDIAONE PRO FORMA
HISTORICAL GROUP AT&T WITH
HISTORICAL MEDIAONE PRO FORMA MEDIAONE
AT&T(1) GROUP(1) ADJUSTMENTS GROUP
---------- -------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents..... $ 418 $ 1,032 $ (345) (3d) $ 1,105
20,429(7)
(20,429) (3a)
--
Receivables--net.............. 10,030 409 -- 10,439
Other current assets.......... 2,498 690 -- 3,188
---------- -------- ----------- ------------
Total current assets...... 12,946 2,131 (345) 14,732
Property, plant and
equipment--net.............. 34,994 4,501 -- 39,495
Licensing cost--net........... 8,315 -- -- 8,315
Franchise..................... -- -- 21,437(3n) 21,437
Goodwill...................... 28,402 11,371 24,344(3o) 52,746
(11,371) (3f)
Investment in Liberty Media
Group and related
receivables................. 35,389 -- -- 35,389
Other investments............. 16,268 9,789 (2,380) (6) 36,772
13,095(3h)
Other assets.................. 8,924 2,076 (582) (6) 8,868
(50) (5)
(1,500) (4)
Assets held for sale.......... -- 643 2,962(6) 16,127
12,522(3i)
---------- -------- ----------- ------------
Total non-current
assets.................. 132,292 28,380 58,477 219,149
Total assets.................. $145,238 $30,511 $ 58,132 $233,881
---------- -------- ----------- ------------
---------- -------- ----------- ------------
LIABILITIES:
Accounts payable.............. $ 5,738 $ 301 $ -- $ 6,039
Debt maturing within one
year........................ 7,085 1,718 20,429(7) 27,732
(1,500) (4)
Other current liabilities..... 8,754 884 -- 9,638
---------- -------- ----------- ------------
Total current
liabilities............. 21,577 2,903 18,929 43,409
Long-term debt................ 22,152 6,245 88(3j) 28,485
Deferred income taxes......... 11,039 6,954 15,007(3m) 33,000
Other long-term liabilities
and deferred credits........ 8,221 142 -- 8,363
---------- -------- ----------- ------------
Total long-term
liabilities............. 41,412 13,341 15,095 69,848
Total liabilities............. 62,989 16,244 34,024 113,257
Minority interest............. 2,407 1,107 110(3l) 3,624
Company-obligated convertible
quarterly income preferred
securities of a subsidiary
trust holding solely
subordinated debt securities
of AT&T..................... 4,695 -- -- 4,695
Subsidiary-obligated
mandatorily redeemable
preferred securities of
subsidiary trusts holding
solely subordinated debt
securities of
subsidiaries................ 1,659 1,060 39(3k) 2,758
Preferred stock subject to
mandatory redemption........ -- 100 (50) (5) 50
(50) (3g)
50(3c)
Preferred stock............... -- 929 (929) (3e) --
Common stock.................. 3,196 10,409 (10,409) (3e) 3,809
613(3b)
Liberty Media Group Class A
tracking stock.............. 1,157 -- -- 1,157
Liberty Media Group Class B
tracking stock.............. 108 -- -- 108
Additional paid-in capital
AT&T common stock........... 27,446 -- 35,396(3b) 62,842
Liberty Media Group tracking
stock..................... 32,653 -- -- 32,653
Retained earnings
Common stock................ 7,594 371 (371) (3e) 7,594
Liberty Media Group tracking
stock..................... (601) -- (601)
Other......................... 1,935 291 (291) (3e) 1,935
---------- -------- ----------- ------------
Total shareowners'
equity.................. 73,488 12,000 24,009 109,497
--
Total liabilities and
shareowners' equity......... $145,238 $30,511 $ 58,132 $233,881
---------- -------- ----------- ------------
---------- -------- ----------- ------------
</TABLE>
See Notes to Unaudited AT&T Condensed Pro Forma Financial Statements
II-21
<PAGE>
CHAPTER TWO - THE TRANSACTION
AT&T
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1999
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
LIBERTY/ OTHER TCI PRO FORMA HISTORICAL
HISTORICAL HISTORICAL TCI VENTURES GROUP PRO FORMA AT&T WITH MEDIAONE
AT&T(1) (JAN-FEB '99)(1) ADJUSTMENT(2) ADJUSTMENTS(10) TCI GROUP(1)
----------- ----------------- --------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES....................... $ 29,787 $ 1,145 $ (204) $ -- $ 30,728 $ 1,327
OPERATING EXPENSES:
Access and other
interconnection.............. 7,400 -- -- -- 7,400 --
Network and other
communications services...... 6,646 543 (79) -- 7,110 534
Depreciation and amortization.. 3,280 277 (22) 77 3,612 578
Selling, general and
administrative............... 6,618 677 (260) -- 7,035 364
Restructuring and other
charges...................... 702 -- -- -- 702 --
----------- ------- ------ ------ ----------- -----------
Total operating expenses... 24,646 1,497 (361) 77 25,859 1,476
OPERATING INCOME (LOSS)........ 5,141 (352) 157 (77) 4,869 (149)
Equity losses from Liberty
Media Group.................. (601) -- (68) (144) (813) --
Other income (expense)--Net . 75 356 (321) (39) 71 867
Interest expense............... 649 161 (25) 82 867 199
Income (loss) from continuing
operations before income
taxes........................ 3,966 (157) (207) (342) 3,260 519
Provision (benefit) for income
taxes........................ 1,903 119 (207) (50) 1,765 806
----------- ------- ------ ------ ----------- -----------
Income (loss) from continuing
operations................... 2,063 (276) -- (292) 1,495 (287)
Dividend requirements on
preferred stocks............. -- (4) -- -- (4) (28)
----------- ------- ------ ------ ----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS ATTRIBUTABLE TO
COMMON SHAREOWNERS........... $ 2,063 $ (280) $ -- $ (292) $ 1,491 $ (315)
----------- ------- ------ ------ ----------- -----------
----------- ------- ------ ------ ----------- -----------
AT&T EPS CALCULATION:
Income from continuing
operations attributable to
AT&T common shareowners...... $ 2,664 $ 2,304
Weighted average shares
outstanding (basic).......... 2,970 3,153
Basic EPS...................... $ 0.90 $ 0.73
Income from continuing
operations attributable to
AT&T common shareowners...... $ 2,681 $ 2,321
Weighted average shares
outstanding (diluted)........ 3,043 3,258
Diluted EPS.................... $ 0.88 $ 0.71
Liberty Media Group EPS (14)
Basic.......................... $ (0.48) $ (0.65)
Diluted........................ $ (0.48) $ (0.65)
<CAPTION>
PRO FORMA
MEDIAONE AT&T WITH
GROUP PRO TCI AND
FORMA MEDIAONE
ADJUSTMENTS GROUP
----------- -----------
<S> <C> <C>
REVENUES....................... $ -- $ 32,055
OPERATING EXPENSES:
Access and other
interconnection.............. -- 7,400
Network and other
communications services...... -- 7,644
Depreciation and amortization.. 572(8) 4,505
(257) (9)
Selling, general and
administrative............... -- 7,399
Restructuring and other
charges...................... -- 702
----------- -----------
Total operating expenses... 315 27,650
OPERATING INCOME (LOSS)........ (315) 4,405
Equity losses from Liberty
Media Group.................. -- (813)
Other income (expense)--Net . (303) (8) 2,360
225(6)
1,500(4)
Interest expense............... 526 (1 1,436
(7) (8)
(149) 1a)
Income (loss) from continuing
operations before income
taxes........................ 737 4,516
Provision (benefit) for income
taxes........................ (203) 12) 2,368
----------- -----------
Income (loss) from continuing
operations................... 940 2,148
Dividend requirements on
preferred stocks............. 27 (1 (5)
----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS ATTRIBUTABLE TO
COMMON SHAREOWNERS........... $ 967 $ 2,143
----------- -----------
----------- -----------
AT&T EPS CALCULATION:
Income from continuing
operations attributable to
AT&T common shareowners...... $ 2,956
Weighted average shares
outstanding (basic).......... 3,766
Basic EPS...................... $ 0.78
Income from continuing
operations attributable to
AT&T common shareowners...... $ 2,973
Weighted average shares
outstanding (diluted)........ 3,881
Diluted EPS.................... $ 0.77
Liberty Media Group EPS (14)
Basic.......................... $ (0.65)
Diluted........................ $ (0.65)
</TABLE>
See Notes to Unaudited AT&T Condensed Pro Forma Financial Statements
II-22
<PAGE>
CHAPTER TWO - THE TRANSACTION
AT&T
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
LIBERTY/
VENTURES OTHER TCI PRO FORMA HISTORICAL
HISTORICAL HISTORICAL GROUP PRO FORMA AT&T WITH MEDIAONE
AT&T(1) TCI(1) ADJUSTMENT(2) ADJUSTMENTS(10) TCI GROUP(1)
----------- ----------- ------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................ $ 53,223 $ 7,351 $ (1,148) $ -- $ 59,426 $ 2,882
OPERATING EXPENSES:
Access and other interconnection.... 15,328 -- -- -- 15,328 --
Network and other communications
services........................... 10,250 3,087 (495) -- 12,842 1,013
Depreciation and amortization....... 4,629 1,735 (135) 454 6,683 1,182
Selling, general and
administrative..................... 13,015 2,583 (943) -- 14,655 926
Restructuring and other charges..... 2,514 5 (5) -- 2,514 --
----------- ----------- ------------- ------- ----------- -----------
Total operating expenses........ 45,736 7,410 (1,578) 454 52,022 3,121
OPERATING INCOME (LOSS)............. 7,487 (59) 430 (454) 7,404 (239)
Equity earnings (losses) from
Liberty Media Group................ -- -- 626 (741) (115) --
Other income (expense)--Net......... 1,247 4,658 (1,631) (234) 1,500 3,368
(2,540)
Interest expense.................... 427 1,061 (103) 489 1,874 491
Income (loss) from continuing
operations before income taxes..... 8,307 3,538 (472) (4,458) 6,915 2,638
Provision (benefit) for income
taxes.............................. 3,072 1,595 (472) (948) 2,949 1,208
(298)
----------- ----------- ------------- ------- ----------- -----------
Income (loss) from continuing
operations......................... 5,235 1,943 -- (3,212) 3,966 1,430
Dividend requirements on preferred
stocks............................. -- (24) -- 14 (10) (108)
----------- ----------- ------------- ------- ----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS ATTRIBUTABLE TO COMMON
SHAREOWNERS........................ $ 5,235 $ 1,919 $ -- $ (3,198) $ 3,956 $ 1,322
----------- ----------- ------------- ------- ----------- -----------
----------- ----------- ------------- ------- ----------- -----------
AT&T EPS CALCULATION:
Income from continuing operations
attributable to AT&T common
shareowners........................ $ 5,235 $ 4,071
Weighted average shares outstanding
(basic)............................ 2,676 3,146
Basic EPS........................... $ 1.96 $ 1.29
Income from continuing operations
attributable to AT&T common
shareowners........................ $ 5,235 $ 4,071
Weighted average shares outstanding
(diluted).......................... 2,700 3,251
Diluted EPS......................... $ 1.94 $ 1.25
Liberty Media Group EPS (14)
Basic............................... $ (0.10)
Diluted............................. $ (0.10)
<CAPTION>
PRO FORMA
MEDIAONE AT&T WITH
GROUP PRO TCI AND
FORMA MEDIAONE
ADJUSTMENTS GROUP
----------- -----------
<S> <C> <C>
REVENUES............................ $ -- $ 62,308
OPERATING EXPENSES:
Access and other interconnection.... -- 15,328
Network and other communications
services........................... 13,855
Depreciation and amortization....... 1,145(8) 8,485
(525) (9)
Selling, general and
administrative..................... 15,581
Restructuring and other charges..... -- 2,514
----------- -----------
Total operating expenses........ 620 55,763
OPERATING INCOME (LOSS)............. (620) 6,545
Equity earnings (losses) from
Liberty Media Group................ -- (115)
Other income (expense)--Net......... (606) (8) 4,603
341(6)
Interest expense.................... 1,052 (11 3,103
(15) (8)
(299) 1a)
Income (loss) from continuing
operations before income taxes..... (1,623) 7,930
Provision (benefit) for income
taxes.............................. (445) 12) 3,712
----------- -----------
Income (loss) from continuing
operations......................... (1,178) 4,218
Dividend requirements on preferred
stocks............................. 52 (13 (66)
----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS ATTRIBUTABLE TO COMMON
SHAREOWNERS........................ $ (1,126) $ 4,152
----------- -----------
----------- -----------
AT&T EPS CALCULATION:
Income from continuing operations
attributable to AT&T common
shareowners........................ $ 4,267
Weighted average shares outstanding
(basic)............................ 3,759
Basic EPS........................... $ 1.14
Income from continuing operations
attributable to AT&T common
shareowners........................ $ 4,267
Weighted average shares outstanding
(diluted).......................... 3,874
Diluted EPS......................... $ 1.10
Liberty Media Group EPS (14)
Basic............................... $ (0.10)
Diluted............................. $ (0.10)
</TABLE>
See Notes to Unaudited AT&T Condensed Pro Forma Financial Statements
II-23
<PAGE>
Chapter Two - The Transaction
NOTES TO UNAUDITED AT&T CONDENSED PRO FORMA FINANCIAL STATEMENTS
1. These columns reflect the historical results of operations and financial
position of the respective companies. AT&T's historical balance sheet as of June
30, 1999 gives effect to the TCI merger.
2. These columns reflect the deconsolidation to the equity method of
accounting of the historical results of operations for the interests represented
by the shares of Liberty Media Group tracking stock. AT&T accounts for the
Liberty Media Group under the equity method because it does not possess a
"controlling financial interest" in the Liberty Media Group.
3. This adjustment reflects the acquisition of MediaOne Group and the
excess consideration over net assets acquired (goodwill). Accordingly, the
historical shareowners' equity accounts of MediaOne Group have been eliminated
(entry 3e). For the purpose of these pro forma financial statements,
consideration has been calculated assuming a mixed cash and stock election
pursuant to the terms of the merger agreement of $30.85 in cash and 0.95 of a
share of AT&T common stock for each share of MediaOne Group common stock
outstanding at the pro forma balance sheet date. The merger agreement specifies
the aggregate number of shares of AT&T common stock to be issued in exchange for
shares of MediaOne Group common stock and equivalents. The different election
provisions are intended to satisfy individual MediaOne Group shareholder and
optionholder preferences to the extent possible. Each election may be subject to
proration depending upon the consideration other shareholders and optionholders
elect to receive in the merger. Accordingly, under the terms of the merger, the
impact of such election provisions on the total consideration exchanged will not
materially differ from the mixed cash and stock election assumed in the pro
forma financial information. If the price of AT&T common stock is less than
$57.00 per share during a prescribed measurement period shortly prior to the
closing of the merger, an additional cash payment of up to $5.42 per share of
MediaOne Group common stock will be paid by AT&T for shares of MediaOne Group
common stock subject to the mixed cash and stock election. In that event, a new
measurement date for the purpose of valuing AT&T common stock for accounting
purposes would be established. The aggregate purchase price consideration would
change $613 million (not including the additional cash payment) for each $1 per
share change in the value of the AT&T common stock based on the average price a
few days before and after the merger is consummated affecting net income by $15
million annually based on a 40-year franchise/goodwill amortization period.
For the purpose of these pro forma financial statements, the MediaOne Group
Series D preferred stock is assumed to have been converted into MediaOne Group
common stock as of the pro forma balance sheet date and exchanged pursuant to
the mixed cash and stock election. Under the terms of the merger agreement,
MediaOne Group is required to call for the conversion of the MediaOne Group
Series D preferred stock as promptly as it is permitted to do so. The AT&T
Series E preferred stock to be issued as consideration in exchange for the
MediaOne Group Series E preferred stock has been valued based on the security's
liquidation value which approximates fair value. All outstanding and unvested
options to purchase shares of MediaOne Group common stock will vest upon
completion of the merger and have been included as consideration assuming a
"standard option election" pursuant to the terms of the merger agreement. Under
the standard option election, each MediaOne Group
II-24
<PAGE>
CHAPTER TWO - THE TRANSACTION
optionholder will receive cash and a converted option to purchase AT&T common
stock, the fair value of which was determined by using the Black-Scholes
option-pricing model.
<TABLE>
<CAPTION>
<C> <S> <C>
This adjustment reflects the acquisition of MediaOne Group and the excess consideration over net assets acquired
(goodwill) (in millions, except per share amounts).
Shares of MediaOne Group common stock outstanding at 6/30/99................................ 606.2
Shares of MediaOne Group common stock to be issued upon conversion of MediaOne Group Series
D preferred stock........................................................................... 39.6
Shares of MediaOne Group common stock to be exchanged for cash and AT&T common stock........ 645.8
Cash per share.............................................................................. $ 30.85
Cash consideration for outstanding shares................................................... $ 19,923
Cash consideration for 30 million outstanding options (average cash payment per option of
$16.87)..................................................................................... 506
a. Total cash consideration.................................................................... $ 20,429
AT&T common stock exchange ratio per share.................................................. 0.95
Equivalent AT&T shares (par value $1)....................................................... 613.5
AT&T common stock share price based on the average closing price a few days before and after
the merger was agreed to and announced...................................................... $ 57.05
SUB-TOTAL................................................................................... $ 35,000
AT&T stock options resulting from the conversion of MediaOne Group stock options in the
merger...................................................................................... 28.9
Average fair value per option............................................................... $ 34.91
SUB-TOTAL................................................................................... $ 1,009
b. AT&T common stock equity consideration...................................................... $ 36,009
c. Value of AT&T Series E preferred stock to be issued in exchange for MediaOne Group Series E
preferred stock at liquidation value (994 thousand outstanding shares at $50 per share)..... 50
d. Merger costs (estimate)..................................................................... 345
TOTAL CONSIDERATION......................................................................... $ 56,833
e. Historical net book value of MediaOne Group................................................. (12,000)
Pro Forma Adjustments relating to:
f. Existing MediaOne Group intangible assets................................................... 11,371
g. Exchange of MediaOne Group Series E preferred stock......................................... (50)
h. Investments................................................................................. (13,095)
i. Assets held for sale (see note 6)........................................................... (12,522)
j. Debt........................................................................................ 88
k. Subsidiary-Obligated Mandatorily redeemable preferred securities............................ 39
l. Minority interest in Centaur Funding Corporation............................................ 110
m. Deferred tax impacts........................................................................ 15,007
n. Franchise intangible........................................................................ (21,437)
o. Preliminary goodwill........................................................................ $ 24,344
</TABLE>
Upon the closing of the merger, the total consideration will be allocated to
the specific identifiable tangible and intangible assets and liabilities of
MediaOne Group after the completion of third-party appraisals during the
allocation period specified by Statement of Financial Accounting Standards No.
38, Accounting for Preacquisition Contingencies of Purchased Enterprises. A
preliminary allocation of the purchase price has been allocated to certain
identifiable tangible assets, the franchise intangible, and liabilities of
MediaOne Group, including deferred income tax impacts, based upon information
II-25
<PAGE>
CHAPTER TWO - THE TRANSACTION
available to the management of AT&T at the date of the preparation of the
accompanying pro forma condensed financial statements. Such information includes
quoted market prices where available and estimates of fair values provided in
conjunction with AT&T's financial advisors. See note 6 for a discussion on
"asset held for sale" accounting. The final purchase accounting allocation may
also include certain in-process research and development projects and intangible
assets such as customer relationships.
Consideration allocated to in-process research and development projects
would be recorded as a charge against net income in the period the merger
occurs. Each $1 billion allocated to in-process research and development would
have the effect of increasing net income in subsequent periods by $25 million
annually by reducing franchise/goodwill amortization expense. A preliminary
estimate of in-process research and development will not be available until the
completion of an independent evaluation of each project, if any, in process as
of the merger date.
Assuming an estimated useful life of 10 years, each $1 billion of
consideration allocated to intangible assets other than franchise/goodwill would
have the effect of decreasing net income by $46 million annually ($0.01 per
share). Certain restructuring related costs may be recorded by AT&T as a
liability upon the closing of the merger in accordance with EITF 95-3 that would
result in additional goodwill to be amortized over 40 years.
4. As a result of the termination of the merger agreement between MediaOne
Group and Comcast, MediaOne Group paid Comcast a termination fee of $1.5
billion. The termination fee was loaned to MediaOne Group by AT&T and was
recorded on MediaOne Group's balance sheet as a note payable to AT&T. The note
bears interest at LIBOR plus 0.15% and matures on December 31, 2000. The note is
due on demand at any time following consummation of the merger. For the purpose
of the pro forma financial statements, the note payable to AT&T has been
eliminated in consolidation and the non-recurring charge has been eliminated
from the condensed statement of income for the six months ended June 30, 1999.
5. Gives effect to the redemption of the MediaOne Group Series C preferred
stock. The MediaOne Group Series C preferred stock is redeemable, at the option
of the holder, into common shares of Financial Security Assurance Ltd. ("FSA")
or cash. MediaOne Group holds an investment in FSA common shares and anticipates
that the MediaOne Group Series C preferred stockholders will elect FSA common
shares upon redemption. The pro forma balance sheet reflects the FSA common
shares election. Under the terms of the merger agreement, MediaOne Group is
required to call for the redemption of the MediaOne Group Series C preferred
stock as promptly as it is permitted to do so.
6. MediaOne Group and AT&T intend to divest over a period of time not
expected to exceed one year from the date of the closing of the merger (the
"HOLDING PERIOD") certain non-strategic MediaOne Group assets preliminarily
valued at $16,127 million. MediaOne Group currently accounts for the majority of
these assets as equity method investments. The carrying value of assets intended
to be sold have been reclassified to the balance sheet caption "assets held for
sale" ($2,380 million from "Other investments" and $582 million from "Other
assets"). Such assets have been valued at their expected disposition value using
valuation methodologies prevalent in the industry ($12,522 million represents
the excess of fair value over carrying value). For pro forma income statement
purposes, interest expense incurred on incremental borrowings during the holding
period has been eliminated from all periods presented. The amount of interest
eliminated is based on the ratio of the preliminary value allocated to the
assets held for sale over the total consideration to acquire MediaOne Group
multiplied by total incremental interest expense. See Note 11. In addition, the
equity earnings (losses) reported on assets held for sale have been reflected in
the value assigned to assets held for sale and eliminated, net of tax, in all
periods reported.
II-26
<PAGE>
CHAPTER TWO - THE TRANSACTION
7. Reflects additional borrowings equal to the cash consideration to be
exchanged in the merger. The incremental borrowings are assumed to be short-term
indebtedness as AT&T intends to repay the debt with the proceeds from the sale
of certain non-strategic MediaOne Group assets (see Note 6).
8. Represents the amortization of franchise and goodwill resulting from the
preliminary allocation of the excess of consideration over the net assets of
MediaOne Group. AT&T expects the amount of excess consideration allocated to
goodwill and franchise agreements upon completion of third-party appraisals to
be amortized over 40 years. The Chief Accountant's office of the SEC has
notified AT&T that as a result of competitive, technological and regulatory
forces, the SEC believes the expiration of the intangible assets associated with
the merger could occur sooner than 40 years. The SEC believes a more reasonable
amortization period to be in the range of 20 to 25 years. AT&T has considered
the views of the SEC but continues to believe that consideration allocated to
franchise agreements and goodwill has an indeterminate life that is to be
amortized over the maximum period of 40 years under current generally accepted
accounting principles. The amortization period for goodwill and franchise
intangibles of 40 years is based by AT&T upon the expected useful life of the
franchise agreements and value related to the access to homes passed that is
integral to AT&T's strategy of providing fully-integrated facilities-based
residential communications services on a national basis. The factors considered
in determining the appropriate amortization period included the expected life of
the associated technology including hybrid fiber optic cable, legal and
regulatory considerations, experience with renewing franchises and territories,
future changes in technology, anticipated market demand and competition. If the
franchise intangible and goodwill (including cable investments) were amortized
over a period of 25 years, AT&T's net income would be reduced by $635 million
annually or $0.16 per share. If the amortization period were 20 years, AT&T's
net income would be reduced by $1,040 million annually or $0.27 per share. An
allocation to customer relationships and other intangible assets with shorter
amortization periods will be made, although the amounts allocated are not
expected to be material. AT&T will evaluate the periods of amortization
continually to determine whether later events and circumstances warrant revised
estimates of useful lives. As discussed in Note 3, amounts allocated to other
assets such as intangible assets may be amortized over shorter periods resulting
in a lower net income. Any amount allocated to goodwill will also be impacted by
any in-process research and development charge that may be recorded. An
assessment of the useful lives attributable to other assets is not complete.
Consideration allocated to MediaOne Group investments other than assets held for
sale has been amortized over the estimated period of benefit preliminarily
estimated to range from seven to 30 years. Interest expense accretion on
MediaOne Group debt and other mezzanine obligations has been recognized over the
remaining life of the debt. No amortization has been recorded on the
consideration allocated to the assets held for sale.
9. Gives effect to the elimination of MediaOne Group historical
amortization expense.
10. Represents TCI merger purchase accounting adjustments. These adjustments
include the amortization of the excess of the purchase price over the net assets
acquired, incremental interest expense on additional borrowings, and the
elimination of certain non-recurring gains with respect to TCI's investment in
Teleport Communications Group Inc. ("TCG"). The TCI merger closed on March 9,
1999.
11. Represent the recognition of incremental interest expense on the
additional borrowings incurred to fund the cash consideration to be exchanged in
the merger. See note 7. Interest expense was calculated using an interest rate
of 5.15% for the year ended December 31, 1998 and for the six months ended June
30, 1999. The interest rate reflects the 90-day commercial paper rate in effect
as of July 30, 1999. An increase of 25 basis points in the assumed interest
rates would result in additional pre-tax interest expense of $51 million
annually ($37 million excluding interest attributable to debt incurred to fund
the assets held for sale). As discussed in note 6, interest expense of $299
million for 1998 and $149 million for 1999 has not been recognized as it is
attributable to the incremental
II-27
<PAGE>
CHAPTER TWO - THE TRANSACTION
borrowings incurred to fund the acquisition of the non-strategic assets that are
held for sale during the holding period (adjustment 11a).
12. Reflects the statutory tax effect of the pro forma adjustments.
13. Gives effect to the elimination of dividend requirements on MediaOne
Group Series C preferred stock and MediaOne Group Series D preferred stock
assumed to be redeemed or converted into MediaOne Group common stock at or
before the time of the merger.
14. Liberty Media Group tracking stock was split on a two-for-one basis,
payable on June 11, 1999. The Liberty Media Group earnings per share amounts in
these pro forma income statements are on a post-split basis.
II-28
<PAGE>
Chapter Two - The Transaction
OPINION OF FINANCIAL ADVISOR
Lehman Brothers acted as financial advisor to MediaOne Group in connection
with the merger and delivered its oral opinion to the MediaOne Group Board at
the May 1, 1999 meeting of the MediaOne Group Board, which was confirmed in
writing on May 6, 1999, to the effect that, as of the date thereof, and based on
and subject to the assumptions, limitations and qualifications set forth in the
opinion, the consideration to be offered to the MediaOne Group common
stockholders in the merger is fair to such stockholders.
THE FULL TEXT OF LEHMAN BROTHERS' WRITTEN OPINION, DATED MAY 6, 1999, IS
ATTACHED AS ANNEX B TO THIS PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS MAY READ
SUCH OPINION FOR A DISCUSSION OF ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS OF THE REVIEW UNDERTAKEN BY LEHMAN BROTHERS IN RENDERING ITS
OPINION. THE SUMMARY OF THE LEHMAN BROTHERS OPINION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE OPINION ATTACHED AS ANNEX B TO THIS PROXY STATEMENT/PROSPECTUS.
No limitations were imposed by MediaOne Group on the scope of Lehman
Brothers' investigation or the procedures to be followed by Lehman Brothers in
rendering its opinion, except that Lehman Brothers did not solicit any
indications of interest from any third party with respect to a purchase of
MediaOne Group. Lehman Brothers was not requested to and did not make any
recommendation to the MediaOne Group Board as to the form or amount of the
consideration to be received by MediaOne Group common stockholders, which was
determined through arm's-length negotiations between the parties. In arriving at
its opinion, Lehman Brothers did not ascribe a specific range of values to
MediaOne Group, but, rather, made its determination as to the fairness, from a
financial point of view, of the consideration to be received by the holders of
MediaOne Group common stock in the merger on the basis of the financial and
comparative analyses described below. Lehman Brothers' opinion is for the use
and benefit of the MediaOne Group Board and was rendered to the MediaOne Group
Board in connection with its consideration of the merger. Lehman Brothers'
opinion is not intended to be and does not constitute a recommendation to any
MediaOne Group stockholder as to how such stockholder should vote with respect
to the merger. Lehman Brothers was not requested to opine as to, and its opinion
does not address, MediaOne Group's underlying business decision to proceed with
or effect the merger.
In connection with the preparation and delivery of its opinion to the
MediaOne Group Board, Lehman Brothers performed a variety of financial and
comparative analyses, as described below. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial and comparative analysis and the application of those methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at its opinion,
Lehman Brothers did not attribute any particular weight to any analysis or
factor considered by it, but, rather, made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Lehman
Brothers believes that its analyses must be considered as a whole and that
considering any portion of such analyses and factors, without considering all
analyses and factors, could create a misleading or incomplete view of the
process underlying its opinion. In its analyses, Lehman Brothers made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of MediaOne
Group and AT&T. Any estimates or projections contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the value
II-29
<PAGE>
CHAPTER TWO - THE TRANSACTION
of businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be sold.
In arriving at its opinion, Lehman Brothers reviewed and analyzed:
- the merger agreement and the specific terms of the proposed merger;
- publicly available information concerning MediaOne Group and AT&T that
Lehman Brothers believed to be relevant to its analysis, including,
without limitation, Forms 10-K for the fiscal year ended December 31,
1998;
- publicly available information concerning TWE (an entity in which MediaOne
Group owns a 25.51% partnership interest), other companies in which
MediaOne Group has a significant equity interest, and other selected
non-cable assets of MediaOne Group (collectively, the "MEDIAONE GROUP
OTHER ASSETS"), TCI (a company which was acquired by AT&T on March 9,
1999), TCG (a company which was acquired by AT&T on July 23, 1998), and
other companies in which AT&T has a significant equity interest, in each
case, that Lehman Brothers believed to be relevant to its analysis;
- financial and operating information that MediaOne Group furnished to
Lehman Brothers with respect to the business, operations and prospects of
MediaOne Group and of the MediaOne Group Other Assets;
- a trading history of MediaOne Group's common stock from June 15, 1998 to
the present and of the U S WEST Media Group common stock (the common stock
of MediaOne Group's predecessor) from October 27, 1995 to June 12, 1998
and a comparison of these trading histories with those of other companies
that Lehman Brothers deemed relevant;
- a trading history of AT&T common stock from October 1, 1996 to the present
and a comparison of that trading history with those of other companies
that Lehman Brothers deemed relevant;
- a comparison of the historical financial results and present financial
condition of MediaOne Group with those of other companies that Lehman
Brothers deemed relevant;
- a comparison of the historical financial results and present financial
condition of AT&T with those of other companies that Lehman Brothers
deemed relevant;
- third-party research analysts' earnings estimates, valuation analyses,
target prices and investment recommendations for MediaOne Group and AT&T;
- a comparison of the financial terms of the merger with the financial terms
of certain other transactions that Lehman Brothers deemed relevant;
- the potential pro forma effects of the merger, including the cost savings,
operating synergies and strategic benefits expected by management of AT&T
to result from a combination of the businesses of MediaOne Group and AT&T;
- the terms and conditions, including the financial terms, of the Comcast
merger agreement; and
- information relating to Comcast and the Comcast Class A Special common
stock that Lehman Brothers deemed relevant.
Lehman Brothers also conducted discussions with the managements of MediaOne
Group and AT&T concerning their respective businesses, operations, assets,
financial condition and prospects, and undertook such other studies, analyses
and investigations as Lehman Brothers deemed appropriate.
II-30
<PAGE>
CHAPTER TWO - THE TRANSACTION
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information it used without
assuming any responsibility for independent verification of such information,
and Lehman Brothers further relied upon the assurances of MediaOne Group's
management that they were not aware of any facts or circumstances that would
make such information inaccurate or misleading. With respect to the financial
projections of MediaOne Group furnished to Lehman Brothers by MediaOne Group,
upon advice of MediaOne Group, Lehman Brothers assumed that such projections had
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of MediaOne Group's management as to the future
financial performance of MediaOne Group, and that MediaOne Group would perform
substantially in accordance with such projections. Lehman Brothers was not
provided with, and did not have access to, any non-public financial projections
of AT&T prepared by AT&T's management. Accordingly, upon advice of AT&T, Lehman
Brothers assumed that the publicly-disclosed estimates prepared by AT&T, as well
as estimates prepared by third party research analysts, were a reasonable basis
upon which to evaluate the future financial performance of AT&T and that AT&T
will perform substantially in accordance with AT&T's publicly-disclosed
estimates. With respect to the cost savings, operating synergies and strategic
benefits expected by management of AT&T to result from a combination of the
businesses of MediaOne Group and AT&T, upon advice of AT&T, Lehman Brothers
assumed that such cost savings, operating synergies and strategic benefits would
be realized substantially in accordance with such expectations.
In arriving at its opinion, with respect to the valuation of the MediaOne
Group Other Assets, Lehman Brothers relied upon public information and
information provided to Lehman Brothers by management of MediaOne Group and did
not have an opportunity to conduct any independent due diligence of the MediaOne
Group Other Assets. In addition, Lehman Brothers did not have an opportunity to
conduct a physical inspection of the properties and facilities of either
MediaOne Group or AT&T and did not make or obtain any evaluations or appraisals
of the assets or liabilities of MediaOne Group or AT&T.
Lehman Brothers was not requested to and did not express any opinion as to
the prices at which shares of AT&T common stock may trade at any time prior to
or following the consummation of the merger. In addition, Lehman Brothers was
not authorized to and did not solicit any indications of interest from any third
party with respect to a purchase of MediaOne Group. Upon advice of MediaOne
Group and its legal advisors, Lehman Brothers assumed that the receipt of shares
of AT&T common stock by MediaOne Group stockholders in the merger will qualify
as a tax-free transaction to MediaOne Group stockholders. Upon advice of
MediaOne Group and its legal advisors, Lehman Brothers also assumed that
consummation of the merger will not cause the separation by MediaOne Group from
New U S WEST on June 12, 1998 to fail to qualify as a tax-free transaction.
Lehman Brothers' opinion necessarily is based upon market, economic and other
conditions as they existed on, and can be evaluated as of, the date of its
opinion letter.
The following is a summary of certain financial and comparative analyses
performed by Lehman Brothers and presented to the MediaOne Group Board. Certain
of the analyses include information presented in tabular format. In order to
fully understand the financial analyses used by Lehman Brothers, the tables must
be read together with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses.
II-31
<PAGE>
CHAPTER TWO - THE TRANSACTION
COMPARABLE TRADING ANALYSIS
Using publicly available information including estimates in published
third-party research reports, Lehman Brothers reviewed and compared certain
actual and projected financial, operating and stock market information
pertaining to Adelphia Communications Corporation, Cablevision, Comcast and Cox
Communications, Inc., four companies that Lehman Brothers believed were
comparable to MediaOne Group. With respect to the cable businesses of each of
the comparable companies, Lehman Brothers calculated enterprise values
(determined as equity market value plus net debt) as multiples of 1998
subscribers, projected 1999 earnings before interest, taxes, depreciation and
amortization ("EBITDA") and projected 2000 EBITDA:
<TABLE>
<CAPTION>
LOW HIGH MEDIAN
--------- --------- ---------
<S> <C> <C> <C>
Enterprise Value as a Multiple of 1998 Subscribers............... $ 3,502 $ 4,020 $ 3,629
Enterprise Value as a Multiple of Projected 1999
EBITDA......................................................... 15.1x 17.6x 16.7x
Enterprise Value as a Multiple of Projected 2000
EBITDA......................................................... 13.6x 15.7x 15.2x
</TABLE>
These multiples were derived by subtracting a third-party research estimate
of the value of the non-cable assets of the comparable companies from the total
enterprise value of the comparable companies in order to estimate the value
ascribed by the public markets to the domestic cable assets of the comparable
companies. Applying multiples derived from its analysis of the comparable
companies to MediaOne Group's domestic cable operations, Lehman Brothers
calculated a range of implied public equity values per share of MediaOne Group
of $57 to $61 and a range of implied private equity values per share of MediaOne
Group of $69 to $79 (assuming a private market premium to the implied public
equity value per share of 20% to 30%).
However, because of the inherent differences in the businesses, operations,
financial conditions and prospects of MediaOne Group and the comparable
companies, Lehman Brothers believed that it was inappropriate to, and therefore
did not, rely solely on the quantitative results of the comparable companies
analysis, and, accordingly, also made qualitative judgments concerning
differences between the characteristics of the comparable companies and MediaOne
Group that would affect the trading values of MediaOne Group and such companies.
DISCOUNTED CASH FLOW ANALYSIS
Using a discounted cash flow methodology, Lehman Brothers calculated the net
present value of MediaOne Group's domestic cable operations based upon (1) a
base case long-range plan prepared by MediaOne Group's management with respect
to the domestic cable operations of MediaOne Group and (2) an upside case
long-range plan prepared by MediaOne Group with respect to the domestic cable
operations of MediaOne Group. After-tax cash flows for the 10-year period
beginning on January 1, 1999 and ending on December 31, 2009 were calculated as
unlevered after-tax earnings plus amortization and depreciation less capital
expenditures and net changes in working capital. Lehman Brothers calculated
terminal values for MediaOne Group's domestic cable operations in 2008 by
applying to projected EBITDA a range of terminal multiples of 10.0x to 12.0x.
Lehman Brothers' determination of the appropriate range of terminal multiples
was based on an assessment of forward EBITDA trading multiples in the current
and historical market for comparable companies and on Lehman Brothers' general
experience in valuations of companies. The cash flow streams and terminal values
were discounted to present values using a range of discount rates from 10.0% to
12.0%, which were
II-32
<PAGE>
CHAPTER TWO - THE TRANSACTION
chosen based on several assumptions regarding factors, such as the inflation
rate, interest rates, the inherent business risk in the business of MediaOne
Group and comparable companies and the cost of capital of MediaOne Group and
comparable companies. From this analysis, Lehman Brothers calculated a reference
range of implied equity value per share of MediaOne Group of (1) $64 to $74 for
the base case projections prepared by management of MediaOne Group and (2) $72
to $83 for the upside case projections prepared by management of MediaOne Group.
PRECEDENT TRANSACTION ANALYSIS
Lehman Brothers reviewed certain publicly available information regarding
the terms and financial characteristics of the following selected business
combination transactions that were announced or took place from April 1998
through March 1999, which Lehman Brothers believed to be comparable to the
merger (identified by acquirer/acquiree):
- Cox/Media General Inc. (Fairfax County and Fredericksburg, Virginia)
- Adelphia/Harron Communications Corp.
- Adelphia/Century Communications Corporation
- Adelphia/FrontierVision Partners, L.P.
- Interlink Communications Partners/Rifkin Acquisition Partners
- Charter Communications, Inc./InterMedia Partners IV/TCI
- Comcast/Prime Communications (Washington and Chicago properties)
- Vulcan Ventures/Charter Communications, Inc.
- AT&T/TCI
- Comcast/Jones Intercable, Inc.
- Cox/Prime South Communications
- Vulcan Ventures/Marcus Cable Company L.L.C.
For the selected transactions, Lehman Brothers determined transaction values
(including net debt) as multiples of 1998 subscribers, projected current year
EBITDA and projected forward year EBITDA:
<TABLE>
<CAPTION>
LOW HIGH MEDIAN
--------- --------- ---------
<S> <C> <C> <C>
Implied Equity Value as a Multiple of 1998 Subscribers........... $ 2,663 $ 4,261 $ 3,431
Implied Equity Value as a Multiple of Current-Year EBITDA........ 13.0x 17.4x 14.8x
Implied Equity Value as a Multiple of Forward-Year EBITDA........ 12.1x 14.4x 13.4x
</TABLE>
Lehman Brothers noted that there had been significant appreciation in the
publicly traded cable stocks since the announcement of most of the selected
transactions and that most cable companies were trading at public multiples that
were higher than any of these private transaction multiples. Applying multiples
derived from its analysis of the selected transactions (adjusted to reflect the
recent appreciation in publicly traded cable stocks) to MediaOne Group's
domestic cable operations, Lehman Brothers calculated a range of implied private
equity values per share of $65 to $70.
II-33
<PAGE>
CHAPTER TWO - THE TRANSACTION
However, because the reasons for and the circumstances surrounding each of
the transactions analyzed were specific to each transaction and because of the
inherent differences between the businesses, operations and prospects of
MediaOne Group and the businesses, operations and prospects of the acquired
companies included in the selected transactions, Lehman Brothers believed that
it was inappropriate to, and, therefore, did not, rely solely on the
quantitative results of the precedent transactions analysis, and accordingly
also made qualitative judgments concerning differences between the
characteristics of these transactions and the merger that would affect the
acquisition values of MediaOne Group and such acquired companies. In particular,
Lehman Brothers considered the form of consideration and whether the
transactions involved the purchase of assets or stock.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and other securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The MediaOne Group Board selected
Lehman Brothers because of its expertise, reputation and familiarity with
MediaOne Group in particular and the media and telecommunications industries in
general, and because its investment banking professionals have substantial
experience in transactions similar to the merger.
As compensation for its services in connection with the merger, MediaOne
Group has agreed to pay Lehman Brothers a fee for acting as financial advisor in
connection with the merger, including rendering its opinion. Pursuant to the
terms of an engagement letter between Lehman Brothers and MediaOne Group,
MediaOne Group agreed to pay Lehman Brothers customary financial advisory fees,
a portion of which was payable upon the earlier of the rendering of Lehman
Brothers' opinion or MediaOne Group's signing of a definitive acquisition
agreement with a purchaser. In addition, MediaOne Group has agreed to reimburse
Lehman Brothers for reasonable out-of-pocket expenses incurred in connection
with the merger and to indemnify Lehman Brothers for certain liabilities that
may arise out of its engagements by MediaOne Group and the rendering of its
opinion.
Lehman Brothers is acting as financial advisor to MediaOne Group in
connection with the merger. Lehman Brothers has also performed various
investment banking services for MediaOne Group in the past and expects to do so
in the future, including serving as underwriter for public offerings of debt and
equity securities and as advisor in several acquisitions, dispositions and other
strategic transactions by the Company, and has received customary fees for such
services. Lehman Brothers has performed various investment banking services for
AT&T, TCI, TCG and Comcast, including serving as underwriter for public
offerings of debt and equity securities and as advisor in strategic
transactions, and has received customary fees for such services. In the ordinary
course of its business, Lehman Brothers may actively trade in MediaOne Group,
AT&T and Comcast securities for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL
In considering the recommendation of the MediaOne Group Board in favor of
the merger, stockholders should be aware that certain members of the MediaOne
Group Board and MediaOne Group's management have interests in the merger that
are different from, and in addition to, the interests of MediaOne Group
stockholders. The MediaOne Group Board was aware of such interests and
considered them, among other matters, when voting to approve the merger.
II-34
<PAGE>
Chapter Two - The Transaction
The merger agreement provides that, following the effective time of the
merger, AT&T will honor in accordance with their terms MediaOne Group's employee
severance plans and all other employment and severance agreements and
arrangements with respect to employees, former employees, directors and former
directors of MediaOne Group, including those that provide for payment or
acceleration of benefits upon or in connection with a change of control of
MediaOne Group.
CHANGE OF CONTROL SEVERANCE AGREEMENTS
MediaOne Group has entered into change of control severance agreements with
certain of its executive officers, including Messrs. Charles M. Lillis, A. Gary
Ames, Frank M. Eichler, Richard A. Post, Douglas D. Holmes and Roger K.
Christensen and Ms. Janice C. Peters. Except in the case of Mr. Lillis, each
change of control severance agreement provides generally that, in the event that
the executive officer's employment with MediaOne Group is terminated either (1)
by MediaOne Group, other than for cause, or (2) by the executive officer for
good reason, in either case (or, in the case of Mr. Lillis, if his employment
with MediaOne Group ceases for any reason), within three years following a
change of control, MediaOne Group will pay to the executive the following
payments, and will provide to the executive the following benefits:
- (a) base salary through termination and (b) annual bonus for year of
termination prorated to the officer's termination date, except in the case
of Mr. Lillis, whose annual bonus will cover the entire year;
- in the case of Mr. Lillis, the value of his most recent long-term
incentive grant;
- a lump sum cash payment equal to three times the sum of (a) annual base
salary prior to termination, (b) annual bonus amounts under any short-term
incentive program in which the executive officer participates (calculated
at 100% target unless the percentage actually achieved is greater than
100%, in which case the higher percentage applies) and (c) the annual
long-term incentive grant value of the most recent grant under any
long-term incentive program in which the executive officer participates;
- the continuation of health care benefits following termination for his or
her lifetime, on terms substantially similar to those MediaOne Group would
provide if the executive officer were eligible for retiree benefits
immediately prior to the change of control; and
- immediate vesting of the executive officer's pension benefits and the
addition of 36 months to both the executive officer's age and years of
service.
Except in the case of Mr. Lillis, who will cease to serve as Chief Executive
Officer, neither MediaOne Group nor AT&T has determined whether any of the
above-named executives subject to change of control severance agreements will be
terminated following the effective time of the merger. Assuming that all such
executives are terminated either by MediaOne Group, other than for cause, or by
the executive officer for good reason, in either case (or, in the case of Mr.
Lillis, for any reason), MediaOne Group will pay to such executive officers
aggregate severance payments currently estimated to be approximately
$82,472,000.
Further, AT&T has agreed that each such executive officer will become
entitled to the above payments and benefits in the event that the executive
officer's employment with MediaOne Group ceases for any reason after 90 days
following the effective time of the merger.
In addition, the change of control severance agreements provide that
MediaOne Group is obligated to pay an additional amount sufficient to make the
executive officer whole with respect to any excise tax that may be imposed by
Section 4999 of the Code and any taxes imposed on such additional
II-35
<PAGE>
CHAPTER TWO - THE TRANSACTION
amounts. Completion of the merger will constitute a change of control for
purposes of the change of control severance agreements.
Further, Mr. Lillis has the discretion to award cash bonuses (or other forms
of benefit with the approval of AT&T) with an aggregate value of up to $35
million to selected employees, including officers, other than himself. Mr.
Lillis has not yet made any determination regarding the allocation of such
payments.
STOCK PLANS
The MediaOne Group stock plans provide that all outstanding and unvested
options to purchase shares of MediaOne Group common stock and restricted shares
under the MediaOne Group stock option plans will vest, in the case of executive
officers, upon the approval of the adoption of the merger agreement by MediaOne
Group stockholders. In addition, employees whose employment is terminated as a
result of the merger will have the full term of their respective options in
which to exercise those options.
With respect to the following executive officers of MediaOne Group, Messrs.
Lillis, Ames, Eichler, Post, Holmes and Christensen and Ms. Peters, an aggregate
of approximately 570,000 shares of MediaOne Group common stock and 1,838,000
options to acquire shares of MediaOne Group common stock will vest upon the
approval of the adoption of the merger agreement by MediaOne Group stockholders.
With respect to the following non-employee directors of MediaOne Group, Ms.
Kathleen A. Cote and Messrs. Robert L. Crandall, Grant A. Dove, Allan D.
Gilmour, Pierson M. Grieve, Charles P. Russ, III, Louis A. Simpson, John "Jack"
Slevin and Daniel W. Yohannes, an aggregate of approximately 36,000 shares of
MediaOne Group common stock and 258,551 options to acquire shares of MediaOne
Group common stock will vest upon the approval of the adoption of the merger
agreement by MediaOne Group stockholders.
OTHER EXECUTIVE BENEFIT PLANS
Various other MediaOne Group executive benefit plans that cover the
executive officers named above contain provisions relating to change of control,
which are summarized below:
- MEDIAONE GROUP NONQUALIFIED PENSION PLAN. Upon completion of the merger,
(1) the plan cannot be adversely amended or terminated for three years to
reduce benefits under the plan, (2) the present value of the benefits of
the plan is funded in a rabbi trust, (3) the plan will make up any
qualified pension plan benefits forfeited by a severed executive officer
and (4) participants may elect to receive lump sum payments equal to 94%
of the present value of their benefits under the plan.
- MEDIAONE GROUP DEFERRED COMPENSATION PLAN. Upon the completion of the
merger, (1) the plan cannot be adversely amended or terminated for three
years, (2) the present value of the benefits of the plan is funded in a
rabbi trust and (3) participants may elect to receive lump sum payments
equal to 94% of the present value of their benefits under the plan.
- MEDIAONE GROUP EXECUTIVE LIFE INSURANCE (SPLIT DOLLAR). Upon the
completion of the merger, (1) the plan cannot be adversely amended or
terminated for three years to reduce benefits available on the date
immediately prior to the change of control, (2) the cash values in the
basic policies may not be withdrawn by the plan sponsor and (3) the
collateral assignment of the supplemental policies will be released after
three years to fund a 50% death benefit.
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<PAGE>
CHAPTER TWO - THE TRANSACTION
- MEDIAONE GROUP MID-CAREER PENSION PLAN. Upon completion of the merger, (1)
the plan cannot be adversely amended or terminated for three years to
cause participants to receive lower benefits, (2) the present value of the
benefits of the plan is funded in a rabbi trust and (3) all unvested plan
benefits become vested.
- MEDIAONE GROUP EXECUTIVE DISABILITY PLAN. Upon the completion of the
merger, the plan cannot be adversely amended for three years to reduce
benefits available on the date immediately prior to the change of control,
or, with respect to disabled executives, for the duration of their
disability up to age 65 or certain other events specified in the plan.
MAINTENANCE OF BENEFITS FOR MEDIAONE GROUP EMPLOYEES
AT&T has agreed, until December 31, 2001, to provide to MediaOne Group
employees who are employed by MediaOne Group or its subsidiaries at the
effective time of the merger, employee benefits and aggregate compensation
substantially comparable in the aggregate to those provided by MediaOne Group
and its subsidiaries as of the effective time of the merger, other than benefits
provided under severance or termination plans of MediaOne Group or its
subsidiaries. Until the second anniversary of the effective time of the merger,
AT&T has agreed to continue certain severance plans of MediaOne Group and its
subsidiaries without adverse change. AT&T has also agreed, until the fifth
anniversary of the effective time of the merger, to continue the existing
retiree medical, dental and life insurance benefit plan coverage for (1)
employees of MediaOne Group and its subsidiaries as of the effective time of the
merger, (2) retired employees of MediaOne Group and (3) employees and retired
employees of Time Warner Telecom Inc. who participate in certain MediaOne Group
benefit plans.
DIRECTORS AND OFFICERS
The merger agreement provides that, immediately following the effective time
of the merger, the AT&T Board will be increased to add at least one member and
that one current member of the MediaOne Group Board selected by AT&T will be
appointed to the AT&T Board. From the effective time of the merger until and
including the second annual meeting of AT&T shareowners taking place after the
effective time of the merger, the AT&T Board will nominate such person for
re-election to the AT&T Board at each AT&T shareowner meeting at which such
person's term expires.
INDEMNIFICATION AND INSURANCE
Under the merger agreement, AT&T will:
- indemnify and advance expenses, including fees of counsel, to present and
former directors, officers and employees of MediaOne Group and its
subsidiaries and any person that becomes a director, officer or employee
of MediaOne Group prior to the effective time of the merger for
liabilities from their acts or omissions in those capacities occurring
prior to the effective time of the merger to the extent provided under the
MediaOne Group charter and bylaws as in effect on May 6, 1999; and
- for six years after the effective time of the merger, provide officers'
and directors' liability insurance covering acts or omissions occurring
prior to the effective time of the merger by each person currently covered
by MediaOne Group's officers' and directors' liability insurance policy.
This AT&T policy must be no less favorable than the MediaOne Group policy
in effect on May 6, 1999, except that AT&T is obligated to pay in the
aggregate no more than 300% of the annual premium paid by MediaOne Group
for such insurance as of May 6, 1999.
II-37
<PAGE>
CHAPTER THREE
THE MERGER AGREEMENT
The following summary of the merger agreement is qualified by reference to
the complete text of the merger agreement, which is incorporated by reference
and attached as Annex A to this proxy statement/prospectus.
STRUCTURE OF THE MERGER
Under the merger agreement, MediaOne Group will merge with and into Merger
Sub with Merger Sub continuing as the surviving corporation.
TIMING OF CLOSING
The closing of the merger will occur within five business days after the day
on which the last of the conditions set forth in the merger agreement has been
satisfied or waived unless AT&T and MediaOne Group agree to a different date.
MERGER CONSIDERATION
CONVERSION OF MEDIAONE GROUP COMMON STOCK
In the merger, MediaOne Group stockholders will have the right to make one
of the following elections and receive the per share consideration indicated
below:
<TABLE>
<CAPTION>
ELECTION CONSIDERATION TO BE RECEIVED PER SHARE
- ----------------------------- ----------------------------------------------------------
<S> <C>
STOCK ELECTION - 1.4912 shares of AT&T common stock; and
(SUBJECT TO PRORATION AS - If the AT&T Price is less than $57.00, cash equal to:
DESCRIBED BELOW) 1.4912 x ($57.00 - AT&T Price)
with a maximum of $8.50 in cash (the "STOCK TOP-UP")
CASH ELECTION - $85.00 in cash
(SUBJECT TO PRORATION AS
DESCRIBED BELOW)
STANDARD ELECTION - 0.95 of a share of AT&T common stock; and
(NOT SUBJECT TO PRORATION) - $30.85 in cash; and
- If the AT&T Price is less than $57.00, cash equal to:
0.95 x ($57.00 - AT&T Price)
with a maximum of $5.42 in cash (the "STANDARD TOP-UP")
AT&T PRICE = The volume-weighted average trading price of AT&T common
stock for the 20 trading days ending on the third trading
day prior to the closing of the merger.
</TABLE>
The Stock Top-Up and the Standard Top-Up (commonly referred to as a
"collar") are designed to ensure a value of $85.00 per share of MediaOne Group
common stock so long as the AT&T Price is between $57.00 and $51.30. If the AT&T
Price is lower than $51.30, a stockholder making a Stock Election will receive
less than $85.00 in value; if the AT&T Price is greater than $57.00, a
stockholder making a Stock Election will receive more than $85.00 in value. A
stockholder making a Cash Election, by contrast, will receive $85.00 in value
regardless of the AT&T Price (assuming no proration), while a stockholder making
a Standard Election will be only partially affected by the AT&T Price.
III-1
<PAGE>
CHAPTER THREE - THE MERGER AGREEMENT
The chart below describes the value to holders of MediaOne Group common
stock who make a Stock Election or a Standard Election at varying AT&T common
stock prices, assuming no proration. For MediaOne Group stockholders making a
Cash Election or a Stock Election, the actual proportion of AT&T common stock
and cash received and the total value of the consideration received will depend
on proration.
VALUE OF CONSIDERATION AT VARYING AT&T COMMON STOCK PRICES
<TABLE>
<CAPTION>
STOCK ELECTION STANDARD ELECTION
---------------------------------------------------- ---------------------------------------
AT&T STOCK CASH TOTAL
PRICE ELECTION SHARES SHARE VALUE CASH TOP-UP VALUE SHARES SHARE VALUE CASH VALUE
- ----------- ----------- --------- ------------- --------------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 45.00 $ 85.00 1.4912 $ 67.10 $ 8.50 $ 75.60 0.95 $ 42.75 $ 30.85
$ 47.00 $ 85.00 1.4912 $ 70.09 $ 8.50 $ 78.59 0.95 $ 44.65 $ 30.85
$ 49.00 $ 85.00 1.4912 $ 73.07 $ 8.50 $ 81.57 0.95 $ 46.55 $ 30.85
$ 51.30 $ 85.00 1.4912 $ 76.50 $ 8.50 $ 85.00 0.95 $ 48.73 $ 30.85
$ 55.00 $ 85.00 1.4912 $ 82.02 $ 2.98 $ 85.00 0.95 $ 52.25 $ 30.85
$ 57.00 $ 85.00 1.4912 $ 85.00 $ 0.00 $ 85.00 0.95 $ 54.15 $ 30.85
$ 59.00 $ 85.00 1.4912 $ 87.98 $ 0.00 $ 87.98 0.95 $ 56.05 $ 30.85
$ 61.00 $ 85.00 1.4912 $ 90.96 $ 0.00 $ 90.96 0.95 $ 57.95 $ 30.85
$ 63.00 $ 85.00 1.4912 $ 93.95 $ 0.00 $ 93.95 0.95 $ 59.85 $ 30.85
<CAPTION>
AT&T STOCK TOTAL
PRICE CASH TOP-UP VALUE
- ----------- --------------- ---------
<S> <C> <C>
$ 45.00 $ 5.42 $ 79.02
$ 47.00 $ 5.42 $ 80.92
$ 49.00 $ 5.42 $ 82.82
$ 51.30 $ 5.42 $ 85.00
$ 55.00 $ 1.90 $ 85.00
$ 57.00 $ 0.00 $ 85.00
$ 59.00 $ 0.00 $ 86.90
$ 61.00 $ 0.00 $ 88.80
$ 63.00 $ 0.00 $ 90.70
</TABLE>
Shares of MediaOne Group common stock held by MediaOne Group as treasury
stock or owned by AT&T will be canceled without consideration.
CERTAIN ADJUSTMENTS
The merger agreement specifies the aggregate number of shares of AT&T common
stock that AT&T will issue (1) in the merger, (2) upon exercise of the AT&T
stock options issued in the merger and (3) upon conversion of AT&T Series D
preferred stock and AT&T Series E preferred stock. For ease of reference, we
refer to that number as the "AT&T SHARE ISSUANCE NUMBER." The AT&T Share
Issuance Number is calculated by multiplying (1) the aggregate number of shares
of MediaOne Group common stock (other than shares for which dissenter's rights
of appraisal have been exercised, shares held by MediaOne Group as treasury
stock and shares held by AT&T) outstanding immediately prior to the effective
time of the merger, plus shares issuable on conversion of MediaOne Group Series
D preferred stock and MediaOne Group Series E preferred stock and shares
issuable upon exercise of MediaOne Group stock options by (2) 0.95.
ADJUSTMENTS IF TOO MANY SHARES OF AT&T COMMON STOCK ARE ELECTED. If the
number of shares of AT&T common stock to be issued (1) in the merger, (2) upon
exercise of the AT&T stock options issued in the merger and (3) upon conversion
of AT&T Series D preferred stock and AT&T Series E preferred stock is greater
than the AT&T Share Issuance Number based on the elections made, then the
consideration paid to MediaOne Group stockholders making a Stock Election will
be adjusted to reduce the number of shares of AT&T common stock and substitute
therefor an amount in cash. The mix of AT&T common stock and cash to be received
pursuant to a Stock Election under these circumstances will be based on what we
call the "STOCK ELECTION PRORATION FACTOR." The Stock Election Proration Factor
is calculated by subtracting from the AT&T Share Issuance Number the number of
shares of AT&T common stock issuable pursuant to Standard Elections and similar
elections by holders
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of MediaOne Group Series D preferred stock, holders of MediaOne Group Series E
preferred stock and holders of MediaOne Group stock options, and then dividing
the resulting sum by the number of shares of AT&T common stock that would have
otherwise been issuable pursuant to Stock Elections and similar elections by
holders of MediaOne Group Series D preferred stock, holders of MediaOne Group
Series E preferred stock and holders of MediaOne Group stock options. The Stock
Election Proration Factor is then applied to adjust the consideration paid to
MediaOne Group stockholders making a Stock Election such that each share of
MediaOne Group common stock subject to a Stock Election will be converted into:
- a number of shares of AT&T common stock equal to 1.4912 times the Stock
Election Proration Factor;
- an amount in cash equal to $85.00 multiplied by one minus the Stock
Election Proration Factor; and
- an additional amount in cash, not to exceed $8.50 times the Stock Election
Proration Factor, equal to the product of (1) 1.4912 multiplied by (2) the
Stock Election Proration Factor multiplied by (3) the amount, if any, by
which the AT&T Price is less than $57.00.
The treatment in the merger of shares of MediaOne Group common stock subject to
Cash Elections or Standard Elections will remain unchanged under these
circumstances.
EXAMPLE:
If the Stock Elections of MediaOne Group stockholders are oversubscribed and
thereby the number of shares of AT&T common stock issuable in the merger exceeds
the AT&T Share Issuance Number, we would calculate the Stock Election Proration
Factor. If we assume that the Stock Election Proration Factor is 0.8, then if
you own 100 MediaOne Group shares and make a Stock Election, you would receive:
- a number of shares of AT&T common stock equal to 1.4912 multiplied by 0.8,
or 1.193, multiplied by the number of shares you hold, or 100, for a total
of 119 shares of AT&T common stock; additionally, you will receive a cash
payment equal to 0.3 times the market price of a share of AT&T common
stock in lieu of a fractional share being issued;
- you will also receive an amount in cash equal to $85.00 multiplied by 1
minus 0.8, which equals $17, multiplied by the number of shares you hold,
or 100, for a total amount of $1,700 cash; and
- additionally, if the AT&T Price was below $57.00--for example, $54.00--you
would also receive an amount in cash equal to 1.4912 multiplied by 0.8
multiplied by $3 ($57.00-$54.00), for a total amount of $3.58 per MediaOne
Group share, or $358.00 cash.
ADJUSTMENTS IF TOO FEW SHARES OF AT&T COMMON STOCK ARE ELECTED. If the
number of shares of AT&T common stock to be issued (1) in the merger, (2) upon
exercise of the AT&T stock options issued in the merger and (3) upon conversion
of AT&T Series D preferred stock and AT&T Series E preferred stock is less than
the AT&T Share Issuance Number based on the elections made, then the
consideration paid to MediaOne Group stockholders making a Cash Election will be
adjusted to reduce the amount of cash and substitute therefor a number of shares
of AT&T common stock. The mix of AT&T common stock and cash to be received
pursuant to a Cash Election under these circumstances will be based on what we
call the "CASH ELECTION PRORATION FACTOR." The Cash Election Proration Factor is
calculated by subtracting from the AT&T Share Issuance Number the number of
shares of AT&T common stock issuable pursuant to Stock Elections and Standard
Elections and similar elections
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by holders of MediaOne Group Series D preferred stock, holders of MediaOne Group
Series E preferred stock and holders of MediaOne Group stock options, and then
dividing the resulting sum by the number of shares of MediaOne Group common
stock subject to Cash Elections and similar elections by holders of MediaOne
Group Series D preferred stock, holders of MediaOne Group Series E preferred
stock and holders of MediaOne Group stock options. The Cash Election Proration
Factor is then applied to adjust the consideration paid to MediaOne Group
stockholders making a Cash Election such that each share of MediaOne Group
common stock subject to a Cash Election will be converted into:
- a number of shares of AT&T common stock equal to the Cash Election
Proration Factor;
- an amount in cash equal to (1) $85.00 multiplied by (2)(a) one minus (b)
the Cash Election Proration Factor divided by 1.4912; and
- an additional amount in cash, not to exceed $5.70 times the Cash Election
Proration Factor, equal to the Cash Election Proration Factor times the
amount, if any, by which the AT&T Price is less than $57.00.
The treatment in the merger of shares of MediaOne Group common stock subject to
Stock Elections or Standard Elections will remain unchanged under these
circumstances.
EXAMPLE:
If the Cash Elections of MediaOne Group stockholders are oversubscribed and
thereby the number of shares of AT&T common stock issuable in the merger is less
than the AT&T Share Issuance Number, we would calculate the Cash Election
Proration Factor. If we assume that the Cash Election Proration Factor is 0.2,
then if you own 100 MediaOne Group shares and make a Cash Election, you would
receive:
- a number of shares of AT&T common stock equal to 0.2 multiplied by the
number of shares you hold, or 100, for a total of 20 AT&T shares;
- you will also receive an amount in cash equal to $85.00 multiplied by (1)
1 minus (2) 0.2 divided by 1.4912, which equals $73.60, multiplied by the
number of shares you hold, or 100, for a total amount of $7,360 cash; and
- additionally, if the AT&T Price was below $57.00--for example, $54.00--you
would also receive an amount in cash equal to 0.2 multiplied by $3.00
($57.00-$54.00), for a total amount of $0.60 per MediaOne Group share, or
$60.00 cash.
OTHER ADJUSTMENTS. Assuming all other conditions to closing have been
satisfied, AT&T has agreed that if the conditions relating to the tax treatment
of the merger are not satisfied but are capable of being satisfied by increasing
the AT&T Share Issuance Number, then AT&T will increase the AT&T Share Issuance
Number as necessary to satisfy such conditions. If required, AT&T will also use
its reasonable best efforts to obtain the requisite approval of AT&T shareowners
for the issuance of a number of shares of AT&T common stock equal to the revised
AT&T Share Issuance Number.
CONVERSION OF MEDIAONE GROUP PREFERRED STOCK
The merger agreement provides that, at the effective time of the merger:
- each share of MediaOne Group Series C preferred stock outstanding
immediately prior to the effective time of the merger will be converted
into the right to receive one share of newly created AT&T Series C
preferred stock;
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CHAPTER THREE - THE MERGER AGREEMENT
- each share of MediaOne Group Series D preferred stock outstanding
immediately prior to the effective time of the merger will be converted
into the right to receive one share of newly created AT&T Series D
preferred stock; and
- each share of MediaOne Group Series E preferred stock outstanding
immediately prior to the effective time of the merger will be converted
into the right to receive one share of newly created AT&T Series E
preferred stock.
Any shares of MediaOne Group Series C preferred stock, MediaOne Group Series
D preferred stock or MediaOne Group Series E preferred stock held by MediaOne
Group as treasury stock or held by AT&T will be canceled without consideration.
MediaOne Group has agreed to redeem the MediaOne Group Series C preferred stock
and the MediaOne Group Series D preferred stock as promptly as possible. We
expect this to occur prior to the effective time of the merger. As a result, we
do not expect any shares of MediaOne Group Series C preferred stock or MediaOne
Group Series D preferred stock to be outstanding at the effective time of the
merger.
TREATMENT OF MEDIAONE GROUP STOCK OPTIONS
The merger agreement provides that each holder of a MediaOne Group stock
option will have the right to make a Stock Election, a Cash Election or a
Standard Election with respect to each of such holder's MediaOne Group stock
options. At the effective time of the merger:
- each outstanding MediaOne Group stock option subject to a Cash Election
will be converted, for each share underlying such option, into the Cash
Consideration minus the per-share exercise price of the MediaOne Group
option (the "STOCK OPTION CASH CONSIDERATION"), subject to adjustment
under the circumstances described under "--Merger Consideration--Certain
Adjustments";
- each outstanding MediaOne Group stock option subject to a Standard
Election will be converted, for each share underlying such option, into:
- an option to purchase 0.95 of a share of AT&T common stock at an
exercise price equal to (1) the per-share exercise price of the
MediaOne Group option multiplied by (2) a fraction (the "STANDARD
ELECTION FRACTION"), the numerator of which is $54.15 and the
denominator of which is $85.00, minus (3) the Standard Top-Up, if any,
divided by (4) 0.95; and
- $30.85 in cash minus the product of (1) the per-share exercise price of
the MediaOne Group option and (2) one minus the Standard Election
Fraction (collectively, the "STOCK OPTION STANDARD CONSIDERATION"); and
- each outstanding MediaOne Group stock option subject to a Stock Election
will be converted, for each share underlying such option, into an option
to receive 1.4912 shares of AT&T common stock at an exercise price equal
to (1) the per-share exercise price of the MediaOne Group option minus (2)
the Stock Top-Up, if any, divided by (3) 1.4912 (the "STOCK OPTION STOCK
CONSIDERATION"), subject to adjustment under the circumstances described
under "--Merger Consideration--Certain Adjustments."
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No holder of a MediaOne Group stock option will be required to pay any
negative cash amount resulting from the treatment of the MediaOne Group stock
option in the merger; instead any such amount will be appropriately adjusted and
added to the per-share exercise price of the AT&T option received by the holder
in exchange for such MediaOne Group option.
Holders of MediaOne Group stock options will be given the opportunity to
make Stock Elections, Standard Elections and Cash Elections in the same manner
as holders of MediaOne Group common stock are given the opportunity to make
Stock Elections, Standard Elections and Cash Elections, as described under
"--Election Procedure; Exchange of Shares." Any holder of a MediaOne Group stock
option who fails to make a proper election will be deemed to have elected the
Stock Option Standard Consideration.
AT&T will take all necessary actions to assume the MediaOne Group stock
options and any obligations to issue MediaOne Group common stock under the
existing terms of any other plans, agreements or arrangements of MediaOne Group
covering any current or former employees or directors of MediaOne Group or its
subsidiaries.
CERTAIN ADJUSTMENTS
If the number of shares of AT&T common stock to be issued (1) in the merger,
(2) upon exercise of the AT&T stock options issued in the merger and (3) upon
conversion of AT&T Series D preferred stock and AT&T Series E preferred stock is
greater than the AT&T Share Issuance Number, then the Stock Option Stock
Consideration will be adjusted such that each MediaOne Group stock option
subject to a Stock Election will be converted, for each share underlying such
option, into:
- an option to purchase a number of shares of AT&T common stock equal to
1.4912 times the Stock Election Proration Factor, at an exercise price
equal to (1) the per-share exercise price of the MediaOne Group option
multiplied by the Stock Election Proration Factor minus (2) the Stock
Top-Up, if any, multiplied by the Stock Election Proration Factor, divided
by (3) 1.4912 multiplied by the Stock Election Proration Factor; and
- an amount in cash equal to (1) $85.00 multiplied by one minus the Stock
Election Proration Factor minus (2) the per-share exercise price of the
MediaOne Group option multiplied by one minus the Stock Election Proration
Factor.
The treatment in the merger of MediaOne Group stock options subject to Cash
Elections or Standard Elections will remain unchanged under these circumstances.
If the number of shares of AT&T common stock to be issued (1) in the merger,
(2) upon exercise of the AT&T stock options issued in the merger and (3) upon
conversion of AT&T Series D preferred stock and AT&T Series E preferred stock is
less than the AT&T Share Issuance Number, then the Stock Option Cash
Consideration will be adjusted such that each MediaOne Group stock option
subject to a Cash Election will be converted, for each share underlying such
option, into:
- an option to purchase the number of shares of AT&T common stock equal to
the Cash Election Proration Factor, at an exercise price equal to (1) the
per-share exercise price of the MediaOne Group option multiplied by (2) a
fraction (the "Cash Election Fraction"), the numerator of which is the
Cash Election Proration Factor and the denominator of which is 1.4912,
minus (3) the Cash Election Proration Factor times the amount, if any, by
which the AT&T Price is less than $57.00 (which product is not to exceed
the Cash Election Proration Factor times $5.70) divided by (4) the Cash
Election Proration Factor; and
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- an amount in cash equal to (1) $85.00 multiplied by one minus the Cash
Election Fraction minus (2) the per-share exercise price of the MediaOne
Group option multiplied by one minus the Cash Election Fraction.
The treatment in the merger of MediaOne Group stock options subject to Stock
Elections or Standard Elections will remain unchanged under these circumstances.
ELECTION PROCEDURE; EXCHANGE OF SHARES
We will appoint an exchange agent to handle the exchange of MediaOne Group
stock certificates in the merger for AT&T stock certificates and cash and the
payment of cash in lieu of fractional shares of AT&T common stock. Soon after
the closing, AT&T or the exchange agent will send to each holder of MediaOne
Group stock at the effective time of the merger a letter of transmittal for use
in the exchange and instructions explaining how to surrender MediaOne Group
stock certificates to the exchange agent. AT&T or the exchange agent will also
at that time send to each holder of MediaOne Group common stock an election form
for use in making Standard Elections, Cash Elections or Stock Elections with
respect to such holder's shares of MediaOne Group common stock. For any such
election to be valid, a properly completed and executed election form, together
with the corresponding MediaOne Group stock certificates, must be received by
the exchange agent on the date set forth in the election notice. This date is to
be mutually agreed upon by AT&T and MediaOne Group, and will, in no event, be
later than the 20th business day after the effective time of the merger. AT&T
will make similar election forms available to the appropriate holders of
MediaOne Group Series D preferred stock and MediaOne Group Series E preferred
stock and holders of MediaOne Group stock options to allow such holders to make
comparable elections. Holders of MediaOne Group stock that surrender their
certificates to the exchange agent, together with a properly completed letter of
transmittal, will receive the appropriate merger consideration. WE REQUEST THAT
YOU NOT SURRENDER YOUR CERTIFICATES FOR EXCHANGE UNTIL YOU RECEIVE SUCH LETTER
OF TRANSMITTAL AND INSTRUCTIONS. Holders of unexchanged shares of MediaOne Group
stock will not be entitled to receive any dividends or other distributions
payable by AT&T after the closing of the merger until their certificates are
surrendered.
The exchange agent will invest the aggregate cash portion of the merger
consideration during the period from the effective time of the merger until the
date set forth in the election notice for the receipt of elections. Any interest
or other return on the investment will be distributed to the holders of MediaOne
Group common stock and MediaOne Group stock options, pro rata, based on the cash
portion of the merger consideration to be received by such holder.
AT&T will not issue any fractional shares of AT&T common stock in the
merger. Holders of MediaOne Group common stock will receive a check for any
fractional shares in an amount based on the market value of AT&T common stock on
the last full trading day prior to the merger.
APPRAISAL RIGHTS
Record holders of MediaOne Group common stock, MediaOne Group Series C
preferred stock (if such shares are not redeemed prior to the merger) and
MediaOne Group Series E preferred stock that follow the appropriate procedures
are entitled to appraisal rights under Section 262 of the Delaware General
Corporation Law in connection with the merger. For more information about
appraisal rights available to holders of MediaOne Group common stock, MediaOne
Group Series C preferred stock and MediaOne Group Series E preferred stock, see
"The Transaction--The Merger Transaction-- Appraisal Rights" on page II-14.
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CHAPTER THREE - THE MERGER AGREEMENT
PRINCIPAL COVENANTS
Each of AT&T and MediaOne Group has undertaken covenants in the merger
agreement. The following summarizes the more significant of these covenants.
INTERIM OPERATIONS
Each of AT&T and MediaOne Group has undertaken a separate covenant that
places restrictions on it and its subsidiaries until the effective time of the
merger. AT&T and its subsidiaries and MediaOne Group and its subsidiaries are
required to conduct their business in the ordinary course consistent with past
practice, and to use all reasonable efforts to preserve intact and keep
available their business organizations, services of key personnel and
relationships with third parties. The following summarizes the more significant
of the restrictions undertaken by each company, each of which is subject to
certain exceptions.
RESTRICTIONS ON THE INTERIM OPERATIONS OF MEDIAONE GROUP
MediaOne Group is restricted from:
- amending its charter or bylaws;
- amending any material term of any of its outstanding securities;
- splitting, combining or reclassifying any of its capital stock,
declaring any dividend on its capital stock or redeeming any of its
securities, except for regular dividends on outstanding preferred stock
or trust preferred securities;
- adopting a plan of liquidation, dissolution, merger, restructuring or
other material reorganization;
- issuing or disposing of any shares of its capital stock or any
securities convertible into or exercisable for its capital stock,
except for the issuance of shares of MediaOne Group common stock upon
the exercise of stock options in accordance with existing terms, the
issuance of shares upon conversion of outstanding convertible
securities and the granting of certain options to acquire MediaOne
Group common stock;
- incurring any capital expenditure except as set forth on the schedule
to the merger agreement;
- acquiring any assets, except for assets acquired pursuant to existing
commitments, assets used in the ordinary course of business or assets
having a fair market value of up to $25 million in the aggregate;
- selling, encumbering or otherwise transferring any domestic assets
having a fair market value exceeding $25 million in any transaction, or
$100 million in the aggregate, except assets transferred pursuant to
existing commitments;
- incurring any indebtedness, subject to certain ordinary course
exceptions;
- making any loans or investments, except for loans to or investments in
its wholly owned subsidiaries;
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CHAPTER THREE - THE MERGER AGREEMENT
- entering into or amending any agreement, for the provision of goods or
services that provides for payments in excess of $25 million per
agreement, or $100 million in the aggregate for similar agreements,
except in the ordinary course of business;
- entering into any new programming agreement unless, in certain cases,
reasonable efforts are made to ensure that the new programming
agreement can be terminated at the effective time of the merger without
penalty;
- entering into any commitment for acquisition of high-speed modems or
digital set-top boxes in quantities that would exceed expected needs
for those products through June 30, 2001;
- amending the TWE partnership agreement in any material respect,
entering or amending any material agreement with Time Warner Inc.,
waiving or exercising any material right with respect to TWE or
consenting to any material transaction by or with respect to TWE;
- entering into any agreement that materially limits the ability of
MediaOne Group or any subsidiary of MediaOne Group, or that could,
after the effective time of the merger, materially limit the ability of
AT&T, any subsidiary of AT&T or the surviving corporation, or any of
their affiliates, from engaging in the business of providing cable
television, telephony or data transmission services anywhere in the
world or providing programming content in the United States, the United
Kingdom or Japan;
- entering into commitments with respect to or increasing the benefits
under employment and employee benefits arrangements, except as required
by law or existing commitments;
- entering into or amending in any material respect any material joint
venture or partnership;
- entering into or amending in any material respect any agreement for the
provision by a third party of telephony, data or other services through
the facilities of MediaOne Group's cable television systems if the
agreement is exclusive or cannot be terminated as of the effective time
of the merger without penalty; and
- entering into or amending in any material respect any agreement
providing for the right to use the facilities of MediaOne Group's cable
television systems if the agreement is exclusive or cannot be
terminated within two years after the effective time of the merger
without penalty.
RESTRICTIONS ON THE INTERIM OPERATIONS OF AT&T
AT&T is restricted from:
- amending its charter or bylaws;
- amending any material terms of the shares of its common stock;
- splitting, combining or reclassifying any shares of its common stock or
declaring any dividend or other distribution on its common stock,
except for regular quarterly cash dividends or regular dividends on any
future series of preferred stock;
- taking any action that would be reasonably likely to prevent, impair or
materially delay the ability of MediaOne Group or AT&T to complete the
transactions contemplated by the merger agreement;
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CHAPTER THREE - THE MERGER AGREEMENT
- entering into or acquiring any new line of business that is material to
AT&T and its subsidiaries, taken as a whole, and that is not
strategically related to the current business or operations of AT&T and
its subsidiaries;
- incurring any indebtedness for acquisitions or indebtedness outside of
the ordinary course of business unless, in AT&T's reasonable judgment,
the incurrence would not be reasonably likely to result in the
downgrading of its senior debt to a non-investment-grade rating;
- engaging in any merger, consolidation or similar transaction unless
AT&T shareowners prior to the transaction own a majority of the equity
interests in the combined company;
- engaging in any transaction in which a third party acquires more than
25% of the voting securities of AT&T or any of its significant
subsidiaries; and
- disposing of assets, securities or ownership interests representing 10%
or more of the basic cable subscribers of AT&T and its subsidiaries,
other than asset swaps under certain circumstances.
NO SOLICITATION BY MEDIAONE GROUP
MediaOne Group has agreed that it and its subsidiaries and its and their
officers, directors, employees and advisors will not:
- take action to solicit, initiate or encourage any proposal for an
alternative acquisition transaction involving MediaOne Group of a
nature defined in the merger agreement;
- engage in discussions or negotiations with a potential bidder that has
made or is known by MediaOne Group to be considering making an
acquisition proposal;
- disclose non-public information relating to MediaOne Group or its
subsidiaries, or grant access to the properties, books or records of
MediaOne Group to any such potential bidder;
- grant any waiver or release under any standstill or similar agreement
relating to any class of equity securities of MediaOne Group, except as
otherwise requested by AT&T; or
- grant any waiver or approve any transaction under the MediaOne Group
stockholder rights plan, the Delaware anti-takeover statute or the
anti-takeover provisions contained in the MediaOne Group charter. For
information about the Delaware anti-takeover statute, the MediaOne
Group stockholder rights plan and the anti-takeover provisions
contained in the MediaOne Group charter, see "Certain Legal
Information--Comparison of Stockholder Rights" on page V-1.
Notwithstanding the restrictions above, nothing in the merger agreement
prohibits the MediaOne Group Board from complying with Rule 14e-2 and Rule 14d-9
under the Exchange Act with regard to an acquisition proposal; provided that the
MediaOne Group Board will not recommend that MediaOne Group stockholders tender
their shares in connection with a tender offer, except to the extent the
MediaOne Group Board determines, in its good faith judgment, by a majority vote,
that such a recommendation is required to comply with its fiduciary duty to its
stockholders under applicable law, after receiving the advice of outside legal
counsel.
MediaOne Group must notify AT&T within 24 hours if MediaOne Group receives
an offer or any request for non-public information or access to the properties,
books or records of MediaOne Group or its subsidiaries from a potential bidder
that is known to be considering making or has made an offer. The notice must be
made orally and in writing, and must indicate the identity of the bidder and the
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terms and conditions of any offer or request. MediaOne Group must keep AT&T
informed on a prompt basis of the status and details of any offer or request.
MEDIAONE GROUP BOARD'S COVENANT TO RECOMMEND
The MediaOne Group Board has agreed to call a meeting of MediaOne Group
stockholders and recommend the approval of the adoption of the merger agreement
to MediaOne Group stockholders. However, the MediaOne Group Board is permitted
not to make this recommendation, to withdraw this recommendation or to modify
this recommendation in a manner adverse to AT&T under the following
circumstances:
- the MediaOne Group Board, by a majority vote, must determine, in its
good faith judgment, that it is necessary to do so to comply with its
fiduciary duty to its stockholders under applicable law, after
receiving the advice of outside legal counsel; and
- two days prior to taking such action, MediaOne Group must deliver to
AT&T a notice stating that it intends to withdraw or modify its
recommendation and describes its reasons for doing so.
Even if the MediaOne Group Board determines that it will not recommend the
merger, MediaOne Group must still submit the merger agreement to its
stockholders at the MediaOne Group stockholders' meeting unless the merger
agreement has been terminated.
AT&T BOARD MATTERS
Immediately prior to the effective time of the merger, the AT&T Board will
take all necessary action to expand the size of the AT&T Board by at least one
member and to appoint to the AT&T Board, as of the effective time of the merger,
one current member of the MediaOne Group Board selected by AT&T who agrees to
serve in that capacity. From the effective time of the merger until and
including the second annual meeting of AT&T shareowners taking place after the
effective time of the merger, the AT&T Board will nominate the new director for
reelection at each subsequent annual or special meeting of the AT&T shareowners
at which the new director's term expires.
LISTING OF AT&T STOCK
AT&T has agreed to use its best efforts to cause the shares of AT&T common
stock and AT&T Series D preferred stock to be issued in the merger and reserved
for issuance in connection with the assumption by AT&T of MediaOne Group stock
options to be approved for listing on the NYSE and to cause the securities of
MediaOne Group and its subsidiaries that are listed on the NYSE to continue to
be listed following the merger.
BEST EFFORTS COVENANT
AT&T and MediaOne Group have agreed to cooperate with each other and use
their best efforts to take all actions and do all things necessary or advisable
under the merger agreement and under applicable law to complete the merger and
the other transactions contemplated by the merger agreement, except that AT&T
has an unconditional and unqualified obligation to obtain FCC consents in
connection with the change of control and/or assignment of MediaOne Group's or
its subsidiaries' FCC licenses and to obtain the expiration or termination of
the HSR Act waiting period.
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CHAPTER THREE - THE MERGER AGREEMENT
EMPLOYEE BENEFITS MATTERS
The merger agreement provides that AT&T will honor all obligations under
MediaOne Group's employee plans and benefits arrangements, and will pay all
benefits required under such plans and arrangements.
AT&T has also agreed, until December 31, 2001, to provide to MediaOne Group
employees who are employed by MediaOne Group or its subsidiaries at the
effective time of the merger, employee benefits and aggregate compensation
substantially comparable to those provided by MediaOne Group or its subsidiaries
as of the effective time of the merger, other than benefits provided under
severance or termination plans of MediaOne Group or its subsidiaries. Until the
second anniversary of the effective time of the merger, AT&T has agreed to
continue certain severance plans of MediaOne Group and its subsidiaries without
adverse change. AT&T has also agreed, until the fifth anniversary of the
effective time of the merger, to continue the existing retiree medical, dental
and life insurance benefit plan coverage for:
- employees of MediaOne Group and its subsidiaries as of the effective
time of the merger;
- retired employees of MediaOne Group; and
- employees and retired employees of Time Warner Telecom who participate
in certain MediaOne Group benefit plans.
Please see "The Transaction--Interests of Certain Persons in the Merger" on
page II-34 for additional information on employee benefits matters covered in
the merger agreement.
INDEMNIFICATION AND INSURANCE OF MEDIAONE GROUP DIRECTORS AND OFFICERS
AT&T has agreed that:
- it will, or will cause the surviving corporation to, indemnify and
advance expenses, including fees of counsel, to present and former
directors, officers and employees of MediaOne Group and its
subsidiaries and any person that becomes a director, officer or
employee of MediaOne Group prior to the effective time of the merger
for liabilities from their acts or omissions in those capacities
occurring prior to the effective time of the merger to the extent
provided under the MediaOne Group charter and bylaws as in effect on
May 6, 1999; and
- for six years after the effective time of the merger it will, or will
cause the surviving corporation to, provide officers' and directors'
liability insurance covering acts or omissions occurring prior to the
effective time of the merger by each person currently covered by
MediaOne Group's officers' and directors' liability insurance policy.
This AT&T or surviving corporation policy must be no less favorable
than the MediaOne Group policy in effect on May 6, 1999, except that
AT&T is obligated to pay, or to cause the surviving corporation to pay,
in the aggregate, no more than 300% of the annual premium paid by
MediaOne Group for such insurance as of May 6, 1999.
MEDIAONE GROUP'S REDEMPTION OF PREFERRED STOCK
MediaOne Group has agreed to call for redemption and redeem the MediaOne
Group Series C preferred stock and the MediaOne Group Series D preferred stock
as promptly as the terms of these securities permit.
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CHAPTER THREE - THE MERGER AGREEMENT
CERTAIN OTHER COVENANTS
The merger agreement contains mutual covenants of AT&T and MediaOne Group,
the most significant of which are that AT&T and MediaOne Group agree:
- not to jeopardize the intended tax treatment of the merger;
- to promptly notify the other party of certain events, including any
notice from any governmental authority regarding the merger or any
notice from any person alleging that the consent of that person is
required to complete the merger;
- to prepare and file a proxy statement, registration statement and all
necessary filings with the SEC relating to the merger;
- to consult with each other and obtain consent before issuing any public
announcements regarding the merger; and
- to provide reasonable access to its own books, properties and records
to the other party, its counsel, advisors and representatives, and to
furnish all financial and operating data and other information as
reasonably requested.
In addition, AT&T and MediaOne Group have agreed that, at any time after
MediaOne Group stockholders approve the merger agreement, AT&T may elect to have
MediaOne Group give a termination notice relating to the non-competition
restrictions contained in the TWE partnership agreement. AT&T and MediaOne Group
have also agreed that MediaOne Group may deliver a termination notice at any
time after August 4, 1999. With AT&T's consent, MediaOne Group delivered a
termination notice to TWE on August 3, 1999.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains substantially reciprocal representations and
warranties made by AT&T and Merger Sub, on the one hand, and MediaOne Group, on
the other hand. The most significant of these relate to:
- corporate existence and authorization to enter into the contemplated
transaction;
- governmental approvals required in connection with the contemplated
transaction;
- absence of any breach of organizational documents, law or certain
material agreements as a result of the contemplated transaction;
- capitalization;
- ownership of subsidiaries;
- filings with the SEC;
- financial statements;
- information provided for inclusion in this proxy statement/prospectus;
- absence of certain material changes since December 31, 1998;
- absence of undisclosed material liabilities;
- compliance with laws;
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CHAPTER THREE - THE MERGER AGREEMENT
- litigation;
- finders' or advisors' fees;
- opinion of financial advisor, in the case of MediaOne Group only;
- tax matters;
- employee benefits matters;
- environmental matters;
- intellectual property matters;
- material contracts; and
- the stockholder vote required to approve the contemplated transaction.
MediaOne Group represented to AT&T that it has a 25.51% equity interest in
TWE. In addition, MediaOne Group represented that it is not aware of any
circumstances that would have a material adverse effect on this investment.
MediaOne Group also represented that it had taken all action necessary to exempt
the merger from the provisions of the Delaware anti-takeover statute, to approve
the merger for purposes of certain provisions of the MediaOne Group charter and
to render the MediaOne Group rights plan inapplicable to the merger.
AT&T represented to MediaOne Group that it does not own any securities of
MediaOne Group. AT&T also made representations to MediaOne Group regarding the
formation and business, assets and liabilities of Merger Sub.
The representations and warranties in the merger agreement will not survive
the closing of the merger or termination of the merger agreement.
CONDITIONS TO THE COMPLETION OF THE MERGER
MUTUAL CLOSING CONDITIONS
The obligations of AT&T, Merger Sub and MediaOne Group to complete the
merger are subject to the satisfaction of or, to the extent legally permissible,
to the waiver of the following conditions:
- approval of the merger agreement by MediaOne Group stockholders;
- expiration or termination of the HSR Act waiting period;
- absence of legal prohibition on completion of the merger;
- AT&T's registration statement on Form S-4, which includes this proxy
statement/prospectus, being effective and not subject to any stop order
by the SEC;
- approval for listing on the NYSE of the shares of AT&T common stock to
be issued in the merger;
- if necessary, expiration of up to one year following the August 3, 1999
delivery by MediaOne Group of a termination notice relating to the
non-competition restrictions contained in the TWE partnership
agreement;
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Chapter Three - The Merger Agreement
- receipt of FCC consents in connection with the change of control and/or
assignment of MediaOne Group's and its subsidiaries' FCC licenses
unless the failure to obtain any such consents would not be reasonably
expected to have a material adverse effect on AT&T after giving effect
to the merger;
- receipt, without limitations or conditions, of all other required
consents and waivers unless the failure to obtain such consents and the
limitations or conditions placed on such consents and waivers would not
be reasonably expected to result in a material adverse effect on
MediaOne Group; and
- absence of any governmental action, statute or regulation restraining
the operation of the business of AT&T and its subsidiaries or MediaOne
Group and its subsidiaries after the effective time of the merger that
would be reasonably expected to have a material adverse effect on AT&T.
ADDITIONAL CLOSING CONDITIONS FOR AT&T'S AND MERGER SUB'S BENEFIT
AT&T's and Merger Sub's obligations to complete the merger are subject to
the following additional conditions:
- MediaOne Group's performance in all material respects of the
obligations required to be performed by it under the merger agreement
at or prior to the effective time of the merger;
- accuracy, as of the effective time of the merger, of the
representations and warranties of MediaOne Group to the extent
specified in the merger agreement;
- receipt of an opinion of AT&T's counsel that the merger will qualify as
a reorganization within the meaning of Section 368(a) of the Code; and
- receipt of an opinion of AT&T's counsel that the merger should not
cause the separation of MediaOne Group from New U S WEST on June 12,
1998 to fail to qualify as a tax-free transaction.
ADDITIONAL CLOSING CONDITIONS FOR MEDIAONE GROUP'S BENEFIT
MediaOne Group's obligation to complete the merger is subject to the
following additional conditions:
- each of AT&T's and Merger Sub's performance in all material respects of
the obligations required to be performed by it under the merger
agreement at or prior to the effective time of the merger;
- accuracy, as of the effective time of the merger, of the
representations and warranties of AT&T and Merger Sub to the extent
specified in the merger agreement;
- receipt of an opinion of MediaOne Group's counsel that the merger will
qualify as a reorganization within the meaning of Section 368(a) of the
Code; and
- receipt of an opinion of MediaOne Group's counsel that the merger
should not cause the separation of MediaOne Group from New U S WEST on
June 12, 1998 to fail to qualify as a tax-free transaction.
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CHAPTER THREE - THE MERGER AGREEMENT
TERMINATION OF THE MERGER AGREEMENT
RIGHT TO TERMINATE
The merger agreement may be terminated at any time prior to the effective
time of the merger in any of the following ways, even if it was previously
approved by MediaOne Group stockholders:
- The merger agreement may be terminated by the mutual written consent of
AT&T and MediaOne Group.
- The merger agreement may be terminated by either AT&T or MediaOne Group
if:
- the merger has not been completed by March 31, 2000. However, that
date will become September 30, 2000 if we do not close by March 31,
2000 solely because:
- the regulatory or legal conditions have not been satisfied by
that date;
- the requisite consents and waivers have not been obtained by
that date; or
- if necessary, the one-year period after MediaOne Group's August
3, 1999 delivery of the termination notice relating to TWE has
not expired by that date.
Neither AT&T nor MediaOne Group can terminate the merger
agreement after the applicable date if its failure to fulfill in
any material respect its obligations under the merger agreement
has resulted in the failure to complete the merger by that date.
- MediaOne Group stockholders fail to approve the merger agreement at
a duly held meeting; or
- there is a permanent legal prohibition to closing the merger.
- The merger agreement may be terminated by AT&T if:
- the MediaOne Group Board fails to recommend approval of the merger
agreement, or withdraws or modifies in a manner adverse to AT&T its
approval or recommendation or fails to call the MediaOne Group
meeting;
- MediaOne Group willfully and materially breaches its obligation to
recommend approval of the merger agreement to MediaOne Group
stockholders or its obligations under the non-solicitation and
other covenants described under "--Principal Covenants--MediaOne
Group Board's Covenant to Recommend" and "--Principal Covenants--No
Solicitation by MediaOne Group"; or
- MediaOne Group breaches any of its obligations under the merger
agreement and that breach causes a failure to satisfy a closing
condition that cannot be cured prior to the date set forth under
the first sub-bullet point under the second bullet point of this
section "Right to Terminate."
- The merger agreement may be terminated by MediaOne Group if AT&T
breaches any of its obligations under the merger agreement and that
breach causes a failure to satisfy a closing condition that cannot be
cured prior to the date set forth under the first sub-bullet point
under the second bullet point of this section "Right to Terminate."
If the merger agreement is validly terminated, the merger agreement will
become void without any liability on the part of any party, except that no party
will be relieved of any liability or damages resulting from its breach of the
merger agreement. In addition, the provisions of the merger agreement
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CHAPTER THREE - THE MERGER AGREEMENT
relating to the effect of the termination of the merger agreement, expenses and
termination fees, as well as the confidentiality agreement entered into between
AT&T and MediaOne Group, with the exception of certain provisions thereof, will
continue in effect notwithstanding termination of the merger agreement.
TERMINATION FEES PAYABLE BY MEDIAONE GROUP
MediaOne Group has agreed to make certain payments to AT&T under the
following circumstances:
- MediaOne Group has agreed to pay AT&T $1.5 billion in cash, plus
interest, in repayment of the amounts loaned by AT&T to MediaOne Group
on May 6, 1999 and used by MediaOne Group to pay the termination fee to
Comcast under the Comcast merger agreement, if the AT&T merger
agreement is terminated for any reason other than:
- by mutual agreement of MediaOne Group and AT&T;
- because there is a permanent legal prohibition to closing the
merger unless such a prohibition results from a private action that
is not an antitrust action;
- MediaOne Group stockholders fail to approve the merger agreement at
a duly held meeting, except under the circumstances described under
the third bullet point of this section "Termination Fees Payable by
MediaOne Group";
- under the circumstances described in the fourth bullet point under
"--Right to Terminate";
- as a result of the failure to satisfy any of the conditions
described in the second, third, seventh, eighth and ninth bullet
points under "--Conditions to the Completion of the Merger--Mutual
Closing Conditions" unless, in the case of the conditions described
in the third and ninth of such bullet points, the failure to
satisfy the condition results from a private action that is not an
antitrust action;
- the failure to satisfy the conditions described in the first and
second bullet points under "--Conditions to the Completion of the
Merger--Additional Closing Conditions for MediaOne Group's
Benefit"; or
- otherwise as a result of a breach of the merger agreement by AT&T.
- MediaOne Group has agreed to pay AT&T a termination fee of $1.6 billion
in cash, in addition to the reimbursement payment payable in the
circumstances described in the immediately preceding bullet point,
under the following circumstances:
- AT&T terminates the merger agreement because the MediaOne Group
Board fails to recommend approval of the merger agreement or
withdraws, or modifies in a manner adverse to AT&T its approval or
recommendation or fails to call the MediaOne Group meeting; or
- AT&T terminates the merger agreement because MediaOne Group
willfully and materially breaches its obligation to recommend
approval of the adoption of the merger agreement to MediaOne Group
stockholders or its obligations under the non-solicitation and
other covenants described under "--Principal Covenants--MediaOne
Group
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CHAPTER THREE - THE MERGER AGREEMENT
Board's Covenant to Recommend" and "--Principal Covenants--No
Solicitation by MediaOne Group."
- MediaOne Group has agreed to repay AT&T the $1.5 billion loan and pay
the $1.6 billion termination fee under the following circumstances:
- either AT&T or MediaOne Group terminates the merger agreement
because MediaOne Group stockholders fail to approve the merger
agreement at a duly held meeting and the following two conditions
are met:
- prior to the MediaOne Group meeting, a third party has made and
not withdrawn a proposal for an alternative acquisition
transaction involving MediaOne Group of a nature defined in the
merger agreement; and
- within one year of the MediaOne Group meeting, either:
- MediaOne Group or any of its subsidiaries enters into an
agreement relating to an alternative transaction with any
third party that provides for the transfer or issuance of
securities representing more than 50% of the voting
interests of MediaOne Group; a merger, consolidation or
other transaction that results in the issuance of
consideration to MediaOne Group stockholders in exchange
for more than 50% of the voting interests of MediaOne
Group; or the transfer of assets, securities or ownership
interests representing more than 50% of the assets or
earning power of MediaOne Group and its subsidiaries, taken
as a whole; or
- any third party commences a tender offer that results in
the acquisition of a majority of MediaOne Group common
stock by that third party.
OTHER EXPENSES
Except as described above, all costs and expenses incurred in connection
with the merger agreement will be paid by the party incurring the costs or
expenses, except that MediaOne Group and AT&T will share equally all fees and
expenses, other than attorneys' and accounting fees and expenses, incurred in
the preparation of this proxy statement/prospectus and the registration
statement. We estimate that merger-related fees and expenses, consisting
primarily of SEC filing fees, fees and expenses of investment bankers, attorneys
and accountants, and financial printing and other related charges, will total
approximately $345 million if the merger is completed.
AMENDMENTS; WAIVERS
Any provision of the merger agreement may be amended prior to the effective
time of the merger if the amendment is in writing and signed by MediaOne Group,
Merger Sub and AT&T. Any provision of the merger agreement may be waived prior
to the effective time of the merger if the waiver is in writing and signed by
the party against whom the waiver is to be effective. After MediaOne Group
stockholders have approved the adoption of the merger agreement, no amendment or
waiver that requires further approval by MediaOne Group stockholders may be made
without the approval of MediaOne Group stockholders.
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CHAPTER FOUR
THE MEETING AND VOTING
INFORMATION ABOUT THE MEETING AND VOTING
The MediaOne Group Board is using this document to solicit proxies from the
holders of MediaOne Group common stock for use at the MediaOne Group meeting. We
are first mailing this proxy statement/prospectus and accompanying form of proxy
to MediaOne Group stockholders on or about September 7, 1999.
MATTERS RELATING TO THE MEETING
TIME AND PLACE
The meeting will be held on October 21, 1999 at 10:00 a.m. Mountain Time, at
The Terrace Gardens at Dove Valley Event and Conference Center, 13065 East
Briarwood Avenue, Englewood, Colorado 80112.
PURPOSE OF MEETING IS TO VOTE ON THE FOLLOWING ITEMS
The adoption of the merger agreement, as described under "The
Transaction--The Merger Transaction--General" on page II-1.
RECORD DATE
The record date for shares entitled to vote is September 2, 1999.
OUTSTANDING SHARES HELD ON RECORD DATE
As of the record date, there were outstanding approximately 606,721,116
shares of MediaOne Group common stock.
LIST OF STOCKHOLDERS
A list of MediaOne Group stockholders entitled to vote at the meeting will
be available for inspection by any stockholder for purposes germane to the
meeting during normal business hours at the offices of MediaOne Group identified
on page I-3. This list will also be available for inspection by stockholders
present at the meeting.
SHARES ENTITLED TO VOTE
Shares entitled to vote are MediaOne Group common stock held at the close of
business on the record date, September 2, 1999. Each share of MediaOne Group
common stock that you own entitles you to one vote. Shares of MediaOne Group
Series C preferred stock, Series D preferred stock and Series E preferred stock
are not entitled to vote.
Each participant in the MediaOne Group Savings Plan/ESOP instructs the
trustees of the MediaOne Group Savings Plan/ESOP how to vote his or her shares.
The trustees will vote shares held in the MediaOne Group Savings Plan/ESOP for
which timely voting instructions are not received, as well as shares held in the
suspense account of the MediaOne Group Savings Plan/ESOP, in the same proportion
as the shares for which timely voting instructions are received.
Shares held by MediaOne Group in its treasury are not voted.
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CHAPTER FOUR - THE MEETING AND VOTING
QUORUM REQUIREMENT
A quorum of stockholders is necessary to hold a valid meeting. The presence
in person or by proxy of holders of shares representing a majority of votes
entitled to be cast by holders of MediaOne Group common stock entitled to vote
at the meeting is a quorum. Abstentions and broker "non-votes" count as present
for establishing a quorum. Shares held by MediaOne Group in its treasury are not
counted as outstanding for quorum or voting purposes. A broker "non-vote" occurs
on an item when a broker is not permitted to vote on that item without
instruction from the beneficial owner of the shares and no instruction is given.
SHARES BENEFICIALLY OWNED BY DIRECTORS AND EXECUTIVE OFFICERS AS OF AUGUST
24, 1999
On August 24, 1999, directors and executive officers of MediaOne Group and
their affiliates owned and were entitled to vote 5,046,771 shares of MediaOne
Group common stock, or less than 1% of the outstanding shares of MediaOne Group
common stock.
These individuals and their affiliates have indicated that they will vote in
favor of the merger proposal.
REPRESENTATIVES OF ARTHUR ANDERSEN LLP
Representatives of Arthur Andersen LLP are expected to be present at the
meeting. These representatives will have the opportunity to make a statement if
they desire to do so and are expected to be available to respond to appropriate
questions.
VOTE NECESSARY TO APPROVE MERGER PROPOSAL
Approval of the adoption of the merger and the merger agreement requires the
affirmative vote of a majority of the votes of the outstanding shares of
MediaOne Group common stock. The failure to vote, a vote to abstain or a broker
non-vote has the same effect as a vote against the adoption of the merger
agreement.
Under the NYSE rules, if your broker holds your shares in its name, your
broker may not vote your shares on the merger proposal absent instructions from
you. Without your voting instructions, a broker non-vote will occur on the
merger proposal and will have the effect of a vote against the adoption of the
merger agreement.
PROXIES
VOTING YOUR PROXY
You may vote in person at your meeting or by proxy. We recommend you vote by
proxy even if you plan to attend your meeting. You can always change your vote
at the meeting.
Voting instructions are included on your proxy card. If you properly give
your proxy and submit it to us in time to vote, one of the individuals named as
your proxy will vote your shares as you have directed.
HOW TO VOTE BY PROXY
You may vote by proxy by:
- completing, signing, dating and returning your proxy card in the enclosed
envelope;
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CHAPTER FOUR - THE MEETING AND VOTING
- calling 1-877-PRX-VOTE (1-877-779-8683) and following the instructions-you
will need to give the personal identification number contained on your
proxy card; or
- going to HTTP://WWW.EPROXYVOTE.COM/UMG and following the instructions-you
will need to give the personal identification number contained on your
proxy card.
If you hold your shares through a broker or other custodian, you should
check the voting form used by that firm to see if it offers telephone or
Internet voting.
PROXIES FOR PARTICIPANTS IN THE MEDIAONE GROUP SAVINGS PLAN/EMPLOYEE STOCK
OWNERSHIP PLAN
If you are a participant in the MediaOne Group Savings Plan/ESOP, you will
receive a single proxy card that covers shares credited to your plan accounts,
plus shares held of record in the same name. If your account in any such plan is
not carried in the same name as the shares, if any, you hold of record, you will
receive separate proxy cards for your individual and plan holdings. If you are a
participant in the MediaOne Group Savings Plan/ESOP and you do not vote the
shares credited to your plan account, those shares, as well as shares held in
the suspense account of the MediaOne Group Savings Plan/ESOP, will be voted by
the plan's trustees in the same proportion that the trustees vote all the shares
as to which they have received timely voting instructions.
If you submit your written proxy but do not make specific choices, your
proxy will follow the Board's recommendations and vote your shares FOR the
merger proposal.
REVOKING YOUR PROXY
You may revoke your proxy before it is voted by:
- sending in a new proxy with a later date-or, you may also submit your
new proxy by telephone or the Internet;
- notifying the Secretary in writing before the meeting that you have
revoked your proxy; or
- voting in person at the meeting.
VOTING IN PERSON
If you plan to attend the meeting and wish to vote in person, we will give
you a ballot at the meeting. However, if your shares are held in the name of
your broker, bank or other nominee, you must bring a proxy from your nominee
authorizing you to vote your "street name" shares on September 2, 1999, the
record date for voting.
PEOPLE WITH DISABILITIES
We can provide reasonable assistance to help you participate in the meeting
if you tell us about your disability and your plan to attend. Please call or
write the Secretary of MediaOne Group at least two weeks before the meeting at
the number or address included under "Additional Information for
Stockholders--Where You Can Find More Information" on page VI-1.
CONFIDENTIAL VOTING
Independent inspectors count the votes. Your individual vote is kept
confidential from us unless special circumstances exist. For example, a copy of
your proxy card will be sent to us if you write comments on the card.
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CHAPTER FOUR - THE MEETING AND VOTING
PROXY SOLICITATION
MediaOne Group will pay the costs of soliciting proxies.
In addition to this mailing, MediaOne Group directors, officers and
employees may solicit proxies personally, electronically or by telephone.
MediaOne Group is paying D.F. King & Co. a fee of $17,500 plus expenses to help
with the solicitation.
The extent to which these proxy soliciting efforts will be necessary depends
entirely upon how promptly proxies are submitted. You should submit your proxy
by mail, telephone or Internet without delay. We also reimburse brokers and
other nominees for their expenses in sending these materials to you and
obtaining your voting instructions.
Do not send in any stock certificates with your proxy cards. The exchange
agent will mail transmittal forms with instructions for the surrender of stock
certificates for MediaOne Group stock to MediaOne Group stockholders as soon as
practicable after the completion of the merger.
OTHER BUSINESS; ADJOURNMENTS
Under the MediaOne Group bylaws, no other business may be brought before the
meeting.
Adjournments may be made for the purpose of, among other things, soliciting
additional proxies. An adjournment may be made from time to time by the chairman
of the meeting or by approval of the holders of shares representing a majority
of the votes present in person or by proxy at the meeting, whether or not a
quorum exists, without further notice other than by an announcement made at the
meeting. No proxies voted against approval of the adoption of the merger
agreement by MediaOne Group will be voted in favor of adjournment of the meeting
for the purpose of soliciting additional proxies. We do not currently intend to
seek an adjournment of the meeting.
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CHAPTER FIVE
CERTAIN LEGAL INFORMATION
COMPARISON OF STOCKHOLDER RIGHTS
Upon consummation of the merger, some or all MediaOne Group stockholders
will become stockholders of AT&T and their rights will be governed by the AT&T
charter and the AT&T bylaws, which differ in certain material respects from the
MediaOne Group charter and the MediaOne Group bylaws. As stockholders of AT&T,
the rights of former MediaOne Group stockholders will also be governed by the
New York Business Corporation Law instead of the Delaware General Corporation
Law. New York is the jurisdiction of incorporation of AT&T and Delaware is the
jurisdiction of incorporation of MediaOne Group.
The following comparison of the New York Business Corporation Law, the AT&T
charter and the AT&T bylaws, on the one hand, and the Delaware General
Corporation Law, the MediaOne Group charter and the MediaOne Group bylaws, on
the other hand, summarizes the material differences but is not intended to list
all differences.
BUSINESS COMBINATIONS
Generally, under the Delaware General Corporation Law, the approval by the
affirmative vote of the holders of a majority of the outstanding stock (or, if
the certificate of incorporation provides for more or less than one vote per
share, a majority of the votes of the outstanding stock) of a corporation
entitled to vote on the matter is required for a merger or consolidation or
sale, lease or exchange of all or substantially all the corporation's assets to
be consummated.
The MediaOne Group charter provides that the approval of the following
business combinations requires the approval of holders of at least 80% of the
outstanding shares of MediaOne Group voting stock, voting together as a single
class:
- any merger or consolidation of MediaOne Group or any MediaOne Group
subsidiary with or into a person or entity that owns 10% or more of the
outstanding shares of MediaOne Group voting stock-sometimes in this
section, we will refer to such a person or entity as a "related person";
- any merger or consolidation of a related person with or into MediaOne
Group or any MediaOne Group subsidiary;
- any sale, lease, transfer or other disposition of greater than 80% of the
book value of the consolidated assets of MediaOne Group to a related
person;
- the issuance of any securities of MediaOne Group or any MediaOne Group
subsidiary to a related person, other than a distribution to stockholders
that is made pro rata to all holders of the class of stock that receives
the distribution;
- an acquisition by MediaOne Group or any MediaOne Group subsidiary of any
securities of a related person;
- any recapitalization that has the effect of increasing the voting power of
a related person; and
- any merger of MediaOne Group into a MediaOne Group subsidiary.
However, the 80% approval will not be required if:
- the business combination is approved by a majority of continuing directors
that (1) are not affiliated or associated with the related person and (2)
were members of the MediaOne Group Board prior to the time that the
related person became a related person, or were recommended
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CHAPTER FIVE - CERTAIN LEGAL INFORMATION
to succeed continuing directors by a majority of continuing directors then
serving as members of the MediaOne Group Board; or
- each of the following conditions are met:
- the value of the consideration to be received by holders of any class
or series of MediaOne Group voting stock is at least equal to the
highest of the following:
- the highest price paid by the related person for any shares of such
class or series of MediaOne Group voting stock acquired (1) within
the two-year period immediately prior to the first public
announcement of the proposed business combination or (2) in the
transaction in which it became a related person;
- the fair market value of the MediaOne Group voting stock (1) at the
time of the first public announcement of the proposed business
combination or (2) on the date on which the related person became a
related person, whichever is higher; or
- in the case of any class or series of MediaOne Group voting stock
other than MediaOne Group common stock, the redemption price of the
shares of such class or series of MediaOne Group voting stock, or
if the shares have no redemption price, the highest amount per
share that class or series would be entitled to receive upon
liquidation of MediaOne Group (1) at the time of the first public
announcement of the proposed business combination or (2) on the
date on which the related person became a related person, whichever
is higher;
- the consideration received in the business combination by holders of
outstanding MediaOne Group voting stock is in cash or in the same form
that the related person previously paid for shares of such class or
series of MediaOne Group voting stock; and
- a proxy statement relating to the business combination is mailed to the
public MediaOne Group stockholders that contains (1) the recommendation
of the continuing directors as to the advisability of the business
combination and (2) if deemed advisable by a majority of the continuing
directors, an opinion of a reputable investment banking firm as to the
fairness of the business combination to the public MediaOne Group
stockholders.
Under the New York Business Corporation Law, a plan of merger or
consolidation, a plan of share exchange or the sale, lease, exchange or other
disposition of all or substantially all of the assets of a corporation is
required to be approved (1) in the case of corporations like AT&T that were in
existence on February 22, 1998 and that do not expressly provide in their
certificates of incorporation for majority approval of such transactions, by
two-thirds of the votes of all outstanding shares entitled to vote thereon, and
(2) in the case of all other corporations, by a majority of the votes of all
outstanding shares entitled to vote thereon. The AT&T charter does not contain a
provision expressly providing for majority approval of such transactions.
The New York Business Corporation Law also provides that holders of shares
of a class, or series of a class, of capital stock of a corporation shall be
entitled to vote together and to vote as a separate class on any merger or
consolidation in which (1) such shares will remain outstanding after the merger
or consolidation or will be converted into the right to receive shares of stock
of the surviving or consolidated corporation or another corporation and (2) the
charter of the surviving or consolidated corporation or such other corporation
immediately after the effectiveness of the merger or consolidation would contain
any provision that is not contained in the charter of the pre-merger corporation
and that, if contained in an amendment thereto, would entitle the holders of
shares of such class or series
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CHAPTER FIVE - CERTAIN LEGAL INFORMATION
of a class to vote as a separate class pursuant to the procedures under the New
York Business Corporation Law for class voting on charter amendments discussed
under "--Amendments to Charters."
STATE TAKEOVER LEGISLATION
Section 203 of the Delaware General Corporation Law, in general, prohibits a
business combination between a corporation and an interested stockholder within
three years of the time such stockholder became an interested stockholder,
unless:
- prior to such time the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, exclusive of shares owned by directors who are
also officers and by certain employee stock plans; or
- at or subsequent to such time, the business combination is approved by the
board of directors and authorized by the affirmative vote at a
stockholders' meeting of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder.
The term "business combination" is defined to include, among other
transactions between the interested stockholder and the corporation or any
direct or indirect majority owned subsidiary thereof, a merger or consolidation;
a sale, pledge, transfer or other disposition (including as part of a
dissolution) of assets having an aggregate market value equal to 10% or more of
either the aggregate market value of all assets of the corporation on a
consolidated basis or the aggregate market value of all the outstanding stock of
the corporation; certain transactions that would increase the interested
stockholder's proportionate share ownership of the stock of any class or series
of the corporation or such subsidiary; and any receipt by the interested
stockholder of the benefit of any loans, advances, guarantees, pledges or other
financial benefits provided by or through the corporation or any such
subsidiary. In general, and subject to certain exceptions, an "interested
stockholder" is any person who is the owner of 15% or more of the outstanding
voting stock of the corporation, and the affiliates and associates of such
person. The term "owner" is broadly defined to include any person that
individually or with or through such person's affiliates or associates, among
other things, beneficially owns such stock, or has the right to acquire such
stock (whether such right is exercisable immediately or only after the passage
of time) pursuant to any agreement or understanding or upon the exercise of
warrants or options or otherwise or has the right to vote such stock pursuant to
any agreement or understanding, or has an agreement or understanding with the
beneficial owner of such stock for the purpose of acquiring, holding, voting or
disposing of such stock.
The restrictions of Section 203 do not apply to corporations that have
elected, in the manner provided therein, not to be subject to Section 203 or,
with certain exceptions, which do not have a class of voting stock that is
listed on a national securities exchange or authorized for quotation on the
Nasdaq National Market tier of The Nasdaq Stock Market ("NASDAQ/NM") or held of
record by more than 2,000 stockholders. MediaOne Group has taken all action
necessary to exempt the merger, the merger agreement and the transactions
contemplated by the merger agreement from the restrictions of Section 203 and,
accordingly, Section 203 is inapplicable to the merger and the other
transactions contemplated by the merger agreement.
Section 912 of the New York Business Corporation Law prohibits any "business
combination" (defined to include a variety of transactions, including mergers,
sales or dispositions of assets, issuances
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of stock, liquidations, reclassifications and benefits from the corporation,
including loans or guarantees) with, involving or proposed by any "interested
stockholder" (defined generally as any person who, directly or indirectly,
beneficially owns 20% or more of the outstanding voting stock of a New York
corporation) for a period of five years after the date on which the interested
stockholder became an interested stockholder. After such five-year period, a
business combination between a New York corporation and such interested
stockholder is prohibited unless either certain "fair price" provisions are
complied with or the business combination is approved by a majority of the
outstanding voting stock not beneficially owned by such interested stockholder
or its affiliates and associates. The restrictions of the New York Business
Corporation Law do not apply, however, to any business combination with an
interested stockholder if such business combination, or the purchase of stock by
the interested stockholder that caused such stockholder to become an interested
stockholder, was approved by the board of directors of the New York corporation
prior to the date on which the interested stockholder became an interested
stockholder.
A New York corporation may adopt an amendment to its bylaws, approved by the
affirmative vote of a majority of votes of the outstanding voting stock,
excluding the voting stock of interested stockholders and their affiliates and
associates, expressly electing not to be governed by Section 912. Such amendment
will not, however, be effective until 18 months after such stockholder vote and
will not apply to any business combination with an interested stockholder who
was such on or prior to the effective date of such amendment. The AT&T bylaws
contain no provision electing not to be governed by Section 912.
RIGHTS OF DISSENTING STOCKHOLDERS
Under the Delaware General Corporation Law, except as otherwise provided by
the Delaware General Corporation Law, stockholders of a constituent corporation
in a merger or consolidation have the right to demand and receive payment of the
fair value of their stock in a merger or consolidation. However, except as
otherwise provided by the Delaware General Corporation Law, stockholders do not
have appraisal rights in a merger or consolidation if, among other things, their
shares are:
- listed on a national securities exchange or designated as a national
market system security on an inter-dealer quotation system by the National
Association of Securities Dealers, Inc.; or
- held of record by more than 2,000 stockholders;
and, in each case, the consideration such stockholders receive for their shares
in a merger or consolidation consists solely of:
- shares of stock of the corporation surviving or resulting from such merger
or consolidation;
- shares of stock of any other corporation that at the effective date of the
merger or consolidation will be either listed on a national securities
exchange, which is true in the case of AT&T common stock and AT&T Series D
preferred stock to be issued pursuant to the merger, or designated as a
national market system security on an inter-dealer quotation system by the
National Association of Securities Dealers, Inc. or held of record by more
than 2,000 stockholders;
- cash in lieu of fractional shares of the corporations described in the two
immediately preceding bullet points; or
- any combination of shares of stock and cash in lieu of fractional shares
described in the three immediately preceding bullet points.
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Chapter Five - Certain Legal Information
See "The Transaction--The Merger Transaction--Appraisal Rights" on page II-14.
Stockholders of a New York corporation whose shares are not listed on a
national securities exchange or designated as a national market system security
on an inter-dealer quotation system by the National Association of Securities
Dealers, Inc. have the right to dissent and receive payment of the fair value of
their shares, except as otherwise provided by the New York Business Corporation
Law, in the event of certain amendments or changes to the certificate of
incorporation adversely affecting their shares, certain mergers or
consolidations, certain sales, leases, exchanges or other dispositions of all or
substantially all the corporation's assets and certain share exchanges. Holders
of AT&T common stock do not have such rights to dissent because AT&T common
stock is listed on a national securities exchange. In addition, holders of AT&T
Series D preferred stock will not have such rights to dissent because AT&T
Series D preferred stock will be listed on a national securities exchange.
Holders of AT&T Series C preferred stock and holders of AT&T Series E preferred
stock will have such rights to dissent.
AMENDMENTS TO CHARTERS
Under the Delaware General Corporation Law, unless the certificate of
incorporation requires a greater vote, a proposed amendment to the certificate
of incorporation requires an affirmative vote of a majority of the voting power
of the outstanding stock entitled to vote thereon and a majority of the voting
power of the outstanding stock of each class entitled to vote thereon. The
approval of the holders of a majority of the outstanding shares of any class of
capital stock of a corporation, voting separately as a class, is required under
the Delaware General Corporation Law to approve a proposed amendment to a
corporation's certificate of incorporation, whether or not entitled to vote on
such amendment by the certificate of incorporation, if the amendment would
increase or decrease the aggregate number of authorized shares of such class
(except as provided in the last sentence of this paragraph), increase or
decrease the par value of the shares of such class, or alter or change the
powers, preferences or special rights of the shares of such class so as to
affect them adversely. For this purpose, if a proposed amendment would alter or
change the powers, preferences or special rights of one or more series of any
class so as to affect them adversely, but would not so affect the entire class,
then only the shares of the series so affected by the amendment would be
entitled to vote as a separate class on the amendment. Accordingly, a proposed
amendment the adverse effect of which on the powers, preferences or special
rights of any series of common stock does not differ from its adverse effect on
the powers, preferences or special rights of any other series of common stock
would not entitle such series to vote as a class separately from the other
series of common stock. The authorized number of shares of any class of stock
may be increased or decreased (but not below the number of shares of such class
outstanding) by the requisite vote described above if so provided in the
original certificate of incorporation or in any amendment thereto that created
such class of stock or that was adopted prior to the issuance of any shares of
such class, or in an amendment authorized by a majority vote of the holders of
shares of such class.
The MediaOne Group charter provides that the MediaOne Group charter may be
amended only with the approval of a majority of the MediaOne Group Board and the
approval of holders of a majority the outstanding shares of MediaOne Group
voting stock, voting together as a single class. However, amendment of MediaOne
Group charter provisions relating to the (1) amendment of the MediaOne Group
charter and bylaws, (2) classification of the MediaOne Group Board, (3) removal
of directors, (4) stockholder actions by written consent and (5) stockholder
meetings requires the approval of holders of 80% of the outstanding shares of
MediaOne Group voting stock, voting together as a single class.
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Under the New York Business Corporation Law, amendments to a certificate of
incorporation generally must be approved by a vote of the board of directors
followed by vote of a majority of all outstanding shares entitled to vote
thereon at a meeting of stockholders, provided that, if a provision of the
certificate of incorporation requires the vote of a greater number or proportion
of shares, such provision may not be altered, amended or repealed except by such
greater vote. The approval of a majority of the votes of all outstanding shares
of any class of capital stock of a corporation, voting separately as a class, is
also required to approve a proposed amendment to a corporation's certificate of
incorporation, whether or not such holders are otherwise entitled to vote on
such amendment by the certificate of incorporation, that:
- would decrease the par value of the shares of such class, change any
shares of such class into a different number of shares of the same class
or into the same or a different number of shares of a different class,
fix, change or abolish the designation of such class, alter or change the
designation, relative rights, preferences or limitations of the shares of
such class or provide new conversion rights or, alter any existing
conversion rights so as to affect them adversely;
- would exclude or limit the voting rights of the shares of such class,
except as such rights may be limited by voting rights given to new shares
then being authorized of any existing or new class or series of shares; or
- would subordinate the rights of the shares of such class by authorizing
shares having preferences superior to the rights of such existing shares.
For this purpose, if a proposed amendment would have any of the effects listed
in the immediately preceding sentence on one or more series of any class so as
to affect them adversely but would not so affect the entire class, then only the
shares of the series so affected by the amendment would be entitled to vote as a
separate class on the amendment. Accordingly, a proposed amendment the adverse
effect of which on the powers, preferences or special rights of any class or
series of shares of AT&T does not differ from its adverse effect on the powers,
preferences or special rights of any other class or series of shares of AT&T
would not entitle such class to vote separately from the other classes of shares
of AT&T.
AMENDMENTS TO BYLAWS
Under the Delaware General Corporation Law, the power to adopt, alter and
repeal bylaws is vested in the stockholders, except to the extent that a
corporation's certificate of incorporation vests concurrent power in the board
of directors.
Under the MediaOne Group charter and MediaOne Group bylaws, the MediaOne
Group Board may adopt, amend, alter or repeal the MediaOne Group bylaws by the
affirmative vote of at least 66 2/3% of the directors then in office. MediaOne
Group stockholders may adopt, amend, alter or repeal the MediaOne Group bylaws
by the affirmative vote of holders of at least 80% of the outstanding shares of
MediaOne Group voting stock, voting together as a single class.
Under the New York Business Corporation Law, except as otherwise provided in
the certificate of incorporation, bylaws may be amended, repealed or adopted by
a majority of the votes cast by the shares at the time entitled to vote in the
election of any directors. When so provided in the certificate of incorporation
or a bylaw adopted by the stockholders, bylaws also may be amended, repealed or
adopted by the board of directors by such vote as may be therein specified,
which may be greater than the vote otherwise prescribed by the New York Business
Corporation Law, but any bylaw adopted by
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the board of directors may be amended or repealed by the stockholders entitled
to vote thereon as provided by the New York Business Corporation Law.
The AT&T bylaws may be amended by the stockholders of AT&T at any meeting,
or by the AT&T Board at any meeting by a majority vote of the full AT&T Board or
at two successive meetings by a majority vote of a quorum present.
NO PREEMPTIVE RIGHTS
Under the Delaware General Corporation Law, a stockholder does not possess
preemptive rights unless such rights are specifically granted in the certificate
of incorporation. The MediaOne Group charter does not provide for preemptive
rights to stockholders to subscribe for any additional shares of capital stock
or other obligations convertible into or exercisable for shares of capital stock
that may be issued by MediaOne Group.
Under the New York Business Corporation Law, except as otherwise provided in
the New York Business Corporation Law or in the certificate of incorporation,
holders of equity shares of any corporation (like AT&T) incorporated prior to
February 22, 1998 are granted certain preemptive rights. The AT&T charter
provides that no holder of AT&T common stock has any preemptive rights to
purchase any AT&T common stock or other securities of AT&T.
REDEMPTION OF CAPITAL STOCK
Under the Delaware General Corporation Law, subject to certain limitations,
a corporation's capital stock may be made subject to redemption by the
corporation at its option, at the option of holders of such stock or otherwise.
Under the New York Business Corporation Law, subject to certain limitations,
a corporation's certificate of incorporation may provide for one or more classes
or series of shares to be redeemable at the option of the corporation, the
holders thereof, other persons or upon the happening of a specified event for
cash, other property, indebtedness or other securities of the same or another
corporation, at such time or times, price or prices, or rate or rates, and with
such adjustments, as are stated in the certificate of incorporation. The AT&T
charter does not contain such a provision. However, the certificate of
designation relating to each of the AT&T Series D preferred stock and AT&T
Series E preferred stock to be issued in the merger will contain provisions
relating to the redemption of each of these series of AT&T preferred stock. See
"--Description of AT&T Capital Stock--AT&T Preferred Stock" on page V-19.
DIVIDEND SOURCES
Under the Delaware General Corporation Law, a board of directors may
authorize a corporation to make dividends and other distributions to its
stockholders, subject to any restrictions contained in the corporation's
certificate of incorporation, either out of surplus (defined as net assets less
statutory capital), or, if there is no surplus, out of net profits for the
fiscal year in which the dividend is declared and/or the preceding fiscal year.
Under the Delaware General Corporation Law, no distribution out of net profits
is permitted, however, if a corporation's capital is less than the amount of
capital represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets, until such deficiency has been
repaired.
Under the New York Business Corporation Law, except as otherwise provided in
the New York Business Corporation Law, dividends may be declared and paid and
other distributions may be made
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out of surplus only, so that the net assets of the corporation remaining after
such declaration, payment or distribution must at least equal the amount of its
stated capital. A corporation may declare and pay dividends or make other
distributions, except when the corporation is insolvent or would thereby be made
insolvent, or when the declaration, payment or distribution would be contrary to
any restrictions contained in the corporation's certificate of incorporation.
Following the merger, AT&T expects to continue to pay its regular quarterly
dividend on AT&T common stock at its current rate, subject to any change that
the AT&T Board may determine.
DURATION OF PROXIES
Under the Delaware General Corporation Law, no proxy is valid for more than
three years after its date unless otherwise provided in the proxy. A proxy shall
be irrevocable if it states that it is irrevocable and if, and only as long as,
it is coupled with an interest sufficient in law to support an irrevocable
power. A proxy may be made irrevocable regardless of whether the interest with
which it is coupled is an interest in the stock itself or an interest in the
corporation generally.
Under the New York Business Corporation Law, no proxy is valid for more than
11 months after its date, unless otherwise provided in the proxy. Irrevocable
proxies may be created for:
- a pledgee;
- a person who has purchased or agreed to purchase the shares;
- a creditor of the corporation who extends credit in consideration of the
proxy;
- a person who has contracted to perform services as an officer of the
corporation if a proxy is required by the employment contract; and
- a person designated under a voting agreement.
STOCKHOLDER ACTION
Under the Delaware General Corporation Law unless otherwise provided in the
certificate of incorporation, any action required or permitted to be taken at a
meeting of stockholders may be taken without a meeting, without prior notice and
without a vote, if a written consent or consents setting forth the action taken
is signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote upon such action were present and
voted. The MediaOne Group charter provides that any action taken by MediaOne
Group stockholders must be effected at a meeting of MediaOne Group stockholders
and not by written consent.
Under the New York Business Corporation Law, any action required or
permitted to be taken by a vote at a meeting of stockholders may be taken
without a meeting by written consent, setting forth the action so taken, signed
by the holders of all outstanding shares entitled to vote thereon, or, if the
certificate of incorporation so permits, signed by holders of outstanding shares
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted. The AT&T charter does not contain such a
provision.
The New York Business Corporation Law also provides that no written consent
of stockholders shall be effective unless, within 60 days of the earliest dated
consent delivered to the corporation, the corporation shall have received
written consents from a sufficient number of holders to take the action
specified therein. Prompt notice of the taking of corporate action without a
meeting shall be given to those stockholders who have not consented in writing.
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Chapter Five - Certain Legal Information
STOCKHOLDER PROPOSALS
The MediaOne Group bylaws require that, for business to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
notice thereof to MediaOne Group (in proper written form as specified in the
MediaOne Group bylaws) not less than 90 days prior to the date of the annual
meeting of stockholders. This requirement is separate and apart from and in
addition to the requirements that a stockholder must meet to have a stockholder
proposal included in MediaOne Group's proxy statement under SEC Rule 14a-8. The
MediaOne Group bylaws require that written notice of the intent to make a
nomination for the election of directors at a meeting of stockholders and that
contains certain other specified information must be received by MediaOne Group
not later than (1) 90 days in advance of such meeting with respect to an
election of directors to be held at an annual meeting of stockholders and (2)
the 15th day following the public announcement of the date of such meeting with
respect to an election of directors to be held at a special meeting of
stockholders.
The AT&T bylaws require that, for business to be properly brought before an
annual meeting by a stockholder, the stockholder must have delivered notice
thereof to AT&T (containing certain information specified in the AT&T bylaws)
not less than 90 nor more than 120 days prior to the first anniversary of the
preceding year's annual meeting. This requirement is separate and apart from and
in addition to the requirements that a stockholder must meet to have a
stockholder proposal included in AT&T's proxy statement under SEC Rule 14a-8.
MEETINGS OF STOCKHOLDERS
The Delaware General Corporation Law provides that a special meeting of
stockholders may be called by the board of directors or by such person or
persons as may be authorized by the certificate of incorporation or by the
bylaws. The MediaOne Group charter and MediaOne Group bylaws provide that
special meetings of MediaOne Group stockholders may be called only by the
Chairman of the MediaOne Group Board or a majority of the MediaOne Group Board.
The New York Business Corporation Law provides that, if, for a period of one
month after the date fixed by or under the bylaws for the annual meeting of
stockholders or, if no date has been so fixed, for a period of 13 months after
the last annual meeting, there is a failure to elect a sufficient number of
directors to conduct the business of the corporation, the board of directors of
the corporation shall call a special meeting for the election of directors. If
such special meeting is not called by the board of directors of the corporation
within two weeks after the expiration of such period or if it is called but
there is a failure to elect such directors for a period of two months after the
expiration of such period, holders of 10% of the votes of the shares entitled to
vote in an election of directors may, in writing, demand the call of a special
meeting for the election of directors.
The New York Business Corporation Law also provides that special meetings of
stockholders may be called by the board of directors and by such persons as may
be authorized in the certificate of incorporation or bylaws. The AT&T bylaws
provide that special meetings of AT&T shareowners may be called at any time by
the Chairman of the Board, by the AT&T Board or upon a request signed by
stockholders representing at least 33 1/3% of AT&T common stock.
CUMULATIVE VOTING
Under the Delaware General Corporation Law, the certificate of incorporation
may provide that at all elections of directors, or at elections held under
specified circumstances, each stockholder is entitled
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to cumulate such stockholder's votes. The MediaOne Group charter does not
provide for cumulative voting for the election of directors.
Under the New York Business Corporation Law, the certificate of
incorporation may provide that in all elections of directors each stockholder is
entitled to cumulate such stockholder's votes. The AT&T charter does not contain
such a provision.
NUMBER AND ELECTION OF DIRECTORS
The Delaware General Corporation Law permits the certificate of
incorporation or the bylaws of a corporation to contain provisions governing the
number and terms of directors. However, if the certificate of incorporation
contains provisions fixing the number of directors, such number may not be
changed without amending the certificate of incorporation. The Delaware General
Corporation Law permits the certificate of incorporation of a corporation or a
bylaw adopted by the stockholders to provide that directors be divided into one,
two or three classes, with the term of office of one class of directors to
expire each year. The Delaware General Corporation Law also permits the
certificate of incorporation to confer upon holders of any class or series of
stock the right to elect one or more directors to serve for such terms and have
such voting powers as are stated in the certificate of incorporation. The terms
of office and voting powers of directors so elected may be greater or less than
those of any other director or class of directors.
The MediaOne Group bylaws provide that the number of directors will be as
determined by the MediaOne Group Board, but may not be fewer than six directors
nor more than 17 directors. The MediaOne Group Board is divided into three
classes, with members serving staggered three-year terms. The MediaOne Group
Board currently consists of 10 directors.
Subject to certain limitations, the New York Business Corporation Law
permits the number of directors of a corporation to be fixed by its bylaws, by
action of the stockholders or by action of the board of directors under the
specific provision of a bylaw adopted by the stockholders. At each annual
meeting of stockholders, directors are to be elected to hold office until the
next annual meeting, except as described below for corporations with classified
boards of directors. In addition, the New York Business Corporation Law permits
the certificate of incorporation or the specific provisions of a bylaw adopted
by the stockholders to provide that directors be divided into either two, three
or four classes. All classes must be as nearly equal in number as possible. The
term of office of one class of directors shall expire each year, with the terms
of office of no two classes expiring the same year. New amendments to the New
York Business Corporation Law delete the requirement of at least three directors
in any class.
The AT&T charter provides that the number of directors shall be as provided
for in the AT&T bylaws. The AT&T bylaws provide that the number of directors
shall be not less than 10 nor more than 25, the exact number of directors within
such minimum and maximum limits to be fixed and determined by the vote of a
majority of the entire AT&T Board. Currently, AT&T has 14 directors. If the
merger is completed, the size of the AT&T Board will be increased to 15
directors. See "The Merger Agreement--Principal Covenants--AT&T Board Matters"
on page III-11. AT&T does not have a classified board of directors.
REMOVAL OF DIRECTORS
The Delaware General Corporation Law provides that a director or directors
may be removed with or without cause by the holders of a majority in voting
power of the shares then entitled to vote at an
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election of directors, except that (1) members of a classified board of
directors may be removed only for cause, unless the certificate of incorporation
provides otherwise, and (2) in the case of a corporation having cumulative
voting, if less than the entire board of directors is to be removed, no director
may be removed without cause if the votes cast against such director's removal
would be sufficient to elect such director if then cumulatively voted at an
election of the entire board of directors or of the class of directors of which
such director is a part.
The MediaOne Group charter and the MediaOne Group bylaws provide that
MediaOne Group directors may be removed from office only for cause and only by
the affirmative vote of the holders of at least 80% of the outstanding shares of
MediaOne Group voting stock, voting as a single class.
The New York Business Corporation Law provides that any or all of the
directors may be removed for cause by vote of the stockholders and, if the
certificate of incorporation or the specific provisions of a bylaw adopted by
the stockholders provide, directors may be removed for cause by action of the
board of directors. If the certificate of incorporation or the bylaws so
provide, any or all of the directors may be removed without cause by vote of the
stockholders. The removal of directors, with or without cause, is subject to the
following: (1) in the case of a corporation having cumulative voting, no
director may be removed when the votes cast against such director's removal
would be sufficient to elect the director if voted cumulatively, and (2) if a
director is elected by the holders of shares of any class or series, such
director may be removed only by the applicable vote of the holders of the shares
of that class or series voting as a class. An action to procure a judgment
removing a director for cause may be brought by the Attorney General of the
State of New York or by the holders of 10% of the outstanding shares, whether or
not entitled to vote.
Neither the AT&T charter nor the AT&T bylaws provide that directors may be
removed without cause by action of the stockholders or that directors may be
removed by the AT&T Board.
VACANCIES
Under the Delaware General Corporation Law unless otherwise provided in the
certificate of incorporation or the bylaws, vacancies on a board of directors
and newly created directorships resulting from an increase in the authorized
number of directors may be filled by a majority of the directors then in office,
although less than a quorum, or by the sole remaining director, provided that,
in the case of a classified board of directors, such vacancies and newly created
directorships may be filled by a majority of the directors elected by such class
or by the sole remaining director so elected. In the case of a classified board
of directors, directors elected to fill vacancies or newly created directorships
shall hold office until the next election of the class for which such directors
have been chosen, and until their successors have been duly elected and
qualified. In addition, if, at the time of the filling of any such vacancy or
newly created directorship, the directors in office constitute less than a
majority of the whole board of directors (as constituted immediately prior to
any such increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least 10% of the total number of
outstanding shares entitled to vote for such directors, summarily order an
election to fill any such vacancy or newly created directorship, or replace the
directors chosen by the directors then in office.
The MediaOne Group charter and the MediaOne Group bylaws provide that any
vacancies on the MediaOne Group Board resulting from death, resignation, removal
or other cause and newly created directorships resulting from any increase in
the number of directors shall only be filled by the MediaOne Group Board by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum, or the sole remaining director, or, if not so filled,
by the stockholders
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CHAPTER FIVE - CERTAIN LEGAL INFORMATION
at the next annual meeting thereof or at a special meeting called for that
purpose. The MediaOne Group charter and MediaOne Group bylaws also provide that
any directors elected to fill a vacancy on the MediaOne Group Board or a newly
created directorship will serve for the remainder of the full term of the class
of directors for which such director was elected and until such director's
successor shall have been elected and qualified.
Under the New York Business Corporation Law, newly created directorships
resulting from an increase in the number of directors and vacancies occurring on
the board of directors for any reason except the removal of directors without
cause may be filled by the vote of the board of directors. Unless the
certificate of incorporation or bylaws provide otherwise, a vacancy in a
directorship elected by holders of a particular class or series of shares shall
be filled by a vote of the other directors elected by holders of the same class
or series. However, the certificate of incorporation or bylaws may provide that
such newly created directorships or vacancies are to be filled by vote of the
stockholders. Unless the certificate of incorporation or the specific provisions
of a bylaw adopted by the stockholders provide that the board of directors may
fill vacancies occurring on the board of directors by reason of the removal of
directors without cause, such vacancies may be filled only by vote of the
stockholders. A director elected to fill a vacancy, unless elected by the
stockholders, will hold office until the next meeting of stockholders at which
the election of directors is in the regular order of business and until his or
her successor has been elected and qualified. Notwithstanding the foregoing,
unless otherwise provided in the certificate of incorporation or bylaws,
whenever the holders of one or more classes or series of shares are entitled to
elect one or more directors by the certificate of incorporation, any vacancy
that may be filled by the board or a majority of the directors then in office
shall be filled by a majority of the directors then in office that were elected
by such classes or series.
The AT&T bylaws provide that any vacancy on the AT&T Board may be filled by
a majority vote of the remaining directors, though less than a quorum.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law generally permits a corporation to
indemnify its directors and officers against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with a
third-party action, other than a derivative action, and against expenses
actually and reasonably incurred in the defense or settlement of a derivative
action, provided that there is a determination that the individual acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation. Such determination shall be made, in the case of
an individual who is a director or officer at the time of such determination:
- by a majority of the disinterested directors, even though less than a
quorum;
- by a committee of such directors designated by a majority vote of such
directors, even though less than a quorum;
- by independent legal counsel, regardless of whether a quorum of
disinterested directors exists; or
- by a majority vote of the stockholders, at a meeting at which a quorum is
present.
Without court approval, however, no indemnification may be made in respect of
any derivative action in which such individual is adjudged liable to the
corporation.
The Delaware General Corporation Law requires indemnification of directors
and officers for expenses relating to a successful defense on the merits or
otherwise of a derivative or third-party action.
V-12
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CHAPTER FIVE - CERTAIN LEGAL INFORMATION
The Delaware General Corporation Law permits a corporation to advance
expenses relating to the defense of any proceeding to directors and officers
contingent upon such individuals' commitment to repay any advances unless it is
determined ultimately that such individuals are entitled to be indemnified.
Under the Delaware General Corporation Law, the rights to indemnification
and advancement of expenses provided in the law are non-exclusive, in that,
subject to public policy issues, indemnification and advancement of expenses
beyond that provided by statute may be provided by bylaw, agreement, vote of
stockholders, disinterested directors or otherwise.
The MediaOne Group bylaws provide that MediaOne Group officers and directors
shall be indemnified to the fullest extent permitted by applicable law, except
where a judgment or other final adjudication establishes, or where MediaOne
Group determines, that the acts or omissions of an officer or director (1) were
in breach of such person's duty of loyalty to MediaOne Group or its
stockholders, (2) were not in good faith or involved intentional misconduct or a
knowing violation of law or (3) resulted in receipt by such person of an
improper personal benefit.
Under the New York Business Corporation Law, a corporation may indemnify its
directors and officers made, or threatened to be made, a party to any action or
proceeding, except for stockholder derivative suits, if such director or officer
acted in good faith, for a purpose that he or she reasonably believed to be in,
or, in the case of service to another corporation or enterprise, not opposed to,
the best interests of the corporation, and, in criminal proceedings, in
addition, had no reasonable cause to believe his or her conduct was unlawful. In
the case of stockholder derivative suits, the corporation may indemnify a
director or officer if he or she acted in good faith for a purpose that he or
she reasonably believed to be in, or, in the case of service to another
corporation or enterprise, not opposed to, the best interests of the
corporation. Notwithstanding the foregoing, that no indemnification may be made
in respect of (1) a threatened action, or a pending action that is settled or
otherwise disposed of, or (2) any claim, issue or matter as to which such
individual has been adjudged to be liable to the corporation, unless and only to
the extent that the court in which the action was brought, or, if no action was
brought, any court of competent jurisdiction, determines upon application that,
in view of all the circumstances of the case, the individual is fairly and
reasonably entitled to indemnity for such portion of the settlement amount and
expenses as the court deems proper.
Any individual who has been successful on the merits or otherwise in the
defense of a civil or criminal action or proceeding will be entitled to
indemnification. Except as provided in the preceding sentence, or ordered by a
court pursuant to the New York Business Corporation Law, any indemnification
under the New York Business Corporation Law pursuant to the above paragraph may
be made only if authorized in the specific case and after a finding that the
director or officer met the applicable standard of conduct by the disinterested
directors if a quorum is available, or, if such a quorum so directs or is
unavailable (1) the board of directors upon the written opinion of independent
legal counsel or (2) the stockholders. A corporation may advance expenses
incurred by a director or officer in defending any action or proceeding prior to
its final disposition upon receipt of an undertaking by or on behalf of such
individual to repay such advance to the extent that it exceeds the
indemnification to which such individual is entitled.
V-13
<PAGE>
Chapter Five - Certain Legal Information
The indemnification described above under the New York Business Corporation
Law is not exclusive of other indemnification rights to which a director or
officer may be entitled, whether contained in the certificate of incorporation
or bylaws or when authorized by such certificate of incorporation or bylaws, (1)
a resolution of stockholders, (2) a resolution of directors or (3) an agreement
providing for such indemnification, provided that no indemnification may be made
to or on behalf of any director or officer if a judgment or other final
adjudication adverse to the director or officer establishes that his or her acts
were committed in bad faith or were the result of active and deliberate
dishonesty and were material to the cause of action so adjudicated, or that he
or she personally gained in fact a financial profit or other advantage to which
he or she was not legally entitled.
The AT&T bylaws provide that AT&T is authorized, by (1) a resolution of
stockholders, (2) a resolution of directors or (3) an agreement providing for
such indemnification, to the fullest extent permitted by applicable law, to
provide indemnification and to advance expenses to its directors and officers in
respect of claims, actions, suits or proceedings based upon, arising from,
relating to or by reason of the fact that any such director or officer serves or
served in such capacity with the corporation or at the request of AT&T in any
capacity with any other enterprise. AT&T has entered into indemnification
agreements with certain of its officers and directors in accordance with the
AT&T bylaws.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling AT&T or MediaOne
Group pursuant to the foregoing provisions, AT&T and MediaOne Group have been
informed that, in the opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
The Delaware General Corporation Law provides that a corporation's
certificate of incorporation may include a provision limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. However, no such provision
can eliminate or limit the liability of a director for:
- any breach of the director's duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of the law;
- violation of certain provisions of the Delaware General Corporation Law;
- any transaction from which the director derived an improper personal
benefit; or
- any act or omission prior to the adoption of such a provision in the
certificate of incorporation.
The MediaOne Group charter provides that, to the fullest extent permitted by
the Delaware General Corporation Law, a director of MediaOne Group shall not be
liable to MediaOne Group or any of its stockholders for monetary damages for
breach of fiduciary duty as a director.
The New York Business Corporation Law provides that a corporation's
certificate of incorporation may contain a provision eliminating or limiting the
personal liability of directors to the corporation or its stockholders for
damages for any breach of duty in such capacity. However, no such provision can
eliminate or limit the liability of any director (1) if a judgment or other
final adjudication adverse to such director establishes that such director's
acts or omissions were in bad faith, or involved intentional misconduct or a
knowing violation of law, or that the director personally gained in fact a
financial
V-14
<PAGE>
CHAPTER FIVE - CERTAIN LEGAL INFORMATION
profit or other advantage to which such director was not legally entitled or
that the director's acts violated Section 719 of the New York Business
Corporation Law (which includes declaration of dividends, purchase of capital
stock, distribution of assets to stockholders after dissolution of the
corporation and loans to directors to the extent contrary to New York law) or
(2) for any act or omission prior to the adoption of such a provision in the
certificate of incorporation.
CASE LAW AND COURT SYSTEMS
There is a substantial body of case law in Delaware interpreting the
corporation laws of that state. The body of case law interpreting the
corporation laws of New York is not as developed as that of Delaware. Delaware
also has established a system of Chancery Courts to adjudicate matters arising
under Delaware corporate law. New York does not have an equivalent court system.
As a result of these factors, there may be less certainty as to the outcome of
certain matters governed by New York corporate law, and, therefore, it may be
more difficult to obtain legal guidance as to such matters than would be the
case under Delaware corporate law.
DESCRIPTION OF AT&T CAPITAL STOCK
The following description of certain terms of the capital stock of AT&T does
not purport to be complete and is qualified in its entirety by reference to the
description of AT&T capital stock incorporated herein by reference and to the
AT&T charter. For more information as to how you can obtain these documents, see
"Additional Information for Stockholders--Where You Can Find More Information"
on page VI-1.
AUTHORIZED CAPITAL STOCK
The AT&T charter provides that AT&T is authorized to issue 8.85 billion
shares of capital stock, consisting of 100 million shares of preferred stock,
par value $1.00 per share, and 8.75 billion shares of common stock, of which 6
billion shares are common stock, par value $1.00 per share, 2.5 billion shares
are Class A Liberty Media Group common stock, par value $1.00 per share, and 250
million shares are Class B Liberty Media Group common stock, par value $1.00 per
share. The Class A Liberty Media Group common stock and the Class B Liberty
Media Group common stock are referred to herein as "Liberty Media Group Class A
tracking stock" and "Liberty Media Group Class B tracking stock," respectively,
and, collectively, as "Liberty Media Group tracking stock." As of June 30, 1999,
3,196,236,144 shares of AT&T common stock, 1,156,716,104 shares of Liberty Media
Group Class A tracking stock, 108,430,704 shares of Liberty Media Group Class B
tracking stock and no shares of AT&T preferred stock were issued and
outstanding.
AT&T COMMON STOCK
VOTING RIGHTS
After adjustments for recent stock splits, holders of AT&T common stock are
entitled to one vote for each share of such stock held, holders of Liberty Media
Group Class B tracking stock are entitled to 3/4 of a vote for each share of
such stock held, and holders of Liberty Media Group Class A tracking stock are
entitled to 3/40 of a vote for each share of such stock held, on all matters
voted on by stockholders, including elections of directors, and, except as
otherwise required by law or provided in any resolution adopted by the AT&T
Board with respect to any series of AT&T preferred stock, the holders of such
shares possess all voting power. The AT&T charter does not provide for
cumulative voting in the election of directors.
V-15
<PAGE>
CHAPTER FIVE - CERTAIN LEGAL INFORMATION
The AT&T charter provides that, except as otherwise required by New York law
or any special voting rights of AT&T preferred stock, the holders of AT&T common
stock, Liberty Media Group tracking stock and AT&T preferred stock, if any,
entitled to vote with the common shareholders will vote together as one class.
No separate class vote is required for the approval of any matter except under
the following circumstances that require the separate class approval of the
Liberty Media Group tracking stock:
- any amendment to the AT&T charter that would change the total number of
authorized shares or the par value of Liberty Media Group tracking stock
or that would adversely change the rights of Liberty Media Group tracking
stock;
- a Covered Disposition, which generally includes a sale or transfer by AT&T
of its equity interest in Liberty Media Corporation or Liberty Media Group
LLC or a grant of a pledge or other security interest in the equity
interest of AT&T in Liberty Media Corporation or Liberty Media Group LLC;
and
- any merger or similar transaction in which Liberty Media Group tracking
stock is converted, reclassified or changed into or otherwise exchanged
for any consideration unless specified requirements are met that are
generally intended to ensure that the rights of the holders are not
materially altered and the composition of the holders is not changed.
Notwithstanding the foregoing, the separate approval of the holders of
Liberty Media Group tracking stock is not required in the case of a redemption
of Liberty Media Group tracking stock under certain circumstances.
The AT&T charter also includes an anti-dilution adjustment provision so that
the aggregate voting rights of AT&T common stock, on the one hand, and Liberty
Media Group tracking stock, on the other hand, will not change as a result of
stock splits, reverse stock splits, stock dividends or distributions.
DIVIDENDS
GENERAL. Provided that AT&T has sufficient assets to pay a dividend, the
AT&T charter provides that dividends on Liberty Media Group tracking stock are
limited to an "available dividend amount" that is designed to be equivalent to
the amount that would legally be available for dividends on that stock if the
Liberty Media Group were a stand-alone corporation. Dividends on AT&T common
stock are limited to the amount of legally available funds less the "available
dividend amount" for the Liberty Media Group tracking stock. The AT&T charter
also generally provides that holders of Liberty Media Group Class A tracking
stock and Liberty Media Group Class B tracking stock receive equal dividends per
share. The exceptions to this are described under "--Share
Distributions--Distributions on Liberty Media Group Tracking Stock."
V-16
<PAGE>
Chapter Five - Certain Legal Information
DISCRIMINATION BETWEEN CLASSES OF COMMON STOCK. The AT&T charter does not
provide for mandatory dividends. Provided that there are sufficient assets to
pay a dividend on a class of stock as described in the preceding paragraph, the
AT&T Board has the sole authority and discretion to declare and pay dividends,
in equal or unequal amounts, on AT&T common stock or Liberty Media Group
tracking stock. The AT&T Board has this power, regardless of the respective
available dividend amounts, prior dividend amounts declared, liquidation rights
or any other factor. This means that the AT&T Board could declare dividends on
AT&T common stock while not declaring dividends on Liberty Media Group tracking
stock or vice versa.
DIVIDEND POLICY AS TO LIBERTY MEDIA GROUP TRACKING STOCK. The AT&T Board's
dividend policy as it relates to Liberty Media Group tracking stock generally
provides that AT&T will distribute, subject to limitations in the AT&T charter,
any dividends AT&T receives from an entity included in the Liberty Media Group
to the holders of Liberty Media Group tracking stock. This dividend policy may
be amended, modified or rescinded only by the unanimous consent of the AT&T
Board.
SHARE DISTRIBUTIONS
AT&T may declare and pay a distribution consisting of shares of AT&T common
stock, Liberty Media Group tracking stock or any other securities of AT&T or any
other person (herein sometimes called a "SHARE DISTRIBUTION") only as set forth
below.
DISTRIBUTIONS ON AT&T COMMON STOCK. AT&T may declare and pay share
distributions to holders of AT&T common stock that consist of any securities of
AT&T, any subsidiary of AT&T or any other person, except for shares of Liberty
Media Group tracking stock, securities attributed to the Liberty Media Group,
securities of any person included in the Liberty Media Group or securities
convertible, exercisable or exchangeable for any of the Liberty Media Group
securities described in this paragraph.
DISTRIBUTIONS ON LIBERTY MEDIA GROUP TRACKING STOCK. AT&T may declare and
pay share distributions to holders of Liberty Media Group tracking stock that
consist of shares of (1) Liberty Media Group Class A tracking stock on an equal
per-share basis to all holders, (2) AT&T common stock on an equal per-share
basis to all holders, (3) Liberty Media Group Class A tracking stock to Class A
holders and Liberty Media Group Class B tracking stock to Class B holders, in
each case, on an equal per-share basis, and (4) other AT&T securities or stock
of any other person on an equal per-share basis or, to the extent practicable,
on a basis that gives shares having greater relative voting rights and related
differences to the Class B holders.
LIQUIDATION RIGHTS
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of AT&T (collectively, "LIQUIDATION"), payment or provision for
payment shall first be made for the debts and other liabilities of AT&T,
including the liquidation preferences of AT&T preferred stock. Thereafter,
holders of AT&T common stock and holders of Liberty Media Group tracking stock
will share in the funds of AT&T remaining for distribution to its common
shareholders in proportion to the aggregate market capitalization of AT&T common
stock, or the aggregate market capitalization of Liberty Media Group tracking
stock as applicable, to the aggregate market capitalization of the AT&T common
stock and the Liberty Media Group tracking stock. The market capitalizations
will be calculated based on the 20-trading-day period ending on the trading day
prior to the public announcement of the liquidation. Holders of Liberty Media
Group Class A tracking stock and Liberty Media Group Class B tracking stock will
share equally, on a share-for-share basis.
V-17
<PAGE>
CHAPTER FIVE - CERTAIN LEGAL INFORMATION
Neither the consolidation or merger of AT&T with another corporation nor the
sale, transfer or lease of all or substantially all of the assets of AT&T will
itself constitute a liquidation. In addition, any transaction or series of
related transactions that results in all of the assets and liabilities included
in the Liberty Media Group being held by one or more "qualifying subsidiaries"
included in the Liberty Media Group, and the distribution of such "qualifying
subsidiary" (and no other material assets or liabilities) to the holders of
Liberty Media Group tracking stock will not constitute a liquidation, but will
be subject to the provisions in the AT&T charter regarding the redemption of
Liberty Media Group tracking stock.
OTHER CLASSES OF COMMON SHARES
There currently are no other classes of common stock of AT&T outstanding. If
any such other classes were created, references to the rights of AT&T common
stock would, as a general matter, also include rights for such other class of
common stock of AT&T.
DETERMINATIONS BY THE AT&T BOARD
Any determinations made by the AT&T Board under any provision described
under this section, "Description of AT&T Capital Stock," will be final and
binding on all shareholders of AT&T, except as may otherwise be required by law.
AT&T will prepare a statement of any such determination by the AT&T Board
respecting the fair market value of any properties, assets or securities and
will file such statement with the Secretary of AT&T.
RELATIONSHIP BETWEEN THE GROUPS. Neither the Liberty Media Group, on the
one hand, nor the AT&T Common Stock Group, on the other hand, has any duty,
responsibility or obligation to refrain from (1) engaging in the same or similar
activities or lines of business as any member of the other group, (2) doing
business with any potential or actual supplier or customer of any member of the
other group, or (3) engaging in, or refraining from, any other activities
whatsoever relating to any of the potential or actual suppliers or customers of
any member of the other group. None of the directors or officers of the AT&T
Common Stock Group or the Liberty Media Group will have any duty, responsibility
or obligation to cause the respective groups to refrain from doing any of the
foregoing.
Neither the Liberty Media Group, on the one hand, nor the AT&T Common Stock
Group, on the other hand, has any duty, responsibility or obligation (1) to
communicate or offer any business or other corporate opportunity to any other
person (including any business or other corporate opportunity that may arise
that either group may be financially able to undertake, and that is, from its
nature, in the line of more than one group's business and is of practical
advantage to more than one group), (2) to provide financial support to the other
group (or any member thereof), or (3) otherwise to assist the other group. None
of the directors or officers of the AT&T Common Stock Group or the Liberty Media
Group has any duty, responsibility or obligation to cause the respective groups
to do any of the foregoing.
No director or officer of AT&T will be liable to AT&T or any holder of any
securities of AT&T in respect of any failure or alleged failure of such officer
or director to offer to (or to cause the Liberty Media Group or the AT&T Common
Stock Group to offer to) either group any corporate opportunity of any kind or
nature that is pursued by the other group.
Nothing set forth in the three immediately preceding paragraphs will prevent
any member of the Liberty Media Group from entering into written agreements with
the AT&T Common Stock Group to define or restrict any aspect of the relationship
between the groups.
V-18
<PAGE>
CHAPTER FIVE - CERTAIN LEGAL INFORMATION
NO PREEMPTIVE RIGHTS. Holders of AT&T common stock or Liberty Media Group
tracking stock do not have any preemptive rights to subscribe for any additional
shares of capital stock or other obligations convertible into or exercisable for
shares of capital stock that may hereafter be issued by AT&T.
TRANSFER AGENT AND REGISTRAR
Boston Equiserve Trust Company, N.A. is the transfer agent and registrar for
the AT&T common stock.
STOCK EXCHANGE LISTING; DELISTING AND DEREGISTRATION OF MEDIAONE GROUP
COMMON STOCK
It is a condition to the merger that the shares of AT&T common stock
issuable in the merger be approved for quotation on the NYSE at or prior to the
closing of the merger, subject to official notice of issuance. If the merger is
completed, MediaOne Group common stock will cease to be listed on the NYSE.
AT&T PREFERRED STOCK
AT&T preferred stock may be issued from time to time in one or more series.
The AT&T Board is authorized to fix the number of shares of each series, the
designation thereof, and, subject to the other provisions of the AT&T charter,
the relative rights, preferences and limitations of each series and the
variations in such rights, preferences and limitations as between series.
The merger agreement provides that AT&T will file certificates of
designation with the Secretary of State of the State of New York prior to the
effective time of the merger to create the AT&T Series C preferred stock, the
AT&T Series D preferred stock and the AT&T Series E preferred stock. However, if
no shares of MediaOne Group Class C preferred stock or MediaOne Group Class D
preferred stock remain outstanding immediately prior to the effective time of
the merger, AT&T will not file a certificate of designation for the
corresponding series of AT&T preferred stock.
A holder of one share of AT&T Series C preferred stock, AT&T Series D
preferred stock or AT&T Series E preferred stock will have the same rights as a
holder of one share of corresponding MediaOne Group preferred stock prior to the
merger, except that (1) the shares of AT&T preferred stock received by holders
of MediaOne Group Series D preferred stock or MediaOne Group Series E preferred
stock will be convertible as described under "--AT&T Series D Preferred
Stock--Conversion Rights" and "--AT&T Series E Preferred Stock--Conversion
Rights," respectively, and (2) holders of shares of AT&T Series D preferred
stock or AT&T Series E preferred stock will have the voting rights described
under "--AT&T Series D Preferred Stock--Voting Rights" and "--AT&T Series E
Preferred Stock--Voting Rights," respectively.
AT&T SERIES C PREFERRED STOCK
VOTING RIGHTS. Holders of AT&T Series C preferred stock will not be
entitled to voting rights, except as provided by the certificate of designation,
the AT&T charter or applicable law.
The certificate of designation will provide that, without the written
consent or affirmative vote of holders of at least 66 2/3% of the outstanding
shares of AT&T Series C preferred stock, AT&T may not modify the preferences,
rights or powers of AT&T Series C preferred stock so as to affect AT&T Series C
preferred stock adversely. However, the approval of holders of AT&T Series C
preferred stock will not be required to authorize or issue additional shares of
AT&T common stock or AT&T preferred stock.
V-19
<PAGE>
Chapter Five - Certain Legal Information
DIVIDEND RIGHTS; RIGHTS UPON LIQUIDATION. Holders of AT&T Series C
preferred stock will be entitled to receive, from legally available funds,
quarterly cash dividends at the annual rate of $70 per share. In the event of
the liquidation, dissolution or winding up of AT&T, holders of AT&T Series C
preferred stock will be entitled to receive $1,000 per share, together with
accrued and unpaid dividends.
REDEMPTION RIGHTS. AT&T Series C preferred stock will be redeemable, at
AT&T's option, in whole or in part at any time on or after September 2, 1999 at
the following redemption prices per share, together with accrued and unpaid
dividends:
<TABLE>
<CAPTION>
IF REDEEMED DURING THE 12-MONTH PERIOD BEGINNING SEPTEMBER 2, PRICE
- --------------------------------------------------------------------------------- ----------
<S> <C>
1999............................................................................. $ 1,035.00
2000............................................................................. $ 1,028.00
2001............................................................................. $ 1,021.00
2002............................................................................. $ 1,014.00
2003............................................................................. $ 1,007.00
</TABLE>
In addition, from and after the time of any exercise by holders of AT&T
Series C preferred stock of certain options to acquire shares of common stock of
FSA, AT&T may, at its option, redeem at a redemption price of $1,000 per share,
payable in cash, together with accrued and unpaid dividends, a number of shares
of AT&T Series C preferred stock equal to the product of 50,000 and a fraction,
the numerator of which is the number of options exercised at such time and the
denominator of which is the aggregate number of options initially issued.
AT&T Series C preferred stock will be mandatorily redeemable on September 2,
2004, at a redemption price of $1,000 per share, payable in cash, together with
accrued and unpaid dividends.
CONVERSION RIGHTS. AT&T Series C preferred stock will not be convertible.
AT&T SERIES D PREFERRED STOCK
VOTING RIGHTS. Holders of AT&T Series D preferred stock will not be
entitled to voting rights, except as provided by the certificate of designation,
the AT&T charter or applicable law.
The certificate of designation will provide that, without the written
consent or affirmative vote of holders of at least 66 2/3% of the outstanding
shares of AT&T Series D preferred stock, AT&T may not:
- authorize any senior stock or reclassify any junior stock or parity stock
as senior stock; or
- amend the certificate of designation or the AT&T charter so as to
adversely affect the preferences, rights or powers of the AT&T Series D
preferred stock.
In addition, if at any time dividends payable on shares of AT&T Series D
preferred stock have not been paid in an aggregate amount equal to or greater
than the amount of dividends payable for six quarters, the number of directors
on the AT&T Board will be increased by two. Holders of shares of AT&T Series D
preferred stock, voting as a single class with any other shares of AT&T
preferred stock entitled to this right, will be entitled to elect the two
additional directors. Holders of shares of AT&T Series D preferred stock will
have the right to elect the additional directors until all dividends in arrears
have been paid in full and dividends for four subsequent quarters have been paid
or declared and set aside for payment. At that time, the terms of office of the
two additional directors will terminate and the number of directors on the AT&T
Board will be reduced accordingly.
V-20
<PAGE>
CHAPTER FIVE - CERTAIN LEGAL INFORMATION
DIVIDEND RIGHTS; RIGHTS UPON LIQUIDATION. Holders of AT&T Series D
preferred stock will be entitled to receive, from legally available funds,
quarterly cash dividends at the annual rate of 4.50% of the liquidation
preference of $50 per share. In the event of the liquidation, dissolution or
winding up of AT&T, holders of AT&T Series D preferred stock will be entitled to
receive the liquidation preference in cash, together with accrued and unpaid
dividends.
REDEMPTION RIGHTS. AT&T Series D preferred stock will not be redeemable or
exchangeable prior to November 15, 1999. On and after November 15, 1999 and
before November 15, 2001, each share of AT&T Series D preferred stock will be
exchangeable, at the option of AT&T, into a number of shares of AT&T common
stock equal to $50, plus accrued and unpaid dividends, divided by 95% of the
market price of AT&T common stock on the date of exchange if the last reported
sales price of AT&T common stock is greater than the conversion price multiplied
by 1.35 on 20 of the 30 trading days immediately prior to the date AT&T provides
notice of redemption and/or exchange of the AT&T Series D preferred stock.
On and after November 15, 2001, each share of AT&T Series D preferred stock
will be redeemable at the option of AT&T, and, on November 15, 2016, will be
mandatorily redeemable, in each case, at the election of AT&T, for:
- an amount in cash equal to $50, together with accrued and unpaid
dividends;
- a number of shares of AT&T common stock equal to $50, together with
accrued and unpaid dividends, divided by 95% of the current market price
of AT&T common stock; or
- a combination of the consideration described in the two bullet points
above.
CONVERSION RIGHTS. Until the date AT&T effects a redemption or exchange of
all or any part of the outstanding AT&T Series D preferred stock, each share of
AT&T Series D preferred stock will be convertible, at any time, at the option of
the holder, into the consideration the holder would have received in the merger
if that holder had converted its MediaOne Group Series D preferred stock into
MediaOne Group common stock immediately prior to the merger. Because MediaOne
Group stockholders can elect in the merger among the consideration paid to
MediaOne Group stockholders making a Stock Election (the "STOCK CONSIDERATION"),
the consideration paid to MediaOne Group stockholders making a Cash Election
(the "CASH CONSIDERATION") and the consideration paid to MediaOne Group
stockholders making a Standard Election (the "STANDARD CONSIDERATION"), the type
of consideration to be received upon conversion of a share of MediaOne Group
Series D preferred stock will be based on the election of the record holder of
the largest number of shares of MediaOne Group Series D preferred stock to
receive, upon conversion, Stock Consideration, Cash Consideration or Standard
Consideration. If no such election is timely made, each share of MediaOne Group
Series D preferred stock will be convertible into the Standard Consideration.
The Stock Consideration or Cash Consideration so elected, as the case may be,
will be subject to adjustment under the circumstances and in the manner
described under "The Merger Agreement--Merger Consideration--Conversion of
MediaOne Group Common Stock--Certain Adjustments" on page III-2. Currently,
MediaOne Group Series D preferred stock is convertible at a rate of 1.98052
shares of MediaOne Group common stock per share of MediaOne Group Series D
preferred stock. We have provided a chart on page III-2 that describes the
per-share consideration a holder of MediaOne Group common stock would receive in
the merger under various sets of circumstances.
The conversion rate will be adjusted if certain events occur, including:
- the issuance of shares of AT&T common stock as a dividend or distribution;
V-21
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CHAPTER FIVE - CERTAIN LEGAL INFORMATION
- the subdivision, reclassification or combination of AT&T common stock;
- the issuance to all holders of AT&T common stock of rights, options or
warrants to subscribe for or purchase shares of AT&T common stock at a
price less than its then-current market value; or
- the payment or distribution to all holders of AT&T common stock of capital
stock, cash, evidences of AT&T's indebtedness or other assets, excluding
regular cash dividends or distributions and dividends or distributions
referred to in the first bullet point above.
In addition, the conversion rate may be increased:
- if necessary to ensure that any dividend or distribution payable in any
reclassification or combination of, or any issuance of rights or warrants
to purchase, shares of AT&T common stock is not taxable to holders of AT&T
common stock; or
- from time to time for a period of at least 20 trading days if determined
by the AT&T Board to be in AT&T's best interest.
In the event of a merger, a consolidation or a sale of all or substantially
all of AT&T's assets, each share of AT&T Series D preferred stock that is not
converted in the transaction will be convertible after the transaction, during
the period such share is convertible, into the kind and amount of consideration
that its holder would have received had that holder converted such share into
AT&T common stock immediately prior to the transaction. If holders of AT&T
common stock are entitled to elect the consideration to be received, the kind
and amount of consideration into which shares of AT&T Series D preferred stock
will be convertible after the transaction will be based on the election of the
record holder of the largest number of shares of AT&T Series D preferred stock.
If no such election is timely made, each holder of AT&T Series D preferred stock
will be deemed to have failed to make such an election. This provision is
inapplicable if AT&T is the surviving corporation in the transaction, and, with
certain exceptions, if the transaction does not result in a reclassification of,
or other change in, the outstanding shares of AT&T common stock.
AT&T SERIES E PREFERRED STOCK
VOTING RIGHTS. Holders of AT&T Series E preferred stock will not be
entitled to voting rights, except as provided by the certificate of designation,
the AT&T charter or applicable law.
The certificate of designation will provide that, without the approval of
holders of at least 66 2/3% of the outstanding shares of AT&T Series E preferred
stock, AT&T may not:
- authorize any senior stock or reclassify any junior stock or parity stock
as senior stock; or
- amend the certificate of designation or the AT&T charter so as to
adversely affect the preferences, rights or powers of the AT&T Series E
preferred stock.
DIVIDEND RIGHTS; RIGHTS UPON LIQUIDATION. Holders of AT&T Series E
preferred stock will be entitled to receive, from legally available funds,
quarterly cash dividends at the annual rate of 6.342% of the liquidation
preference of $50 per share. In the event of the liquidation, dissolution or
winding up of AT&T, holders of AT&T Series E preferred stock will be entitled to
receive the liquidation preference in cash, together with accrued and unpaid
dividends.
REDEMPTION RIGHTS. AT&T may, at its option, redeem shares of AT&T Series E
preferred stock as follows:
- beginning on June 30, 2002, AT&T may redeem all or part of such shares at
a redemption price of $50 per share, payable in cash, together with any
accrued and unpaid dividends; and
V-22
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CHAPTER FIVE - CERTAIN LEGAL INFORMATION
- on an annual basis, beginning on August 1, 2007 and continuing through
August 1, 2016, AT&T may redeem 49,704 shares at a redemption price of $50
per share, payable in cash, together with an amount equal to accrued and
unpaid dividends, or such lesser number of shares that are then
outstanding.
AT&T must redeem shares of AT&T Series E preferred stock as follows:
- on an annual basis, beginning on August 1, 2007 and continuing through
August 1, 2016, AT&T must redeem 49,074 shares at a redemption price of
$50 per share, payable in cash, together with an amount equal to accrued
and unpaid dividends, or such lesser number of shares that are then
outstanding; and
- on June 30, 2017, AT&T must redeem all outstanding shares at a redemption
price of $50 per share, payable in cash, together with any accrued and
unpaid dividends.
CONVERSION RIGHTS. After receipt from AT&T of a notice of redemption under
the circumstances described in the first bullet point under "--Redemption
Rights" and until the date of such redemption, each share of AT&T Series E
preferred stock will be convertible, at the option of the holder, into the
consideration the holder would have received in the merger if that holder had
converted its MediaOne Group Series E preferred stock into MediaOne Group common
stock immediately prior to the merger. Because MediaOne Group stockholders can
elect in the merger among the Stock Consideration, the Cash Consideration and
the Standard Consideration, the type of consideration to be received upon
conversion of a share of MediaOne Group Series E preferred stock will be based
on the election of the record holder of the largest number of shares of MediaOne
Group Series E preferred stock to receive, upon conversion, Stock Consideration,
Cash Consideration or Standard Consideration. If no such election is timely
made, each share of MediaOne Group Series E preferred stock will be convertible
into the Standard Consideration. The Stock Consideration or Cash Consideration
so elected, as the case may be, will be subject to adjustment under the
circumstances and in the manner described under "The Merger Agreement--Merger
Consideration--Conversion of MediaOne Group Common Stock--Certain Adjustments"
on page III-2. Currently, the number of shares of MediaOne Group common stock to
be received upon conversion of a share of MediaOne Group Series E preferred
stock is $47.50 divided by the average of the daily closing prices of MediaOne
Group common stock for the 10 consecutive trading days ending on the third
trading day immediately preceding the date of conversion. We have provided a
chart on page III-2 that describes the per-share consideration a holder of
MediaOne Group common stock would receive in the merger under various sets of
circumstances.
The conversion rate may be increased:
- if necessary to ensure that any dividend or distribution payable in, any
reclassification or combination of, or any issuance of rights or warrants
to purchase, shares of AT&T common stock is not taxable to holders of AT&T
common stock; or
- from time to time for a period of at least 20 trading days if determined
by the AT&T Board to be in AT&T's best interest.
In the event of a merger, a consolidation or a sale of all or substantially
all of AT&T's assets, each share of AT&T Series E preferred stock that is not
converted in the transaction will be convertible, assuming shares of AT&T Series
E preferred stock are then by their terms convertible into AT&T common stock,
after the transaction, during the period such share is convertible, into the
kind and amount of consideration to which its holder would have received had
that holder converted such share into AT&T common stock immediately prior to the
transaction. If holders of AT&T common stock are entitled to elect the
consideration to be received, the kind and amount of consideration into which
V-23
<PAGE>
CHAPTER FIVE - CERTAIN LEGAL INFORMATION
shares of AT&T Series E preferred stock will be convertible after the
transaction will be based on the election of the record holder of the largest
number of shares of AT&T Series E preferred stock. If no such election is timely
made, each holder of AT&T Series E preferred stock will be deemed to have failed
to make such an election. This provision is inapplicable if AT&T is the
surviving corporation in the transaction, and, with certain exceptions, if the
transaction does not result in a reclassification of, or other change in, the
outstanding shares of AT&T common stock.
LEGAL MATTERS
The legality of the AT&T common stock and AT&T preferred stock to be issued
in connection with the merger is being passed upon for AT&T by Robert S. Feit,
Esq., General Attorney and Assistant Secretary of AT&T. As of August 27, 1999,
Mr. Feit owned 5,035 shares of AT&T common stock and held options to purchase an
additional 33,750 shares of AT&T common stock. It is a condition to the
completion of the merger that AT&T and MediaOne Group receive opinions from
Wachtell, Lipton, Rosen & Katz and Weil, Gotshal & Manges LLP, respectively,
with respect to the tax treatment of the merger. See "The Merger
Agreement--Conditions to the Completion of the Merger" on page III-14 and "The
Transaction--The Merger Transaction--Material U.S. Federal Income Tax
Consequences of the Merger" on page II-10.
EXPERTS
The consolidated financial statements of AT&T Corp. as of December 31, 1998
and 1997 and for each of the three years in the period ended December 31, 1998,
incorporated by reference in this proxy statement/prospectus, have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The consolidated financial statements and financial statement schedule
included in MediaOne Group Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1998, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
The consolidated balance sheets of TCI and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations and
comprehensive earnings, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1998, which appear in the
Current Report on Form 8-K, dated March 22, 1999, of AT&T, have been
incorporated by reference herein in reliance upon the report, dated March 9,
1999, of KPMG LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The combined balance sheets of Liberty/Ventures Group as of December 31,
1998 and 1997, and the related combined statements of operations and
comprehensive earnings, equity, and cash flows for each of the years in the
three-year period ended December 31, 1998, which appear in the Current Report on
Form 8-K, dated March 22, 1999, of AT&T, have been incorporated by reference
herein in reliance upon the report, dated March 9, 1999, of KPMG LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
V-24
<PAGE>
CHAPTER SIX
ADDITIONAL INFORMATION FOR STOCKHOLDERS
FUTURE STOCKHOLDER PROPOSALS
MediaOne Group will hold an annual meeting in the year 2000 only if the
merger has not already been completed. If such a meeting is held, the deadline
for receipt of a proposal to be considered for inclusion in the proxy
statement/prospectus for the 2000 annual meeting is December 7, 1999. A
stockholder that wishes to conduct such stockholder's own solicitation must
submit notice of such stockholder's proposal before the date that is 90 days
prior to the 2000 annual meeting of stockholders, pursuant to the advance notice
requirement described in Article II, Section 7(c) of the MediaOne Group bylaws.
Any stockholder proposal should be directed to the attention of the Secretary at
MediaOne Group at the following address: MediaOne Group, Inc., 188 Inverness
Drive West, Englewood, Colorado 80112.
The SEC rules set forth standards for the exclusion of some stockholder
proposals from a proxy statement/prospectus for an annual meeting.
WHERE YOU CAN FIND MORE INFORMATION
AT&T and MediaOne Group file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Our SEC filings are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
"HTTP://WWW.SEC.GOV."
AT&T filed a registration statement on Form S-4 to register with the SEC the
AT&T common stock to be issued to MediaOne Group stockholders in the merger.
This proxy statement/prospectus is a part of that registration statement and
constitutes a prospectus of AT&T in addition to being a proxy statement of
MediaOne Group for its meeting. As allowed by SEC rules, this proxy
statement/prospectus does not contain all the information you can find in the
registration statement or the exhibits to the registration statement.
The SEC allows us to "incorporate by reference" information into this proxy
statement/prospectus, which means that we can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this proxy
statement/prospectus, except for any information superseded by information in,
or incorporated by reference in, this proxy statement/prospectus. This proxy
statement/prospectus incorporates by reference the documents set forth below
that we have previously filed with the SEC. These documents contain important
information about our companies and their finances.
VI-1
<PAGE>
CHAPTER SIX - ADDITIONAL INFORMATION FOR STOCKHOLDERS
<TABLE>
<S> <C>
AT&T SEC FILINGS (FILE NO. 1-1105) PERIOD
Annual Report on Form 10-K For the Year ended December 31, 1998 (as
amended on March 23, 1999 and July 12, 1999)
Quarterly Reports on Form 10-Q Form 10-Q/A filed on January 8, 1999, Form
10-Q for the quarters ended March 31, 1999
and June 30, 1999
Current Reports on Form 8-K January 8, 1999, January 27, 1999, March 9,
1999, March 10, 1999, March 22, 1999, May 3,
1999 and May 7, 1999
Proxy statement/prospectus Filed on January 8, 1999 (including the
description of AT&T capital stock included
therein) and March 19, 1999
MEDIAONE GROUP SEC FILINGS (FILE NO. 1-8611) PERIOD
Annual Report on Form 10-K For the Year ended December 31, 1998
Quarterly Report on Form 10-Q For the quarters ended March 31, 1999 and
June 30, 1999
Form 8-A Filed on March 29, 1999
Current Reports on Form 8-K Filed on February 11, 1999, February 19,
1999, March 22, 1999, April 29, 1999, May 6,
1999 and July 28, 1999
</TABLE>
We are also incorporating by reference additional documents that we file
with the SEC between the date of this proxy statement/prospectus and the date of
the MediaOne Group meeting.
AT&T has supplied all information contained or incorporated by reference in
this proxy statement/ prospectus relating to AT&T, and MediaOne Group has
supplied all such information relating to MediaOne Group.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the SEC.
Documents incorporated by reference are available from us without charge,
excluding all exhibits unless we have specifically incorporated by reference an
exhibit in this proxy statement/prospectus. Stockholders may obtain documents
incorporated by reference in this proxy statement/prospectus by requesting them
in writing or by telephone from the appropriate party at the following address:
<TABLE>
<S> <C>
AT&T Corp. MediaOne Group, Inc.
32 Avenue of the Americas 188 Inverness Drive West
New York, NY 10013-2412 Englewood, CO 80112
Tel: (212) 387-5400 Tel: (303) 858-3000
Attn: Corporate Secretary's Attn: Investor Relations
Department
</TABLE>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM US, PLEASE DO SO BY OCTOBER 14,
1999 TO RECEIVE THEM BEFORE THE MEDIAONE GROUP MEETING.
You can also get more information by visiting AT&T's web site at
HTTP://WWW.ATT.COM and MediaOne Group's web site at
HTTP://WWW.MEDIAONEGROUP.COM. Web site materials are not part of this document
and are not incorporated by reference.
VI-2
<PAGE>
CHAPTER SIX - ADDITIONAL INFORMATION FOR STOCKHOLDERS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON THE ADOPTION OF THE
MERGER AND THE MERGER AGREEMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS DATED AUGUST 27, 1999.
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND
NEITHER THE MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO MEDIAONE GROUP
STOCKHOLDERS NOR THE ISSUANCE OF AT&T CAPITAL STOCK IN THE MERGER SHALL CREATE
ANY IMPLICATION TO THE CONTRARY.
VI-3
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF
MAY 6, 1999
BY AND AMONG
AT&T CORP.,
METEOR ACQUISITION INC.
AND
MEDIAONE GROUP, INC.
A-1
<PAGE>
TABLE OF CONTENTS
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ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions.......................................................................... A-5
ARTICLE 2
THE MERGER
SECTION 2.1. The Merger........................................................................... A-11
SECTION 2.2. Articles of Incorporation and Bylaws of the Surviving Corporation.................... A-12
SECTION 2.3. Directors and Officers of the Surviving Corporation.................................. A-12
ARTICLE 3
CONVERSION OF SECURITIES
SECTION 3.1. Conversion of Securities............................................................. A-12
SECTION 3.2. Surrender and Payment................................................................ A-15
SECTION 3.3. Dissenting Shares.................................................................... A-18
SECTION 3.4. Stock Options........................................................................ A-18
SECTION 3.5. Fractional Shares.................................................................... A-20
SECTION 3.6. Withholding Rights................................................................... A-20
SECTION 3.7. Lost Certificates.................................................................... A-21
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF MEDIAONE
SECTION 4.1. Corporate Existence and Power........................................................ A-21
SECTION 4.2. Corporate Authorization.............................................................. A-21
SECTION 4.3. Governmental Authorization........................................................... A-22
SECTION 4.4. Non-contravention.................................................................... A-22
SECTION 4.5. Capitalization....................................................................... A-22
SECTION 4.6. Subsidiaries......................................................................... A-23
SECTION 4.7. SEC Filings.......................................................................... A-23
SECTION 4.8. Financial Statements................................................................. A-24
SECTION 4.9. Information Supplied................................................................. A-24
SECTION 4.10. Absence of Certain Changes........................................................... A-24
SECTION 4.11. No Undisclosed Material Liabilities.................................................. A-24
SECTION 4.12. Compliance with Laws and Court Orders................................................ A-25
SECTION 4.13. Litigation........................................................................... A-25
SECTION 4.14. Finders' Fees........................................................................ A-25
SECTION 4.15. Opinion of Financial Advisor......................................................... A-25
SECTION 4.16. Taxes................................................................................ A-25
SECTION 4.17. Tax Opinions......................................................................... A-26
SECTION 4.18. Employee Benefit Plans and Labor Matters............................................. A-26
SECTION 4.19. Environmental Matters................................................................ A-27
SECTION 4.20. Intellectual Property................................................................ A-28
SECTION 4.21. Contracts............................................................................ A-28
SECTION 4.22. TWE.................................................................................. A-29
</TABLE>
A-2
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SECTION 4.23. Vote Required........................................................................ A-29
SECTION 4.24. Antitakeover Statutes, Rights Agreement and Charter Provisions....................... A-29
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF AT&T
SECTION 5.1. Corporate Existence and Power........................................................ A-29
SECTION 5.2. Corporate Authorization.............................................................. A-30
SECTION 5.3. Governmental Authorization........................................................... A-30
SECTION 5.4. Non-contravention.................................................................... A-30
SECTION 5.5. Capitalization....................................................................... A-31
SECTION 5.6. Subsidiaries......................................................................... A-31
SECTION 5.7. SEC Filings.......................................................................... A-32
SECTION 5.8. Financial Statements................................................................. A-32
SECTION 5.9. Information Supplied................................................................. A-32
SECTION 5.10. Absence of Certain Changes........................................................... A-32
SECTION 5.11. No Undisclosed Material Liabilities.................................................. A-33
SECTION 5.12. Compliance with Laws and Court Orders................................................ A-33
SECTION 5.13. Litigation........................................................................... A-33
SECTION 5.14. Finders' Fees........................................................................ A-33
SECTION 5.15. Taxes................................................................................ A-33
SECTION 5.16. Tax Opinions......................................................................... A-34
SECTION 5.17. Employee Benefit Plans and Labor Matters............................................. A-34
SECTION 5.18. Environmental Matters................................................................ A-35
SECTION 5.19. Intellectual Property................................................................ A-36
SECTION 5.20. Contracts............................................................................ A-36
SECTION 5.21. MediaOne Securities.................................................................. A-36
SECTION 5.22. No Vote Required..................................................................... A-36
SECTION 5.23. Merger Sub........................................................................... A-37
ARTICLE 6
COVENANTS OF MEDIAONE
SECTION 6.1. MediaOne Interim Operations.......................................................... A-37
SECTION 6.2. MediaOne Stockholders' Meeting; Proxy Material....................................... A-39
SECTION 6.3. No Solicitation...................................................................... A-40
SECTION 6.4. Redemption of Preferred Stock........................................................ A-40
SECTION 6.5. Channel Launches..................................................................... A-40
ARTICLE 7
COVENANTS OF AT&T
SECTION 7.1. AT&T Interim Operations.............................................................. A-41
SECTION 7.2. Director and Officer Liability....................................................... A-42
SECTION 7.3. Listing of Stock..................................................................... A-42
SECTION 7.4. AT&T Board of Directors.............................................................. A-42
SECTION 7.5. Employee Matters..................................................................... A-43
SECTION 7.6. Designation of Preferred Stock....................................................... A-44
</TABLE>
A-3
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ARTICLE 8
COVENANTS OF AT&T AND MEDIAONE
SECTION 8.1. Best Efforts......................................................................... A-44
SECTION 8.2. Proxy Statement; Registration Statement.............................................. A-45
SECTION 8.3. Public Announcements................................................................. A-46
SECTION 8.4. Further Assurances................................................................... A-46
SECTION 8.5. Access to Information................................................................ A-46
SECTION 8.6. Notices of Certain Events............................................................ A-46
SECTION 8.7. Tax-free Reorganization.............................................................. A-47
SECTION 8.8. Affiliates........................................................................... A-47
SECTION 8.9. TWE Termination Notice............................................................... A-47
SECTION 8.10. Assumption of Certain Obligations.................................................... A-47
ARTICLE 9
CONDITIONS TO THE MERGER
SECTION 9.1. Conditions to the Obligations of Each Party.......................................... A-47
SECTION 9.2. Conditions to the Obligations of AT&T and Merger Sub................................. A-48
SECTION 9.3. Conditions to the Obligations of MediaOne............................................ A-49
ARTICLE 10
TERMINATION
SECTION 10.1. Termination.......................................................................... A-49
SECTION 10.2. Effect of Termination................................................................ A-50
SECTION 10.3. Fees and Expenses.................................................................... A-50
ARTICLE 11
MISCELLANEOUS
SECTION 11.1. Notices.............................................................................. A-52
SECTION 11.2. Survival of Representations and Warranties........................................... A-53
SECTION 11.3. Amendments; No Waivers............................................................... A-53
SECTION 11.4. Successors and Assigns............................................................... A-53
SECTION 11.5. Governing Law........................................................................ A-53
SECTION 11.6. Jurisdiction......................................................................... A-53
SECTION 11.7. WAIVER OF JURY TRIAL................................................................. A-53
SECTION 11.8. Counterparts; Effectiveness.......................................................... A-53
SECTION 11.9. Entire Agreement..................................................................... A-53
SECTION 11.10. Captions............................................................................. A-54
SECTION 11.11. Severability......................................................................... A-54
SECTION 11.12. Specific Performance................................................................. A-54
SECTION 11.13. Schedules............................................................................ A-54
EXHIBITS AND SCHEDULES
Exhibit A--Form of MediaOne Rule 145 Affiliate Letter
MediaOne Disclosure Schedule
AT&T Disclosure Schedule
</TABLE>
A-4
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of May 6, 1999 by and among AT&T
Corp., a New York corporation ("AT&T"), Meteor Acquisition Inc., a Delaware
corporation wholly owned by AT&T ("Merger Sub"), and MediaOne Group, Inc., a
Delaware corporation ("MediaOne").
WHEREAS, the respective Boards of Directors of AT&T, Merger Sub and MediaOne
have approved this Agreement, and deem it advisable and in the best interests of
their respective stockholders to consummate the merger of MediaOne with and into
Merger Sub on the terms and conditions set forth herein; and
WHEREAS, it is intended that, for federal income tax purposes, the Merger
shall qualify as a reorganization within the meaning of the provisions of
Section 368(a) of the Internal Revenue Code of 1986 (the "Code");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. (a) The following terms, as used herein, have the
following meanings:
"Acquisition Proposal" means any offer or proposal for, or any indication of
interest in (i) a merger, consolidation, share exchange, business combination,
reorganization, recapitalization or other similar transaction involving MediaOne
or any MediaOne Significant Subsidiary or (ii) the acquisition, directly or
indirectly, of (A) an equity interest representing greater than 25% of the
voting securities of MediaOne or any MediaOne Significant Subsidiary or (B)
assets, securities or ownership interests representing an amount equal to or
greater than 25% of the consolidated assets or earning power of the MediaOne
Group, other than the transactions contemplated by this Agreement or permitted
pursuant to Section 6.1 hereof.
"Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such Person;
PROVIDED, HOWEVER, that Liberty Media, @Home and any Affiliates of Liberty
Media, @Home or of any of their respective Subsidiaries shall not be treated as
Affiliates of AT&T or of any of AT&T's Subsidiaries or Affiliates for purposes
of this Agreement.
"@Home" means At Home Corporation, a Delaware corporation.
"AT&T Balance Sheet" means the Consolidated Balance Sheet of AT&T and its
consolidated subsidiaries as of December 31, 1998 and the footnotes thereto, as
set forth in the AT&T 10-K.
"AT&T Balance Sheet Date" means December 31, 1998.
"AT&T Common Stock" means the Common Stock, par value $1.00 per share, of
AT&T.
"AT&T Group" means AT&T and the AT&T Subsidiaries.
"AT&T Material Adverse Effect" means a material adverse effect on the
financial condition, assets or results of operations of AT&T and the AT&T
Subsidiaries, taken as a whole, excluding any such effect resulting from or
arising in connection with (i) this Agreement, the transactions contemplated
hereby or the announcement thereof, (ii) changes or conditions generally
affecting the industries in which AT&T and the AT&T Subsidiaries operate or
(iii) changes in general economic, regulatory or political conditions.
A-5
<PAGE>
"AT&T Price" means the volume weighted average per share sales price of the
AT&T Common Stock for all sales on the NYSE during the 20-trading day period
ending three trading days prior to the Effective Time.
"AT&T Significant Subsidiary" means any AT&T Subsidiary that would
constitute a "significant subsidiary" within the meaning of Rule 1-02 of
Regulation S-X of the SEC as of December 31, 1998 (but including
Tele-Communications, Inc. as if it had been an AT&T Subsidiary as of December
31, 1998).
"AT&T Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at any time,
directly or indirectly, owned by AT&T; PROVIDED, HOWEVER, that Liberty Media,
@Home and their respective Subsidiaries shall not be treated as Subsidiaries of
AT&T or any of AT&T's other Subsidiaries for purposes of this Agreement.
"AT&T 10-K" means AT&T's annual report on Form 10-K for the fiscal year
ended December 31, 1998.
"Benefit Arrangement" means, with respect to any Person, any employment,
severance or similar contract or arrangement (whether or not written) providing
for compensation, bonus, profit-sharing, stock option, or other stock-related
rights or other forms of incentive or deferred compensation, vacation benefits,
insurance coverage (including any self-insured arrangements), health or medical
benefits, disability benefits, workers' compensation, supplemental unemployment
benefits, severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life insurance or other
benefits) that (i) is not an Employee Plan, (ii) is entered into, maintained,
administered or contributed to, as the case may be, by such Person or any of its
Affiliates and (iii) covers any employee or former employee of such Person or
any of its Subsidiaries employed in the United States. "MediaOne Benefit
Arrangements" means the Benefit Arrangements of MediaOne or the MediaOne
Subsidiaries and "AT&T Benefit Arrangements" means the Benefit Arrangements of
AT&T or the AT&T Subsidiaries.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
close.
"Confidentiality Agreement" means the confidentiality letter agreement dated
April 26, 1999 between AT&T and MediaOne.
"Deferred Compensation Plan" means, with respect to any Person, any plan,
agreement or arrangement that (i) is described under Sections 4(b)(5) or
401(a)(1) of ERISA (or similar plan covering one or more non-employee directors
of a Person), (ii) is maintained, administered or contributed to or required to
be contributed to by such Person or any of its Affiliates and (iii) covers any
current or former employee or director of such Person or any of its
Subsidiaries. "MediaOne Deferred Compensation Plan" means a Deferred
Compensation Plan of MediaOne or any MediaOne Affiliate for the benefit of any
current or former employee or director of MediaOne or any MediaOne Subsidiary
and "AT&T Deferred Compensation Plan" means a Deferred Compensation Plan of AT&T
or any AT&T Affiliate for the benefit of any current or former employee or
director of AT&T or any AT&T Subsidiary.
"Delaware Law" means the General Corporation Law of the State of Delaware.
"Employee Plan" means, with respect to any Person, any "employee benefit
plan", as defined in Section 3(3) of ERISA, that (i) is subject to any provision
of ERISA, (ii) is maintained, administered or contributed to by such Person or
any of its Affiliates and (iii) covers any employee or former employee of such
Person or any of its Subsidiaries. "MediaOne Employee Plan" means an Employee
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Plan of MediaOne or any of the MediaOne Subsidiaries and "AT&T Employee Plan"
means an Employee Plan of AT&T or any of the AT&T Subsidiaries.
"Environmental Laws" means any federal, state, local or foreign law
(including, without limitation, common law), treaty, judicial decision,
regulation, rule, judgment, order, decree, injunction, permit or governmental
restriction or requirement or any agreement with any Governmental Authority or
other third party, relating to human health and safety, the environment or to
pollutants, contaminants, wastes or chemicals or any toxic, radioactive,
ignitable, corrosive, reactive or otherwise hazardous substances, wastes or
materials.
"Environmental Permits" means, with respect to any Person, all permits,
licenses, franchises, certificates, approvals and other similar authorizations
of any Governmental Authority relating to or required by Environmental Laws and
affecting, or relating in any way to, the business of such Person or any of its
Subsidiaries as currently conducted.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA Affiliate" of any entity means any other entity that, together with
such entity, would be treated as a single employer under Section 414 of the
Code.
"FCC" means the Federal Communications Commission.
"Franchise" means a written "franchise" within the meaning of Section 602(8)
of the Communications Act.
"Franchising Authority" means "franchising authority" within the meaning of
Section 602(9) of the Communications Act.
"FTC Consent Order" means the consent agreement and order by and among the
Federal Trade Commission, Turner Broadcasting System, Inc., Time Warner Inc.,
Tele-Communications, Inc. and Liberty Media Corporation published in 61 FR
50301.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
"International Plan" means, with respect to any Person, any employment,
severance or similar contract or arrangement (whether or not written) or any
plan, policy, fund, program or arrangement or contract providing for severance,
insurance coverage (including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits, vacation
benefits, pension or retirement benefits or for deferred compensation,
profit-sharing, bonuses, stock options, stock appreciation rights or other forms
of incentive compensation or post-retirement insurance, compensation or benefits
that (i) is not an Employee Plan or a Benefit Arrangement, (ii) is entered into,
maintained, administered or contributed to by such Person or any of its
Affiliates and (iii) covers any employee or former employee of such Person or
any of its Subsidiaries. "MediaOne International Plan" means an International
Plan of MediaOne or any of the MediaOne Subsidiaries and "AT&T International
Plan" means an International Plan of AT&T or any of the AT&T Subsidiaries.
"Knowledge" means, with respect to any fact, the conscious awareness of such
fact by an executive officer (as defined under the 1933 Act) of the relevant
Person.
"Liberty Media" means Liberty Media Corporation, a Delaware corporation, and
its successors and assigns, and each other corporation constituting part of the
Liberty Media Group as defined in AT&T's certificate of incorporation.
"Lien" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest, encumbrance or other adverse claim of any
kind in respect of such property or asset. For purposes of this Agreement, a
Person shall be deemed to own subject to a Lien any property or asset
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that it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement relating to such property or asset.
"MediaOne Balance Sheet" means the Consolidated Balance Sheets of MediaOne
and its consolidated subsidiaries as of December 31, 1998 and the footnotes
thereto set forth in the MediaOne 10-K.
"MediaOne Balance Sheet Date" means December 31, 1998.
"MediaOne Common Stock" means Common Stock, par value $0.01 per share, of
MediaOne.
"MediaOne Franchises" means Franchises for the MediaOne Systems.
"MediaOne Group" means MediaOne and the MediaOne Subsidiaries.
"MediaOne Material Adverse Effect" means a material adverse effect on the
financial condition, assets or results of operations of the MediaOne Group taken
as a whole, excluding any such effect resulting from or arising in connection
with (A) this Agreement, the transactions contemplated hereby or the
announcement thereof, (B) changes or conditions generally affecting the
industries in which MediaOne, the MediaOne Subsidiaries, TWE and the TWE
Subsidiaries, operate or (C) changes in general economic, regulatory or
political conditions.
"MediaOne 1999 Rights Agreement" means the Rights Agreement dated as of
April 6, 1999 between MediaOne and State Street Bank and Trust Company, as
Rights Agent.
"MediaOne Significant Subsidiary" means any MediaOne Subsidiary that would
constitute a "significant subsidiary" within the meaning of Rule 1-02 of
Regulation S-X of the SEC as of December 31, 1998; PROVIDED that for purposes
hereof, the phrase "earnings before interest, taxes, depreciation and
amortization" will be substituted for the phrase "income from continuing
operations before income taxes, extraordinary items and cumulative effect of a
change in accounting principle" in Rule 1-02(w)(3).
"MediaOne Social Contract" means the agreement dated August 3, 1995 between
the FCC and Continental Cablevision, Inc., and the related FCC authorization
dated July 3, 1997.
"MediaOne Subsidiary" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are at any
time, directly or indirectly, owned by MediaOne. For the avoidance of doubt, (i)
neither TWE nor Telewest Communications plc will be treated as MediaOne
Subsidiaries and (ii) Mercury Personal Communications will be treated as a
MediaOne Subsidiary for so long as MediaOne owns, directly or indirectly, not
less than a 50% interest therein.
"MediaOne Systems" means the Systems owned and operated by MediaOne or any
MediaOne Subsidiary in the United States.
"MediaOne 10-K" means MediaOne's annual report on Form 10-K for the fiscal
year ended December 31, 1998.
"Multiemployer Plan" means each Employee Plan that is a multiemployer plan,
as defined in Section 3(37) of ERISA.
"Nasdaq" means The Nasdaq National Market.
"NYSE" means The New York Stock Exchange, Inc.
"1933 Act" means the Securities Act of 1933.
"1934 Act" means the Securities Exchange Act of 1934.
"PBGC" means the Pension Benefit Guaranty Corporation.
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"Pension Plan" means, with respect to any Person, any plan (other than a
Multiemployer Plan) that is subject to Title IV of ERISA and is maintained,
administered or contributed to or required to be contributed to by such Person
or any of its ERISA Affiliates. "MediaOne Pension Plan" means a Pension Plan of
MediaOne or any of its ERISA Affiliates and "AT&T Pension Plan" means a Pension
Plan of AT&T or any of its ERISA Affiliates.
"Person" means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" means, with respect to any Person, any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at any time directly or indirectly owned by such Person.
"System" means a "cable television system" within the meaning of Section
602(7) of the Communications Act.
"TW" means Time Warner Inc., a Delaware corporation.
"TWE" means Time Warner Entertainment Company, L.P., a Delaware limited
partnership.
"TWE Agreements" means the TWE Partnership Agreement, together with any
related agreements between MediaOne or any MediaOne Subsidiary, on the one hand,
and TW or any Subsidiary of TW, on the other hand.
"TWE Partnership Agreement" means the Agreement of Limited Partnership dated
as of October 29, 1991, as amended.
"TWE Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at any time directly
or indirectly owned by TWE.
"U S WEST" means U S WEST, Inc., a Delaware corporation.
Any reference in this Agreement to a statute shall be to such statute, as
amended from time to time, and to the rules and regulations promulgated
thereunder.
(b) Each of the following terms is defined in the Section set forth opposite
such term:
<TABLE>
<CAPTION>
SECTION
-----------
<S> <C>
Additional Amount.......................................................................... 3.1(c)
Adjusted Option............................................................................ 3.4(c)
AT&T....................................................................................... Preamble
AT&T Benefit Arrangements.................................................................. 1.1(a)
AT&T Common Stock.......................................................................... 5.5(a)
AT&T Employee Plan......................................................................... 1.1(a)
AT&T Intellectual Property................................................................. 5.20
AT&T International Plan.................................................................... 1.1(a)
AT&T SEC Documents......................................................................... 5.7(a)
AT&T Securities............................................................................ 5.5(b)
AT&T Series C Preferred Stock.............................................................. 3.1(e)
AT&T Series D Preferred Stock.............................................................. 3.1(e)
AT&T Series E Preferred Stock.............................................................. 3.1(e)
Benefits Maintenance Period................................................................ 7.6(a)
Cash Election.............................................................................. 3.1(c)
</TABLE>
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<TABLE>
<CAPTION>
SECTION
-----------
<S> <C>
Cash Election Consideration................................................................ 3.1(c)
Cash Election Fraction..................................................................... 3.4(c)
Cash Election Proration Factor............................................................. 3.1(h)
Cash Election Top-Up Amount................................................................ 3.1(h)
Certificates............................................................................... 3.2(a)
Certificate of Merger...................................................................... 2.1(b)
Code....................................................................................... Preamble
Comcast.................................................................................... 4.2(c)
Comcast Merger Agreement................................................................... 4.2(c)
Common Stock Consideration................................................................. 3.1(c)
Dissenting Shares.......................................................................... 3.3
Effective Time............................................................................. 2.1(b)
Election Deadline.......................................................................... 3.2(a)
Election Form.............................................................................. 3.2(a)
End Date................................................................................... 10.1(b)
Exchange Agent............................................................................. 3.2(a)
Exchange Fund.............................................................................. 3.2(a)
Franchise Consents......................................................................... 4.3
GAAP....................................................................................... 4.8
Governmental Authority..................................................................... 4.3
Indemnified Losses......................................................................... 7.3(a)
Indemnified Person......................................................................... 7.3(a)
IRS........................................................................................ 4.16
Liberty Media Class A Common Stock......................................................... 5.5(a)
Liberty Media Class B Common Stock......................................................... 5.5(a)
License Consents........................................................................... 4.3
Maximum Share Amount....................................................................... 3.1(f)
MediaOne................................................................................... Preamble
MediaOne Benefit Arrangements.............................................................. 1.1(a)
MediaOne Common Holders.................................................................... 3.2(b)
MediaOne Employee Plan..................................................................... 1.1(a)
MediaOne Intellectual Property............................................................. 4.20
MediaOne International Plan................................................................ 1.1(a)
MediaOne Rule 145 Affiliate................................................................ 8.8
MediaOne SEC Documents..................................................................... 4.7(a)
MediaOne Securities........................................................................ 4.5(b)
MediaOne Series A Preferred Stock.......................................................... 4.5(a)
MediaOne Series C Holders.................................................................. 3.2(b)
MediaOne Series C Preferred Stock.......................................................... 3.1(e)
MediaOne Series D Holders.................................................................. 3.2(b)
MediaOne Series D Preferred Stock.......................................................... 3.1(e)
MediaOne Series E Holders.................................................................. 3.2(b)
MediaOne Series E Preferred Stock.......................................................... 3.1(e)
MediaOne Series F Preferred Stock.......................................................... 4.5(a)
MediaOne Stockholders' Meeting............................................................. 4.9
MediaOne Stockholders' Approval............................................................ 4.23
MediaOne Stock Option...................................................................... 3.4(a)
Merger..................................................................................... 2.1(a)
New Director............................................................................... 7.4
Proxy Statement............................................................................ 4.9
</TABLE>
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<TABLE>
<CAPTION>
SECTION
-----------
<S> <C>
Purchase Rights............................................................................ 8.1(a)
Registration Statement..................................................................... 4.9
Reimbursement Payment...................................................................... 10.3(b)
Series C Certificates...................................................................... 3.2(a)
Series C Consideration..................................................................... 3.1(e)
Series D Certificates...................................................................... 3.2(a)
Series D Consideration..................................................................... 3.1(e)
Series E Certificates...................................................................... 3.2(a)
Series E Consideration..................................................................... 3.1(e)
Social Contract Consent.................................................................... 4.3
Spinoff.................................................................................... 9.2(c)
Standard Election.......................................................................... 3.1(e)
Standard Election Consideration............................................................ 3.1(c)
Standard Election Fraction................................................................. 3.4(a)
Standard Election Top-Up Amount............................................................ 3.1(c)
Standstill Agreement....................................................................... 6.3(a)
Stock Election............................................................................. 3.1(c)
Stock Election Consideration............................................................... 3.1(c)
Stock Election Proration Factor............................................................ 3.1(g)
Stock Election Top-Up Amount............................................................... 3.1(c)
Stock Option Cash Election Consideration................................................... 3.4(a)
Stock Option Standard Election Consideration............................................... 3.4(a)
Stock Option Stock Election Consideration.................................................. 3.4(a)
Successor Plan............................................................................. 7.6(b)
Surviving Corporation...................................................................... 2.1(a)
Tax Returns................................................................................ 4.16
Taxes...................................................................................... 4.16
Termination Fee............................................................................ 10.3(c)
Termination Notice Election................................................................ 8.9
Third Party................................................................................ 6.3(a)
Transferred Employees...................................................................... 7.6(a)
368 Reorganization......................................................................... 8.7(a)
U S WEST Agreements........................................................................ 8.10
</TABLE>
ARTICLE 2
THE MERGER
SECTION 2.1. The Merger. (a) At the Effective Time, MediaOne shall be merged
(the "Merger") with and into Merger Sub in accordance with Delaware Law and upon
the terms set forth in this Agreement, whereupon the separate existence of
MediaOne shall cease and Merger Sub shall be the surviving corporation (the
"Surviving Corporation").
(b) As soon as practicable (and, in any event, within five Business Days)
after satisfaction or, to the extent permitted hereunder, waiver of all
conditions to the Merger set forth in Article 9, other than conditions that by
their nature are to be satisfied at the Effective Time and will in fact be
satisfied at the Effective Time, a certificate of merger shall be duly prepared,
executed and acknowledged by MediaOne and Merger Sub and thereafter delivered to
the Secretary of State of Delaware for filing pursuant to Delaware Law. Such
certificate of merger shall be referred to herein as the "Certificate of
Merger". The Merger shall become effective at such time (the "Effective Time")
as the Certificate of
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Merger is duly filed with such Secretary of State of Delaware (or at such later
time as may be agreed by MediaOne and AT&T and specified in the Certificate of
Merger).
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, powers, privileges and franchises and be subject to all
of the obligations, liabilities, restrictions and disabilities of MediaOne and
Merger Sub, all as provided under Delaware Law.
SECTION 2.2. Articles of Incorporation and Bylaws of the Surviving
Corporation. The articles of incorporation of Merger Sub in effect at the
Effective Time shall be the articles of incorporation of the Surviving
Corporation and the bylaws of Merger Sub in effect at the Effective Time shall
be the bylaws of the Surviving Corporation, in each case until amended in
accordance with applicable law.
SECTION 2.3. Directors and Officers of the Surviving Corporation. From and
after the Effective Time, until successors are duly elected or appointed and
qualified in accordance with applicable law, (i) the directors of Merger Sub at
the Effective Time shall be the directors of the Surviving Corporation and (ii)
the officers of Merger Sub at the Effective Time shall be the officers of the
Surviving Corporation.
ARTICLE 3
CONVERSION OF SECURITIES
SECTION 3.1. Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, AT&T, MediaOne or
the holders of any of the following securities:
(a) Each share of MediaOne Common Stock and each share of MediaOne Series C
Preferred Stock, MediaOne Series D Preferred Stock and MediaOne Series E
Preferred Stock held in the treasury of MediaOne or owned by AT&T immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion thereof and no payment shall be made with respect thereto.
(b) Each issued and outstanding share of common stock, par value $.01 per
share, of Merger Sub immediately prior to the Effective Time shall be converted
into one validly issued, fully paid and non-assessable share of common stock of
the Surviving Corporation, and the Surviving Corporation shall be a wholly owned
subsidiary of AT&T.
(c) Subject to the provisions of Sections 3.1(g), (h) and (i) and to
Sections 3.3 and 3.5, each share of MediaOne Common Stock that is issued and
outstanding immediately prior to the Effective Time (excluding any share of
MediaOne Common Stock canceled pursuant to Section 3.1(a)) shall be converted,
at the election of the holder thereof in accordance with the procedures set
forth herein, into one of the following (as adjusted pursuant to the provisions
of this Section 3.1, the "Common Stock Consideration"), and the associated
preferred stock purchase rights, issued pursuant to the MediaOne 1999 Rights
Agreement, shall be terminated:
(i) for each such share of MediaOne Common Stock with respect to which
an election to receive only AT&T Common Stock has been effectively made and
not revoked or lost pursuant to Sections 3.2(a) (a "Stock Election"), the
right to receive (A) 1.4912 shares of AT&T Common Stock and (B) an amount in
cash (the "Stock Election Top-Up Amount"), if any, without interest except
as provided in Section 3.2(b), rounded to the nearest cent, equal to 1.4912
times the excess, if any, of $57.00 over the AT&T Price; PROVIDED, HOWEVER,
that in no event shall such amount in cash exceed $8.50 (collectively, the
"Stock Election Consideration");
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(ii) for each such share of MediaOne Common Stock with respect to which
an election to receive only cash has been effectively made and not revoked
or lost pursuant to Section 3.2(a) (a "Cash Election"), the right to receive
$85 in cash, without interest except as set forth in Section 3.2(b) (the
"Cash Election Consideration"); and
(iii) for each such share of MediaOne Common Stock other than shares as
to which a Stock Election or a Cash Election has been made, the right to
receive (A) .95 of a share of AT&T Common Stock, (B) $30.85 in cash, without
interest except as set forth in Section 3.2(b), and (C) an additional amount
in cash (the "Standard Election Top-Up Amount"), if any, without interest
except as set forth in Section 3.2(b), rounded to the nearest cent, equal to
.95 times the excess, if any, of $57.00 over the AT&T Price; PROVIDED,
HOWEVER, that in no event shall such additional amount in cash exceed $5.42
(collectively, the "Standard Election Consideration").
(d) If between the date of this Agreement and the Effective Time the
outstanding shares of AT&T Common Stock shall have been changed into a different
number of shares, by reason of any stock dividend, subdivision, split or
combination of shares, the Stock Election Consideration and the Standard
Election Consideration, and the consideration to be paid pursuant to Sections
3.1(g) and 3.1(h), will be correspondingly adjusted to reflect such stock
dividend, subdivision, split or combination of shares.
(e) Each person who, at the Effective Time, is a record holder of shares of
MediaOne Common Stock (other than holders of shares of MediaOne Common Stock to
be canceled as set forth in Section 3.1(a) or Dissenting Shares) shall have the
right to submit an Election Form specifying the number of shares of MediaOne
Common Stock that such person desires to have converted into the right to
receive AT&T Common Stock and cash, if any, pursuant to the Stock Election, the
number of shares of MediaOne Common Stock that such person desires to have
converted into the right to receive cash pursuant to the Cash Election, and the
number of shares of MediaOne Common Stock that such person desires to have
converted into the right to receive the Standard Election Consideration (a
"Standard Election"). Any such record holder who fails properly to submit an
Election Form on or prior to the Election Deadline in accordance with the
procedures set forth in Section 3.2(a) shall be deemed to have made a Standard
Election.
(f) The aggregate number of shares of AT&T Common Stock to be issued in the
Merger or to become subject to issuance upon exercise of Adjusted Options or
conversion of AT&T Series D Preferred Stock or AT&T Series E Preferred Stock
shall equal .95 times the sum of (i) the total number of shares of MediaOne
Common Stock issued and outstanding immediately prior to the Effective Time,
other than shares to be canceled pursuant to Section 3.1(a) and Dissenting
Shares, and (ii) the total number of shares of MediaOne Common Stock issuable
upon exercise of MediaOne Stock Options or conversion of MediaOne Series D
Preferred Stock or MediaOne Series E Preferred Stock outstanding immediately
prior to the Effective Time (the "AT&T Share Issuance Number"). If between the
date of this Agreement and the Effective Time the outstanding shares of AT&T
Common Stock shall have been changed into a different number of shares, by
reason of any stock dividend, subdivision, split or combination of shares, the
AT&T Share Issuance Number will be correspondingly adjusted to reflect such
stock dividend, subdivision, split or combination of shares. The AT&T Share
Issuance Number shall also be subject to adjustment as set forth in Section
3.1(i).
(g) In the event that the number of shares of AT&T Common Stock to be issued
in the Merger or to become subject to issuance upon exercise of Adjusted Options
or conversion of AT&T Series D Preferred Stock or AT&T Series E Preferred Stock
would exceed the AT&T Share Issuance Number based on the elections of the
holders of MediaOne Common Stock (together with the elections of holders of
MediaOne Stock Options and the conversion adjustments applicable to the MediaOne
Series D Preferred Stock and MediaOne Series E Preferred Stock), (i) all shares
of MediaOne Common Stock subject to a Cash Election or a Standard Election will
be converted into the right to receive the Cash Election Consideration or the
Standard Election Consideration, as the case may be, and
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(ii) each share of MediaOne Common Stock subject to a Stock Election will be
converted into the right to receive (A) a number of shares of AT&T Common Stock
equal to 1.4912 times the Stock Election Proration Factor, (B) an amount of
cash, without interest except as set forth in Section 3.2(b), equal to (1) $85
multiplied by (2) one minus the Stock Election Proration Factor, and (C) an
additional amount of cash, if any, without interest except as set forth in
Section 3.2(b), rounded to the nearest cent, equal to 1.4912 times the Stock
Election Proration Factor times the excess, if any, of $57.00 over the AT&T
Price; PROVIDED, HOWEVER, that in no event shall such additional amount in cash
exceed $8.50 times the Stock Election Proration Factor. The "Stock Election
Proration Factor" means a fraction (x) the numerator of which is the AT&T Share
Issuance Number minus the aggregate number of shares of AT&T Common Stock to be
issued in the Merger pursuant to the Standard Elections or to become subject to
issuance upon exercise of Adjusted Options or conversion of AT&T Series D
Preferred Stock or AT&T Series E Preferred Stock pursuant to elections
corresponding to the Standard Elections made by holders of MediaOne Stock
Options, MediaOne Series D Preferred Stock and MediaOne Series E Preferred
Stock, and (y) the denominator of which is the number of shares of AT&T Common
Stock that, but for this paragraph (g), would have been issued in the Merger
pursuant to the Stock Elections or become subject to issuance upon exercise of
Adjusted Options or conversion of AT&T Series D Preferred Stock or AT&T Series E
Preferred Stock pursuant to elections corresponding to the Stock Elections made
by holders of MediaOne Stock Options, MediaOne Series D Preferred Stock and
MediaOne Series E Preferred Stock.
(h) In the event that the number of shares of AT&T Common Stock to be issued
in the Merger or to become subject to issuance upon exercise of Adjusted Options
or conversion of AT&T Series D Preferred Stock or AT&T Series E Preferred Stock
would be less than the AT&T Share Issuance Number based on the elections of the
holders of MediaOne Common Stock (together with the elections of holders of
MediaOne Stock Options and the conversion adjustments applicable to the MediaOne
Series D Preferred Stock and MediaOne Series E Preferred Stock), (i) all shares
of MediaOne Common Stock subject to a Stock Election or a Standard Election will
be converted into the right to receive the Stock Election Consideration or the
Standard Election Consideration, as the case may be, and (ii) each share of
MediaOne Group Common Stock subject to a Cash Election will be converted into
the right to receive (A) a number of shares of AT&T Common Stock equal to the
Cash Election Proration Factor, (B) an amount of cash, without interest except
as set forth in Section 3.2(b), equal to (1) $85 multiplied by (2) (x) one minus
(y) the Cash Election Proration Factor divided by 1.4912, and (C) an additional
amount of cash (the "Cash Election Top-Up Amount"), if any, without interest
except as set forth in Section 3.2(b), rounded to the nearest cent, equal to the
Cash Election Proration Factor times the excess, if any, of $57.00 over the AT&T
Price; PROVIDED, HOWEVER, that in no event shall such additional amount in cash
exceed $5.70 times the Cash Election Proration Factor. The "Cash Election
Proration Factor" means a fraction (x) the numerator of which is the AT&T Share
Issuance Number minus the aggregate number of shares of AT&T Common Stock to be
issued in the Merger pursuant to the Stock Elections and the Standard Elections
or to become subject to issuance upon exercise of Adjusted Options or conversion
of AT&T Series D Preferred Stock or AT&T Series E Preferred Stock pursuant to
elections corresponding to the Stock Elections and the Standard Elections made
by holders of MediaOne Stock Options, MediaOne Series D Preferred Stock and
MediaOne Series E Preferred Stock, and (y) the denominator of which is the
number of shares of MediaOne Common Stock subject to the Cash Elections or
elections corresponding to the Cash Elections made by holders of MediaOne Stock
Options, MediaOne Series D Preferred Stock and MediaOne Series E Preferred
Stock.
(i) In the event that either the condition set forth in Section 9.2(b) or
the condition set forth in Section 9.3(b) is not satisfied but would be capable
of being satisfied if the AT&T Share Issuance Number were increased, and all
other conditions set forth in Article 9 have been satisfied (or, with respect to
conditions to be satisfied at the Effective Time, will in fact be satisfied),
then the AT&T Share Issuance Number shall be increased to the extent necessary
to permit the satisfaction of the conditions set forth in each of Sections
9.2(b) and 9.3(b) and, if required by law or the rules of the
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NYSE, AT&T will use its reasonable best efforts to obtain the requisite approval
of its shareholders for the issuance of a number of shares of AT&T Common Stock
equal to the revised AT&T Share Issuance Number (and MediaOne will use its
reasonable best efforts to obtain the requisite approval of its shareholders for
this Agreement and the Merger based on such revised AT&T Share Issuance Number,
if approval based on such revision is necessary); PROVIDED that if, prior to any
such required shareholder approval, the conditions set forth in Sections 9.2(b)
and 9.3(b) become capable of being satisfied without revision of the AT&T Share
Issuance Number, the AT&T Share Issuance Number shall not be revised and the
Merger will be completed as promptly as practicable (subject to continued
satisfaction of the conditions set forth in Article 9).
(j) At the Effective Time:
(i) except as otherwise provided in Section 3.1(a) or Section 3.3, each
share of Series C Cumulative Redeemable Preferred Stock, par value $1.00 per
share, of MediaOne (the "MediaOne Series C Preferred Stock") outstanding
immediately prior to the Effective Time shall be converted into the right to
receive one share of the corresponding series (the "AT&T Series C Preferred
Stock") of preferred stock of AT&T (the "Series C Consideration") that shall
have terms that are identical to those of the MediaOne Series C Preferred
Stock; PROVIDED that (A) as a result of the Merger, the issuer thereof shall
be AT&T rather than MediaOne and (B) AT&T's obligations to pay full
quarterly dividends in respect of shares of AT&T Series C Preferred Stock
(from the date of the last dividend paid on the MediaOne Series C Preferred
Stock) shall commence on the first dividend payment date that occurs
following the Effective Time;
(ii) except as otherwise provided in Section 3.1(a), each share of
Series D Convertible Preferred Stock, par value $1.00 per share, of MediaOne
(the "MediaOne Series D Preferred Stock") outstanding immediately prior to
the Effective Time shall be converted into the right to receive one share of
the corresponding series (the "AT&T Series D Preferred Stock") of preferred
stock of AT&T (the "Series D Consideration") that shall have terms that are
identical to those of the MediaOne Series D Preferred Stock; PROVIDED that
(A) as a result of the Merger, the issuer thereof shall be AT&T rather than
MediaOne, (B) AT&T's obligations to pay full quarterly dividends in respect
of shares of AT&T Series D Preferred Stock (from the date of the last
dividend paid on the MediaOne Series D Preferred Stock) shall commence on
the first dividend payment date that occurs following the Effective Time and
(C) the AT&T Series D Preferred Stock shall initially be convertible into
cash and a number of shares of AT&T Common Stock calculated in accordance
with Section 3.7 of the Certificate of Designations relating thereto
(subject to proration adjustments consistent with the provisions of Sections
3.1(g) and (h)); and
(iii) except as otherwise provided in Section 3.1(a) or Section 3.3, each
share of Series E Convertible Preferred Stock, par value $1.00 per share, of
MediaOne (the "MediaOne Series E Preferred Stock") outstanding immediately
prior to the Effective Time shall be converted into the right to receive one
share of the corresponding series (the "AT&T Series E Preferred Stock") of
preferred stock of AT&T (the "Series E Consideration") that shall have terms
that are identical to those of the MediaOne Series E Preferred Stock;
PROVIDED that (A) as a result of the Merger, the issuer thereof shall be
AT&T rather than MediaOne, (B) AT&T's obligations to pay full quarterly
dividends in respect of shares of AT&T Series E Preferred Stock (from the
date of the last dividend paid on the MediaOne Series E Preferred Stock)
shall commence on the first dividend payment date that occurs following the
Effective Time and (C) the conversion rate for the MediaOne Series E
Preferred Stock shall be fixed as set forth in the Certificate of
Designations relating thereto (subject to proration adjustments consistent
with Sections 3.1(g) and (h)).
SECTION 3.2. Surrender and Payment. (a) Prior to the Effective Time, AT&T
shall appoint an agent (the "Exchange Agent") for the purpose of (i) exchanging
certificates representing shares of MediaOne Common Stock (the "Common
Certificates") for the Common Stock Consideration, (ii)
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exchanging certificates representing shares of MediaOne Series C Preferred Stock
(the "Series C Certificates") for the Series C Consideration, (iii) exchanging
certificates representing shares of MediaOne Series D Preferred Stock (the
"Series D Certificates") for the Series D Consideration and (iv) exchanging
certificates representing shares of MediaOne Series E Preferred Stock (the
"Series E Certificates")," and together with the Common Certificates, the Series
C Certificates and the Series D Certificates, the "Certificates") for the Series
E Consideration. At the Effective Time, AT&T will deposit with the Exchange
Agent (i) the Common Stock Consideration to be paid in respect of shares of
MediaOne Common Stock, (ii) the Series C Consideration to be paid in respect of
shares of MediaOne Series C Preferred Stock, (iii) the Series D Consideration to
be paid in respect of shares of MediaOne Series D Preferred Stock, (iv) the
Series E Consideration to be paid in respect of shares of MediaOne Series E
Preferred Stock and (v) cash in an amount required to be paid pursuant to
Section 3.5. The Common Stock Consideration, Series C Consideration, Series D
Consideration, Series E Consideration and cash referred to in items (i) through
(v) are referred to herein as the "Exchange Fund". Upon receipt, the Exchange
Agent will invest the cash portion of the Exchange Fund in United States
government securities maturing at the Election Deadline or such other
investments as AT&T and MediaOne may mutually agree. Promptly after the
Effective Time, AT&T will send, or will cause the Exchange Agent to send, (A) to
each holder of shares of MediaOne Common Stock, MediaOne Series C Preferred
Stock, MediaOne Series D Preferred Stock or MediaOne Series E Preferred Stock at
the Effective Time, a letter of transmittal and instructions (which shall
specify that the delivery shall be effected, and risk of loss and title shall
pass, only upon proper delivery of the Certificates to the Exchange Agent) for
use in such exchange, and (B) to each holder of shares of MediaOne Common Stock,
an election form (the "Election Form") providing for such holders to make the
Standard Election, the Cash Election or the Stock Election. Any Standard
Election (other than a deemed Standard Election), Cash Election or Stock
Election shall be validly made only if the Exchange Agent shall have received by
5:00 p.m., New York City time, on a date (the "Election Deadline") to be
mutually agreed upon by AT&T and MediaOne (which date shall not be later than
the twentieth Business Day after the Effective Time), an Election Form properly
completed and executed (with the signature or signatures thereon guaranteed to
the extent required by the Election Form) by such holder accompanied by such
holder's Common Certificates, or by an appropriate guarantee of delivery of such
Common Certificates from a member of any registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial bank
or trust company in the United States as set forth in such Election Form. Any
holder of MediaOne Common Stock who has made an election by submitting an
Election Form to the Exchange Agent may at any time prior to the Election
Deadline change such holder's election by submitting a revised Election Form,
properly completed and signed that is received by the Exchange Agent prior to
the Election Deadline. Any holder of MediaOne Common Stock may at any time prior
to the Election Deadline revoke his election and withdraw his Common
Certificates deposited with the Exchange Agent by written notice to the Exchange
Agent received by the close of business on the day prior to the Election
Deadline. AT&T will make similar election forms available to the appropriate
holders of shares of MediaOne Series D Preferred Stock (if such shares have not
been redeemed) and MediaOne Series E Preferred Stock in the manner contemplated
by the certificates of designations for such shares to permit such holders to
make comparable elections with respect to the conversion adjustments for such
shares. AT&T shall have the right to make rules (which will be described in the
Election Form), not inconsistent with the terms of this Agreement, governing the
validity of Election Forms and the manner and extent to which Standard
Elections, Cash Election or Stock Elections are to be taken into account in
making the determinations prescribed by Sections 3.1(g) and 3.1(h).
(b) Upon surrender to the Exchange Agent of its Certificate, together with a
properly completed letter of transmittal, (i) each holder of shares of MediaOne
Common Stock (the "MediaOne Common Holders") will be entitled to receive
promptly after the Election Deadline the Common Stock Consideration in respect
of the shares of MediaOne Common Stock represented by its Certificate; (ii) each
holder of shares of MediaOne Series C Preferred Stock (the "MediaOne Series C
Holders") will be
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entitled to receive the Series C Consideration in respect of the shares of
MediaOne Series C Preferred Stock represented by its Certificate; (iii) each
holder of shares of MediaOne Series D Preferred Stock (the "MediaOne Series D
Holders") will be entitled to receive the Series D Consideration in respect of
the shares of MediaOne Series D Preferred Stock represented by its Certificate
and (iv) each holder of shares of MediaOne Series E Preferred Stock (the
"MediaOne Series E Holders") will be entitled to receive the Series E
Consideration in respect of the shares represented by its Certificate. In
addition, each such MediaOne Common Holder, MediaOne Series C Holder, MediaOne
Series D Holder and MediaOne Series E Holder will be entitled to receive any
dividends and distributions payable pursuant to Section 3.2(f) and, in the case
of MediaOne Common Holders and holders of MediaOne Stock Options, such holder's
PRO RATA share, if any, based on the cash portion of the Common Stock
Consideration to be received by such holder, of the interest or other return
earned on the cash portion of the Exchange Fund from the Effective Time until
the Election Deadline. Until so surrendered, each such Certificate shall
represent after the Effective Time, for all purposes, only the right to receive
the Common Stock Consideration, the Series C Consideration, the Series D
Consideration or the Series E Consideration, as the case may be.
(c) If any portion of the Common Stock Consideration, the Series C
Consideration, the Series D Consideration or the Series E Consideration is to be
paid to a Person other than the Person in whose name the Certificate so
surrendered is registered, it shall be a condition to such payment that such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and that the Person requesting such payment shall pay to the Exchange
Agent any transfer or other taxes required as a result of such payment to a
Person other than the registered holder of such Certificate, or establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) After the Effective Time, there shall be no further registration of
transfers of shares of MediaOne Common Stock, MediaOne Series C Preferred Stock,
MediaOne Series D Preferred Stock or MediaOne Series E Preferred Stock. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for the Common Stock
Consideration, the Series C Consideration, the Series D Consideration or the
Series E Consideration provided for, and in accordance with the procedures set
forth, in this Article 3.
(e) Any portion of the Exchange Fund made available to the Exchange Agent
pursuant to Section 3.2(a) that remains unclaimed by the MediaOne Common
Holders, MediaOne Series C Holders, MediaOne Series D Holders and MediaOne
Series E Holders one year after the Effective Time shall be returned to AT&T,
upon demand, and any such holder who has not exchanged its shares for the Common
Stock Consideration, the Series C Consideration, the Series D Consideration or
the Series E Consideration in accordance with this Section 3.2 prior to that
time shall thereafter look only to AT&T for payment of such consideration, any
dividends and distributions in respect of such shares, and, if applicable, the
PRO RATA share, if any, of the interest or other return earned on the cash
portion of the Exchange Fund from the Effective Time until the Election
Deadline, in each case without any interest thereon. Notwithstanding the
foregoing, AT&T shall not be liable to any MediaOne Common Holder, MediaOne
Series C Holder, MediaOne Series D Holder or MediaOne Series E Holder for any
amounts paid to a public official pursuant to applicable abandoned property,
escheat or similar laws. Any amounts remaining unclaimed by the MediaOne Common
Holders, MediaOne Series C Holders, MediaOne Series D Holders and MediaOne
Series E Holders five years after the Effective Time (or such earlier date,
immediately prior to such time when the amounts would otherwise escheat to or
become property of any Governmental Authority) shall become, to the extent
permitted by applicable law, the property of AT&T free and clear of any claims
or interest of any Person previously entitled thereto.
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(f) No dividends or other distributions with respect to any AT&T Securities
constituting part of the Common Stock Consideration, the Series C Consideration,
the Series D Consideration or the Series E Consideration and, in the case of the
Common Certificates, no cash payment in lieu of fractional shares as provided in
Section 3.5, shall be paid to the holder of any unsurrendered Certificates until
such Certificates are surrendered as provided in Section 3.2(b). Following such
surrender, there shall be paid, without interest, to the Person in whose name
such AT&T Securities have been registered, (i) at the time of such surrender,
(A) in the case of Common Certificates, the amount of any cash payable in lieu
of fractional shares to which such Person is entitled pursuant to Section 3.5,
and (B) the amount of all dividends or other distributions with a record date
after the Effective Time previously paid or payable on the date of such
surrender, with respect to such AT&T Securities, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender, and with a payment date
subsequent to surrender, payable with respect to such AT&T Securities.
(h) Any portion of the Common Stock Consideration, Series C Consideration or
the Series E Consideration made available to the Exchange Agent pursuant to
Section 3.2(a) to pay for shares of MediaOne Common Stock, MediaOne Series C
Preferred Stock or MediaOne Series E Preferred Stock for which appraisal rights
have been perfected shall be returned to AT&T upon demand.
SECTION 3.3. Dissenting Shares. Notwithstanding Section 3.1, shares of
MediaOne Common Stock, MediaOne Series C Preferred Stock and MediaOne Series E
Preferred Stock outstanding immediately prior to the Effective Time and held by
a holder who has not voted in favor of the Merger and has demanded appraisal for
such shares in accordance with Delaware Law ("Dissenting Shares") shall not be
converted into a right to receive the Common Stock Consideration, the Series C
Consideration or the Series E Consideration, as the case may be, unless such
holder fails to perfect, withdraws or otherwise loses its right to appraisal.
If, after the Effective Time, such holder fails to perfect, withdraws or loses
its right to appraisal, such shares shall be treated as if they had been
converted as of the Effective Time into a right to receive the Common Stock
Consideration, the Series C Consideration or the Series E Consideration, as the
case may be. MediaOne shall give AT&T prompt notice of any demands received by
MediaOne for appraisal of shares, and AT&T shall have the right to participate
in all negotiations and proceedings with respect to such demands. Except with
the prior written consent of AT&T, MediaOne shall not make any payment with
respect to, or settle or offer to settle, any such demands.
SECTION 3.4. Stock Options. (a) Each outstanding option to purchase shares
of MediaOne Common Stock granted under any stock option or compensation plans or
arrangements (a "MediaOne Stock Option"), whether or not exercisable or vested,
that is outstanding immediately prior to the Effective Time, shall be converted,
at the election of the holder thereof, in accordance with the procedures set
forth in this Section 3.4. Each holder may elect, with respect to each of such
holder's MediaOne Stock Options, to make a Stock Election, a Cash Election, or a
Standard Election. Subject to the provisions of paragraphs (b), (c) and (d) of
this Section 3.4:
(i) each MediaOne Stock Option subject to a Cash Election will be
converted into, for each share underlying such MediaOne Stock Option, (A)
the Cash Election Consideration minus (B) the per share exercise price of
the MediaOne Stock Option (the "Stock Option Cash Election Consideration");
(ii) each MediaOne Stock Option subject to a Standard Election will be
converted into, for each share underlying such MediaOne Stock Option, (A) an
option to purchase .95 of a share of AT&T Common Stock at an exercise price
equal to (1) the per share exercise price of the MediaOne Stock Option
multiplied by (2) a fraction, the numerator of which is $54.15 and the
denominator of which is $85 (the "Standard Election Fraction"), minus (3)
the Standard Election Top-Up Amount, if any, divided by (4) .95, and (B)
$30.85 in cash, without interest except as set forth in Section 3.2(b),
minus the product of (1) the per share exercise price of the MediaOne
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Stock Option and (2) one minus the Standard Election Fraction (the "Stock
Option Standard Election Consideration"); and
(iii) each MediaOne Stock Option subject to a Stock Election will be
converted into, for each share underlying the MediaOne Stock Option, an
option to receive 1.4912 shares of AT&T Common Stock at an exercise price
equal to (A) the per share exercise price of the MediaOne Stock Option minus
the Stock Election Top-Up Amount, if any, divided by 1.4912 (the "Stock
Option Stock Election Consideration").
(b) To the extent that the consideration to be paid in the Merger is
adjusted pursuant to Section 3.1(g):
(i) each MediaOne Stock Option subject to a Cash Election will be
converted into, for each share underlying such MediaOne Stock Option, the
Stock Option Cash Election Consideration;
(ii) each MediaOne Stock Option subject to a Standard Election will be
converted into, for each share underlying such MediaOne Stock Option, the
Stock Option Standard Election Consideration; and
(iii) each MediaOne Stock Option subject to a Stock Election will be
converted into, for each share underlying such MediaOne Stock Option, (A) an
option to purchase a number of shares of AT&T Common Stock equal to 1.4912
multiplied by the Stock Election Proration Factor, at an exercise price
equal to (1) the per share exercise price of the MediaOne Stock Option
multiplied by the Stock Election Proration Factor, minus (2) the Stock
Election Top-Up Amount, if any, multiplied by the Stock Election Proration
Factor, divided by (3) 1.4912 multiplied by the Stock Election Proration
Factor, and (B) an amount of cash, without interest except as set forth in
Section 3.2(b), equal to (1) $85 multiplied by one minus the Stock Election
Proration Factor, minus (2) the per share exercise price of the MediaOne
Stock Option multiplied by one minus the Stock Election Proration Factor.
(c) To the extent that the consideration to be paid in the Merger is
adjusted pursuant to Section 3.1 (h):
(i) each MediaOne Stock Option subject to a Stock Election will be
converted into, for each share underlying such MediaOne Stock Option, the
Stock Option Stock Election Consideration;
(ii) each MediaOne Stock Option subject to a Standard Election will be
converted into, for each share underlying such MediaOne Stock Option, the
Stock Option Standard Election Consideration; and
(iii) each MediaOne Stock Option subject to a Cash Election will be
converted into, for each share underlying such MediaOne Stock Option, (A) an
option to purchase a number of shares of AT&T Common Stock equal to the Cash
Election Proration Factor, at an exercise price equal to (1) the per share
exercise price of the MediaOne Stock Option multiplied by (2) a fraction
(the "Cash Election Fraction"), the numerator of which is the Cash Election
Proration Factor and the denominator of which is 1.4912, minus (3) the Cash
Election Top-Up Amount, if any, divided by (4) the Cash Election Proration
Factor, and (B) an amount of cash, without interest except as set forth in
Section 3.2(b), equal to (1) $85 multiplied by one minus the Cash Election
Fraction, minus (2) the per share exercise price of the MediaOne Stock
Option multiplied by one minus the Cash Election Fraction.
The options to purchase shares of AT&T Common Stock referred to in this
Section are hereinafter referred to as "Adjusted Options."
(d) To the extent that the provisions of this Section 3.4 would require the
payment to any holder of a MediaOne Stock Option of a positive cash amount, such
amount, net of any applicable withholding taxes, shall be paid as promptly as
practicable following the determination thereof. To the extent that the
provisions of this Section 3.4 would require the payment to any holder of a
MediaOne Stock
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Option of a negative cash amount, then such amount shall not be paid by or to
the holder of such MediaOne Stock Option; instead such amount shall be divided
(i) in the case of paragraphs (a)(ii), (b)(ii) and (c)(ii) above, by .95, (ii)
in the case of paragraph (b)(iii) above, by 1.4912 times the Stock Election
Proration Factor, and (iii) in the case of paragraph (c)(iii) above, by the Cash
Election Proration Factor, and in each case the resulting amount shall be added
to the per share exercise price of such holder's Adjusted Options with respect
to which such calculation was performed.
(e) Holders of MediaOne Stock Options will be provided with election forms
and given the opportunity to make such elections in the same manner as holders
of shares of MediaOne Common Stock are provided with Election Forms and given
the opportunity to make Stock Elections, Cash Elections and Standard Elections.
Any holder of a MediaOne Stock Option who does not make such an election on or
prior to the Election Deadline will be deemed to have elected the Standard
Election Consideration.
(f) Any fractional share of AT&T Common Stock resulting from an aggregation
of all the shares of a holder subject to MediaOne Stock Options shall be rounded
up to the nearest whole share.
(g) AT&T shall take such actions as are necessary for the assumption of the
MediaOne Stock Options pursuant to this Section 3.4 and any obligations to issue
MediaOne Common Stock under the existing terms of any other plans, agreements or
arrangements of MediaOne covering any current or former employee or director of
MediaOne or any MediaOne Subsidiary, including the reservation, issuance and
listing of AT&T Common Stock as is necessary to effectuate the transactions
contemplated by this Section 3.4. Similarly, MediaOne shall take all actions
required to be taken by it to effectuate such assumption. AT&T shall prepare and
file with the SEC a registration statement on Form S-8 (or any other appropriate
form) or a post-effective amendment to a registration statement previously filed
under the 1933 Act, with respect to the shares of AT&T Common Stock subject to
the Adjusted Options and, where applicable, shall use its reasonable best
efforts to have such registration statement declared effective as soon as
practicable following the Effective Time and to maintain the effectiveness of
such registration statement covering such Adjusted Options (and to maintain the
current status of the prospectus contained therein) for so long as such Adjusted
Options remain outstanding. With respect to those individuals, if any, who,
subsequent to the Effective Time, will be subject to the reporting requirements
under Section 16(a) of the 1934 Act, where applicable, AT&T shall use all
reasonable efforts to administer any Adjusted Options issued pursuant to this
Section 3.4 in a manner that complies with Rule 16b-3 promulgated under the 1934
Act to the extent that the MediaOne Stock Option in respect of which such
Adjusted Option has been issued complied with such rule prior to the Merger.
SECTION 3.5. Fractional Shares. No fractional shares of AT&T Common Stock
shall be issued in the Merger. All fractional shares of AT&T Common Stock that a
holder of shares of MediaOne Common Stock would otherwise be entitled to receive
as a result of the Merger shall be aggregated and if a fractional share results
from such aggregation, such holder shall be entitled to receive, in lieu
thereof, an amount in cash without interest determined by multiplying the
closing sale price of a share of AT&T Common Stock on the NYSE on the trading
day immediately preceding the Effective Time by the fraction of a share of AT&T
Common Stock to which such holder would otherwise have been entitled.
SECTION 3.6. Withholding Rights. AT&T shall be entitled to deduct and
withhold from the consideration otherwise payable to any Person pursuant to this
Article 3 such amounts as it is required to deduct and withhold with respect to
the making of such payment under any provision of federal, state, local or
foreign tax law. If AT&T so withholds amounts, such amounts shall be treated for
all purposes of this Agreement as having been paid to the MediaOne Common
Holder, the MediaOne Series C Holder, the MediaOne Series D Holder or the
MediaOne Series E Holder, as the case may be, in respect of which AT&T made such
deduction and withholding.
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SECTION 3.7. Lost Certificates. If any Certificate is 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 executing an indemnity
reasonably satisfactory to AT&T (and, if required by AT&T in the case of a
Certificate representing more than 1,000 shares (100 shares in the case of the
MediaOne Series D Preferred Stock), the posting by such Person of a bond, in
such reasonable amount as AT&T may direct, as indemnity) against any claim that
may be made against it with respect to such Certificate, the Exchange Agent will
issue, in exchange for such lost, stolen or destroyed Certificate, (i) the
Common Stock Consideration to be paid in respect of the shares of MediaOne
Common Stock represented by such Certificate, (ii) the Series C Consideration to
be paid in respect of the shares of MediaOne Series C Preferred Stock
represented by such Certificate, (iii) the Series D Consideration to be paid in
respect of the shares of MediaOne Series D Preferred Stock represented by such
Certificate, or (iv) the Series E Consideration to be paid in respect of the
shares of MediaOne Series E Preferred Stock represented by such Certificate, as
the case may be. In addition, such Person will be entitled to receive any
amounts payable pursuant to Section 3.2(f).
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF MEDIAONE
Except as set forth in the MediaOne Disclosure Schedule or as disclosed in
the MediaOne SEC Documents filed prior to the date hereof, MediaOne represents
and warrants to AT&T and Merger Sub as follows:
SECTION 4.1. Corporate Existence and Power. MediaOne is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all corporate powers required to carry on its business as
now conducted. MediaOne is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where such
qualification is necessary, except for those jurisdictions where failure to be
so qualified, individually or in the aggregate, has not had and would not be
reasonably expected to have a MediaOne Material Adverse Effect. MediaOne has
heretofore delivered or made available to AT&T true and complete copies of the
certificate of incorporation and bylaws of MediaOne as currently in effect.
SECTION 4.2. Corporate Authorization. (a) The execution, delivery and
performance by MediaOne of this Agreement and the consummation by MediaOne of
the transactions contemplated hereby are within MediaOne's corporate powers and,
except for the required approval of MediaOne's stockholders of this Agreement,
have been duly authorized by all necessary corporate action on the part of
MediaOne. This Agreement constitutes a valid and binding agreement of MediaOne,
enforceable against MediaOne in accordance with its terms, except (i) as the
same may be limited by applicable bankruptcy, insolvency, moratorium or similar
laws of general application relating to or affecting creditors' rights, and (ii)
for the limitations imposed by general principles of equity.
(b) At a meeting duly called and held, MediaOne's Board of Directors has
unanimously: (i) determined that this Agreement and the transactions
contemplated hereby are advisable and fair to and in the best interests of
MediaOne's stockholders; (ii) approved and adopted this Agreement and the
transactions contemplated hereby; and (iii) resolved (subject to Section 6.2(b))
to recommend approval and adoption of this Agreement by its stockholders.
(c) The Agreement and Plan of Merger, dated as of March 22, 1999 (the
"Comcast Merger Agreement"), by and between MediaOne and Comcast Corporation
("Comcast") has been duly terminated by MediaOne pursuant to Section
10.1(d)(iii) thereof.
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SECTION 4.3. Governmental Authorization. The execution, delivery and
performance by MediaOne of this Agreement and the consummation by MediaOne of
the transactions contemplated hereby require no action by or in respect of, or
filing with, any governmental body, agency, official or authority, domestic or
foreign (a "Governmental Authority"), other than: (i) notices to, or consents or
waivers from, the relevant Franchising Authorities in respect of the MediaOne
Franchises (the "Franchise Consents"), and the FCC in connection with a change
of control and/or assignment of the holder of the FCC licenses of MediaOne and
the MediaOne Subsidiaries ("License Consents"); (ii) any filings as may be
required with the FCC or any Governmental Authority to obtain its consent to the
assumption by AT&T or Merger Sub of the MediaOne Social Contract (the "Social
Contract Consent"); (iii) the filing of a certificate of merger with respect to
the Merger with the Delaware Secretary of State and appropriate documents with
the relevant authorities of other states in which MediaOne is qualified to do
business; (iv) compliance with any applicable requirements of the HSR Act; (v)
compliance with any applicable requirements of the 1933 Act, 1934 Act, and any
other applicable securities laws, whether state or foreign; and (vii) any
actions or filings the absence of which, individually or in the aggregate, would
not be reasonably expected to have a MediaOne Material Adverse Effect or
materially impair or delay the ability of MediaOne to consummate the
transactions contemplated by this Agreement.
SECTION 4.4. Non-contravention. The execution, delivery and performance by
MediaOne of this Agreement and the consummation by MediaOne of the transactions
contemplated hereby do not and will not (i) contravene, conflict with, or result
in any violation or breach of any provision of the certificate of incorporation
or bylaws of MediaOne; (ii) assuming compliance with the matters referred to in
Section 4.3, contravene, conflict with or result in a violation or breach of any
provision of any applicable law, statute, ordinance, rule, regulation, judgment,
injunction, order, or decree; (iii) require any consent or other action by any
Person under, constitute a default (or an event that, with or without notice or
lapse of time or both, would constitute a default) under, or cause or permit the
termination, cancellation, acceleration, triggering or other change of any right
or obligation or the loss of any benefit to which MediaOne or any MediaOne
Subsidiary is entitled under (A) any provision of any agreement or other
instrument binding upon MediaOne or any MediaOne Subsidiary or (B) any license,
franchise, permit, certificate, approval or other similar authorization held by,
or affecting, or relating in any way to, the assets or business of, MediaOne or
any MediaOne Subsidiary; or (iv) result in the creation or imposition of any
Lien on any asset of MediaOne or any MediaOne Subsidiary, other than such
exceptions in the case of clauses (ii), (iii) and (iv) as would not be,
individually or in the aggregate, reasonably expected to have a MediaOne
Material Adverse Effect or materially impair or delay the ability of MediaOne to
consummate the transactions contemplated by this Agreement.
SECTION 4.5. Capitalization. (a) The authorized capital stock of MediaOne
consists of 2,000,000,000 shares of MediaOne Common Stock and 200,000,000 shares
of Preferred Stock, par value $1.00 per share, of which (i) 10,000,000 shares
have been designated Series A Junior Participating Cumulative Preferred Stock
(the "MediaOne Series A Preferred Stock"), (ii) 50,000 shares have been
designated MediaOne Series C Preferred Stock, (iii) 20,000,000 shares have been
designated MediaOne Series D Preferred Stock, (iv) 1,000,000 shares have been
designated MediaOne Series E Preferred Stock and (v) 2,000,000 shares have been
designated Series F Junior Participating Cumulative Preferred Stock (the
"MediaOne Series F Preferred Stock") and reserved for issuance upon the exercise
of rights distributed to holders of MediaOne Common Stock pursuant to the
MediaOne 1999 Rights Agreement. As of the close of business on April 29, 1999,
there were outstanding (i) 605,466,754 shares of MediaOne Common Stock
(inclusive of all shares of restricted stock granted under any compensatory
plans or arrangements), (ii) MediaOne Stock Options to purchase an aggregate of
29,126,981 shares of MediaOne Common Stock (of which options to purchase an
aggregate of 9,907,524 shares of MediaOne Common Stock were exercisable), (iii)
phantom shares or stock units issued under any stock option, compensation or
deferred compensation plan or arrangement with respect to an aggregate of
339,703 shares of MediaOne Common Stock, (iv) no shares of MediaOne Series A
Preferred Stock, (iv) 50,000 shares of MediaOne Series C Stock, (vi) 19,999,478
shares of MediaOne Series D Preferred
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Stock (which are convertible, subject to the terms and conditions thereof, into
39,609,366 shares of MediaOne Common Stock), (vii) 996,562 shares of MediaOne
Series E Preferred Stock and (viii) no shares of MediaOne Series F Preferred
Stock. All outstanding shares of capital stock of MediaOne have been, and all
shares that may be issued pursuant to any compensatory plan or arrangement will
be, when issued in accordance with the respective terms thereof, duly
authorized, validly issued, fully paid and nonassessable.
(b) Except as set forth in this Section 4.5 and for changes since April 29,
1999 resulting from the exercise of employee stock options outstanding on such
date (and the grant or award of employee stock options in the ordinary course of
business and the exercise thereof) and the conversion of MediaOne Series D
Preferred Stock outstanding on such date, there are no outstanding (i) shares of
capital stock or voting securities of MediaOne, (ii) securities of MediaOne
convertible into or exchangeable for shares of capital stock or voting
securities of MediaOne or (iii) options or other rights to acquire from
MediaOne, or other obligation of MediaOne to issue any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of MediaOne. There are no outstanding obligations of MediaOne
or any MediaOne Subsidiary to repurchase, redeem or otherwise acquire any of the
securities referred to in clauses (i), (ii) and (iii) above (collectively, the
"MediaOne Securities").
SECTION 4.6. Subsidiaries. (a) Each MediaOne Subsidiary is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization and has all corporate, partnership
or other similar powers required to carry on its business as now conducted,
other than such exceptions as, individually or in the aggregate, have not had
and would not be reasonably expected to have a MediaOne Material Adverse Effect.
Each MediaOne Subsidiary is duly qualified to do business as a foreign
corporation or other foreign legal entity and is in good standing in each
jurisdiction where such qualification is necessary, with such exceptions,
individually or in the aggregate, as have not had and would not be reasonably
expected to have a MediaOne Material Adverse Effect. The MediaOne Disclosure
Schedule sets forth a list of all MediaOne Significant Subsidiaries and their
respective jurisdictions of organization and identifies MediaOne's (direct or
indirect) percentage ownership interest therein.
(b) All of the outstanding capital stock of, or other voting securities or
ownership interests in, each MediaOne Significant Subsidiary, is owned by
MediaOne, directly or indirectly, free and clear of any Lien and free of any
other limitation or restriction (including any restriction on the right to vote,
sell or otherwise dispose of such capital stock or other voting securities or
ownership interests). There are no outstanding (i) securities of MediaOne or any
MediaOne Subsidiary convertible into or exchangeable for shares of capital stock
or other voting securities or ownership interests in any MediaOne Significant
Subsidiary or (ii) options or other rights to acquire from MediaOne or any
MediaOne Subsidiary, or other obligation of MediaOne or any MediaOne Subsidiary
to issue any capital stock, or other voting securities or ownership interests
in, or any securities convertible into or exchangeable for any capital stock or
other voting securities or ownership interests in, any MediaOne Significant
Subsidiary. There are no outstanding obligations of MediaOne or any MediaOne
Significant Subsidiary to repurchase, redeem or otherwise acquire any of the
items referred to in clauses (i) and (ii) above.
SECTION 4.7. SEC Filings. (a) MediaOne has delivered or made available to
AT&T: (i) MediaOne's annual report on Form 10-K for its fiscal year ended
December 31, 1997 and the MediaOne 10-K; (ii) its proxy or information
statements relating to meetings of, or actions taken without a meeting by, the
stockholders of MediaOne held since December 31, 1997; and (iii) all of its
other reports, statements, schedules and registration statements filed with the
SEC since December 31, 1997 (the documents referred to in this Section 4.7(a),
collectively, the "MediaOne SEC Documents").
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(b) As of its filing date, each MediaOne SEC Document complied as to form in
all material respects with the applicable requirements of the 1933 Act and the
1934 Act, as the case may be.
(c) As of its filing date, each MediaOne SEC Document filed pursuant to the
1934 Act did not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
(d) Each MediaOne SEC Document that is a registration statement, as amended
or supplemented, if applicable, filed pursuant to the 1933 Act, as of the date
such registration statement or amendment became effective, did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
SECTION 4.8. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of MediaOne
included in the MediaOne SEC Documents fairly present, in all material respects,
in conformity with generally accepted accounting principles ("GAAP") applied on
a consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of MediaOne and its consolidated Subsidiaries as
of the dates thereof and their consolidated results of operations and cash flows
for the periods then ended (subject to normal year-end adjustments in the case
of any unaudited interim financial statements).
SECTION 4.9. Information Supplied. The information supplied by MediaOne for
inclusion or incorporation in the registration statement on Form S-4 or any
amendment or supplement thereto pursuant to which shares of AT&T Common Stock
issuable in the Merger will be registered with the SEC (the "Registration
Statement") shall not at the time the Registration Statement is declared
effective by the SEC contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The information supplied by MediaOne for inclusion in the
proxy statement/prospectus or any amendment or supplement thereto (the "Proxy
Statement") to be sent to the stockholders of MediaOne in connection with their
meeting to consider this Agreement and the Merger (the "MediaOne Stockholders'
Meeting") shall not, on the date the Proxy Statement is first mailed to the
stockholders of MediaOne or at the time of the MediaOne Stockholders' Meeting or
at the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
SECTION 4.10. Absence of Certain Changes. Since the MediaOne Balance Sheet
Date, the business of MediaOne and the MediaOne Subsidiaries has been conducted
in the ordinary course consistent with past practices and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which, individually or in the aggregate, has had or would be reasonably
expected to have a MediaOne Material Adverse Effect; or
(b) any action, event, occurrence or transaction that would have been
prohibited by clause (a), (b), (c), (d), (f), (i) or (q) of the second sentence
of Section 6.1 (or committed to do any of the foregoing) if this Agreement had
been in effect as of the time thereof.
SECTION 4.11. No Undisclosed Material Liabilities. There are no liabilities
or obligations of MediaOne or any MediaOne Subsidiary of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
and there is no existing condition, situation or set of circumstances that could
be reasonably expected to result in such a liability or obligation, other than:
(a) liabilities or obligations disclosed and provided for in the MediaOne
Balance Sheet or in the notes thereto or in MediaOne SEC Documents filed prior
to the date hereof or in the MediaOne 10-K;
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(b) liabilities or obligations incurred in the ordinary course of business
consistent with past practice since the MediaOne Balance Sheet Date; and
(c) liabilities or obligations that, individually or in the aggregate have
not had and would not be reasonably expected to have a MediaOne Material Adverse
Effect.
SECTION 4.12. Compliance with Laws and Court Orders. MediaOne and the
MediaOne Subsidiaries hold all licenses, franchises, certificates, consents,
permits, qualifications and authorizations from all Governmental Authorities
necessary for the lawful conduct of their business, except where the failure to
hold any of the foregoing, individually or in the aggregate, has not had and
would not be reasonably expected to have a MediaOne Material Adverse Effect.
MediaOne and each of the MediaOne Subsidiaries are and have been in compliance
with, and to the knowledge of MediaOne, are not under investigation with respect
to and have not been threatened to be charged with or given notice of any
violation of, any such license, franchise, certificate, consent, permit,
qualification or authorization, applicable law, statute, ordinance, rule,
regulation, judgment, injunction, order or decree, except for failures to comply
or violations that, individually or in the aggregate, have not had and would not
be reasonably expected to have a MediaOne Material Adverse Effect.
SECTION 4.13. Litigation. There is no action, suit, investigation or
proceeding (or any basis therefor) pending against, or, to the knowledge of
MediaOne, threatened against or affecting, MediaOne or any MediaOne Subsidiary
or any of their respective properties before any court or arbitrator or before
or by any other Governmental Authority, that, individually or in the aggregate,
would be reasonably expected to have a MediaOne Material Adverse Effect.
SECTION 4.14. Finders' Fees. Except for Lehman Brothers Inc. and Allen &
Co., Incorporated, there is no investment banker, broker, finder or other
intermediary that has been retained by or is authorized to act on behalf of
MediaOne or any MediaOne Subsidiary who might be entitled to any fee or
commission from AT&T, any of the AT&T Subsidiaries, MediaOne or any of the
MediaOne Subsidiaries in connection with the transactions contemplated by this
Agreement. A copy of Lehman Brothers Inc. engagement agreement has been provided
to AT&T.
SECTION 4.15. Opinion of Financial Advisor. MediaOne has received an opinion
of Lehman Brothers Inc., financial advisor to MediaOne, to the effect that, as
of May 6, 1999, from a financial point of view, the Common Stock Consideration
is fair to the holders of MediaOne Common Stock.
SECTION 4.16. Taxes. Except as set forth in the MediaOne Balance Sheet
(including the notes thereto) and except as would not be, individually or in the
aggregate, reasonably expected to have a MediaOne Material Adverse Effect, (i)
all MediaOne Tax Returns required to be filed with any taxing authority by, or
with respect to, MediaOne and the MediaOne Subsidiaries have been filed in
accordance with all applicable laws; (ii) MediaOne and the MediaOne Subsidiaries
have timely paid all Taxes shown as due and payable on the MediaOne Tax Returns
that have been so filed, and, as of the time of filing, the MediaOne Tax Returns
correctly reflected the facts regarding the income, business, assets,
operations, activities and the status of MediaOne and the MediaOne Subsidiaries
(other than Taxes which are being contested in good faith and for which adequate
reserves are reflected on the MediaOne Balance Sheet); (iii) MediaOne and the
MediaOne Subsidiaries have made provision for all Taxes payable by MediaOne and
the MediaOne Subsidiaries for which no MediaOne Tax Return has yet been filed;
(iv) the charges, accruals and reserves for Taxes with respect to MediaOne and
the MediaOne Subsidiaries reflected on the MediaOne Balance Sheet are adequate
under GAAP to cover the Tax liabilities accruing through the date thereof; (v)
there is no action, suit, proceeding, audit or claim now proposed or pending
against or with respect to MediaOne or any MediaOne Subsidiary in respect of any
Tax where there is a reasonable possibility of an adverse determination; (vi)
the federal income Tax Returns of MediaOne and the MediaOne Subsidiaries have
been examined and settled with the Internal Revenue Service (the "IRS") (or the
applicable statutes of limitation for the assessment of federal income Taxes for
such periods have expired) for all years through 1987; and (vii) there are no
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material Liens or encumbrances for Taxes on any of the assets of MediaOne or any
MediaOne Subsidiary except liens for current Taxes not yet due. For purposes of
this Agreement, "Taxes" shall mean any and all taxes, charges, fees, levies or
other assessments, including, without limitation, all net income, gross income,
gross receipts, excise, stamp, real or personal property, ad valorem,
withholding, social security (or similar), unemployment, occupation, use,
service, service use, license, net worth, payroll, franchise, severance,
transfer, recording, employment, premium, windfall profits, environmental
(including taxes under Section 59A of the Code), customs duties, capital stock,
profits, disability, sales, registration, value added, alternative or add-on
minimum, estimated or other taxes, assessments or charges imposed by any
federal, state, local or foreign governmental entity and any interest,
penalties, or additions to tax attributable thereto. For purposes of this
Agreement, "Tax Returns" shall mean any return, report, form or similar
statement required to be filed with respect to any Tax (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return or declaration of estimated Tax.
SECTION 4.17. Tax Opinions. There are no facts or circumstances relating to
MediaOne or, to the knowledge of MediaOne, U S WEST, that would prevent Weil,
Gotshal & Manges LLP from delivering the opinion referred to in Section 9.3(c)
as of the date hereof.
SECTION 4.18. Employee Benefit Plans and Labor Matters. Except as have not
had and would not be reasonably expected to have, individually or in the
aggregate, a MediaOne Material Adverse Effect:
(a) The MediaOne Disclosure Schedule contains a true and complete list, as
of the date hereof, of all MediaOne Employee Plans and all MediaOne Benefit
Arrangements. Copies of each MediaOne Employee Plan and each MediaOne Benefit
Arrangement (and, if applicable, related trust agreements) and all amendments
thereto and written interpretations thereof have been made available to AT&T as
of the date hereof or will have been made available to AT&T within thirty days
after the date hereof, together with the three most recent annual reports (Form
5500 including, if applicable, Schedule B thereto) and the most recent actuarial
valuation report prepared in connection with any MediaOne Employee Plan.
(b) No "accumulated funding deficiency," as defined in Section 412 of the
Code, has been incurred with respect to any MediaOne Employee Plan subject to
such Section 412, whether or not waived. No "reportable event" within the
meaning of Section 4043 of ERISA, and no event described in Section 4062 or 4063
of ERISA has occurred in connection with any MediaOne Employee Plan. Neither
MediaOne nor any ERISA Affiliate of MediaOne has (i) engaged in, or is a
successor or parent corporation to an entity that has engaged in, a transaction
described in Sections 4069 or 4212(c) of ERISA or (ii) incurred, or reasonably
expects to incur prior to the Effective Time (A) any liability under Title IV of
ERISA arising in connection with the termination of, or a complete or partial
withdrawal from, any plan covered or previously covered by Title IV of ERISA or
(B) any liability under Section 4971 of the Code that in either case could
become a liability of MediaOne, any MediaOne Subsidiary, AT&T or any of their
ERISA Affiliates after the Effective Time. If a "complete withdrawal" by
MediaOne and all of its ERISA Affiliates were to occur as of the Effective Time
with respect to all Multiemployer Plans, none of MediaOne, any MediaOne
Subsidiary or any of their ERISA Affiliates would incur any withdrawal liability
under Title IV of ERISA.
(c) As of December 31, 1998, the fair market value of the assets of each
MediaOne Pension Plan (excluding for these purposes any accrued but unpaid
contributions) exceeded the present value of all benefits accrued under such
MediaOne Pension Plan determined on a termination basis using the assumptions
established by the PBGC as in effect on such date. As of December 31, 1998, the
aggregate unfunded liability of MediaOne and any MediaOne Subsidiary in respect
of all MediaOne Deferred Compensation Plans, computed using reasonable actuarial
assumptions and determined as if all benefits under such plans were vested and
payable as of such date, did not exceed $53,000,000.
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(d) Each MediaOne Employee Plan that is intended to be qualified under
Section 401(a) of the Code is the subject of a favorable qualification
determination letter issued by the IRS and to MediaOne's knowledge each such
MediaOne Employee Plan is so qualified.
(e) There is no contract, plan or arrangement (written or otherwise)
covering any employee or former employee of MediaOne or any MediaOne Subsidiary
that, individually or collectively, could give rise to the payment of any amount
that would not be deductible pursuant to the terms of Sections 162(m) or 280G of
the Code.
(f) MediaOne has made available to AT&T as of the date hereof, or will have
made available to AT&T within thirty days after the date hereof, a list and
copies of each MediaOne International Plan. According to the actuarial
assumptions and valuations most recently used for the purpose of funding each
MediaOne International Plan (or, if the same has no such assumptions and
valuations or is unfunded, according to actuarial assumptions and valuations in
use by the PBGC on the date hereof), as of December 31, 1998 the total amount or
value of the funds available under such MediaOne International Plan to pay
benefits accrued thereunder or segregated in respect of such accrued benefits,
together with any reserve or accrual with respect thereto, exceeded the present
value of all benefits (actual or contingent) accrued as of such date of all
participants and past participants therein in respect of which MediaOne or any
MediaOne Subsidiary has or would have after the Effective Time any obligation.
From and after the Effective Time, AT&T and its Affiliates will get the full
benefit of any such funds, accruals or reserves for the benefit of covered
employees.
(g) As of December 31, 1998, the aggregate amount of the accumulated
post-retirement benefit obligation under all MediaOne Employee Plans, MediaOne
Benefit Arrangements and MediaOne International Plans, as determined in
accordance with Statement of Financial Accounting Standards No. 106, did not
exceed $25,000,000.
(h) Each MediaOne Employee Plan, MediaOne Benefit Arrangement and MediaOne
International Plan has been maintained in compliance with its terms and with the
requirements prescribed by any and all applicable statutes, orders, rules and
regulations (including any special provisions relating to registration or
qualification where such Plan was intended so to be so registered or qualified)
and has been maintained in good standing with applicable regulatory authorities.
(i) No employee or former employee of MediaOne or any MediaOne Subsidiary
will become entitled to any bonus, retirement, severance, job security or
similar benefit or enhanced such benefit (including acceleration of vesting or
exercise of an incentive award) as a result of the transactions contemplated
hereby (either alone or together with any other event).
(j) Neither MediaOne nor any of the MediaOne Subsidiaries is a party to any
collective bargaining agreement. Neither MediaOne nor any of the MediaOne
Subsidiaries is involved in or threatened with any labor dispute, work stoppage,
labor strike, slowdown or grievance. To the knowledge of MediaOne, there is no
organizing effort or representation question at issue with respect to any
employee of MediaOne or any of the MediaOne Subsidiaries.
SECTION 4.19. Environmental Matters. (a) Except as have not had and would
not be reasonably expected to have, individually or in the aggregate, a MediaOne
Material Adverse Effect:
(A) no notice, notification, demand, request for information, citation,
summons or order has been received, no complaint has been filed, no penalty
has been assessed, and no investigation, action, claim, suit, proceeding or
review (or any basis therefor) is pending or, to the knowledge of MediaOne,
is threatened by any Governmental Authority or other Person relating to or
arising out of any Environmental Law;
(B) MediaOne is and has been in compliance with all Environmental Laws
and all Environmental Permits; and
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(C) there are no liabilities of or relating to MediaOne or any MediaOne
Subsidiary of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise arising under or relating to any
Environmental Law and there are no facts, conditions, situations or set of
circumstances that could reasonably be expected to result in or be the basis
for any such liability.
(b) There have been no environmental investigations, studies, audits, tests,
reviews or other analyses conducted of which MediaOne has knowledge in relation
to the current or prior business of MediaOne or any MediaOne Subsidiary or any
property or facility now or previously owned or leased by MediaOne or any
MediaOne Subsidiary that reveal matters that, individually or in the aggregate,
have had or would reasonably be expected to have a MediaOne Material Adverse
Effect.
(c) For purposes of this Section 4.19, the terms MediaOne and MediaOne
Subsidiary shall include any entity that is, in whole or in part, a predecessor
of MediaOne or any MediaOne Subsidiary.
SECTION 4.20. Intellectual Property. With such exceptions as, individually
or in the aggregate, have not had and would not be reasonably expected to have a
MediaOne Material Adverse Effect, each of MediaOne and the MediaOne Subsidiaries
own or have a valid license to use each trademark, service mark, trade name,
invention, patent, trade secret, copyright, know-how (including any
registrations or applications for registration of any of the foregoing) or any
other similar type of proprietary intellectual property right (collectively, the
"MediaOne Intellectual Property") necessary to carry on its business
substantially as currently conducted. Neither MediaOne nor any MediaOne
Subsidiary has received any notice of infringement of or conflict with, and to
MediaOne's knowledge, there are no infringements of or conflicts with, the
rights of any Person with respect to the use of any MediaOne Intellectual
Property that, in either such case, individually or in the aggregate, have had
or would be reasonably expected to have, a MediaOne Material Adverse Effect.
SECTION 4.21. Contracts. Neither MediaOne nor any of the MediaOne
Subsidiaries is a party to or bound by (i) any "material contract" (as such term
is defined in Item 601(b)(10) of Regulation S-K of the SEC) or any agreement,
contract or commitment that would be such a "material contract" but for the
exception for contracts entered into in the ordinary course of business, (ii)
any non-competition agreement or any other agreement or obligation which
materially limits or will materially limit MediaOne or any of the MediaOne
Subsidiaries from engaging in the business of providing cable television,
telephony or data transmission services in the United States or the business of
providing programming content in the United States, the United Kingdom or Japan,
(iii) any agreement, contract or commitment to which TW or any of its Affiliates
is a party that amends the TWE Partnership Agreement or any related agreement or
affects the rights or obligations of MediaOne or any MediaOne Subsidiary with
respect to TWE or any TWE Subsidiary or (iv) any material agreement, contract or
commitment to which U S WEST or any of its Affiliates is a party that is not in
the ordinary course of business of MediaOne and the MediaOne Subsidiaries. With
such exceptions as, individually or in the aggregate, have not had, and would
not be reasonably expected to have, a MediaOne Material Adverse Effect, (x) each
of the contracts, agreements and commitments of the MediaOne and the MediaOne
Subsidiaries is valid and in full force and effect and (y) neither MediaOne nor
any of the MediaOne Subsidiaries has violated any provision of, or committed or
failed to perform any act which, with or without notice, lapse of time, or both,
would constitute a default under the provisions of any such contract, agreement
or commitment. To the knowledge of MediaOne, no counterparty to any such
contract, agreement or commitment has violated any provision of, or committed or
failed to perform any act which, with or without notice, lapse of time, or both
would constitute a default or other breach under the provisions of, such
contract, agreement or commitment, except for defaults or breaches which,
individually or in the aggregate, have not had, or would not reasonably be
expected to have, a MediaOne Material Adverse Effect. Neither MediaOne nor any
MediaOne Subsidiary is a party to, or otherwise a guarantor of or liable with
respect to, any interest rate, currency or other swap or derivative transaction,
other than any such transactions which are not
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material to the business of the MediaOne Group. MediaOne has provided or made
available to AT&T a copy of each agreement described in item (i), (ii), (iii) or
(iv) above.
SECTION 4.22. TWE. MediaOne, directly or indirectly, owns a 25.51% priority
capital and residual equity interest in TWE as described in the TWE Partnership
Agreement. As of the date hereof, to the knowledge of MediaOne, there are no
facts or circumstances with respect to TWE or the TWE Subsidiaries that,
individually or in the aggregate, have had or would be reasonably expected to
have a material adverse effect on MediaOne's investment in TWE.
SECTION 4.23. Vote Required. The only vote of the holders of any class or
series of capital stock of MediaOne necessary to approve this Agreement and the
transactions contemplated hereby is the affirmative vote of the holders of a
majority of the outstanding shares of MediaOne Common Stock (the "MediaOne
Stockholders' Approval").
SECTION 4.24. Antitakeover Statutes, Rights Agreement and Charter
Provisions. (a) MediaOne has taken all action necessary to exempt the Merger and
this Agreement and the transactions contemplated hereby from the restrictions of
Section 203 of Delaware Law, and, accordingly, neither such Section nor any
other antitakeover or similar statute or regulation applies or purports to apply
to any such transactions. No other "control share acquisition," "fair price,"
"moratorium" or other antitakeover laws or regulations enacted under U.S. state
or federal laws apply to this Agreement or any of the transactions contemplated
hereby.
(b) The Amended and Restated Rights Agreement dated as of October 31, 1995
between MediaOne and State Street Bank and Trust Company, as Rights Agent, and
the rights issued thereunder, have expired in accordance with their terms and
have no further force or effect.
(c) MediaOne and the MediaOne Board have taken all necessary action to (i)
render the MediaOne 1999 Rights Agreement inapplicable to the Merger and the
other transactions contemplated by this Agreement, (ii) provide that (A) neither
AT&T nor any AT&T Subsidiary shall be deemed an Acquiring Person (as defined in
the MediaOne 1999 Rights Agreement) as a result of this Agreement or any of the
transactions contemplated hereby, (B) no Distribution Date (as defined in the
MediaOne 1999 Rights Agreement) shall be deemed to have occurred as a result of
this Agreement or the consummation of any of the transactions contemplated
hereby and (C) the rights issuable pursuant to the MediaOne 1999 Rights
Agreement will not separate from the shares of MediaOne Common Stock, as a
result of the approval, execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby.
(d) MediaOne and the MediaOne Board have taken all necessary action to
approve this Agreement and the transactions contemplated hereby for purposes of
Article IX of the certificate of incorporation of MediaOne.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF AT&T
Except as set forth in the AT&T Disclosure Schedule or as disclosed in the
AT&T SEC Documents filed prior to the date hereof, each of AT&T and Merger Sub
represents and warrants to MediaOne that:
SECTION 5.1. Corporate Existence and Power. Each of AT&T and Merger Sub is a
corporation duly incorporated and subsisting under the laws of its jurisdiction
of incorporation and has all corporate powers required to carry on its business
as now conducted. Each of AT&T and Merger Sub is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction where such
qualification is necessary except for those jurisdictions where failure to be so
qualified, individually or in the aggregate, has not had and would not be
reasonably expected to have an AT&T Material
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Adverse Effect. AT&T has heretofore delivered or made available to MediaOne true
and complete copies of the certificate of incorporation and bylaws of AT&T, as
currently in effect.
SECTION 5.2. Corporate Authorization. (a) The execution, delivery and
performance by AT&T and Merger Sub and the consummation by AT&T and Merger Sub
of the transactions contemplated hereby are within the corporate powers of AT&T
and Merger Sub, and have been duly authorized by all necessary corporate action.
This Agreement constitutes a valid and binding agreement of each of AT&T and
Merger Sub enforceable against each of AT&T and Merger Sub in accordance with
its terms, except (i) as the same may be limited by applicable bankruptcy,
insolvency, moratorium or similar laws of general application relating to or
affecting creditors' rights, and (ii) for the limitations imposed by general
principles of equity.
(b) AT&T's Board of Directors, at a meeting duly called and held, has (i)
determined that this Agreement and the transactions contemplated hereby are fair
to and in the best interests of AT&T's stockholders and (ii) approved this
Agreement and the transactions contemplated hereby.
SECTION 5.3. Governmental Authorization. The execution, delivery and
performance by AT&T and Merger Sub of this Agreement and the consummation by
AT&T and Merger Sub of the transactions contemplated hereby require no action by
or in respect of, or filing with, any Governmental Authority, other than: (i)
the Franchise Consents and the License Consents; (ii) the Social Contract
Consent; (iii) the filing of a certificate of merger with respect to the Merger
with the Delaware Secretary of State and appropriate documents with the relevant
authorities of other states in which AT&T is qualified to do business; (iv) the
filing with the Secretary of State of the State of New York of certificates of
designations creating the AT&T Series C Preferred Stock, the AT&T Series D
Preferred Stock and the AT&T Series E Preferred Stock; (v) compliance with any
applicable requirements of the HSR Act; (vi) compliance with any applicable
requirements of the 1933 Act, the 1934 Act and any other applicable securities
laws, whether state or foreign; and (vii) any actions or filings the absence of
which, individually or in the aggregate, would not be reasonably expected to
have an AT&T Material Adverse Effect or materially impair or delay the ability
of AT&T to consummate the transactions contemplated by this Agreement.
SECTION 5.4. Non-contravention. The execution, delivery and performance by
AT&T and Merger Sub of this Agreement and the consummation by AT&T and Merger
Sub of the transactions contemplated hereby do not and will not (i) contravene,
conflict with, or result in any violation or breach of any provision of the
certificate of incorporation or bylaws of AT&T or Merger Sub; (ii) assuming
compliance with the matters referred to in Section 5.3, contravene, conflict
with or result in a violation or breach of any provision of any law, rule,
regulation, judgment, injunction, order or decree; (iii) require any consent or
other action by any Person under, constitute a default under (or an event that,
with or without notice or lapse of time or both, would constitute a default), or
cause or permit the termination, cancellation, acceleration, triggering or other
change of any right or obligation or the loss of any benefit to which AT&T or
any of the AT&T Subsidiary is entitled under (A) any provision of any agreement
or other instrument binding upon AT&T or any AT&T Subsidiary or (B) any license,
franchise, permit, certificate, approval or other similar authorization held by,
or affecting, or relating in any way to, the assets or business of AT&T or any
AT&T Subsidiary; (iv) result in the creation or imposition of any Lien on any
asset of AT&T or any AT&T Subsidiary; or (v) assuming MediaOne does not have any
right(s), present or contingent, to hold voting or nonvoting interest(s), equity
interest(s), and/or beneficial ownership(s) in the capital stock of TW,
contravene, conflict with, or result in any violation or breach of any provision
of the FTC Consent Order, other than such exceptions in the case of clauses
(ii), (iii), (iv) and (v) as would not be, individually or in the aggregate,
reasonably expected to have an AT&T Material Adverse Effect or materially impair
the ability of AT&T to consummate the transactions contemplated by this
Agreement.
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SECTION 5.5. Capitalization. (a) The authorized capital stock of AT&T
consists of (i) 6 billion shares of Common Stock, par value $1.00 per share (the
"AT&T Common Stock"), (ii) 2.5 billion shares of Class A Liberty Media Group
Common Stock, par value $1.00 per share (the "Liberty Media Class A Common
Stock"), (iii) 250 million shares of Class B Liberty Media Group Common Stock,
par value $1.00 per share (the "Liberty Media Class B Common Stock"), and (iv)
100 million shares of preferred stock, $1.00 par value per share. As of the
close of business on April 16, 1999, there were outstanding (i) 3,181,898,645
shares of AT&T Common Stock, (ii) employee and non-employee director stock
options to purchase an aggregate of approximately 155 million shares of AT&T
Common Stock (of which options to purchase an aggregate of approximately 50
million shares of AT&T Common Stock were exercisable), and (iii) no shares of
AT&T Preferred Stock. All outstanding shares of capital stock of AT&T have been
duly authorized and validly issued and are fully paid and nonassessable.
(b) Except as set forth in this Section 5.5 and for changes since April 16,
1999 resulting from (x) the exercise of employee and non-employee director stock
options outstanding on such date (and the grant or award of employee and
non-employee director stock options in the ordinary course of business and the
exercise thereof), and (y) the issuance of shares of AT&T Common Stock pursuant
to publicly announced transactions, there are as of the date of this Agreement
no outstanding (i) shares of capital stock or voting securities of AT&T (in each
case, other than shares of Liberty Media Class A Common Stock or Liberty Media
Class B Common Stock), (ii) securities of AT&T convertible into or exchangeable
for shares of capital stock or voting securities of AT&T (in each case, other
than shares of Liberty Media Class A Common Stock or Liberty Media Class B
Common Stock) or (iii) options or other rights to acquire from AT&T or other
obligations of AT&T to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of AT&T
(in each case, other than shares of Liberty Media Class A Common Stock or
Liberty Media Class B Common Stock). There are as of the date of this Agreement
no outstanding obligations of AT&T or any AT&T Subsidiary to repurchase, redeem
or otherwise acquire any of the securities referred to in clause (i), (ii) or
(iii) above (collectively, the "AT&T Securities").
(c) The AT&T Securities to be issued as part of the Common Stock
Consideration, the Series C Consideration, Series D Consideration and Series E
Consideration (or upon exercise of Adjusted Options) have been duly authorized
and, when issued and delivered in accordance with the terms of this Agreement
(or the Adjusted Options, as the case may be), will have been validly issued and
will be fully paid and nonassessable and the issuance thereof is not subject to
any preemptive or other similar right. Prior to the Effective Time, AT&T will
reserve for issuance the AT&T Common Stock to be issued upon exercise of the
Adjusted Options.
SECTION 5.6. Subsidiaries. (a) Each AT&T Subsidiary is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, has all corporate partnership or
other similar powers required to carry on its business as now conducted other
than such exceptions as, individually or in the aggregate, have not had and
would not reasonably be expected to have an AT&T Material Adverse Effect. Each
AT&T Subsidiary is duly qualified to do business as a foreign corporation or
other foreign legal entity and is in good standing in each jurisdiction where
such qualification is necessary, with such exceptions, individually or in the
aggregate, as have not had and would not be reasonably expected to have an AT&T
Material Adverse Effect. The AT&T Disclosure Schedule sets forth a list of all
AT&T Significant Subsidiaries.
(b) All of the outstanding capital stock of, or other voting securities or
ownership interests in, each AT&T Significant Subsidiary is owned by AT&T,
directly or indirectly, free and clear of any Lien and free of any other
limitation or restriction (including any restriction on the right to vote, sell
or otherwise dispose of such capital stock or other voting securities or
ownership interests). There are no outstanding (i) securities of AT&T or any
AT&T Subsidiary convertible into or exchangeable for shares of capital stock or
other voting securities or ownership interests in any AT&T Significant
Subsidiary or (ii) options or other rights to acquire from AT&T or any AT&T
Subsidiary, or other obligations of
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AT&T or any AT&T Subsidiary to issue, any capital stock or other voting
securities or ownership interests in, or any securities convertible into or
exchangeable for any capital stock or other voting securities or ownership
interests in, any AT&T Significant Subsidiary. There are no outstanding
obligations of AT&T or any AT&T Significant Subsidiary to repurchase, redeem or
otherwise acquire any of the securities referred to in clauses (i) or (ii)
above.
SECTION 5.7. SEC Filings. (a) AT&T has delivered or made available to
MediaOne (i) AT&T's annual reports on Form 10-K for its fiscal years ended
December 31, 1998, 1997 and 1996, (ii) its proxy or information statements
relating to meetings of, or actions taken without a meeting by AT&T's
stockholders held since December 31, 1997, and (iii) all of its other reports,
statements, schedules and registration statements filed with the SEC since
December 31, 1997 (the documents referred to in this Section 5.7(a),
collectively, the "AT&T SEC Documents").
(b) As of its filing date, each AT&T SEC Document complied as to form in all
material respects with the applicable requirements of the 1933 Act and 1934 Act,
as the case may be.
(c) As of its filing date, each AT&T SEC Document filed pursuant to the 1934
Act did not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
(d) Each AT&T SEC Document that is a registration statement, as amended or
supplemented, if applicable, filed pursuant to the 1933 Act, as of the date such
registration statement or amendment became effective, did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
SECTION 5.8. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of AT&T
included in the AT&T SEC Documents fairly present, in all material respects, in
conformity with GAAP applied on a consistent basis (except as may be indicated
in the notes thereto), the consolidated financial position of AT&T and its
consolidated Subsidiaries as of the dates thereof and their consolidated results
of operations and cash flows for the periods then ended (subject to normal
year-end adjustments in the case of any unaudited interim financial statements).
SECTION 5.9. Information Supplied. The information supplied by AT&T for
inclusion in the Registration Statement shall not at the time the Registration
Statement is declared effective by the SEC contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The information
supplied by AT&T for inclusion in the Proxy Statement to be sent to the
stockholders of MediaOne in connection with the MediaOne Stockholders' Meeting
shall not, on the date the Proxy Statement is first mailed to the stockholders
of MediaOne or at the time of the MediaOne Stockholders' Meeting or at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
SECTION 5.10. Absence of Certain Changes. Since the AT&T Balance Sheet Date,
the business of AT&T and the AT&T Subsidiaries has been conducted in the
ordinary course consistent with past practices. Since the AT&T Balance Sheet
Date, there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which, individually or in the aggregate, has had or would be reasonably
expected to have an AT&T Material Adverse Effect; or
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(b) any action, event, occurrence or transaction that would have been
prohibited by Section 7.1 if this Agreement had been in effect as of the time
thereof.
SECTION 5.11. No Undisclosed Material Liabilities. There are no liabilities
or obligations of AT&T or any AT&T Subsidiary of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, and there
is no existing condition, situation or set of circumstances that could be
reasonably expected to result in such a liability or obligation, other than:
(a) liabilities or obligations disclosed and provided for in the AT&T
Balance Sheet or in the notes thereto or in the AT&T SEC Documents filed prior
to the date hereof;
(b) liabilities or obligations incurred in the ordinary course of business
consistent with past practice since the AT&T Balance Sheet Date; or
(c) liabilities or obligations that, individually or in the aggregate have
not had and would not be reasonably expected to have an AT&T Material Adverse
Effect.
SECTION 5.12. Compliance with Laws and Court Orders. AT&T and the AT&T
Subsidiaries hold all licenses, franchises, certificates, consents, permits,
qualifications and authorizations from all Governmental Authorities necessary
for the lawful conduct of their business, except where the failure to hold any
of the foregoing, individually or in the aggregate, has not had and would not be
reasonably expected to have an AT&T Material Adverse Effect. AT&T and each of
the AT&T Subsidiaries are, and have been in compliance with, and to the
knowledge of AT&T, are not under investigation with respect to and have not been
threatened to be charged with or given notice of any violation of, any such
license, franchise, certificate, consent, permit, qualification or
authorization, applicable law, statute, ordinance, rule, regulation, judgment,
injunction, order or decree, except for failures to comply or violations that,
individually or in the aggregate, have not had and would not be reasonably
expected to have an AT&T Material Adverse Effect.
SECTION 5.13. Litigation. There is no action, suit, investigation or
proceeding (or any basis therefor) pending against, or, to the knowledge of
AT&T, threatened against or affecting, AT&T, any AT&T Subsidiary, or any of
their respective properties before any court or arbitrator or before or by any
other Governmental Authority, that, individually or in the aggregate, would be
reasonably expected to have an AT&T Material Adverse Effect.
SECTION 5.14. Finders' Fees. Except for Goldman Sachs & Co., Credit Suisse
First Boston, and Merrill Lynch & Co., whose fees will be paid by AT&T, as of
the date hereof there is no investment banker, broker, finder or other
intermediary that has been retained by or is authorized to act on behalf of AT&T
or any AT&T Subsidiary who might be entitled to any fee or commission from AT&T
or any of the AT&T Subsidiaries upon consummation of the transactions
contemplated by this Agreement.
SECTION 5.15. Taxes. Except as set forth in the AT&T Balance Sheet
(including the notes thereto) and except as would not be, individually or in the
aggregate, reasonably expected to have an AT&T Material Adverse Effect: (i) all
AT&T Tax Returns required to be filed with any taxing authority by, or with
respect to, AT&T and the AT&T Subsidiaries have been filed in accordance with
all applicable laws; (ii) AT&T and the AT&T Subsidiaries have timely paid all
Taxes shown as due and payable on the AT&T Tax Returns that have been so filed,
and, as of the time of filing, the AT&T Tax Returns correctly reflected the
facts regarding the income, business, assets, operations, activities and the
status of AT&T and the AT&T Subsidiaries (other than Taxes which are being
contested in good faith and for which adequate reserves are reflected on the
AT&T Balance Sheet); (iii) AT&T and the AT&T Subsidiaries have made provision
for all Taxes payable by AT&T and the AT&T Subsidiaries for which no AT&T Tax
Return has yet been filed; (iv) the charges, accruals and reserves for Taxes
with respect to AT&T and the AT&T Subsidiaries reflected on the AT&T Balance
Sheet are adequate under GAAP to cover the Tax liabilities accruing through the
date thereof; (v) there is no action, suit, proceeding, audit or claim now
proposed or pending against or with respect to AT&T or any AT&T
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Subsidiary in respect of any Tax where there is a reasonable possibility of an
adverse determination; (vi) the federal income Tax Returns of AT&T and the AT&T
Subsidiaries have been examined and settled with the IRS (or the applicable
statutes of limitation for the assessment of federal income Taxes for such
periods have expired) for all years through 1989; and (vii) there are no
material Liens or encumbrances for Taxes on any of the assets of AT&T or any
AT&T Subsidiary except liens for current Taxes not yet due.
SECTION 5.16. Tax Opinions. There are no facts or circumstances relating to
AT&T that would prevent Wachtell, Lipton, Rosen & Katz from delivering the
opinion referred to in Section 9.2(c) as of the date hereof.
SECTION 5.17. Employee Benefit Plans and Labor Matters. Except as have not
and would not be reasonably expected to have, individually or in the aggregate,
an AT&T Material Adverse Effect:
(a) If MediaOne requests, copies of each AT&T Employee Plan and each AT&T
Benefit Arrangements (and, if applicable, related trust agreements) and all
amendments thereto and written interpretations thereof will be made available to
MediaOne within thirty days after the date hereof, together with the three most
recent annual reports (Form 5500 including, if applicable, Schedule B thereto)
and the most recent actuarial valuation report prepared in connection with any
AT&T Employee Plan.
(b) No "accumulated funding deficiency," as defined in Section 412 of the
Code, has been incurred with respect to any AT&T Employee Plan subject to such
Section 412, whether or not waived. No "reportable event" within the meaning of
Section 4043 of ERISA, and no event described in Section 4062 or 4063 of ERISA
has occurred in connection with any AT&T Employee Plan. Neither AT&T nor any
ERISA Affiliate of AT&T has (i) engaged in, or is a successor or parent
corporation to an entity that has engaged in, a transaction described in
Sections 4069 or 4212(c) of ERISA or (ii) incurred, or reasonably expects to
incur prior to the Effective Time (A) any liability under Title IV of ERISA
arising in connection with the termination of, or a complete or partial
withdrawal from, any plan covered or previously covered by Title IV of ERISA or
(B) any liability under Section 4971 of the Code that in either case could
become a liability of AT&T, any AT&T Subsidiary, MediaOne or any of their ERISA
Affiliates after the Effective Time. If a "complete withdrawal" by AT&T and all
of its ERISA Affiliates were to occur as of the Effective Time with respect to
all Multiemployer Plans, none of AT&T, any AT&T Subsidiary or any of their ERISA
Affiliates would incur any withdrawal liability under Title IV of ERISA.
(c) As of December 31, 1998, the fair market value of the assets of each
AT&T Pension Plan (excluding for these purposes any accrued but unpaid
contributions) exceeded the present value of the pension benefit obligations
under such AT&T Pension Plan calculated pursuant to SFAS No. 84, "Employers'
Accounting for Pensions." As of December 31, 1998, the aggregate unfunded
liability of AT&T and any AT&T Subsidiary in respect of all AT&T Deferred
Compensation Plans, computed using reasonable actuarial assumptions and
determined as if all benefits under such plans were vested and payable as of
such date, did not exceed $335 million.
(d) Each AT&T Employee Plan that is intended to be qualified under Section
401(a) of the Code is the subject of a favorable qualification determination
letter issued by the IRS and to AT&T's knowledge each such AT&T Employee Plan is
so qualified.
(e) There is no contract, plan or arrangement (written or otherwise)
covering any employee or former employee of AT&T or any AT&T Subsidiary that,
individually or collectively, could give rise to the payment of any amount
contingent on the transactions contemplated hereby that would not be deductible
pursuant to the terms of Sections 162(m) or 280G of the Code.
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(f) If MediaOne requests, AT&T will make available to MediaOne, within
thirty days after the date hereof, a list and copies of each material AT&T
International Plan. According to the actuarial assumptions and valuations most
recently used for the purpose of funding each AT&T International Plan (or, if
the same has no such assumptions and valuations or is unfunded, according to
actuarial assumptions and valuations in use by the PBGC on the date hereof), as
of December 31, 1998 the total amount or value of the funds available under such
AT&T International Plan to pay benefits accrued thereunder or segregated in
respect of such accrued benefits, together with any reserve or accrual with
respect thereto, exceeded the present value of all benefits (actual or
contingent) accrued as of such date of all participants and past participants
therein in respect of which AT&T or any AT&T Subsidiary has or would have after
the Effective Time any obligation. From and after the Effective Time, MediaOne
and its Affiliates will get the full benefit of any such funds, accruals or
reserves.
(g) As of December 31, 1998, the aggregate amount of the accumulated
post-retirement benefit obligation under all AT&T Employee Plans, AT&T Benefit
Arrangements and AT&T International Plans, as determined in accordance with the
Statement of Financial Accounting Standards No. 106, did not exceed $5.2
billion.
(h) Each AT&T Employee Plan, AT&T Benefit Arrangement and AT&T International
Plan has been maintained in compliance with its terms and with the requirements
prescribed by any and all applicable statutes, orders, rules and regulations
(including any special provisions relating to registration or qualification
plans where such Plan was intended so to be so registered or qualified) and has
been maintained in good standing with applicable regulatory authorities.
(i) No employee or former employee of AT&T or any AT&T Subsidiary will
become entitled to any bonus, retirement, severance, job security or similar
benefit or enhanced such benefit (including acceleration of vesting or exercise
of an incentive award) as a result of the transactions contemplated hereby
(either alone or together with any other event).
(j) Neither AT&T nor any of the AT&T Subsidiaries is involved in or
threatened with any labor dispute, work stoppage, labor strike, slowdown or
grievance.
SECTION 5.18. Environmental Matters. (a) Except as have not had and would
not be reasonably expected to have, individually or in the aggregate, an AT&T
Material Adverse Effect:
(i) no notice, notification, demand, request for information, citation,
summons or order has been received, no complaint has been filed, no penalty
has been assessed, and no investigation, action, claim, suit, proceeding or
review (or any basis therefor) is pending or, to the knowledge of AT&T, is
threatened by any Governmental Authority or other Person relating to or
arising out of any Environmental Law;
(ii) AT&T is and has been in compliance with all Environmental Laws and
all Environmental Permits; and
(iii) there are no liabilities of or relating to AT&T or any AT&T
Subsidiary of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise arising under or relating to any
Environmental Law and there are no facts, conditions, situations or set of
circumstances that could reasonably be expected to result in or be the basis
for any such liability.
(b) There have been no environmental investigations, studies, audits, tests,
reviews or other analyses conducted of which AT&T has knowledge in relation to
the current or prior business of AT&T or any AT&T Subsidiary or any property or
facility now or previously owned or leased by AT&T or any AT&T Subsidiary that
reveal matters that, individually or in the aggregate, have had or would
reasonably be expected to have an AT&T Material Adverse Effect.
(c) For purposes of this Section 5.18, the terms AT&T and AT&T Subsidiary
shall include any entity that is, in whole or in part, a predecessor of AT&T or
any AT&T Subsidiary.
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SECTION 5.19. Intellectual Property. With such exceptions as, individually
or in the aggregate, have not had and would not be reasonably expected to have
an AT&T Material Adverse Effect, to AT&T's knowledge, each of AT&T and the AT&T
Subsidiaries own or have a valid license or other right to use each trademark,
service mark, trade name, invention, patent, trade secret, copyright, know-how
(including any registrations or applications for registration or applications
for any of the foregoing) or any other similar type of proprietary intellectual
property right (collectively, the "AT&T Intellectual Property") necessary to
carry on its business substantially as conducted as of the Effective Time. To
AT&T's knowledge, neither AT&T nor any AT&T Subsidiary has received any notice
of infringement of or conflict with, and to AT&T's knowledge, there are no
infringements of or conflicts with, the rights of any Person with respect to the
use of any AT&T Intellectual Property in the conduct of AT&T's business
substantially as conducted as of the Effective Time that, in either such case,
individually or in the aggregate, have had or would be reasonably expected to
have, an AT&T Material Adverse Effect.
SECTION 5.20. Contracts. (a) Neither AT&T nor any of the AT&T Subsidiaries
is a party to or bound by (i) any "material contract" (as such term is defined
in Item 601(b)(10) of Regulation S-K of the SEC) or any agreement, contract or
commitment that would be such a "material contract" but for the exception for
contracts entered into in the ordinary course of business, or (ii) any
non-competition agreement or any other agreement or obligation which limits or
will limit AT&T or the AT&T Subsidiaries from engaging in the business of
providing cable television, telephony or data transmission services in the
United States or the business of providing programming content, other than any
such non-competition agreements or other agreements or obligations which,
individually or in the aggregate, do not have, and would not reasonably be
expected to have, an AT&T Material Adverse Effect. With such exceptions as,
individually or in the aggregate, have not had, and would not reasonably be
expected to have, an AT&T Material Adverse Effect, (i) each of the contracts,
agreements and commitments of AT&T and the AT&T Subsidiaries is valid and in
full force and effect and (ii) neither AT&T nor any of the AT&T Subsidiaries has
violated any provision of, or committed or failed to perform any act which, with
or without notice, lapse of time, or both, would constitute a default under the
provisions of, any such contract, agreement or commitment. To the knowledge of
AT&T, no counterparty to any such contract, agreement or commitment has violated
any provision of, or committed or failed to perform any act which, with or
without notice, lapse of time, or both would constitute a default or other
breach under the provisions of such contract, agreement or commitment, except
for defaults or breaches which, individually or in the aggregate, have not had,
or would not reasonably be expected to have, an AT&T Material Adverse Effect.
Neither AT&T nor any AT&T Subsidiary is a party to, or otherwise a guarantor of
or liable with respect to, any interest rate, currency or other swap or
derivative transaction, other than any such transactions which are not material
to the business of AT&T and the AT&T Subsidiaries, taken as a whole. AT&T has
provided or made available to MediaOne a copy of each agreement of the type
described in item (i) or (ii) above.
(b) As of the date of this Agreement, neither AT&T nor any AT&T Subsidiary
is a party to any contract, agreement, understanding or commitment, whether oral
or written, with Amos B. Hostetter, Jr., or with TW or its Subsidiaries, with
respect to the Merger or the transactions contemplated by this Agreement,
except, in the case of Mr. Hostetter, as disclosed in his Schedule 13D relating
to his ownership of MediaOne Common Stock.
SECTION 5.21. MediaOne Securities. Neither AT&T nor any of the AT&T
Subsidiaries owns any securities of MediaOne.
SECTION 5.22. No Vote Required. Unless the AT&T Share Issuance Number is
increased pursuant to Section 3.1(i), and assuming the accuracy of the
representations set forth in Section 4.5 and MediaOne's compliance with the
covenants set forth in Section 6.1, no vote of the holders of any class or
series of capital stock of AT&T is necessary to approve this Agreement and the
transactions contemplated hereby.
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SECTION 5.23. Merger Sub. Merger Sub was formed by AT&T solely for the
purpose of engaging in the transactions contemplated hereby. As of the date
hereof and as of the Effective Time, (a) Merger Sub is and will be a wholly
owned subsidiary of AT&T and (b) except for obligations and liabilities incurred
in connection with its incorporation or organization and the transactions
contemplated hereby, Merger Sub has not and will not have incurred, directly or
indirectly, any obligations or liabilities or engaged in any business or
activities or entered into any agreements or arrangements with any Person. At no
time prior to the Effective Time will Merger Sub own any material assets other
than an amount of cash necessary to incorporate Merger Sub and to pay the
expenses of the Merger attributable to Merger Sub if the Merger is consummated.
ARTICLE 6
COVENANTS OF MEDIAONE
MediaOne agrees that:
SECTION 6.1. MediaOne Interim Operations. Except as set forth in the
MediaOne Disclosure Schedule or as otherwise expressly contemplated hereby,
without the prior written consent of AT&T, from the date hereof until the
Effective Time, MediaOne shall, and shall cause each of the MediaOne
Subsidiaries to, conduct its business in all material respects in the ordinary
course consistent with past practice and use all reasonable efforts to: (i)
preserve intact its present business organization; (ii) keep available the
services of its key officers and key employees; (iii) maintain in effect all
material foreign, federal, state and local licenses, approvals and
authorizations, including, without limitation, all material licenses and permits
that are required for MediaOne or any MediaOne Subsidiary to carry on its
business and (iv) preserve existing relationships with its material partners,
lenders, suppliers and others having material business relationships with it so
that the business of MediaOne and the MediaOne Subsidiaries shall not be
impaired in any material respect at the Effective Time. Without limiting the
generality of the foregoing, except as set forth in the MediaOne Disclosure
Schedule or as otherwise expressly contemplated by this Agreement, from the date
hereof until the Effective Time, without the prior written consent of AT&T,
MediaOne shall not, nor shall it permit any MediaOne Subsidiary to:
(a) amend its articles of incorporation or by-laws or other applicable
governing instrument;
(b) amend any material term of any of its outstanding securities;
(c) split, combine, subdivide or reclassify any shares of its capital stock
or other equity interests or declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of its capital stock, or redeem, repurchase or otherwise acquire or
offer to redeem, repurchase, or otherwise acquire any of its securities or any
securities of MediaOne or any MediaOne Subsidiary, except for (i) regular
dividends on outstanding preferred stock or trust preferred securities pursuant
to the terms of such securities and (ii) dividends paid by any MediaOne
Subsidiary that is, directly or indirectly, wholly owned by MediaOne;
(d) adopt a plan or agreement of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
material reorganization (other than a merger or consolidation between wholly
owned MediaOne Subsidiaries);
(e) issue, deliver or sell, or authorize the issuance, delivery or sale of,
any shares of its capital stock of any class or other equity interests or any
securities convertible into or exercisable for, or any rights, warrants or
options to acquire, any such capital stock or other equity interests, other than
(i) the issuance of shares of MediaOne Common Stock upon the exercise of stock
options in accordance with their present terms, (ii) issuances pursuant to the
conversion of convertible securities outstanding on the date hereof and (iii)
the granting of options to acquire shares of MediaOne Common Stock in accordance
with Section 6.1(n) of the MediaOne Disclosure Schedule;
(f) incur any capital expenditures except as set forth in the MediaOne
Disclosure Schedule;
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(g) except for capital expenditures, which shall be governed by clause (f),
acquire (by merger, consolidation, acquisition of stock or assets or otherwise),
directly or indirectly, any assets, other than (i) pursuant to agreements in
effect as of the date hereof, (ii) assets used in the ordinary course of
business of MediaOne and the MediaOne Subsidiaries in a manner that is
consistent with past practice or (iii) assets having a fair market value not
exceeding $25,000,000 in the aggregate;
(h) other than pursuant to agreements in effect as of the date hereof, sell,
lease, license, encumber or otherwise transfer any domestic assets having a fair
market value exceeding $25,000,000 in any one transaction or series of related
transactions or $100,000,000 in the aggregate;
(i) incur, assume or guarantee any indebtedness for borrowed money other
than in the ordinary course of business and in amounts and on terms consistent
with past practices;
(j) make any loan, advance or capital contributions to or investment in any
Person other than loans, advances or capital contributions to or investments in
its wholly owned Subsidiaries;
(k) except for capital expenditures, which shall be governed by clause (f),
engage in or enter into any transaction or commitment, enter into any contract
or agreement, or relinquish or amend in any material respect any contract or
other right, in any case, (i) material to the MediaOne Group, taken as a whole,
other than transactions and commitments in the ordinary course of business
consistent with past practices and those contemplated by this Agreement or (ii)
other than in the ordinary course of business consistent with past practices and
other than programming agreements, for the provision of goods or services that
provides for payments in excess of $25,000,000 per agreement (or $100,000,000
for all agreements for similar goods or services);
(l) after May 5, 1999, enter into any new programming agreement unless it
has used all commercially reasonable efforts to include within such agreement a
provision permitting it to terminate such agreement without penalty at the
Effective Time if the counterparty thereto has a programming agreement with AT&T
or any AT&T Subsidiary;
(m) enter into any commitment, agreement or arrangement for the acquisition
of high speed modems or digital set-top boxes in quantities exceeding MediaOne's
expected needs for such modems and boxes through June 30, 2001;
(n) amend in any material respects the TWE Partnership Agreement or enter
into or amend any material agreement with TW or its Affiliates with respect to
TWE or any TWE Subsidiary, or (except
as prohibited by the TWE Partnership Agreement, as required by the fiduciary
duties of MediaOne to the TWE Partnership or as an exercise by MediaOne of its
rights with respect to the TWE Management Committee) waive or exercise any
material rights with respect to TWE or any TWE Subsidiary or consent to any
material transaction by or with respect to TWE or any TWE Subsidiary;
(o) enter into any agreement or arrangement that materially limits or
otherwise materially restricts MediaOne, any MediaOne Subsidiary or any of their
respective Affiliates or any successor thereto or that could, after the
Effective Time, materially limit or restrict AT&T, any AT&T Subsidiary, the
Surviving Corporation or any of their Affiliates, from engaging in the business
of providing cable television, telephony or data transmission services anywhere
in the world or the business of providing programming content in the United
States, the United Kingdom or Japan;
(p) except as required pursuant to existing written, binding agreements or
as otherwise mandated by law as of the date hereof (i) enter into any commitment
to provide any severance or termination pay to (or amend any existing
arrangement with) any director, officer or employee of MediaOne or any MediaOne
Subsidiary, (ii) increase the benefits payable under any existing severance or
termination pay policy or employment agreement (other than as may be increased
by function of the existing terms of any such policy or agreement), (iii) enter
into any employment, deferred compensation or other similar agreement (or amend
any such existing agreement) with any director, officer or employee of MediaOne
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or any MediaOne Subsidiary, (iv) establish, adopt or amend (except as required
by applicable law) any collective bargaining, bonus, profit-sharing, thrift,
pension, retirement, deferred compensation, compensation, stock option,
restricted stock or other benefit plan or arrangement covering any director,
officer or employee of MediaOne or any MediaOne Subsidiary, except that MediaOne
and the MediaOne Subsidiaries may amend any such existing agreement or plan or
adopt a successor plan or arrangement to the extent mandated by applicable law
or to the extent that such amendment would not result in a more than de minimis
increase in the costs or liabilities under such agreement or plan, (v) other
than in the ordinary course of business consistent with past practice or as
required by any agreement in effect as of the date hereof, increase the
compensation, bonus or other benefits payable to any director, officer or
employee of MediaOne or any MediaOne Subsidiary or (vi) amend the terms of any
outstanding option to purchase shares in MediaOne Common Stock;
(q) change (i) its methods of accounting or accounting practices in any
material respect, except as required by concurrent changes in U.S. GAAP or by
law or (ii) its fiscal year;
(r) enter into or amend in any material respect (i) any material joint
venture, partnership or other similar arrangement, (ii) any agreement for the
provision by one or more third parties of telephony, data or other services
through the facilities of one or more of the MediaOne Systems, which is
exclusive or which cannot be terminated as of the Effective Time without any
penalty, or (iii) any agreement providing for the right to use the facilities of
one or more of the MediaOne Systems, which is exclusive or which cannot be
terminated within two years of the Effective Time without any penalty;
(s) settle, or propose to settle, any litigation, investigation,
arbitration, proceeding or other claim that is material to the MediaOne Group
taken as a whole;
(t) other than in the ordinary course of business consistent with past
practice, make any material tax election or enter into any settlement or
compromise of any material tax liability;
(u) take any action that would make any representation or warranty of
MediaOne hereunder inaccurate in any material respect at the Effective Time; or
(v) agree or commit to do any of the foregoing; PROVIDED that the
limitations set forth in clauses 6.1(a) through 6.1(v) shall not apply to any
transaction between MediaOne and any MediaOne Subsidiary that is wholly owned by
MediaOne or between any such wholly owned MediaOne Subsidiaries.
SECTION 6.2. MediaOne Stockholders' Meeting; Proxy Material. (a) MediaOne
shall cause the MediaOne Stockholders' Meeting to be duly called and held as
soon as reasonably practicable for the purpose of voting on the approval and
adoption of this Agreement and the Merger. In connection with such meeting,
MediaOne will (i) subject to Section 6.2(b), use its best efforts to obtain the
necessary approvals by its stockholders of this Agreement and the transactions
contemplated hereby and (ii) otherwise comply with all legal requirements
applicable to such meeting.
(b) Except as provided below, the Board of Directors of MediaOne shall
recommend approval and adoption of this Agreement and the Merger by MediaOne's
stockholders. The Board of Directors of MediaOne shall be permitted to withdraw,
or modify in a manner adverse to AT&T, its recommendation to its stockholders,
but only if (i) the Board of Directors determines in good faith by a majority
vote, on the basis of the advice of MediaOne's outside counsel, that it must
take such action to comply with its fiduciary duties under applicable law; and
(ii) MediaOne shall have delivered to AT&T a prior written notice advising AT&T
that it intends to take such action and describing its reasons for taking such
action (such notice to be delivered not less than two days prior to the time
such action is taken). Unless this Agreement is previously terminated in
accordance with Article 10, MediaOne shall submit this Agreement to its
stockholders at the MediaOne Stockholders' Meeting even if the MediaOne Board of
Directors determines at any time after the date hereof that is no longer
advisable or recommends that the MediaOne stockholders reject it.
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SECTION 6.3. No Solicitation. (a) From the date hereof until the termination
hereof, MediaOne will not, and will cause the MediaOne Subsidiaries and the
officers, directors, employees, investment bankers, attorneys, accountants,
consultants or other agents or advisors of MediaOne and the MediaOne
Subsidiaries not to, directly or indirectly: (i) take any action to solicit,
initiate, facilitate or encourage the submission of any Acquisition Proposal;
(ii) other than in the ordinary course of business and not related to an
Acquisition Proposal, engage in any discussions or negotiations with, or
disclose any non-public information relating to MediaOne or any MediaOne
Subsidiary or afford access to the properties, books or records of MediaOne or
any MediaOne Subsidiary to, any Person who is known by MediaOne to be
considering making, or has made, an Acquisition Proposal; (iii) (A) amend or
grant any waiver or release under any standstill or similar agreement with
respect to any class of equity securities of MediaOne (a "Standstill
Agreement"), (B) to the fullest extent permitted by Delaware Law, amend or grant
any waiver or release or approve any transaction or redeem rights under the
MediaOne 1999 Rights Agreement, (C) approve any transaction under Section 203 of
the Delaware Law or Article IX of the MediaOne certificate of incorporation or
(D) approve of any Person's becoming an "interested stockholder" under Section
203 of Delaware Law or (iv) enter into any agreement with respect to an
Acquisition Proposal. Notwithstanding the foregoing, MediaOne shall, if
requested by AT&T, (1) release TW and its Subsidiaries from their standstill
obligations under the TWE Agreements to the extent necessary to permit AT&T and
TW to discuss a potential restructuring of the TWE Agreements to be effective
following the Effective Time or other matters in connection with the Merger and
the transactions contemplated hereby and (2) release Amos B. Hostetter, Jr. from
his standstill obligations to the extent necessary to permit AT&T and Mr.
Hostetter to work together in the implementation and completion of the Merger
and the transactions contemplated thereby. Nothing contained in this Agreement
shall prevent the Board of Directors of MediaOne from complying with Rule 14e-2
and Rule 14d-9 under the 1934 Act with regard to an Acquisition Proposal;
PROVIDED that the Board of Directors of MediaOne shall not recommend that the
stockholders of MediaOne tender their shares in connection with a tender offer
except to the extent the Board of Directors of MediaOne by a majority vote
determines in its good faith judgment that such a recommendation is required to
comply with the fiduciary duties of the Board of Directors of MediaOne to
shareholders under applicable law, after receiving the advice of outside legal
counsel.
(b) MediaOne will notify AT&T promptly (but in no event later than 24 hours)
after receipt by MediaOne (or any of its advisors) of any Acquisition Proposal,
or of any request (other than in the ordinary course of business and not related
to an Acquisition Proposal) for non-public information relating to MediaOne or
any of the MediaOne Subsidiaries or for access to the properties, books or
records of MediaOne or any MediaOne Subsidiary by any Person who is known to be
considering making, or has made, an Acquisition Proposal. MediaOne shall provide
such notice orally and in writing and shall identify the Person making, and the
terms and conditions of, any such Acquisition Proposal, indication or request.
MediaOne shall keep AT&T fully informed, on a prompt basis (but in any event no
later than 24 hours), of the status and details of any such Acquisition
Proposal, indication or request. MediaOne shall, and shall cause the MediaOne
Subsidiaries and the directors, employees and other agents of MediaOne and the
MediaOne Subsidiaries to, cease immediately and cause to be terminated all
activities, discussions or negotiations, if any, with any Persons conducted
prior to the date hereof with respect to any Acquisition Proposal.
SECTION 6.4. Redemption of Preferred Stock. As promptly as it is permitted
to do so under the terms thereof, MediaOne will call for redemption and redeem
the MediaOne Series C Preferred Stock and the MediaOne Series D Preferred Stock
in accordance with the terms thereof.
SECTION 6.5. Channel Launches. MediaOne agrees to consult with AT&T
regarding its plans and overall strategy for channel launches.
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ARTICLE 7
COVENANTS OF AT&T
AT&T agrees that:
SECTION 7.1. AT&T Interim Operations. Except as set forth in the AT&T
Disclosure Schedule or as otherwise expressly contemplated hereby, without the
prior consent of MediaOne, from the date hereof until the Effective Time, AT&T
shall, and shall cause each of the AT&T Subsidiaries to, conduct their business
in all material respects in the ordinary course consistent with past practice
and use all reasonable efforts to (i) preserve intact its present business
organization, (ii) keep available the services of its key officers and key
employees, (iii) maintain in effect all material foreign, federal, state and
local licenses, approvals and authorizations, including, without limitation, all
material licenses and permits that are required for AT&T or any AT&T Subsidiary
to carry on its business and (iv) preserve existing relationships with its
material partners, lenders, suppliers and others having material business
relationships with it so that the business of AT&T and the AT&T Subsidiaries
shall not be impaired in any material respect at the Effective Time. Without
limiting the generality of the foregoing, except as set forth in the AT&T
Disclosure Schedule or as otherwise expressly contemplated by this Agreement,
from the date hereof until the Effective Time, without the prior written consent
of MediaOne, AT&T shall not, nor shall it permit any AT&T Subsidiary to:
(a) amend AT&T's articles of incorporation or by-laws;
(b) amend any material terms of the shares of AT&T Common Stock;
(c) split, combine, subdivide or reclassify any shares of AT&T Common Stock
or declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of AT&T Common
Stock, except for (i) regular quarterly cash dividends, (ii) regular dividends
on any future series of preferred stock pursuant to the terms of such
securities, or (iii) dividends paid by any AT&T Subsidiary to AT&T or any AT&T
Subsidiary that is, directly or indirectly, wholly owned by AT&T;
(d) take any action that would or would reasonably be expected to prevent,
impair or materially delay the ability of MediaOne or AT&T to consummate the
transactions contemplated by this Agreement;
(e) change (i) its methods of accounting or accounting practices in any
material respect except as required by concurrent changes in U.S. GAAP or by law
or (ii) its fiscal year;
(f) enter into or acquire any new line of business that (i) is material to
the AT&T Group taken as a whole and (ii) is not strategically related to the
current business or operations of AT&T and the AT&T Subsidiaries;
(g) incur indebtedness outside of the ordinary course or for acquisitions
unless, in the reasonable judgment of AT&T, such incurrence is not reasonably
likely to result in the rating accorded AT&T's senior debt by Moody's Investor's
Service and Standard & Poor's Rating Services to be non-investment grade;
(h) engage in any (i) merger, consolidation, share exchange, business
combination, reorganization, recapitalization or other similar transaction
unless the shareholders of AT&T prior to such transaction own, directly or
indirectly, a majority of the equity interests in the surviving or resulting
corporation, (ii) transaction as a result of which any third party acquires,
directly or indirectly, an equity interest representing greater than 25% of the
voting securities of AT&T or any AT&T Significant Subsidiary or (iii)
disposition, directly or indirectly, of assets, securities or ownership
interests representing 10% or more of the basic cable subscribers of the AT&T
Group, other than the transactions contemplated by this Agreement or permitted
pursuant to Section 7.1 hereof or asset swaps (unless such asset swaps, together
with other dispositions, result in a 10% decrease in the basic cable subscribers
of the AT&T Group);
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(i) take any action that would make any representation or warranty of AT&T
hereunder inaccurate in any material respect at the Effective Time; or
(j) agree or commit to do any of the foregoing.
SECTION 7.2. Director and Officer Liability. (a) AT&T shall, or shall cause
the Surviving Corporation to, indemnify and hold harmless and advance expenses
to the present and former officers, directors and employees of MediaOne and the
MediaOne Subsidiaries, and each person who prior to the Effective Time becomes
an officer, director or employee of MediaOne (each an "Indemnified Person"), in
respect of acts or omissions by them in their capacities as such occurring at or
prior to the Effective Time (including, without limitation, for acts or
omissions occurring in connection with this Agreement and the consummation of
the transactions contemplated hereby) to the same extent provided under
MediaOne's certificate of incorporation and bylaws in effect on the date hereof
("Indemnified Losses"); PROVIDED that such indemnification shall be subject to
any limitation imposed from time to time under applicable law. Without limiting
the generality of the foregoing, the Indemnified Losses shall include reasonable
costs of prosecuting a claim under this Section 7.2(a). AT&T shall, or shall
cause the Surviving Corporation to, periodically advance or reimburse each
Indemnified Person for all reasonable fees and expenses of counsel constituting
Indemnified Losses as such fees and expenses are incurred; PROVIDED that such
Indemnified Person shall agree to promptly repay to AT&T or the Surviving
Corporation the amount of any such reimbursement if it shall be judicially
determined by judgment or order not subject to further appeal or discretionary
review that such Indemnified Person is not entitled to be indemnified by AT&T or
the Surviving Corporation in connection with such matter. In the event that AT&T
sells, transfers or leases all or substantially all of its assets or is not a
surviving corporation in any merger, consolidation or other business combination
in which it may enter with any Person, AT&T shall, as a condition of any such
transaction, cause such purchaser or such surviving corporation, as the case may
be, to assume AT&T's and the Surviving Corporation's obligations under this
Section 7.2 upon the consummation of any such transaction.
(b) For six years after the Effective Time, AT&T shall, or shall cause the
Surviving Corporation to, provide officers' and directors' liability insurance
in respect of acts or omissions occurring prior to the Effective Time
(including, without limitation, for acts or omissions occurring in connection
with this Agreement and the consummation of the transactions contemplated
hereby) covering each such Indemnified Person currently covered by MediaOne's
officers' and directors' liability insurance policy on terms with respect to
coverage and amount (including with respect to the payment of attorney's fees)
no less favorable than those of such policy in effect on the date hereof (which
policy has been provided by MediaOne to AT&T); PROVIDED that if the aggregate
annual premiums for such insurance during such period shall exceed 300% of the
per annum rate of premium paid by MediaOne as of the date hereof for such
insurance, then AT&T shall, or shall cause the Surviving Corporation to, provide
a policy with the best coverage as shall then be available at 300% of such rate.
(c) The rights of each Indemnified Person and its heirs and legal
representatives under this Section 7.2 shall be in addition to any rights such
Person may have under the certificate of incorporation or bylaws of MediaOne or
any MediaOne Subsidiary, or under Delaware Law or any other applicable laws.
These rights shall survive consummation of the Merger and are intended to
benefit, and shall be enforceable by, each Indemnified Person.
SECTION 7.3. Listing of Stock. AT&T shall use its best efforts to cause (i)
the shares of AT&T Common Stock and AT&T Series D Preferred Stock to be issued
in connection with the Merger and reserved for issuance in connection with the
Adjusted Options to be approved for listing on the NYSE, subject to official
notice of issuance, and (ii) the securities of MediaOne and the MediaOne
Subsidiaries that are listed on the NYSE to continue to be listed on the NYSE
following the Merger.
SECTION 7.4. AT&T Board of Directors. Immediately prior to the Effective
Time, the Board of Directors of AT&T will take all necessary action to expand
the size of its Board of Directors by at least
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one member and to appoint to the AT&T Board, as of the Effective Time, one
current member of the MediaOne Board selected by AT&T who agrees to serve in
that capacity (the "New Director"). From the Effective Time until and including
the second annual meeting of the stockholders of AT&T taking place after the
Effective Time, the Board of Directors of AT&T will nominate the New Director
for reelection to the AT&T Board of Directors at each subsequent annual or
special meeting of the stockholders of AT&T at which the New Director's term
expires. The provisions of this Section 7.4 shall survive the consummation of
the Merger and are intended to benefit, and shall be enforceable by, the New
Director.
SECTION 7.5. Employee Matters. (a) AT&T shall and shall cause the AT&T
Subsidiaries to:
(i) honor the terms of all MediaOne Employee Plans, MediaOne Benefit
Arrangements and MediaOne International Plans, and cause the Surviving
Corporation and its Subsidiaries to pay the benefits required under the
terms of such plans and arrangements, in each case subject to Section
7.5(c);
(ii) until December 31, 2001 (the "Benefits Maintenance Period"), with
respect to employees of MediaOne or any of MediaOne Subsidiaries at the
Effective Time ("Transferred Employees"), provide a level of employee
benefits and aggregate compensation which is substantially comparable in the
aggregate to the level of employee benefits and aggregate compensation
provided by MediaOne and MediaOne Subsidiaries as of the Effective Time
(other than the benefits provided under any severance or termination benefit
plans and arrangements of MediaOne or any MediaOne Subsidiary);
(iii) until the second anniversary of the Effective Time, continue,
without any adverse change, each MediaOne and MediaOne Subsidiary Severance
Plan identified as such in the MediaOne Disclosure Schedule (as amended in
accordance with Section 6.1(p) of the MediaOne Disclosure Schedule); and
(iv) until the fifth anniversary of the Effective Time (and for the life
of certain individuals as identified in the MediaOne Disclosure Schedule),
continue without adverse change the existing retiree medical, dental and
life insurance benefit plan coverage for Transferred Employees and the
retired employees of MediaOne and the employees and retired employees of
Time Warner Telecom who participate in the MediaOne Pension Plan and are
eligible to participate in the MediaOne retiree welfare benefit plans, each
of whom are currently, or during such period will become, eligible to
receive such benefits.
(b) If Transferred Employees are included in any benefit plan or arrangement
of AT&T or the AT&T Subsidiaries, including without limitation, any plan or
arrangement providing vacation benefits, the Transferred Employees shall receive
credit for service prior to the Effective Time with MediaOne and the MediaOne
Subsidiaries and their predecessors to the same extent such service was counted
under similar MediaOne Employee Plans, MediaOne Benefit Arrangements and
MediaOne International Plans for purposes of determining eligibility to
participate and vesting and benefit accrual (except that with respect to benefit
accrual, such service shall not be counted to the extent that it would result in
a duplication of benefits). If Transferred Employees or their dependents are
included in any medical, dental or health plan other than the plan or plans they
participated in at the Effective Time (a "Successor Plan"), any such Successor
Plan shall not include pre-existing condition exclusions, except to the extent
such exclusions were applicable under any similar MediaOne Employee Plan at the
Effective Time.
(c) Except as otherwise specifically set forth above, nothing contained
herein shall be construed as requiring AT&T or any AT&T Subsidiary to continue
any specific Employee Plan, Benefit Arrangement or International Plan, or to
continue the employment of any specific person, PROVIDED, HOWEVER, that any
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changes that AT&T or any AT&T Subsidiary may make to any such Employee Plan,
Benefit Arrangement or International Plan are permitted by the terms of the
applicable Employee Plan, Benefit Arrangement or International Plan and under
any applicable law.
(d) The provisions of Section 7.5(a), as they relate solely to the
individual Change of Control Agreements set forth in Section 4.18(i) of the
MediaOne Disclosure Schedule and the severance agreements for the specified
individuals set forth in Section 6.01(p)(3)(a) of the MediaOne Disclosure
Schedule, are intended to be for the benefit of, and shall be enforceable by,
each Transferred Employee who has entered into such a Change of Control
Agreement or severance agreement (but only with respect to those provisions
applicable to such Transferred Employee), their heirs and personal
representatives. To the extent that benefits under such Change of Control
Agreements or severance agreements are not paid by the Surviving Corporation and
its Subsidiaries, AT&T shall pay or provide for the payment of such benefits.
SECTION 7.6. Designation of Preferred Stock. Prior to the Effective Time,
AT&T shall duly file with the Secretary of State of the State of New York
certificates of designation creating the AT&T Series C Preferred Stock, the AT&T
Series D Preferred Stock and the AT&T Series E Preferred Stock; PROVIDED that,
if no shares of MediaOne Series C Preferred Stock, MediaOne Series D Preferred
Stock or MediaOne Series E Preferred Stock remain outstanding, AT&T shall not be
required to file a certificate of designation for the corresponding series of
its preferred stock.
ARTICLE 8
COVENANTS OF AT&T AND MEDIAONE
The parties hereto agree that:
SECTION 8.1. Best Efforts. (a) Subject to the terms and conditions of this
Agreement, AT&T will use its best efforts to promptly (i) take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement as soon as practicable, including,
without limitation, preparing and filing as promptly as practicable all
documentation to effect all necessary filings, notices, petitions, statements,
registrations, submissions of information, applications and other documents,
(ii) obtain and maintain all approvals, consents, registrations, permits,
authorizations and other confirmations required to be obtained from any third
party that are necessary, proper or advisable to consummate the Merger and the
other transactions contemplated by this Agreement and (iii) obtain and maintain
waivers of all Purchase Rights (as defined below); PROVIDED that AT&T's
obligation to obtain the License Consents and the expiration or termination of
the applicable waiting periods under the HSR Act shall be unconditional and
shall not be qualified by best efforts (regardless of whether fulfillment of
such obligation would have a MediaOne Material Adverse Effect or an AT&T
Material Adverse Effect). The existence of the conditions set forth in Sections
9.1(b), (c), (g) and (h) shall not limit AT&T's obligations pursuant to the
foregoing sentence or relieve AT&T of any liability or damages that may result
from its breach of its obligations under this Section 8.1 (nor limit MediaOne's
obligations pursuant to the following sentence or relieve MediaOne of any
liability or damages that may result from its breach of its obligations under
this Section 8.1). In connection with the foregoing, MediaOne will cooperate
with and assist AT&T, and, with respect to matters that are within MediaOne's
power or control, will use its best efforts to promptly (i) take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement as soon as practicable, including,
without limitation, preparing and filing as promptly as practicable all
documentation to effect all necessary filings, notices, petitions, statements,
registrations, submissions of information, applications and other documents,
(ii) obtain and maintain all approvals, consents, registrations, permits,
authorizations and other confirmations required to be obtained from any third
party that are necessary, proper
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or advisable to consummate the Merger and the other transactions contemplated by
this Agreement and (iii) obtain and maintain waivers of all Purchase Rights. At
AT&T's request, MediaOne will commit to and implement any divestiture, hold
separate or similar transaction or action with respect to any asset or business
of the MediaOne Group, which commitment and implementation may, at MediaOne's
option, be conditioned upon and effective as of the Effective Time. Subject to
applicable laws relating to the exchange of information, MediaOne and AT&T shall
have the right to review in advance, and to the extent practicable each will
consult the other on, all the information relating to MediaOne and the MediaOne
Subsidiaries or AT&T and the AT&T Subsidiaries, as the case may be, that appears
in any filing made with, or written materials submitted to, any third party
and/or any Governmental Authority in connection with the Merger and the other
transactions contemplated by this Agreement. MediaOne has provided to AT&T a
list of all Franchise Consents, all License Consents and all rights that any
Person may have under the terms of the MediaOne Franchises to purchase all or
any portion of a MediaOne System as a result of the transactions contemplated
hereby ("Purchase Rights").
(b) In furtherance and not in limitation of the foregoing, each of AT&T and
MediaOne agrees to (i) make an appropriate filing of a Notification and Report
Form pursuant to the HSR Act with respect to the transactions contemplated
hereby as promptly as practicable and in any event within ten Business Days of
the date hereof, (ii) supply as promptly as practicable any additional
information and documentary material that may be requested pursuant to the HSR
Act and (iii) complete the review process under the HSR Act to permit the
consummation of the Merger including, but not limited to, causing the expiration
or termination of the applicable waiting periods under the HSR Act as soon as
practicable.
SECTION 8.2. Proxy Statement; Registration Statement. (a) As promptly as
practicable after the execution of this Agreement, MediaOne shall prepare and
file the Proxy Statement with the SEC, and AT&T shall prepare and file the
Registration Statement (in which the Proxy Statement will be included) with the
SEC. AT&T and MediaOne shall use their reasonable best efforts to cause the
Registration Statement to become effective under the 1933 Act as soon after such
filing as practicable and to keep the Registration Statement effective as long
as is necessary to consummate the Merger. The Proxy Statement shall include the
recommendation of the Board of Directors of MediaOne in favor of approval and
adoption of this Agreement and the Merger, except to the extent the Board of
Directors of MediaOne shall have withdrawn or modified its approval or
recommendation of this Agreement as permitted by Section 6.2(b). MediaOne shall
use its reasonable best efforts to cause the Proxy Statement to be mailed to its
stockholders as promptly as practicable after the Registration Statement becomes
effective. The parties shall promptly provide copies, consult with each other
and prepare written responses with respect to any written comments received from
the SEC with respect to the Proxy Statement and the Registration Statement and
advise one another of any oral comments received from the SEC. The Registration
Statement and the Proxy Statement shall comply as to form in all material
respects with the rules and regulations promulgated by the SEC under the 1933
Act and the 1934 Act, respectively.
(b) AT&T and MediaOne shall make all necessary filings with respect to the
Merger and the transactions contemplated thereby under the 1933 Act and the 1934
Act and applicable state blue sky laws and the rules and regulations thereunder.
Each party will advise the other, promptly after it receives notice thereof, of
the time when the Registration Statement has become effective or any supplement
or amendment has been filed, the issuance of any stop order, the suspension of
the qualification of the AT&T Common Stock issuable in connection with the
Merger for offering or sale in any jurisdiction, or any request by the SEC for
amendment of the Proxy Statement or the Registration Statement or comments
thereon and responses thereto or requests by the SEC for additional information.
No amendment or supplement to the Proxy Statement or the Registration Statement
shall be filed without the approval of both parties hereto, which approval shall
not be unreasonably withheld
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or delayed. If at any time prior to the Effective Time, any information relating
to AT&T or MediaOne, or any of their respective Affiliates, officers or
directors, should be discovered by AT&T or MediaOne that should be set forth in
an amendment or supplement to the Registration Statement or the Proxy Statement,
so that 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
light of the circumstances under which they were made, not misleading, the party
which discovers such information shall promptly notify the other parties hereto
and an appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law, disseminated to
the stockholders of AT&T and MediaOne.
SECTION 8.3. Public Announcements. So long as this Agreement is in effect,
MediaOne and AT&T will consult with each other before issuing any press release
or making any public statement with respect to this Agreement or the
transactions contemplated hereby and, except as may be required by applicable
law or any listing agreement with any national securities exchange, will not
issue any such press release or make any such public statement without the prior
consent of the other party, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, any such press release or public statement as may
be required by applicable law or any listing agreement with any national
securities exchange or Nasdaq may be issued without such consent, if the party
making such release or statement has used its reasonable efforts to consult with
the other party.
SECTION 8.4. Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of MediaOne, any deeds, bills of
sale, assignments or assurances and to take and do, in the name and on behalf of
MediaOne, any other actions and things to vest, perfect or confirm of record in
the Surviving Corporation any and all right, title and interest in, to and under
any of the rights, properties or assets of MediaOne acquired or to be acquired
by the Surviving Corporation as a result of, or in connection with, the Merger.
SECTION 8.5. Access to Information. From the date hereof until the Effective
Time or earlier termination of this Agreement and subject to applicable law and
the Confidentiality Agreement, each of MediaOne and AT&T shall (i) give to the
other party and the other party's counsel, financial advisors, auditors and
other authorized representatives reasonable access during normal business hours
to the offices, properties, books and records of such party and its Subsidiaries
(and, in the case of MediaOne, to the offices, properties, books and records of
TWE and the TWE Subsidiaries to the extent it is reasonably able to provide such
access), (ii) furnish to the other party and the other party's counsel,
financial advisors, auditors and other authorized representatives such financial
and operating data and other information as such Persons may reasonably request
and (iii) instruct its employees, counsel, financial advisors, auditors and
other authorized representatives to cooperate with the other party in such other
party's investigation. Any investigation pursuant to this Section 8.5 shall be
conducted in such manner as not to interfere unreasonably with the conduct of
the business of the other party. No information or knowledge obtained in any
investigation pursuant to this Section 8.5 shall affect or be deemed to modify
any representation or warranty made by any party hereunder. Each party will hold
such information which is non-public in confidence in accordance with the
provisions of the Confidentiality Agreement.
SECTION 8.6. Notices of Certain Events. Each of MediaOne and AT&T shall
promptly notify the other of:
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the transactions
contemplated by this Agreement;
(b) any notice or other communication from any Governmental Authority in
connection with the transactions contemplated by this Agreement;
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(c) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be reasonably expected to cause any
representation or warranty contained herein to be untrue or inaccurate in any
material respect at any time during the period commencing on the date hereof and
ending at the Effective Time; and
(d) any failure of such party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
PROVIDED, HOWEVER, that the delivery of any notice pursuant to this Section 8.6
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
SECTION 8.7. Tax-free Reorganization. (a) Prior to the Effective Time, each
party shall use its best efforts to cause the Merger to qualify as a
reorganization within the meaning of the provisions of Section 368(a) of the
Code ("368 Reorganization"), and will not take any action reasonably likely to
cause the Merger not to so qualify. AT&T shall not take, or cause MediaOne to
take, any action after the Effective Time reasonably likely to cause the Merger
not to qualify as a 368 Reorganization.
(b) Each party shall use its best efforts to obtain the opinions referred to
in Sections 9.2(b), 9.2(c), 9.3(b), and 9.3(c).
SECTION 8.8. Affiliates. (a) Within 30 days following the date of this
Agreement, MediaOne shall deliver to AT&T a letter identifying all known Persons
who may be deemed affiliates of MediaOne under Rule 145 of the 1933 Act (a
"MediaOne Rule 145 Affiliate"). MediaOne shall use its best efforts to obtain a
written agreement from each MediaOne Rule 145 Affiliate as soon as practicable
and, in any event, at least 30 days prior to the Effective Time, substantially
in the form of Exhibit A hereto.
SECTION 8.9. TWE Termination Notice. At any time after the date upon which
the MediaOne Stockholders' Approval shall have been obtained, AT&T may elect by
written notice (a "Termination Notice Election") to have MediaOne give a
Termination Notice (as defined in Section 5.5(f) of the TWE Partnership
Agreement). In addition, MediaOne may exercise a Termination Notice Election at
any time after the 90th day after the date hereof. If either party exercises a
Termination Notice Election, then within five days of the date of such election,
MediaOne shall give the Termination Notice in accordance with the TWE
Agreements. Notwithstanding the foregoing, if AT&T and MediaOne agree (which
agreement will not be unreasonably withheld) that delivery of a Termination
Notice is not necessary for the completion of the Merger and that completion of
the Merger without the delivery of a Termination Notice would not have a
MediaOne Material Adverse Effect or an AT&T Material Adverse Effect, then
MediaOne will not give the Termination Notice.
SECTION 8.10. Assumption of Certain Obligations. At the Effective Time, the
Surviving Corporation shall assume all of MediaOne's rights and obligations
under all of the agreements to which MediaOne is a party as of the Effective
Time, including without limitation, the Separation Agreement between MediaOne
and U S WEST dated as of June 5, 1998, the Employee Matters Agreement between
MediaOne and U S WEST dated as of June 5, 1998, and the Tax Sharing Agreement
between MediaOne and U S WEST dated as of June 5, 1998 (collectively, the "U S
WEST Agreements") and shall execute such instruments of assumption as may be
reasonably required under the terms of the U S WEST Agreements and such other
agreements. At the Effective Time, AT&T shall guarantee the performance by the
Surviving Corporation of its obligations under the U S WEST Agreements.
ARTICLE 9
CONDITIONS TO THE MERGER
SECTION 9.1. Conditions to the Obligations of Each Party. The obligations of
MediaOne, AT&T and Merger Sub to consummate the Merger are subject to the
satisfaction of the following conditions:
(a) the MediaOne Stockholders' Approval shall have been obtained;
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(b) any applicable waiting period under the HSR Act relating to the Merger
shall have expired or been terminated;
(c) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Merger;
(d) the Registration Statement shall have been declared effective and no
stop order suspending the effectiveness of the Registration Statement shall be
in effect and no proceedings for such purpose shall be pending before or
threatened by the SEC;
(e) the shares of AT&T Common Stock to be issued in the Merger shall have
been approved for listing on the NYSE, subject to official notice of issuance;
(f) if a Termination Notice has been delivered, one year (or such shorter
period, if any, to which TW agrees) shall have elapsed from the date upon which
MediaOne delivers a Termination Notice to TW;
(g) (i) all License Consents shall have been obtained and be in effect,
except for such License Consents the failure to obtain would not, individually
or in the aggregate, be reasonably expected to have an AT&T Material Adverse
Effect (after giving effect to the Merger), and (ii) all Social Contract
Consents, Franchise Consents and other consents and waivers, including waivers
of all Purchase Rights, shall have been obtained, be in effect and be subject to
no limitations, conditions, restrictions or obligations, except for such
consents the failure to obtain would not, and such limitations, conditions,
restrictions or obligation as would not, individually or in the aggregate, be
reasonably expected to have a MediaOne Material Adverse Effect; and
(h) no court, arbitrator or Governmental Authority shall have issued any
order, and there shall not be any statute, rule or regulation restraining or
prohibiting the effective operation of the business of AT&T and the AT&T
Subsidiaries or MediaOne and the MediaOne Subsidiaries after the Effective Time
that would be reasonably expected to have an AT&T Material Adverse Effect (after
giving effect to the Merger).
SECTION 9.2. Conditions to the Obligations of AT&T and Merger Sub. The
obligations of AT&T and Merger Sub to consummate the Merger are subject to the
satisfaction of the following further conditions:
(a) (i) MediaOne shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) the representations and warranties of MediaOne contained in
this Agreement and in any certificate or other writing delivered by MediaOne
pursuant hereto, disregarding all qualifications and exceptions contained
therein relating to materiality or a MediaOne Material Adverse Effect or any
similar standard or qualification, shall be true and correct at and as of the
Effective Time, as if made at and as of such time (other than representations or
warranties that address matters only as of a certain date which shall be true
and correct as of such date), with only such exceptions as, individually or in
the aggregate, have not had and would not be reasonably expected to have
MediaOne Material Adverse Effect, and (iii) AT&T shall have received a
certificate signed by an executive officer of MediaOne to the foregoing effect;
(b) AT&T shall have received an opinion of Wachtell, Lipton, Rosen & Katz in
form and substance reasonably satisfactory to AT&T, on the basis of certain
facts, representations and assumptions set forth in such opinion, dated the
Effective Time, to the effect that the Merger will be treated for federal income
tax purposes as a 368 Reorganization and that each of AT&T, Merger Sub and
MediaOne will be a party to the reorganization within the meaning of Section
368(b) of the Code. In rendering such opinion, such counsel shall be entitled to
rely upon certain documentation including representations of officers of
MediaOne and AT&T; and
(c) AT&T shall have received an opinion of Wachtell, Lipton, Rosen & Katz
dated the Effective Time to the effect that the Merger pursuant to this
Agreement should not cause the spinoff of U S
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WEST on June 12, 1998 (the "Spinoff") to fail to be qualified as a tax-free
transaction under Section 355(a) and (c) of the Code. In rendering such opinion,
Wachtell, Lipton, Rosen & Katz shall be entitled to rely upon certain
documentation, including representations of officers of MediaOne and AT&T.
SECTION 9.3. Conditions to the Obligations of MediaOne. The obligations of
MediaOne to consummate the Merger are subject to the satisfaction of the
following further conditions:
(a) (a) (i) Each of AT&T and Merger Sub shall have performed in all material
respects all of its obligations hereunder required to be performed by it at or
prior to the Effective Time, (ii) the representations and warranties of each of
AT&T and Merger Sub contained in this Agreement and in any certificate or other
writing delivered by AT&T pursuant hereto disregarding all qualifications and
exceptions contained therein relating to materiality or AT&T Material Adverse
Effect or any similar standard or qualification shall be true at and as of the
Effective Time as if made at and as of such time (other than representations and
warranties that address matters only as of a certain date, which shall be true
as of such date), with only such exceptions as, individually or in the
aggregate, have not had and would not be reasonably expected to have an AT&T
Material Adverse Effect and (iii) MediaOne shall have received a certificate
signed by an executive officer of AT&T to the foregoing effect; and
(b) MediaOne shall have received an opinion of Weil, Gotshal & Manges LLP in
form and substance reasonably satisfactory to MediaOne, on the basis of certain
facts, representations and assumptions set forth in such opinion, dated the
Effective Time, to the effect that the Merger will be treated for federal income
tax purposes as a 368 Reorganization and that each of AT&T, Merger Sub and
MediaOne will be a party to the reorganization within the meaning of Section
368(b) of the Code. In rendering such opinion, such counsel shall be entitled to
rely upon certain documentation including representations of officers of
MediaOne and AT&T.
(c) MediaOne shall have received an opinion of Weil, Gotshal & Manges LLP
dated the Effective Time to the effect that the Merger pursuant to this
Agreement should not cause the Spinoff to fail to be qualified as a tax-free
transaction under Section 355(a) and (c) of the Code. In rendering such opinion
Weil, Gotshal & Manges LLP shall be entitled to rely upon certain documentation,
including representations of officers of MediaOne and AT&T.
ARTICLE 10
TERMINATION
SECTION 10.1. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the stockholders of MediaOne):
(a) by mutual written agreement of MediaOne and AT&T;
(b) by either MediaOne or AT&T, if:
(i) the Merger has not been consummated on or before March 31, 2000 (the
"End Date"); PROVIDED that if (A) the Effective Time has not occurred by
March 31, 2000 by reason of the non-satisfaction of any of the conditions
set forth in Sections 9.1(b), 9.1(c), 9.1(f), 9.1(g) and 9.1(h) and (B) all
other conditions in Article 9 have theretofore been satisfied or waived or
are then capable of being promptly satisfied, the End Date will be September
30, 2000; PROVIDED FURTHER that if (1) the Effective Time has not occurred
by September 30, 2000 by reason of the non-satisfaction of the condition set
forth in Section 9.1(f) and (2) all other conditions in Article 9 have
theretofore been satisfied or waived or are then capable of being promptly
satisfied, the End Date will be December 31, 2000; and PROVIDED FURTHER that
the right to terminate this Agreement pursuant to this Section 10.1(b)(i)
shall not be available to any party whose breach of any provision of this
Agreement results in the failure of the Merger to be consummated by the End
Date;
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(ii) (A) there shall be any law or regulation that makes consummation of
the Merger illegal or otherwise prohibited or (B) any judgment, injunction,
order or decree of any court or other Governmental Authority having
competent jurisdiction enjoining MediaOne and AT&T from consummating the
Merger is entered and such judgment, injunction, order or decree shall have
become final and non-appealable; or
(iii) MediaOne Stockholders' Approval shall not have been obtained at the
MediaOne Stockholders' Meeting (or any adjournment or postponement thereof).
(c) by AT&T if:
(i) the Board of Directors of MediaOne shall have failed to recommend or
withdrawn, or modified in a manner adverse to AT&T, its approval or
recommendation of this Agreement, or shall have failed to call the MediaOne
Stockholders' Meeting in accordance with Section 6.2(a) (or the Board of
Directors of MediaOne resolves to do any of the foregoing);
(ii) MediaOne shall have willfully and materially breached any of its
obligations under Sections 6.2(b) or 6.3; or
(iii) a breach of any representation, warranty, covenant or agreement on
the part of MediaOne set forth in this Agreement shall have occurred that
would cause the condition set forth in Section 9.2(a) not to be satisfied,
and such condition shall be incapable of being satisfied by the End Date; or
(d) by MediaOne, if a breach of any representation, warranty, covenant or
agreement on the part of AT&T set forth in this Agreement shall have occurred
that would cause the condition set forth in Section 9.3(a) not to be satisfied,
and such condition shall be incapable of being satisfied by the End Date.
The party desiring to terminate this Agreement pursuant to this Section 10.1
(other than pursuant to Section 10.1(a)) shall give notice of such termination
to the other party.
SECTION 10.2. Effect of Termination. If this Agreement is terminated
pursuant to Section 10.1, this Agreement shall become void and of no effect
without liability of any party (or any stockholder, director, officer, employee,
agent, consultant or representative of such party) to the other parties hereto,
except that (a) the agreements contained in this Section 10.2, in Section 10.3
and in the Confidentiality Agreement (other than paragraph 7 thereof) shall
survive the termination hereof and (b) no such termination shall relieve any
party of any liability or damages resulting from any breach by such party of
this Agreement.
SECTION 10.3. Fees and Expenses. (a) Except as otherwise provided in this
Section 10.3, all costs and expenses incurred in connection with this Agreement
shall be paid by the party incurring such cost or expense whether or not the
Merger is consummated; PROVIDED that MediaOne and AT&T shall share equally all
fees and expenses, other than attorneys' and accounting fees and expenses,
incurred in relation to the printing and filing of the Registration Statement
and the Proxy Statement.
(b) If this Agreement is terminated, other than (i) pursuant to Section
10.1(a), Section 10.1(b)(ii) (unless termination under Section 10.1(b)(ii) is a
result of a judgment, injunction, order or decree arising from a private action
that is not an antitrust action), Section 10.1(b)(iii) (except as otherwise
provided in paragraph (d) below), or Section 10.1(d), (ii) as a result of a
failure to satisfy any of the conditions set forth in Sections 9.1(b), (c), (g)
and (h) (except, in the case of Sections 9.1(c) and (h), a failure resulting
from a judgment, injunction, order or decree arising from a private action that
is not an antitrust action), or (iii) as a result of a failure to satisfy the
condition set forth in Section 9.3(a) or otherwise as a result of AT&T's breach
of this Agreement, MediaOne will pay to AT&T a reimbursement payment of
$1,500,000,000 in cash, together with interest thereon, at a rate equal to the
London Interbank Offered Rate plus .15%, from the date hereof to the date such
payment is due pursuant to this Agreement (collectively, the "Reimbursement
Payment"), reflecting reimbursement of the amounts
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advanced by AT&T to MediaOne on the date hereof and used by MediaOne to pay the
termination fee to Comcast under the Comcast Merger Agreement (which advance
will be evidenced by a note that, in the event of termination of this Agreement,
will be repaid only on the terms set forth in this Section 10.3 with respect to
the Reimbursement Payment, and that will survive the consummation of the Merger
if the Merger is completed). For the avoidance of doubt, in the event the
Reimbursement Payment is not paid when due, interest on the Reimbursement
Payment shall be paid thereon from the due date to the date of payment pursuant
to the provisions of Section 10.3(e) and not pursuant to the provisions of this
Section 10.3(b).
(c) If this Agreement is terminated pursuant to Section 10.1(c)(i) or
Section 10.1(c)(ii), MediaOne shall pay to AT&T a termination fee of
$1,600,000,000 in cash (the "Termination Fee"), which shall be in addition to
the Reimbursement Payment paid pursuant to Section 10.3(b).
(d) If (A) this Agreement is terminated pursuant to Section 10.1(b)(iii),
(B) after the date hereof and prior to the MediaOne Stockholders' Meeting, an
Acquisition Proposal is made or continued or renewed by any Person (including
Comcast) and not withdrawn prior to such meeting and (C) within one year of the
MediaOne Stockholders' Meeting, either (1) MediaOne or any MediaOne Subsidiary
enters into an agreement with any Person with respect to an Acquisition Proposal
which provides for (x) transfer or issuance of securities representing more than
50% of the equity or voting interests in MediaOne, (y) a merger, consolidation,
recapitalization or another transaction resulting in the issuance of cash or
securities of any Person (other than a reincorporation or a holding company
merger that results in the MediaOne stockholders owning all of the equity
interests in the surviving corporation) to MediaOne stockholders in exchange for
more than 50% of the equity or voting interests in MediaOne, or (z) transfer of
assets, securities or ownership interests representing more than 50% of the
consolidated assets or earning power of the MediaOne Group, or (2) any Person
commences a tender offer that results in the acquisition by the Person making
the tender offer of a majority of the MediaOne Common Stock, then MediaOne shall
pay to AT&T both the Reimbursement Payment and the Termination Fee.
(e) Any payment of the Reimbursement Payment and the Termination Fee
pursuant to this Section 10.3 shall be made within one Business Day after
termination of this Agreement except that any payment of the Reimbursement
Payment and the Termination Fee pursuant to Section 10.3(d) shall be paid within
one Business Day after it becomes payable. Any payment of the Reimbursement
Payment and the Termination Fee shall be made by wire transfer of immediately
available funds. If one party fails to pay to the other promptly any fee or
expense due hereunder (including the Reimbursement Payment or the Termination
Fee), the defaulting party shall pay the costs and expenses (including legal
fees and expenses) in connection with any action, including the prosecution of
any lawsuit or other legal action, taken to collect payment, together with
interest on the amount of any unpaid fee at the publicly announced prime rate of
The Bank of New York in New York City from the date such fee was required to be
paid to the date it is paid.
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ARTICLE 11
MISCELLANEOUS
SECTION 11.1. Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including facsimile transmission) and shall
be given,
if to AT&T or Merger Sub, to:
AT&T Corp.
295 North Maple Avenue
Basking Ridge, New Jersey 07920
Attention: Marilyn J. Wasser
Fax: (908) 953-8360
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Richard D. Katcher
Steven A. Rosenblum
Fax: (212) 403-2000
if to MediaOne, to:
MediaOne Group, Inc.
188 Inverness Drive West
Englewood, Colorado 80112
Attention: Frank M. Eichler
Fax: (303) 858-5834
with copies to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Stephen M. Besen
Akiko Mikumo
Fax: (212) 310-8007
and
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attention: Dennis J. Block
Fax: (212) 504-6666
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. All such notices,
requests and other communications shall be deemed received on the date of
receipt by the recipient thereof if received prior to 5 p.m. on a Business Day,
in the place of receipt. Otherwise, any such notice, request or communication
shall be deemed not to have been received until the next succeeding Business Day
in the place of receipt.
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SECTION 11.2. Survival of Representations and Warranties. The
representations and warranties contained herein and in any certificate or other
writing delivered pursuant hereto shall not survive the Effective Time or the
termination of this Agreement, except as provided under Section 10.2.
SECTION 11.3. Amendments; No Waivers. (a) Subject to applicable law, any
provision of this Agreement may be amended or waived prior to the Effective Time
if, but only if, such amendment or waiver is in writing and is signed, in the
case of an amendment, by each party to this Agreement or, in the case of a
waiver, by each party against whom the waiver is to be effective; PROVIDED that,
after the adoption of this Agreement by the stockholders of MediaOne, no such
amendment or waiver shall be made or given that requires the approval of the
stockholders of MediaOne unless the required approval is obtained.
(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. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 11.4. Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; PROVIDED that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto.
SECTION 11.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the conflicts of law rules of such State.
SECTION 11.6. Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby shall be brought in
any federal court located in the State of Delaware or any Delaware state court,
and each of the parties hereby consents to the exclusive jurisdiction of such
courts (and of the appropriate appellate courts therefrom) in any such suit,
action or proceeding and irrevocably waives, to the fullest extent permitted by
law, any objection that it may now or hereafter have to the laying of the venue
of any such suit, action or proceeding in any such court or that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient form. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 11.1 shall be deemed
effective service of process on such party.
SECTION 11.7. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 11.8. Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto. No provision of
this Agreement is intended to confer any rights, benefits, remedies, obligations
or liabilities hereunder upon any Person other than the parties hereto and their
respective successors and assigns except as provided in Sections 7.2, 7.4 and
7.5.
SECTION 11.9. Entire Agreement. This Agreement, together with the
Confidentiality Agreement (other than paragraph 7 thereof, which shall terminate
upon execution of this Agreement), constitutes the entire agreement between the
parties with respect to the subject matter of this Agreement and
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supersedes all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter of this Agreement.
SECTION 11.10. Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
SECTION 11.11. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated so
long as the economic or legal substance of the transactions contemplated hereby
is not affected in any manner materially adverse to any party. Upon such a
determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner so that the transactions contemplated hereby be
consummated as originally contemplated to the fullest extent possible.
SECTION 11.12. Specific Performance. The parties hereto agree that
irreparable damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
or to enforce specifically the performance of the terms and provisions hereof in
any federal court located in the State of Delaware or any Delaware state court,
in addition to any other remedy to which they are entitled at law or in equity.
SECTION 11.13. Schedules. Each of MediaOne and AT&T has set forth
information in its respective Disclosure Schedule in a section thereof that
corresponds to the section of this Agreement to which it relates. A matter set
forth in one section of the Disclosure Schedules need not be set forth in any
other section of the Disclosure Schedule so long as its relevance to the latter
section of the Disclosure Schedule or section of the Agreement is apparent on
the face of the information disclosed in the Disclosure Schedule. The fact that
any item of information is disclosed in a Disclosure Schedule to this Agreement
shall not be construed to mean that such information is required to be disclosed
by this Agreement. Such information and the dollar thresholds set forth herein
shall not be used as a basis for interpreting the terms "material" or "Material
Adverse Effect" or other similar terms in this Agreement except as otherwise
expressly set forth in such Disclosure Schedules.
A-54
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
<TABLE>
<S> <C> <C>
AT&T CORP.
By: /s/ C. MICHAEL ARMSTRONG
-----------------------------------------
Name: C. Michael Armstrong
Title: Chairman and Chief Executive
Officer
METEOR ACQUISITION INC.
By: /s/ DANIEL E. SOMERS
-----------------------------------------
Name: Daniel E. Somers
Title: President
MEDIAONE GROUP, INC.
By: /s/ CHARLES M. LILLIS
-----------------------------------------
Name: Charles M. Lillis
Title: President, Chief Executive Officer
and Chairman
</TABLE>
A-55
<PAGE>
ANNEX B
[LEHMAN BROTHERS LOGO]
May 6, 1999
Board of Directors
MediaOne Group, Inc.
188 Inverness Drive West
Englewood, Colorado 80112
Members of the Board:
We understand that MediaOne Group, Inc. ("MediaOne" or the "Company"), AT&T
Corp. ("AT&T") and Meteor Acquisition, Inc. ("Sub"), a wholly owned subsidiary
of AT&T, intend to enter into an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which MediaOne will merge with and into Sub, with Sub
continuing as the surviving corporation and becoming a wholly owned subsidiary
of AT&T (the "Proposed Transaction"). In the Proposed Transaction, each share of
MediaOne's Common Stock will be converted, at the election of each stockholder
of MediaOne, into: (i) 1.4912 shares of AT&T Common Stock plus cash equal to
1.4912 times the excess of $57.00 over the AT&T Price (as defined below), with
such cash limited to $8.50 per share (such stock and cash being subject to
proration); (ii) $85.00 in cash (subject to proration) or (iii) 0.95 shares of
AT&T Common Stock and $30.85 in cash, plus cash equal to 0.95 times the excess
of $57.00 over the AT&T Price, with such cash limited to $5.42 per share. "AT&T
Price" means the volume-weighted average price per share of AT&T Common Stock
for the 20-trading-day period ending on the third trading-day prior to the
effective date of the Proposed Transaction. The terms and conditions of the
Proposed Transaction are set forth in more detail in the Merger Agreement.
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
holders of the Company's Common Stock of the consideration to be offered to such
stockholders in the Proposed Transaction. We have not been requested to opine as
to, and our opinion does not in any manner address, the Company's underlying
business decision to proceed with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Merger
Agreement and the specific terms of the Proposed Transaction; (2) publicly
available information concerning the Company and AT&T that we believe to be
relevant to our analysis, including without limitation Form 10-Ks for the fiscal
year ended December 31, 1998; (3) publicly available information concerning Time
Warner Entertainment Company, L.P. (a company in which MediaOne owns a 25.51%
partnership interest), other companies in which the Company has a significant
equity interest and other selected non-cable assets of MediaOne (collectively,
the "Other Assets"), Tele-Communications Inc. ("TCI") (a company which was
acquired by AT&T on March 9, 1999), Teleport Communications Group Inc. ("TCG")
(a company which was acquired by AT&T on July 23, 1998) and other companies in
which AT&T has a significant interest, in each case, that we believe to be
relevant to our analysis; (4) financial and operating information with respect
to the business, operations and prospects of the Company and the Other Assets
furnished to us by the Company; (5) a trading history of the Company's Common
Stock from June 15, 1998 to the present and of the U S WEST Media Group Common
Stock (the common stock of the Company's predecessor) from October 27, 1995 to
June 12, 1998 and a comparison of these trading histories with those of other
companies that we deemed relevant; (6) a trading history of
B-1
<PAGE>
AT&T's Common Stock from October 1, 1996 to the present and a comparison of
these trading histories with those of other companies that we deemed relevant;
(7) a comparison of the historical financial results and present financial
condition of the Company with other companies that we deemed relevant and a
comparison of the historical financial results and present financial condition
of AT&T with other companies that we deemed relevant; (8) third party research
analysts' earnings estimates, valuation analyses, target prices and investment
recommendations for the Company and AT&T; (9) a comparison of the financial
terms of the Proposed Transaction with the financial terms of certain other
transactions that we deemed relevant; (10) the potential pro forma effects of
the Proposed Transaction, including the cost savings, operating synergies and
strategic benefits expected by management of AT&T to result from a combination
of the businesses of the Company and AT&T; (11) the terms and conditions,
including the financial terms, of the existing merger agreement governing the
proposed merger of MediaOne with Comcast Corporation ("Comcast"); and (12) such
information relating to Comcast and Comcast's Class A Special Common Stock that
we deemed relevant. We also have had discussions with the managements of the
Company and AT&T concerning their respective businesses, operations, assets,
financial condition and prospects and have undertaken such other studies,
analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and have
further relied upon the assurances of management of the Company that they are
not aware of any facts or circumstances that would make such information
inaccurate or misleading. With respect to the financial projections of the
Company furnished to us by the Company, upon advice of the Company we have
assumed that such projections have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company,
and that the Company will perform substantially in accordance with such
projections. We were not provided with, and did not have access to, non-public
financial projections of AT&T prepared by management of AT&T. Accordingly, upon
advice of AT&T, we have assumed that the publicly-disclosed estimates prepared
by AT&T, as well as estimates prepared by third-party research analysts, are a
reasonable basis upon which to evaluate the future financial performance of AT&T
and that AT&T will perform substantially in accordance with AT&T's
publicly-disclosed estimates. With respect to the cost savings, operating
synergies and strategic benefits expected by management of AT&T to result from a
combination of the businesses of the Company and AT&T, upon advice of the
management of AT&T we have assumed that such cost savings, operating synergies
and strategic benefits will be realized substantially in accordance with such
expectations.
In arriving at our opinion, with respect to the valuation of the Other
Assets, we have relied upon public information and information regarding the
Other Assets provided to us by management of the Company, and have not had an
opportunity to conduct any independent due diligence of the Other Assets. We
also have not conducted a physical inspection of the properties and facilities
of either the Company or AT&T and have not made or obtained any evaluations or
appraisals of the assets or liabilities of the Company or AT&T.
We have not been requested to and do not express any opinion as to the
prices at which shares of AT&T's Common Stock may trade at any time prior to or
following the consummation of the Proposed Transaction. In addition, you have
not authorized us to solicit, and we have not solicited, any indications of
interest from any third party with respect to a purchase of the Company. Upon
advice of the Company and its legal advisors, we have assumed the receipt of
shares of AT&T Common Stock by stockholders of MediaOne in the Proposed
Transaction will qualify as a tax-free transaction to MediaOne stockholders.
Upon advice of the Company and its legal advisors, we also have assumed that
consummation of the Proposed Transaction will not cause the split-off by the
Company of U S WEST, Inc. on June 12, 1998 to fail to qualify as a tax-free
transaction. Our opinion necessarily is based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter.
B-2
<PAGE>
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be
offered to the holders of the Company's Common Stock in the Proposed Transaction
is fair to such stockholders.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services, a portion of which
was previously paid to us and a portion of which is contingent upon the
consummation of the Proposed Transaction. In addition, the Company has agreed to
indemnify us for certain liabilities that may arise out of the rendering of this
opinion. We have performed various investment banking services for the Company
in the past and expect to do so in the future, including serving as underwriter
for public offerings of debt and equity securities and as advisor in several
acquisitions, dispositions and other strategic transactions by the Company, and
have received customary fees for such services. We also have performed various
investment banking services for AT&T, TCI, TCG and Comcast, including serving as
underwriter for public offerings of debt and equity securities and as advisor in
strategic transactions, and have received customary fees for such services. In
the ordinary course of our business, we actively trade in the debt and equity
securities of MediaOne, AT&T and Comcast for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of the Company as to
how such stockholder should vote with respect to the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS
B-3
<PAGE>
ANNEX C
DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257,
Section 258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to Sections 251, 252, 254, 257,
258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
C-1
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation party
to a merger effected under Section 253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to Section 228 or
Section 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer
C-2
<PAGE>
agent of the corporation that is required to give either notice that such notice
has been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the stockholders entitled to
receive either notice, each constituent corporation may fix, in advance, a
record date that shall be not more than 10 days prior to the date the notice is
given, provided, that if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving
C-3
<PAGE>
or resulting corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit discovery or
other pretrial proceedings and may proceed to trial upon the appraisal prior to
the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 339, L.
'98, eff. 7-1-98.)
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<PAGE>
[MEDIAONE GROUP LOGO]
WSTMO-PS-SM99
<PAGE>
SPECIAL MEETING OF SHAREHOLDERS
ADMISSION TICKET
OCTOBER 21, 1999
The Special Meeting of Shareholders of MediaOne Group, Inc. will be held
at 10:00 a.m., Mountain Time, on October 21, 1999, at The Terrace Gardens at
Dove Valley Event and Conference Center, 13065 East Briarwood Avenue, Englewood,
Colorado. Doors will open at 9:30 a.m., and the meeting begins at 10:00 a.m. The
use of admission tickets expedites the registration of shareholders at the
Special Meeting of Shareholders and is helpful to us in making arrangements for
the meeting.
PLEASE PRESENT THIS ADMISSION TICKET AT THE DOOR
IN ORDER TO GAIN ADMITTANCE TO THE SPECIAL MEETING
Directions to The Terrace Gardens at Dove Valley Event and Conference
Center:
- Take I-25 to Arapahoe Road
- East exactly two miles to Revere Parkway
- South one block to Briarwood Avenue
- East one block to 13065
DETACH HERE
- --------------------------------------------------------------------------------
PROXY VOTING INSTRUCTION CARD
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE SPECIAL
MEETING OF SHAREHOLDERS ON OCTOBER 21, 1999.
The undersigned hereby appoints Charles M. Lillis, Charles P. Russ, III, and
Louis A. Simpson, and each of them, proxies, with the powers the undersigned
would possess if personally present, and with full power of substitution, to
vote all common shares of the undersigned in MediaOne Group, Inc. at the
MediaOne Group Special Meeting of Shareholders, to be held on October 21, 1999
at 10:00 a.m., Mountain Time, at The Terrace Gardens at Dove Valley Event and
Conference Center, 13065 East Briarwood Avenue, Englewood, Colorado, and at any
adjournments or postponements thereof, upon all subjects that may properly come
before the Special Meeting including the matters described in the Proxy
Statement furnished herewith, subject to any directions indicated on the reverse
side of this card. IF NO DIRECTIONS ARE GIVEN, THE PROXIES WILL VOTE FOR
APPROVAL OF THE ADOPTION OF THE AGREEMENT AND PLAN OF MERGER, DATED AS OF MAY 6,
1999, BY AND AMONG AT&T CORP., METEOR ACQUISITION INC., A WHOLLY-OWNED
SUBSIDIARY OF AT&T CORP., AND MEDIAONE GROUP, INC., IN ACCORDANCE WITH THE
DIRECTORS' RECOMMENDATION, AND AT THEIR DISCRETION ON ANY OTHER MATTER THAT MAY
PROPERLY COME BEFORE THE SPECIAL MEETING.
Your vote for approval of the adoption of the Agreement and Plan of Merger may
be indicated on the reverse.
This proxy/voting instruction card also constitutes your voting instructions to
the trustees under the MediaOne Group Savings Plan/ESOP to vote shares credited
to your account in the plan. If you do not return your card, your shares will be
voted in the same proportion as the trustees vote company shares for which they
received timely instructions. The trustee shall in all events exercise voting
obligations consistent with their fiduciary duties under the Employee Retirement
Income Security Act of 1974, as amended.
<TABLE>
<S> <C> <C>
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
</TABLE>
<PAGE>
[MEDIAONE GROUP LOGO]
P.O. BOX 8200
BOSTON, MA
02266-8200
<TABLE>
<S> <C>
VOTE BY TELEPHONE VOTE BY INTERNET
Its fast, convenient, and immediate! It's fast, convenient, and your vote is
Call Toll-Free on a Touch-Tone Phone. immediately confirmed and posted.
FOLLOW THESE FOUR EASY STEPS: FOLLOW THESE FOUR EASY STEPS:
1. Read the accompanying Proxy Statement and 1. Read the accompanying Proxy Statement and
Proxy Card. Proxy Card.
2. Call the toll-free number 1-877-PRX-VOTE 2. Go to the Website
(1-877-779-8683). For shareholders http://www.eproxyvote.com/umg
residing outside the United States call 3. Enter your Control Number located on your
collect on a touch-tone phone Proxy Card above your name.
1-201-536-8073. There is NO CHARGE for 4. Follow the instructions provided.
this call.
3. Enter your Control Number located on your
Proxy Card above your name.
4. Follow the recorded instructions.
YOUR VOTE IS IMPORTANT! YOUR VOTE IS IMPORTANT!
Call 1-877-PRX-VOTE anytime! Go to http://www.eproxyvote.com/umg anytime!
</TABLE>
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET.
ADMISSION TICKET ON REVERSE
DETACH HERE
/X/ PLEASE MARK VOTES AS IN THIS SAMPLE
DIRECTORS RECOMMEND A VOTE "FOR" ITEM 1
To vote your shares for approval of the adoption of the Agreement and Plan of
Merger, dated as of May 6, 1999, by and among AT&T Corp., Meteor Acquisition
Inc., a wholly-owned subsidiary of AT&T Corp., and MediaOne Group, Inc., mark
the "FOR" box on item "1." To vote against approval of the adoption of the
Agreement and Plan of Merger, mark the "AGAINST" box. To abstain from voting for
approval of the adoption of the Agreement and Plan of Merger, mark the "ABSTAIN"
box.
1. Approval of the adoption of the Agreement and Plan of Merger.
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
/ / / / / /
</TABLE>
MARK HERE FOR ADDRESS CHANGE AND NOTE AT
LEFT / /
MARK HERE IF YOU PLAN TO ATTEND THE
SPECIAL MEETING / /
Signature: ____________ Date: _______ Signature: ____________ Date: _______
<PAGE>
[MEDIAONE GROUP LOGO]
PROXY CARD
- -----------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE SPECIAL
MEETING OF SHAREHOLDERS ON OCTOBER 21, 1999.
The undersigned hereby appoints Charles M. Lillis, Charles P. Russ, III, and
Louis A. Simpson, and each of them, proxies, with the powers the undersigned
would possess if personally present, and with full power of substitution, to
vote all common shares of the undersigned in MediaOne Group, Inc. at the
MediaOne Group Special Meeting of Shareholders, to be held on October 21, 1999
at 10:00 a.m., Mountain Time, at Terrace Gardens at Dove Valley Event and
Conference Center, 13065 East Briarwood Avenue, Englewood, Colorado, 80112, and
at any adjournments or postponements thereof, upon all subjects that may
properly come before the Special Meeting including the matters described in the
Proxy Statement furnished herewith, subject to any directions indicated on the
reverse side of this card. IF NO DIRECTIONS ARE GIVEN, THE PROXIES WILL VOTE FOR
APPROVAL OF THE ADOPTION OF THE AGREEMENT AND PLAN OF MERGER, DATED AS OF MAY 6,
1999, BY AND AMONG AT&T CORP., METEOR ACQUISITION INC., A WHOLLY-OWNED
SUBSIDIARY OF AT&T CORP., AND MEDIAONE GROUP, INC., IN ACCORDANCE WITH THE
DIRECTORS' RECOMMENDATION, AND AT THEIR DISCRETION ON ANY OTHER MATTER THAT MAY
PROPERLY COME BEFORE THE SPECIAL MEETING.
Your vote for approval of the adoption of the Agreement and Plan of Merger may
be indicated on the reverse.
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To vote your shares for approval of the adoption of the Agreement and Plan of
Merger, dated as of May 6, 1999, by and among AT&T Corp., Meteor Acquisition
Inc., a wholly-owned subsidiary of AT&T Corp., and MediaOne Group, Inc., mark
the "FOR" box on item "1." To vote against approval of the adoption of the
Agreement and Plan of Merger, mark the "AGAINST" box. To abstain from voting for
approval of the adoption of the Agreement and Plan of Merger, mark the "ABSTAIN"
box.
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DIRECTORS RECOMMEND A VOTE "FOR"
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APPROVAL OF THE ADOPTION OF THE AGREEMENT AND PLAN OF MERGER.
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
/ / / / / /
</TABLE>
Date ________________________, 1999
Signature: ________________________
Signature: ________________________
Please sign this proxy and return
promptly whether or not you plan to
attend the Special Meeting.
