<PAGE>
As filed with the Securities and Exchange Commission on December 7, 1995
Registration No. 33-63647
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
___________________
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
PACIFIC TELESIS GROUP Nevada 94-2919931
PACIFIC TELESIS FINANCING I Delaware 94-6688509
PACIFIC TELESIS FINANCING II Delaware 94-6688510
PACIFIC TELESIS FINANCING III Delaware 94-6688511
(Exact name of Registrant as (State or other (I.R.S. Employer
specified in its Charter) Jurisdiction of Identification
Incorporation Number)
or Organization)
130 Kearny Street
San Francisco, California 94108
(415) 394-3000
(Address, including zip code, and telephone number,
including area code, of each registrant's principal
executive offices)
__________________
William E. Downing
Executive Vice President, Chief Financial Officer
& Treasurer
Pacific Telesis Group
130 Kearny Street
San Francisco, California 94108
(415) 394-3000
(Name, address, including zip code, and telephone number,
including area code, of agent for service for each registrant)
__________________
Please send copies of all communications to:
Duane G. Henry, Senior Counsel Blair W. White, Esq.
Jamie E. Chung, Esq. Pillsbury Madison & Sutro
Pacific Telesis Group P. O. Box 7880
130 Kearny Street San Francisco, California 94120
San Francisco, California 94108 (415) 983-1000
(415) 394-3535
________________________
Approximate Date of Commencement of Proposed Sale to Public:
From time to time after the effective date of the Registration
Statement, as determined by market conditions.
________________________
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
2
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CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Title of Each Class Amount to Price Per Offering Registra-
of Securities to be be Regis- Unit Price tion Fee
Registered tered (1) (1)(2)(3) (1)(2)(3) (2)
___________________ _________ _________ _________ _________
Preferred Securities
of Pacific Telesis
Financing I. . . .
Preferred Securities
of Pacific Telesis
Financing II . . .
Preferred Securities
of Pacific Telesis
Financing III. . .
Subordinated Debt
Securities of Pacific
Telesis Group. . . .
Guarantees of Pre-
ferred Securities
of Pacific Telesis
Financing I,
Pacific Telesis
Financing II and
Pacific Telesis
Financing III by
Pacific Telesis
Group (4). . . .
Back-up undertakings
of Pacific Telesis
Group in connection
with Preferred Secur-
ities of Pacific
Telesis Financing
I, Pacific Telesis
Financing II and
Pacific Telesis
Financing III (4). . .
___________________________________________________________________________
Total $1,000,000,000 100% $1,000,000,000 $344,827.59
(1) Such indeterminate number of Preferred Securities of Pacific Telesis
Financing I, Pacific Telesis Financing II and Pacific Telesis Financing
III and such indeterminate principal amount of Subordinated Debt
Securities of Pacific Telesis Group as may from time to time be issued at
indeterminate prices. Subordinated Debt Securities may be issued and
sold to Pacific Telesis Financing I, Pacific Telesis Financing II and
Pacific Telesis Financing III, in which event such Subordinated Debt
Securities may later be distributed to the holders of Preferred
Securities upon a dissolution of Pacific Telesis Financing I, Pacific
Telesis Financing II or Pacific Telesis Financing III and the
distribution of the assets thereof.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457. The aggregate public offering price of the
Preferred Securities of Pacific Telesis Financing I, Pacific Telesis
Financing II and Pacific Telesis Financing III and the Subordinated Debt
Securities of Pacific Telesis Group registered hereby will not exceed
$1,000,000,000.
(3) Exclusive of accrued interest and distributions, if any.
(4) Includes the obligations of Pacific Telesis Group under the Declaration
for each Trust, the Guarantee issued with respect to Preferred Securities
issued by that Trust, the Subordinated Debt Securities purchased by that
Trust and the Indenture, including Pacific Telesis' agreement (under
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Section 4.3 of the Declaration and Section 5.1 of the Supplemental
Indenture) to pay all trust obligations other than those under the common
and preferred securities, all as described in the Registration Statement.
No separate consideration will be received for the Guarantees and these
obligations.
The Registrants hereby amend this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrants shall
file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
============================================================================
4
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 6, 1995
PROSPECTUS SUPPLEMENT PACIFIC*TELESIS
(To Prospectus dated _____, 1995) Group
20,000,000 Preferred Securities
Pacific Telesis Financing I
____% Trust Originated Preferred Securities(sm) ("TOPrS(sm)")
(Liquidation amount $25 per Preferred Security)
guaranteed to the extent set forth herein by
PACIFIC TELESIS GROUP
_______________
The ____% Trust Originated Preferred Securities (the "Preferred Securities")
offered hereby represent preferred undivided beneficial interests in the
assets of Pacific Telesis Financing I, a statutory business trust formed under
the laws of the State of Delaware ("Pacific Telesis Financing" or the
"Trust"). Pacific Telesis Group, a Nevada corporation ("Pacific Telesis" and,
together with its subsidiaries, the "Company"), will directly or indirectly
own all the common securities (the "Common Securities" and, together with the
Preferred Securities, the "Trust Securities") representing undivided
beneficial interests in the assets of Pacific Telesis Financing. Pacific
Telesis Financing exists for the sole purpose of issuing the Preferred
Securities and Common Securities and investing the proceeds thereof in an
equivalent amount of_____% Subordinated Deferrable Interest Debentures due
__________, 2025 ("Subordinated Debentures") of Pacific Telesis. Upon a
Declaration Event of Default (as defined herein), the holders of Preferred
Securities will have a preference over the holders of the Common Securities
with respect to payments in respect of distributions and payments upon
redemption, liquidation and otherwise.
______________________(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE __ FOR CERTAIN INFORMATION RELEVANT TO AN
INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE PERIOD AND CIRCUMSTANCES
DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE PREFERRED SECURITIES
MAY BE DEFERRED AND THE RELATED UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
OF SUCH DEFERRAL.
The Preferred Securities have been approved for listing, subject to official
notice of issuance, on the New York Stock Exchange, Inc. (the "New York Stock
Exchange"). Trading of the Preferred Securities on the New York Stock
Exchange is expected to commence within a 30-day period after the initial
delivery of the Preferred Securities. See "Underwriting."
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH
IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Initial Proceeds to
Public Pacific
Offering Underwriting Telesis Financing
Price (1) Commission (2) (3) (4)
Per Preferred Security. . $25.00 (3) $25.00
Total . . . . . . . . . . $500,000,000 (3) $500,000,000
(1) Plus accrued distributions, if any, from ____________, 1995.
(2) Pacific Telesis Financing and Pacific Telesis have agreed to indemnify
the several Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(3) In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in Subordinated Debentures, Pacific Telesis
has agreed to pay to the Underwriters as compensation ("Underwriters'
Compensation") for their arranging the investment therein of such
proceeds, $_____ per Preferred Security (or $_________ in the aggregate);
provided that, such compensation for sales of 10,000 or more Preferred
Securities to a single purchaser will be $___ per Preferred Security.
Therefore, to the extent of such sales, the actual amount of
Underwriters' Compensation will be less than the aggregate amount
specified in the preceding sentence. See "Underwriting."
(4) Expenses of the offering which are payable by Pacific Telesis are
estimated to be $955,000.
---------------------------------
The Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that delivery of the Preferred Securities will be made only in book-
entry form through the facilities of The Depository Trust Company, on or about
______, 1995.
---------------------------------
Merrill Lynch & Co.
Dean Witter Reynolds Inc. A.G. Edwards & Sons, Inc. Goldman, Sachs & Co.
Lehman Brothers Inc. PaineWebber Incorporated Prudential Securities
Incorporated
Salomon Brothers Inc. Smith Barney Inc.
---------------------------------
The date of this Prospectus Supplement is ______, 1995.
(sm) "Trust Originated Preferred Securities" and "TOPrS" are
service marks of Merrill Lynch & Co., Inc.
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of ____% of the liquidation amount of $25 per
Preferred Security, accruing from the date of original issuance and payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of
each year, commencing ______, 1995 ("distributions"). The distribution rate
and the distribution and other payment dates for the Preferred Securities will
correspond to the interest rate and interest and other payment dates on the
Subordinated Debentures, which will be the sole assets of Pacific Telesis
Financing. As a result, if principal or interest is not paid on the
Subordinated Debentures, no amounts will be paid on the Preferred Securities.
The payment of distributions out of moneys held by Pacific Telesis Financing
and payments on liquidation of Pacific Telesis Financing or the redemption of
Preferred Securities, as set forth below, are fully and unconditionally
guaranteed by Pacific Telesis (the "Guarantee") if and to the extent the Trust
has funds available therefor. Pacific Telesis' obligations under the
Guarantee, taken together with its other obligations described herein,
constitute a full and unconditional guarantee by Pacific Telesis of payments
due on the Preferred Securities. See "Effect of Obligations Under the
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Subordinated Debentures and the Guarantee" herein and "Description of the
Guarantees" in the accompanying prospectus (the "Prospectus"). If Pacific
Telesis does not make principal or interest payments on the Subordinated
Debentures, including as a result of Pacific Telesis' election to extend the
interest payment period on the Subordinated Debentures as described below,
Pacific Telesis Financing will not have sufficient funds to make distributions
on the Preferred Securities, in which event, the Guarantee will not apply to
such distributions until Pacific Telesis has made such principal or interest
payments. The obligations of Pacific Telesis under the Subordinated
Debentures are unsecured and will be subordinate and junior in right of
payment, to the extent set forth herein, to all existing and future Senior
Indebtedness (as defined herein) of Pacific Telesis and will be effectively
subordinated to all existing and future liabilities and obligations of Pacific
Telesis' subsidiaries and partnerships. At September 30, 1995, the aggregate
amount of Senior Indebtedness and liabilities and obligations of Pacific
Telesis' subsidiaries and partnerships that would have effectively ranked
senior to the Subordinated Debentures was approximately $13,025 million.
Pacific Telesis has the right to defer payments of interest on the
Subordinated Debentures by extending the interest payment period on the
Subordinated Debentures at any time for up to 20 consecutive quarters (each an
"Extension Period") provided that no Extension Period may extend beyond the
Maturity Date (as defined herein). If interest payments are so deferred,
distributions on the Preferred Securities will also be deferred. During such
Extension Period, distributions will continue to accrue with interest thereon
(to the extent permitted by applicable law) at an annual rate of ____% per
annum compounded quarterly, and during any Extension Period, holders of
Preferred Securities will be required to include deferred interest income in
their gross income for United States federal income tax purposes in advance of
receipt of the cash distributions with respect to such deferred interest
payments. There could be multiple Extension Periods of varying lengths
throughout the term of the Subordinated Debentures. See "Risk Factors --
Option to Extend Interest Payment Period," "Risk Factors -- Tax Consequences
of Extension of Interest Payment Period," "Description of the Subordinated
Debentures -- Option to Extend Interest Payment Period," and "United States
Federal Income Taxation -- Original Issue Discount."
The Subordinated Debentures are redeemable by Pacific Telesis, in whole or in
part, from time to time, on or after ______, 2000, or at any time in certain
circumstances upon the occurrence of a Tax Event (as defined herein). If
Pacific Telesis redeems Subordinated Debentures, Pacific Telesis Financing
must redeem Trust Securities having an aggregate liquidation amount equal to
the aggregate principal amount of the Subordinated Debentures so redeemed at
$25 per Trust Security plus accrued and unpaid distributions thereon to the
date fixed for redemption (the "Redemption Price"). See "Description of the
Preferred Securities -- Mandatory Redemption." The outstanding Preferred
Securities will be redeemed upon maturity of the Subordinated Debentures. The
Subordinated Debentures mature on ______, 2025, but Pacific Telesis may extend
the maturity date once for up to an additional 19 years, provided certain
financial conditions are met. See "Description of the Subordinated Debentures
- -- Option to Extend Maturity Date." In addition, upon the occurrence of a
Special Event (as defined herein) arising from a change in law or a change in
legal interpretation, unless the Subordinated Debentures are redeemed in the
limited circumstances described herein, Pacific Telesis Financing shall be
dissolved, with the result that the Subordinated Debentures will be
distributed to the holders of the Preferred Securities and the Common
Securities, on a pro rata basis, in lieu of any cash distribution. In the
case of a Special Event that is a Tax Event, Pacific Telesis will have the
right in certain circumstances to redeem the Subordinated Debentures, which
would result in the redemption by Pacific Telesis Financing of the Trust
Securities in the same amount on a pro rata basis. If the Subordinated
Debentures are distributed to the holders of the Preferred Securities, Pacific
Telesis will use its best efforts to have the Subordinated Debentures listed
on the New York Stock Exchange or on such other exchange as the Preferred
Securities are then listed. See "Description of the Preferred Securities --
Special Event Redemption or Distribution."
In the event of the involuntary or voluntary dissolution, winding up or
termination of Pacific Telesis Financing, the holders of the Preferred
Securities will be entitled to receive for each Preferred Security a
liquidation amount of $25 plus accrued and unpaid distributions thereon
(including interest thereon) to the date of payment, unless, in connection
with such dissolution, the Subordinated Debentures are distributed to the
holders of the Preferred Securities. See "Description of the Preferred
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Securities --Liquidation Distribution Upon Dissolution."
_____________________
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING TRANSACTIONS, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
8
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<TABLE>
PACIFIC TELESIS GROUP - SUMMARY FINANCIAL DATA
The summary financial data below should be read in conjunction with the Company's Financial Statements and notes thereto
included in the 1994 Form 10-K and the 1995 Third Quarter Form 10-Q, which are incorporated by reference into this Prospectus.
See "Incorporation of Certain Documents by Reference" in the accompanying Prospectus. The summary financial data for the five
years ended December 31, 1994, are derived from financial statements that have been audited by Coopers & Lybrand L.L.P.,
independent certified public accountants. See "Independent Public Accountants" in the accompanying Prospectus. The summary
financial data for the nine months ended September 30, 1995 and 1994 are derived from financial statements that are unaudited,
but which, in the opinion of management, include all adjustments necessary for a fair presentation of the financial position
and results of operations for these periods.
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
---------------- -------------------------------------------------
FINANCIAL DATA 1995 1994 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Results of Operations:
(Dollars in millions, except per share amounts)
Operating revenues....................................... $ 6,760 $ 6,879 $ 9,235 $ 9,244 $ 9,108 $ 9,168 $ 9,052
Operating expenses....................................... 5,222 5,181 7,041 8,582 7,025 7,217 6,989
Operating income......................................... 1,538 1,698 2,194 662 2,083 1,951 2,063
Income from continuing operations........................ 817 874 1,136 191 1,173 931 981
Income (loss) from spun-off operations................... - 23 23 29 (31) 84 49
Cumulative effect of accounting changes.................. - - - (1,724) - - -
Extraordinary item, net of tax........................... (3,360) - - - - - -
Net income (loss)........................................ $(2,543) $ 897 $ 1,159 $(1,504) $ 1,142 $ 1,015 $ 1,030
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Share:
Income from continuing operations........................ $ 1.92 $ 2.06 $ 2.68 $ 0.46 $ 2.91 $ 2.37 $ 2.47
Income (loss) from spun-off operations................... - 0.06 0.05 0.07 (0.08) 0.21 0.12
Cumulative effect of accounting changes.................. - - - (4.16) - - -
Extraordinary item....................................... (7.90) - - - - - -
Net income (loss)........................................ $ (5.98) $ 2.12 $ 2.73 $ (3.63) $ 2.83 $ 2.58 $ 2.59
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets*............................................ $15,601 $20,293 $20,139 $23,437 $21,849 $21,226 $21,051
Net assets of spun-off operations........................ - - - $ 2,874 $ 745 $ 663 $ 634
Shareowners' equity...................................... $ 2,173 $ 5,180 $ 5,233 $ 7,786 $ 8,251 $ 7,729 $ 7,401
(CONTINUED ON NEXT PAGE)
9
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PACIFIC TELESIS GROUP - SUMMARY FINANCIAL DATA
(Continued)
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
-------------------- ------------------------------------------------
FINANCIAL DATA (CONTINUED) 1995 1994 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Continuing Operations**:
Return on equity (%)..................................... (64.5) 22.7 22.0 -26.3 16.1 13.4 14.2
Return on capital (%).................................... (26.8) 14.5 14.3 -8.6 12.0 10.6 11.2
Debt maturing within one year............................ $ 881 $ 218 $ 246 $ 595 $ 1,158 $ 951 $ 810
Long-term obligations.................................... $ 5,232 $ 4,934 $ 4,897 $ 5,129 $ 5,207 $ 5,395 $ 5,496
Debt ratio (%)........................................... 73.8 49.9 49.6 53.8 45.9 47.3 48.2
Capital expenditures..................................... $ 2,019 $ 1,084 $ 1,684 $ 1,886 $ 1,852 $ 1,737 $ 1,760
Cash from operating activities........................... $ 1,982 $ 2,162 $ 2,947 $ 2,727 $ 2,807 $ 2,439 $ 2,542
OPERATING DATA
Employees................................................ 49,976 53,162 51,590 55,355 57,023 59,037 62,979
Toll messages (millions)***.............................. 3,639 3,355 4,485 4,272 4,158 4,092 4,174
Carrier access minutes-of-use (millions)................. 44,083 39,968 53,486 49,674 46,800 43,872 41,383
Customer switched access lines in service (thousands).... 15,640 15,223 15,298 14,873 14,551 14,262 13,868
Average shares outstanding(thousands).................... 425,184 423,937 423,969 414,171 402,977 400,023 403,569
Number of common shareowners............................. 733,983 773,447 764,749 804,024 881,607 919,796 1,005,548
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
Notes to Summary Financial Data Table:
- -------------------------------------
1) Effective April 1, 1994, the Company spun off to its shareowners its domestic and international cellular, paging, and
other wireless operations in a one-for-one stock distribution of its 86 percent interest in these operations. As a
result, the Company's total assets and shareowners' equity were each reduced by $2.9 billion during 1994. The
Company's previous interests in the operating results and net assets of "spun-off operations" are classified
separately and excluded from the Company's revenues, expenses, and other amounts presented for "continuing
operations."
(CONTINUED ON NEXT PAGE)
10
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PACIFIC TELESIS GROUP - SUMMARY FINANCIAL DATA
(Continued)
Results for 1993, 1991, and 1990 reflect restructuring charges which reduced income from continuing operations by $861,
$122, and $65 million for each respective year, and related per share amounts by $2.08, $.30, and $.16 for each respective
year. Results for 1993 also reflect the cumulative after-tax effects of applying new accounting rules for postretirement
and postemployment benefits to prior years.
2) Effective third quarter 1995, management determined that it is no longer appropriate for Pacific Bell to continue to use
the special accounting rules of Statement of Financial Accounting Standards No. 71 ("SFAS 71"), "Accounting for the
Effects of Certain Types of Regulation", for entities subject to traditional regulation. Management's decision for
Pacific Bell to change to the more general accounting rules used by competitive enterprises was based upon assessing the
emerging competitive environment in California. As a result, the Company recorded during the third quarter a non-cash,
extraordinary charge of $3.4 billion, or $7.86 per share, which is net of a deferred income tax benefit of $2.4 billion.
The telephone plant write-down portion of the charge reflects a pre-tax increase in Pacific Bell's accumulated
depreciation reserve of approximately $4.8 billion. The extraordinary charge also includes a pre-tax write-off of
approximately $1 billion to eliminate Pacific Bell's regulatory assets and liabilities. As a result of the
extraordinary charge, the Company's shareowners' equity was reduced by $3.4 billion. The discontinuance of SFAS 71 is
not expected to have a material effect on future earnings.
* Includes net assets of spun-off operations for years prior to 1994.
** Excludes spun-off operations.
*** Toll messages include Message Telecommunications Services, Optional Calling Plans, WATS, and Terminating 800 messages.
Pacific Bell expanded its local calling areas effective June 1991, which reduced subsequent toll message volumes. As a
result, comparisons of 1992 and subsequent years' volumes with prior year volumes are not meaningful.
</FN>
</TABLE>
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The following information concerning the Company, Pacific Telesis Financing,
the Preferred Securities, the Guarantee and the Subordinated Debentures
supplements, and should be read in conjunction with, the information contained
in the accompanying Prospectus. Capitalized terms used in this Prospectus
Supplement have the same meanings as in the accompanying Prospectus.
PACIFIC TELESIS GROUP
The Company was incorporated in 1983 under the laws of the State of Nevada and
has its principal executive offices at 130 Kearny Street, San Francisco,
California 94108 (telephone number (415) 394-3000). The Company is one of
seven regional holding companies formed in connection with the 1984
divestiture by AT&T Corp. of its 22 wholly-owned operating telephone companies
("BOCs") pursuant to a consent decree settling antitrust litigation (the
"Consent Decree") approved by the United States District Court for the
District of Columbia, which has retained jurisdiction over the interpretation
and enforcement of the Consent Decree.
The Company includes a holding company, Pacific Telesis; two BOCs, Pacific
Bell and Nevada Bell; and certain diversified subsidiaries. The holding
company provides financial, strategic planning, legal and general
administrative functions on its own behalf and on behalf of its subsidiaries.
Pacific Bell and its wholly-owned subsidiaries, Pacific Bell Directory,
Pacific Bell Information Services and Pacific Bell Mobile Services, and Nevada
Bell provide a variety of communications and information services in
California and Nevada. These services include: (1) dialtone and usage
services including local service (both exchange and private line), message
toll services within a service area, Wide Area Toll Service (WATS) / 800
services within a service area, Centrex service (a central office-based
switching service) and various special and custom calling services; (2)
exchange access to interexchange carriers and information service providers
for the origination and termination of switched and non-switched (private
line) voice and data traffic; (3) billing services for interexchange carriers
and information service providers; (4) various operator services; (5)
installation and maintenance of customer premises wiring; (6) public
communications services; (7) directory publishing; and (8) selected
information services, such as voice mail and electronic mail. Pacific Bell
Mobile Services was formed in 1994 to offer personal communications services
and other mobile telecommunications services and has not yet commenced
service.
PACIFIC TELESIS FINANCING I
Pacific Telesis Financing is a statutory business trust formed under Delaware
law pursuant to (i) a declaration of trust executed by Pacific Telesis, as
sponsor (the "Sponsor"), and the trustees of Pacific Telesis Financing (the
"Pacific Telesis Trustees") and (ii) the filing of a certificate of trust with
the Secretary of State of the State of Delaware on October 17, 1995. The
declaration of trust will be amended and restated in its entirety (as so
amended and restated, the "Declaration") substantially in the form filed as an
exhibit to the Registration Statement of which this Prospectus Supplement
forms a part. The Declaration will be qualified as an indenture under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). Upon
issuance of the Preferred Securities, the purchasers thereof will own all of
the Preferred Securities. Pacific Telesis will directly or indirectly acquire
Common Securities in an aggregate liquidation amount equal to 3% of the total
capital of Pacific Telesis Financing and will own all of the issued and
outstanding Common Securities. Pacific Telesis Financing exists for the
exclusive purposes of (i) issuing the Trust Securities representing undivided
beneficial interests in the assets of the Trust, (ii) investing the gross
proceeds of the Trust Securities in the Subordinated Debentures and (iii)
engaging in only those other activities necessary or incidental thereto. The
Trust has a term of 55 years, but may be terminated earlier as provided in the
Declaration.
Pursuant to the Declaration, the number of Pacific Telesis Trustees will
initially be five. Three of the Pacific Telesis Trustees (the "Regular
Trustees") will be persons who are employees or officers of or who are
affiliated with Pacific Telesis. The fourth trustee will be a financial
institution unaffiliated with Pacific Telesis that will serve as property
trustee under the Declaration and as indenture trustee for the purposes of the
Trust Indenture Act (the "Property Trustee"). The fifth trustee will be a
12
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natural person who is a resident of the State of Delaware or a legal entity
which maintains a principal place of business in the State of Delaware (the
"Delaware Trustee"). The First National Bank of Chicago will act as the
Property Trustee and Michael J. Majchrzak, an employee of an affiliate of the
Property Trustee and a Delaware resident, will act as the Delaware Trustee, in
each case until removed or replaced by the holder of the Common Securities.
The First National Bank of Chicago will also act as indenture trustee under
the Guarantee (the "Guarantee Trustee"). See "Description of the Guarantees"
in the accompanying Prospectus.
The Property Trustee will hold title to the Subordinated Debentures for the
benefit of the Trust and the holders of the Trust Securities and, so long as
the Subordinated Debentures are held by Pacific Telesis Financing, the
Property Trustee will have the power to exercise all rights, powers, and
privileges of a holder of Subordinated Debentures under the Indenture (as
defined in "Description of Subordinated Debentures" herein). In addition, the
Property Trustee will maintain exclusive control of a segregated non-interest
bearing bank account (the "Property Account") to hold all payments made in
respect of the Subordinated Debentures for the benefit of the holders of the
Trust Securities. The Property Trustee will make payments of distributions
and payments on liquidation, redemption and otherwise to the holders of the
Trust Securities out of funds from the Property Account. The Guarantee
Trustee will hold the Guarantee for the benefit of the holders of the
Preferred Securities. Pacific Telesis, as the direct or indirect holder of
all the Common Securities, will have the right to appoint, remove or replace
any Pacific Telesis Trustee and to increase or decrease the number of Pacific
Telesis Trustees. Pacific Telesis will pay all fees, expenses, debts and
obligations (other than the Trust Securities) related to Pacific Telesis
Financing and the offering of the Trust Securities. See "Description of the
Preferred Securities -- Expenses and Taxes."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the
Declaration, the Delaware Business Trust Act, as amended (the "Trust Act") and
the Trust Indenture Act. See "Description of the Preferred Securities."
RISK FACTORS
Prospective purchasers of Preferred Securities should carefully review the
information contained in other sections of this Prospectus Supplement and in
the accompanying Prospectus and should in particular consider the following
matters.
Ranking of Subordinate Obligations Under the Guarantee and Subordinated
Debentures
Pacific Telesis' obligations under the Guarantee are unsecured and subordinate
and junior in right of payment to all liabilities of Pacific Telesis and pari
passu with the most senior preferred or preference stock now or hereafter
issued, from time to time, if any, by Pacific Telesis, except those made
subordinate or pari passu by their terms, and with any guarantee now or
hereafter issued by Pacific Telesis in respect of any preferred stock or
preference stock of any affiliate of Pacific Telesis. The obligations of
Pacific Telesis under the Subordinated Debentures are subordinate and junior
in right of payment, to the extent set forth herein, to all present and future
Senior Indebtedness of Pacific Telesis and will be effectively subordinated to
all existing and future liabilities and obligations of Pacific Telesis'
subsidiaries and partnerships. At September 30, 1995, the aggregate amount of
Senior Indebtedness and liabilities and obligations of Pacific Telesis'
subsidiaries and partnerships that would have effectively ranked senior to the
Subordinated Debentures was approximately $13,025 million. There are no terms
in the Preferred Securities, the Subordinated Debentures or the Guarantee that
limit the Company's ability to incur additional indebtedness, including
indebtedness that ranks senior to the Subordinated Debentures and the
Guarantee. See "Description of the Guarantees -- Status of the Guarantees" in
the accompanying Prospectus, and "Description of the Subordinated Debentures -
- - Subordination" herein.
Trust Distributions Dependent On Pacific Telesis' Payments On Subordinated
Debentures
The Trust's ability to make distributions and other payments on the Preferred
Securities is solely dependent upon Pacific Telesis making interest and other
payments on the Subordinated Debentures. If Pacific Telesis were not to make
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payments on the Subordinated Debentures for any reason, including as a result
of Pacific Telesis' election to defer the payment of interest on the
Subordinated Debentures by extending the interest period on the Subordinated
Debentures or as a result of Pacific Telesis' election to extend the maturity
of the Subordinated Debentures, the Trust will not make payments on the Trust
Securities. In such an event, holders of the Preferred Securities would not
be able to rely on the Guarantee since distributions and other payments on the
Preferred Securities are subject to such Guarantee only if and to the extent
that Pacific Telesis Financing has funds available therefor. Holders of the
Preferred Securities have the right to proceed first and directly against
Pacific Telesis to enforce Pacific Telesis' obligations to make payments under
the Guarantee. However, if the Trust's failure to make distributions on the
Preferred Securities is a consequence of Pacific Telesis' exercise of its
right to extend the interest payment period for the Subordinated Debentures,
the Guarantee does not provide that any payment shall be made on the Preferred
Securities. See "Description of the Guarantees -- Status of the Guarantees"
in the accompanying Prospectus.
Option to Extend Interest Payment Period or Maturity Date
Pacific Telesis has the right under the Indenture to (a) defer payments of
interest on the Subordinated Debentures by extending the interest payment
period at any time, and from time to time, on the Subordinated Debentures or
(b) to extend the maturity date of the Subordinated Debentures. As a
consequence of an extension of the interest payment period, quarterly
distributions on the Preferred Securities would be deferred (but despite such
deferral, to the extent permitted by law, would continue to accrue with
interest thereon compounded quarterly) by Pacific Telesis Financing during any
such Extension Period. Such right to extend the interest payment period for
the Subordinated Debentures is limited at any time to a period not exceeding
20 consecutive quarters, provided that no Extension Period may extend beyond
the Maturity Date of the Subordinated Debentures. In the event that Pacific
Telesis exercises this right to defer interest payments, then, prior to the
payment of all accrued interest on outstanding Subordinated Debentures, (a)
Pacific Telesis shall not declare or pay dividends on, or make a distribution
with respect to, or redeem, purchase or acquire, or make a liquidation payment
with respect to, any of its capital stock, (b) Pacific Telesis shall not make
any payment of interest, principal or premium, if any, on or repay, repurchase
or redeem any debt securities issued by Pacific Telesis that rank pari passu
with or junior to the Subordinated Debentures and (c) Pacific Telesis shall
not make guarantee payments with respect to the foregoing (other than pursuant
to the Guarantee); provided, however, that restriction (a) above does not
apply to any stock dividends paid by Pacific Telesis where the dividend stock
is the same stock as that on which the dividend is being paid. Prior to the
termination of any such Extension Period, Pacific Telesis may further extend
the interest payment period; provided that, such Extension Period, together
with all such previous and further extensions thereof, may not exceed 20
consecutive quarters or extend beyond the Maturity Date of the Subordinated
Debentures. Upon the termination of any Extension Period and the payment of
all amounts then due, Pacific Telesis may commence a new Extension Period,
subject to the above requirements. Consequently, there could be multiple
Extension Periods of varying lengths prior to the Maturity Date of the
Subordinated Debentures. See "Description of the Preferred Securities --
Distributions" and "Description of the Subordinated Debentures -- Option to
Extend Interest Payment Period."
Tax Consequences of Extension of Interest Payment Period
Should Pacific Telesis exercise its right to defer payments of interest by
extending the interest payment period, each holder of Preferred Securities
will continue to accrue income (as original issue discount ("OID")) in respect
of the deferred interest allocable to its Preferred Securities for United
States federal income tax purposes. Such income will be allocated but not
distributed to holders of record of Preferred Securities. As a result, each
such holder of Preferred Securities will recognize income for United States
federal income tax purposes in advance of the receipt of cash and will not
receive the cash from Pacific Telesis Financing related to such income if such
holder disposes of its Preferred Securities prior to the record date for the
date on which distributions of such amounts are made. Pacific Telesis has no
current intention of exercising its right to defer payments of interest by
extending the interest payment period on the Subordinated Debentures.
However, should Pacific Telesis determine to exercise such right in the
future, the market price of the Preferred Securities is likely to be adversely
affected. A holder that disposes of its Preferred Securities during an
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Extension Period, therefore, might not receive the same return on its
investment as a holder that continues to hold its Preferred Securities. In
addition, as a result of the existence of Pacific Telesis' right to defer
interest payments, the market price of the Preferred Securities (which
represent an undivided beneficial interest in the Subordinated Debentures) may
be more volatile than other securities on which OID accrues that do not have
such rights. See "United States Federal Income Taxation -- Original Issue
Discount."
Special Event Redemption or Distribution
Upon the occurrence of a Special Event, Pacific Telesis Financing shall be
dissolved, except in the limited circumstance described herein, with the
result that the Subordinated Debentures would be distributed to the holders of
the Trust Securities. In the case of a Special Event that is a Tax Event, in
certain circumstances, Pacific Telesis shall have the right to redeem the
Subordinated Debentures, in whole or in part, in which event Pacific Telesis
Financing will redeem the Trust Securities on a pro rata basis to the same
extent as the Subordinated Debentures are redeemed by Pacific Telesis. See
"Description of the Preferred Securities -- Special Event Redemption or
Distribution."
Under current United States federal income tax law, a distribution of
Subordinated Debentures upon the dissolution of Pacific Telesis Financing
would not be a taxable event to holders of the Preferred Securities. However,
a dissolution of Pacific Telesis Financing in which holders of the Preferred
Securities receive cash would be a taxable event to such holders. See "United
States Federal Income Taxation -- Receipt of Subordinated Debentures or Cash
Upon Liquidation of Pacific Telesis Financing."
There can be no assurance as to the market prices for the Preferred Securities
or the Subordinated Debentures that may be distributed in exchange for
Preferred Securities if a dissolution or liquidation of Pacific Telesis
Financing were to occur. Accordingly, the Preferred Securities that an
investor may purchase, whether pursuant to the offer made hereby or in the
secondary market, or the Subordinated Debentures that a holder of Preferred
Securities may receive on dissolution and liquidation of Pacific Telesis
Financing, may trade at a discount to the price that the investor paid to
purchase the Preferred Securities offered hereby. Because holders of
Preferred Securities may receive Subordinated Debentures upon the occurrence
of a Special Event, prospective purchasers of Preferred Securities are also
making an investment decision with regard to the Subordinated Debentures and
should carefully review all the information regarding the Subordinated
Debentures and Pacific Telesis contained herein and in the accompanying
Prospectus. See "Description of the Preferred Securities -- Special Event
Redemption or Distribution" and "Description of the Subordinated Debentures."
Prepayment Considerations; Option to Extend Scheduled Maturity Date.
At the option of Pacific Telesis, the Subordinated Debentures may be redeemed,
in whole or in part, at any time on or after _____________, 2000, at a
redemption price equal to 100% of the principal amount to be redeemed plus any
accrued and unpaid interest to the redemption date. See "Description of the
Subordinated Debentures - Optional Redemption." Investors in the Preferred
Securities should assume that Pacific Telesis will exercise its redemption
option if Pacific Telesis is able to refinance at a lower interest rate or it
is otherwise in the interest of Pacific Telesis to redeem the Subordinated
Debentures. If Subordinated Debentures are redeemed, Pacific Telesis
Financing must redeem Trust Securities having an aggregate liquidation amount
equal to the aggregate principal amount of Subordinated Debentures so
redeemed. See "Description of the Preferred Securities - Mandatory
Redemption."
Pacific Telesis also has the option to extend the maturity date of the
Subordinated Debentures once for up to an additional 19 years beyond the
Scheduled Maturity Date of _____________, 2025. See "Description of the
Subordinated Debentures - Option to Extend Scheduled Maturity Date."
Investors in the Preferred Securities should assume that Pacific Telesis will
exercise its option to extend the term if Pacific Telesis is unable to
refinance at a lower interest rate or it is otherwise in the interest of
Pacific Telesis to defer the maturity of the Subordinated Debentures. The
Preferred Securities will not be redeemed until the Subordinated Debentures
have been repaid or redeemed. See "Description of the Preferred Securities -
Mandatory Redemption."
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Limited Voting Rights
Holders of Preferred Securities will have only limited voting rights primarily
in connection with directing the activities of the Property Trustee as the
holder of the Subordinated Debentures. Such holders will not be entitled to
vote to appoint, remove or replace, or to increase or decrease the number of,
Pacific Telesis Trustees, which voting rights are vested exclusively in the
holder of the Common Securities. See ""Description of the Preferred
Securities -- Voting Rights."
Trading Price
The Preferred Securities may trade at a price that does not fully reflect the
value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. A holder who disposes of its Preferred Securities
between record dates for payments of distributions thereon will be required to
include as ordinary income OID on the Subordinated Debentures accrued through
the date of disposition, and to add such amount to its adjusted tax basis in
its pro rata share of the underlying Subordinated Debentures deemed disposed
of. To the extent the selling price is less than the holder's adjusted tax
basis (which will include, in the form of OID, all accrued but unpaid
interest), a holder will recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes. See "United States Federal Income
Taxation -- Original Issue Discount" and "United States Federal Income
Taxation -- Sales of Preferred Securities."
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to combined fixed charges
from continuing operations of Pacific Telesis Group and its consolidated
subsidiaries for the periods indicated. For the purpose of calculating this
ratio, earnings consist of income before income taxes and fixed charges.
Fixed charges include interest on indebtedness (excluding discontinued
operations) and the portion of rentals representative of the interest factor.
Nine
Months
Ended
September 30 Year Ended December 31,
Ratio of ------------- -----------------------------------
Earnings 1995 1994 1994 1993 1992 1991 1990
to Fixed ---- ---- ---- ---- ---- ---- ----
Charges 4.23 4.85 4.60 1.37 4.21 3.42 3.27
==== ==== ==== ==== ==== ==== ====
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CAPITALIZATION OF PACIFIC TELESIS GROUP
The following table sets forth the unaudited consolidated capitalization of
Pacific Telesis at September 30, 1995, and as adjusted to reflect the sale of
the Preferred Securities and the application of the estimated net proceeds
therefrom. See "Use of Proceeds." The table should be read in conjunction
with Pacific Telesis' consolidated financial statements and notes thereto
included in the documents incorporated by reference herein. See
"Incorporation of Certain Documents by Reference" in the accompanying
Prospectus.
At
September 30, 1995
--------------------
As
(Dollars in millions) Actual Adjusted
(2) (2)
------ --------
Short-term borrowings................................ $ 881 $ 398
======= =======
Long-term borrowings ................................ $5,232 $5,232
------- -------
Company-obligated mandatorily redeemable
Preferred Securities of Trust (3) ................... $ - $ 500 (1)
------- -------
Common shareholders' equity:
Common shares - $0.10 par value; 1,100,000,000
authorized; 428,399,646 outstanding (2)............. $ 43 $ 43
Additional paid-in capital ......................... 3,494 3,494
Reinvested earnings (4) ............................ (980) (980)
Treasury stock, at cost; 4,427,949 shares .......... (128) (128)
Deferred compensation - LESOP TRUST ................ (256) (256)
------- -------
Total common shareholders' equity ................... 2,173 2,173
------- -------
Total capitalization ................................ $7,405 $7,905
======= =======
(1) One hundred percent of the assets of the Trust consists of approximately
$515.5 million in principal amount of the Subordinated Debentures of
Pacific Telesis with an interest rate of _____ and maturity date of
________ ,2025.
(2) Does not give effect to the shares of common stock of Pacific Telesis
("Common Stock"), that may be issued upon exercise of options to purchase
6,210,915 shares of Common Stock that were exercisable at September 30,
1995 under Pacific Telesis' stock option plans.
(3) Accounting Treatment - The financial statements of the Trust will be
reflected in Pacific Telesis' consolidated financial statements. The
"Company-obligated mandatorily redeemable Preferred Securities of Trust"
represents a guaranteed minority interest in the Trust holding
Subordinated Debentures of Pacific Telesis Group. In the future, the
footnotes to Pacific Telesis' consolidated financial statements will
describe the nature and terms of the Preferred Securities issued by the
Trust. In addition, the Company will reflect the Trust Originated
Preferred Securities as a separate line item on the Company's balance
sheet titled "Corporation-obligated mandatorily redeemable preferred
securities of trust" with a footnote on the face of the balance sheet
which states that the sole asset of the Trust consists of $XXX in
principal amount of the Subordinated Debentures of Pacific Telesis.
(4) Reinvested earnings is affected by the recent discontinuance of SFAS 71.
See Footnote (2) under the "Pacific Telesis Group-Summary Financial Data"
on page ___.
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USE OF PROCEEDS
The proceeds from the sale of the Preferred Securities will be invested by
Pacific Telesis Financing in Subordinated Debentures of Pacific Telesis issued
pursuant to the Indenture therefor described herein. Pacific Telesis will use
the net proceeds from the Subordinated Debentures to retire outstanding short-
term indebtedness, primarily commercial paper. This commercial paper has been
issued to provide working capital for the Company and bears interest at rates
ranging between 5.5% and 6% and maturities ranging between one day and 90
days.
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration. The Declaration will be qualified as an indenture under the
Trust Indenture Act. The Property Trustee, The First National Bank of
Chicago, will act as the indenture trustee for purposes of compliance with the
provisions of the Trust Indenture Act. The terms of the Preferred Securities
will include those stated in the Declaration, including those required to be
made part of the Declaration by the Trust Indenture Act. The following
summary of the principal terms and provisions of the Preferred Securities does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the Declaration, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus Supplement is a part, the
Trust Act and the Trust Indenture Act.
General
The Declaration authorizes the Regular Trustees to issue on behalf of Pacific
Telesis Financing the Trust Securities, which represent undivided beneficial
interests in the assets of Pacific Telesis Financing. All of the Common
Securities will be owned by Pacific Telesis. The Common Securities will have
equivalent terms to and will rank pari passu, and payments will be made
thereon on a pro rata basis, with the Preferred Securities, except that upon
the occurrence and during the continuance of a Declaration Event of Default,
the rights of the holders of the Common Securities to receive payment of
periodic distributions and payments upon liquidation, redemption and otherwise
will be subordinated to the rights of the holders of the Preferred Securities.
In addition, holders of the Common Securities have the exclusive right
(subject to the terms of the Declaration) to appoint, replace or remove
Trustees and to increase or decrease the number of Trustees. The Declaration
does not permit the issuance by Pacific Telesis Financing of any securities
other than the Trust Securities or the incurrence of any indebtedness by
Pacific Telesis Financing. Pursuant to the Declaration, the Property Trustee
will hold the Subordinated Debentures purchased by Pacific Telesis Financing
for the benefit of the holders of the Trust Securities. The payment of
distributions out of money held by Pacific Telesis Financing, and payments
upon redemption of the Preferred Securities or liquidation of Pacific Telesis
Financing, are guaranteed by Pacific Telesis to the extent described under
"Description of the Guarantees" in the accompanying Prospectus. The Guarantee
will be held by The First National Bank of Chicago, the Guarantee Trustee, for
the benefit of the holders of the Preferred Securities. The Guarantee only
covers payment of distributions when Pacific Telesis has made the
corresponding payment of interest or principal on the Subordinated Debentures
held by the Trust. In the absence of such payment of interest or principal,
the remedy of a holder of Preferred Securities is to direct the Property
Trustee to enforce the Property Trustee's rights as the holder of the
Subordinated Debentures. See "-- Voting Rights."
Distributions
Distributions on the Preferred Securities will be fixed at a rate per annum of
____% of the stated liquidation amount of $25 per Preferred Security.
Distributions in arrears for more than one quarter will bear interest thereon
from and including the last day of such quarter at the rate per annum of ____%
thereof compounded quarterly. The term "distributions" as used herein
includes any such interest payable unless otherwise stated. The amount of
distributions payable for any period will be computed on the basis of a 360-
day year of twelve 30-day months, and for any period shorter than a full
quarter, on the basis of the actual number of days elapsed in such 90-day
quarter.
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Distributions on the Preferred Securities will be cumulative, will accrue from
______, 1995, and will be payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, commencing ____________, 1995,
when, as and if available for payment by the Property Trustee, except as
otherwise described below.
Pacific Telesis has the right under the Indenture to defer payments of
interest on the Subordinated Debentures by extending the interest payment
period from time to time on the Subordinated Debentures, which, if exercised,
would defer quarterly distributions on the Preferred Securities (though, to
the extent permitted by law, such distributions would continue to accrue with
interest since interest would continue to accrue on the Subordinated
Debentures) during any such Extension Period. Such right to extend the
interest payment period for the Subordinated Debentures is limited to a period
not exceeding 20 consecutive quarters or extending beyond the Maturity Date of
the Subordinated Debentures. In the event that Pacific Telesis exercises this
right, then (a) Pacific Telesis shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock, (b) Pacific
Telesis shall not make any payment of interest, principal or premium, if any,
on or repay, repurchase or redeem any debt securities issued by Pacific
Telesis that rank pari passu with or junior to the Subordinated Debentures and
(c) Pacific Telesis shall not make guarantee payments with respect to the
foregoing (other than pursuant to the Guarantee); provided, however, that, the
foregoing restriction (a) does not apply to any stock dividends paid by
Pacific Telesis where the dividend stock is the same stock as that on which
the dividend is being paid. Prior to the termination of any such Extension
Period, Pacific Telesis may further extend the interest payment period;
provided that, such Extension Period, together with all such previous and
further extensions thereof, may not exceed 20 consecutive quarters and may not
extend beyond the Maturity Date of the Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all amounts then due,
Pacific Telesis may select a new Extension Period, subject to the above
requirements. See "Description of the Subordinated Debentures -- Interest"
and "Description of the Subordinated Debentures -- Option to Extend Interest
Payment Period." If distributions are deferred, the deferred distributions
and accrued interest thereon shall be paid to holders of record of the
Preferred Securities as they appear on the books and records of Pacific
Telesis Financing on the record date for distributions due at the end of such
deferral period.
Distributions on the Preferred Securities must be paid on the dates payable to
the extent that Pacific Telesis Financing has funds available for the payment
of such distributions in the Property Account. Pacific Telesis Financing's
funds available for distribution to the holders of the Preferred Securities
will be limited to payments received from Pacific Telesis under the
Subordinated Debentures. See "Description of the Subordinated Debentures."
The payment of distributions out of moneys held by Pacific Telesis Financing
is guaranteed by Pacific Telesis to the extent set forth under "Description of
the Guarantees" in the accompanying Prospectus.
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of Pacific Telesis Financing
on the relevant record dates, which, as long as the Preferred Securities
remain in global form, will be one Business Day (as defined below) prior to
the relevant payment dates. Such distributions will be paid through the
Property Trustee who will hold amounts received in respect of the Subordinated
Debentures in the Property Account for the benefit of the holders of the Trust
Securities. Subject to any applicable laws and regulations and the provisions
of the Declaration, each such payment will be made as described under "Book-
Entry Issuance -- The Depository Trust Company" below. In the event that the
Preferred Securities do not continue to remain in global form, the Regular
Trustees shall have the right to select relevant record dates, which shall be
at least one Business Day but less than 60 Business Days prior to the relevant
payment dates. In the event that any date on which distributions are to be
made on the Preferred Securities is not a Business Day, then payment of the
distributions payable on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other payment in respect
of any such delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such record date. A "Business Day" shall mean any day other than Saturday,
Sunday or any other day on which banking institutions in New York, New York
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<PAGE>
and Chicago, Illinois are permitted or required by any applicable law or
regulation to close.
Mandatory Redemption
Upon the repayment of the Subordinated Debentures, whether at maturity or upon
redemption, the proceeds from such repayment or redemption shall
simultaneously be applied to redeem Trust Securities having an aggregate
liquidation amount equal to the aggregate principal amount of the Subordinated
Debentures so repaid or redeemed at the Redemption Price; provided that,
holders of Trust Securities shall be given not less than 30 nor more than 60
days notice of such redemption. The Subordinated Debentures will mature on
__________, 2025 unless the maturity date is extended at the option of Pacific
Telesis (provided certain financial conditions are met), and may be redeemed,
in whole or in part, at any time on or after __________, 2000 or at any time
in certain circumstances upon the occurrence of a Tax Event. See "Description
of the Subordinated Debentures -- Optional Redemption." In the event that
fewer than all of the outstanding Preferred Securities are to be redeemed, the
Trust Securities will be redeemed pro rata to each holder according to the
aggregate liquidation amount of Trust Securities held by the relevant holder
in relation to the aggregate liquidation amount of all Trust Securities
outstanding. See "Book-Entry Issuance -- The Depository Trust Company" below
for a description of DTC's (as hereinafter defined) procedures in the event of
redemption.
Special Event Redemption or Distribution
"Tax Event" means that the Regular Trustees shall have received an opinion of
a nationally recognized independent tax counsel experienced in such matters (a
"Dissolution Tax Opinion") to the effect that, as a result of (a) any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein or (b) any amendment to, or
change in, an interpretation or application of such laws or regulations by any
legislative body, court, governmental agency or regulatory authority, which
amendment, change, interpretation or pronouncement is enacted, promulgated,
issued or announced or which action is taken, in each case on or after the
date of this Prospectus Supplement, there is more than an insubstantial risk
that (i) Pacific Telesis Financing would be subject to United States federal
income tax with respect to interest accrued or received on the Subordinated
Debentures, (ii) Pacific Telesis Financing would be subject to more than a de
minimis amount of taxes, duties or other governmental charges, or (iii)
interest payable to Pacific Telesis Financing on the Subordinated Debentures
would not be deductible, in whole or in part, by Pacific Telesis for United
States federal income tax purposes.
"Investment Company Event" means that the Regular Trustees shall have received
an opinion of a nationally recognized independent counsel experienced in
practice under the Investment Company Act of 1940, as amended (the "1940
Act"), to the effect that, as a result of the occurrence of a change in law or
regulation or a written change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in 1940 Act Law"), there is more than an insubstantial
risk that Pacific Telesis Financing is or will be considered an "investment
company" which is required to be registered under the 1940 Act, which Change
in 1940 Act Law becomes effective on or after the date of this Prospectus
Supplement.
If, at any time, a Tax Event or an Investment Company Event (each, as defined
above, a "Special Event") shall occur and be continuing, Pacific Telesis
Financing shall, except in the circumstances described below, be dissolved
with the result that the Subordinated Debentures with an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the distribution rate of, and accrued and unpaid interest
equal to accrued and unpaid distributions on, the Trust Securities, would be
distributed to the holders of the Trust Securities in liquidation of such
holders' interests in Pacific Telesis Financing on a pro rata basis within 90
days following the occurrence of such Special Event; provided, however, that,
in the case of the occurrence of a Tax Event, as a condition of such
dissolution and distribution the Regular Trustees shall have received an
opinion of nationally recognized independent tax counsel experienced in such
matters (a "No Recognition Opinion"), which opinion may rely on published
revenue rulings of the Internal Revenue Service, to the effect that the
holders of the Trust Securities will not recognize any gain or loss for United
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<PAGE>
States federal income tax purposes as a result of such dissolution of Pacific
Telesis Financing and distribution of Subordinated Debentures, and provided
further, that, if at the time there is available to Pacific Telesis Financing
the opportunity to eliminate, within such 90 day period, the Special Event by
taking some ministerial action, such as filing a form or making an election or
pursuing some other reasonable measure that will have no adverse effect on
Pacific Telesis Financing, Pacific Telesis or the holders of the Trust
Securities, Pacific Telesis Financing will pursue such measure in lieu of
dissolution. Furthermore, if in the case of the occurrence of a Tax Event (i)
Pacific Telesis has received an opinion (a "Redemption Tax Opinion") of
nationally recognized independent tax counsel experienced in such matters
that, as a result of a Tax Event, there is more than an insubstantial risk
that Pacific Telesis would be precluded from deducting the interest on the
Subordinated Debentures for United States federal income tax purposes, even
after the Subordinated Debentures were distributed to the holders of Trust
Securities in liquidation of such holders' interests in Pacific Telesis
Financing as described above, or (ii) the Regular Trustees shall have been
informed by such tax counsel that a No Recognition Opinion cannot be
delivered, Pacific Telesis shall have the right, upon not less than 30 nor
more than 60 days notice, to redeem the Subordinated Debentures, in whole or
in part, for cash within 90 days following the occurrence of such Tax Event,
and, following such redemption, Trust Securities with an aggregate liquidation
amount equal to the aggregate principal amount of the Subordinated Debentures
so redeemed shall be redeemed by Pacific Telesis Financing at the Redemption
Price on a pro rata basis; provided, however, that, if at the time there is
available to Pacific Telesis or Pacific Telesis Financing the opportunity to
eliminate, within such 90 day period, the Tax Event by taking some ministerial
action such as filing a form or making an election, or pursuing some other
similar reasonable measure which has no adverse effect on Pacific Telesis
Financing, Pacific Telesis or the holders of the Trust Securities, Pacific
Telesis or Pacific Telesis Financing will pursue such measure in lieu of
redemption.
If the Subordinated Debentures are distributed to the holders of the Preferred
Securities, Pacific Telesis will use its best efforts to cause the
Subordinated Debentures to be listed on the New York Stock Exchange or on such
other exchange as the Preferred Securities are then listed.
After the date for any distribution of Subordinated Debentures upon
dissolution of Pacific Telesis Financing, (i) the Preferred Securities will no
longer be deemed to be outstanding and (ii) the record holders of the
Preferred Securities will receive a registered global certificate or
certificates representing the Subordinated Debentures to be delivered upon
such distribution in exchange for the Preferred Securities held by such
holders.
There can be no assurance as to the market prices for either the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for the Preferred Securities if a dissolution and liquidation of Pacific
Telesis Financing were to occur. Accordingly, the Preferred Securities that an
investor may purchase, whether pursuant to the offer made hereby or in the
secondary market, or the Subordinated Debentures that an investor may receive
if a dissolution and liquidation of Pacific Telesis Financing were to occur,
may trade at a discount to the price that the investor paid to purchase the
Preferred Securities offered hereby.
Redemption Procedures
Pacific Telesis Financing may not redeem fewer than all of the outstanding
Preferred Securities unless all accrued and unpaid distributions have been
paid on all Preferred Securities for all quarterly distribution periods
terminating on or prior to the date of redemption.
If Pacific Telesis Financing gives a notice of redemption in respect of
Preferred Securities (which notice will be irrevocable), then, by 12:00 noon,
New York City time, on the redemption date, provided that Pacific Telesis has
paid to the Property Trustee a sufficient amount of cash in connection with
the related redemption or maturity of the Subordinated Debentures, Pacific
Telesis Financing will pay the Redemption Price to the holders of the
Preferred Securities. If notice of redemption shall have been given and funds
deposited as required, then immediately prior to the close of business on the
date of such deposit, distributions will cease to accrue and all rights of
holders of such Preferred Securities so called for redemption will cease,
except the right of the holders of such Preferred Securities to receive the
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Redemption Price, but without interest on such Redemption Price. In the
event that any date fixed for redemption of Preferred Securities is not a
Business Day, then payment of the Redemption Price payable on such date will
be made on the next succeeding day that is a Business Day (without any
interest or other payment in respect of any such delay), except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day. In the event that Pacific Telesis fails
to repay the Subordinated Debentures on maturity or payment of the Redemption
Price in respect of Preferred Securities is improperly withheld or refused and
not paid either by Pacific Telesis Financing or by Pacific Telesis pursuant to
the Guarantee, distributions on such Preferred Securities will continue to
accrue at the then applicable rate from the original redemption date to the
actual date of payment, in which case the actual payment date will be
considered the date fixed for redemption for purposes of calculating the
Redemption Price.
In the event that fewer than all of the outstanding Preferred Securities are
to be redeemed, the Preferred Securities will be redeemed as described below
under "Book-Entry Issuance--The Depository Trust Company."
If a partial redemption of the Preferred Securities would result in the
delisting of the Preferred Securities by a national securities exchange or
other organization on which the Preferred Securities are then listed, Pacific
Telesis pursuant to the Indenture will only redeem the Subordinated Debentures
in whole and, as a result, the Trust may only redeem the Preferred Securities
in whole.
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), Pacific Telesis or its subsidiaries
may at any time, and from time to time, purchase outstanding Preferred
Securities by tender, in the open market or by private agreement.
Liquidation Distribution Upon Dissolution
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of Pacific Telesis Financing (each a "Liquidation"),
the then holders of the Preferred Securities and Common Securities will be
entitled to receive on a pro rata basis solely out of the assets of Pacific
Telesis Financing, after satisfaction of liabilities to creditors,
distributions in an amount equal to the aggregate of the stated liquidation
amount of $25 per Preferred Security plus accrued and unpaid distributions
thereon to the date of payment (the "Liquidation Distribution"), unless, in
connection with such Liquidation, Subordinated Debentures in an aggregate
stated principal amount equal to the aggregate stated liquidation amount of,
with an interest rate identical to the distribution rate of, and accrued and
unpaid interest equal to accrued and unpaid distributions on, the Preferred
Securities have been distributed on a pro rata basis to the holders of the
Preferred Securities.
If, upon any such Liquidation, the Liquidation Distribution can be paid only
in part because Pacific Telesis Financing has insufficient assets available to
pay in full the aggregate Liquidation Distribution, then the amounts payable
directly by Pacific Telesis Financing on the Preferred Securities and the
Common Securities shall be paid on a pro rata basis. The holders of the
Common Securities will be entitled to receive distributions upon any such
dissolution pro rata with the holders of the Preferred Securities, except that
if a Declaration Event of Default has occurred and is continuing, the
Preferred Securities shall have a preference over the Common Securities with
regard to such distributions.
Termination
Pursuant to the Declaration, Pacific Telesis Financing shall terminate upon
the earliest of (i) __________, 2050, (ii) the bankruptcy of Pacific Telesis,
(iii) the filing of a certificate of dissolution or its equivalent with
respect to Pacific Telesis, the filing of a certificate of cancellation with
respect to Pacific Telesis Financing, or the revocation of the charter of
Pacific Telesis and the expiration of 90 days after the date of revocation
without a reinstatement thereof, (iv) the distribution of Subordinated
Debentures upon the occurrence of a Special Event, (v) the entry of a decree
of a judicial dissolution of Pacific Telesis or Pacific Telesis Financing, or
(vi) the redemption of all the Trust Securities.
Declaration Events of Default
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An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the
Trust Securities (a "Declaration Event of Default"), provided that, pursuant
to the Declaration, the holder of the Common Securities will be deemed to have
waived any Declaration Event of Default with respect to the Common Securities
until all Declaration Events of Default with respect to the Preferred
Securities have been cured, waived or otherwise eliminated. Until such
Declaration Events of Default with respect to the Preferred Securities have
been so cured, waived, or otherwise eliminated, the Property Trustee will be
deemed to be acting solely on behalf of the holders of the Preferred
Securities and only the holders of the Preferred Securities will have the
right to direct the Property Trustee with respect to certain matters under the
Declaration, and therefore the Indenture.
Upon the occurrence of a Declaration Event of Default, the Indenture Trustee
(as defined herein) or the Property Trustee as the holder of the Subordinated
Debentures will have the right under the Indenture to declare the principal of
and interest on the Subordinated Debentures to be immediately due and payable.
Pacific Telesis and Pacific Telesis Financing are each required to file
annually with the Property Trustee an officer's certificate as to its
compliance with all conditions and covenants under the Declaration.
Voting Rights
Except as described herein, under the Trust Act, the Trust Indenture Act and
under "Description of the Guarantees -- Modification of the Guarantees;
Assignment" in the accompanying Prospectus, and as otherwise required by law
and the Declaration, the holders of the Preferred Securities will have no
voting rights.
Subject to the requirement of the Property Trustee obtaining a tax opinion in
certain circumstances set forth in the last sentence of this paragraph, the
holders of a majority in aggregate liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Property Trustee, or to direct
the exercise of any trust or power conferred upon the Property Trustee under
the Declaration, including the right to direct the Property Trustee, as holder
of the Subordinated Debentures, to (i) exercise the remedies available under
the Indenture with respect to the Subordinated Debentures, (ii) waive any past
Indenture Event of Default that is waivable under the Base Indenture (as
defined herein), or (iii) exercise any right to rescind or annul a declaration
that the principal of all the Subordinated Debentures shall be due and
payable, or consent to any amendment, modification or termination of the
Indenture or the Subordinated Debentures, where such consent should be
required; provided, however, that, where a consent or action under the
Indenture would require the consent or act of more than a majority of the
holders (a "Super-Majority") affected thereby, only the holders of at least
such Super-Majority of the Preferred Securities may direct the Property
Trustee to give such consent or take such action. A record holder of
Preferred Securities may institute a proceeding directly against Pacific
Telesis for enforcement of payment to the holder of the Subordinated
Debentures of the principal and interest on the Subordinated Debentures after
the respective due dates specified in the Subordinated Debentures. If, with
respect to other than principal and interest payments on the Subordinated
Debentures, the Property Trustee fails to enforce its rights under the
Declaration (including, without limitation, its rights, powers and privileges
as a holder of the Subordinated Debentures under the Indenture), a record
holder of Preferred Securities may, subject to certain provisions of the
Declaration, institute a legal proceeding directly against any person to
enforce the Property Trustee's rights under the Declaration without first
instituting any legal proceeding against the Property Trustee or any other
person or entity. The Property Trustee shall notify all holders of the
Preferred Securities of any notice of default received from the Indenture
Trustee with respect to the Subordinated Debentures. Except with respect to
directing the time, method and place of conducting a proceeding for a remedy,
the Property Trustee shall not take any of the actions described in clauses
(i), (ii) or (iii) above unless the Property Trustee has obtained an opinion
of tax counsel to the effect that, as a result of such action, Pacific Telesis
Financing will not be classified as other than a grantor trust for United
States federal income tax purposes.
In the event the consent of the Property Trustee, as the holder of the
Subordinated Debentures, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture or the Subordinated
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Debentures, the Property Trustee shall request the direction of the holders of
the Trust Securities with respect to such amendment, modification or
termination and shall vote with respect to such amendment, modification or
termination as directed by a majority in liquidation amount of the Trust
Securities voting together as a single class; provided, however, that where a
consent under the Indenture would require the consent of a Super-Majority, the
Property Trustee may only give such consent at the direction of the holders of
at least the proportion in liquidation amount of the Trust Securities which
the relevant Super-Majority represents of the aggregate principal amount of
the Subordinated Debentures outstanding. The Property Trustee shall not take
any such action in accordance with the directions of the holders of the Trust
Securities unless the Property Trustee has obtained an opinion of tax counsel
to the effect that Pacific Telesis Financing will not be classified as other
than a grantor trust for United States federal income tax purposes on account
of such action.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Preferred Securities may be
given at a separate meeting of holders of Preferred Securities convened for
such purpose, at a meeting of all of the holders of Trust Securities or
pursuant to written consent. The Regular Trustees will cause a notice of any
meeting at which holders of Preferred Securities are entitled to vote, or of
any matter upon which action by written consent of such holders is to be
taken, to be mailed to each holder of record of Preferred Securities. Each
such notice will include a statement setting forth the following information:
(i) the date of such meeting or the date by which such action is to be taken;
(ii) a description of any resolution proposed for adoption at such meeting on
which such holders are entitled to vote or of such matter upon which written
consent is sought; and (iii) instructions for the delivery of proxies or
consents. No vote or consent of the holders of Preferred Securities will be
required for Pacific Telesis Financing to redeem and cancel Preferred
Securities or distribute Subordinated Debentures in accordance with the
Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote or
consent under any of the circumstances described above, any of the Preferred
Securities that are owned at such time by Pacific Telesis or any entity
directly or indirectly controlling or controlled by, or under direct or
indirect common control with, Pacific Telesis, shall not be entitled to vote
or consent and shall, for purposes of such vote or consent, be treated as if
such Preferred Securities were not outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "-- Book-Entry Issuance -- The
Depository Trust Company" below.
Holders of the Preferred Securities will have no rights to appoint or remove
the Pacific Telesis Trustees, who may be appointed, removed or replaced solely
by Pacific Telesis as the indirect or direct holder of all of the Common
Securities.
Modification of the Declaration
The Declaration may be modified and amended if approved by a majority of the
Regular Trustees (and in certain circumstances the Property Trustee), provided
that, if any proposed amendment provides for, or the Regular Trustees
otherwise propose to effect, (i) any action that would adversely affect the
powers, preferences or special rights of the Trust Securities, whether by way
of amendment to the Declaration or otherwise, or (ii) the dissolution,
winding-up or termination of Pacific Telesis Financing other than pursuant to
the terms of the Declaration, then the holders of the Trust Securities voting
together as a single class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of at least 66 2/3% in liquidation amount of the Trust Securities
affected thereby; provided that, if any amendment or proposal referred to in
clause (i) above would adversely affect only the Preferred Securities or the
Common Securities, then only the affected class will be entitled to vote on
such amendment or proposal and such amendment or proposal shall not be
effective except with the approval of 66 2/3% in liquidation amount of such
class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to the
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Declaration if such amendment or modification would (i) cause Pacific Telesis
Financing to be classified as other than a grantor trust for United States
federal income tax purposes, (ii) reduce or otherwise adversely affect the
powers of the Property Trustee or (iii) cause Pacific Telesis Financing to be
deemed an "investment company" which is required to be registered under the
1940 Act.
Mergers, Consolidations or Amalgamations
Pacific Telesis Financing may not consolidate, amalgamate, merge with or into
or be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other body, except as
described below. Pacific Telesis Financing may, with the consent of a
majority of the Regular Trustees and without the consent of the holders of the
Trust Securities, the Property Trustee or the Delaware Trustee, consolidate,
amalgamate, merge with or into, or be replaced by a trust organized as such
under the laws of any State; provided that, (i) such successor entity either
(x) expressly assumes all of the obligations of Pacific Telesis Financing
under the Trust Securities or (y) substitutes for the Trust Securities other
securities having substantially the same terms as the Trust Securities (the
"Successor Securities"), so long as the Successor Securities rank the same as
the Trust Securities rank with respect to distributions and payments upon
liquidation, redemption and otherwise, (ii) Pacific Telesis expressly
acknowledges a trustee of such successor entity possessing the same powers and
duties as the Property Trustee as the holder of the Subordinated Debentures,
(iii) the Preferred Securities or any Successor Securities with respect to the
Preferred Securities are listed, or any such Successor Securities will be
listed upon notification of issuance, on any national securities exchange or
with another organization on which the Preferred Securities are then listed or
quoted, (iv) such merger, consolidation, amalgamation or replacement does not
cause the Preferred Securities (including any Successor Securities with
respect to the Preferred Securities) to be downgraded by any nationally
recognized statistical rating organization, (v) such merger, consolidation,
amalgamation or replacement does not adversely affect the rights, preferences
and privileges of the holders of the Trust Securities (including any Successor
Securities) in any material respect (other than with respect to any dilution
of the holders' interest in the new entity), (vi) such successor entity has a
purpose identical to that of Pacific Telesis Financing, (vii) prior to such
merger, consolidation, amalgamation or replacement, Pacific Telesis has
received an opinion of a nationally recognized independent counsel to Pacific
Telesis Financing experienced in such matters to the effect that, (A) such
merger, consolidation, amalgamation or replacement does not adversely affect
the rights, preferences and privileges of the holders of the Trust Securities
(including any Successor Securities) in any material respect (other than with
respect to any dilution of the holders' interest in the new entity), and (B)
following such merger, consolidation, amalgamation or replacement, neither
Pacific Telesis Financing nor such successor entity will be required to
register as an investment company under the 1940 Act and (viii) Pacific
Telesis guarantees the obligations of such successor entity under the
Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, Pacific Telesis Financing shall not, except
with the consent of holders of 100% in liquidation amount of the Trust
Securities, consolidate, amalgamate, merge with or into, or be replaced by any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it, if such consolidation, amalgamation, merger or
replacement would cause Pacific Telesis Financing or the Successor Entity to
be classified as other than a grantor trust for United States federal income
tax purposes and each holder of the Trust Securities not to be treated as
owning an undivided beneficial interest in the Subordinated Debentures.
Expenses and Taxes
In the Declaration, Pacific Telesis has agreed to pay for all debts and other
obligations (other than with respect to the Trust Securities) and all costs
and expenses of Pacific Telesis Financing (including costs and expenses
relating to the organization of Pacific Telesis Financing, the fees and
expenses of the Trustees and the costs and expenses relating to the operation
of Pacific Telesis Financing) and to pay any and all taxes and all costs and
expenses with respect thereto (other than United States withholding taxes) to
which Pacific Telesis Financing might become subject. The foregoing
obligations of Pacific Telesis under the Declaration are for the benefit of,
and shall be enforceable by, any person to whom any such debts, obligations,
costs, expenses and taxes are owed (a "Creditor") whether or not such Creditor
has received notice thereof. Any such Creditor may enforce such obligations
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of Pacific Telesis directly against Pacific Telesis, and Pacific Telesis has
irrevocably waived any right or remedy to require that any such Creditor take
any action against Pacific Telesis Financing or any other person before
proceeding against Pacific Telesis. Pacific Telesis has also agreed in the
Declaration to execute such additional agreements as may be necessary or
desirable to give full effect to the foregoing.
Book-Entry Issuance -- The Depository Trust Company
The Depository Trust Company ("DTC") will act as securities depository for the
Preferred Securities. The Preferred Securities initially will be issued only
as fully-registered securities registered in the name of Cede & Co. (DTC's
nominee). One or more fully-registered global Preferred Securities
certificates, representing the total aggregate number of Preferred Securities,
will be issued and will be delivered to DTC.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in the global Preferred
Securities as represented by a global certificate.
DTC has advised Pacific Telesis and Pacific Telesis Financing that DTC is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). DTC holds securities
that its participants ("Participants") deposit with DTC. DTC also facilitates
the settlement among Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic computerized
book-entry changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations ("Direct Participants"). DTC is owned by a
number of its Direct Participants and by the New York Stock Exchange, the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others, such as
securities brokers and dealers, banks and trust companies that clear
transactions through or maintain a direct or indirect custodial relationship
with a Direct Participant either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the Securities and Exchange Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser
of each Preferred Security ("Beneficial Owner") is in turn to be recorded on
the Direct and Indirect Participants' records. Beneficial Owners will not
receive written confirmation from DTC of their purchases, but Beneficial
Owners are expected to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the
Direct or Indirect Participants through which the Beneficial Owners purchased
Preferred Securities. Transfers of ownership interests in the Preferred
Securities are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in the Preferred
Securities, except in the event that use of the book-entry system for the
Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Preferred Securities deposited by
Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Preferred Securities with DTC and their registration in the
name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Preferred Securities. DTC's
records reflect only the identity of the Direct Participants to whose accounts
such Preferred Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants and by Direct Participants and
Indirect Participants to Beneficial Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements that may be in
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effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Preferred Securities are being redeemed, DTC will reduce pro rata the amount
of the interest of each Direct Participant in such Preferred Securities to be
redeemed in accordance with its procedures.
Although voting with respect to the Preferred Securities is limited, in those
cases where a vote is required, neither DTC nor Cede & Co. will itself consent
or vote with respect to Preferred Securities. Under its usual procedures, DTC
would mail an Omnibus Proxy to Pacific Telesis Financing as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the Preferred
Securities are credited on the record date (identified in a listing attached
to the Omnibus Proxy). Pacific Telesis and Pacific Telesis Financing believe
that the arrangements among DTC, Direct and Indirect Participants, and
Beneficial Owners will enable the Beneficial Owners to exercise rights
equivalent in substance to the rights that can be directly exercised by a
holder of a beneficial interest in Pacific Telesis Financing.
Distribution payments on the Preferred Securities will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the relevant payment
date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payments on such
payment date. Payments by Participants to Beneficial Owners will be governed
by standing instructions and customary practices, as is the case with
securities held for the account of customers in bearer form or registered in
"street name," and such payments will be the responsibility of such
Participant and not of DTC, Pacific Telesis Financing or Pacific Telesis,
subject to any statutory or regulatory requirements that may be in effect from
time to time. Payment of distributions to DTC is the responsibility of
Pacific Telesis Financing, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments
to the Beneficial Owners is the responsibility of Direct and Indirect
Participants.
Except as provided herein, a Beneficial Owner in a global Preferred Security
certificate will not be entitled to receive physical delivery of Preferred
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
DTC to exercise any rights under the Preferred Securities.
DTC may discontinue providing its services as securities depository with
respect to the Preferred Securities at any time by giving reasonable notice to
Pacific Telesis Financing. Under such circumstances, in the event that a
successor securities depository is not obtained, Preferred Securities
certificates are required to be printed and delivered. Additionally, the
Regular Trustees (with the consent of Pacific Telesis) may decide to
discontinue use of the system of book-entry transfers through DTC (or any
successor depository) with respect to the Preferred Securities. In that
event, certificates for the Preferred Securities will be printed and
delivered.
The information in this section concerning DTC and DTC's book-entry system has
been obtained from sources that Pacific Telesis and Pacific Telesis Financing
believe to be reliable, but neither Pacific Telesis nor Pacific Telesis
Financing takes responsibility for the accuracy thereof.
Information Concerning the Property Trustee
The Property Trustee, prior to the occurrence of a default with respect to the
Trust Securities, undertakes to perform only such duties as are specifically
set forth in the Declaration, in the terms of the Trust Securities or in the
Trust Indenture Act and, after default, shall exercise the same degree of care
as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to such provisions, the Property Trustee is under no
obligation to exercise any of the powers vested in it by the Declaration at
the request of any holder of Preferred Securities, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which
might be incurred thereby. The holders of Preferred Securities will not be
required to offer such indemnity in the event such holders, by exercising
their voting rights, direct the Property Trustee to take any action following
a Declaration Event of Default. The Property Trustee also serves as Guarantee
Trustee.
Paying Agent
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In the event that the Preferred Securities do not remain in book-entry form,
the following provisions would apply:
The Property Trustee will act as paying agent, and may designate an additional
or substitute paying agent at any time.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of Pacific Telesis Financing, but upon payment (with
the giving of such indemnity as Pacific Telesis Financing or Pacific Telesis
may require) in respect of any tax or other government charges that may be
imposed in relation to it.
Pacific Telesis Financing will not be required to register or cause to be
registered the transfer of Preferred Securities after such Preferred
Securities have been called for redemption.
Governing Law
The Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
Miscellaneous
The Regular Trustees are authorized and directed to operate Pacific Telesis
Financing in such a way so that Pacific Telesis Financing will not be required
to register as an "investment company" under the 1940 Act or be characterized
as other than a grantor trust for United States federal income tax purposes.
Pacific Telesis is authorized and directed to conduct its affairs so that the
Subordinated Debentures will be treated as indebtedness of Pacific Telesis for
United States federal income tax purposes. In this connection, Pacific
Telesis and the Regular Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of Pacific Telesis
Financing or the certificate of incorporation of Pacific Telesis, that each of
Pacific Telesis and the Regular Trustees determines in its discretion to be
necessary or desirable to achieve such end, as long as such action does not
adversely affect the interests of the holders of the Preferred Securities or
vary the terms thereof.
Holders of the Preferred Securities have no preemptive rights.
DESCRIPTION OF THE SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of the Subordinated
Debentures in which Pacific Telesis Financing will invest the proceeds from
the issuance and sale of the Trust Securities. This description supplements
the description of the general terms and provisions of the Subordinated
Debentures set forth in the accompanying Prospectus under the caption
"Description of the Subordinated Debt Securities." The following description
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the description in the accompanying Prospectus and
the Debt Securities Indenture, dated as of ______, 1995 (the "Base
Indenture"), between Pacific Telesis and The First National Bank of Chicago,
as Trustee (the "Indenture Trustee"), as supplemented by a First Supplemental
Indenture, dated as of ______, 1995 (the Base Indenture, as so supplemented,
is hereinafter referred to as the "Indenture"), the forms of which are filed
as Exhibits to the Registration Statement of which this Prospectus Supplement
and the accompanying Prospectus form a part and the Trust Indenture Act.
Certain capitalized terms used herein are defined in the Indenture.
Under certain circumstances involving the dissolution of Pacific Telesis
Financing following the occurrence of a Special Event, Subordinated Debentures
may be distributed to the holders of the Trust Securities in liquidation of
Pacific Telesis Financing. See "Description of the Preferred Securities --
Special Event Redemption or Distribution."
If the Subordinated Debentures are distributed to the holders of the Preferred
Securities, Pacific Telesis will use its best efforts to have the Subordinated
Debentures listed on the New York Stock Exchange or on such other exchange on
which the Preferred Securities are then listed.
General
The Subordinated Debentures will be issued as unsecured subordinated debt
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securities under the Indenture. The Subordinated Debentures will be limited
in aggregate principal amount to approximately $___________, such amount being
the sum of the aggregate stated liquidation amount of the Preferred Securities
and the capital contributed by Pacific Telesis in exchange for the Common
Securities (the "Pacific Telesis Payment").
The Subordinated Debentures are not subject to a sinking fund provision. The
entire principal of the Subordinated Debentures will mature and become due and
payable, together with any accrued and unpaid interest thereon including
Compounded Interest (as hereinafter defined), if any, on __________, 2025,
subject to the election of Pacific Telesis to extend the scheduled maturity
date of the Subordinated Debentures to a date not later than __________, 2044,
which election is subject to Pacific Telesis' satisfying certain financial
conditions. See " -- Option to Extend Maturity Date."
If Subordinated Debentures are distributed to holders of Preferred Securities
in liquidation of such holders' interests in Pacific Telesis Financing, it is
presently anticipated that such Subordinated Debentures will initially be
issued in the form of one or more Global Securities (as defined below). As
described herein, under certain limited circumstances, Subordinated Debentures
may be issued in definitive certificated form in exchange for a Global
Security. See "--Book-Entry and Settlement" below. In the event that
Subordinated Debentures are issued in definitive certificated form, such
Subordinated Debentures will be in denominations of $25 and integral multiples
thereof and may be transferred or exchanged at the offices described below.
Payments on Subordinated Debentures issued as a Global Security will be made
to DTC or its nominee, a successor depository or its nominee. In the event
Subordinated Debentures are issued in definitive certificated form, principal
and interest will be payable, the transfer of the Subordinated Debentures will
be registrable and Subordinated Debentures will be exchangeable for
Subordinated Debentures of other denominations of a like aggregate principal
amount at the corporate trust offices of the Indenture Trustee in Chicago,
Illinois and New York, New York; provided that, payment of interest may be
made at the option of Pacific Telesis by check mailed to the address of the
persons entitled thereto.
Subordination
The Indenture provides that the Subordinated Debentures are subordinated and
junior in right of payment to the prior payment in full of all Senior
Indebtedness of Pacific Telesis whether now existing or hereafter incurred.
In the event and during the continuation of any default by Pacific Telesis in
the payment of principal, premium, interest or any other payment due on any
Senior Indebtedness of Pacific Telesis, or in the event that the maturity of
any Senior Indebtedness of Pacific Telesis has been accelerated because of a
default, then in either case, no payment will be made by Pacific Telesis with
respect to the principal (including redemption payments) of or interest on the
Subordinated Debentures. Upon any distribution of assets of Pacific Telesis
to creditors upon any dissolution, winding-up, liquidation or reorganization,
whether voluntary or involuntary, or in bankruptcy, insolvency, receivership
or other proceedings, all principal, premium, if any, and interest due or to
become due on all Senior Indebtedness of Pacific Telesis must be paid in full
before the holders of Subordinated Debentures are entitled to receive or
retain any payment. In the event that the Subordinated Debentures are
declared due and payable before the Maturity Date, then all amounts due or to
become due on all Senior Indebtedness shall have been paid in full before
holders of the Subordinated Debentures are entitled to receive or retain any
payment. Upon satisfaction of all claims of all Senior Indebtedness then
outstanding, the rights of the holders of the Subordinated Debentures will be
subrogated to the rights of the holders of Senior Indebtedness of Pacific
Telesis to receive payments or distributions applicable to Senior Indebtedness
until all amounts owing on the Subordinated Debentures are paid in full.
The term "Senior Indebtedness" means, with respect to Pacific Telesis, all
indebtedness of such obligor, whether now existing or hereafter created, but
excluding trade accounts payable arising in the ordinary course of business.
Without limiting the generality of the foregoing, "Senior Indebtedness" shall
include (i) the principal, premium, if any, and interest in respect of (A)
indebtedness of such obligor for money borrowed and (B) indebtedness evidenced
by securities, debentures, bonds or other similar instruments issued by such
obligor; (ii) all capital lease obligations of such obligor; (iii) all
obligations of such obligor issued or assumed as the deferred purchase price
of property, all conditional sale obligations of such obligor and all
obligations of such obligor under any title retention agreement (but excluding
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trade accounts payable arising in the ordinary course of business); (iv) all
obligations of such obligor for the reimbursement on any letter of credit,
banker's acceptance, security purchase facility or similar credit transaction;
(v) all obligations of the type referred to in clauses (i) through (iv) above
of other persons for the payment of which such obligor is responsible or
liable as obligor, guarantor or otherwise, including, without limitation,
under all support agreements or guarantees by Pacific Telesis of debentures,
notes and other securities issued by its subsidiaries PacTel Capital Resources
and PacTel Capital Funding; and (vi) all obligations of the type referred to
in clauses (i) through (v) above of other persons secured by any lien on any
property or asset of such obligor (whether or not such obligation is assumed
by such obligor); except in each case for (1) any such indebtedness that is by
its terms subordinated to or pari passu with the Subordinated Debentures, and
(2) any indebtedness between or among such obligor and its affiliates,
including all other debt securities and guarantees in respect of those debt
securities issued to (a) any other Pacific Telesis Trust (as defined in the
Prospectus) or a trustee of such trust or (b) any other trust, or a trustee of
such trust, or any partnership or other entity affiliated with Pacific Telesis
that is a financing vehicle of Pacific Telesis (a "financing entity") in
connection with the issuance by such financing entity of preferred securities
or other securities that rank pari passu with, or junior to, the Preferred
Securities. Such Senior Indebtedness shall continue to be Senior Indebtedness
and be entitled to the benefits of the subordination provisions irrespective
of any amendment, modification or waiver of any term of such Senior
Indebtedness.
The Indenture does not limit the aggregate amount of Senior Indebtedness that
may be issued by Pacific Telesis. As of September 30, 1995, the aggregate
amount of Senior Indebtedness and liabilities and obligations of Pacific
Telesis' subsidiaries and partnerships that would have effectively ranked
senior to the Subordinated Debentures was approximately $13,025 million.
Optional Redemption
Pacific Telesis shall have the right to redeem the Subordinated Debentures, in
whole or in part, from time to time, on or after __________, 2000, or at any
time in certain circumstances upon the occurrence of a Tax Event as described
under "Description of the Preferred Securities -- Special Event Redemption or
Distribution," upon not less than 30 nor more than 60 days notice, at a
redemption price equal to 100% of the principal amount to be redeemed plus any
accrued and unpaid interest to the redemption date. If a partial redemption
of the Preferred Securities resulting from a partial redemption of the
Subordinated Debentures would result in the delisting of the Preferred
Securities, Pacific Telesis may only redeem the Subordinated Debentures in
whole. Pacific Telesis may not redeem fewer than all outstanding Subordinated
Debentures unless there was no accrued and unpaid interest on the Subordinated
Debentures as of the Interest Payment Date (as defined below) next preceding
the redemption date.
Interest
Each Subordinated Debenture shall bear interest at the rate of ____% per annum
from the original date of issuance, or from the most recent interest payment
date to which interest has been paid or provided for, payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year (each
an "Interest Payment Date"), commencing _____________, 1995 to the person in
whose name such Subordinated Debt Security is registered, subject to certain
exceptions, at the close of business on the Business Day next preceding such
Interest Payment Date. In the event the Subordinated Debentures shall not
continue to remain in book-entry form, Pacific Telesis shall have the right to
select record dates, which shall be more than one Business Day prior to the
Interest Payment Date.
The amount of interest payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period for which interest is
computed, will be computed on the basis of the actual number of days elapsed
per 30-day month. In the event that any date on which interest is payable on
the Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day that is
a Business Day (and without any interest or other payment in respect of any
such delay), except that, if such Business Day is in the next succeeding
calendar year, then such payment shall be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on such
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date.
Option to Extend Scheduled Maturity Date
The "Scheduled Maturity Date" of the Subordinated Debentures is _______, 2025.
Pacific Telesis, however, may, before the Scheduled Maturity Date, extend such
maturity date no more than one time for up to an additional 19 years (_____,
2025 or the extended maturity date then in effect, as the case may be, is
hereinafter referred to as the "Maturity Date"). Pacific Telesis must
exercise its right to extend the term at least 90 days prior to the Scheduled
Maturity Date, may not extend the term more than once and must satisfy the
following conditions on the Scheduled Maturity Date: (a) Pacific Telesis is
not in bankruptcy or otherwise insolvent, (b) Pacific Telesis is not in
default on any Subordinated Debt Securities issued to a Pacific Telesis Trust
or to any trustee of such trust in connection with an issuance of trust
securities by such Pacific Telesis Trust, (c) Pacific Telesis has made timely
payments on the Subordinated Debentures for the immediately preceding six
quarters without deferrals, (d) Pacific Telesis Financing is not in arrears on
payments of distributions on the Trust Securities, (e) the Subordinated
Debentures are rated investment grade by any one of Standard & Poor's
Corporation, Moody's Investors Service, Inc., Fitch Investor Services, Duff &
Phelps Credit Rating Company or any other nationally recognized statistical
rating organization, and (f) the final maturity of such Subordinated
Debentures is not later than the 49th anniversary of the issuance of the
Preferred Securities. Pursuant to the Declaration, the Regular Trustees are
required to give notice of Pacific Telesis' election to extend the maturity
date to the holders of the Preferred Securities.
Option to Extend Interest Payment Period
Pacific Telesis shall have the right at any time, and from time to time,
during the term of the Subordinated Debentures to defer payments of interest
by extending the interest payment period for a period not exceeding 20
consecutive quarters, at the end of which Extension Period, Pacific Telesis
shall pay all interest then accrued and unpaid, together with interest thereon
compounded quarterly at the rate specified for the Subordinated Debentures to
the extent permitted by applicable law ("Compounded Interest"); provided that
no Extension Period shall extend beyond the Maturity Date; and provided
further that, during any such Extension Period, (a) Pacific Telesis shall not
declare or pay any dividends on, make any distribution with respect to, or
redeem, purchase, acquire or make a liquidation payment with respect to any of
its capital stock, (b) Pacific Telesis shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities issued by Pacific Telesis that rank pari passu with or junior to
the Subordinated Debentures and (c) Pacific Telesis shall not make guarantee
payments with respect to the foregoing (other than pursuant to the Guarantee);
provided, however, that, the foregoing restriction (a) does not apply to any
stock dividends paid by Pacific Telesis where the dividend stock is the same
as that on which the dividend is paid. Prior to the termination of any such
Extension Period, Pacific Telesis may further defer payments of interest by
extending the interest payment period; provided, however, that, such Extension
Period, including all such previous and further extensions, may not exceed 20
consecutive quarters or extend beyond the Maturity Date. Upon the termination
of any Extension Period and the payment of all amounts then due, Pacific
Telesis may commence a new Extension Period, subject to the terms set forth in
this section. No interest during an Extension Period, except at the end
thereof, shall be due and payable. Pacific Telesis has no present intention
of exercising its right to defer payments of interest by extending the
interest payment period on the Subordinated Debentures. If the Property
Trustee shall be the sole holder of the Subordinated Debentures, Pacific
Telesis shall give the Regular Trustees and the Property Trustee notice of its
selection of such Extension Period one Business Day prior to the earlier of
(i) the date distributions on the Preferred Securities are payable or (ii) the
date the Regular Trustees are required to give notice to the New York Stock
Exchange (or other applicable self-regulatory organization) or to holders of
the Preferred Securities of the record date or the date such distribution is
payable. The Regular Trustees shall give notice of Pacific Telesis' selection
of such Extension Period to the holders of the Preferred Securities. If the
Property Trustee shall not be the sole holder of the Subordinated Debentures,
Pacific Telesis shall give the holders of the Subordinated Debentures notice
of its selection of such Extension Period ten Business Days prior to the
earlier of (i) the Interest Payment Date or (ii) the date upon which Pacific
Telesis is required to give notice to the New York Stock Exchange (or other
applicable self-regulatory organization) or to holders of the Subordinated
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Debentures of the record or payment date of such related interest payment.
Indenture Events of Default
If any Indenture Event of Default shall occur and be continuing, the Property
Trustee, as the holder of the Subordinated Debentures, will have the right to
declare the principal of and the interest on the Subordinated Debentures
(including any Compounded Interest and any other amounts payable under the
Indenture) to be forthwith due and payable and to enforce its other rights as
a creditor with respect to the Subordinated Debentures subject to the
subordination provisions in the Declaration. See "Description of the
Subordinated Debt Securities -- Events of Default" in the accompanying
Prospectus for a description of the Indenture Events of Default. An Indenture
Event of Default also constitutes a Declaration Event of Default. A record
holder of Preferred Securities may institute a proceeding directly against
Pacific Telesis for enforcement of payment to the holder of the Subordinated
Debentures of the principal and interest on the Subordinated Debentures after
the respective due dates specified in the Subordinated Debentures. The
holders of Preferred Securities in certain circumstances have the right to
direct the Property Trustee to exercise its rights, with respect to other than
principal and interest payments on the Subordinated Debentures, as the holder
of the Subordinated Debentures. See "Description of the Preferred Securities
- -- Declaration Events of Default" and "Description of the Preferred Securities
- -- Voting Rights."
Book-Entry and Settlement
If distributed to holders of Preferred Securities in connection with the
involuntary or voluntary dissolution, winding-up or liquidation of Pacific
Telesis Financing as a result of the occurrence of a Special Event, it is
presently anticipated that the Subordinated Debentures will be issued in the
form of one or more global certificates (each a "Global Security") registered
in the name of a securities depository or its nominee. Except under the
limited circumstances described below, Subordinated Debentures represented by
the Global Security will not be exchangeable for, and will not otherwise be
issuable as, Subordinated Debentures in definitive form. The Global
Securities described above may not be transferred except by the depository to
a nominee of the depository or by a nominee of the depository to the
depository or another nominee of the depository or to a successor depository
or its nominee.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such laws may
impair the ability to transfer beneficial interests in such a Global Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Subordinated
Debentures in definitive form and will not be considered the Holders (as
defined in the Indenture) thereof for any purpose under the Indenture, and no
Global Security representing Subordinated Debentures shall be exchangeable,
except for another Global Security of like denomination and tenor to be
registered in the name of the depository or its nominee or to a successor
depository or its nominee. Accordingly, each beneficial owner must rely on
the procedures of the depository or if such person is not a Participant, on
the procedures of the Participant through which such person owns its interest
to exercise any rights of a Holder under the Indenture.
The Depository
If Subordinated Debentures are distributed to holders of Preferred Securities
in liquidation of such holders' interests in Pacific Telesis Financing, DTC
will act as securities depository for the Subordinated Debentures. For a
description of DTC and the specific terms of the depository arrangements, see
"Description of the Preferred Securities -- Book-Entry Issuance -- The
Depository Trust Company." As of the date of this Prospectus Supplement, the
description therein of DTC's book-entry system and DTC's practices as they
relate to purchases, transfers, notices and payments with respect to the
Preferred Securities apply in all material respects to any debt obligations
represented by one or more Global Securities held by DTC. Pacific Telesis may
appoint a successor to DTC or any successor depository in the event DTC or
such successor depository is unable or unwilling to continue as a depository
for the Global Securities.
None of Pacific Telesis, Pacific Telesis Financing, the Indenture Trustee, any
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paying agent and any other agent of Pacific Telesis or the Indenture Trustee
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in a
Global Security for such Subordinated Debentures or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
Discontinuance of the Depository's Services
A Global Security shall be exchangeable for Subordinated Debentures in
definitive certificated form registered in the names of persons other than the
depository or its nominee only if (i) the depository notifies Pacific Telesis
that it is unwilling or unable to continue as a depository for such Global
Security and no successor depository shall have been appointed, (ii) the
depository, at any time, ceases to be a clearing agency registered under the
Exchange Act at which time the depository is required to be so registered to
act as such depository and no successor depository shall have been appointed,
or (iii) Pacific Telesis, in its sole discretion, determines that such Global
Security shall be so exchangeable. Any Global Security that is exchangeable
pursuant to the preceding sentence shall be exchangeable for Subordinated
Debentures registered in such names as the depository shall direct. It is
expected that such instructions will be based upon directions received by the
depository from its Participants with respect to ownership of beneficial
interests in such Global Security.
Miscellaneous
The Indenture will provide that Pacific Telesis will pay all fees and expenses
related to (i) the offering of the Trust Securities and the Subordinated
Debentures, (ii) the organization, maintenance and dissolution of Pacific
Telesis Financing, (iii) the retention of the Pacific Telesis Trustees and
(iv) the enforcement by the Property Trustee of the rights of the holders of
the Preferred Securities.
EFFECT OF OBLIGATIONS UNDER THE
SUBORDINATED DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of Pacific Telesis Financing
is to (i) issue the Trust Securities evidencing undivided beneficial interests
in the assets of Pacific Telesis Financing, (ii) invest the proceeds from such
issuance and sale in the Subordinated Debentures and (iii) engage in only
those other activities necessary or incidental thereto.
As long as payments of interest and other payments are made when due on the
Subordinated Debentures, such payments will be sufficient to cover
distributions and payments due on the Trust Securities because: (i) the
aggregate principal amount of Subordinated Debentures will be equal to the sum
of the aggregate stated liquidation amount of the Trust Securities; (ii) the
interest rate and the interest and other payment dates on the Subordinated
Debentures will match the distribution rate and distribution and other payment
dates for the Preferred Securities; (iii) Pacific Telesis shall pay all, and
Pacific Telesis Financing shall not be obligated to pay, directly or
indirectly, any, costs, expenses, debts and obligations of Pacific Telesis
Financing; and (iv) the Declaration further provides that the Pacific Telesis
Trustees shall not cause or permit Pacific Telesis Financing to, among other
things, engage in any activity that is not consistent with the purposes of
Pacific Telesis Financing.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor
are available) are guaranteed by Pacific Telesis as and to the extent set
forth under "Description of the Guarantees" in the accompanying Prospectus.
If Pacific Telesis does not make interest and/or principal payments on the
Subordinated Debentures purchased by Pacific Telesis Financing, it is expected
that Pacific Telesis Financing will not have sufficient funds to pay
distributions on the Preferred Securities. The Guarantee is a full and
unconditional guarantee from the time of its issuance, but will not apply to
the payment of distributions and other payments on the Preferred Securities
when Pacific Telesis Financing does not have sufficient funds to make such
distributions or other payments.
If Pacific Telesis fails to make interest and/or principal payments on the
Subordinated Debentures when due (taking account of any Extension Period), a
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record holder of Preferred Securities may institute a proceeding directly
against Pacific Telesis for enforcement of payment to the holder of the
Subordinated Debentures of the principal and interest on the Subordinated
Debentures after the respective due dates specified in the Subordinated
Debentures. If another Indenture Event of Default occurs and is continuing,
the Declaration provides a mechanism whereby the holders of the Preferred
Securities, using the procedures described in "Description of the Preferred
Securities -- Voting Rights," may direct the Property Trustee to enforce its
rights under the Subordinated Debentures. If, with respect to other than
principal and interest payments on the Subordinated Debentures, the Property
Trustee fails to enforce its rights under the Subordinated Debentures, a
holder of Preferred Securities may institute a legal proceeding directly
against any person to enforce the Property Trustee's rights under the
Subordinated Debentures without first instituting any legal proceeding against
the Property Trustee or any other person or entity.
If Pacific Telesis fails to make payments to holders of Preferred Securities
under the Guarantee, any such holder of the Preferred Securities may institute
a legal proceeding directly against Pacific Telesis to enforce Pacific
Telesis' obligation to make such payments.
Pacific Telesis' obligations under the Declaration, the Guarantee, the
Subordinated Debentures and the Indenture, taken together, constitute a full
and unconditional guarantee by Pacific Telesis of payments due on the
Preferred Securities. See "Description of the Guarantees -- General" in the
accompanying Prospectus.
UNITED STATES FEDERAL INCOME TAXATION
General
The following is a summary of certain of the material United States federal
income tax consequences of the purchase, ownership and disposition of
Preferred Securities. Unless otherwise stated, this summary deals only with
Preferred Securities held as capital assets by holders who purchase the
Preferred Securities upon original issuance ("Initial Holders"). It does not
deal with special classes of holders such as banks, thrifts, real estate
investment trusts, regulated investment companies, insurance companies,
dealers in securities or currencies, tax-exempt investors, or persons that
will hold the Preferred Securities as a position in a "straddle," as part of a
"synthetic security" or "hedge," as part of a "conversion transaction" or
other integrated investment, or as other than a capital asset. This summary
also does not address the tax consequences to persons that have a functional
currency other than the U.S. dollar or the tax consequences to shareholders,
partners or beneficiaries of a holder of Preferred Securities. Further, it
does not include any description of any alternative minimum tax consequences
or the tax laws of any state or local government or of any foreign government
that may be applicable to the Preferred Securities. This summary is based on
the Internal Revenue Code of 1986, as amended (the "Code"), U. S. Treasury
regulations thereunder and administrative and judicial interpretations
thereof, as of the date hereof, all of which are subject to change, possibly
on a retroactive basis.
Classification of the Subordinated Debentures and Pacific Telesis Financing
In connection with the issuance of the Subordinated Debentures, Phillip J.
Lauro, Executive Director of Taxes of Pacific Telesis and tax counsel for
Pacific Telesis and Pacific Telesis Financing, will render his opinion
generally to the effect that, under then current law and assuming full
compliance with the terms of the Indenture (and certain other documents), the
Subordinated Debentures will be classified for United States federal income
tax purposes as indebtedness of Pacific Telesis.
In connection with the issuance of the Preferred Securities, Mr. Lauro will
render his opinion generally to the effect that, under then current law and
assuming full compliance with the terms of the Declaration, Pacific Telesis
Financing will be classified for United States federal income tax purposes as
a grantor trust and not as an association taxable as a corporation.
Accordingly, for United States federal income tax purposes, each holder of
Preferred Securities generally will be considered the owner of an undivided
interest in the Subordinated Debentures. Each holder will be required to
include in its gross income its allocable share of income accrued on the
Subordinated Debentures.
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Investors should be aware that these tax opinions do not address any other
issue and are not binding on the Internal Revenue Service or the courts.
Original Issue Discount
The Subordinated Debentures will be treated as issued with original issue
discount. Holders of debt instruments issued with OID must include the OID in
income on an economic accrual basis regardless of their method of tax
accounting and regardless of the timing of the receipt of cash attributable to
the OID. Generally, all of a holder's taxable interest income with respect to
the Subordinated Debentures will be accounted for as OID, and actual payments
and distributions of stated interest will not be separately reported as
taxable income. The amount of OID that accrues in any quarter will
approximately equal the amount of the interest that accrues on the
Subordinated Debentures in that quarter at the stated interest rate. In the
event that the interest payment period is extended, holders will continue to
accrue OID approximately equal to the amount of the interest payment due at
the end of the extended interest payment period on an economic accrual basis
over the length of the extended interest period.
Because income on the Preferred Securities will constitute OID, corporate
holders of Preferred Securities will not be entitled to a dividends - received
deduction with respect to any income recognized with respect to the Preferred
Securities.
Market Discount and Bond Premium
Holders of Preferred Securities other than Initial Holders may be considered
to have acquired their undivided interests in the Subordinated Debentures with
"market discount or "acquisition premium as such phrases are defined for
United States federal income tax purposes. Such holders are advised to
consult their tax advisors as to the income tax consequences of the
acquisition, ownership and disposition of the Preferred Securities.
Receipt of Subordinated Debentures or Cash Upon Liquidation of Pacific Telesis
Financing
Under certain circumstances, as described under the caption "Description of
the Preferred Securities -- Special Event Redemption or Distribution,"
Subordinated Debentures may be distributed to holders in exchange for the
Preferred Securities and in liquidation of Pacific Telesis Financing. Under
current law, such a distribution, for United States federal income tax
purposes, would be treated as a non-taxable event to each holder, and each
holder would receive an aggregate tax basis in the Subordinated Debentures
equal to such holder's aggregate tax basis in its Preferred Securities. A
holder's holding period in the Subordinated Debentures so received in
liquidation of Pacific Telesis Financing would include the period during which
the Preferred Securities were held by such holder.
Under certain circumstances described herein (see "Description of the
Preferred Securities -- Special Event Redemption or Distribution"), the
Subordinated Debentures may be redeemed for cash and the proceeds of such
redemption distributed to holders in redemption of their Preferred Securities.
Under current law, such a redemption would, for United States federal income
tax purposes, constitute a taxable disposition of the redeemed Preferred
Securities, and a holder could recognize gain or loss as if it sold such
redeemed Preferred Securities for cash. See "-- Sales of Preferred
Securities."
Sales of Preferred Securities
A holder that sells Preferred Securities will recognize gain or loss equal to
the difference between its adjusted tax basis in the Preferred Securities and
the amount realized on the sale of such Preferred Securities. A holder's
adjusted tax basis in the Preferred Securities generally will be its initial
purchase price increased by OID previously includable in such holder's gross
income to the date of disposition and decreased by payments received on the
Preferred Securities. Subject to the market discount rules described above,
such gain or loss generally will be a capital gain or loss and generally will
be a long-term capital gain or loss if the Preferred Securities have been held
for more than one year.
The Preferred Securities may trade at a price that does not accurately reflect
the value of accrued but unpaid interest with respect to the underlying
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Subordinated Debentures. A holder who disposes of its Preferred Securities
between record dates for payments of distributions thereon will be required to
include in ordinary income OID on the Subordinated Debentures accrued through
the date of disposition, and to add such amount to its adjusted tax basis in
its Preferred Securities. To the extent the selling price is less than the
holder's adjusted tax basis (which will include, in the form of OID, all
accrued but unpaid interest) a holder will recognize a capital loss. Subject
to certain limited exceptions, capital losses cannot be applied to offset
ordinary income for United States federal income tax purposes.
United States Alien Holders
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the
United States, a foreign corporation, a non-resident alien individual, a
foreign partnership, or a non-resident fiduciary of a foreign estate or trust.
Under present United States federal income tax law: (i) payments by Pacific
Telesis Financing or any of its paying agents to any holder of a Preferred
Security who or which is a United States Alien Holder will not be subject to
United States federal withholding tax; provided that, (a) the beneficial owner
of the Preferred Security does not actually or constructively own 10% or more
of the total combined voting power of all classes of stock of Pacific Telesis
entitled to vote, (b) the beneficial owner of the Preferred Security is not a
controlled foreign corporation that is related to Pacific Telesis through
stock ownership, and (c) either (A) the beneficial owner of the Preferred
Security certifies to Pacific Telesis Financing or its agent, under penalties
of perjury, that it is not a United States holder and provides its name and
address or (B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business (a "Financial Institution"), and holds the Preferred
Security in such capacity, certifies to Pacific Telesis Financing or its
agent, under penalties of perjury, that such statement has been received from
the beneficial owner by it or by a Financial Institution between it and the
beneficial owner and furnishes Pacific Telesis Financing or its agent with a
copy thereof; and (ii) a United States Alien Holder of a Preferred Security
will not be subject to United States federal withholding tax on any gain
realized upon the sale or other disposition of a Preferred Security.
Information Reporting to Holders
Income on the Preferred Securities will be reported to holders on Forms 1099,
which forms should be mailed to holders of Preferred Securities by January 31
following each calendar year.
Backup Withholding
Payments made on, and proceeds from the sale of, the Preferred Securities may
be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification requirements. Any withheld amounts will be
allowed as a credit against the holder's federal income tax, provided the
required information is provided to the Internal Revenue Service.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A
HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), Pacific Telesis Financing has agreed to sell
to each of the Underwriters named below, and each of the Underwriters, for
whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Dean Witter Reynolds
Inc., A.G. Edwards & Sons, Inc., Goldman, Sachs & Co., Lehman Brothers Inc.,
PaineWebber Incorporated, Prudential Securities Incorporated, Salomon Brothers
Inc and Smith Barney Inc. are acting as representatives (the
"Representatives"), has severally agreed to purchase the number of Preferred
Securities set forth opposite its name below. In the Underwriting Agreement,
the several Underwriters have agreed, subject to the terms and conditions set
forth therein, to purchase all the Preferred Securities offered hereby if any
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<PAGE>
of the Preferred Securities are purchased. In the event of default by an
Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the purchase commitments of the nondefaulting Underwriters may
be increased or the Underwriting Agreement may be terminated.
Underwriters Preferred Securities
------------ --------------------
Merrill Lynch, Pierce Fenner & Smith
Incorporated ....................
Dean Witter Reynolds Inc. ...................
A.G. Edwards & Sons, Inc. ...................
Goldman, Sachs & Co. ........................
Lehman Brothers Inc. ........................
PaineWebber Incorporated ....................
Prudential Securities Incorporated ..........
Salomon Brothers Inc ........................
Smith Barney Inc. ...........................
Total....................................
=========
The Underwriters propose to offer the Preferred Securities, in part, directly
to the public at the initial public offering price set forth on the cover page
of this Prospectus Supplement, and, in part, to certain securities dealers at
such price less a concession of $___ per Preferred Security, provided that
such concession for sales of 10,000 or more Preferred Securities to a single
purchaser will be $__________ per Preferred Security. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $___ per
Preferred Security to certain brokers and dealers. After the Preferred
Securities are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the Representatives.
In view of the fact that the proceeds of the sale of the Preferred Securities
will ultimately be used to purchase the Subordinated Debentures of Pacific
Telesis, the Underwriting Agreement provides that Pacific Telesis will pay as
Underwriters' Compensation to the Underwriters' arranging the investment
therein of such proceeds, an amount in New York Clearing House (next day)
funds of $____ per Preferred Security (or $_________ in the aggregate) for the
accounts of the several Underwriters; provided that, such compensation for
sales of 10,000 or more Preferred Securities to any single purchaser will be
$___ per Preferred Security. Therefore, to the extent of such sales, the
actual amount of Underwriters Compensation will be less than the aggregate
amount specified in the preceding sentence.
During a period of 30 days from the date of this Prospectus Supplement,
neither Pacific Telesis Financing nor Pacific Telesis will, without the prior
written consent of the Underwriters, directly or indirectly, sell, offer to
sell, grant any option for the sale of, or otherwise dispose of, any Preferred
Securities, any security convertible into or exchangeable into or exercisable
for Preferred Securities or Subordinated Debentures or any debt securities
substantially similar to the Subordinated Debentures or equity securities
substantially similar to the Preferred Securities (except for the Subordinated
Debentures and the Preferred Securities offered hereby).
The Preferred Securities have been approved for listing on the New York Stock
Exchange. Trading of the Preferred Securities on the New York Stock Exchange
is expected to commence within a 30 day period after the initial delivery of
the Preferred Securities. The Representatives have advised Pacific Telesis
Financing that they intend to make a market in the Preferred Securities prior
to the commencement of trading on the New York Stock Exchange. The
Representatives will have no obligation to make a market in the Preferred
Securities, however, and may cease market making activities, if commenced, at
any time.
Prior to this offering there has been no public market for the Preferred
Securities. In order to meet one of the requirements for listing the
Preferred Securities on the New York Stock Exchange, the Underwriters will
undertake to sell lots of 100 or more Preferred Securities to a minimum of 400
beneficial holders.
Pacific Telesis Financing and Pacific Telesis have agreed to indemnify the
Underwriters against, or contribute to payments that the Underwriters may be
required to make in respect of, certain liabilities, including liabilities
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<PAGE>
under the Securities Act of 1933, as amended.
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, Pacific Telesis and its subsidiaries in the
ordinary course of business.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon on behalf of Pacific Telesis Financing by
Skadden, Arps, Slate, Meagher & Flom, special Delaware counsel to Pacific
Telesis Financing. The validity of the Subordinated Debentures and the
Guarantee and certain matters relating thereto will be passed upon for Pacific
Telesis by Richard W. Odgers - Executive Vice President, General Counsel and
Secretary of Pacific Telesis. Pillsbury Madison & Sutro LLP, San Francisco,
California, are acting as counsel to the Underwriters in connection with
certain legal matters relating to the securities offered hereby. Pillsbury,
Madison & Sutro LLP will rely on the opinion of Skadden, Arps, Slate, Meagher
& Flom as to certain matters of Delaware law relating to the validity of the
Preferred Securities. Certain United States Federal income taxation matters
will be passed upon for Pacific Telesis and Pacific Telesis Financing by
Phillip J. Lauro, Executive Director of Taxes of Pacific Telesis. As of
September 30, 1995, Mr. Odgers beneficially owned or had an interest in
approximately 2,144 shares of Pacific Telesis common stock and had been
granted options under the Pacific Telesis Group 1994 Stock Incentive Plan or
its predecessor with respect to 70,000 shares of Pacific Telesis common stock.
As of September 30, 1995, Mr. Lauro beneficially owned or had an interest in
approximately 1,462 shares of Pacific Telesis common stock and had been
granted options under the Pacific Telesis Group 1994 Stock Incentive Plan or
its predecessor with respect to 10,400 shares of Pacific Telesis common stock.
As of October 30, 1995, members and counsel of Skadden, Arps, Slate, Meagher &
Flom beneficially owned or had an interest in 2,000 shares of Pacific Telesis
common stock. For many years, Pillsbury Madison & Sutro LLP has acted and
continues to act as counsel in certain matters for Pacific Telesis and certain
of its affiliates.
38
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 7, 1995
PROSPECTUS PACIFIC*TELESIS
Group
$1,000,000,000
PACIFIC TELESIS GROUP
Subordinated Debt Securities
____________________
Pacific Telesis Financing I
Pacific Telesis Financing II
Pacific Telesis Financing III
Preferred Securities guaranteed to the extent set forth herein by
Pacific Telesis Group
Pacific Telesis Group ("Pacific Telesis" and, together with its subsidiaries,
the "Company"), a Nevada corporation, may offer, from time to time, unsecured
subordinated debt securities consisting of debentures, notes or other
evidences of indebtedness (the "Subordinated Debt Securities"), or any
combination of the foregoing, in each case in one or more series and in
amounts, at prices and on terms to be determined at or prior to the time of
any such offering. The Subordinated Debt Securities when issued will be
unsecured obligations of Pacific Telesis. Pacific Telesis' obligations under
the Subordinated Debt Securities will be subordinate and junior in right of
payment to certain other indebtedness of Pacific Telesis as may be described
in an accompanying prospectus supplement (the "Prospectus Supplement").
Pacific Telesis Financing I, Pacific Telesis Financing II and Pacific Telesis
Financing III (each, a "Pacific Telesis Trust"), each a statutory business
trust formed under the laws of the State of Delaware, may offer, from time to
time, preferred securities, representing undivided beneficial interests in the
assets of the respective Pacific Telesis Trust ("Preferred Securities"). The
payment of periodic cash distributions ("distributions") with respect to
Preferred Securities of each of the Pacific Telesis Trusts out of moneys held
by each of the Pacific Telesis Trusts, and payments on liquidation, redemption
or otherwise with respect to such Preferred Securities, will be guaranteed by
Pacific Telesis to the extent described herein (each a "Guarantee"). See
"Description of the Guarantees" below. Pacific Telesis' obligations under the
Guarantees are subordinate and junior in right of payment to all other
liabilities of Pacific Telesis and rank pari passu with the most senior
preferred stock, if any, issued from time to time by Pacific Telesis.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF
SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
-------------------------
The date of this Prospectus is ______________, 1995
Subordinated Debt Securities may be issued and sold from time to time in one
or more series by Pacific Telesis to a Pacific Telesis Trust, or a trustee of
such Pacific Telesis Trust, in connection with the investment of the proceeds
from the offering of Preferred Securities and Common Securities (as defined
herein) of such Pacific Telesis Trust. The Subordinated Debt Securities
purchased by a Pacific Telesis Trust may be subsequently distributed pro rata
to holders of Preferred Securities and Common Securities in connection with
the dissolution of such Pacific Telesis Trust upon the occurrence of certain
events as may be described in an accompanying Prospectus Supplement. The
Subordinated Debt Securities and the Preferred Securities and the related
Guarantees are sometimes collectively referred to hereafter as the "Offered
Securities".
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<PAGE>
Specific terms of the Subordinated Debt Securities of any series or the
Preferred Securities of any Pacific Telesis Trust in respect of which this
prospectus ("Prospectus ) is being delivered will be set forth in a Prospectus
Supplement with respect to such securities, which will describe, without
limitation and where applicable, the following: (i) in the case of
Subordinated Debt Securities, the specific designation, aggregate principal
amount, denomination, maturity, premium, if any, any exchange, conversion,
redemption or sinking fund provisions, if any, interest rate (which may be
fixed or variable), if any, the time and method of calculating interest
payments, if any, dates on which premium, if any, and interest, if any, will
be payable, the right of Pacific Telesis, if any, to defer payment of interest
on the Subordinated Debt Securities and the maximum length of such deferral
period, the initial public offering price, subordination terms, and any
listing on a securities exchange and other specific terms of the offering; and
(ii) in the case of Preferred Securities, the designation, number of
securities, liquidation preference per security, initial public offering
price, any listing on a securities exchange, distribution rate (or method of
calculation thereof), dates on which distributions shall be payable and dates
from which distributions shall accrue, any voting rights, terms for any
conversion or exchange into other securities, any redemption, exchange or
sinking fund provisions, any other rights, preferences, privileges,
limitations or restrictions relating to the Preferred Securities and the terms
upon which the proceeds of the sale of the Preferred Securities shall be used
to purchase a specific series of Subordinated Debt Securities of Pacific
Telesis.
The Offered Securities may be offered in amounts, at prices and on terms to be
determined at the time of offering; provided, however, that, the aggregate
initial public offering price of all Offered Securities shall not exceed
$1,000,000,000. The Prospectus Supplement relating to any series of Offered
Securities will contain information concerning certain United States federal
income tax considerations, if applicable to the Offered Securities.
Pacific Telesis and/or each of the Pacific Telesis Trusts may sell the Offered
Securities directly, through agents designated from time to time, or through
underwriters or dealers. See "Plan of Distribution" below. If any agents of
Pacific Telesis and/or any Pacific Telesis Trust or any underwriters or
dealers are involved in the sale of the Offered Securities, the names of such
agents, underwriters or dealers and any applicable commissions and discounts
will be set forth in any related Prospectus Supplement.
AVAILABLE INFORMATION
This Prospectus constitutes a part of a combined Registration Statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") filed by Pacific Telesis and the Pacific Telesis Trusts with the
Securities and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Offered
Securities. This Prospectus does not contain all of the information set forth
in such Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. Reference is made to
such Registration Statement and to the exhibits relating thereto for further
information with respect to the Company, the Pacific Telesis Trusts and the
Offered Securities. Any statements contained herein concerning the provisions
of any document filed as an exhibit to the Registration Statement or otherwise
filed with the SEC or incorporated by reference herein are not necessarily
complete, and, in each instance, reference is made to the copy of such
document so filed for a more complete description of the matter involved.
Each such statement is qualified in its entirety by such reference.
Pacific Telesis is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the SEC.
Reports, proxy statements and other information concerning Pacific Telesis can
be inspected and copied at prescribed rates at the SEC's Public Reference
Room, Judiciary Plaza, 450 Fifth Street, Northwest, Washington, D.C. 20549,
as well as the following Regional Offices of the SEC: 7 World Trade Center,
New York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661. Such reports, proxy statements and other
information may also be inspected at the offices of the following stock
exchanges on which Pacific Telesis stock is traded: the New York Stock
Exchange, 20 Broad Street, New York, New York 10005; the Chicago Stock
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<PAGE>
Exchange, One Financial Place, 440 La Salle Street, Chicago, Illinois 60605;
and the Pacific Stock Exchange, 301 Pine Street, San Francisco, California
94104.
No separate financial statements of any of the Pacific Telesis Trusts have
been included herein. Pacific Telesis does not consider that such financial
statements would be material to holders of the Preferred Securities because
(i) all of the voting securities of each of the Pacific Telesis Trusts will be
owned, directly or indirectly, by Pacific Telesis, a reporting company under
the Exchange Act, (ii) each of the Pacific Telesis Trusts has no independent
operations but exists for the sole purpose of issuing securities representing
undivided beneficial interests in the assets of such Pacific Telesis Trust and
investing the proceeds thereof in Subordinated Debt Securities issued by
Pacific Telesis, and (iii) Pacific Telesis' obligations described herein and
in any accompanying prospectus supplement under the Declarations of each
Trust, the Guarantee issued with respect to Preferred Securities issued by
that Trust, the Subordinated Debt Securities purchased by that Trust and the
related Indenture, taken together, constitute a full and unconditional
guarantee of payments due on the Trust Securities. See "Description of the
Subordinated Debt Securities" and "Description of the Guarantees."
The Pacific Telesis Trusts are not currently subject to the information
reporting requirements of the Exchange Act. The Pacific Telesis Trusts will
become subject to such requirements upon the effectiveness of the Registration
Statement, although they intend to seek and expect to receive exemptions
therefrom.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Pacific Telesis (File No. 1-8609) with the
SEC pursuant to the Exchange Act are incorporated by reference herein and made
a part hereof:
1. Annual Report on Form 10-K for the year ended December 31, 1994.
2. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995, June
30, 1995 and September 30, 1995.
3. Current Reports on Form 8-K dated April 19, 1995, September 7, 1995 and
November 17, 1995.
All documents filed by Pacific Telesis pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering of the Offered Securities pursuant hereto shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein or in any Prospectus Supplement shall be
deemed to be modified or superseded for purposes of this Prospectus or any
Prospectus Supplement to the extent that a statement contained herein or
therein (or in any other subsequently filed document that also is or is deemed
to be incorporated by reference herein or therein) modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus
or any Prospectus Supplement.
Pacific Telesis undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon the written or oral request
of any such person, a copy of any or all of the foregoing documents
incorporated herein by reference, other than exhibits to such documents,
unless such exhibits are specifically incorporated by reference into such
documents. Such requests should be directed to the Company's Investor
Services office, 130 Kearny Street, Suite 2926, San Francisco, California
94108 (telephone number (415) 394-3078).
PACIFIC TELESIS GROUP
Pacific Telesis was incorporated in 1983 under the laws of the State of Nevada
and has its principal executive offices at 130 Kearny Street, San Francisco,
California 94108 (telephone number (415) 394-3000).
Pacific Telesis is one of seven regional holding companies formed in
connection with the 1984 divestiture by AT&T Corp. of its 22 wholly-owned
41
<PAGE>
operating telephone companies ("BOCs") pursuant to a consent decree settling
antitrust litigation (the "Consent Decree") approved by the United States
District Court for the District of Columbia, which has retained jurisdiction
over the interpretation and enforcement of the Consent Decree.
The Company includes a holding company, Pacific Telesis; two BOCs, Pacific
Bell and Nevada Bell; and certain diversified subsidiaries. The holding
company provides financial, strategic planning, legal and general
administrative functions on its own behalf and on behalf of its subsidiaries.
Pacific Bell and its wholly-owned subsidiaries, including Pacific Bell
Directory, Pacific Bell Information Services and Pacific Bell Mobile Services,
and Nevada Bell provide a variety of communications and information services
in California and Nevada. These services include: (1) dialtone and usage
services including local service (both exchange and private line), message
toll services within a service area, Wide Area Toll Service (WATS) / 800
services within a service area, Centrex service (a central office-based
switching service) and various special and custom calling services; (2)
exchange access to interexchange carriers and information service providers
for the origination and termination of switched and non-switched (private
line) voice and data traffic; (3) billing services for interexchange carriers
and information service providers; (4) various operator services; (5)
installation and maintenance of customer premises wiring; (6) public
communications services; (7) directory publishing; and (8) selected
information services, such as voice mail and electronic mail. Pacific Bell
Mobile Services was formed in 1994 to offer personal communications services
and other mobile telecommunications services and has not yet commenced
service.
THE PACIFIC TELESIS FINANCING TRUSTS
Each of Pacific Telesis Financing I, Pacific Telesis Financing II and Pacific
Telesis Financing III is a statutory business trust formed under Delaware law
pursuant to (i) a separate declaration of trust executed by Pacific Telesis,
as sponsor for such trust (the "Sponsor"), and the Pacific Telesis Trustees
(as defined herein) of such trust and (ii) the filing of a certificate of
trust with the Secretary of State of the State of Delaware on October 17,
1995. Each of the declarations of trust will be amended and restated in its
entirety (as so amended and restated, the "Declaration") substantially in the
form filed as an exhibit to the Registration Statement. Each Pacific Telesis
Trust exists for the exclusive purposes of (i) issuing the Preferred
Securities and common securities representing undivided beneficial interests
in the assets of the Trust (the "Common Securities" and, together with the
Preferred Securities, the "Trust Securities"), (ii) investing the gross
proceeds from the sale of the Trust Securities in the Subordinated Debt
Securities and (iii) engaging in only those other activities necessary or
incidental thereto. All of the Common Securities will be directly or
indirectly owned by Pacific Telesis. The Common Securities will rank pari
passu, and payments will be made thereon pro rata, with the Preferred
Securities, except that, upon an event of default under the Declaration, the
rights of the holders of the Common Securities to payment in respect of
distributions and payments upon liquidation, redemption and otherwise will be
subordinated to the rights of the holders of the Preferred Securities.
Pacific Telesis will directly or indirectly acquire Common Securities in an
aggregate liquidation amount equal to 3% of the total capital of each Pacific
Telesis Trust. Each Pacific Telesis Trust has a term of approximately 55
years but may terminate earlier, as provided in each Declaration. Each
Pacific Telesis Trust's business and affairs will be conducted by the trustees
(the "Pacific Telesis Trustees") appointed by Pacific Telesis as the direct or
indirect holder of all the Common Securities. The holder of the Common
Securities will be entitled to appoint, remove or replace any of, or increase
or reduce the number of, the Pacific Telesis Trustees of a Pacific Telesis
Trust. The duties and obligations of the Pacific Telesis Trustees shall be
governed by the Declaration of such Pacific Telesis Trust. A majority of the
Pacific Telesis Trustees of each Pacific Telesis Trust will be persons who are
employees or officers of or who are affiliated with Pacific Telesis (the
"Regular Trustees"). One Pacific Telesis Trustee (the "Property Trustee") of
each Pacific Telesis Trust will be a financial institution that is not
affiliated with Pacific Telesis and has a specified minimum amount of
aggregate capital, surplus, and undivided profits of not less than
$50,000,000, which shall act as property trustee and as indenture trustee for
the purposes of the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), pursuant to the terms set forth in a Prospectus Supplement.
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<PAGE>
In addition, unless the Property Trustee maintains a principal place of
business in the State of Delaware and otherwise meets the requirements of
applicable law, one Pacific Telesis Trustee (the "Delaware Trustee") of each
Pacific Telesis Trust will either be a natural person and a resident of
Delaware or a legal entity having its principal place of business in Delaware.
Pacific Telesis will pay all fees and expenses related to the Pacific Telesis
Trusts and the offering of the Trust Securities, the payment of which will be
guaranteed by Pacific Telesis. The Property Trustee for each Pacific Telesis
Trust is The First National Bank of Chicago, One First National Plaza,
Chicago, Illinois 60670. The Delaware Trustee for each Pacific Telesis Trust
is Michael J. Majchrzak, FCC National Bank, 300 King Street, Wilmington,
Delaware 19801. The address for each Pacific Telesis Trust is c/o Pacific
Telesis Group, the Sponsor of each Trust, at the Company's corporate
headquarters located at 130 Kearny Street, San Francisco, California 94108,
telephone (415) 394-3000.
USE OF PROCEEDS
Each Pacific Telesis Trust will use all proceeds received from the sale of its
Preferred Securities to purchase Subordinated Debt Securities from Pacific
Telesis. Pacific Telesis intends to add the net proceeds from the sale of the
Subordinated Debt Securities to Pacific Telesis' general funds, to be used for
general corporate purposes, including capital expenditures, repurchases of
outstanding long-term debt securities, investments in subsidiaries, working
capital, repayment of short-term commercial paper notes and other business
opportunities or as otherwise disclosed in any Prospectus Supplement.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to combined fixed charges
from continuing operations of Pacific Telesis Group and its consolidated
subsidiaries for the periods indicated. For the purpose of calculating this
ratio, earnings consist of income before income taxes and fixed charges.
Fixed charges include interest on indebtedness (excluding discontinued
operations) and the portion of rentals representative of the interest factor.
Nine
Months
Ended
September 30 Year Ended December 31,
Ratio of ------------- -----------------------------------
Earnings 1995 1994 1994 1993 1992 1991 1990
to Fixed ---- ---- ---- ---- ---- ---- ----
Charges 4.23 4.85 4.60 1.37 4.21 3.42 3.27
==== ==== ==== ==== ==== ==== ====
43
<PAGE>
DESCRIPTION OF THE SUBORDINATED DEBT SECURITIES
Subordinated Debt Securities may be issued from time to time in one or more
series under an Indenture, dated as of _____________1995 (the "Subordinated
Debt Securities Indenture" or the "Indenture"), between the Company and The
First National Bank of Chicago as trustee (the "Subordinated Debt Securities
Trustee"). The terms of the Subordinated Debt Securities will include those
stated in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act. The following summary does not purport to be
complete and is subject in all respects to the provisions of, and is qualified
in its entirety by reference to, the Indenture, which is filed as an exhibit
to the Registration Statement of which this Prospectus forms a part, and the
Trust Indenture Act. Whenever particular provisions or defined terms in the
Indenture are referred to herein, such provisions or defined terms and their
definitions are incorporated by reference herein.
The following description of the Subordinated Debt Securities sets forth the
general terms and provisions of the Subordinated Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Subordinated
Debt Securities offered by any Prospectus Supplement and the extent, if any,
to which such general provisions may apply will be described in the Prospectus
Supplement relating to such Subordinated Debt Securities.
General
The Subordinated Debt Securities will be unsecured, subordinated obligations
of Pacific Telesis. The Indenture does not limit the aggregate principal
amount of Subordinated Debt Securities which may be issued thereunder and
provides that the Subordinated Debt Securities may be issued from time to time
in one or more series pursuant to an indenture supplemental to the
Subordinated Debt Securities Indenture, or pursuant to a resolution of Pacific
Telesis' Board of Directors or pursuant to authority granted by such Board of
Directors (each a "Supplemental Indenture").
In the event Subordinated Debt Securities are issued to a Pacific Telesis
Trust (or a trustee of such trust) in connection with the issuance of Trust
Securities by any such Pacific Telesis Trust, such Subordinated Debt
Securities subsequently may be distributed pro rata to the holders of such
Trust Securities in connection with the dissolution of such Pacific Telesis
Trust upon the occurrence of certain events described in the Prospectus
Supplement relating to such Trust Securities. Only one series of Subordinated
Debt Securities will be issued to a Pacific Telesis Trust, or a trustee of
such trust, in connection with the issuance of Trust Securities by such
Pacific Telesis Trust.
Reference is made to the applicable Prospectus Supplement for any series of
Subordinated Debt Securities for the following terms: (1) the designation of
such series of Subordinated Debt Securities, (2) the aggregate principal
amount of such series of Subordinated Debt Securities, (3) the stated maturity
or maturities for payment of principal of such series of Subordinated Debt
Securities and any sinking fund or analogous provisions, (4) the rate or rates
at which such series of Subordinated Debt Securities shall bear interest and
the interest payment dates for such series of Subordinated Debt Securities,
(5) the rights, if any, to defer payments of interest on such series of
Subordinated Debt Securities by extending the interest payment period, (6)
the dates on which such interest will be payable, (7) the rights, if any to
extend the stated maturity or maturities for payment of principal of such
series of Subordinated Debt Securities, (8) the subordination terms of the
Subordinated Debt Securities of such series, (9) the currencies, currency unit
or index in or according to which principal of and interest and any premium on
such series of Subordinated Debt Securities shall be payable (if other than
United States Dollars), (10) the redemption date or dates, if any and the
redemption price or prices and other applicable redemption provisions for such
series of Subordinated Debt Securities, including the date, if any, after
which, and the price or prices at which, the Subordinated Debt Securities may
be redeemed at the option of Pacific Telesis or the Holder (as defined in the
Indenture) thereof, and other detailed terms and provisions of such optional
redemption, (11) whether the Subordinated Debt Securities will be issued as
bearer or registered securities, (12) the terms of any guaranty, if any,
issued with respect to such series of Subordinated Debt Securities, (13)
whether such series of Subordinated Debt Securities shall be issued as one or
more global debt securities ("Global Debt Securities"), and if so, the
identity of the depository (the "Debt Depository") for such Global Debt
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<PAGE>
Security or Securities, (14) if not issued as one or more Global Debt
Securities, the denominations in which such series of Subordinated Debt
Securities shall be issuable (if other than denominations of $5,000 and any
integral multiple thereof), (15) the date from which interest on such series
of Subordinated Debt Securities shall accrue, (16) the basis upon which
interest on such series of Subordinated Debt Securities shall be computed (if
other than on the basis of a 360-day year of twelve 30-day months), (17) if
other than the principal amount thereof, the portion of the principal amount
of such series of Subordinated Debt Securities which shall be payable upon
declaration of acceleration of the maturity thereof pursuant to the Indenture,
(18) whether and under what circumstances Pacific Telesis will pay Additional
Amounts (as defined in the Indenture) to any Holder who is not a United States
person (including any modification to the definition of such term as contained
in the Indenture as originally executed) in respect of any tax, assessment or
governmental charge and, if so, whether Pacific Telesis will have an option to
redeem such Subordinated Debt Securities rather than pay such Additional
Amounts (and the terms of any such option), (19) any deletions from,
modifications of or additions to the Events of Default (as defined in the
Indenture) or covenants of Pacific Telesis with respect to such series of
Subordinated Debt Securities, whether or not such Events of Default or
covenants are consistent with the terms of such Subordinated Debt Securities
Indenture, (20) any restrictions on dividends or distributions by Pacific
Telesis under the Indenture, (21) the ability of Pacific Telesis to incur
additional indebtedness or issue additional securities, (22) whether such
series of Subordinated Debt Securities will be offered at an "original issue
discount," (23) if other than the Subordinated Debt Securities Trustee, the
person or persons who shall be registrar for such series of Subordinated Debt
Securities (24) the Record Date (as defined in the Indenture), (25) the
identity of the Subordinated Debt Securities Trustee, (26) the percentage of
such series of Subordinated Debt Securities necessary to require the
Subordinated Debt Securities Trustee to take action under the Indenture, (27)
the place or places, if any, other than the City of New York, where the
principal of (and premium, if any, on) and any interest on such series of
Subordinated Debt Securities shall be payable, where such Subordinated Debt
Securities may be surrendered for registration of transfer or exchange, and
where any notices or demands upon Pacific Telesis with respect to such series
of Subordinated Debt Securities may be served, (28) the designation of the
initial Exchange Rate Agent (as defined in the Indenture), if any, (29) the
provisions, if any , granting special rights to the holders of such series of
Subordinated Debt Securities upon the occurrence of such events as may be
specified, and (30) any other term or provision relating to such series of
Subordinated Debt Securities not inconsistent with the Indenture.
The Indenture does not contain any provisions that afford holders of
Subordinated Debt Securities protection in the event of a highly leveraged
transaction involving Pacific Telesis.
Denomination
Subordinated Debt Securities may be issuable as Registered Securities (as
defined in the Indenture) solely, as Bearer Securities (as defined in the
Indenture) solely, or as both. Registered Securities will be issuable in
denominations of $25 and integral multiples of $25 and Bearer Securities will
be issuable in the denomination of $5,000 and integral multiples of $5,000 or,
in each case, in such other denominations as may be specified in the terms of
the Subordinated Debt Securities. The Subordinated Debt Securities Indenture
also provides that Subordinated Debt Securities may be issued in global form.
Unless otherwise indicated in any Prospectus Supplement, Bearer Securities
will have interest coupons attached.
Registration and Transfer
Registered Securities will be exchangeable for other Registered Securities of
the same series and of a like aggregate principal amount and tenor of
different authorized denominations. If (but only if) provided for in any
Prospectus Supplement, Bearer Securities (with all unmatured coupons, except
as provided below, and all matured coupons in default) of any series may be
exchanged for Registered Securities of the same series of any authorized
denominations and of a like aggregate principal amount and tenor. In such
event, Bearer Securities surrendered in a permitted exchange for Registered
Securities between a Regular Record Date (as defined in the Indenture) or a
Special Record Date (as defined in the Indenture) and the relevant date for
payment of interest shall be surrendered without the coupon relating to such
date for payment of interest, and interest will not be payable on such date
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for payment of interest in respect of the Registered Security issued in
exchange for such Bearer Security but will be payable only to the holder of
such coupon when due, in accordance with the terms of the Indenture. Unless
otherwise specified in any Prospectus Supplement, Bearer Securities will not
be issued in exchange for Registered Securities.
The Subordinated Debt Securities may be presented for exchange as described
above, and Registered Securities may be presented for registration of transfer
(duly endorsed or accompanied by a written instrument of transfer), at the
corporate trust offices of the Subordinated Debt Securities Trustee in
Chicago, Illinois or New York, New York. No service charge will be made for
any transfer or exchange of Subordinated Debt Securities, but Pacific Telesis
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
In the event of any redemption of Subordinated Debt Securities, Pacific
Telesis shall not be required to: (i) issue, register the transfer of or
exchange Subordinated Debt Securities of any series during a period beginning
at the opening of business 15 days before any selection of Subordinated Debt
Securities of that series to be redeemed and ending at the close of business
on (A) if Subordinated Debt Securities of the series are issuable only as
Registered Securities, the day of mailing of the relevant notice of redemption
and (B) if Subordinated Debt Securities of the series are issuable as Bearer
Securities, the day of the first publication of the relevant notice of
redemption or, if Subordinated Debt Securities of the series are also issuable
as Registered Securities and there is no publication, the day of mailing of
the relevant notice of redemption; (ii) register the transfer of or exchange
any Registered Security, or portion thereof, called for redemption, except the
unredeemed portion of any Registered Security being redeemed in part; (iii)
exchange any Bearer Security selected for redemption, except to exchange such
Bearer Security for a Registered Security of that series and like tenor that
is simultaneously surrendered for redemption; or (iv) issue, register the
transfer of or exchange any Subordinated Debt Securities that have been
surrendered for repayment at the option of the Holder, except the portion if
any, thereof not to be so repaid.
Global Securities
The Subordinated Debt Securities of a series may be issued in whole or in part
in the form of one or more Global Securities (as such term is defined below),
which will be deposited with, or on behalf of, a depository ("Depository") or
its nominee identified in the applicable Prospectus Supplement. In such case,
one or more Global Securities will be issued in a denomination or aggregate
denomination equal to the portion of the aggregate principal amount of
outstanding Subordinated Debt Securities of the series to be represented by
such Global Security or Global Securities. The term "Global Security," when
used with respect to any series of Subordinated Debt Securities, means a
Subordinated Debt Security that is executed by Pacific Telesis and
authenticated and delivered by the Subordinated Debt Securities Trustee to the
Depository or pursuant to the Depository's instruction, which shall be
registered in the name of the Depository or its nominee and which shall
represent, and shall be denominated in an amount equal to the aggregate
principal amount of, all of the outstanding Subordinated Debt Securities of
such series or any portion thereof, in either case having the same terms,
including, without limitation, the same original issue date, date or dates on
which principal is due, and interest rate or method of determining interest.
The specific terms of the Depository arrangement with respect to any portion
of a series of Subordinated Debt Securities to be represented by a Global
Security will be described in the applicable Prospectus Supplement. Pacific
Telesis expects that the following provisions will apply to Depository
arrangements.
Unless otherwise specified in the applicable Prospectus Supplement,
Subordinated Debt Securities that are to be represented by a Global Security
to be deposited with or on behalf of a Depository will be represented by a
Global Security registered in the name of such Depository or its nominee.
Upon the issuance of such Global Security, and the deposit of such Global
Security with or on behalf of the Depository for such Global Security, the
Depository will credit on its book-entry registration and transfer system the
respective principal amounts of the Subordinated Debt Securities represented
by such Global Security to the accounts of institutions that have accounts
with such Depository or its nominee ("participants"). The accounts to be
credited will be designated by the underwriters or agents with respect to such
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Subordinated Debt Securities or, if such Subordinated Debt Securities are
offered and sold directly by Pacific Telesis, by Pacific Telesis. Ownership
of beneficial interests in such Global Security will be limited to
participants or Persons (as defined in the Indenture) that may hold interests
through participants. Ownership of beneficial interests by participants in
such Global Security will be shown on, and the transfer of that ownership
interest will be effected only through, records maintained by the Depository
or its nominee for such Global Security. Ownership of beneficial interests in
such Global Security by Persons that hold through participants will be shown
on, and the transfer of that ownership interest within such participant will
be effected only through, records maintained by such participant. The laws of
some jurisdictions require that certain purchasers of securities take physical
delivery of such securities in certificated form. The foregoing limitations
and such laws may impair the ability to transfer beneficial interests in such
Global Securities.
So long as the Depository for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or Holder of the
Subordinated Debt Securities represented by such Global Security for all
purposes under the Indenture. Unless otherwise specified in the applicable
Prospectus Supplement, owners of beneficial interests in such Global Security
will not be entitled to have Subordinated Debt Securities of the series
represented by such Global Security registered in their names, will not
receive or be entitled to receive physical delivery of Subordinated Debt
Securities of such series in definitive certificated form and will not be
considered the Holders thereof for any purposes under the Indenture.
Accordingly, each Person owning a beneficial interest in such Global Security
must rely on the procedures of the Depository and, if such Person is not a
participant, on the procedures of the participant through which such Person
owns its interest, to exercise any rights of a Holder under the Indenture.
Pacific Telesis understands that under existing industry practices, if Pacific
Telesis requests any action of Holders or if an owner of a beneficial interest
in such Global Security desires to give any notice or take any action a Holder
is entitled to give or take under the Indenture, then the Depository would
authorize the participants to give such notice or take such action, and
participants would authorize beneficial owners owning through such
participants to give such notice or take such action or would otherwise act
upon the instructions of beneficial owners owning through them.
Principal of and any premium and interest on a Global Security will be payable
in the manner described in the applicable Prospectus Supplement.
Payment and Paying Agents
Unless otherwise indicated in an applicable Prospectus Supplement, payment of
principal of and premium (if any) on any Subordinated Debt Securities will be
made only against surrender to the Paying Agent (as defined in the Indenture)
of such Subordinated Debt Securities. Unless otherwise indicated in an
applicable Prospectus Supplement, principal of and any premium and interest,
if any, on Subordinated Debt Securities will be payable, subject to any
applicable laws and regulations, at the office of such Paying Agent or Paying
Agents as Pacific Telesis may designate from time to time, except that at the
option of Pacific Telesis payment of any interest may be made by check mailed
to the address of the person entitled thereto as such address shall appear in
the Debenture Register with respect to such Subordinated Debt Securities.
Unless otherwise indicated in an applicable Prospectus Supplement, payment of
interest on a Subordinated Debt Security on any Interest Payment Date (as
defined in the Indenture) will be made to the person in whose name such
Subordinated Debt Security (or predecessor security) is registered at the
close of business on the Regular Record Date (as defined in the Indenture) for
such interest payment.
Pacific Telesis will act as Paying Agent with respect to the Subordinated Debt
Securities. Pacific Telesis may at any time designate additional Paying
Agents or rescind the designation of any Paying Agents or approve a change in
the office through which any Paying Agent acts, except that Pacific Telesis
will be required to maintain a Paying Agent in each Place of Payment (as
defined in the Indenture) for each series of the respective Subordinated Debt
Securities.
Subordination
The Subordinated Debt Securities will be subordinated and junior in right of
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payment to certain other indebtedness of Pacific Telesis to the extent set
forth in the Prospectus Supplement that will accompany this Prospectus.
Certain Covenants
If Subordinated Debt Securities are issued to a Pacific Telesis Trust or a
trustee of such trust in connection with the issuance of Trust Securities by
such Pacific Telesis Trust and there shall have occurred any event that would
constitute an Event of Default, then (a) Pacific Telesis shall not declare or
pay dividends on, or make a distribution with respect to or redeem, purchase
or acquire, or make a liquidation payment with respect to, any of its capital
stock, (b) Pacific Telesis shall not make any payment of interest, principal
or premium, if any, on or repay, repurchase or redeem any debt securities
issued by Pacific Telesis that rank pari passu with or junior to such
Subordinated Debt Securities and (c) Pacific Telesis shall not make guarantee
payments with respect to the foregoing (other than pursuant to the Guarantee);
provided, however, that, restriction (a) above does not apply to any stock
dividends paid by Pacific Telesis where the dividend stock is the same stock
as that on which the dividend is being paid.
In the event Subordinated Debt Securities are issued to a Pacific Telesis
Trust or a trustee of such trust in connection with the issuance of Trust
Securities of such Pacific Telesis Trust, for so long as such Trust Securities
remain outstanding, Pacific Telesis will covenant (i) to directly or
indirectly maintain 100% ownership of the Common Securities of such Pacific
Telesis Trust; provided, however, that any permitted successor of Pacific
Telesis under the Indenture may succeed to Pacific Telesis' ownership of such
Common Securities and (ii) to use its reasonable efforts to cause such Pacific
Telesis Trust (a) to remain a statutory business trust, except in connection
with the distribution of Subordinated Debt Securities to the holders of Trust
Securities in liquidation of such Pacific Telesis Trust, the redemption of all
of the Trust Securities of such Pacific Telesis Trust, or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration of such
Pacific Telesis Trust, and (b) to otherwise continue to be classified as a
grantor trust for United States federal income tax purposes.
Restrictions
The Subordinated Debt Securities Indenture provides that Pacific Telesis shall
not consolidate with or merge into any other corporation, or convey, transfer
or lease, or permit one or more of its Subsidiaries to convey, transfer or
lease, all or substantially all of the properties and assets of the Company on
a consolidated basis to any Person, unless either Pacific Telesis is the
continuing corporation or such corporation or Person is organized under the
laws of the United States or any state of the United States or the District of
Columbia, assumes by supplemental indenture all the obligations of Pacific
Telesis under the Indenture and the Subordinated Debt Securities and,
immediately after giving effect thereto, no Event of Default shall have
occurred and be continuing.
Events of Default
The Indenture provides, with respect to any series of Subordinated Debt
Securities outstanding thereunder, that any one or more of the following
events that has occurred and is continuing shall constitute an Event of
Default: (i) default in the payment of any interest upon or any Additional
Amounts payable in respect of any Subordinated Debt Security of that series,
or of any coupon appertaining thereto, when the same becomes due and payable
if such default continues for a period of 90 days, provided however that an
extension of one or more Interest Payment Dates in accordance with the terms
of any Supplemental Indenture shall not constitute a default in the payment of
interest; (ii) default in the payment of the principal of (or any premium, if
any) on any Subordinated Debt Security of that series when due at maturity
with respect to that series; provided, however, that, a valid extension of the
maturity of the Subordinated Debt Securities in accordance with the terms of
any Supplemental Indenture shall not constitute a default for this purpose;
(iii) default in the deposit of any sinking fund payment when and as due; (iv)
default in the performance or breach of any covenant or agreement of Pacific
Telesis in the Indenture with respect to any Subordinated Debt Security of
that series (other than a default or breach which would otherwise constitute
an Event of Default under the Indenture) and continuance of such default or
breach for a period of 90 days after written notice to Pacific Telesis from
the Trustee or to Pacific Telesis and the Subordinated Debt Securities Trustee
from the holders of at least 25% in principal amount of the outstanding
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Subordinated Debt Securities of that series; (v) certain events in bankruptcy,
insolvency or reorganization of Pacific Telesis; (vi) the voluntary or
involuntary dissolution, winding-up or termination of a Pacific Telesis Trust
to which (or to a trustee of such trust to which) Subordinated Debt Securities
were issued in connection with the issuance of Trust Securities by such
Pacific Telesis Trust, except in connection with the distribution of
Subordinated Debt Securities to the holders of Trust Securities in liquidation
of such Pacific Telesis Trust, the redemption of all of the Trust Securities
of such Pacific Telesis Trust, or certain mergers, consolidations or
amalgamations, each as permitted by the Declaration of such Pacific Telesis
Trust; and (vii) any other Event of Default provided with respect to
Subordinated Debt Securities of that series. Pacific Telesis is required to
file annually with the Subordinated Debt Securities Trustee an officer's
certificate as to Pacific Telesis' compliance with all conditions and
covenants under the Indenture. The Indenture provides that the Trustee may
withhold notice to the Holders of Subordinated Debt Securities of any default,
except in the case of a default on the payment of the principal of (or
premium, if any) or interest on any Subordinated Debt Securities or the
payment of any sinking fund installment with respect to such Securities if it
considers it in the interest of the Holders of Subordinated Debt Securities to
do so.
If an Event of Default occurs and is continuing with respect to Subordinated
Debt Securities of a particular series, the Subordinated Debt Securities
Trustee or the Holders of not less than 25% in principal amount of Outstanding
(as defined in the Indenture) Subordinated Debt Securities of that series may
declare the Outstanding Subordinated Debt Securities of that series due and
payable immediately and upon any such declaration, such principal amount shall
become immediately due and payable.
Subject to the provisions relating to the duties of the Subordinated Debt
Securities Trustee, if an Event of Default with respect to Subordinated Debt
Securities of a particular series occurs and is continuing, the Subordinated
Debt Securities Trustee shall be under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
Holders of Subordinated Debt Securities of such series, unless such Holders
shall have offered to the Subordinated Debt Securities Trustee reasonable
indemnity and security against the costs, expenses and liabilities that might
be incurred by it in compliance with such request. Subject to such provisions
for the indemnification of the Subordinated Debt Securities Trustee, the
Holders of a majority in principal amount of the Outstanding Subordinated Debt
Securities of such series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the
Subordinated Debt Securities Trustee under the Indenture, or exercising any
trust or power conferred on the Subordinated Debt Securities Trustee with
respect to the Subordinated Debt Securities of that series. The Subordinated
Debt Securities Trustee may refuse to follow directions in conflict with law
or the Indenture that may involve the Subordinated Debt Securities Trustee in
personal liability or that may be unduly prejudicial to Holders not joining
therein.
The Holders of not less than a majority in principal amount of the Outstanding
Subordinated Debt Securities of any series may, on behalf of the Holders of
all the Subordinated Debt Securities of such series and any related coupons,
waive any past Event of Default under the Indenture with respect to such
series and its consequences and annul any declaration that any Subordinated
Debt Securities are due and payable immediately, except a default (i) in the
payment of the principal of (or premium, if any) or interest on any
Subordinated Debt Security of such series or (ii) in respect of a covenant or
provision that cannot be modified or amended without the consent of the Holder
of each Outstanding Subordinated Debt Security of such series affected
thereby.
Modification or Waiver
With the consent of the Holders of not less than a majority in principal
amount of all Outstanding Subordinated Debt Securities of any series, the
Company and the Trustee may enter into supplemental indentures for the purpose
of adding any provisions to or changing in any manner or eliminating in any
manner any of the provisions of the Indenture which affect such series of
Subordinated Debt Securities or of modifying in any manner the rights of the
Holders of such series; provided that, no such supplemental indenture may,
without the consent of the Holder of each Outstanding Subordinated Debt
Security of such series, among other things, (i) change the Stated Maturity
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(as defined in the Indenture) of the principal of or any installment of
principal of or interest on any Subordinated Debt Security of such series,
(ii) reduce the principal amount or the rate of interest on or any premium
payable upon redemption of any Subordinated Debt Security of such series,
(iii) change any obligation of Pacific Telesis to pay Additional Amounts in
respect of any Subordinated Debt Security of such series, (iv) reduce the
amount of principal of a Subordinated Debt Security of such series that is an
Original Issue Discount Security (as defined in the Indenture) and would be
due and payable upon a declaration of acceleration of the Maturity (as defined
in the Indenture) thereof or the amount thereof provable in bankruptcy, (v)
adversely affect any right of repayment at the option of the Holder of any
Subordinated Debt Security of such series, (vi) change the place or currency
of payment of principal of, or any premium or interest on, any Subordinated
Debt Security of such series, (vii) impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof or any
Redemption Date (as defined in the Indenture) or Repayment Date (as defined in
the Indenture) therefor, (viii) reduce the above-stated percentage of Holders
of Outstanding Subordinated Debt Securities of such series necessary to modify
or amend the Indenture or to consent to any waiver thereunder or reduce the
requirements for voting or quorum described below, (ix) change the time of
payment or reduce the amount of any minimum sinking fund payment or (x) modify
the foregoing requirements or reduce the percentage of Outstanding
Subordinated Debt Securities of such series necessary to waive any past
default.
Modification and amendment of the Indenture or any supplemental indenture may
be made by Pacific Telesis and the applicable Trustee without the consent of
any Holder, for any of the following purposes: (i) to evidence the succession
of another Person to Pacific Telesis as obligor under the Indenture or
Supplemental Indenture; (ii) to add to the covenants of Pacific Telesis for
the benefit of the Holders of all or any series of Subordinated Debt
Securities or to surrender any right or power conferred upon Pacific Telesis;
(iii) to add Events of Default for the benefit of the Holders of all or any
series of Subordinated Debt Securities; (iv) to add or change any provisions
of the Indenture to facilitate the issuance of Bearer Securities; (v) to
change or eliminate any provisions of the Indenture, provided that any such
change or elimination shall become effective only when there are no
Outstanding Subordinated Debt Securities of any series created prior thereto
that are entitled to the benefit of such provision; (vi) to establish the form
or terms of Subordinated Debt Securities of any series; (vii) to provide for
the acceptance of appointment by a successor Trustee or facilitate the
administration of the trusts under the Indenture by more than one Subordinated
Debt Securities Trustee; and (viii) to close the Indenture with respect to the
authentication and delivery of additional series of Subordinated Debt
Securities, to cure any ambiguity or inconsistency in the Indenture or
Supplemental Indenture, provided such action does not adversely affect the
interest of Holders of Subordinated Debt Securities of any series in any
material respect.
The Indenture contains provisions for convening meetings of the Holders of
Subordinated Debt Securities of a series if Subordinated Debt Securities of
that series are issuable as Bearer Securities. A meeting may be called at any
time by the Subordinated Debt Securities Trustee and also by such Subordinated
Debt Securities Trustee pursuant to a request made to such Subordinated Debt
Securities Trustee by Pacific Telesis or the Holders of at least 10% in
principal amount of the Subordinated Debt Securities of such series
Outstanding, but in any case, notice shall be given as provided in the
Indenture. Except for any consent that must be given by the Holder of each
Subordinated Debt Security affected thereby, as described above, any
resolution presented at a meeting or adjourned meeting duly reconvened at
which a quorum is present may be adopted by the affirmative vote of the
Holders of a majority in principal amount of the Subordinated Debt Securities
of that series Outstanding; provided, however, that, any resolution with
respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that may be made, given or taken by the Holders of a
specified percentage that is less than a majority in principal amount of
Subordinated Debt Securities of a series Outstanding may be adopted at a
meeting or adjourned meeting, duly reconvened and at which a quorum is
present, by the affirmative vote of the Holders of such specified percentage
in principal amount of the Subordinated Debt Securities of that series
Outstanding. Any resolution passed or decision taken at any meeting of
Holders of Subordinated Debt Securities of any series duly held in accordance
with the Indenture will be binding on all Holders of Subordinated Debt
Securities of that series and the related coupons. The quorum at any meeting
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called to adopt a resolution, and at any reconvened meeting, will consist of
persons entitled to vote a majority in principal amount of the Subordinated
Debt Securities of a series Outstanding; provided, however, that, if any
action is to be taken at such meeting with respect to a consent or waiver that
may be given by the Holders of not less than a specified percentage in
principal amount of the Subordinated Debt Securities of a series Outstanding,
the Persons entitled to vote such specified percentage in principal amount of
the Subordinated Debt Securities of such series Outstanding will constitute a
quorum. Notwithstanding the foregoing provisions, if any action is to be
taken at a meeting of Holders of Subordinated Debt Securities of any series
with respect to any request, demand, authorization, direction, notice,
consent, waiver or other action that the Indenture expressly provides may be
made, given or taken by the Holders of a specified percentage in principal
amount of all Outstanding Subordinated Debt Securities affected thereby, or of
the Holders of such series and one or more additional series, then (i) there
shall be no minimum quorum requirement for such meeting, and (ii) the
principal amount of the Outstanding Subordinated Debt Securities of such
series that vote in favor of such request, demand, authorization, direction,
notice, consent, waiver or other action shall be taken into account in
determining whether such request, demand, authorization, direction, notice,
consent, waiver or other action has been made, given or taken under the
Indenture.
Governing Law
The Subordinated Debt Securities Indenture and the Subordinated Debt
Securities will be governed by, and construed in accordance with, the internal
laws of the State of California.
Information Concerning the Subordinated Debt Securities Trustee
The Subordinated Debt Securities Trustee, prior to default, undertakes to
perform only such duties as are specifically set forth in the Indenture and,
after default, shall exercise the same degree of care as a prudent individual
would exercise in the conduct of his or her own affairs. Subject to such
provision, the Subordinated Debt Securities Trustee is under no obligation to
exercise any of the powers vested in it by the Indenture at the request of any
Holder of Subordinated Debt Securities, unless offered reasonable indemnity by
such Holder against the costs, expenses and liabilities that might be incurred
thereby. The Subordinated Debt Securities Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Subordinated Debt Securities Trustee
reasonably believes that repayment or adequate indemnity is not reasonably
assured to it.
Defeasance and Discharge
All liability of Pacific Telesis in respect to any Outstanding Subordinated
Debt Securities shall cease, terminate and be completely discharged if Pacific
Telesis shall (a) irrevocably deposit with the Subordinated Debt Securities
Trustee, in trust, at or before maturity, lawful money or direct obligations
of the United States (or in the case of Subordinated Debt Securities
denominated in a currency other than U.S. Dollars, of the government that
issued such currency), or obligations the principal of and interest on which
are guaranteed by the United States (or in the case of Subordinated Debt
Securities denominated in a currency other than U.S. Dollars, guaranteed by
the government that issued such currency), in such amounts and maturing at
such times that the proceeds of such obligations to be received upon the
respective maturities and interest payment dates will provide funds sufficient
to pay the principal of and interest and any premium to Maturity or the
Redemption Date, as the case may be, with respect to such Subordinated Debt
Securities and (b) deliver to the Subordinated Debt Securities Trustee an
opinion of counsel to the effect that the Holders of such Subordinated Debt
Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such discharge. All obligations of Pacific Telesis to
comply with certain covenants applicable to any Outstanding Subordinated Debt
Securities shall cease if Pacific Telesis shall deposit with the Subordinated
Debt Securities Trustee in trust, at or before maturity, lawful money or
direct obligations of the United States (or in the case of Subordinated Debt
Securities denominated in a currency other than U.S. Dollars, of the
government that issued such currency), or obligations the principal of and
interest on which are guaranteed by the United States (or in the case of
Subordinated Debt Securities denominated in a currency other than U.S.
Dollars, by the government that issued such currency), in such amounts and
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maturing at such times that the proceeds of such obligations to be received
upon the respective maturities and interest payment dates will provide funds
sufficient to pay the principal of and interest and any premium to Maturity or
to the Redemption Date, as the case may be, with respect to such Subordinated
Debt Securities.
Miscellaneous
Pacific Telesis will have the right at all times to assign any of its
respective rights or obligations under the Subordinated Debt Securities
Indenture to a direct or indirect wholly-owned subsidiary of Pacific Telesis;
provided, that, in the event of any such assignment, Pacific Telesis will
remain liable for all of their respective obligations. Subject to the
foregoing, the Subordinated Debt Securities Indenture will be binding upon and
inure to the benefit of the parties thereto and their respective successors
and assigns. The Subordinated Debt Securities Indenture provides that it may
not otherwise be assigned by the parties thereto.
DESCRIPTION OF THE PACIFIC TELESIS TRUSTS' PREFERRED SECURITIES
Each Pacific Telesis Trust may issue, from time to time, only one series of
Preferred Securities having terms described in the Prospectus Supplement
relating thereto. The Declaration of each Pacific Telesis Trust authorizes
the Regular Trustees of such Pacific Telesis Trust to issue on behalf of such
Pacific Telesis Trust one series of Preferred Securities. The Declaration
will be qualified as an indenture under the Trust Indenture Act. The
Preferred Securities will have such terms, including distributions,
redemption, voting, liquidation rights and such other preferred, deferral or
other special rights or such restrictions as shall be set forth in the
Declaration or made part of the Declaration by the Trust Indenture Act.
Reference is made to any Prospectus Supplement relating to the Preferred
Securities of a Pacific Telesis Trust for specific terms, including (i) the
distinctive designation of such Preferred Securities, (ii) the number of
Preferred Securities issued by such Pacific Telesis Trust, (iii) the annual
distribution rate (or method of determining such rate) for Preferred
Securities issued by such Pacific Telesis Trust and the date or dates upon
which such distributions shall be payable (provided, however, that,
distributions on such Preferred Securities shall be payable on a quarterly
basis to holders of such Preferred Securities as of a record date in each
quarter during which such Preferred Securities are outstanding) (iv) whether
distributions on Preferred Securities issued by such Pacific Telesis Trust
shall be cumulative, and, in the case of Preferred Securities having such
cumulative distribution rights, the date or dates or method of determining the
date or dates from which distributions on Preferred Securities issued by such
Pacific Telesis Trust shall be cumulative, (v) the amount or amounts which
shall be paid out of the assets of such Pacific Telesis Trust to the holders
of Preferred Securities of such Pacific Telesis Trust upon voluntary or
involuntary dissolution, winding-up or termination of such Pacific Telesis
Trust, (vi) the obligation, if any, of such Pacific Telesis Trust to purchase
or redeem Preferred Securities issued by such Pacific Telesis Trust and the
price or prices at which, the period or periods within which and the terms and
conditions upon which Preferred Securities issued by such Pacific Telesis
Trust shall be purchased or redeemed, in whole or in part, pursuant to such
obligation, (vii) the voting rights, if any, of Preferred Securities issued by
such Pacific Telesis Trust in addition to those required by law, including the
number of votes per Preferred Security and any requirement for the approval by
the holders of Preferred Securities, or of Preferred Securities issued by one
or more Pacific Telesis Trusts, or of both, as a condition to specified action
or amendments to the Declaration of such Pacific Telesis Trust, (viii) the
rights, if any, to defer distributions on the Preferred Securities by
extending the interest payment period, (ix) the terms of any guarantee, if
any, issued with respect the Preferred Securities, (x) whether such Preferred
Securities shall be issued as one or more Global Securities (as defined in the
Declaration), and if so, the identity of the depository for such Global
Security or Securities, (xi) if not issued as one or more Global Securities,
the denominations in which the Preferred Securities shall be issuable (xii)
the events of default under the Declaration and any deletions from,
modifications of or additions to the events of default or covenants of such
Pacific Telesis Trust with respect to the Preferred Securities, whether or not
such events of default or covenants are consistent with the terms of the
Preferred Securities, (xiii) any restrictions on any distributions by such
Pacific Telesis Trust under the Declaration, (xiv) the ability of such Pacific
Telesis Trust to incur additional indebtedness or issue additional securities,
(xv) if other than the Property Trustee, the person or persons who shall be
52
<PAGE>
registrar for the Preferred Securities (xvi) the identity of the Property
Trustee, (xvii) any covenants of such Pacific Telesis Trust with respect the
Preferred Securities, and (xviii) any other relevant rights, preferences,
privileges, limitations or restrictions of Preferred Securities issued by such
Pacific Telesis Trust consistent with the Declaration of such Pacific Telesis
Trust or with applicable law. All Preferred Securities offered hereby will be
guaranteed by Pacific Telesis to the extent set forth below under "Description
of the Guarantees." Certain United States federal income tax considerations
applicable to any offering of Preferred Securities will be described in the
Prospectus Supplement relating thereto.
In connection with the issuance of Preferred Securities, each Pacific Telesis
Trust will issue one series of Common Securities. The Declaration of each
Pacific Telesis Trust authorizes the Regular Trustees of such trust to issue
on behalf of such Pacific Telesis Trust one series of Common Securities having
such terms including distributions, redemption, voting, liquidation rights or
such restrictions as shall be set forth therein. The terms of the Common
Securities issued by a Pacific Telesis Trust will be substantially identical
to the terms of the Preferred Securities issued by such Pacific Telesis Trust
and the Common Securities will rank pari passu with, and payments will be made
thereon pro rata with, the Preferred Securities except that, upon an event of
default under the Declaration, the rights of the holders of the Common
Securities to payment in respect of distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of
the holders of the Preferred Securities. Except in certain limited
circumstances, the Common Securities will also carry the right to vote and to
appoint, remove or replace any of the Pacific Telesis Trustees of a Pacific
Telesis Trust. All of the Common Securities of a Pacific Telesis Trust will
be directly or indirectly owned by Pacific Telesis.
DESCRIPTION OF THE GUARANTEES
Set forth below is a summary of information concerning the Guarantees that
will be executed and delivered by Pacific Telesis for the benefit of the
holders, from time to time, of Preferred Securities. Each Guarantee will be
qualified as an indenture under the Trust Indenture Act. The First National
Bank of Chicago will act as indenture trustee under each Guarantee (the
"Guarantee Trustee"). The terms of each Guarantee will be those set forth in
such Guarantee and those made part of such Guarantee by the Trust Indenture
Act. The summary does not purport to be complete and is subject in all
respects to the provisions of, and is qualified in its entirety by reference
to, the form of Guarantee, which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part, and the Trust Indenture Act.
Each Guarantee will be held by the Guarantee Trustee for the benefit of the
holders of the Preferred Securities of the applicable Pacific Telesis Trust.
General
Pursuant to each Guarantee, Pacific Telesis will irrevocably and
unconditionally agree, to the extent set forth herein, to pay in full to the
holders of the Preferred Securities issued by a Pacific Telesis Trust, the
Guarantee Payments (as defined herein) (except to the extent paid by such
Pacific Telesis Trust), as and when due, regardless of any defense, right of
set-off or counterclaim which such Pacific Telesis Trust may have or assert.
The following payments with respect to Preferred Securities issued by a
Pacific Telesis Trust (the "Guarantee Payments"), to the extent not paid by
such Pacific Telesis Trust, will be subject to the Guarantee (without
duplication): (i) any accrued and unpaid distributions that are required to
be paid on such Preferred Securities, but only if and to the extent that such
Trust has funds available therefor (ii) the redemption price, including all
accrued and unpaid distributions (the "Redemption Price") with respect to any
Preferred Securities called for redemption by the Pacific Telesis Trust, but
only if and to the extent that such Trust has funds available therefor and
(iii) upon a voluntary or involuntary dissolution, winding-up or termination
of such Pacific Telesis Trust (other than in connection with the distribution
of Subordinated Debt Securities to the holders of Preferred Securities or the
redemption of all of the Preferred Securities upon maturity or redemption of
the Subordinated Debt Securities held by such Pacific Telesis Trust) the
lesser of (a) the aggregate of the liquidation amount and all accrued and
unpaid distributions on such Preferred Securities to the date of payment to
the extent such Pacific Telesis Trust has funds available therefor or (b) the
amount of assets of such Pacific Telesis Trust remaining available for
distribution to holders of such Preferred Securities in liquidation of such
Pacific Telesis Trust. Pacific Telesis' obligation to make a Guarantee
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<PAGE>
Payment may be satisfied by direct payment of the required amounts by Pacific
Telesis to the holders of Preferred Securities or by causing the applicable
Pacific Telesis Trust to pay such amounts to such holders.
Each Guarantee will be a full and unconditional guarantee, to the extent
described herein, with respect to the Preferred Securities issued by the
applicable Pacific Telesis Trust from the time of issuance of such Preferred
Securities but will only apply to any payment of distributions on the
Preferred Securities if and to the extent that such Trust shall have funds
available therefor. If Pacific Telesis does not make interest payments on the
Subordinated Debt Securities purchased by a Pacific Telesis Trust, such
Pacific Telesis Trust will not pay distributions on the Preferred Securities
issued by such Pacific Telesis Trust and will not have funds available
therefor. See "Description of the Subordinated Debt Securities."
Pacific Telesis has also agreed to irrevocably and unconditionally guarantee
the obligations of the Pacific Telesis Trusts with respect to the Common
Securities (the "Common Securities Guarantees") to the same extent as the
Guarantees, except that, upon an event of default under the Indenture, holders
of Preferred Securities under the Guarantees shall have priority over holders
of Common Securities under the Common Securities Guarantees with respect to
distributions and payments on liquidation, redemption or otherwise.
Certain Covenants of Pacific Telesis
In each Guarantee, Pacific Telesis will covenant that, so long as any
Preferred Securities issued by the applicable Pacific Telesis Trust remain
outstanding, if there shall have occurred any event that would constitute an
event of default under such Guarantee or the Declaration of such Pacific
Telesis Trust or if Pacific Telesis shall have given notice of its election to
extend the interest payment period on the Subordinated Debt Securities as
provided in the Indenture, then (a) Pacific Telesis shall not declare or pay
any dividend on, or make any distribution with respect to, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
capital stock, (b) Pacific Telesis shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities issued by Pacific Telesis which rank pari passu with or junior to
such Guarantee and (c) Pacific Telesis shall not make any guarantee payments
with respect to the foregoing (other than with respect to the Guarantee).
However, each Guarantee will except from the foregoing any stock dividends
paid by Pacific Telesis where the dividend stock is the same stock as that on
which the dividend is being paid.
Modification of the Guarantees; Assignment
Except with respect to any changes that do not adversely affect the rights of
holders of Preferred Securities (in which case no vote will be required), each
Guarantee may be amended only with the prior approval of the holders of not
less than 66 2/3% in liquidation amount of the outstanding Preferred
Securities issued by the applicable Pacific Telesis Trust. The manner of
obtaining any such approval of holders of such Preferred Securities will be
set forth in an accompanying Prospectus Supplement. All guarantees and
agreements contained in a Guarantee shall bind the successors, assignees,
receivers, trustees and representatives of Pacific Telesis and shall inure to
the benefit of the holders of the Preferred Securities of the applicable
Pacific Telesis Trust then outstanding.
Events of Default
An event of default under the Guarantee will occur upon the failure of Pacific
Telesis to make or perform any of its payments or other obligations
thereunder. The holders of a majority in liquidation amount of the Preferred
Securities to which a Guarantee relates have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of the Guarantee, to waive certain defaults
thereunder or to direct the exercise of any trust or power conferred upon the
Guarantee Trustee under the Guarantee.
Any holder of Preferred Securities shall have the right, which is absolute and
unconditional, to receive the Guarantee Payments and to institute suit
directly against Pacific Telesis for the enforcement of such payments and such
rights shall not be impaired without the consent of such holder. If with
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<PAGE>
respect to other than the Guarantee Payments, the Guarantee Trustee fails to
enforce such Guarantee, any holder of the Preferred Securities relating to
such Guarantee may institute a legal proceeding directly against Pacific
Telesis to enforce the Guarantee Trustee's rights under such Guarantee without
first instituting a legal proceeding against the relevant Pacific Telesis
Trust, the Guarantee Trustee or any other person or entity.
Information Concerning the Guarantee Trustee
The Guarantee Trustee, prior to the occurrence of a default, undertakes to
perform only such duties as are specifically set forth in the Guarantee and,
after default with respect to a Guarantee, shall exercise the same degree of
care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to such provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by a Guarantee Agreement
at the request of any holder of Preferred Securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
Termination of the Guarantees
Each Guarantee will terminate as to the Preferred Securities issued by the
applicable Pacific Telesis Trust upon the earlier of (a) full payment of the
Redemption Price of all Preferred Securities of such Pacific Telesis Trust,
(b) distribution of the Subordinated Debt Securities held by such Pacific
Telesis Trust to the holders of the Preferred Securities of such Pacific
Telesis Trust or (c) upon full payment of the amounts payable in accordance
with the Declaration of such Pacific Telesis Trust upon liquidation of such
Pacific Telesis Trust. Each Guarantee will continue to be effective or will
be reinstated, as the case may be, if at any time any holder of Preferred
Securities issued by the applicable Pacific Telesis Trust must restore payment
of any sums paid under such Preferred Securities or such Guarantee.
Status of the Guarantees
Each Guarantee will constitute an unsecured obligation of Pacific Telesis and
will rank (i) subordinate and junior in right of payment to all other
liabilities of Pacific Telesis including the Subordinated Debt Securities,
(ii) pari passu with the most senior preferred or preference stock now or
hereafter issued by Pacific Telesis and with any guarantee now or hereafter
entered into by Pacific Telesis in respect of any preferred or preference
stock of any affiliate of Pacific Telesis and (iii) senior to Pacific Telesis'
common stock. The terms of the Preferred Securities provide that each holder
of Preferred Securities issued by such Pacific Telesis Trust by acceptance
thereof agrees to the subordination provisions and other terms of the
applicable Guarantee.
Each Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly
against the guarantor to enforce its rights under a Guarantee without
instituting a legal proceeding against any other person or entity).
Each Guarantee will be deposited with the Guarantee Trustee and held for the
benefit of the holders of the Preferred Securities. Except as otherwise noted
herein, the Guarantee Trustee has the right to enforce the Guarantees on
behalf of the holders of the Preferred Securities. The Guarantees will not be
discharged except by payment of the Guarantee Payments in full (without
duplication of any amounts theretofore paid by the Trusts).
The Company's obligations under the Declaration for each Trust, the Guarantee
issued with respect to Preferred Securities issued by that Trust, the
Subordinated Debt Securities purchased by that Trust and the related Indenture
in the aggregate will provide a full and unconditional guarantee by the
Company of payments due on the Preferred Securities issued by that Trust.
Governing Law
The Guarantees will be governed by and construed in accordance with the
internal laws of the State of California.
PLAN OF DISTRIBUTION
Pacific Telesis may sell any series of the Subordinated Debt Securities and
the Pacific Telesis Trusts may sell the Preferred Securities in one or more of
55
<PAGE>
the following ways from time to time: (i) to or through underwriters or
dealers, (ii) directly to purchasers or (iii) through agents. The Prospectus
Supplement with respect to any Offered Securities will set forth (i) the terms
of the offering of the Offered Securities, including the name or names of any
underwriters, dealers or agents, (ii) the purchase price of the Offered
Securities and the proceeds to Pacific Telesis or the applicable Pacific
Telesis Trust as the case may be from such sale, (iii) any underwriting
discounts and commissions or agency fees and other items constituting
underwriters' or agents' compensation, (iv) any initial public offering
prices, (v) any discounts or concessions allowed or reallowed or paid to
dealers, and (vi) any securities exchange on which such Offered Securities may
be listed. Any initial public offering price, discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time.
If underwriters are used in the sale, the Offered Securities will be acquired
by the underwriters for their own account and may be resold from time to time
in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale.
The Offered Securities may be offered to the public either through
underwriting syndicates represented by one or more managing underwriters or
directly by one or more firms acting as underwriters. The underwriter or
underwriters with respect to a particular underwritten offering of Offered
Securities will be named in the Prospectus Supplement relating to such
offering and, if an underwriting syndicate is used, the managing underwriter
or underwriters will be set forth on the cover of such Prospectus Supplement.
Unless otherwise set forth in the Prospectus Supplement relating thereto, the
obligations of the underwriters to purchase the Offered Securities will be
subject to certain conditions precedent, and the underwriters will be
obligated to purchase all the Offered Securities if any are purchased. If
dealers are utilized in the sale of Offered Securities, Pacific Telesis and/or
the applicable Pacific Telesis Trust will sell such Offered Securities to the
dealers as principals. The dealers may then resell such Offered Securities to
the public at varying prices to be determined by such dealers at the time of
resale. The names of the dealers and the terms of the transaction will be set
forth in the Prospectus Supplement relating thereto.
Any series of Subordinated Debt Securities may be sold from time to time
either directly by Pacific Telesis or through agents designated by Pacific
Telesis. Any series of Preferred Securities may be sold from time to time
either directly by the applicable Pacific Telesis Trust or by agents
designated by such trust. Any agent involved in the offer or sale of the
Offered Securities in respect to which this Prospectus is delivered will be
named, and any commissions payable by Pacific Telesis and/or the applicable
Pacific Telesis Trust to such agent will be set forth, in the Prospectus
Supplement relating thereto. Unless otherwise indicated in the Prospectus
Supplement, any such agent will be acting on a best efforts basis for the
period of its appointment.
The Subordinated Debt Securities may be sold directly by Pacific Telesis and
the Preferred Securities may be sold directly by the applicable Pacific
Telesis Trust to institutional investors or others who may be deemed to be
underwriters within the meaning of the Securities Act with respect to any
resale thereof. The terms of any such sales will be described in the
Prospectus Supplement relating thereto.
Agents, dealers and underwriters may be entitled under agreements with Pacific
Telesis and/or the applicable Pacific Telesis Trust to indemnification by
Pacific Telesis and/or such Pacific Telesis Trust against certain civil
liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments that such agents, dealers or
underwriters may be required to make in respect thereof. Agents, dealers and
underwriters may be customers of, engage in transactions with, or perform
services for Pacific Telesis and/or the applicable Pacific Telesis Trust in
the ordinary course of business.
Each series of Offered Securities will be a new issue of securities and will
have no established trading market. Any underwriters to whom Offered
Securities are sold for public offering and sale may make a market in such
Offered Securities, but such underwriters will not be obligated to do so and
may discontinue any market making at any time without notice. The Offered
Securities may or may not be listed on a national securities exchange. No
assurance can be given that there will be a market for the Offered Securities.
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<PAGE>
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon on behalf of the Pacific Telesis Trusts by
Skadden, Arps, Slate, Meagher & Flom, special Delaware counsel to the Pacific
Telesis Trusts. The validity of the Subordinated Debt Securities and the
Guarantee and certain matters relating thereto will be passed upon for Pacific
Telesis by Richard W. Odgers - Executive Vice President, General Counsel and
Secretary of Pacific Telesis. Certain United States federal income taxation
matters will be passed upon for Pacific Telesis and the Pacific Telesis Trusts
by Phillip J. Lauro, Executive Director of Taxes of Pacific Telesis. As of
September 30, 1995, Mr. Odgers beneficially owned or had an interest in
approximately 2,144 shares of Pacific Telesis common stock and had been
granted options under the Pacific Telesis Group 1994 Stock Incentive Plan or
its predecessor with respect to 70,000 shares of Pacific Telesis common stock.
As of September 30, 1995, Mr. Lauro beneficially owned or had an interest in
approximately 1,462 shares of Pacific Telesis common stock and had been
granted options under the Pacific Telesis Group 1994 Stock Incentive Plan or
its predecessor with respect to 10,400 shares of Pacific Telesis common stock.
As of October 30, 1995, members and counsel of Skadden, Arps, Slate, Meagher &
Flom beneficially owned or had an interest in 2,000 shares of Pacific Telesis
common stock.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated balance sheets as of December 31, 1994 and 1993, and the
consolidated statements of income, retained earnings, and cash flows for each
of the three years in the period ended December 31, 1994, and the financial
statement schedule included in Pacific Telesis Group's Annual Report on Form
10-K for the year ended December 31, 1994, incorporated by reference in this
Prospectus, have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in auditing and accounting. With respect to the unaudited interim
financial information for the periods ended March 31, 1995 and 1994, June 30,
1995 and 1994, and September 30, 1995 and 1994 incorporated by reference in
this prospectus, the independent certified public accountants have reported
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, their separate reports
included in the Company's quarterly reports on Form 10-Q for the quarters
ended March 31, 1995, June 30, 1995 and September 30, 1995 incorporated by
reference herein, state that they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the degree of
reliance on their reports on such information should be restricted in light of
the limited nature of the review procedures applied. The accountants are not
subject to the liability provisions of Section 11 of the Securities Act of
1933 for their reports on the unaudited interim financial information because
those reports are not a "report" or a "part" of the Registration Statement
prepared or certified by the accountants within the meaning of Sections 7 and
11 of the Act.
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<PAGE>
- ------------------------------------ ------------------------------------
No dealer, salesperson or other
individual has been authorized
to give any information or to
make any representations other
than those contained or incor-
porated by reference in this 20,000,000
Prospectus Supplement or the Preferred Securities
Prospectus in connection with
the offer made by this Prospectus PACIFIC*TELESIS
Supplement and the Prospectus Group
and, if given or made, such
information or representation Pacific Telesis Financing I
must not be relied upon as
having been authorized by % Trust Originated
Pacific Telesis Group, Pacific Preferred Securities ("TOPrS")
Telesis Financing I, or the guaranteed to the extent set
Underwriters. Neither the forth herein by
delivery of this Prospectus Pacific Teleis Group
Supplement and the Prospectus
nor any sale made hereunder and
thereunder shall under any cir-
cumstance create an implication
that there has been no change
in the affairs of Pacific Telesis ---------------------
Group or Pacific Telesis Financing PROSPECTUS SUPPLEMENT
I, since the date hereof. This ---------------------
Prospectus Supplement and the
Prospectus do not constitute an
offer or solicitation by anyone
in any state in which such offer
or solicitation is not authorized
or in which the person making such
offer or solicitation is not quali-
fied to do so or to anyone to whom
it is unlawful to make such offer Merrill Lynch & Co.
or solicitation. Dean Witter Reynolds Inc.
A. G. Edwards & Sons, Inc.
Goldman, Sachs & Co.
TABLE OF CONTENTS Lehman Brothers Inc.
PaineWebber Incorporated
Prospectus Supplement Prudential Securities Incorporated
Salomon Brothers Inc
Page Smith Barney Inc.
____
Pacific Telesis-Group Summary
Financial Data
Pacific Telesis Group
Pacific Telesis Financing I
Risk Factors ______, 1995
Ratio of Earnings to Fixed
Charges
Capitalization of Pacific
Telesis Group
Use of Proceeds
Description of the Pre-
ferred Securities
Description of the Subordi-
nated Debentures
Effect of Obligations Under
the Subordinated Debentures
and the Guarantee
United States Federal Income
Taxation
Underwriting
Legal Matters
Prospectus
Available Information
Incorporation of Certain Docu-
ments by Reference
58
<PAGE>
Pacific Telesis Group
The Pacific Telesis Financing Trusts
Use of Proceeds
Ratio of Earnings to Fixed
Charges
Description of the Subordinated
Debt Securities
Description of the Pacific
Telesis Trusts' Preferred
Securities
Description of the Guarantees
Plan of Distribution
Validity of Securities
Independent Public Accountants
____________________________________ ____________________________________
59
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Securities and Exchange Commission Filing Fee . . $ 344,827.59
New York Stock Exchange Listing Fee . . . . . . . 170,300*
Rating Agency Fees. . . . . . . . . . . . . . . . 200,000*
Blue Sky Fees and Expenses. . . . . . . . . . . . 20,000*
Trustee's Expenses. . . . . . . . . . . . . . . . 15,000*
Printing Fees and Expenses. . . . . . . . . . . . 70,000*
Accounting Fees and Expenses. . . . . . . . . . . 25,000*
Legal Fees and Expenses . . . . . . . . . . . . . 90,000*
Miscellaneous . . . . . . . . . . . . . . . . . . 20,000*
----------------
Total. . . . . . . . . . . . . . . . . . . . $ 955,127.59*
================
_________________________________
* Estimated
Item 15. Indemnification of Directors and Officers.
Section 78.037 of the Nevada Revised Statutes ("N.R.S.") provides that a
Nevada corporation's articles may contain a provision eliminating or limiting
the personal liability of a director or officer to the corporation or its
stockholders for damages for breach of fiduciary duty but may not eliminate or
limit liability for acts or omissions involving intentional misconduct, fraud,
a knowing violation of the law or illegal payment of dividends. Pacific
Telesis' Articles of Incorporation ("Articles") contain such a provision and
therefore any lawsuits involving monetary damages would be subject to this
limitation. There is no such limitation in actions for equitable relief.
With respect to lawsuits not thus limited by Pacific Telesis' Articles, N.R.S.
Section 78.751 specifies the circumstances under which a Nevada corporation
may indemnify a director, officer, employee or agent. Generally, such person
must have acted in good faith and in a manner reasonably believed to be in, or
not opposed to, the best interests of the corporation, and with respect to any
criminal action or proceeding, such person must also have had no reasonable
cause to believe his or her conduct was unlawful. In any proceeding by or in
the right of the corporation where there is a judgment against such person,
indemnification may be made if such person acted in good faith, in a manner
which he or she reasonably believed to be in or not opposed to the best
interests of the corporation and was not found liable for negligence or
misconduct in the performance of his or her duties to the corporation.
However, indemnification may be had even where the person has been adjudged to
be liable for negligence or misconduct in the performance of his or her duties
if the court in which the action or suit was brought determines upon
application that despite the adjudication of liability but in view of all of
the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses as the court deems proper. Where the director,
officer, employee or agent successfully defends any such civil or criminal
proceeding, indemnification is required.
Pacific Telesis' Articles provide that it shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was a director or officer of Pacific Telesis, or is or was serving at the
request of Pacific Telesis as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, or
as a fiduciary of an employee benefit plan of Pacific Telesis or of a wholly
owned subsidiary corporation, against expenses incurred in connection with
such actions, suit or proceeding, including attorneys' fees, judgments, fines
and amounts paid in settlement, to the extent not prohibited by law, state or
federal. Expenses incurred in defending any such proceeding may be advanced
by Pacific Telesis prior to the final disposition of such action, suit or
proceeding upon receipt of an undertaking to repay such amount unless it shall
be determined ultimately that the person is entitled to be indemnified
thereunder. The Articles further provide that these provisions may not be
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<PAGE>
repealed or amended without the affirmative vote of at least 66-2/3% of the
voting power of the shares entitled to vote thereon.
Pacific Telesis' Articles also contain a provision authorizing the Corporation
to enter into indemnity agreements (the "Indemnity Agreements") with each of
Pacific Telesis' directors and officers. The Article states that such
agreements shall provide that Pacific Telesis shall indemnify (and advance
expenses to) the indemnitee to the fullest extent permitted by applicable law,
no later than 30 days after a written request has been made therefor, against
all expenses, judgments, fines, penalties, excise taxes and amounts paid in
settlement for claims with respect to events relating to such person's service
with or for Pacific Telesis, and that in any proceeding to enforce the
obligation to indemnify such person, Pacific Telesis shall have the burden to
establish that such indemnification is prohibited; provided, however, that
such agreements shall exclude indemnification if a judgment or other final
adjudication adverse to the indemnitee established (a) that his or her acts
were committed in bad faith or were the result of deliberate dishonesty, or
(b) that he or she in fact gained a financial advantage to which he or she was
not legally entitled, in which event the amount of the indemnification shall
be reduced by the amount of such financial advantage gained. Pacific Telesis
has entered into Indemnity Agreements with each of its directors and executive
officers as provided in this Article.
The directors and officers of Pacific Telesis are covered by insurance
policies indemnifying against certain liabilities, including certain
liabilities arising under the Securities Act of 1933, as amended, which might
be incurred by them in such capacities and against which they cannot be
indemnified by Pacific Telesis. Subject to certain exceptions, the Indemnity
Agreements obligate Pacific Telesis to use its best efforts to purchase and
maintain in effect such insurance with coverage no less favorable than that
presently provided.
The Indemnity Agreements also provide that if Pacific Telesis shall
discontinue any of its existing policies of directors' and officers' liability
insurance or limit the scope or the amount of the coverages thereunder, or if
such policies or coverages shall become unavailable in whole or in part for
any reason, then Pacific Telesis will hold harmless and indemnify the
indemnitee to the full extent of the coverage which would have been provided
if such insurance had been maintained.
The Declaration of each Pacific Telesis Trust provides that no Pacific Telesis
Trustee, affiliate of any Pacific Telesis Trustee, or any officers, directors,
shareholders, members, partners, employees, representatives or agents of any
Pacific Telesis Trustee, or any employee or agent of such Pacific Telesis
Trust or its affiliates (each an "Indemnified Person") shall be liable,
responsible or accountable in damages or otherwise to such Pacific Telesis
Trust or any employee or agent of the Trust or its affiliates for any loss,
damage or claim incurred by reason of any act or omission performed or omitted
by such Indemnified Person in good faith on behalf of such Pacific Telesis
Trust and in a manner such Indemnified Person reasonably believed to be within
the scope of the authority conferred on such Indemnified Person by such
Declaration or by law, except that an Indemnified Person shall be liable for
any such loss, damage or claim incurred by reason of such Indemnified Person's
negligence or willful misconduct with respect to such acts or omissions. The
Declaration of each Pacific Telesis Trust also provides that to the fullest
extent permitted by applicable law, Pacific Telesis shall indemnify and hold
harmless each Indemnified Person from and against any loss, damage or claim
incurred by such Indemnified Person by reason of any act or omission performed
or omitted by such Indemnified Person in good faith on behalf of such Pacific
Telesis Trust and in a manner such Indemnified Person reasonably believed to
be within the scope of authority conferred on such Indemnified Person by such
Declaration, except that no Indemnified Person shall be entitled to be
indemnified in respect of any loss, damage or claim incurred by such
Indemnified Person by reason of the negligence of such Indemnified Person or
willful misconduct with respect to such acts or omissions. The Declaration of
each Pacific Telesis Trust further provides that, to the fullest extent
permitted by applicable law, expenses (including legal fees) incurred by an
Indemnified Person in defending any claim, demand, action, suit or proceeding
shall, from time to time, be advanced by Pacific Telesis prior to the final
disposition of such claim, demand, action, suit or proceeding upon receipt by
or an undertaking by or on behalf of the Indemnified Person to repay such
amount if it shall be determined that the Indemnified Person is not entitled
to be indemnified for the underlying cause of action as authorized by such
Declaration.
61
<PAGE>
The directors and officers of Pacific Telesis and the Regular Trustees are
covered by insurance policies indemnifying against certain liabilities,
including certain liabilities arising under the Securities Act of 1933, as
amended, which might be incurred by them in such capacities and against which
they cannot be indemnified by Pacific Telesis or the Pacific Telesis Trusts.
Any agents, dealers or underwriters who execute any of the agreements filed as
Exhibit 1 to this registration statement will agree to indemnify Pacific
Telesis' directors and their officers and the Pacific Telesis Trustees who
signed the registration statement against certain liabilities that may arise
under the Securities Act of 1993, as amended, with respect to information
furnished to Pacific Telesis or any of the Pacific Telesis Trusts by or on
behalf of any such indemnifying party.
Item 16. Exhibits.
Exhibits identified in parentheses below are on file with the SEC and are
incorporated herein by reference to such previous filings. All other exhibits
are provided as part of this electronic transmission.
*1 - Form of Underwriting Agreement for offering of Preferred Securities.
*4-A - Certificate of Trust of Pacific Telesis Financing I.
*4-B - Certificate of Trust of Pacific Telesis Financing II.
*4-C - Certificate of Trust of Pacific Telesis Financing III.
*4-D-1- Declaration of Trust of Pacific Telesis Financing I.
4-D-2 - Form of Amended and Restated Declaration of Trust of Pacific Telesis
Financing I.
*4-E-1- Declaration of Trust of Pacific Telesis Financing II.
*4-E-2- Form of Amended and Restated Declaration of Trust of Pacific Telesis
Financing II - identical to Exhibit 4-D-2
*4-F-1- Declaration of Trust of Pacific Telesis Financing III.
*4-F-2- Form of Amended and Restated Declaration of Trust of Pacific Telesis
Financing III - identical to Exhibit 4-D-2
*4-G - Form of Debt Securities Indenture among Pacific Telesis Group and
The First National Bank of Chicago, as Trustee.
*4-H - Form of Supplemental Indenture to Indenture to be used in connection
with the issuance of Subordinated Debt Securities and Preferred
Securities.
*4-I - Form of Preferred Security (included in 4-D-2 above).
*4-J - Form of Subordinated Debt Security (included in 4-H above).
*4-K - Form of Guarantee with respect to Preferred Securities.
*5-A - Opinion of Richard W. Odgers, Esq.
*5-B - Opinions of Skadden, Arps, Slate, Meagher & Flom
*8 - Opinion of Phillip J. Lauro, Esq. as to certain federal income
taxation matters.
*12 - Computation of Ratio of Earnings to Fixed Charges of Pacific Telesis
Group. (In addition, Exhibit 12 to Pacific Telesis' Form 10-K for
1994 (File No. 1-8609) is incorporated by reference herein).
15 - Letter re unaudited interim financial information.
23-A - Consent of Independent Accountants, Coopers & Lybrand L.L.P.
*23-B - Consent of Richard W. Odgers, Esq., is contained in the opinion of
counsel filed as Exhibit 5-A.
*23-C - Consents of Skadden, Arps, Slate, Meagher & Flom are contained in its
opinions of counsel filed as Exhibit 5-B.
*23-D - Consent of Phillip J. Lauro, Esq., is contained in the opinion of
counsel filed as Exhibit 8.
*24 - Powers of Attorney (the powers of attorney for the Pacific Telesis
Trustees of Pacific Telesis Financing I, Pacific Telesis Financing II
and Pacific Telesis Financing III are included in Exhibits 4-D-1, 4-E-
1 and 4-F-1, respectively).
*25-A - Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The First National Bank of Chicago, as Trustee under the
Debt Securities Indenture.
*25-B - Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The First National Bank of Chicago, as Trustee under the
Declaration of Trust of Pacific Telesis Financing I.
62
<PAGE>
*25-C - Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of The First National Bank of Chicago, as Trustee
under the Declaration of Trust of Pacific Telesis Financing II.
*25-D - Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of The First National Bank of Chicago, as Trustee
under the Declaration of Trust of Pacific Telesis Financing III.
*25-E-1 - Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of The First National Bank of Chicago, as Trustee of
the Preferred Securities Guarantees of Pacific Telesis for the
benefit of the holders of Preferred Securities of Pacific Telesis
Financing I.
*25-E-2- Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of The First National Bank of Chicago, as Trustee of
the Preferred Securities Guarantees of Pacific Telesis for the
benefit of the holders of Preferred Securities of Pacific Telesis
Financing II.
*25-E-3- Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of The First National Bank of Chicago, as Trustee of
the Preferred Securities Guarantees of Pacific Telesis for the
benefit of the holders of Preferred Securities of Pacific Telesis
Financing III.
________________________________
* Previously filed.
Item 17. Undertaking.
The Registrants hereby undertake that, for purposes of determining any
liability under the Securities Act, each filing of Pacific Telesis' Annual
Report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (and where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d)
of the Exchange Act) that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the provisions referred to in Item 15 (other than the
insurance policies referred to therein), or otherwise, the Registrants have
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of
expenses incurred or paid by a director, officer or controlling person of the
Registrants in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrants will, unless in the opinion
of their counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
63
<PAGE>
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the Plan of
Distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above do not apply if the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic reports filed
by Pacific Telesis pursuant to Section 13 or Section 15(d) of the Exchange Act
that are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
The Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
64
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2
to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of San Francisco, State of California,
on December 6, 1995.
PACIFIC TELESIS GROUP
By
/s/ William E. Downing
----------------------
(William E. Downing)
Executive Vice President,
Chief Financial Officer
and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
2 to Registration Statement has been signed by the following persons in the
capacities indicated on December 6, 1995.
Signature/Name Title
/s/ Philip J. Quigley*
------------------------ Chairman of the Board,
(Philip J. Quigley) President & Chief
Executive Officer
and Director
/s/ William E. Downing Executive Vice
------------------------ President, Chief
(William E. Downing) Financial Officer
and Treasurer
(principal financial
officer and principal
accounting officer)
/s/ Gilbert F. Amelio*
------------------------ Director
(Gilbert F. Amelio)
/s/ William P. Clark*
------------------------ Director
(William P. Clark)
/s/ Herman E. Gallegos*
------------------------ Director
(Herman E. Gallegos)
/s/ Frank C. Herringer*
------------------------ Director
(Frank C. Herringer)
/s/ Ivan J. Houston*
------------------------ Director
(Ivan J. Houston)
/s/ Mary S. Metz*
------------------------ Director
(Mary S. Metz)
65
<PAGE>
/s/ Toni Rembe*
------------------------ Director
(Toni Rembe)
/s/ S. Donley Ritchey*
------------------------ Director
(S. Donley Ritchey)
/s/ Richard M. Rosenberg*
------------------------ Director
(Richard M. Rosenberg)
*By /s/ William E. Downing
------------------------
Attorney-in-fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of Pacific
Telesis Financing I, Pacific Telesis Financing II and Pacific Telesis
Financing III certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form S-3 and has duly caused this
Amendment No. 2 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California, on the 6th day of December, 1995.
PACIFIC TELESIS FINANCING I
By
/s/ Roomy F. Balaporia*
---------------
Roomy F. Balaporia, Trustee
By
/s/ Miles H. Mochizuki*
---------------
Miles H. Mochizuki, Trustee
By
/s/ Marie B. Washington*
---------------
Marie B. Washington, Trustee
PACIFIC TELESIS FINANCING II
By
/s/ Roomy F. Balaporia*
---------------
Roomy F. Balaporia, Trustee
By
/s/ Miles H. Mochizuki*
---------------
Miles H. Mochizuki, Trustee
By
/s/ Marie B. Washington*
---------------
Marie B. Washington, Trustee
66
<PAGE>
PACIFIC TELESIS FINANCING III
By
/s/ Roomy F. Balaporia*
---------------
Roomy F. Balaporia, Trustee
By
/s/ Miles H. Mochizuki*
---------------
Miles H. Mochizuki, Trustee
By
/s/ Marie B. Washington*
---------------
Marie B. Washington, Trustee
*By
/s/ William E. Downing
------------------------
Attorney-in-fact
EXHIBIT INDEX
Exhibits identified in parentheses below are on file with the SEC and are
incorporated herein by reference to such previous filings. All other exhibits
are provided as part of this electronic transmission.
*1 - Form of Underwriting Agreement for offering of Preferred
Securities.
*4-A - Certificate of Trust of Pacific Telesis Financing I.
*4-B - Certificate of Trust of Pacific Telesis Financing II.
*4-C - Certificate of Trust of Pacific Telesis Financing III.
*4-D-1- Declaration of Trust of Pacific Telesis Financing I.
4-D-2- Form of Amended and Restated Declaration of Trust of Pacific
Telesis Financing I.
*4-E-1- Declaration of Trust of Pacific Telesis Financing II.
*4-E-2- Form of Amended and Restated Declaration of Trust of Pacific
Telesis Financing II - identical to Exhibit 4-D-2
*4-F-1- Declaration of Trust of Pacific Telesis Financing III.
*4-F-2- Form of Amended and Restated Declaration of Trust of Pacific
Telesis Financing III - identical to Exhibit 4-D-2
*4-G - Form of Debt Securities Indenture among Pacific Telesis Group and
The First National Bank of Chicago, as Trustee.
*4-H - Form of Supplemental Indenture to Indenture to be used in
connection with the issuance of Subordinated Debt Securities and
Preferred Securities.
*4-I - Form of Preferred Security (included in 4-D-2 above).
*4-J - Form of Subordinated Debt Security (included in 4-H above).
*4-K - Form of Guarantee with respect to Preferred Securities.
*5-A - Opinion of Richard W. Odgers, Esq.
*5-B - Opinions of Skadden, Arps, Slate, Meagher & Flom
*8 - Opinion of Phillip J. Lauro, Esq. as to certain federal income
taxation matters.
*12 - Computation of Ratio of Earnings to Fixed Charges of Pacific
Telesis Group. (In addition, Exhibit 12 to Pacific Telesis' Form
10-K for 1994 (File No. 1-8609) is incorporated by reference
herein).
15 - Letter re unaudited interim financial information.
23-A - Consent of Independent Accountants, Coopers & Lybrand L.L.P.
*23-B - Consent of Richard W. Odgers, Esq., is contained in the opinion of
counsel filed as Exhibit 5-A.
*23-C - Consents of Skadden, Arps, Slate, Meagher & Flom are contained in
its opinions of counsel filed as Exhibit 5-B.
*23-D - Consent of Phillip J. Lauro, Esq., is contained in the opinion of
counsel filed as Exhibit 8.
*24 - Powers of Attorney (the powers of attorney for the Pacific Telesis
Trustees of Pacific Telesis Financing I, Pacific Telesis Financing
67
<PAGE>
II and Pacific Telesis Financing III are included in Exhibits 4-D-
1, 4-E-1 and 4-F-1, respectively).
*25-A - Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The First National Bank of Chicago, as Trustee under
the Debt Securities Indenture.
*25-B - Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The First National Bank of Chicago, as Trustee under
the Declaration of Trust of Pacific Telesis Financing I.
*25-C - Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The First National Bank of Chicago, as Trustee under
the Declaration of Trust of Pacific Telesis Financing II.
*25-D - Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The First National Bank of Chicago, as Trustee under
the Declaration of Trust of Pacific Telesis Financing III.
*25-E-1 - Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The First National Bank of Chicago, as Trustee of the
Preferred Securities Guarantees of Pacific Telesis for the benefit
of the holders of Preferred Securities of Pacific Telesis Financing
I.
*25-E-2- Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The First National Bank of Chicago, as Trustee of the
Preferred Securities Guarantees of Pacific Telesis for the benefit
of the holders of Preferred Securities of Pacific Telesis Financing
II.
*25-E-3- Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The First National Bank of Chicago, as Trustee of the
Preferred Securities Guarantees of Pacific Telesis for the benefit
of the holders of Preferred Securities of Pacific Telesis Financing
III.
________________________________
* Previously filed.
68
<PAGE>
EXHIBIT 4-D-2
-------------
=========================================
AMENDED AND RESTATED DECLARATION OF TRUST
PACIFIC TELESIS FINANCING I
Dated as of __________, 1995
=========================================
1
<PAGE>
TABLES OF CONTENTS
ARTICLE I
INTERPRETATION AND DEFINITIONS
Page
----
SECTION 1.1 Definitions...........................................
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application......................
SECTION 2.2 Lists of Holders of Securities........................
SECTION 2.3 Reports by the Property Trustee.......................
SECTION 2.4 Periodic Reports to Property Trustee..................
SECTION 2.5 Evidence of Compliance with Conditions Precedent......
SECTION 2.6 Events of Default; Waiver.............................
SECTION 2.7 Events of Default; Notice.............................
ARTICLE III
ORGANIZATION
SECTION 3.1 Name..................................................
SECTION 3.2 Office................................................
SECTION 3.3 Purpose...............................................
SECTION 3.4 Authority.............................................
SECTION 3.5 Title to Property of the Trust........................
SECTION 3.6 Powers and Duties of the Regular Trustees.............
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees..
SECTION 3.8 Powers and Duties of the Property Trustee.............
SECTION 3.9 Certain Duties and Responsibilities of the
Property Trustee......................................
SECTION 3.10 Certain Rights of the Property Trustee................
SECTION 3.11 Delaware Trustee......................................
SECTION 3.12 Execution of Documents................................
SECTION 3.13 Not Responsible for Recitals or Issuance
of Securities.........................................
SECTION 3.14 Duration of Trust.....................................
SECTION 3.15 Mergers...............................................
SECTION 3.16 Preferential Collection of Claims Against Trust.......
SECTION 3.17 Property Trustee May File Proofs of Claim.............
ARTICLE IV
SPONSOR
SECTION 4.1 Sponsor's Purchase of Common Securities...............
SECTION 4.2 Responsibilities of the Sponsor.......................
SECTION 4.3 Expenses..............................................
ARTICLE V
TRUSTEES
SECTION 5.1 Number of Trustees....................................
SECTION 5.2 Delaware Trustee......................................
SECTION 5.3 Property Trustee; Eligibility.........................
SECTION 5.4 Qualifications of Regular Trustees and Delaware Trustee
Generally.............................................
SECTION 5.5 Initial Trustees......................................
SECTION 5.6 Appointment, Removal and Resignation of Trustees......
SECTION 5.7 Vacancies among Trustees..............................
SECTION 5.8 Effect of Vacancies...................................
SECTION 5.9 Meetings..............................................
SECTION 5.10 Delegation of Power...................................
2
<PAGE>
TABLES OF CONTENTS (Cont'd)
ARTICLE VI
DISTRIBUTIONS
Page
----
SECTION 6.1 Distributions.........................................
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 General Provisions Regarding Securities...............
ARTICLE VIII
TERMINATION OF TRUST
SECTION 8.1 Termination of Trust..................................
ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1 Transfer of Securities................................
SECTION 9.2 Registration, Transfer and Exchange of Securities.....
SECTION 9.3 Deemed Security Holders...............................
SECTION 9.4 Global Preferred Securities and Common Securities.....
SECTION 9.5 Notices to Depository.................................
SECTION 9.6 Mutilated, Destroyed, Lost or Stolen Securities.......
ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 10.1 Liability.............................................
SECTION 10.2 Exculpation...........................................
SECTION 10.3 Fiduciary Duty........................................
SECTION 10.4 Indemnification.......................................
SECTION 10.5 Outside Businesses....................................
ARTICLE XI
ACCOUNTING
SECTION 11.1 Fiscal Year...........................................
SECTION 11.2 Certain Accounting Matters............................
SECTION 11.3 Banking...............................................
SECTION 11.4 Withholding...........................................
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 Amendments............................................
SECTION 12.2 Meetings of the Holders of Securities;
Action by Written Consent.............................
ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
SECTION 13.1 Representations and Warranties of Property Trustee....
SECTION 13.2 Representations and Warranties of Delaware Trustee....
3
<PAGE>
TABLES OF CONTENTS (Cont'd)
ARTICLE XIV
MISCELLANEOUS
Page
----
SECTION 14.1 Notices...............................................
SECTION 14.2 Governing Law.........................................
SECTION 14.3 Intention of the Parties..............................
SECTION 14.4 Headings..............................................
SECTION 14.5 Successors and Assigns................................
SECTION 14.6 Partial Enforceability................................
SECTION 14.7 Counterparts..........................................
EXHIBIT A TERMS OF SECURITIES...................................
ANNEX I FORM OF PREFERRED SECURITY CERTIFICATE................
ANNEX II FORM OF COMMON SECURITY CERTIFICATE...................
EXHIBIT B SPECIMEN OF DEBENTURE.................................
EXHIBIT C UNDERWRITING AGREEMENT................................
4
<PAGE>
CROSS-REFERENCE TABLE*
Section of Trust
Indenture Act of 1939, Section of
as amended Declaration
- ---------------------- -----------
310(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3(a)
310(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3(a)
310(c) . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 3.16(a);3.16(c)
311(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 3.16(b);3.16(c)
311(c) . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(a);2.2(b)
312(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
312(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(d)
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
313(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
313(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
313(d) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
314(b) . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
314(d) . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
314(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
314(f) . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9(b),3.10(a)
315(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7(a)
315(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9(a)
315(d) . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9(b)
315(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6(d)
316(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6
316(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6(e)
316(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6(e)
317(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 3.17
317(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6(s)
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(c)
____________________
* This Cross-Reference Table does not constitute part of the Declaration
and shall not have any bearing upon the interpretation of any of its
terms or provisions.
5
<PAGE>
AMENDED AND RESTATED DECLARATION OF TRUST
OF
PACIFIC TELESIS FINANCING I
_______________, 1995
AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and effective
as of ____________, 1995, by the undersigned trustees (together with all other
Persons (as hereinafter defined) from time to time duly appointed and serving
as trustees in accordance with the provisions of this Declaration,
collectively the "Trustees" (as hereinafter more fully defined)),
Pacific Telesis Group, a Nevada corporation, as trust sponsor (the "Sponsor"
(as hereinafter more fully defined)), and by the holders, from time to time,
of undivided beneficial interests (as hereinafter more fully defined) in the
trust to be issued pursuant to this Declaration;
WHEREAS, the Trustees and the Sponsor have established a trust (the "Trust")
under the Business Trust Act (as hereinafter defined) pursuant to a
Declaration of Trust dated as of October 16, 1995, (the "Original
Declaration")and a Certificate of Trust filed with the Secretary of State of
Delaware on October 17, 1995, for the sole purpose of issuing and selling
certain securities representing undivided beneficial interests in the assets
of the Trust and investing the proceeds from the sale thereof in certain
subordinated debentures.
WHEREAS, as of the date hereof, no interests in the Trust have been issued;
WHEREAS, all of the Trustees and the Sponsor by this Declaration, amend and
restate each and every term and provision of the Original Declaration; and
NOW, THEREFORE, it being the intention of the parties hereto to continue the
Trust as a business trust under the Business Trust Act and that the Original
Declaration be amended and restated in its entirety as provided herein and
that this Declaration constitute the governing instrument of such Trust, the
Trustees declare that all assets contributed to the Trust will be held for the
benefit of the holders, from time to time, of the securities representing
undivided beneficial interests in the assets of the Trust issued hereunder,
subject to the provisions of this Declaration.
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Definitions.
Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not defined in the
preamble above have the respective meanings assigned to them in this
Section 1.1;
(b) a term defined anywhere in this Declaration has the same meaning
throughout;
(c) all references to "the Declaration" or "this Declaration" are to
this Declaration as modified, supplemented or amended from time to
time;
(d) all references in this Declaration to Articles and Sections and
Exhibits are to Articles and Sections of and Exhibits to this
Declaration unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Declaration unless otherwise defined in this
Declaration or unless the context otherwise requires; and
(f) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act (as hereinafter defined) or any successor rule thereunder.
"Authorized Officer" of a Person means any Person that is authorized to bind
such Person.
6
"Bankruptcy" means, with respect to an entity, (a) the entry of a decree or
order by a court having jurisdiction in the premises adjudging such entity a
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
such entity under the Federal Bankruptcy Code or any other applicable federal
or state law, or appointing a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of such entity or of any substantial
part of its property, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and in
effect for a period of 60 consecutive days or (b) the institution by such
entity of proceedings to be adjudicated a bankrupt or insolvent, or the
consent by it to the institution of bankruptcy or insolvency proceedings
against it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under the Federal Bankruptcy Code or any other
applicable federal or state law, or the consent by it to the filing of any
such petition or to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the company or of any
substantial part of its property, or the making by it of an assignment for the
benefit of creditors, or the admission by it in writing of its inability to
pay its debts generally as they become due.
"Business Day" means any day other than a day on which banking institutions in
New York, New York are authorized or required by law to close.
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12
Del. Code Section 3801 et seq., as it may be amended from time to time, or any
successor legislation.
"Closing Date" means ______________, [1995].
"Code" means the Internal Revenue Code of 1986 as amended and as it may be
amended from time to time after the date hereof, or any successor legislation.
"Commission" means the Securities and Exchange Commission.
"Common Securities Guarantee" means the guarantee agreement dated as of
_______________, [1995], of the Sponsor in respect of the Common Securities
(as hereinafter defined).
"Common Security" has the meaning specified in Section 7.1.
"Covered Person" means: (a) any officer, director, shareholder, partner,
member, representative, employee or agent of (i) the Trust or (ii) the Trust's
Affiliates; and (b) any Holder (as hereinafter defined) of Securities (as
hereinafter defined).
"Delaware Trustee" has the meaning set forth in Section 5.2.
"Depository" means DTC or its successor hereunder.
"Direction" by a Person means a written direction signed:
(a) if the Person is a natural person, by that Person; or
(b) in any other case, in the name of such Person by one or more
Authorized Officers of that Person.
"Distribution" means a distribution payable to Holders of Securities in
accordance with Section 6.1.
"DTC" means The Depository Trust Company, the initial Depository.
"Event of Default" in respect of the Securities means an Event of Default (as
defined in the Indenture) has occurred and is continuing in respect of the
Subordinated Debentures (as hereinafter defined).
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time
to time, or any successor legislation.
"Global Security" means a certificate representing all or a portion of the
Common Securities or the Preferred Securities issued hereunder, as the case
may be, and delivered to the Depository in accordance with Section 9.4 and
bearing the legend set forth in Section 9.4.
"Holder" means a Person in whose name a Security is registered, such Person
being a beneficial owner within the meaning of the Business Trust Act.
7
"Indemnified Person" means (a) any Trustee; (b) any Affiliate of any Trustee;
(c) any officers, directors, shareholders, members, partners, employees,
representatives or agents of any Trustee; or (d) any employee or agent of the
Trust or its Affiliates.
"Indenture" means the Indenture dated as of __________, 1995, as supplemented
by the First Supplemental Indenture dated as of __________, 1995, each being
between the Subordinated Debenture Issuer (as hereinafter defined) and the
Subordinated Debenture Trustee (as hereinafter defined) as such Indenture may
be further amended, supplemented or modified in accordance with the terms
thereof.
"Investment Company" means an investment company as defined in the Investment
Company Act (as hereinafter defined).
"Investment Company Act" means the Investment Company Act of 1940, as amended
from time to time, or any successor legislation.
"Investment Company Event" has the meaning set forth in Exhibit A as such
exhibit may be amended or modified in accordance with the provisions of this
Declaration.
"Legal Action" has the meaning set forth in Section 3.6(g).
"Majority in liquidation amount of the Securities" means Holder(s) of
outstanding Securities voting together as a single class or, as the context
may require, Holders of outstanding Preferred Securities or Holders of
outstanding Common Securities voting separately as a class, who are the record
owners of more than 50% of the aggregate liquidation amount (including the
stated amount that would be paid on redemption, liquidation or otherwise, plus
accrued and unpaid Distributions to the date upon which the voting percentages
are determined) of all outstanding Securities of the relevant class. In
determining whether the Holders of the requisite amount of Preferred
Securities have voted, Preferred Securities which are owned by the Sponsor,
the Trusts or any other obligor on the Preferred Securities or by any Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with the Sponsor, the Trustee or any other obligor on
the Preferred Securities shall be disregarded for the purpose of any such
determination.
"Ministerial Action" has the meaning set forth in the terms of the Securities
as set forth in Exhibit A as such exhibit may be amended or modified in
accordance with the provisions of this Declaration.
"Officer's Certificate" means, with respect to any Person, a certificate
signed by an Authorized Officer of such Person. Any Officer's Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Declaration shall include:
(a) a statement that the officer signing the Certificate has read the
covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the
Certificate;
(c) a statement that such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable
such officer to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of such officer, such
condition or covenant has been complied with.
"100% in liquidation amount of the Securities" means Holders of outstanding
Securities voting together as a single class or, as the context may require,
Holders of outstanding Preferred Securities or Holders of outstanding Common
Securities, voting separately as a class, representing at least 100% of the
aggregate liquidation amount (including the stated amount that would be paid
on redemption, liquidation or otherwise, plus accrued and unpaid Distributions
to the date upon which the voting percentages are determined) of all
outstanding Securities of the relevant class. In determining whether the
Holders of the requisite amount of Preferred Securities have voted, Preferred
Securities which are owned by the Sponsor, the Trusts or any other obligor on
the Preferred Securities or by any Person directly or indirectly controlling
or controlled by or under direct or indirect common control with the Sponsor,
8
the Trustee or any other obligor on the Preferred Securities shall be
disregarded for the purpose of any such determination.
"Paying Agent" has the meaning specified in Section 3.8(h).
"Person" means a legal person, including any individual, corporation, estate,
partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency, authority, or political subdivision thereof.
"Preferred Securities Guarantee" means the guarantee agreement dated as of
_____________, [1995], of the Sponsor in respect of the Preferred Securities.
"Preferred Security" has the meaning specified in Section 7.1.
"Pricing Agreement" means the pricing agreement between the Trust, the
Subordinated Debenture Issuer, and the underwriters designated by the Regular
Trustees (as hereinafter defined) with respect to the offer and sale of the
Preferred Securities.
"Property Trustee" means the Trustee meeting the eligibility requirements set
forth in Section 5.3.
"Property Trustee Account" has the meaning set forth in Section 3.8(c).
"Quorum" means a majority of the Regular Trustees or, if there are only two
Regular Trustees, both of them.
"Register" means the books for the registration and transfer of Securities
which books are kept by the Trustee in accordance with Section 9.2.
"Regular Trustee" means any Trustee other than the Property Trustee and the
Delaware Trustee.
"Related Party" means, with respect to the Sponsor, any direct or indirect
wholly owned subsidiary of the Sponsor or any other Person that owns, directly
or indirectly, 100% of the outstanding voting securities of the Sponsor.
"Responsible Officer" means, with respect to the Property Trustee, the
chairman of the board, the president, any vice-president, any assistant vice-
president, the secretary, any assistant secretary, the treasurer, any
assistant treasurer, any trust officer or assistant trust officer or any other
officer in the corporate trust department of the Property Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of that officer's
knowledge of and familiarity with the particular subject.
"Rule 3a-5" means Rule 3a-5 under the Investment Company Act.
"Securities" means the Common Securities and the Preferred Securities.
"Securities Act" means the Securities Act of 1933, as amended and as it may be
amended from time to time hereafter, or any successor legislation.
"66-2/3% in liquidation amount of the Securities" means Holders of outstanding
Securities voting together as a single class or, as the context may require,
Holders of outstanding Preferred Securities or Holder(s) of outstanding Common
Securities voting separately as a class, representing at least 66-2/3% of the
aggregate liquidation amount (including the stated amount that would be paid
on redemption, liquidation or otherwise, plus accrued and unpaid
Distributions, to the date upon which the voting percentages are determined)
of all outstanding Securities of the relevant class. In determining whether
the Holders of the requisite amount of Preferred Securities have voted,
Preferred Securities which are owned by the Sponsor, the Trusts or any other
obligor on the Preferred Securities or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
the Sponsor, the Trustee or any other obligor on the Preferred Securities
shall be disregarded for the purpose of any such determination.
"Special Event" has the meaning set forth in Exhibit A as such exhibit may be
amended or modified in accordance with the provisions of this Declaration.
"Sponsor" means Pacific Telesis Group, a Nevada corporation in its capacity as
sponsor of the Trust or any successor entity.
9
"Subordinated Debenture Issuer" means the Sponsor in its capacity as issuer of
the Debentures.
"Subordinated Debenture Trustee" means The First National Bank of Chicago, as
trustee under the Indenture until a successor is appointed thereunder, and
thereafter means such successor trustee.
"Subordinated Debentures" means the series of Subordinated Debentures and/or
notes to be issued by the Subordinated Debenture Issuer under the Indenture to
be held by the Property Trustee pursuant to Section 3.6(c).
"Successor Property Trustee" means a successor Trustee possessing the
qualifications to act as Property Trustee under Section 5.3.
"Super Majority" has the meaning set forth in Section 2.6(a)(ii). In
determining whether the Holders of the requisite amount of Preferred
Securities have voted, Preferred Securities which are owned by the Sponsor,
the Trusts or any other obligor on the Preferred Securities or by any Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with the Sponsor, the Trustee or any other obligor on
the Preferred Securities shall be disregarded for the purpose of any such
determination.
"Tax Event" has the meaning set forth in Exhibit A as such exhibit may be
amended or modified in accordance with the provisions of this Declaration.
"10% in liquidation amount of the Securities" means Holders of outstanding
Securities voting together as a single class or, as the context may require,
Holders of outstanding Preferred Securities or Holders of outstanding Common
Securities, voting separately as a class, representing at least 10% of the
aggregate liquidation amount (including the stated amount that would be paid
on redemption, liquidation or otherwise, plus accrued and unpaid Distributions
to the date upon which the voting percentages are determined) of all
outstanding Securities of the relevant class. In determining whether the
Holders of the requisite amount of Preferred Securities have voted, Preferred
Securities which are owned by the Sponsor, the Trusts or any other obligor on
the Preferred Securities or by any Person directly or indirectly controlling
or controlled by or under direct or indirect common control with the Sponsor,
the Trustee or any other obligor on the Preferred Securities shall be
disregarded for the purpose of any such determination.
"Treasury Regulations" means the income tax regulations, including temporary
and proposed regulations, promulgated under the Code by the United States
Treasury, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Trustee" or "Trustees" means each Person who has signed this Declaration as a
trustee, so long as such Person shall continue in office in accordance with
the terms hereof, and all other Persons who may from time to time be duly
appointed, qualified and serving as Trustees in accordance with the provisions
hereof, and references herein to a Trustee or the Trustees shall refer to such
Person or Persons solely in their capacity as trustees hereunder.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended as of
the date of this Declaration.
"25% in liquidation amount of the Securities" means Holders of outstanding
Securities voting together as a single class or, as the context may require,
Holders of outstanding Preferred Securities or Holders of outstanding Common
Securities, voting separately as a class, representing at least 25% of the
aggregate liquidation amount (including the stated amount that would be paid
on redemption, liquidation or otherwise, plus accrued and unpaid Distributions
to the date upon which the voting percentages are determined) of all
outstanding Securities of the relevant class. In determining whether the
Holders of the requisite amount of Preferred Securities have voted, Preferred
Securities which are owned by the Sponsor, the Trusts or any other obligor on
the Preferred Securities or by any Person directly or indirectly controlling
or controlled by or under direct or indirect common control with the Sponsor,
the Trustee or any other obligor on the Preferred Securities shall be
disregarded for the purpose of any such determination.
"Underwriting Agreement" means the Underwriting Agreement for the offering and
sale of Preferred Securities in the form of Exhibit 1 to Registration
Statement No. 33-63647, as amended.
10
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application.
(a) So long as the Preferred Securities are outstanding, this
Declaration shall be subject to the provisions of the Trust
Indenture Act that are required to be part of this Declaration and
shall, to the extent applicable, be governed by such provisions. At
such time as the Preferred Securities are no longer outstanding, the
Trust Indenture Act shall not govern this Declaration and all
provisions requiring compliance with specified provisions of the
Trust Indenture Act shall be of no further force and effect.
(b) The Property Trustee shall be the only Trustee which is a Trustee
for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this Declaration limits,
qualifies or conflicts with the duties imposed by Sections 310 to
317, inclusive, of the Trust Indenture Act, such imposed duties
shall control.
(d) The application of the Trust Indenture Act to this Declaration shall
not affect the nature of the Securities as equity securities
representing undivided beneficial interests in the assets of the
Trust.
SECTION 2.2 Lists of Holders of Securities.
(a) The Sponsor and the Regular Trustees on behalf of the Trust will
furnish or cause to be furnished to the Property Trustee, not less
than 45 days nor more than 60 days after each date (month and day)
that is a Distribution payment date, but in no event less frequently
than semiannually, and at such other times as the Property Trustee
may request in writing, within 30 days after receipt by the Sponsor
and the Regular Trustees of any such request, a list in such form as
the Property Trustee may reasonably require containing all the
information in the possession or control of the Sponsor, the
Trustees, or any Paying Agents other than the Property Trustee, as
to the names and addressees of the Holders of Securities, obtained
since the date as of which the next previous list, if any, was
furnished, excluding from any such list the names and addresses
received by the Property Trustee in its capacity as registrar (if so
acting). Any such list may be dated as of a date not more than 15
days prior to the time such information is furnished and need not
include information received after such date.
(b) The Property Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders of
Securities (i) contained in the most recent list furnished to it as
provided in this Section 2.2, (ii) received by the Property Trustee
in the capacity of Paying Agent or registrar (if so acting), and
(iii) filed with the Property Trustee within the two preceding years
as provided for in Section 2.2(a). The Property Trustee may destroy
any list furnished to it as provided in this Section 2.2 upon
receipt of a new list so furnished.
(c) If three or more Holders of Securities (hereinafter referred to as
"applicants") apply in writing to the Property Trustee, and furnish
to the Property Trustee reasonable proof that each such applicant
has owned a Security for a period of at least six months preceding
the date of such application, and such application states that the
applicants desire to communicate with other Holders of Securities
with respect to their rights under this Declaration or under such
Securities, and is accompanied by a copy of the form of proxy or
other communication which such applicants propose to transmit, then
the Property Trustee shall, within five Business Days after the
receipt of such application, at its election, either:
(i) afford such applicants access to the information preserved at
the time by the Property Trustee in accordance with the
provisions of this Section 2.2 or
(ii) inform such applicants as to the approximate number of Holders
of Securities whose names and addresses appear in the
information preserved at the time by the Property Trustee in
11
accordance with the provisions of Section 2.2(b), and as to the
approximate cost of mailing to such Holders the form of proxy
or other communications, if any, specified in such application.
If the Property Trustee shall elect not to afford such applicants
access to such information, the Property Trustee shall, upon the
written request of such applicants, mail to each of the Holders of
Securities whose name and address appear in the information
preserved at the time by the Property Trustee in accordance with the
provisions of Section 2.2(b), a copy of the form of proxy or other
communication which is specified in such request, with reasonable
promptness after a tender to the Property Trustee of the material to
be mailed and of payment, or provision for the payment, of the
reasonable expenses of mailing, unless within five days after such
tender, the Property Trustee shall mail to such applicants and file
with the Commission, together with a copy of the material to be
mailed, a written statement to the effect that, in the opinion of
the Property Trustee, such mailing would be contrary to the best
interests of the Holders of Securities or would be in violation of
applicable law. Such written statement shall specify the basis of
such opinion. If the Commission, after opportunity for a hearing
upon the objections specified in the written statement so filed,
shall enter an order refusing to sustain any of such objections or
if, after the entry of an order sustaining one or more of such
objections, the Commission shall find, after notice and opportunity
for hearing, that all the objections so sustained have been met and
shall enter an order so declaring, the Property Trustee shall mail
copies of such material to all such Holders of Securities with
reasonable promptness after the entry of such order and the renewal
of such tender; otherwise the Property Trustee shall be relieved of
any obligation or duty to such applicants respecting their
application.
(d) Each and every Holder of the Securities, by receiving and holding
the same, agrees with the Sponsor, the Regular Trustees and the
Property Trustee that none of them nor any Paying Agent nor any
registrar shall be held accountable by reason of the disclosure of
any such information as to the names and addresses of the Holders of
Securities in accordance with the provisions of Section 2.2(c),
regardless of the source from which such information was derived,
and that the Property Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under
Section 2.2(c).
(e) The Property Trustee shall comply with its obligations under
Sections 311(a) and 311(b) of the Trust Indenture Act.
SECTION 2.3 Reports by the Property Trustee.
Within 60 days after May 15 of each year, the Property Trustee shall provide
to the Holders of the Preferred Securities such reports as are required by
Section 313 of the Trust Indenture Act, if any, in the form and in the manner
provided by Section 313 of the Trust Indenture Act. The Property Trustee
shall also comply with the requirements of Section 313(d) of the Trust
Indenture Act.
SECTION 2.4 Periodic Reports to Property Trustee.
Each of the Sponsor and the Regular Trustees on behalf of the Trust shall
provide to the Property Trustee such documents, reports and information as
required by Section 314 (if any) and the compliance certificate required by
Section 314 of the Trust Indenture Act in the form, in the manner and at the
times required by Section 314 of the Trust Indenture Act.
SECTION 2.5 Evidence of Compliance with Conditions Precedent.
Each of the Sponsor and the Regular Trustees on behalf of the Trust shall
provide to the Property Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Declaration that relate to
any of the matters set forth in Section 314(c) of the Trust Indenture Act.
Any certificate or opinion required to be given by an officer pursuant to
Section 314(c)(1) may be given in the form of an Officer's Certificate.
SECTION 2.6 Events of Default; Waiver.
The occurrence and continuance of an Event of Default under the Indenture with
12
respect to the Subordinated Debentures shall constitute an Event of Default
hereunder.
(a) The Holders of a Majority in liquidation amount of Preferred
Securities may, by vote, on behalf of the Holders of all of the
Preferred Securities, waive any past Event of Default in respect of
the Preferred Securities and its consequences, provided that, if the
underlying Event of Default under the Indenture:
(i) is not waivable under the Indenture, the Event of Default under
the Declaration shall also not be waivable; or
(ii) requires the consent or vote of the holders of greater than a
majority in principal amount of the Subordinated Debentures (a
"Super Majority") to be waived under the Indenture, the Event
of Default under the Declaration may only be waived by the vote
of all of the Holders of the Preferred Securities or such
proportion thereof in liquidation amount as represents the
relevant Super Majority of the aggregate principal amount of
the Subordinated Debentures outstanding.
The foregoing provisions of this Section 2.6(a) shall be in lieu of
Section 316(a)(1)(B) of the Trust Indenture Act and such Section
316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded
from this Declaration and the Securities, as permitted by the Trust
Indenture Act.
Upon such waiver, any such default shall cease to exist, and any
Event of Default with respect to the Preferred Securities arising
therefrom shall be deemed to have been cured, for every purpose of
this Declaration, but no such waiver shall extend to any subsequent
or other default or Event of Default with respect to the Preferred
Securities or impair any right consequent thereon. Any waiver by
the Holders of the Preferred Securities of an Event of Default with
respect to the Preferred Securities shall also be deemed to
constitute a waiver by the Holders of the Common Securities of any
such Event of Default with respect to the Common Securities for all
purposes of this Declaration without any further act, vote, or
consent of the Holders of the Common Securities.
(b) The Holders of a Majority in liquidation amount of the Common
Securities may, by vote, on behalf of the Holders of all of the
Common Securities, waive any past Event of Default with respect to
the Common Securities and its consequences, provided that, if the
underlying Event of Default under the Indenture:
(i) is not waivable under the Indenture, except where the Holders
of the Common Securities are deemed to have waived such Event
of Default under the Declaration as provided below in this
Section 2.6(b), the Event of Default under the Declaration
shall also not be waivable; or
(ii) requires the consent or vote of a Super Majority to be waived,
except where the Holders of the Common Securities are deemed to
have waived such Event of Default under the Declaration as
provided below in this Section 2.6(b) the Event of Default
under the Declaration may only be waived by the vote of the
Holders of at least the proportion in liquidation amount of the
Common Securities as represents the relevant Super Majority of
the aggregate principal amount of the Subordinated Debentures
outstanding;
provided that, each Holder of Common Securities will be deemed to
have waived any such Event of Default and all Events of Default with
respect to the Common Securities and its consequences until all
Events of Default with respect to the Preferred Securities have been
cured, waived or otherwise eliminated, and until such Events of
Default have been so cured, waived or otherwise eliminated, the
Property Trustee will be deemed to be acting solely on behalf of the
Holders of the Preferred Securities and only the Holders of the
Preferred Securities will have the right to direct the Property
Trustee in accordance with the terms of the Securities. The
foregoing provisions of this Section 2.6(b) shall be in lieu of
Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act
and such Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust
Indenture Act are hereby expressly excluded from this Declaration
13
and the Securities, as permitted by the Trust Indenture Act.
Subject to the foregoing provisions of this Section 2.6(b), upon
such waiver, any such default shall cease to exist and any Event of
Default with respect to the Common Securities arising therefrom
shall be deemed to have been cured for every purpose of this
Declaration, but no such waiver shall extend to any subsequent or
other default or Event of Default with respect to the Common
Securities or impair any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the Property
Trustee at the direction of the Holders of the Preferred Securities
constitutes a waiver of the corresponding Event of Default under
this Declaration. The foregoing provisions of this Section 2.6(c)
shall be in lieu of Section 316(a)(1)(B) of the Trust Indenture Act
and such Section 316(a)(1)(B) of the Trust Indenture Act is hereby
expressly excluded from this Declaration and the Securities, as
permitted by the Trust Indenture Act.
(d) The provisions of Section 315(e) of the Trust Indenture Act shall be
excluded from this Declaration.
(e) No Holder of any Preferred Security or of any Common Security shall
have any right by virtue or by availing of any provision of this
Declaration to institute any suit, action or proceeding in equity or
at law upon or under or with respect to this Declaration or for the
appointment of a receiver or trustee, or for any other remedy
hereunder, unless such Holder previously shall have given to the
Property Trustee written notice of a continuing Event of Default, as
hereinbefore provided, and unless also the Holders of not less than
25% in liquidation amount of the Preferred Securities or of the
Common Securities, as the case may be, then outstanding shall have
made written request upon the Property Trustee to institute such
action, suit or proceeding in its own name as Property Trustee
hereunder and shall have offered to the Property Trustee such
reasonable indemnity as it may require against the costs, expenses
and liabilities to be incurred therein or thereby (including the
reasonable fees of counsel for the Property Trustee), and the
Property Trustee, for 60 days after its receipt of such notice,
request and offer of indemnity, shall have neglected or refused to
institute any such action, suit or proceeding and no direction
inconsistent with such written request shall have been given to the
Property Trustee pursuant to this Section 2.2(e); it being
understood and intended, and being expressly covenanted by the taker
and Holder of every Security with every other taker and Holder and
the Property Trustee, that no one or more Holders of Securities
shall have any right in any manner whatever by virtue or by availing
of any provision of this Declaration to affect, disturb or prejudice
the rights of the Holders of any other of such Securities, or to
obtain or seek to obtain priority over or preference to any other
such Holder, or to enforce any right under this Declaration, except
in the manner herein provided and for the equal, ratable and common
benefit of all Holders of Securities. For the protection and
enforcement of the provisions of this Section 2.2(e), each and every
Holder and the Property Trustee shall be entitled to such relief as
can be given either at law or in equity.
Notwithstanding any other provisions in this Indenture, the right of
any Holder of any Security to receive payment of the Distributions
on such Security on or after the respective due dates expressed in
such Security (or, in the case of redemption, on or after the date
fixed for redemption), or to institute suit for the enforcement of
any such payment on or after such respective dates shall not be
impaired or affected without the consent of such Holder.
SECTION 2.7 Event of Default; Notice.
(a) The Property Trustee shall, within 90 days after the occurrence of
an Event of Default, transmit by mail, first class postage prepaid,
to the Holders of the Securities, notices of such Event of Default
known to the Property Trustee, unless such Event of Default has been
cured, remedied or waived before the giving of such notice (the term
"Event of Default" for the purposes of this Section 2.7(a) being
hereby defined to be an Event of Default irrespective of any periods
of grace provided for in the Indenture and irrespective of the
giving of any notice provided therein); provided that, except for an
Event of Default in the payment of principal of (or premium, if any)
14
or interest on any of the Subordinated Debentures or in the payment
of any sinking fund installment established for the Subordinated
Debentures, the Property Trustee shall be protected in withholding
such notice if and so long as the board of directors, the executive
committee, or a trust committee of directors and/or Responsible
Officers of the Property Trustee in good faith determines that the
withholding of such notice is in the interests of the Holders of the
Securities.
(b) The Property Trustee shall not be deemed to have knowledge of any
default except:
(i) a default under Sections 501(1) and 501(2) of the Indenture; or
(ii) any default as to which the Property Trustee shall have
received written notice or a Responsible Officer charged with
the administration of the Declaration shall have obtained
written notice of.
ARTICLE III
ORGANIZATION
SECTION 3.1 Name.
The Trust is named "Pacific Telesis Financing I", as such name may be modified
from time to time by the Regular Trustees following written notice to the
Holders of Securities. The Trust's activities may be conducted under the name
of the Trust or any other name deemed advisable by the Regular Trustees.
SECTION 3.2 Office.
The address of the principal office of the Trust is c/o Pacific Telesis Group,
130 Kearny Street, San Francisco, California 94108. On ten Business Days
written notice to the Holders of Securities, the Regular Trustees may
designate another principal office.
SECTION 3.3 Purpose.
The exclusive purposes and functions of the Trust are (a) to issue and sell
Securities and use the proceeds from such sale to acquire the Subordinated
Debentures, and (b) except as otherwise limited herein, to engage in only
those other activities necessary, or incidental thereto. The Trust shall not
borrow money, issue debt or reinvest proceeds derived from investments, pledge
any of its assets, or otherwise undertake (or permit to be undertaken) any
activity that would cause (i) the Trust to be classified as other than a
grantor trust for United States federal income tax purposes or (ii) each
Holder of Securities not to be treated as owning an undivided beneficial
interest in the Subordinated Debentures at any time the Securities are
outstanding.
SECTION 3.4 Authority.
Subject to the limitations provided in this Declaration and to the specific
duties of the Property Trustee, the Regular Trustees shall have exclusive and
complete authority to carry out the purposes of the Trust. An action taken by
the Regular Trustees in accordance with their powers shall constitute the act
of and serve to bind the Trust and an action taken by the Property Trustee in
accordance with its powers shall constitute the act of and serve to bind the
Trust. In dealing with the Trustees acting on behalf of the Trust, no person
shall be required to inquire into the authority of the Trustees to bind the
Trust. Persons dealing with the Trust are entitled to rely conclusively on
the power and authority of the Trustees as set forth in this Declaration.
SECTION 3.5 Title to Property of the Trust.
Except as provided in Section 3.8 with respect to the Subordinated Debentures
and the Property Trustee Account (as hereinafter defined) or as otherwise
provided in this Declaration, legal title to all assets of the Trust shall be
vested in the Trust. The Holders shall not have legal title to any part of
the assets of the Trust, but shall have an undivided beneficial interest in
the assets of the Trust.
SECTION 3.6 Powers and Duties of the Regular Trustees.
The Regular Trustees shall have the exclusive power, duty and authority to
15
cause the Trust to engage in the following activities:
(a) to issue and sell the Preferred Securities and the Common Securities
in accordance with this Declaration; provided, however, that the
Trust may issue no more than one series of Preferred Securities and
no more than one series of Common Securities, and, provided further,
that there shall be no interests in the Trust other than the
Securities, and the issuance of Securities shall be limited to a
simultaneous issuance of both Preferred Securities and Common
Securities on each Closing Date;
(b) in connection with the issue and sale of the Preferred Securities,
at the direction of the Sponsor, to:
(i) execute and file with the Commission the registration
statement on Form S-3 prepared by the Sponsor, including any
amendments thereto, pertaining to the Preferred Securities,
the Subordinated Debentures and the Preferred Securities
Guarantee;
(ii) execute and file any documents prepared by the Sponsor, or
take any acts as determined by the Sponsor to be necessary
in order to qualify or register all or part of the Preferred
Securities in any state in which the Sponsor has determined
to qualify or register such Preferred Securities for sale;
(iii) execute and file an application, prepared by the Sponsor, to
the New York Stock Exchange or any other national stock
exchange or the Nasdaq National Market for listing upon
notice of issuance of any Preferred Securities;
(iv) execute and file with the Commission a registration
statement on Form 8-A, including any amendments thereto,
prepared by the Sponsor relating to the registration of the
Preferred Securities under Section 12(b) of the Exchange
Act; and
(v) execute and enter into the Underwriting Agreement and
Pricing Agreement providing for the sale of the Preferred
Securities;
(c) to acquire the Subordinated Debentures with the proceeds of the sale
of the Preferred Securities and the Common Securities; provided,
however, that the Regular Trustees shall cause legal title to the
Subordinated Debentures to be held of record in the name of the
Property Trustee for the benefit of the Trust and the Holders of the
Preferred Securities and the Holders of the Common Securities;
(d) to give the Sponsor and the Property Trustee prompt written notice
of the occurrence of a Special Event; provided that the Regular
Trustees shall consult with the Sponsor and the Property Trustee
before taking or refraining from taking any Ministerial Action in
relation to a Special Event;
(e) to establish a record date with respect to all actions to be taken
hereunder that require a record date be established, including for
the purposes of Section 316(c) of the Trust Indenture Act, and with
respect to Distributions, voting rights, redemptions and exchanges,
and to issue relevant notices to the Holders of Preferred Securities
and Holders of Common Securities as to such actions and applicable
record dates;
(f) to take all actions and perform such duties as may be required of
the Regular Trustees pursuant to the terms of the Securities;
(g) to bring or defend, pay, collect, compromise, arbitrate, resort to
legal action, or otherwise adjust claims or demands of or against
the Trust ("Legal Action"), unless pursuant to Section 3.8(e), the
Property Trustee has the exclusive power to bring such Legal Action;
(h) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors,
advisors, and consultants and pay reasonable compensation for such
services;
(i) to cause the Trust to comply with the Trust's obligations under the
16
Trust Indenture Act;
(j) to give the certificate required by Section 314(a)(4) of the Trust
Indenture Act to the Property Trustee, which certificate may be
executed by any Regular Trustee;
(k) to incur expenses that are necessary or incidental to carry out any
of the purposes of the Trust;
(l) to act as, or appoint another Person to act as, registrar and
transfer agent for the Securities;
(m) to give prompt written notice to the Holders of the Securities of
any notice received from the Subordinated Debenture Issuer of its
election (i) to defer payments of interest on the Subordinated
Debentures by extending the interest payment period under the
Indenture or, (ii) to extend the scheduled maturity date on the
Subordinated Debentures;
(n) to execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all
matters necessary or incidental to the foregoing;
(o) to take all action that may be necessary or appropriate for the
preservation and the continuation of the Trust's valid existence,
rights, franchises and privileges as a statutory business trust
under the laws of the State of Delaware and of each other
jurisdiction in which such existence is necessary to protect the
limited liability of the Holders of the Securities or to enable the
Trust to effect the purposes for which the Trust was created;
(p) to take any action, not inconsistent with this Declaration or with
applicable law, that the Regular Trustees determine in their
discretion to be necessary or desirable in carrying out the
activities of the Trust as set out in this Section 3.6, including,
but not limited to:
(i) causing the Trust not to be deemed to be an Investment
Company required to be registered under the Investment
Company Act;
(ii) causing the Trust not to be classified as other than a
grantor trust for United States federal income tax purposes;
and
(iii) cooperating with the Subordinated Debenture Issuer to ensure
that the Subordinated Debentures will be treated as
indebtedness of the Subordinated Debenture Issuer for United
States federal income tax purposes, provided that such
action does not adversely affect the interests of Holders;
(q) to take all action necessary to cause all applicable tax returns and
tax information reports that are required to be filed with respect
to the Trust to be duly prepared and filed by the Regular Trustees,
on behalf of the Trust;
(r) subject to the requirements of Rule 3a-5 and Section 317(b) of the
Trust Indenture Act, to appoint one or more Paying Agents in
addition to the Property Trustee; and
(s) as soon as is practicable, furnish the Property Trustee with notice
of any event which is an Event of Default or which with the giving
of notice or the passage of time or both would constitute an Event
of Default which has occurred and is continuing on the date of such
notice, which notice shall set forth the nature of such event and
the action which the Regular Trustees propose to take with respect
thereto.
The Regular Trustees must exercise the powers set forth in this Section 3.6 in
a manner that is consistent with the purposes and functions of the Trust set
out in Section 3.3, and the Regular Trustees shall not take any action that is
inconsistent with the purposes and functions of the Trust set forth in Section
3.3.
Subject to this Section 3.6, the Regular Trustees shall have none of the
powers or the authority of the Property Trustee set forth in Section 3.8.
17
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees.
(a) The Trust shall not, and the Trustees (including the Property
Trustee) shall cause the Trust not to, engage in any activity other
than as required or authorized by this Declaration. In particular,
the Trust shall not and the Trustees (including the Property
Trustee) shall cause the Trust not to:
(i) invest any proceeds received by the Trust from holding the
Subordinated Debentures, but shall distribute all such
proceeds to Holders of Securities pursuant to the terms of
this Declaration and of the Securities;
(ii) acquire any assets other than as expressly provided herein;
(iii) possess Trust property for other than a Trust purpose;
(iv) make any loans or incur any indebtedness other than loans
represented by the Subordinated Debentures;
(v) possess any power or otherwise act in such a way as to vary
the Trust assets or the terms of the Securities in any way
whatsoever;
(vi) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust other
than the Securities; or
(vii) other than as provided in this Declaration and in Exhibit A
both as may be amended or modified in accordance with the
provisions of this Declaration, (A) direct the time, method
and place of exercising any trust or power conferred upon
the Subordinated Debenture Trustee with respect to the
Subordinated Debentures, (B) waive any past default that is
waivable under Section 513 of the Indenture, (C) exercise
any right to rescind or annul any declaration that the
principal of all the Subordinated Debentures shall be due
and payable, or (D) consent to any amendment, modification
or termination of the Indenture or the Subordinated
Debentures where such consent shall be required unless the
Trust shall have received an opinion of counsel to the
effect that such modification will not cause more than an
insubstantial risk that the Trust will be classified as
other than a grantor trust for United States federal income
tax purposes.
SECTION 3.8 Powers and Duties of the Property Trustee.
(a) The legal title to the Subordinated Debentures shall be
owned by and held of record in the name of the Property
Trustee for the benefit of the Trust and the Holders of the
Securities. The right, title and interest of the Property
Trustee to the Subordinated Debentures shall vest
automatically in each Person who may hereafter be appointed
as Property Trustee in accordance with Section 5.6. Such
vesting and cessation of title shall be effective whether or
not conveyancing documents with regard to the Subordinated
Debentures have been executed and delivered.
(b) The Property Trustee shall not transfer its right, title and
interest in the Subordinated Debentures to the Regular
Trustees or to the Delaware Trustee (if the Property Trustee
does not also act as Delaware Trustee).
(c) The Property Trustee shall:
(i) establish and maintain a segregated trust account
(the "Property Trustee Account") in the name of and
under the exclusive control of the Property Trustee
on behalf of the Holders of the Securities and, upon
the receipt of payments of funds made in respect of
the Subordinated Debentures held by the Property
Trustee, deposit such funds into the Property Trustee
Account and make payments to the Holders of the
Preferred Securities and Holders of the Common
Securities from the Property Trustee Account in
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accordance with Section 6.1. Funds in the Property
Trustee Account shall be held uninvested until
disbursed in accordance with this Declaration. The
Property Trustee Account shall be an account that is
maintained with a banking institution either (A)
whose long term unsecured indebtedness is rated "A"
or better by a "nationally recognized statistical
rating organization", as that term is defined for
purposes of Rule 436(g)(2) under the Securities Act
or (B) which has a capital surplus of at least
$50,000,000;
(ii) engage in such ministerial activities as shall be
necessary or appropriate to effect the redemption of
the Preferred Securities and the Common Securities to
the extent the Subordinated Debentures are redeemed
or mature; and
(iii) upon notice of distribution issued by the Regular
Trustees in accordance with the terms of the
Securities, engage in such ministerial activities as
shall be necessary or appropriate to effect the
distribution of the Subordinated Debentures to
Holders of Securities upon the occurrence of certain
Special Events (as may be defined in the terms of the
Securities) arising from a change in law or a change
in legal interpretation or other specified
circumstances pursuant to the terms of the
Securities.
(d) The Property Trustee shall take all actions and perform such
duties as may be specifically required of the Property
Trustee pursuant to the terms of the Securities.
(e) The Property Trustee shall take any Legal Action which
arises out of or in connection with an Event of Default or
the Property Trustee's duties and obligations under this
Declaration or the Trust Indenture Act.
(f) The Property Trustee shall continue to serve as Trustee
until either:
(i) the Trust has been completely liquidated and the
proceeds of the liquidation distributed to the
Holders of Securities pursuant to the terms of the
Securities; or
(ii) a Successor Property Trustee has been appointed and
has accepted that appointment in accordance with
Section 5.6.
(g) The Property Trustee shall have the legal power to exercise
all of the rights, powers and privileges of a holder of
Subordinated Debentures under the Indenture and, if an Event
of Default occurs and is continuing, the Property Trustee
shall, for the benefit of Holders of the Securities, enforce
its rights as holder of the Subordinated Debentures subject
to the rights of the Holders pursuant to the terms of such
Securities.
(h) The Property Trustee may authorize one or more Persons
(each, a "Paying Agent") to pay Distributions, redemption
payments or liquidation payments on behalf of the Trust with
respect to all Securities and any such Paying Agent shall
comply with Section 317(b) of the Trust Indenture Act. Any
Paying Agent may be removed by the Property Trustee at any
time and a successor Paying Agent or additional Paying
Agents may be appointed at any time by the Property Trustee.
(i) Subject to this Section 3.8, the Property Trustee shall have
none of the duties, liabilities, powers or the authority of
the Regular Trustees set forth in Section 3.6.
The Property Trustee must exercise the powers set forth in this Section
3.8 in a manner that is consistent with the purposes and functions of the
Trust set out in Section 3.3, and the Property Trustee shall not take any
19
action that is inconsistent with the purposes and functions of the Trust
set out in Section 3.3.
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee.
(a) The Property Trustee, before the occurrence of any Event of Default
and after the curing of all Events of Default that may have
occurred, shall undertake to perform only such duties as are
specifically set forth in this Declaration, in the terms of the
Securities and in the Trust Indenture Act and no implied covenants
shall be read into this Declaration against the Property Trustee.
In case an Event of Default has occurred (that has not been cured or
waived pursuant to Section 2.6), the Property Trustee shall exercise
such of the rights and powers vested in it by this Declaration, and
use the same degree of care and skill in its exercise, as a prudent
person would exercise or use under the circumstances in the conduct
of his or her own affairs.
(b) No provision of this Declaration shall be construed to relieve the
Property Trustee from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except
that:
(i) prior to the occurrence of an Event of Default and after the
curing or waiving of all such Events of Default that may
have occurred:
(A) the duties and obligations of the Property Trustee
shall be determined solely by the express provisions
of this Declaration, in the terms of the Securities
and in the Trust Indenture Act and the Property
Trustee shall not be liable except for the
performance of such duties and obligations as are
specifically set forth in this Declaration, and no
implied covenants or obligations shall be read into
this Declaration against the Property Trustee; and
(B) in the absence of bad faith on the part of the
Property Trustee, the Property Trustee may
conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished
to the Property Trustee and conforming to the
requirements of this Declaration; but in the case of
any such certificates or opinions that by any
provision hereof are specifically required to be
furnished to the Property Trustee, the Property
Trustee shall be under a duty to examine the same to
determine whether or not they conform to the
requirements of this Declaration;
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the
Property Trustee, unless it shall be proved that the
Property Trustee was negligent in ascertaining the pertinent
facts;
(iii) the Property Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less
than a Majority in liquidation amount of the Securities at
the time outstanding relating to the time, method and place
of conducting any proceeding for any remedy available to the
Property Trustee, or exercising any trust or power conferred
upon the Property Trustee under this Declaration;
(iv) no provision of this Declaration shall require the Property
Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of
its duties or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing
that the repayment of such funds or liability is not
reasonably assured to it under the terms of this Declaration
or adequate indemnity against such risk or liability is not
reasonably assured to it;
20
(v) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the
Subordinated Debentures and the Property Trustee Account
shall be to deal with such property in a similar manner as
the Property Trustee deals with similar property for its own
account, subject to the protections and limitations on
liability afforded to the Property Trustee under this
Declaration and the Trust Indenture Act;
(vi) the Property Trustee shall have no duty or liability for or
with respect to the value, genuineness, existence or
sufficiency of the Subordinated Debentures or the payment of
any taxes or assessments levied thereon or in connection
therewith;
(vii) the Property Trustee shall not be liable for any interest on
any money received by it except as it may otherwise agree
with the Sponsor. Money held by the Property Trustee need
not be segregated from other funds held by it except in
relation to the Property Trustee Account maintained by the
Property Trustee pursuant to Section 3.8(c)(i) and except to
the extent otherwise required by law; and
(viii) the Property Trustee shall not be responsible for monitoring
the compliance by the Regular Trustees or the Sponsor with
their respective duties under this Declaration, nor shall
the Property Trustee be liable for the default or misconduct
of the Regular Trustees or the Sponsor.
SECTION 3.10 Certain Rights of the Property Trustee.
(a) Subject to the provisions of Section 3.9:
(i) the Property Trustee may rely and shall be fully protected
in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed, sent
or presented by the proper party or parties;
(ii) any direction or act of the Sponsor or the Regular Trustees
contemplated by this Declaration shall be sufficiently
evidenced by a Direction or an Officer's Certificate;
(iii) whenever in the administration of this Declaration, the
Property Trustee shall deem it desirable that a matter be
proved or established before taking, suffering or omitting
any action hereunder, the Property Trustee (unless other
evidence is herein specifically prescribed) may, in the
absence of bad faith on its part request and rely upon an
Officer's Certificate which, upon receipt of such request,
shall be promptly delivered by the Sponsor or the Regular
Trustees;
(iv) the Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument
(including any financing or continuation statement or any
filing under tax or securities laws) (or any rerecording,
refiling or registration thereof);
(v) the Property Trustee may consult with counsel or other
experts and the advice or opinion of such counsel and
experts with respect to legal matters or advice within the
scope of such experts' area of expertise shall be full and
complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder in good
faith and in accordance with such advice or opinion. Such
counsel may be counsel to the Sponsor or any of its
Affiliates, and may include any of its employees. The
Property Trustee shall have the right at any time to seek
instructions concerning the administration of this
Declaration from any court of competent jurisdiction;
(vi) the Property Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
21
Declaration at the request or direction of any Holder,
unless such Holder shall have provided to the Property
Trustee adequate security and indemnity, which would satisfy
a reasonable person in the position of the Property Trustee,
against the costs, expenses (including attorneys' fees and
expenses) and liabilities that might be incurred by it in
complying with such request or direction, including such
reasonable advances as may be requested by the Property
Trustee provided, that, nothing contained in this Section
3.10(a)(vi) shall be taken to relieve the Property Trustee,
upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by
this Declaration;
(vii) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other
paper or document, but the Property Trustee, in its
discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit;
(viii) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or
by or through agents or attorneys, and the Property Trustee
shall not be responsible for any misconduct or negligence on
the part of any agent or attorney appointed with due care by
it hereunder;
(ix) any action taken by the Property Trustee or its agents
hereunder shall bind the Trust and the Holders of the
Securities, and the signature of the Property Trustee or its
agents alone shall be sufficient and effective to perform
any such action and no third party shall be required to
inquire as to the authority of the Property Trustee to so
act or as to its compliance with any of the terms and
provisions of this Declaration, both of which shall be
conclusively evidenced by the Property Trustee's or its
agent's taking such action;
(x) whenever in the administration of this Declaration the
Property Trustee shall deem it desirable to receive
instructions with respect to enforcing any remedy or right
or taking any other action hereunder, the Property Trustee
(i) may request instructions from the Holders of the
Securities which instructions may only be given by the
Holders of the same proportion in liquidation amount of the
Securities as would be entitled to direct the Property
Trustee under the terms of the Securities in respect of such
remedy, right or action, (ii) may refrain from enforcing
such remedy or right or taking such other action until such
instructions are received, and (iii) shall be protected in
acting in accordance with such instructions; and
(xi) except as otherwise expressly provided by this Declaration,
the Property Trustee shall not be under any obligation to
take any action that is discretionary under the provisions
of this Declaration.
(b) No provision of this Declaration shall be deemed to impose any duty
or obligation on the Property Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed
on it, in any jurisdiction in which it shall be illegal, or in which
the Property Trustee shall be unqualified or incompetent in
accordance with applicable law, to perform any such act or acts, or
to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Property Trustee
shall be construed to be a duty.
SECTION 3.11 Delaware Trustee.
Notwithstanding any other provision of this Declaration other than Section
5.2, the Delaware Trustee shall not be entitled to exercise any powers, nor
shall the Delaware Trustee have any of the duties and responsibilities of the
Regular Trustees or the Property Trustee described in this Declaration.
22
Except as set forth in Section 5.2, the Delaware Trustee shall be a Trustee
for the sole and limited purpose of fulfilling the requirements of Section
3807 of the Business Trust Act.
SECTION 3.12 Execution of Documents.
Unless otherwise determined by the Regular Trustees, and except as otherwise
required by the Business Trust Act, a majority of or, if there are only two,
both of the Regular Trustees or, if there is only one, such Regular Trustee is
authorized to execute on behalf of the Trust any documents that the Regular
Trustees have the power and authority to execute pursuant to Section 3.6;
provided that, any listing application prepared by the Sponsor referred to in
Section 3.6(b)(iii) may be executed by one Regular Trustee.
SECTION 3.13 Not Responsible for Recitals or Issuance of Securities.
The recitals contained in this Declaration and the Securities shall be taken
as the statements of the Sponsor, and the Trustees do not assume any
responsibility for their correctness. The Trustees make no representations as
to the value or condition of the property of the Trust or any part thereof.
The Trustees make no representations as to the validity or sufficiency of this
Declaration or the Securities.
SECTION 3.14 Duration of Trust.
The Trust, unless terminated pursuant to the provisions of Article VIII
hereof, shall have existence for 55 years from the Closing Date.
SECTION 3.15 Mergers.
(a) The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other body,
except as described in Section 3.15(b) and (c).
(b) The Trust may, with the consent of the Regular Trustees or, if there
are more than two, a majority of the Regular Trustees and without
the consent of the Holders of the Securities, the Delaware Trustee
or the Property Trustee, consolidate, amalgamate, merge with or
into, or be replaced by a trust organized as such under the laws of
any State; provided that:
(i) such successor entity (the "Successor Entity") either:
(A) expressly assumes all of the obligations of the Trust
under the Securities; or
(B) substitutes for the Securities other securities
having substantially the same terms as the Preferred
Securities (the "Successor Securities") so long as
the Successor Securities rank the same as the
Preferred Securities rank with respect to
Distributions and payments upon liquidation,
redemption and maturity;
(ii) the Subordinated Debenture Issuer expressly acknowledges a
trustee of the Successor Entity that possesses the same
powers and duties as the Property Trustee as the holder of
the Subordinated Debentures;
(iii) the Preferred Securities or any Successor Securities are
listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities
exchange or other organization on which the Preferred
Securities are then listed or quoted;
(iv) such merger, consolidation, amalgamation or replacement does
not cause the Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized
statistical rating organization;
(v) such merger, consolidation, amalgamation or replacement does
not adversely affect the rights, preferences and privileges
of the Holders of the Securities (including any Successor
Securities) in any material respect (other than with respect
to any dilution of such Holders' interests in the Successor
23
Entity);
(vi) such Successor Entity has a purpose identical to that of the
Trust;
(vii) prior to such merger, consolidation, amalgamation or
replacement, the Sponsor has received an opinion of a
nationally recognized independent counsel to the Trust
experienced in such matters to the effect that:
(A) such merger, consolidation, amalgamation or
replacement does not adversely affect the rights,
preferences and privileges of the Holders of the
Securities (including any Successor Securities) in
any material respect (other than with respect to any
dilution of the Holders' interest in the Successor
Entity); and
(B) following such merger, consolidation, amalgamation or
replacement, neither the Trust nor the Successor
Entity will be required to register as an Investment
Company; and
(viii) the Sponsor guarantees the obligations of such Successor
Entity under the Successor Securities at least to the extent
provided by the Preferred Securities Guarantee.
(c) Notwithstanding Section 3.15(b), the Trust shall not, except with
the consent of Holders of 100% in liquidation amount of the
Securities, consolidate, amalgamate, merge with or into, or be
replaced by any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger or replacement would cause the
Trust or Successor Entity to be classified as other than a grantor
trust for United States federal income tax purposes and each Holder
of the Securities not to be treated as owning an undivided
beneficial interest in the Subordinated Debentures.
SECTION 3.16 Preferential Collection of Claims Against Trust.
(a) Subject to the provisions of Section 3.16(b), if the Property
Trustee shall be or shall become a creditor, directly or indirectly,
secured or unsecured, of the Trust or any other obligor on the
Securities within three months prior to a default, as defined in
Section 3.16(c), or subsequent to such a default, then, unless and
until such default shall be cured, the Property Trustee shall set
apart and hold in a special account for the benefit of the Property
Trustee individually, the Holders of the Securities for which it is
acting as Property Trustee, and the holders of other indenture
securities (as defined in Section 3.16(c));
(i) an amount equal to any and all reductions in the amount due
owing upon any claim as such creditor in respect of
principal or interest, effected after the beginning of such
three months' period, and valid as against the Trust or such
other obligor on the Securities and its other creditors,
except any such reduction resulting from the receipt or
disposition of any property described in paragraph (ii) of
this subsection, or from the exercise of any right of set-
off which the Property Trustee could have exercised if a
petition in bankruptcy had been filed by or against the
Trust or such other obligor on the Securities upon the date
of such default; and
(ii) all property received by the Property Trustee in respect of
any claims as such creditor, either as security therefor, or
in satisfaction or composition thereof, or otherwise, after
the beginning of such three months' period, or an amount
equal to the proceeds of any such property if disposed of,
subject, however, to the rights, if any, of the Trust or
such other obligor on the Securities and their respective
other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the
Property Trustee:
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(A) to retain for its own account (1) payments made on
account of any such claim by any Person (other than
the Trust or such other obligor on the Securities)
who is liable thereon, and (2) the proceeds of the
bona fide sale of any such claim by the Property
Trustee to a third Person, and (3) distributions made
in cash, securities or other property in respect of
claims filed against the Trust or such other obligor
on the Securities in bankruptcy or receivership or in
proceedings for reorganization pursuant to Title 11
of the United States Code or applicable state laws;
(B) to realize, for its own account, upon any property
held by it as security for any such claim, if such
property was so held prior to the beginning of such
three months' period;
(C) to realize, for its own account, but only to the
extent of the claim hereinafter mentioned, upon any
property held by it as security for any such claim,
if such claim was created after the beginning of such
three months' period and such property was received
as security therefor simultaneously with the creation
thereof, and if the Property Trustee shall sustain
the burden of proving that at the time such property
was so received, the Property Trustee had no
reasonable cause to believe that a default, as
defined in Section 3.16(c), would occur within three
months; or
(D) to receive payment on any claim referred to in
paragraph (B) or (C), against the release of any
property held as security for such claim as provided
in such paragraph (B) or (C), as the case may be, to
the extent of the fair value of such property.
For the purposes of paragraphs (B), (C) and (D), property
substituted after the beginning of such three months' period for
property held as security at the time of such substitution shall, to
the extent of the fair value of the property released, have the same
status as the property released, and to the extent that any claim
referred to in any of such paragraphs is created in renewal of or in
substitution for or for the purposes of repaying or refunding any
preexisting claim of the Property Trustee as such creditor, such
claim shall have the same status as such preexisting claim.
If the Property Trustee shall be required to account, the funds and
property held in such special account and the proceeds thereof shall
be apportioned among the Property Trustee, the Holders of Securities
for which it is acting as Property Trustee, and the holders of other
indenture securities in such manner that the Property Trustee, such
Holders of Securities and the holders of other indenture securities
realize, as a result of payments from such special account and
payments of dividends on claims filed against the Trust or such
other obligor on the Securities in bankruptcy or receivership or in
proceedings for reorganization pursuant to Title 11 of the United
States Code or applicable state law, the same percentage of their
respective claims, figured before crediting to the claim of the
Property Trustee anything on account of the receipt by it from the
Trust or such other obligor on the Securities of the funds and
property in such special account and before crediting to the
respective claims of the Property Trustee, such Holders of
Securities, and the holders of other indenture securities dividends
on claims filed against the Trust or such other obligor on the
Securities in bankruptcy or receivership or in proceedings for
reorganization pursuant to Title 11 of the United States Code or
applicable state law, but after crediting thereon receipts on
account of the indebtedness represented by their respective claims
from all sources other than from such dividends and from the funds
and property so held in such special account. As used in this
paragraph, with respect to any claim, the term "dividends" shall
include any distribution with respect to such claim in bankruptcy or
receivership or in proceedings for reorganization pursuant to Title
11 of the United States Code or applicable state law, whether such
distribution is made in cash, securities or other property, but
shall not include any such distribution with respect to the secured
25
portion, if any, of such claim. The court in which such bankruptcy,
receivership or proceeding for reorganization is pending shall have
jurisdiction (1) to apportion among the Property Trustee, such
Holders of Securities, and the holders of other indenture
securities, in accordance with the provisions of this paragraph, the
funds and property held in such special account and the proceeds
thereof, or (2) in lieu of such apportionment in whole or in part,
to give to the provisions of this paragraph due consideration in
determining the fairness of the distributions to be made to the
Property Trustee, such Holders of Securities and the holders of
other indenture securities with respect to their respective claims,
in which event it shall not be necessary to liquidate or appraise
the value of any securities or other property held in such special
account or as security for any such claim, or to make a specific
allocation of such distributions as between the secured and
unsecured portions of such claim, or otherwise to apply the
provisions of this paragraph as a mathematical formula.
Any Property Trustee who has resigned or been removed after the beginning
of such three months' period shall be subject to the provisions of this
subsection (a) as though such resignation or removal had not occurred.
If any Property Trustee has resigned or been removed prior to the
beginning of such three months' period, it shall be subject to the
provisions of this subsection (a) if and only if the following conditions
exist:
(i) the receipt of property or reduction of claim which would
have given rise to the obligation to account, if such
Property Trustee had continued, as trustee, occurred after
the beginning of such three months' period; and
(ii) such receipt of property or reduction of claim occurred
within three months after such resignation or removal.
In every case commenced under the Bankruptcy Act of 1898, or any
amendment thereto enacted prior to November 6, 1978, all references to
periods of three months shall be deemed to be references to periods of
four months.
(b) There shall be excluded from the operation of Section 3.16(a) a
creditor relationship arising from:
(i) the ownership or acquisition of securities issued under any
indenture, or any security or securities having a maturity
of one year or more at the time of acquisition by the
Property Trustee;
(ii) advances authorized by a receivership or bankruptcy court of
competent jurisdiction, or by this Declaration, for the
purpose of preserving any property which shall at any time
be subject to the lien of this Declaration or of discharging
tax liens or other prior liens or encumbrances thereon, if
notice of such advance and of the circumstances surrounding
the making thereof is given to the Holders of Securities at
the time and in the manner provided in Section 2.3 with
respect to reports pursuant thereto;
(iii) disbursements made in the ordinary course of business in the
capacity of trustee under an indenture, transfer agent,
registrar, custodian, paying agent, fiscal agent or
depository, or other similar capacity;
(iv) an indebtedness created as a result of services
rendered or premises rented, or an indebtedness
created as a result of goods or securities sold in a
"cash transaction" as defined in Section 3.16(c);
(v) the ownership of stock or other securities of a
company organized under the provisions of Section
25(a) of the Federal Reserve Act, as amended, which
is directly or indirectly a creditor of the Trust or
any other obligor on the Securities; and
(vi) the acquisition, ownership, acceptance or negotiation
of any drafts, bills of exchange, acceptances or
obligations which fall within the definition of
26
"self-liquidating paper" in Section 3.16(c).
(c) As used in this Section 3.16 the following terms shall be accorded
the following definitions:
(i) the term "default" shall mean any failure to make payment in
full of the principal of or interest on any of the
Securities or on the "other indenture securities" (as
defined in Section 3.16(c)(ii)) when and as such principal
or interest becomes due and payable.
(ii) the term "other indenture securities" shall mean securities
upon which the Trust or any other obligor on the Securities
is an "obligor" (as defined in the Trust Indenture Act)
outstanding under any other indenture (A) under which the
Property Trustee is also trustee, (B) which contains
provisions substantially similar to the provisions of
Section 3.16(a), and (c) under which a default exists at the
time of the apportionment of the funds and property held in
said special account.
(iii) the term "cash transaction" shall mean any transaction in
which full payment for goods or securities sold is made
within seven days after delivery of the goods or securities
in currency or in checks or other orders drawn upon banks or
bankers and payable upon demand.
(iv) the term "self-liquidating paper" shall mean any draft, bill
of exchange, acceptance or obligation which is made, drawn,
negotiated or incurred by the Trust or any other obligor on
the Securities for the purpose of financing the purchase,
processing, manufacture, shipment, storage or sale of goods,
wares or merchandise and which is secured by documents
evidencing title to, possession of, or a lien upon, the
goods, wares or merchandise or the receivables or proceeds
arising from the sale of the goods, wares or merchandise
previously constituting the security, provided the security
is received by the Property Trustee simultaneously with the
creation of the creditor relationship with the Trust or any
other obligor on the Securities arising from the making,
drawing, negotiating or incurring of the draft, bill of
exchange, acceptance or obligation.
SECTION 3.17 Property Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
similar judicial proceeding relative to the Trust or any other obligor upon
the Securities or the property of the Trust or of such other obligor or their
creditors, the Property Trustee (irrespective of whether the principal of the
Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Property Trustee
shall have made any demand on the Trust for the payment of overdue principal
or interest) shall be entitled and empowered, to the fullest extent permitted
by law, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the
Securities (or, if the Securities are original issue discount
Securities, such portion of the principal amount as may be specified
in the terms of such Securities) and to file such other papers or
documents as may be necessary or advisable in order to have the
claims of the Property Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Property Trustee, its agents and counsel) and of the Holders allowed
in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Property Trustee and, in the event
that the Property Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Property Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the
27
Property Trustee, its agents and counsel, and any other amounts due the
Property Trustee.
Nothing herein contained shall be deemed to authorize the Property Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Property
Trustee to vote in respect of the claim of any Holder in any such proceeding.
ARTICLE IV
SPONSOR
SECTION 4.1 Sponsor's Purchase of Common Securities.
On the Closing Date the Sponsor will purchase all the Common Securities issued
by the Trust, in an amount equal to 3% of the capital of the Trust, giving
effect to the sale of the Preferred Securities, at the same time as the
Preferred Securities are sold.
SECTION 4.2 Responsibilities of the Sponsor.
In connection with the issue and sale of the Preferred Securities, the Sponsor
shall have the exclusive right and responsibility to engage in the following
activities:
(a) to prepare for filing by the Trust with the Commission a
registration statement on Form S-3 in relation to the Preferred
Securities, the Subordinated Debentures and the Preferred Securities
Guarantee, including any amendments thereto;
(b) to determine the states in which to take appropriate action to
qualify or register for sale all or part of the Preferred Securities
and to do any and all such acts, other than actions which must be
taken by the Trust, and advise the Trust of actions it must take,
and prepare for execution and filing any documents to be executed
and filed by the Trust, as the Sponsor deems necessary or advisable
in order to comply with the applicable laws of any such states;
(c) to prepare for filing by the Trust an application to the New York
Stock Exchange or any other national stock exchange or the Nasdaq
National Market for listing upon notice of issuance of any Preferred
Securities;
(d) to prepare for filing by the Trust with the Commission a
registration statement on Form 8-A relating to the registration of
the Preferred Securities under Section 12(b) of the Exchange Act,
including any amendments thereto; and
(e) to negotiate the terms of the Underwriting Agreement and Pricing
Agreement providing for the sale of the Preferred Securities.
SECTION 4.3 Expenses.
(a) The Sponsor shall be responsible for and shall pay for all debts and
obligations (other than with respect to the Securities) and all
costs and expenses of the Trust (including, but not limited to,
costs and expenses relating to the organization of the Trust, the
issuance and sale of the Preferred Securities, the fees and expenses
(including reasonable counsel fees and expenses) of the Trustees,
the costs and expenses of accountants, attorneys, statistical or
bookkeeping services, expenses for printing and engraving and
computing or accounting equipment, Paying Agents(s), registrar(s),
transfer agents(s), duplication, travel and telephone and other
telecommunications expenses and costs and expenses incurred in
connection with the disposition of Trust assets).
(b) The Sponsor will pay any and all taxes (other than United States
withholding taxes attributable to the Trust or its assets) and all
liabilities, costs and expenses with respect to such taxes of the
Trust.
(c) The Sponsor's obligations under this Section 4.3 shall be for the
benefit of, and shall be enforceable by, any Person to whom any such
debts, obligations, costs, expenses and taxes are owed (a
"Creditor") whether or not such Creditor has received notice hereof.
28
Any such Creditor may enforce the Sponsor's obligations under this
Section 4.3 directly against the Sponsor and the Sponsor irrevocably
waives any right or remedy to require that any such Creditor take
any action against the Trust or any other Person before proceeding
against the Sponsor. The Sponsor agrees to execute such additional
agreements as may be necessary or desirable in order to give full
effect to the provisions of this Section 4.3.
SECTION 4.4 Suits Against Subordinated Debenture Issuer.
Under Section 1001 of the Indenture, the Sponsor, as the Subordinated
Debenture Issuer, has covenanted and agreed to duly and punctually pay or
cause to be paid the principal and interest on the Subordinated Debentures in
accordance with the terms of the Subordinated Debenture. The Sponsor's
obligation under such Section 1001 shall be for the benefit of, and shall be
enforceable by, the Holders of the Preferred Securities. Any such Holder may
enforce the Sponsor's obligations under Section 1001 of the Indenture directly
against the Sponsor and the Sponsor irrevocably waives any right or remedy to
require that any such Holder take any action against the Trust or any other
Person before proceeding against the Sponsor.
ARTICLE V
TRUSTEES
SECTION 5.1 Number of Trustees.
The number of Trustees shall initially be five, and:
(a) at any time before the issuance of any Securities, the Sponsor may,
by written instrument, increase or decrease the number of Trustees;
and
(b) after the issuance of any Securities, the number of Trustees may be
increased or decreased by vote of the Holders of a Majority in
liquidation amount of the Common Securities voting as a class at a
meeting of the Holders of the Common Securities;
provided that, if the Property Trustee does not also act as Delaware Trustee,
the number of Trustees shall be at least five.
SECTION 5.2 Delaware Trustee.
If required by the Business Trust Act, one Trustee (the "Delaware Trustee")
shall be:
(a) a natural person who is a resident of the State of Delaware; or
(b) if not a natural person, an entity which has its principal place of
business in the State of Delaware and otherwise meets the
requirements of applicable law,
provided that, if the Property Trustee has its principal place of business in
the State of Delaware and otherwise meets the requirements of applicable law,
then the Property Trustee shall also be the Delaware Trustee and Section 3.11
shall have no application.
SECTION 5.3 Property Trustee; Eligibility.
(a) There shall at all times be one Trustee which shall act as Property
Trustee which shall:
(i) not be an Affiliate of the Sponsor;
(ii) be a corporation organized and doing business under the laws
of the United States of America or any state or territory
thereof or of the District of Columbia, or a corporation or
Person permitted by the Commission to act as an
institutional trustee under the Trust Indenture Act,
authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least
$50,000,000, and subject to supervision or examination by
federal, state, territorial or District of Columbia
authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the
requirements of the supervising or examining authority
referred to above, then for the purposes of this Section
29
5.3(a)(ii), the combined capital and surplus of such
corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition
so published; and
(iii) to the extent the rules and regulations promulgated under
the Investment Company Act require a trustee having certain
qualifications to hold title to the "eligible assets" of the
Trust, the Property Trustee shall possess those
qualifications.
(b) If at any time the Property Trustee shall cease to be eligible to so
act under Section 5.3(a), the Property Trustee shall immediately
resign in the manner and with the effect set forth in Section
5.6(c).
(c) If the Property Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Property Trustee and the Holder of the Common
Securities (as if it were the obligor referred to in Section 310(b)
of the Trust Indenture Act) shall in all respects comply with the
provisions of Section 310(b) of the Trust Indenture Act.
SECTION 5.4 Qualifications of Regular Trustees and Delaware Trustee
Generally.
Each Regular Trustee and the Delaware Trustee (unless the Property Trustee
also acts as Delaware Trustee) shall be either a natural person who is at
least 21 years of age or a legal entity that shall act through one or more
Authorized Officers.
SECTION 5.5 Initial Trustees.
The initial Regular Trustees shall be:
Roomy F. Balaporia
Pacific Telesis Group
130 Kearny Street
San Francisco, California 94108
Miles H. Mochizuki
Pacific Telesis Group
130 Kearny Street
San Francisco, California 94108
Marie B. Washington
Pacific Telesis Group
130 Kearny Street
San Francisco, California 94108
The initial Delaware Trustee shall be:
Michael J. Majchrzak
FCC National Bank
300 King Street
Wilmington, Delaware 19802
The initial Property Trustee shall be:
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, Illinois 60670
SECTION 5.6 Appointment, Removal and Resignation of Trustees.
(a) Subject to Section 5.6(b), Trustees may be appointed or removed
without cause at any time:
(i) until the issuance of any Securities, by written instrument
executed by the Sponsor; and
(ii) after the issuance of any Securities, by vote of the Holders
of a Majority in liquidation amount of the Common Securities
voting as a class at a meeting of the Holders of the Common
Securities.
30
(b) (i) The Trustee that acts as Property Trustee shall not be
removed in accordance with Section 5.6(a) until a Successor
Property Trustee has been appointed and has accepted such
appointment by written instrument executed by such Successor
Property Trustee and delivered to the Regular Trustees and
the Sponsor; and
(ii) the Trustee that acts as Delaware Trustee shall not be
removed in accordance with Section 5.6(a) until a successor
Trustee possessing the qualifications to act as Delaware
Trustee under Sections 5.2 and 5.4 (a "Successor Delaware
Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor
Delaware Trustee and delivered to the Regular Trustees and
the Sponsor.
(c) A Trustee appointed to office shall hold office until his successor
shall have been appointed or until his death, removal or
resignation. Any Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing signed
by the Trustee and delivered to the Sponsor and the Trust, which
resignation shall take effect upon such delivery or upon such later
date as is specified therein; provided, however, that:
(i) No such resignation of the Trustee that acts as the Property
Trustee shall be effective:
(A) until a Successor Property Trustee has been appointed and
has accepted such appointment by instrument executed by such
Successor Property Trustee and delivered to the Trust, the
Sponsor and the resigning Property Trustee; or
(B) until the assets of the Trust have been completely
liquidated and the proceeds thereof distributed to the
Holders of the Securities; and
(ii) no such resignation of the Trustee that acts as the Delaware
Trustee shall be effective until a Successor Delaware
Trustee has been appointed and has accepted such appointment
by instrument executed by such Successor Delaware Trustee
and delivered to the Trust, the Sponsor and the resigning
Delaware Trustee.
(d) The Holders of the Common Securities shall use their best efforts to
promptly appoint a Successor Delaware Trustee or Successor Property
Trustee as the case may be if the Property Trustee or the Delaware
Trustee delivers an instrument of resignation in accordance with
this Section 5.6.
(e) If no Successor Property Trustee or Successor Delaware Trustee shall
have been appointed and accepted appointment as provided in this
Section 5.6 within 60 days after delivery to the Sponsor and the
Trust of an instrument of resignation, the resigning Property
Trustee or Delaware Trustee, as applicable, may petition any court
of competent jurisdiction for appointment of a Successor Property
Trustee or Successor Delaware Trustee. Such court may thereupon,
after prescribing such notice, if any, as it may deem proper and
prescribe, appoint a Successor Property Trustee or Successor
Delaware Trustee, as the case may be.
SECTION 5.7 Vacancies among Trustees.
If a Trustee ceases to hold office for any reason and the number of Trustees
is not reduced pursuant to Section 5.1, or if the number of Trustees is
increased pursuant to Section 5.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by the Regular Trustees or, if there
are more than two, a majority of the Regular Trustees shall be conclusive
evidence of the existence of such vacancy. The vacancy shall be filled with a
Trustee appointed in accordance with Section 5.6.
SECTION 5.8 Effect of Vacancies.
The death, resignation, retirement, removal, bankruptcy, dissolution,
liquidation, incompetence or incapacity to perform the duties of a Trustee
shall not operate to annul the Trust. Whenever a vacancy in the number of
Regular Trustees shall occur, until such vacancy is filled by the appointment
31
of a Regular Trustee in accordance with Section 5.6, the Regular Trustees in
office, regardless of their number, shall have all the powers granted to the
Regular Trustees and shall discharge all the duties imposed upon the Regular
Trustees by this Declaration.
SECTION 5.9 Meetings.
If there is more than one Regular Trustee, meetings of the Regular Trustees
shall be held from time to time upon the call of any Regular Trustee. Regular
meetings of the Regular Trustees may be held at a time and place fixed by
resolution of the Regular Trustees. Notice of any in-person meetings of the
Regular Trustees shall be hand delivered or otherwise delivered in writing
(including by facsimile, with a hard copy by overnight courier) not less than
48 hours before such meeting. Notice of any telephonic meetings of the Regular
Trustees or any committee thereof shall be hand delivered or otherwise
delivered in writing (including by facsimile, with a hard copy by overnight
courier) not less than 24 hours before a meeting. Notices shall contain a
brief statement of the time, place and anticipated purposes of the meeting.
The presence (whether in person or by telephone) of a Regular Trustee at a
meeting shall constitute a waiver of notice of such meeting except where a
Regular Trustee attends a meeting for the express purpose of objecting to the
transaction of any activity on the ground that the meeting has not been
lawfully called or convened. Unless provided otherwise in this Declaration,
any action of the Regular Trustees may be taken at a meeting by vote of a
majority of the Regular Trustees present (whether in person or by telephone)
and eligible to vote with respect to such matter, provided that a Quorum is
present, or without a meeting by the unanimous written consent of the Regular
Trustees. In the event there is only one Regular Trustee, any and all action
of such Regular Trustee shall be evidenced by a written consent of such
Regular Trustee.
SECTION 5.10 Delegation of Power.
(a) Any Regular Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of
21 his or her power for the purpose of executing any documents
contemplated in Section 3.6, including any registration statement or
amendment thereto filed with the Commission, or making any other
governmental filing; and
(b) the Regular Trustees shall have power to delegate from time to time
to such of their number or to officers of the Trust the doing of
such things and the execution of such instruments either in the name
of the Trust or the names of the Regular Trustees or otherwise as
the Regular Trustees may deem expedient, to the extent such
delegation is not prohibited by applicable law or contrary to the
provisions of the Trust, as set forth herein.
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Distributions.
If and to the extent that the Subordinated Debenture Issuer makes a payment of
interest (including Compounded Interest (as defined in the Indenture) and
Additional Amounts (as defined in the Indenture)), premium and/or principal on
the Subordinated Debentures held by the Property Trustee (the amount of any
such payment being a "Payment Amount"), the Property Trustee shall and is
directed, to the extent funds are available for that purpose, to make a
distribution (a "Distribution") of the Payment Amount to Holders. Holders
shall receive Distributions in accordance with the applicable terms of the
relevant Holder's Securities. Distributions shall be made on the Preferred
Securities and the Common Securities in accordance with the preferences set
forth in their respective terms.
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 General Provisions Regarding Securities.
(a) The Regular Trustees shall on behalf of the Trust issue one class of
preferred securities representing undivided beneficial interests in
the assets (the "Preferred Securities") of the Trust having such
terms as are set forth in Exhibit A as such Exhibit may be amended
32
from time to time in accordance with the provisions of this
Declaration and which Exhibit A is hereby incorporated herein and
one class of common securities representing undivided beneficial
interests in the assets (the "Common Securities") of the Trust
having such terms as are set forth in Exhibit A as such Exhibit may
be amended from time to time in accordance with the provisions of
this Declaration. The Trust shall have no securities or other
interests in the assets of the Trust other than the Preferred
Securities and the Common Securities.
(b) The Securities shall be signed on behalf of the Trust by a Regular
Trustee. Such signature may be the manual or facsimile signature of
the present or any future Regular Trustee. Typographical and other
minor errors or defects in any such reproduction of any such
signature shall not affect the validity of any Security. In case
any Regular Trustee of the Trust who shall have signed any of the
Securities shall cease to be such Regular Trustee before the
Securities so signed shall be delivered by the Trust, such
Securities nevertheless may be delivered as though the person who
signed such Securities had not ceased to be such Regular Trustee;
and any Security may be signed on behalf of the Trust by such
persons who, at the actual date of execution of such Security, shall
be the Regular Trustees of the Trust, although at the date of the
execution and delivery of the Declaration any such person was not
such a Regular Trustee. Securities shall be printed, lithographed
or engraved or may be produced in any other manner as is reasonably
acceptable to the Regular Trustees, as evidenced by their execution
thereof, and may have such letters, numbers or other marks of
identification or designation and such legends or endorsements as
the Regular Trustees may deem appropriate, or as may be required to
comply with any law or with any rule or regulation of any stock
exchange on which Securities may be listed, or to conform to usage.
(c) The consideration received by the Trust for the issuance of the
Securities shall constitute a contribution to the capital of the
Trust and shall not constitute a loan to the Trust.
(d) Upon issuance of the Securities as provided in this Declaration, the
Securities so issued shall be deemed to be validly issued, fully
paid and non-assessable.
(e) Every Person, by virtue of having become a Holder in accordance with
the terms of this Declaration, shall be deemed to have expressly
assented and agreed to the terms of, and shall be bound by, this
Declaration.
(f) Upon issuance of the Preferred Securities as provided in this
Declaration, the Regular Trustees on behalf of the Trust shall
return to the Sponsor the $10 constituting initial trust assets as
set forth in the Original Declaration.
ARTICLE VIII
TERMINATION OF TRUST
SECTION 8.1 Termination of Trust.
(a) The Trust shall terminate upon the earliest of:
(i) the Bankruptcy of the Holder of the Common Securities, the
Sponsor or the Subordinated Debenture Issuer;
(ii) the filing of a certificate of dissolution or its equivalent
with respect to the Holder of the Common Securities or the
Sponsor; the filing of a certificate of cancellation with
respect to the Trust or the revocation of the charter of the
Holder of the Common Securities or of the Sponsor and the
expiration of 90 days after the date of revocation without a
reinstatement thereof;
(iii) the entry of a decree of judicial dissolution of the Holder
of the Common Securities, the Sponsor or the Trust;
(iv) when all of the Securities shall have been called for
redemption and the amounts necessary for redemption thereof
shall have been paid to the Holders in accordance with the
33
terms of the Securities;
(v) the occurrence and continuation of a Special Event pursuant
to which the Trust shall have been dissolved in accordance
with the terms of the Securities and all of the Subordinated
Debentures shall have been distributed to the Holders of
Securities in exchange for all of the Securities;
(vi) before the issuance of any Securities upon the consent of
all of the Regular Trustees and the Sponsor; or
(vii) the expiration of the Trust specified in Section 3.14
hereof.
(b) As soon as is practicable after the occurrence of an event referred
to in Section 8.1(a), the Trustees shall file a certificate of
cancellation with the Secretary of State of the State of Delaware.
(c) The provisions of Section 3.9 and Article X shall survive the
termination of the Trust.
ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1 Transfer of Securities.
(a) Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this
Declaration and in the terms of the Securities. Any transfer or
purported transfer of any Security not made in accordance with this
Declaration shall be null and void.
(b) Subject to this Article IX, Preferred Securities shall be freely
transferable, provided, however, that the Global Security or
Securities may not be transferred except as a whole by the
Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository or
by the Depository or any nominee to a successor Depository or a
nominee of any successor Depository.
(c) Subject to this Article IX, the Sponsor and any Related Party may
only transfer Common Securities to the Sponsor or a Related Party of
the Sponsor; provided that, any such transfer is subject to the
condition precedent prior to any such transfer that the transferor
or the transferee shall have obtained or caused to be obtained
either a ruling from the Internal Revenue Service or an unqualified
written opinion addressed to the Trust and delivered to the Trustees
of a nationally recognized independent counsel experienced in such
matters that such transfer will not cause:
(i) the Trust to be treated as issuing a class of interests in
the Trust differing from the class of interests represented
by the Common Securities originally issued;
(ii) result in the Trust acquiring or disposing of, or being
deemed to have acquired or disposed of, an asset;
(iii) the Trust to be classified as other than a grantor trust for
United States federal income tax purposes; and
(iv) the Trust to be an Investment Company or the transferee to
become an Investment Company.
SECTION 9.2 Registration, Transfer and Exchange of Securities
Except as specifically otherwise provided herein with respect to Securities
issued in the form of Global Securities, Securities may be exchanged for
Securities representing a like aggregate liquidation amount of Securities.
Securities to be exchanged shall be surrendered at the offices or agencies of
the Property Trustee and the Regular Trustees shall execute the Securities,
and the Property Trustee shall authenticate and deliver in exchange therefor
the Security or Securities which the Holder making the exchange shall be
entitled to receive.
The Property Trustee shall keep or cause to be kept, at its principal trust
34
office, the Register in which, subject to such reasonable regulations as it
may prescribe, the Property Trustee shall provide for the registration of the
Securities and the transfer of Securities as in this Article provided. The
Register shall be in written form or in any other form capable of being
converted into written form within a reasonable time. At all reasonable times
the Register shall be open for inspection by the Sponsor and the Regular
Trustees. Upon due presentment for transfer of any Security at the principal
trust office of the Property Trustee, the Regular Trustees shall execute a new
Security and the Property Trustee shall authenticate and deliver in the name
of the transferee or transferees a new Security or Securities for a like
aggregate liquidation amount in authorized denominations.
Notwithstanding any other provisions of this Section 9.2, unless and until it
is exchanged in whole or in part for Securities in definitive form, a Global
Security representing all or a portion of the Securities may not be
transferred except as a whole by the Depository to a nominee of such
Depository or by a nominee of such Depository to such Depository or another
nominee of such Depository or by such Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
All Securities presented or surrendered for exchange, transfer, redemption, or
payment shall, if so required by the Property Trustee, be accompanied by a
written instrument or instruments of transfer, in form satisfactory to the
Regular Trustees, the Sponsor and the Property Trustee, duly executed by the
Holder or by such Holder's attorney duly authorized in writing. No service
charge shall be made for any exchange or registration of transfer of
Securities, but the Property Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto.
The Property Trustee shall not be required to exchange or transfer (a) any
Securities during a period beginning at the opening of business 15 days before
the day of the first mailing of a notice of redemption of Securities and
ending at the close of business on the day of such mailing or (b) any
Securities called or selected for redemption in whole or in part, except, in
the case of Securities called for redemption in part, the portion thereof not
so called for redemption or during a period beginning at the opening of
business on any record date and ending at the close of business on the
relevant Distribution payment date therefor.
SECTION 9.3 Deemed Security Holders.
The Trustees may treat the Person in whose name any Security shall be
registered on the Register as the sole holder of such Securities for purposes
of receiving Distributions and for all other purposes whatsoever and,
accordingly, shall not be bound to recognize any equitable or other claim to
or interest in such Securities on the part of any Person, whether or not the
Trust shall have actual or other notice thereof.
SECTION 9.4 Global Preferred Securities and Common Securities.
(a) The Preferred Securities, on original issuance, shall be issued in
the form of one or more fully registered Global Securities, to be
delivered to the Depository, by, or on behalf of, the Trust. Each
Global Security shall:
(i) represent and be denominated in an aggregate amount equal to
the aggregate liquidation amount of the Preferred Securities
to be represented by such Global Security,
(ii) be registered in the name of either the Depository for such
Global Security or the nominee of such Depository,
(iii) be delivered by the Trustee to such Depository or pursuant
such Depository's written instruction, and
(iv) bear a legend substantially to the following effect:
"Unless and until it is exchanged in whole or in part for
Preferred Securities in definitive form, this Global
Security may not be transferred except as a whole by the
Depository to a nominee of the Depository or by a nominee of
the Depository to the Depository or another nominee of the
Depository or by the Depository or any nominee to a
successor Depository or a nominee of any successor
Depository." The notation of the record owner's interest in
such Global Security upon the original issuance thereof
35
shall be deemed to be delivery in connection with the
original issuance of each beneficial owner's interest in
such Global Security. Without limiting the foregoing, the
Sponsor and each of the Trustees shall have no
responsibility, obligation or liability with respect to:
(x) the maintenance, review or accuracy of the records of
the Depository or of any of its participating organizations
with respect to any ownership interest in or payments with
respect to such Global Security, (y) any communication with
or delivery of any notice (including notices of redemption)
with respect to the Preferred Securities represented by the
Global Security to any Person having any ownership interest
in such Global Security or to any of the Depository's
participating organizations or (z) any payment made on
account of any beneficial ownership interest in such Global
Security.
(b) Each Global Security may provide that it shall represent the
aggregate liquidation amount of outstanding Preferred Securities
from time to time endorsed thereon and may also provide that the
aggregate liquidation amount of outstanding Preferred Securities
represented thereby may from time to time be reduced to reflect
exchanges. Any endorsement of a Global Security to reflect the
liquidation amount of outstanding Preferred Securities represented
thereby shall be made by the Property Trustee in such manner as
shall be specified on such Global Security. Any instructions by the
Sponsor or the Regular Trustee with respect to a Global Security,
after its initial issuance, shall be in writing.
(c) Each Depository designated pursuant to the provisions of this
Declaration for a Global Security must, at the time of its
designation and at all times while it serves as a depository, be a
clearing agency registered under the Exchange Act, and any other
applicable statute or regulation. If at any time the Depository for
the Preferred Securities notifies the Property Trustee that it is
unwilling or unable to continue as Depository for the Preferred
Securities or if at any time the Depository for the Preferred
Securities shall no longer be eligible under this Declaration, the
Regular Trustees shall appoint a successor Depository. If a
successor Depository is not appointed by the Trust within 90 days
after the Property Trustee receives such notice or learns of such
ineligibility, the Regular Trustees shall execute and the Regular
Trustees shall direct the Property Trustee to authenticate and
deliver definitive Preferred Securities in exchange for the Global
Security or Securities. Upon receipt of such Direction, the
Property Trustee shall thereupon authenticate and deliver the
definitive Preferred Securities in the same aggregate liquidation
amount as the Global Security or Securities in exchange for such
Global Security or Securities, in accordance with the provisions of
Section 9.4(e), without any further action by the Regular Trustees
or the Sponsor.
(d) The Regular Trustees may at any time after consultation with the
Sponsor determine that the Preferred Securities shall no longer be
represented by a Global Security or Securities. In such event, the
Regular Trustees will execute and upon receipt of a written order
from the Regular Trustees, the Property Trustee shall thereupon
authenticate and deliver Preferred Securities in definitive form and
in an aggregate liquidation amount equal to the principal amount of
the Global Security or Securities in exchange for such Global
Security or Securities, in accordance with the provisions of Section
9.4(e) without any further action by the Regular Trustees or the
Sponsor.
(e) Upon any exchange hereunder of the Global Security or Securities for
Preferred Securities in definitive form, such Global Security or
Securities shall be canceled by the Property Trustee. Preferred
Securities issued hereunder in exchange for the Global Security or
Securities shall be registered in such names as the Depository for
such Global Security, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Property
Trustee. The Property Trustee shall deliver such definitive
Preferred Securities in exchange for the Global Security or
Securities to the persons in whose name such definitive Preferred
Securities have been registered in accordance with the directions of
the Depository.
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(f) Unless otherwise specified in the terms of the Common Securities, on
original issuance, the Common Securities will be issued in the form
of a single fully registered Common Security certificate which shall
(a) represent the aggregate liquidation amount of Common Securities
issued hereunder and (b) be registered in the name of the Sponsor
and delivered by the Trust to the Sponsor.
SECTION 9.5 Notices to Depository.
Whenever a notice or other communication to the Preferred Securities Holders
is required under this Declaration, unless and until Preferred Securities in
definitive form shall have been issued pursuant to Section 9.4, the Regular
Trustees shall give all such notices and communications specified herein to be
given to the Preferred Security Holders to the Depository.
SECTION 9.6 Mutilated, Destroyed, Lost or Stolen Securities.
If:
(a) any mutilated Securities should be surrendered to the Regular
Trustees, or if the Regular Trustees shall receive evidence to their
satisfaction of the destruction, loss or theft of any Security; and
(b) there shall be delivered to the Regular Trustees, the Sponsor and
the Property Trustees such security or indemnity as may be required
by them to keep each of them harmless.
then:
In the absence of notice that such Security shall have been acquired by a
bona fide purchaser, the Regular Trustees shall execute and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Security, a new Security of like denomination and in the same aggregate
liquidation amount as the mutilated, destroyed, lost or stolen Security.
In connection with the issuance of any new Security under this Section
9.6, the Regular Trustees may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in
connection therewith. Any duplicate Security issued pursuant to this
Section shall constitute conclusive evidence of an ownership interest in
the relevant Securities, as if originally issued, whether or not the
lost, stolen or destroyed Security shall be found at any time.
ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 10.1 Liability.
(a) Except as expressly set forth in this Declaration, the Common
Security Guarantee and Preferred Security Guarantee and the terms of
the Securities the Sponsor shall not be:
(i) personally liable for the return of any portion of the
capital contributions (or any return thereon) of the Holders
of the Securities which shall be made solely from assets of
the Trust; and
(ii) be required to pay to the Trust or to any Holder of
Securities any deficit upon dissolution of the Trust or
otherwise.
(b) Pursuant to Section 3803(a) of the Business Trust Act, the Holders
of the Securities shall be entitled to the same limitation of
personal liability extended to stockholders of private corporations
for profit organized under the General Corporation Law of the State
of Delaware.
SECTION 10.2 Exculpation.
(a) No Indemnified Person shall be liable, responsible or accountable in
damages or otherwise to the Trust or any Covered Person for any
loss, damage or claim incurred by reason of any act or omission
performed or omitted by such Indemnified Person in good faith on
behalf of the Trust and in a manner such Indemnified Person
reasonably believed to be within the scope of the authority
37
conferred on such Indemnified Person by this Declaration or by law,
except that an Indemnified Person shall be liable for any such loss,
damage or claim incurred by reason of such Indemnified Person's
negligence or willful misconduct with respect to such acts or
omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Trust and upon such information,
opinions, reports or statements presented to the Trust by any Person
as to matters the Indemnified Person reasonably believes are within
such other Person's professional or expert competence and who has
been selected with reasonable care by or on behalf of the Trust,
including information, opinions, reports or statements as to the
value and amount of the assets, liabilities, profits, losses, or any
other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Securities might properly be paid.
SECTION 10.3 Fiduciary Duty.
(a) To the extent that, at law or in equity, an Indemnified Person has
duties (including fiduciary duties) and liabilities relating thereto
to the Trust or to any other Covered Person, an Indemnified Person
acting under this Declaration shall not be liable to the Trust or to
any other Covered Person for its good faith reliance on the
provisions of this Declaration. The provisions of this Declaration,
to the extent that they restrict the duties and liabilities of an
Indemnified Person otherwise existing at law or in equity (other
than the duties imposed on the Property Trustee under the Trust
Indenture Act), are agreed by the parties hereto to replace such
other duties and liabilities of such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between an
Indemnified Person and any Covered Person; or
(ii) whenever this Declaration or any other agreement
contemplated herein or therein provides that an Indemnified
Person shall act in a manner that is, or provides terms that
are, fair and reasonable to the Trust or any Holder of
Securities,
the Indemnified Person shall resolve such conflict of interest, take
such action or provide such terms, considering in each case the
relative interest of each party (including its own interest) to such
conflict, agreement, transaction or situation and the benefits and
burdens relating to such interests, any customary or accepted
industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the
Indemnified Person, the resolution, action or term so made, taken or
provided by the Indemnified Person shall not constitute a breach of
this Declaration or any other agreement contemplated herein or of
any duty or obligation of the Indemnified Person at law or in equity
or otherwise.
(c) Whenever in this Declaration an Indemnified Person is permitted or
required to make a decision
(i) in its "discretion" or under a grant of similar authority,
the Indemnified Person shall be entitled to consider such
interests and factors as it desires, including its own
interests, and shall have no duty or obligation to give any
consideration to any interest of or factors affecting the
Trust or any other Person; or
(ii) in its "good faith" or under another express standard, the
Indemnified Person shall act under such express standard and
shall not be subject to any other or different standard
imposed by this Declaration or by applicable law.
SECTION 10.4 Indemnification.
(a) To the fullest extent permitted by applicable law, the Sponsor shall
indemnify and hold harmless each Indemnified Person from and against
any loss, damage, liability, tax, penalty, expense or claim of any
kind or nature whatsoever incurred by such Indemnified Person by
38
reason of the creation, operation or termination of the Trust or any
act or omission performed or omitted by such Indemnified Person in
good faith on behalf of the Trust and in a manner such Indemnified
Person reasonably believed to be within the scope of authority
conferred on such Indemnified Person by this Declaration, except
that no Indemnified Person shall be entitled to be indemnified in
respect of any loss, damage or claim incurred by such Indemnified
Person by reason of negligence or willful misconduct with respect to
such acts or omissions.
(b) To the fullest extent permitted by applicable law, expenses
(including legal fees) incurred by an Indemnified Person in
defending any claim, demand, action, suit or proceeding shall, from
time to time, be advanced by the Sponsor prior to the final
disposition of such claim, demand, action, suit or proceeding upon
receipt by the Sponsor of an undertaking by or on behalf of the
Indemnified Person to repay such amount if it shall be determined
that the Indemnified Person is not entitled to be indemnified as
authorized in Section 10.4(a). This indemnification shall survive
the termination of this Declaration.
SECTION 10.5 Outside Businesses.
Any Covered Person, the Sponsor, the Subordinated Debenture Issuer, any
Regular Trustee, the Delaware Trustee and the Property Trustee may engage in
or possess an interest in other business ventures of any nature or
description, independently or with others, similar or dissimilar to the
business of the Trust, and the Trust and the Holders of Securities shall have
no rights by virtue of this Declaration in and to such independent ventures or
the income or profits derived therefrom and the pursuit of any such venture,
even if competitive with the business of the Trust, shall not be deemed
wrongful or improper. No Covered Person, the Sponsor, the Subordinated
Debenture Issuer, any Regular Trustee, the Delaware Trustee, or the Property
Trustee shall be obligated to present any particular investment or other
opportunity to the Trust even if such opportunity is of a character that, if
presented to the Trust, could be taken by the Trust, and any Covered Person,
the Sponsor, the Subordinated Debenture Issuer, any Regular Trustee, the
Delaware Trustee and the Property Trustee shall have the right to take for its
own account (individually or as a partner or fiduciary) or to recommend to
others any such particular investment or other opportunity. Any Covered
Person, any Regular Trustee, the Delaware Trustee and the Property Trustee may
engage or be interested in any financial or other transaction with the Sponsor
or any Affiliate of the Sponsor, or may act as depository for, trustee or
agent for, or act on any committee or body of holders of, securities or other
obligations of the Sponsor or its Affiliates.
ARTICLE XI
ACCOUNTING
SECTION 11.1 Fiscal Year.
The fiscal year ("Fiscal Year") of the Trust shall be the calendar year, or
such other year as is required by the Code or any other applicable law.
SECTION 11.2 Certain Accounting Matters.
(a) At all times during the existence of the Trust, the Regular Trustees
shall keep, or cause to be kept, full books of account, records and
supporting documents, which shall reflect in reasonable detail, each
transaction of the Trust. The books of account shall be maintained
on the accrual method of accounting, in accordance with generally
accepted accounting principles, consistently applied. The Trust
shall use the accrual method of accounting for United States federal
income tax purposes. The books of account and the records of the
Trust shall be examined by and reported upon as of the end of each
Fiscal Year of the Trust by a firm of independent certified public
accountants selected by the Regular Trustees.
(b) The Regular Trustees shall cause to be prepared and delivered to
each of the Holders of Securities, within 90 days after the end of
each Fiscal Year of the Trust, annual financial statements of the
Trust, including a balance sheet of the Trust as of the end of such
Fiscal Year, and the related statements of income or loss.
(c) The Regular Trustees shall cause to be duly prepared and delivered
39
to each of the Holders of Securities, any annual United States
federal income tax information statement required by the Code,
containing such information with regard to the Securities held by
each Holder as is required by the Code and the Treasury Regulations.
Notwithstanding any right under the Code to deliver any such
statement at a later date, the Regular Trustees shall endeavor to
deliver all such statements within 30 days after the end of each
Fiscal Year of the Trust.
(d) The Regular Trustees shall cause to be duly prepared and filed with
the appropriate taxing authority, an annual United States federal
income tax return, on a Form 1041 or such other form required by
United States federal income tax law, and any other annual income
tax returns required to be filed by the Regular Trustees on behalf
of the Trust with any state or local taxing authority.
SECTION 11.3 Banking.
The Trust shall maintain one or more bank accounts in the name and for the
sole benefit of the Trust; provided, however, that all payments of funds in
respect of the Subordinated Debentures held by the Property Trustee shall be
made directly to the Property Trustee Account and no other funds of the Trust
shall be deposited in the Property Trustee Account. The signatories for such
accounts shall be designated by the Regular Trustees; provided, however, that
the Property Trustee shall designate the signatories for the Property Trustee
Account.
SECTION 11.4 Withholding.
The Trust and the Regular Trustees shall comply with all withholding
requirements under United States federal, state and local law. The Trust
shall request, and the Holders shall provide to the Trust, such forms or
certificates as are necessary to establish an exemption from withholding with
respect to each Holder, and any representations and forms as shall reasonably
be requested by the Trust to assist it in determining the extent of, and in
fulfilling, its withholding obligations. The Regular Trustees shall file
required forms with applicable jurisdictions and, unless an exemption from
withholding is properly established by a Holder, shall remit amounts withheld
with respect to the Holder to applicable jurisdictions. To the extent that
the Trust is required to withhold and pay over any amounts to any authority
with respect to distributions or allocations to any Holder, the amount
withheld shall be deemed to be a distribution in the amount of the withholding
to the Holder. In the event of any claimed over- withholding, Holders shall
be limited to an action against the applicable jurisdiction. If the amount
required to be withheld was not withheld from actual Distributions made, the
Trust may reduce subsequent Distributions by the amount of such withholding.
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 Amendments.
(a) Except as otherwise provided in this Declaration or by any
applicable terms of the Securities, this Declaration may only be
amended by a written instrument approved and executed by the Regular
Trustees (or, if there are more than two Regular Trustees a majority
of the Regular Trustees); provided, however:
(i) if the amendment affects the rights, powers, duties,
obligations or immunities of the Property Trustee, the
amendment shall also be approved by the Property Trustee;
and
(ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, the
amendment shall also be approved by the Delaware Trustee.
(b) No amendment shall be made, and any purported amendment shall be
void and ineffective to the extent the result of such amendment
would be to:
(i) cause the Trust to be classified as other than a grantor
trust for United States federal income tax purposes;
(ii) reduce or otherwise adversely affect the powers of the
40
Property Trustee in contravention of the Trust Indenture
Act; or
(iii) cause the Trust to be deemed to be an Investment Company
required to be registered under the Investment Company Act.
(c) At such time after the Trust has issued any Securities that remain
outstanding, any amendment that would adversely affect the rights,
privileges or preferences of any Holder of Securities may be
effected only with such additional requirements as may be set forth
in the terms of such Securities.
(d) Sections 4.3 and 9.1(c) and this Section 12.1 shall not be amended
without the consent of all of the Holders of the Securities.
(e) Article IV shall not be amended without the consent of the Holders
of a Majority in liquidation amount of the Common Securities.
(f) The rights of the Holders of the Common Securities under Article V
to increase or decrease the number of, and appoint and remove
Trustees shall not be amended without the consent of the Holders of
a Majority in liquidation amount of the Common Securities.
(g) Notwithstanding Section 12.1(c), this Declaration may be amended
without the consent of the Holders of the Securities to:
(i) cure any ambiguity;
(ii) correct or supplement any provision in this Declaration that
may be defective or inconsistent with any other provision of
this Declaration;
(iii) add to the covenants, restrictions or obligations of the
Sponsor;
(iv) add or change any of the provisions of this Declaration to
such extent as shall be necessary to facilitate the issuance
of Securities in definitive certificated form; and
(v) conform to any change in the rules and regulations
promulgated under the Investment Company Act or change in
interpretation or application of the rules and regulations
promulgated under the Investment Company Act by any
legislative body, court, government agency or regulatory
authority; which amendment does not have a material adverse
effect on the rights, preferences or privileges of the
Holders.
(h) Prior to the issuance of the Securities any terms of the Securities
may be amended by a written instrument approved and executed by the
Regular Trustees (or if there are more than two Regular Trustees a
majority of the Regular Trustees).
SECTION 12.2 Meetings of the Holders of Securities; Action by Written
Consent.
(a) Meetings of the Holders of any class of Securities may be called at
any time by the Regular Trustees (or as provided in the terms of the
Securities) to consider and act on any matter on which Holders of
such class of Securities are entitled to act under the terms of this
Declaration, the terms of the Securities or the rules of any stock
exchange on which the Preferred Securities are listed or admitted
for trading. The Regular Trustees shall call a meeting of the
Holders of such class if directed to do so by the Holders of at
least 10% in liquidation amount of such class of Securities. Such
direction shall be given by delivering to the Regular Trustees one
or more calls in a writing stating that the signing Holders of
Securities wish to call a meeting and indicating the general or
specific purpose for which the meeting is to be called. Any Holders
of Securities calling a meeting shall specify in writing the
Securities held by the Holders of Securities exercising the right to
call a meeting and only those Securities specified shall be counted
for purposes of determining whether the required percentage set
forth in the second sentence of this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of the
41
Securities, the following provisions shall apply to meetings of
Holders of Securities:
(i) notice of any such meeting shall be given to all the Holders
of Securities having a right to vote thereat at least 7 days
and not more than 60 days before the date of such meeting.
Whenever a vote, consent or approval of the Holders of
Securities is permitted or required under this Declaration,
the terms of the Securities, or the rules of any stock
exchange on which the Preferred Securities are listed or
admitted for trading, such vote, consent or approval may be
given at a meeting of the Holders of Securities. Any action
that may be taken at a meeting of the Holders of Securities
may be taken without a meeting if a consent in writing
setting forth the action so taken is signed by the Holders
of Securities owning not less than the minimum amount of
Securities in liquidation amount that would be necessary to
authorize or take such action at a meeting at which all
Holders of Securities having a right to vote thereon were
present and voting. Prompt notice of the taking of action
without a meeting shall be given to the Holders of
Securities entitled to vote who have not consented in
writing. The Regular Trustees may specify that any written
ballot submitted to the Security Holder for the purpose of
taking any action without a meeting shall be returned to the
Trust within the time specified by the Regular Trustees;
(ii) each Holder of a Security may authorize any Person to act
for it by proxy on all matters in which a Holder of
Securities is entitled to participate, including waiving
notice of any meeting, or voting or participating at a
meeting. No proxy shall be valid after the expiration of 11
months from the date thereof unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure
of the Holder of Securities executing it. Except as
otherwise provided herein, all matters relating to the
giving, voting or validity of proxies shall be governed by
the General Corporation Law of the State of Delaware
relating to proxies, and judicial interpretations
thereunder, as if the Trust were a Delaware corporation and
the Holders of the Securities were stockholders of a
Delaware corporation;
(iii) each meeting of the Holders of the Securities shall be
conducted by the Regular Trustees or by such other Person
that the Regular Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration, the terms
of the Securities, the Trust Indenture Act or the listing
rules of any stock exchange on which the Preferred
Securities are then listed or trading, otherwise provides,
the Regular Trustees, in their sole discretion, shall
establish all other provisions relating to meetings of
Holders of Securities, including notice of the time, place
or purpose of any meeting at which any matter is to be voted
on by any Holders of Securities, waiver of any such notice,
action by consent without a meeting, the establishment of a
record date, quorum requirements, voting in person or by
proxy or any other matter with respect to the exercise of
any such right to vote.
ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE
SECTION 13.1 Representations and Warranties of Property Trustee.
The Trustee that acts as initial Property Trustee represents and warrants to
the Trust and to the Sponsor at the date of this Declaration, and each
Successor Property Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Property Trustee's acceptance of its
appointment as Property Trustee that:
(a) The Property Trustee is a banking association with trust powers,
duly organized, validly existing and in good standing under the laws
of the United States or one of the States of the United States, with
42
trust power and authority to execute and deliver, and to carry out
and perform its obligations under the terms of, the Declaration.
(b) The execution, delivery and performance by the Property Trustee of
the Declaration has been duly authorized by all necessary corporate
action on the part of the Property Trustee. The Declaration has
been duly executed and delivered by the Property Trustee, and it
constitutes a legal, valid and binding obligation of the Property
Trustee, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, reorganization, moratorium,
insolvency, and other similar laws affecting creditors' rights
generally and to general principles of equity and the discretion of
the court (regardless of whether the enforcement of such remedies is
considered in a proceeding in equity or at law).
(c) The execution, delivery and performance of the Declaration by the
Property Trustee does not conflict with or constitute a breach of
the Articles of Organization or By-laws of the Property Trustee.
(d) No consent, approval or authorization of, or registration with or
notice to, any State or Federal banking authority is required for
the execution, delivery or performance by the Property Trustee, of
the Declaration.
(e) The Property Trustee satisfies the qualifications set forth in
Section 5.3(a) hereof.
SECTION 13.2 Representations and Warranties of Delaware Trustee
The Trustee that acts as initial Delaware Trustee represents and warrants to
the Trust and to the Sponsor at the date of this Declaration, and each
Successor Delaware Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Delaware Trustee's acceptance of its
appointment as Delaware Trustee that:
(a) The Delaware Trustee has been authorized to perform its obligations
under the Certificate of Trust and the Declaration. The Declaration
under Delaware law constitutes a legal, valid and binding obligation
of the Delaware Trustee, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting creditors'
rights generally and to general principles of equity and the
discretion of the court (regardless of whether the enforcement of
such remedies is considered in a proceeding in equity or at law).
(b) The Delaware Trustee is a natural person who is a resident of the
State of Delaware or, if not a natural person, an entity which has
its principal place of business in the State of Delaware.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 Notices.
(a) All notices provided for in this Declaration shall be in writing,
duly signed by the party giving such notice, and shall be
electronically communicated or hand delivered, or sent by overnight
courier, addressed to the relevant Person as provided in this
Section 14.1 as follows:
(i) if given to the Trust, in care of the Regular Trustees at
the Trust's mailing address set forth below (or such other
address as the Trust may give notice of to the Holders of
the Securities):
Pacific Telesis Financing I
130 Kearny Street
San Francisco, CA 94108
Attention: Pacific Telesis Chief Financial Officer
(ii) if given to the Delaware Trustee, at the mailing address set
forth below (or such other address as Delaware Trustee may
give notice of to the Holders of the Securities):
Michael J. Majchrzak
43
FCC National Bank
300 King Street
Wilmington, Delaware 19802
(iii) if given to the Property Trustee, at the mailing address set
forth below (or such other address as the Property Trustee
may give notice of to the Holders of the Securities):
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, Illinois 60670
Attention: Corporate Trust Administration
(iv) if given to the Holder of the Common Securities, at the
mailing address of the Sponsor set forth below (or such
other address as the Holder of the Common Securities may
give notice to the Trust):
Pacific Telesis Group
130 Kearny Street
San Francisco, CA 94108
Attention: Chief Financial Officer
(v) if given to any other Holder, at the address set forth on
the books and records of the Trust.
For all purposes of this Declaration, a notice or communication will be deemed
effective:
(i) if delivered by hand or sent by overnight courier, on the day it
is delivered unless (A) that day is not a Business Day in the city
specified (a "Local Business Day") in the address for notice
provided by the recipient or (B) if delivered after the close of
business on a Local Business Day, then on the next succeeding Local
Business Day or
(ii) if sent by facsimile transmission, on the date transmitted,
provided that oral or written confirmation of receipt is obtained by
the sender unless the date of transmission and confirmation is not a
Local Business Day, in which case, on the next succeeding Local
Business Day.
Any notice, direction, request, demand, consent or waiver by the Sponsor or
any Holder of Securities, or the Regular Trustee to or upon the Property
Trustee shall be deemed to have been sufficiently given, made or filed, for
all purposes, if given, made or filed in writing at the principal office of
the Property Trustee in accordance with the provisions of this Section 14.1.
Any notice, request, consent or waiver by the Sponsor, the Regular Trustees or
the Property Trustee upon the Depository shall have been sufficiently given,
made or filed, for all purposes, if given or made in accordance with he
provisions of this Section 14.1 at the address shown for such Depository in
the Register or at such other address as the Depository shall have provided
for purposes of notice.
SECTION 14.2 Governing Law.
This Declaration and the rights of the parties hereunder shall be governed by
and interpreted in accordance with the laws of the State of Delaware and all
rights and remedies shall be governed by such laws without regard to
principles of conflict of laws.
SECTION 14.3 Intention of the Parties.
It is the intention of the parties hereto that the Trust not be characterized
for United States federal income tax purposes as an association taxable as a
corporation or a partnership but rather that the Trust be characterized as a
grantor trust or otherwise in a manner such that each Holder of Securities
will be treated as owning an undivided beneficial interest in the Subordinated
Debentures. The provisions of this Declaration shall be interpreted to
further this intention of the parties.
SECTION 14.4 Headings.
Headings contained in this Declaration are inserted for convenience of
reference only and do not affect the interpretation of this Declaration or any
44
provision hereof.
SECTION 14.5 Successors and Assigns
Whenever in this Declaration any of the parties hereto is named or referred
to, the successors and assigns of such party shall be deemed to be included,
and all covenants and agreements in this Declaration by the Sponsor and the
Trustees shall bind and inure to the benefit of their respective successors
and assigns, whether so expressed.
SECTION 14.6 Partial Enforceability.
If any provision of this Declaration, or the application of such provision to
any Person or circumstance, shall be held invalid, the remainder of this
Declaration, or the application of such provision to persons or circumstances
other than those to which it is held invalid, shall not be affected thereby.
45
SECTION 14.7 Counterparts.
This Declaration may contain more than one counterpart of the signature page
and this Declaration may be executed by the affixing of the signature of each
of the Trustees to one of such counterpart signature pages. All of such
counterpart signature pages shall be read as though one, and they shall have
the same force and effect as though all of the signers had signed a single
signature page.
IN WITNESS WHEREOF, the undersigned has caused these presents to be executed
as of the day and year first above written.
______________________________
Roomy F. Balaporia, as Trustee
______________________________
Miles H. Mochizuki, as Trustee
_______________________________
Marie B. Washington, as Trustee
________________________________
Michael J. Majchrzak, as Delaware
Trustee
PACIFIC TELESIS GROUP
as Sponsor
By: ___________________________
Name:___________________________
Title:__________________________
THE FIRST NATIONAL BANK OF CHICAGO
as Property Trustee
By: ___________________________
Name:___________________________
Title:__________________________
46
<PAGE>
EXHIBIT A
TERMS OF
__% TRUST ORIGINATED PREFERRED SECURITIES
__% TRUST ORIGINATED COMMON SECURITIES
Pursuant to Section 7.1 and subject to Section 12.1(c) of the Amended and
Restated Declaration of Trust, dated as of __________________, 1995 (as
amended from time to time in accordance with the provisions thereof, the
"Declaration"), the designation, rights, privileges, restrictions, preferences
and other terms and provisions of the Preferred Securities and the Common
Securities are set out below (each capitalized term used but not defined
herein has the meaning set forth in the Declaration):
1. Designation and Number.
(a) "Preferred Securities." Preferred Securities of the Trust with an
aggregate liquidation amount with respect to the assets of the Trust
of $____________ and a liquidation amount with respect to the assets
of the Trust of $25 per Preferred Security, are hereby designated
for the purposes of identification only as "_____% Trust Originated
Preferred Securities" (the "Preferred Securities"). The Preferred
Securities shall be substantially in the form attached hereto as
Annex I, with such changes and additions thereto or deletions
therefrom as may be required by ordinary usage, custom or practice
or to conform to the rules of any stock exchange on which the
Preferred Securities are listed.
(b) "Common Securities." Common Securities of the Trust with an
aggregate liquidation amount with respect to the assets of the Trust
of $______ and a liquidation amount with respect to the assets of
the Trust of $25 per Common Security, are hereby designated for the
purposes of identification only as "____% Trust Originated Common
Securities" (the "Common Securities"). The Common Securities shall
be substantially in the form attached hereto as Annex II, with such
changes and additions thereto or deletions therefrom as may be
required by ordinary usage, custom or practice.
2. Distributions.
(a) Periodic Distributions payable on each Security will be fixed at a
rate per annum of {*.*}% (the "Coupon Rate") of the stated
liquidation amount of $25 per Security, such rate being the rate of
interest payable on the Subordinated Debentures to be held by the
Property Trustee. Distributions in arrears for more than one
quarter will bear interest thereon compounded quarterly at the
Coupon Rate (to the extent permitted by applicable law). The term
"Distributions" as used herein includes such cash distributions and
any such interest payable unless otherwise stated. A Distribution
is payable only to the extent that payments are made in respect of
the Subordinated Debentures held by the Property Trustee and to the
extent the Property Trustee has funds available therefor. The
amount of Distributions payable for any period will be computed for
any full quarterly Distribution period on the basis of a 360-day
year of twelve 30-day months, and for any period shorter than a full
quarterly Distribution period for which Distributions are computed,
Distributions will be computed on the basis of the actual number of
days elapsed per 90-day quarter.
(b) Distributions on the Securities will be cumulative, will accrue from
__________, 1995, and will be payable quarterly in arrears, on March
31, June 30, September 30, and December 31 of each year, commencing
on __________________, except as otherwise described below but only
if and to the extent that the Trust has funds available therefore
the Subordinated Debenture Issuer has the right under the Indenture
to defer payments of interest by extending the interest payment
period from time to time on the Subordinated Debentures for a period
not exceeding 20 consecutive quarters (each an "Extension Period"),
provided that no Extension Period shall last beyond the date of
maturity of the Subordinated Debentures, and, during such Extension
47
Period, Distributions will also be deferred. Despite such deferral,
quarterly Distributions will continue to accrue with interest
thereon (to the extent permitted by applicable law) at the Coupon
Rate compounded quarterly during any such Extension Period. Prior to
the termination of any such Extension Period, the Subordinated
Debenture Issuer may further extend such Extension Period; provided
that such Extension Period together with all such previous and
further extensions thereof may not exceed 20 consecutive quarters.
Payments of accrued Distributions will be payable to Holders as they
appear on the Register on the Record Date for Distributions due at
the end of the Extension Period. Upon the termination of any
Extension Period and the payment of all amounts then due, the
Subordinated Debenture Issuer may commence a new Extension Period,
subject to the above requirements.
(c) Distributions on the Securities will be payable to the Holders
thereof as they appear on the Register on the relevant record dates.
While the Preferred Securities remain in the form of one or more
Global Securities, the relevant record dates shall be one Business
Day prior to the relevant payment dates which payment dates
correspond to the interest payment dates on the Subordinated
Debentures. Subject to any applicable laws and regulations and the
provisions of the Declaration, each such payment in respect of the
Preferred Securities will be made to the Depository or its nominee.
The relevant record dates for the Common Securities shall be the
same record date as for the Preferred Securities. If the Preferred
Securities are in definitive form, the relevant record dates for the
Preferred Securities, shall conform to the rules of any securities
exchange on which the securities are listed and, if none, shall be
selected by the Regular Trustees, which dates shall be at least one
Business Day but less than 60 Business Days before the relevant
payment dates, which payment dates correspond to the interest
payment dates on the Subordinated Debentures. Distributions payable
on any Securities that are not punctually paid on any Distribution
payment date, as a result of the Subordinated Debenture Issuer
having failed to make a payment under the Subordinated Debentures,
will cease to be payable to the Person in whose name such Securities
are registered on the relevant record date, and such defaulted
Distribution will instead be payable to the Person in whose name
such Securities are registered on the special record date or other
specified date determined in accordance with the Indenture. If any
date on which Distributions are payable on the Securities is not a
Business Day, then payment of the Distribution payable on such date
will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay)
except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding
Business Day, in each case with the same force and effect as if made
on such date.
(d) In the event that there is any money or other property held by or
for the Trust that is not accounted for hereunder, such property
shall be distributed Pro Rata in accordance with paragraph 8 hereof
among the Holders of the Securities.
(e) All Distributions paid with respect to the Preferred Securities and
the Common Securities will be paid Pro Rata in accordance with
paragraph 8 hereof to the Holders thereof entitled thereto. If an
Event of Default has occurred and is continuing, the Preferred
Securities shall have a priority over the Common Securities with
respect to Distributions.
3. Liquidation Distribution Upon Dissolution.
In the event of any voluntary or involuntary dissolution, winding-up or
termination of the Trust, the Holders of the Securities on the date of the
dissolution, winding-up or termination, as the case may be, will be entitled
to receive out of the assets of the Trust available for distribution to
Holders of Securities after satisfaction of liabilities of creditors an amount
equal to the aggregate of the stated liquidation amount of $25 per Security
plus accrued and unpaid Distributions thereon to the date of payment (such
amount being the "Liquidation Distribution"), unless, in connection with such
dissolution, winding-up or termination, Subordinated Debentures in an
aggregate principal amount equal to the aggregate stated liquidation amount of
such Securities, with an interest rate equal to the Coupon Rate of, and
bearing accrued and unpaid interest in an amount equal to the accrued and
48
unpaid Distributions on, such Securities, shall be distributed on a Pro Rata
basis to the Holders of the Securities in exchange for such Securities.
If, upon any such dissolution, the Liquidation Distribution can be paid only
in part because the Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Securities shall be paid on a Pro Rata basis in accordance with
paragraph 8 hereof.
4. Redemption and Distribution.
(a) Upon the repayment of the Subordinated Debentures in whole or in
part, whether at maturity or upon redemption, the proceeds from such
repayment or payment shall be simultaneously applied to redeem
Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Subordinated Debentures so repaid
or redeemed at a redemption price of $25 per Security plus an amount
equal to accrued and unpaid Distributions thereon at the date of the
redemption, payable in cash (the "Redemption Price"). Holders will
be given not less than 30 nor more than 60 days notice of such
redemption.
(b) If fewer than all the outstanding Securities are to be so redeemed,
the Common Securities and the Preferred Securities will be redeemed
Pro Rata in accordance with paragraph 8 hereof and the Preferred
Securities to be redeemed will be as described in Paragraph 4(f)(ii)
below.
(c) If, at any time, a Tax Event or an Investment Company Event (each as
defined below, and each a "Special Event") shall occur and be
continuing the Regular Trustees shall, except in certain limited
circumstances in relation to a Tax Event described in this Section
4(c), dissolve the Trust and, after satisfaction of creditors, cause
Subordinated Debentures and, held by the Property Trustee, having an
aggregate principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the Coupon Rate of,
and accrued and unpaid interest equal to accrued and unpaid
Distributions on and having the same record date for payment, as the
Securities, to be distributed to the Holders of the Securities in
liquidation of such Holders' interests in the Trust on a Pro Rata
basis in accordance with paragraph 8 hereof, within 90 days
following the occurrence of such Special Event (the "90 Day
Period"); provided, however, that in the case of the occurrence of a
Tax Event, as a condition of such dissolution and distribution, the
Regular Trustees shall have received an opinion of a nationally
recognized independent tax counsel experienced in such matters (a
"No Recognition Opinion"), which opinion may rely on published
revenue rulings of the Internal Revenue Service, to the effect that
the Holders of the Securities will not recognize any gain or loss
for United States federal income tax purposes as a result of the
dissolution of the Trust and the distribution of Subordinated
Debentures, and provided, further, that, if at the time there is
available to the Trust the opportunity to eliminate, within the 90
Day Period, the Special Event by taking some ministerial action,
such as filing a form or making an election, or pursuing some other
similar reasonable measure that has no adverse effect on the Trust,
the Subordinated Debenture Issuer, the Sponsor or the Holders of the
Securities ("Ministerial Action"), the Trust will pursue such
Ministerial Action in lieu of dissolution.
If in the case of the occurrence of a Tax Event (i) the Subordinated
Debenture Issuer has received an opinion (a "Redemption Tax
Opinion") of a nationally recognized independent tax counsel
experienced in such matters that, as a result of a Tax Event, there
is more than an insubstantial risk that the Subordinated Debenture
Issuer would be precluded from deducting the interest on the
Subordinated Debentures for United States federal income tax
purposes even if the Subordinated Debentures were distributed to the
the Trust as described in this paragraph 4(c), or (ii) the Regular
Trustees shall have been informed by such tax counsel that a No
Recognition Opinion cannot be delivered to the Trust, the
Subordinated Debenture Issuer shall have the right, upon not less
than 30 nor more than 60 days notice, to redeem the Subordinanted
Debentures in whole or in part for cash within 90 days following the
occurrence of such Tax Event, and, following such redemption,
Securities with an aggregate liquidation amount equal to the
49
aggregate principal amount of the Subordinated Debentures so
redeemed shall be redeemed by the Trust at the Redemption Price on a
Pro Rata basis in accordance with paragraph 8 hereof; provided,
however, that, if at the time there is available to the Trust the
opportunity to eliminate, within such 90 day period, the Tax Event
by taking some Ministerial Action, the Trust or the Subordinated
Debenture Issuer will pursue such Ministerial Action in lieu of
redemption. The Common Securities will be redeemed Pro Rata with
the Preferred Securities, except that if an an Event of Default has
occurred an is continuing, the Preferred Securities will have
priority over the Common Securities with respect to payment of the
Redemption Price.
"Tax Event" means that the Regular Trustees shall hae received an
opinion of a nationally recognized independent tax counsel
experienced in such matters (a "Dissolution Tax Opinion") to the
effect that, as a result of (a) any amendment to, or change
(including any announced prospective change) in, the laws (or any
regulations thereunder of the United States or any political
subdivision or taxing authority thereof or therein, or (b) any
amendment to, or change in, an interpretation or application of any
such laws or regulations by any legislative body, court,
governmental agency or regulatory authority, which amendments or
change is enacted, promulgated, issued or announced or which
interpretation or pronouncement is issued or announced or which
action is taken, in each case on or after the date of the Prospectus
Supplement, there is more than an insubstantial risk that (i) the
Trust would be subject to United States federal income tax with
respect to interest accrued or received on the Subordinated
Debentures, (ii) the Trust would be subject to more than a de
minimis amount of taxes, duties or other governmental charges, or
(iii) interest payable by the Subordinated Debenture Issuer to the
Trust on the Subordinated Debentures would not be deductible, in
whole or in part, by the Subordinated Debenture Issuer for United
States federal income tax purposes.
"Investment Company Event" means that the Regular Trustees shall
have received an opinion of a nationally recognized independent
counsel experienced in practice under the Investment Company Act
that, as a result of the occurrence of a change in law or regulation
or a written change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or
regulatory authority (a "Change in 1940 Act Law"), there is a more
than an insubstantial risk that the Trust is or will be considered
an Investment Company which is required to be registered under the
Investment Company Act, which Change in 1940 Act Law becomes
effective on or after the date of the Prospectus Supplement.
On and from the date fixed by the Regular Trustees for any
distribution of Subordinated Debentures and dissolution of the
Trust: (i) the Securities will no longer be deemed to be
outstanding, (ii) the Depository or its nominee (or any successor
Depository or its nominee) will receive one or more global
certificate or certificates representing the Subordinated Debentures
to be delivered upon such distribution, and having an aggregate
principal amount equal to the aggregate stated liquidation amount
of, with an interest rate identical to the Coupon Rate of, and
accrued and unpaid interest equal to accrued and unpaid
Distributions on such Securities.
(d) The Trust may not redeem fewer than all the outstanding Securities
unless all accrued and unpaid Distributions have been paid on all
Securities for all quarterly Distribution periods terminating on or
before the date of redemption.
(e) If the Subordinated Debentures are distributed to Holders of the
Securities, pursuant to the terms of the Indenture, the Subordinated
Debenture Issuer will use its best efforts to have the Subordinated
Debentures listed on the New York Stock Exchange or on such other
exchange as the Preferred Securities were listed immediately prior
to the distribution of the Subordinated Debentures.
(f) Redemption or Distribution Procedures.
(i) Notice of any redemption of, or notice of distribution of
Subordinated Debentures in exchange for the Securities (a
50
"Redemption/Distribution Notice") will be given by the Trust
by mail to each Holder of Securities to be redeemed or
exchanged not fewer than 30 nor more than 60 days before the
date fixed for redemption or exchange thereof which, in the
case of a redemption, will be the date fixed for redemption
of the Subordinated Debentures. For purposes of the
calculation of the date of redemption or exchange and the
dates on which notices are given pursuant to this paragraph
4(f)(i), a Redemption/Distribution Notice shall be deemed to
be given on the day such notice is first mailed by first-
class mail, postage prepaid, to Holders of Securities. Each
Redemption/Distribution Notice shall be addressed to the
Holders of Securities at the address of each such Holder
appearing in the Register. No defect in the
Redemption/Distribution Notice or in the mailing of either
thereof with respect to any Holder shall affect the validity
of the redemption or exchange proceedings with respect to
any other Holder.
(ii) In the event that fewer than all the outstanding Securities
are to be redeemed, the Securities to be redeemed shall be
redeemed Pro Rata in accordance with paragraph 8 hereof.
(iii) If Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice, which notice may only be
issued if the Subordinated Debentures are redeemed as set
out in this paragraph 4 (which notice will be irrevocable),
then (A) while the Preferred Securities are in the form of
Global Securities, with respect to the Preferred Securities,
by 12:00 noon, New York City time, on the redemption date,
provided that the Subordinated Debenture Issuer has paid the
Property Trustee a sufficient amount of cash in connection
with the related redemption or maturity of the Subordinated
Debentures, the Property Trustee will pay the Depository (or
successor Depository or its nominee) the applicable
Redemption Price with respect to the Preferred Securities,
and (B) with respect to Preferred Securities issued in
definitive form and Common Securities, provided that the
Subordinated Debenture Issuer has paid the Property Trustee
a sufficient amount of cash in connection with the related
redemption or maturity of the Subordinated Debentures, the
Property Trustee will pay the relevant Redemption Price to
the Holders of such Securities by check mailed to the
address of the relevant Holder appearing on the Register on
the redemption date. If a Redemption/ Distribution Notice
shall have been given and funds deposited as required, if
applicable, then immediately prior to the close of business
on the date of such deposit, or on the redemption date, as
applicable, distributions will cease to accrue on the
Securities so called for redemption and all rights of
Holders of such Securities so called for redemption will
cease, except the right of the Holders of such Securities to
receive the Redemption Price, but without interest on such
Redemption Price. Neither the Regular Trustees nor the
Trust shall be required to register or cause to be
registered the transfer of any Securities that have been so
called for redemption. If any date fixed for redemption of
Securities is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the
next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay)
except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding
Business Day, in each case with the same force and effect as
if made on such date fixed for redemption. If payment of
the Redemption Price in respect of any Securities is
improperly withheld or refused and not paid either by the
Property Trustee or by the Sponsor as guarantor pursuant to
the relevant Securities Guarantee, Distributions on such
Securities will continue to accrue from the original
redemption date to the actual date of payment, in which case
the actual payment date will be considered the date fixed
for redemption for purposes of calculating the Redemption
Price.
(iv) Redemption/Distribution Notices shall be sent by the Regular
51
Trustees on behalf of the Trust to (A) in respect of the
Preferred Securities, the Depository (or successor
Depository or its nominee) if Preferred Securities are in
the form of Global Securities or, if Preferred Securities
have been issued in definitive form, to the Holders thereof,
and (B) in respect of the Common Securities to the Holder
thereof.
(v) Subject to the foregoing and applicable law (including,
without limitation, United States federal securities laws),
provided the acquirer is not the Holder of the Common
Securities or the obligor under the Indenture, the Sponsor
or any of its subsidiaries may at any time and from time to
time purchase outstanding Preferred Securities by tender, in
the open market or by private agreement.
5. Voting Rights - Preferred Securities.
(a) Except as provided under paragraphs 5(b) and 7 and as otherwise
required by law and the Declaration, the Holders of the Preferred
Securities will have no voting rights.
(b) Subject to the requirements set forth in this paragraph, the Holders
of a Majority in liquidation amount of the Preferred Securities,
voting separately as a class may direct the time, method, and place
of conducting any proceeding for any remedy available to the
Property Trustee, or exercising any trust or power conferred upon
the Property Trustee under the Declaration, including (i) directing
the time, method, place of conducting any proceeding for any remedy
available to the Subordinated Debenture Trustee, or exercising any
trust or power conferred on the Subordinated Debenture Trustee with
respect to the Subordinated Debentures, (ii) waive any past default
and its consequences that is waivable under Section 513 of the
Indenture, or (iii) exercise any right to rescind or annul a
declaration that the principal of all the Subordinated Debentures
shall be due and payable, provided, however, that, where a consent
under the Indenture would require the consent or act of the Holders
of greater than a majority of the Holders in principal amount of
Subordinated Debentures affected thereby, (a "Super Majority"), the
Property Trustee may only give such consent or take such action at
the direction of the Holders of at least the proportion in
liquidation amount of the Preferred Securities which the relevant
Super Majority represents of the aggregate principal amount of the
Subordinated Debentures outstanding. The Property Trustee shall not
revoke any action previously authorized or approved by a vote of the
Holders of the Preferred Securities. Other than with respect to
directing the time, method and place of conducting any remedy
available to the Property Trustee or the Subordinated Debenture
Trustee as set forth above, the Property Trustee shall not take any
action in accordance with the directions of the Holders of the
Preferred Securities under this paragraph unless the Property
Trustee has obtained an opinion of tax counsel to the effect that
the Trust will not be classified as other than a grantor trust for
United States federal income tax purposes on account of such action.
A record holder of Preferred Securities may directly institute a
proceeding for enforcement of payment to the holder of the
Subordinated Debentures of the principal and interest on the
Subordinated Debentures after the respective due dates specified in
the Subordinated Debentures. Subject to certain limitations set
forth in the Declaration, if, with respect to other than principal
and interest payments on the Subordinated Debentures, the Property
Trustee fails to enforce its rights under the Declaration, any
Holder of Preferred Securities may institute a legal proceeding
directly against any Person to enforce the Property Trustee's rights
under the Declaration without first instituting a legal proceeding
against the Property Trustee or any other Person.
Any approval or direction of Holders of Preferred Securities may be
given at a separate meeting of Holders of Preferred Securities
convened for such purpose, at a meeting of all of the Holders of
Securities in the Trust or pursuant to written consent. The Regular
Trustees will cause a notice of any meeting at which Holders of
Preferred Securities are entitled to vote, or of any matter upon
which action by written consent of such Holders is to be taken, to
be mailed to each Holder of record of Preferred Securities. Each
such notice will include a statement setting forth (i) the date of
52
such meeting or the date by which such action is to be taken, (ii) a
description of any resolution proposed for adoption at such meeting
on which such Holders are entitled to vote or of such matter upon
which written consent is sought, and (iii) instructions for the
delivery of proxies or consents.
No vote or consent of the Holders of the Preferred Securities will
be required for the Trust to redeem and cancel Preferred Securities
or to distribute the Subordinated Debentures in accordance with the
Declaration and the terms of the Securities.
Notwithstanding that Holders of Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any
of the Preferred Securities that are owned by the Sponsor or any
Affiliate of the Sponsor shall not be entitled to vote or consent
and shall, for purposes of such vote or consent, be treated as if
they were not outstanding.
6. Voting Rights - Common Securities.
(a) Except as provided under paragraphs 6(b), (c) and 7 and as otherwise
required by law and the Declaration, the Holders of the Common
Securities will have no voting rights.
(b) The Holders of the Common Securities are entitled, in accordance
with Article V of the Declaration, to vote to appoint, remove or
replace any Trustee or to increase or decrease the number of
Trustees.
(c) Subject to Section 2.6 of the Declaration and only after any Event
of Default with respect to the Preferred Securities has been cured,
waived, or otherwise eliminated, and subject to the requirements of
the second to last sentence of this paragraph, the Holders of a
Majority in liquidation amount of the Common Securities, voting
separately as a class, may direct the time, method, and place of
conducting any proceeding for any remedy available to the Property
Trustee, or exercising any trust or power conferred upon the
Property Trustee under the Declaration, including (i) directing the
time, method, place of conducting any proceeding for any remedy
available to the Subordinated Debenture Trustee, or exercising any
trust or power conferred on the Subordinated Debenture Trustee with
respect to the Subordinated Debentures, (ii) waive any past default
and its consequences that is waivable under the Indenture, or (iii)
exercise any right to rescind or annul a declaration that the
principal of all the Subordinated Debentures shall be due and
payable, provided, however, that, where a consent or action under
the Indenture would require the consent or act of the Holders of a
Super Majority in principal amount of Subordinated Debentures
affected thereby, the Property Trustee may only give such consent or
take such action at the direction of the Holders of at least the
proportion in liquidation amount of the Common Securities which the
relevant Super Majority represents of the aggregate principal amount
of the Subordinated Debentures outstanding. Pursuant to this
paragraph 6(c), the Property Trustee shall not revoke any action
previously authorized or approved by a vote of the Holders of the
Preferred Securities. Other than with respect to directing the
time, method and place of conducting any remedy available to the
Property Trustee or the Subordinated Debenture Trustee as set forth
above, the Property Trustee shall not take any action in accordance
with the directions of the Holders of the Common Securities under
this paragraph unless the Property Trustee has obtained an opinion
of tax counsel to the effect that the Trust will not be classified
as other than a grantor trust for United States federal income tax
purpose on account of such action. A record holder of Preferred
Securities may directly institute a proceeding for enforcement of
payment to the holder of the Subordinated Debentures of the
principal and interest on the Subordinated Debentures after the
respective due dates specified in the Subordinated Debentures.
Subject to certain limitations set forth in the Declaration, if,
with respect to other than principal and interest payments on the
Subordinated Debentures, the Property Trustee fails to enforce its
rights under the Declaration, any Holder of Common Securities may
institute a legal proceeding directly against any Person to enforce
the Property Trustee's rights under the Declaration, without first
instituting a legal proceeding against the Property Trustee or any
other Person.
53
Any approval or direction of Holders of Common Securities may be
given at a separate meeting of Holders of Common Securities convened
for such purpose, at a meeting of all of the Holders of Securities
in the Trust or pursuant to written consent. The Regular Trustees
will cause a notice of any meeting at which Holders of Common
Securities are entitled to vote, or of any matter upon which action
by written consent of such Holders is to be taken, to be mailed to
each Holder of record of Common Securities. Each such notice will
include a statement setting forth (i) the date of such meeting or
the date by which such action is to be taken, (ii) a description of
any resolution proposed for adoption at such meeting on which such
Holders are entitled to vote or of such matter upon which written
consent is sought, and (iii) instructions for the delivery of
proxies or consents.
No vote or consent of the Holders of the Common Securities will be
required for the Trust to redeem and cancel Common Securities or to
distribute the Subordinated Debentures in accordance with the
Declaration and the terms of the Securities.
7. Amendments to Declaration and Indenture.
(a) In addition to any requirements under Section 12.1 of the
Declaration, if any proposed amendment to the Declaration provides
for, or the Regular Trustees otherwise propose to effect, (i) any
action that would adversely affect the powers, preferences or
special rights of the Securities, whether by way of amendment to the
Declaration or otherwise, or (ii) the dissolution, winding-up or
termination of the Trust, other than as described in Section 8.1 of
the Declaration, then the Holders of outstanding Securities as a
class, will be entitled to vote on such amendment or proposal (but
not on any other amendment or proposal) and such amendment or
proposal shall not be effective except with the approval of the
Holders of at least 66-2/3% in liquidation amount of the Securities,
voting together as a single class; provided, further, if any
amendment or proposal referred to in clause (i) above would
adversely affect only the Preferred Securities or only the Common
Securities, then only the affected class will be entitled to vote on
such amendment or proposal and such amendment or proposal shall not
be effective except with the approval of 66-2/3% in liquidation
amount of such class of Securities.
(b) In the event the consent of the Property Trustee as the holder of
the Subordinated Debentures is required under the Indenture with
respect to any amendment, modification or termination of the
Indenture or the Subordinated Debentures, the Property Trustee shall
request the direction of the Holders of the Securities with respect
to such amendment, modification or termination and shall vote with
respect to such amendment, modification or termination as directed
by a Majority in liquidation amount of the Securities voting
together as a single class; provided, however, that where a consent
under the Indenture would require the consent of the Holders of a
Super Majority in aggregate principal amount of the Subordinated
Debentures, the Property Trustee may only give such consent at the
direction of the Holders of at least the proportion in liquidation
amount of the Securities which the relevant Super Majority
represents of the aggregate principal amount of the Subordinated
Debentures outstanding; provided, further, that the Property Trustee
shall not take any action in accordance with the directions of the
Holders of the Securities under this paragraph 7(b) unless the
Property Trustee has obtained an opinion of tax counsel to the
effect that the Trust will not be classified as other than a grantor
trust for United States federal income tax purposes on account of
such action.
8. Pro Rata.
A reference in these terms of the Securities to any payment, distribution or
treatment as being "Pro Rata" shall mean pro rata to each Holder of Securities
according to the aggregate liquidation amount of the Securities held by the
relevant Holder in relation to the aggregate liquidation amount of all
Securities outstanding unless, in relation to a payment, an Event of Default
under the Indenture has occurred and is continuing, in which case any funds
available to make such payment shall be paid first to each Holder of the
Preferred Securities pro rata according to the aggregate liquidation amount of
54
Preferred Securities held by the relevant Holder relative to the aggregate
liquidation amount of all Preferred Securities outstanding, and only after
satisfaction of all amounts owed to the Holders of the Preferred Securities,
to each Holder of Common Securities pro rata according to the aggregate
liquidation amount of Common Securities held by the relevant Holder relative
to the aggregate liquidation amount of all Common Securities outstanding.
9. Ranking.
The Preferred Securities rank pari passu and payment thereon shall be made Pro
Rata with the Common Securities except that, where an Event of Default occurs
and is continuing under the Indenture in respect of the Subordinated
Debentures held by the Property Trustee, the rights of Holders of the Common
Securities to payment in respect of Distributions and payments upon
liquidation, redemption and otherwise are subordinated to the rights to
payment of the Holders of the Preferred Securities.
10. Listing.
The Regular Trustees shall use their best efforts to cause the Preferred
Securities to be listed for quotation on the New York Stock Exchange, Inc.
11. Acceptance of Securities Guarantee and Indenture.
Each Holder of Preferred Securities and Common Securities, by the acceptance
thereof, agrees to the provisions of the Preferred Securities Guarantee and
the Common Securities Guarantee, respectively, including the subordination
provisions therein and to the provisions of the Indenture.
12. No Preemptive Rights.
The Holders of the Securities shall have no preemptive rights to subscribe for
any additional securities.
13. Miscellaneous.
These terms constitute a part of the Declaration and may be amended only in
accordance with the provisions of the Declaration.
These Securities shall be governed by the laws of the State of Delaware.
The Sponsor will provide a copy of the Declaration, the Preferred Securities
Guarantee or the Common Securities Guarantee (as may be appropriate), and the
Indenture to a Holder without charge on written request to the Trust at its
principal place of business.
55
<PAGE>
ANNEX I
Number Number of Preferred Securities
Aggregate Liquidation Amount
CUSIP NO. _____________
___% Trust Originated Preferred Securities.SM ("TOPrS"SM)
(liquidation amount $25 per Preferred Security)
of
PACIFIC TELESIS FINANCING I
PACIFIC TELESIS FINANCING I, a statutory business trust formed under the laws
of the State of Delaware (the "Trust"), hereby certifies that
_____________________________ (the "Holder") is the registered owner of
preferred securities of the Trust representing undivided beneficial interests
in the assets of the Trust designated the _______% Trust Originated Preferred
Securities (liquidation amount $25 per Preferred Security) (the "Preferred
Securities"). The Preferred Securities are transferable on the Register, in
person or by a duly authorized attorney, upon surrender of this certificate
duly endorsed and in proper form for transfer. The designation, rights,
privileges, restrictions, preferences and other terms and provisions of the
Preferred Securities are and shall in all respects be subject to the
provisions of the Amended and Restated Declaration of Trust dated as of
________, 1995, as the same may be amended from time to time (the
"Declaration"), including the designation of the terms of the Preferred
Securities as set forth in Exhibit A to the Declaration. Capitalized terms
used herein but not defined shall have the meaning given them in the
Declaration. The Holder is entitled to the benefits of the Declaration and of
the Preferred Securities Guarantee to the extent provided therein. Pacific
Telesis Group as the Sponsor will provide a copy of the Declaration, the
Preferred Securities Guarantee and the Indenture to a Holder without charge
upon written request to the Trust at its principal place of business.
Upon receipt hereof, the Holder is bound by the Declaration and is entitled to
the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal income
tax purposes, the Subordinated Debentures as indebtedness and the Preferred
Securities as evidence of indirect beneficial ownership in the Debentures.
IN WITNESS WHEREOF, the Trust has executed this certificate this day of
___________________, 199__.
{ }
as Trustee
______________________________________
{ }
as Trustee
_______________________________________
56
_____________________
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security to:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
(Insert assignee's social security or tax identification number)
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
_________________________________________________________________
_________________________________________________________________
___________________________________________________________ agent
to transfer this Preferred Security on the Register. The agent may substitute
another to act for him or her.
Date: _______________________
Signature: __________________
(Sign exactly as your name appears on the other side of this Preferred
Security)
57
<PAGE>
ANNEX II
Number Number of Common Securities
___% Trust Originated Common Securities.
(liquidation amount $25 per Common Security)
of
PACIFIC TELESIS FINANCING I
PACIFIC TELESIS FINANCING I, a statutory business trust formed under the laws
of the State of Delaware (the "Trust"), hereby certifies that
_____________________________ (the "Holder") is the registered owner of common
securities of the Trust representing undivided beneficial interests in the
assets of the Trust designated the _______% Trust Originated Common Securities
(liquidation amount $25 per Common Security) (the "Common Securities"). The
Common Securities are transferable on the Register, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Common Securities are and
shall in all respects be subject to the provisions of the Amended and Restated
Declaration of Trust dated as of ___________________, 1995, as the same may be
amended from time to time (the "Declaration"), including the designation of
the terms of the Common Securities as set forth in Exhibit A to the
Declaration. Capitalized terms used herein but not defined shall have the
meaning given them in the Declaration. The Holder is entitled to the benefits
of the Common Securities Guarantee to the extent provided therein. The Trust
will provide a copy of the Declaration, the Common Securities Guarantee and
the Indenture to a Holder without charge upon written request to the Trust at
its principal place of business.
Upon receipt hereof, the Holder is bound by the Declaration and is entitled to
the benefits thereunder.
By acceptance, the Holder agrees to treat for United States federal income tax
purposes the Subordinated Debentures as indebtedness and the Common Securities
as evidence of indirect beneficial ownership in the Debentures.
IN WITNESS WHEREOF, the Trust has executed this certificate this day of
_____________________, 199__.
{ }
as Trustee
___________________________________
{ }
as Trustee
_________________________________
58
<PAGE>
_____________________
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security
to:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
(Insert assignee's social security or tax identification number)
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
_________________________________________________________________
_________________________________________________________________
___________________________________________________________ agent to transfer
this Common Security on the Register. The agent may substitute another to act
for him or her.
Date: _______________________
Signature: __________________
(Sign exactly as your name appears on the other side of this Preferred
Security)
59
<PAGE>
EXHIBIT B
SPECIMEN OF DEBENTURE
60
<PAGE>
EXHIBIT 15
----------
COOPERS & LYBRAND
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen and Ladies:
Re: Pacific Telesis Group Registration on Form S-3
of Trust Originated Preferred Securities
-------------------------------------------------------
We are aware that our reports dated May 12, 1995, August 11, 1995, and
November 14, 1995 on our reviews of interim financial information of
Pacific Telesis Group for the periods ended March 31, 1995, June 30, 1995, and
September 30, 1995 included in the Company's quarterly reports on Form 10-Q
for the quarters then ended are incorporated by reference in this registration
statement. Pursuant to Rule 436(c) under the Securities Act of 1933, this
report should not be considered part of the registration statement prepared or
certified by us within the meaning of Sections 7 and 11 of that Act.
/s/Coopers & Lybrand
San Francisco, California
December 6, 1995
<PAGE>
EXHIBIT 23A
-----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Pacific Telesis Group on Form S-3 (for the Trust Originated Preferred
Securities) of our reports dated February 23, 1995 on our audits of the
consolidated financial statements and financial statement schedules of
Pacific Telesis Group as of December 31, 1994 and 1993 and for the years
ended December 31, 1994, 1993, and 1992, which reports are included or
incorporated by reference in Pacific Telesis Group's 1994 Annual Report on
Form 10-K.
/s/ Coopers & Lybrand
San Francisco, California
December 6, 1995
