<PAGE>
FILED PURSUANT TO RULE 424(b)(2)
REGISTRATION NO. 033-63647 AND 033-63647-02
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 3, 1996)
[LOGO OF PACIFIC TELESIS(SM) GROUP)
20,000,000 PREFERRED SECURITIES
PACIFIC TELESIS FINANCING II
8 1/2% 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 8 1/2% Trust Originated Preferred Securities (the "Preferred Securities")
offered hereby represent preferred undivided beneficial interests in the assets
of Pacific Telesis Financing II, 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 8 1/2%
Subordinated Deferrable Interest Debentures due June 30, 2026 ("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 S-7 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PACIFIC
OFFERING PRICE(1) COMMISSION(2) TELESIS FINANCING(3)(4)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Preferred Securi-
ty.................... $25.00 (3) $25.00
- --------------------------------------------------------------------------------
Total.................. $500,000,000 (3) $500,000,000
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Plus accrued distributions, if any, from June 18, 1996.
(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,
$.7875 per Preferred Security; provided that, such compensation for sales
of 10,000 or more Preferred Securities to a single purchaser will be $.50
per Preferred Security.
(4) Expenses of the offering which are payable by Pacific Telesis are estimated
to be $600,000.
----------------
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
June 18, 1996.
----------------
MERRILL LYNCH & CO. GOLDMAN, SACHS & CO. LEHMAN BROTHERS
DEAN WITTER REYNOLDS INC. A.G. EDWARDS & SONS, INC. PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED SALOMON BROTHERS INC SMITH BARNEY INC.
----------------
The date of this Prospectus Supplement is June 12, 1996.
SM "Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co., Inc.
<PAGE>
(Continued from previous page)
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of 8 1/2% 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 June 30, 1996 ("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
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 March 31, 1996, 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 $12,259 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 8 1/2% 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 prior to maturity at the option
of Pacific Telesis in whole or in part, (i) from time to time, on or after
June 18, 2001, or (ii) at any time upon the occurrence and continuation of a
Special 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 June 30, 2026,
which date may be extended at any time at the election of Pacific Telesis for
one or more periods, but in no event to a date later than June 30, 2045,
provided certain financial conditions are met, and may shorten the maturity
date to a date not earlier than June 18, 2001 if Pacific Telesis exercises its
right to dissolve Pacific Telesis Financing and distribute the Subordinated
Debentures. See "Description of the Subordinated Debentures--Option to Change
Scheduled Maturity Date."
S-2
<PAGE>
At any time, Pacific Telesis will have the right to dissolve Pacific Telesis
Financing and cause the Subordinated Debentures to be distributed to the
holders of the Preferred Securities in liquidation of Pacific Telesis
Financing. If Pacific Telesis elects to dissolve Pacific Telesis Financing and
thereby causes the Subordinated Debentures to be distributed to holders of the
Preferred Securities in liquidation of Pacific Telesis Financing, Pacific
Telesis shall have the right to shorten the maturity of such Subordinated
Debentures, to a date not earlier than June 18, 2001 or extend the maturity of
such Subordinated Debentures to a date not later than June 30, 2045, provided
that it can extend the maturity only if certain conditions are met. 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--Distribution of the Subordinated Debentures."
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
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.
S-3
<PAGE>
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 1995 Form 10-
K and the 1996 First 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, 1995, 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 three months ended March 31, 1996 and 1995 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- -----------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA
Results of Operations:
Operating revenues..... $ 2,334 $ 2,254 $ 9,042 $ 9,235 $ 9,244 $ 9,108 $ 9,168
Operating expenses..... 1,744 1,764 7,031 7,041 8,582 7,025 7,217
Operating income....... 590 490 2,011 2,194 662 2,083 1,951
Income from continuing
operations............ 298 282 1,048 1,136 191 1,173 931
Income (loss) from
spun-off operations... -- -- -- 23 29 (31) 84
Cumulative effect of
accounting changes.... -- -- -- -- (1,724) -- --
Extraordinary item, net
of tax................ -- -- (3,360) -- -- -- --
Net income (loss)...... $ 298 $ 282 $ (2,312) $ 1,159 $ (1,504) $ 1,142 $ 1,015
Earnings (Loss) Per
Share:
Income from continuing
operations............ $ 0.70 $ 0.67 $ 2.46 $ 2.68 $ 0.46 $ 2.91 $ 2.37
Income (loss) from
spun-off operations... -- -- -- 0.05 0.07 (0.08) 0.21
Cumulative effect of
accounting changes.... -- -- -- -- (4.16) -- --
Extraordinary item..... -- -- (7.89) -- -- -- --
Net income (loss)...... $ 0.70 $ 0.67 $ (5.43) $ 2.73 $ (3.63) $ 2.83 $ 2.58
Total assets*........... $ 15,858 $ 19,951 $ 15,841 $ 20,139 $ 23,437 $ 21,849 $ 21,226
Net assets of spun-off
operations............. -- -- -- -- $ 2,874 $ 745 $ 663
Shareowners' equity..... $ 2,280 $ 5,301 $ 2,190 $ 5,233 $ 7,786 $ 8,251 $ 7,729
Continuing Operations**:
Return on equity (%)... 53.4 21.1 (51.3) 22.0 (26.3) 16.1 13.4
Return on capital (%).. 18.4 14.1 (18.0) 14.3 (8.6) 12.0 10.6
Debt maturing within
one year.............. $ 912 $ 244 $ 1,530 $ 246 $ 595 $ 1,158 $ 951
Long-term obligations.. $ 5,084 $ 4,898 $ 4,737 $ 4,897 $ 5,129 $ 5,207 $ 5,395
Debt ratio (%)......... 68.3 49.2 74.1 49.6 53.8 45.9 47.3
Capital expenditures... $ 538 $ 487 $ 2,961 $ 1,684 $ 1,886 $ 1,852 $ 1,737
Cash from operating
activities............ $ 507 $ 638 $ 2,769 $ 2,947 $ 2,727 $ 2,807 $ 2,439
OPERATING DATA
Employees............... 48,776 51,251 48,889 51,590 55,355 57,023 59,037
Toll messages
(millions)***.......... 1,253 1,167 4,819 4,460 4,251 4,145 4,081
Carrier access minutes-
of-use (millions)...... 15,827 14,381 59,193 53,486 49,674 46,800 43,872
Customer switched access
lines in service
(thousands)............ 16,009 15,409 15,782 15,315 14,873 14,551 14,262
Average shares
outstanding
(thousands)............ 428,435 424,065 425,996 423,969 414,171 402,977 400,023
Number of common
shareowners............ 715,178 755,215 723,854 764,749 804,024 881,607 919,796
</TABLE>
- --------
Notes to Summary Financial Data Table:
(1) Effective third quarter 1995, management discontinued, for external
financial reporting purposes, the application of Statement of Financial
Accounting Standards No. 71 ("SFAS 71"), "Accounting for the Effects of
Certain Types of Regulation", an accounting standard for entities subject
to traditional regulation. As a result, during 1995 the Company recorded a
non-cash, extraordinary charge of $3.4 billion, or $7.89 per share, which
is net of a deferred income tax benefit of $2.4 billion. As a result of
the extraordinary charge, the Company's shareowners' equity was reduced by
$3.4 billion.
(2) 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
S-4
<PAGE>
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."
(3) Results for 1993 and 1991 reflect restructuring charges which reduced
income from continuing operations by $861 and $122 million for each
respective year, and related per share amounts by $2.08 and $.30 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.
* Includes net assets of spun-off operations for years prior to 1994.
** Excludes spun-off operations.
*** Restated.
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
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 operating telephone companies
("BOCs") pursuant to a consent decree settling antitrust litigation approved
by the United States District Court for the District of Columbia.
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.
Nevada Bell and Pacific Bell and its wholly-owned subsidiaries, Pacific Bell
Directory, Pacific Bell Information Services, Pacific Bell Mobile Services,
Pacific Bell Internet Services, Pacific Bell Network Integration, and others,
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
advertising; (8) selected information services, such as voice mail; (9)
Internet access; and (10) network integration services.
On April 1, 1996, Pacific Telesis and SBC Communications Inc. ("SBC")
announced a definitive merger agreement pursuant to which SBC Communications
(NV) Inc., a wholly-owned subsidiary of SBC, will be merged with and into
Pacific Telesis (the "SBC Merger"), and at the effective time of the SBC
Merger Pacific Telesis will become a wholly-owned subsidiary of SBC.
Completion of the SBC Merger is subject to various conditions, including,
among others, the receipt of required governmental approvals and approval by
the shareowners of Pacific Telesis and SBC. The obligations of Pacific Telesis
described herein in connection with the Preferred Securities, including those
under the Subordinated Debentures and the Guarantee, will not be modified or
otherwise affected by consummation of the SBC Merger. SBC will not become
obligated to fulfill such obligations by virtue of the SBC Merger.
S-5
<PAGE>
PACIFIC TELESIS FINANCING II
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, as amended by the documents incorporated
herein by reference. The Declaration has been 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 approximately 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
natural person who is a resident of the State of Delaware or a legal entity
which maintains its 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."
S-6
<PAGE>
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 will rank
(i) subordinate and junior in right of payment to all other liabilities of
Pacific Telesis except those made pari passu or subordinate by their terms,
(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; provided that the Guarantee shall be pari passu with
the guarantee of Pacific Telesis issued in connection with the 7.56% Trust
Originated Preferred Securities of Pacific Telesis Financing I ("Trust I").
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 March 31,
1996, 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
$12,259 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 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 or maturity of 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
Pacific Telesis has the right under the Indenture to 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. 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
S-7
<PAGE>
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. Assuming that the SBC
Merger is consummated and Pacific Telesis becomes a wholly-owned subsidiary of
SBC, restriction (a) above would prohibit Pacific Telesis from paying cash
dividends to SBC or from taking any of the other specified actions, but would
not prohibit SBC from taking such actions, including paying cash dividends or
making other distributions with respect to its capital stock. 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 does not
currently intend to exercise 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 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
Upon the occurrence of a Special Event (as defined below), 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."
DISTRIBUTION OF THE SUBORDINATED DEBENTURES
At any time, Pacific Telesis will have the right to terminate Pacific
Telesis Financing and, after satisfaction of the liabilities of creditors of
Pacific Telesis Financing as provided by applicable law, cause the
Subordinated Debentures to be distributed to the holders of the Preferred
Securities in liquidation of Pacific Telesis Financing. Under current United
States federal income tax law and interpretation and assuming, as expected,
Pacific Telesis Financing is treated as a grantor trust, a distribution of the
Subordinated Debentures should not be a taxable event to holders of the
Preferred Securities. Should there be a change in law, a change in legal
interpretation, a Tax Event or other circumstances, however, the distribution
could be a taxable event to the holders of the Preferred Securities. In
addition, a dissolution of Pacific Telesis Financing in which holders of the
Preferred
S-8
<PAGE>
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." While Pacific Telesis does not
currently intend to cause the dissolution of Pacific Telesis Financing and the
distribution of the Subordinated Debentures, there is no restriction on its
ability to do so. Pacific Telesis anticipates that it would consider
exercising this right in the event that the expenses associated with
maintaining the Trust were substantially greater than currently expected, such
as if there were a change in applicable laws or regulations that would subject
Pacific Telesis Financing to United States federal income taxes or other
governmental charges or that would cause Pacific Telesis Financing to be
considered an "investment company" under the Investment Company Act of 1940,
as amended. Pacific Telesis cannot predict the other circumstances under which
this right would be exercised.
If Pacific Telesis elects to dissolve Pacific Telesis Financing and thereby
causes the Subordinated Debentures to be distributed to holders of the
Preferred Securities in liquidation of Pacific Telesis Financing, Pacific
Telesis shall have the right to shorten the maturity of such Subordinated
Debentures to a date not earlier than June 18, 2001 or extend the maturity of
such Subordinated Debentures to a date not later than June 30, 2045, provided
that it can extend the maturity only if certain conditions are met. See
"Description of the Subordinated Debentures--Option to Change Maturity Date."
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 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 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. In addition, because Pacific
Telesis has the right to shorten or extend the maturity of the Subordinated
Debentures upon the termination of Pacific Telesis Financing and the
distribution of the Subordinated Debentures to the holders of the Preferred
Securities, there can be no assurance that Pacific Telesis will not exercise
its option to change the maturity of the Subordinated Debentures upon such an
event. Because holders of Preferred Securities will receive Subordinated
Debentures upon the election by Pacific Telesis to dissolve Pacific Telesis
Financing and cause the Subordinated Debentures to be distributed to the
holders of the Preferred Securities in liquidation of Pacific Telesis
Financing, 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--Distribution of the Subordinated
Debentures" and "Description of the Subordinated Debentures."
PROPOSED TAX LAW CHANGES
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill"), the
revenue portion of President Clinton's budget proposal, was released. The Bill
would, among other things, generally deny interest deductions for interest on
an instrument, issued by a corporation, that has a maximum weighted average
maturity of more than 40 years. The Bill would also generally deny interest
deductions for interest on an instrument, issued by a corporation, that has a
maximum term of more than 20 years and that is not shown as indebtedness on
the separate balance sheet of the issuer or, where the instrument is issued to
a related party (other than a corporation), where the holder or some other
related party issues a related instrument that is not shown as indebtedness on
the issuer's consolidated balance sheet. For purposes of determining the
weighted average maturity or the term of an instrument, any right to extend
would be treated as exercised. The above-described provisions of the Bill were
proposed to be effective generally for instruments issued on or after December
7, 1995. However, on March 29, 1996, the Chairmen of the Senate Finance and
House Ways and Means Committees issued a joint statement to the effect that it
was their intention that the effective date of the President's legislative
proposals, if adopted, will be no earlier than the date of appropriate
Congressional action. Under current law, Pacific Telesis will be able to
deduct interest on the Subordinated Debentures. However, if either of the
provisions of the Bill described above were to apply to the Subordinated
Debentures, Pacific Telesis would be unable to deduct interest on the
S-9
<PAGE>
Subordinated Debentures. There can be no assurance that current or future
legislative proposals or final legislation will not affect the ability of
Pacific Telesis to deduct interest on the Subordinated Debentures, giving rise
to a Tax Event (as defined below) which would permit Pacific Telesis to cause
the redemption of the Preferred Securities prior to June 18, 2001 (the first
date on which Pacific Telesis would otherwise be able to cause a redemption of
the Preferred Securities). See "Description of the Preferred Securities--
Special Event Redemption" and "United States Federal Income Taxation."
PREPAYMENT CONSIDERATIONS; OPTION TO CHANGE 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 June 18, 2001, 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 at any time to extend the maturity date
of the Subordinated Debentures for one or more periods beyond the Scheduled
Maturity Date of June 30, 2026 but in no event to a date later than June 30,
2045. See "Description of the Subordinated Debentures--Option to Change
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."
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.
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------- ------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges....... 4.90 4.26 4.41 4.60 1.37 4.21 3.42
====== ====== ==== ==== ==== ==== ====
</TABLE>
S-10
<PAGE>
CAPITALIZATION OF PACIFIC TELESIS GROUP
The following table sets forth the unaudited consolidated capitalization of
Pacific Telesis at March 31, 1996, 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.
<TABLE>
<CAPTION>
AT
MARCH 31, 1996
------------------
AS
ACTUAL ADJUSTED
------ --------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Short-term borrowings.................................... $ 912 $ 428
====== ======
Long-term borrowings..................................... $5,084 $5,084
------ ------
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts(4)...................... $ 500(1) $1,000(2)
------ ------
Common shareowners' equity:
Common stock--$0.10 par value; 1,100,000,000 authorized;
428,434,672 outstanding(3)............................. $ 43 $ 43
Additional paid-in capital.............................. 3,500 3,500
Accumulated deficit(5).................................. (914) (914)
Treasury stock, at cost; 4,392,923 shares............... (127) (127)
Deferred compensation--LESOP TRUST...................... (222) (222)
------ ------
Total common shareowners' equity......................... 2,280 2,280
------ ------
Total capitalization..................................... $7,864 $8,364
====== ======
</TABLE>
- --------
(1) In January 1996, Trust I, a Delaware business trust and a subsidiary of
the Company, issued preferred securities with an aggregate liquidation
amount of $500,000,000. The sole asset of Trust I consists of $515.5
million in principal amount of 7.56% Subordinated Debentures of the
Company due January 31, 2026. Upon redemption of such debt, the preferred
securities of Trust I will become mandatorily redeemable.
(2) One hundred percent of the assets of the Trust and Trust I consist of
$514.5 million and $515.5 million, respectively, in principal amount of
the Subordinated Debentures of Pacific Telesis with interest rates of 8
1/2% and 7.56%, respectively, and maturity dates of June 30, 2026 and
January 31, 2026, respectively. Upon redemption of such debt, the
preferred securities of the Trust and Trust I will become mandatorily
redeemable.
(3) 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
5,555,443 shares of Common Stock that were exercisable at March 31, 1996
under Pacific Telesis' stock option plans.
(4) Accounting Treatment--The financial statements of the Trust and Trust I
(collectively referred to herein as the "Trusts") will be reflected in
Pacific Telesis' consolidated financial statements. The "Company-obligated
mandatorily redeemable preferred securities of subsidiary trusts"
represent guaranteed minority interests in the Trusts holding Subordinated
Debentures of Pacific Telesis Group. The footnotes to Pacific Telesis'
consolidated financial statements will describe the nature and terms of
the preferred securities issued by the Trusts. In addition, the Company
will reflect such preferred securities as a separate line item on the
Company's balance sheet titled "Corporation-obligated mandatorily
redeemable preferred securities of subsidiary trusts" with a footnote on
the face of the balance sheet which states that the sole assets of the
Trusts consist of $1,030 million in principal amount of the subordinated
debentures of Pacific Telesis.
(5) Accumulated deficit is affected by the recent discontinuance of SFAS 71.
See Footnote (1) under "Pacific Telesis Group--Summary Financial Data" on
page S-4.
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 5.25% and 5.30% and has an average maturity of one day.
S-11
<PAGE>
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration. The Declaration has been 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, as
amended by the documents incorporated herein by reference, 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 8 1/2% 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 8
1/2% 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.
Distributions on the Preferred Securities will be cumulative, will accrue
from June 18, 1996, and will be payable quarterly in arrears on March 31, June
30, September 30 and December 31 of each year, commencing June 30, 1996, 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
S-12
<PAGE>
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. Assuming that
the SBC Merger is consummated and Pacific Telesis becomes a wholly-owned
subsidiary of SBC, restriction (a) above would prohibit Pacific Telesis from
paying cash dividends to SBC or from taking any of the other specified
actions, but would not prohibit SBC from taking such actions, including paying
cash dividends or making other distributions with respect to its capital
stock. 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
and Chicago, Illinois are permitted or required by any applicable law or
regulation to close.
S-13
<PAGE>
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
June 30, 2026 unless the maturity date is changed at the option of Pacific
Telesis (provided in the case of an extension of the maturity date that
certain financial conditions are met), and may be redeemed, in whole or in
part, at any time on or after June 18, 2001 or at any time in certain
circumstances upon the occurrence of a Special Event. See "Description of the
Subordinated Debentures--Optional Redemption" and "--Option to Change Maturity
Date." 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
"Tax Event" means that the Regular Trustees shall have received an opinion
of a nationally recognized independent tax counsel experienced in such matters
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 official administrative pronouncement or judicial
decision interpreting or applying such laws or regulations, which amendment or
change is effective or such pronouncement or decision is announced on or after
the date of original issuance of the Preferred Securities, there is more than
an insubstantial risk that (i) Pacific Telesis Financing is, or will be within
90 days after the date thereof, subject to United States federal income tax
with respect to interest accrued or received on the Subordinated Debentures,
(ii) Pacific Telesis Financing is, or will be within 90 days after the date
thereof, 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 is not, or within 90 days of the date thereof,
will 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 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"), 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
original issuance of the Preferred Securities.
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 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 Special 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.
DISTRIBUTION OF THE SUBORDINATED DEBENTURES
At any time, Pacific Telesis will have the right to dissolve Pacific Telesis
Financing and, after satisfaction of the liabilities of creditors of Pacific
Telesis Financing as provided by applicable law, cause the Subordinated
Debentures to be distributed to the holders of the Preferred Securities in
liquidation of Pacific Telesis Financing.
S-14
<PAGE>
Under current United States federal income tax law and interpretation and
assuming, as expected, Pacific Telesis Financing is treated as a grantor
trust, a distribution of the Subordinated Debentures should not be a taxable
event to holders of the Preferred Securities. Should there be a change in law,
a change in legal interpretation, a Tax Event or other circumstances, however,
the distribution could be a taxable event to the holders of the Preferred
Securities. In addition, 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."
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.
If Pacific Telesis elects to dissolve Pacific Telesis Financing and thereby
causes the Subordinated Debentures to be distributed to holders of the
Preferred Securities in liquidation of Pacific Telesis Financing, Pacific
Telesis shall have the right to shorten the maturity of such Subordinated
Debentures to a date not earlier than June 18, 2001, or extend the maturity of
such Subordinated Debentures to a date not later than June 30, 2045, provided
that it can extend the maturity only if certain conditions are met. See
"Description of the Subordinated Debentures--Option to Change Maturity Date."
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.
On March 19, 1996, the Revenue Reconciliation Bill of 1996, the revenue
portion of President Clinton's budget proposal, was released. The Bill would,
among other things, generally deny interest deductions for interest on an
instrument, issued by a corporation, that has a maximum weighted average
maturity of more than 40 years. The Bill would also generally deny interest
deductions for interest on an instrument, issued by a corporation, that has a
maximum term of more than 20 years and that is not shown as indebtedness on
the separate balance sheet of the issuer or, where the instrument is issued to
a related party (other than a corporation), where the holder or some other
related party issues a related instrument that is not shown as indebtedness on
the issuer's consolidated balance sheet. For purposes of determining the
weighted average maturity or the term of an instrument, any right to extend
would be treated as exercised. The above-described provisions of the Bill were
proposed to be effective generally for instruments issued on or after December
7, 1995. However, on March 29, 1996, the Chairmen of the Senate Finance and
House Ways and Means Committees issued a joint statement to the effect that it
was their intention that the effective date of the President's legislative
proposals, if adopted, will be no earlier than the date of appropriate
Congressional action. Under current law, Pacific Telesis will be able to
deduct interest on the Subordinated Debentures. However, if either of the
provisions of the Bill described above were to apply to the Subordinated
Debentures, Pacific Telesis would be unable to deduct interest on the
Subordinated Debentures. There can be no assurance that current or future
legislative proposals or final legislation will not affect the ability of
Pacific Telesis to deduct interest on the Subordinated Debentures, giving rise
to a Tax Event which would permit Pacific Telesis to cause the redemption of
the Preferred Securities prior to June 18, 2001 (the first date on which
Pacific Telesis would otherwise be able to cause a redemption of the Preferred
Securities). See "United States Federal Income Taxation."
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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
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.
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TERMINATION
Pursuant to the Declaration, Pacific Telesis Financing shall terminate upon
the earliest of (i) June 30, 2051, (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 the Subordinated
Debentures from Pacific Telesis Financing, (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
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
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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
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
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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 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.
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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 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.
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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 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.
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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
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.
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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 January 9, 1996 (the "Base
Indenture"), between Pacific Telesis and The First National Bank of Chicago,
as Trustee (the "Indenture Trustee"), as supplemented by a Second Supplemental
Indenture, to be dated as of June 18, 1996 (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, as amended
by the documents incorporated herein by reference, and the Trust Indenture
Act. Certain capitalized terms used herein are defined in the Indenture.
At any time, Pacific Telesis will have the right to liquidate Pacific
Telesis Financing and cause Subordinated Debentures to be distributed to the
holders of the Trust Securities in liquidation of Pacific Telesis Financing.
See "Description of the Preferred Securities--Distribution of the Subordinated
Debentures."
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
securities under the Indenture. The Subordinated Debentures will be limited in
aggregate principal amount to approximately $514.5 million, 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 June 30, 2026,
subject to the election of Pacific Telesis to shorten or extend the Maturity
Date of the Subordinated Debentures, which election in the case of an
extension of the Maturity Date is subject to Pacific Telesis' satisfying
certain financial conditions. See "--Option to Change 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.
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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
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 March 31, 1996 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 $12,259 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 June 18, 2001 or at any
time upon the occurrence of a Special Event as described under
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"Description of the Preferred Securities--Special Event Redemption," 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 8 1/2% 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 June 30, 1996, to the
person in whose name such Subordinated Debenture 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
date.
OPTION TO CHANGE MATURITY DATE
The "Scheduled Maturity Date" of the Subordinated Debentures is June 30,
2026. Pacific Telesis, however, may, before the Scheduled Maturity Date,
extend such maturity date (June 30, 2026 or the maturity date then in effect,
as the case may be, is hereinafter referred to as the "Maturity Date") for one
or more periods, but in no event to a date later than June 30, 2045. Pacific
Telesis must exercise its right to extend the term at least 90 days prior to
the Maturity Date and must satisfy the following conditions on the date
Pacific Telesis exercises such right and on the Maturity Date in effect prior
to such extension: (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 change the Maturity Date to the holders of the Preferred
Securities.
In addition, if Pacific Telesis exercises its right to dissolve Pacific
Telesis Financing and distribute the Subordinated Debentures as discussed
above under "Description of the Preferred Securities--Distribution of the
Subordinated Debentures", effective upon such exercise the Maturity Date of
the Subordinated Debentures may be changed to (i) any date elected by Pacific
Telesis that is no earlier than June 18, 2001 and (ii) to any date elected by
Pacific Telesis that is no later than June 30, 2045; provided that on the date
Pacific Telesis exercises such right and on the Maturity Date in effect prior
to such extension the conditions specified in the previous paragraph are
satisfied.
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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. Assuming that the SBC Merger is
consummated and Pacific Telesis becomes a wholly-owned subsidiary of SBC,
restriction (a) above would prohibit Pacific Telesis from paying cash
dividends to SBC or from taking any of the other specified actions, but would
not prohibit SBC from taking such actions, including paying cash dividends or
making other distributions with respect to its capital stock. 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 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."
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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 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.
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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.
The 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 except those made pari passu or subordinate by
their terms, (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; provided that the Guarantee shall be pari passu
with the guarantee of Pacific Telesis issued in connection with the 7.56%
Trust Originated Preferred Securities of Trust I.
If Pacific Telesis fails to make interest and/or principal payments on the
Subordinated Debentures when due (taking account of any Extension Period) 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 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.
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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. Any such changes may be applied retroactively in a
manner that could cause the tax consequences to vary substantially from the
consequences described below, possibly adversely affecting a beneficial owner
of the Preferred Securities. In particular, legislation has been proposed that
could adversely affect Pacific Telesis' ability to deduct interest on the
Subordinated Debentures, which may in turn permit Pacific Telesis to cause a
redemption of the Preferred Securities prior to 2001. See "--Proposed Tax Law
Changes".
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.
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.
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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
As described under the caption "Description of the Preferred Securities--
Distribution of the Subordinated Debentures," 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"), 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 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
S-30
<PAGE>
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.
PROPOSED TAX LAW CHANGES
On March 19, 1996, the Revenue Reconciliation Bill of 1996, the revenue
portion of President Clinton's budget proposal, was released. The Bill would,
among other things, generally deny interest deductions for interest on an
instrument, issued by a corporation, that has a maximum weighted average
maturity of more than 40 years. The Bill would also generally deny interest
deductions for interest on an instrument, issued by a corporation, that has a
maximum term of more than 20 years and that is not shown as indebtedness on
the separate balance sheet of the issuer or, where the instrument is issued to
a related party (other than a corporation), where the holder or some other
related party issues a related instrument that is not shown as indebtedness on
the issuer's consolidated balance sheet. For purposes of determining the
weighted average maturity or the term of an instrument, any right to extend
would be treated as exercised. The above-described provisions of the Bill were
proposed to be effective generally for instruments issued on or after December
7, 1995. However, on March 29, 1996, the Chairmen of the Senate Finance and
House Ways and Means Committees issued a joint statement to the effect that it
was their intention that the effective date of the President's legislative
proposals, if adopted, will be no earlier than the date of appropriate
Congressional action. Under current law, Pacific Telesis will be able to
deduct interest on the Subordinated Debentures. However, if either of the
provisions of the Bill described above were to apply to the Subordinated
Debentures, Pacific Telesis would be unable to deduct interest on the
Subordinated Debentures. There can be no assurance that current or future
legislative proposals or final legislation will not affect the ability of
Pacific Telesis to deduct interest on the Subordinated Debentures, giving rise
to a Tax Event which would permit Pacific Telesis to cause the redemption of
the Preferred Securities prior to June 18, 2001 (the first date on which
Pacific Telesis would otherwise be able to cause a redemption of Preferred
Securities) as described more fully under "Description of Preferred
Securities--Special Event Redemption."
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.
S-31
<PAGE>
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, Goldman, Sachs & Co.,
Lehman Brothers Inc., Dean Witter Reynolds Inc., A.G. Edwards & Sons, 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
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.
<TABLE>
<CAPTION>
UNDERWRITERS PREFERRED SECURITIES
------------ --------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................... 1,460,000
Goldman, Sachs & Co. ...................................... 1,430,000
Lehman Brothers Inc. ...................................... 1,430,000
Dean Witter Reynolds Inc. ................................. 1,430,000
A.G. Edwards & Sons, Inc. ................................. 1,430,000
PaineWebber Incorporated................................... 1,430,000
Prudential Securities Incorporated......................... 1,430,000
Salomon Brothers Inc ...................................... 1,430,000
Smith Barney Inc. ......................................... 1,430,000
Robert W. Baird & Co. Incorporated......................... 200,000
Bear, Stearns & Co. Incorporated........................... 200,000
Alex. Brown & Sons Incorporated............................ 200,000
CS First Boston Corporation................................ 200,000
Dain Bosworth Incorporated................................. 200,000
Dillon, Read & Co. Inc. ................................... 200,000
Donaldson, Lufkin & Jenrette Securities Corporation........ 200,000
EVEREN Securities, Inc. ................................... 200,000
WR Lazard, Laidlaw & Luther................................ 200,000
J.P. Morgan Securities Inc. ............................... 200,000
Morgan Stanley & Co. Incorporated.......................... 200,000
Oppenheimer & Co., Inc. ................................... 200,000
Piper Jaffray Inc. ........................................ 200,000
Raymond James & Associates, Inc. .......................... 200,000
Muriel Siebert & Co., Inc. ................................ 200,000
Tucker Anthony Incorporated................................ 200,000
Advest, Inc. .............................................. 100,000
J.C. Bradford & Co. ....................................... 100,000
JW Charles Securities, Inc. ............................... 100,000
Coast Partners Securities.................................. 100,000
Cowen & Company............................................ 100,000
Craigie Incorporated....................................... 100,000
Crowell, Weedon & Co. ..................................... 100,000
Davenport & Co. of Virginia, Inc. ......................... 100,000
Dougherty, Dawkins, Strand & Bigelow Inc. ................. 100,000
Fahnestock & Co. Inc. ..................................... 100,000
First Albany Corporation................................... 100,000
</TABLE>
S-32
<PAGE>
<TABLE>
<CAPTION>
UNDERWRITERS PREFERRED SECURITIES
------------ --------------------
<S> <C>
First of Michigan Corporation.............................. 100,000
Furman Selz LLC............................................ 100,000
Grigsby Brandford & Co., Inc. ............................. 100,000
Gruntal & Co., Incorporated................................ 100,000
Interstate/Johnson Lane Corporation........................ 100,000
Janney Montgomery Scott Inc. .............................. 100,000
Josephthal Lyon & Ross Incorporated........................ 100,000
Kennedy, Cabot & Co. ...................................... 100,000
Legg Mason Wood Walker, Incorporated....................... 100,000
McDonald & Company Securities, Inc. ....................... 100,000
McGinn, Smith & Co., Inc. ................................. 100,000
Mesirow Financial, Inc. ................................... 100,000
Morgan Keegan & Company, Inc. ............................. 100,000
David A. Noyes & Company................................... 100,000
The Ohio Company........................................... 100,000
Olde Discount Corporation.................................. 100,000
Principal Financial Securities, Inc. ...................... 100,000
Rauscher Pierce Refsnes, Inc. ............................. 100,000
Redwood Securities Group, Inc.............................. 100,000
The Robinson-Humphrey Company, Inc. ....................... 100,000
Roney & Co., LLC........................................... 100,000
Scott & Stringfellow, Inc. ................................ 100,000
Stifel, Nicolaus & Company, Incorporated................... 100,000
Sturvidant & Co., Inc...................................... 100,000
Sutro & Co. Incorporated................................... 100,000
US Clearing Corp. ......................................... 100,000
Utendahl Capital Partners, L.P. ........................... 100,000
Wheat, First Securities, Inc............................... 100,000
----------
Total................................................. 20,000,000
==========
</TABLE>
The Underwriters propose initially to offer the Preferred Securities to the
public at the initial public offering price set forth on the cover page of
this Prospectus Supplement, and to certain dealers at such price less a
concession not in excess of $.50 per Preferred Security, provided that such
concession for sales of 10,000 or more Preferred Securities to a single
purchaser will not be in excess of $.30 per Preferred Security. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $.30 per Preferred Security to certain other dealers. After the initial
public offering of the Preferred Securities, the public offering price,
concessions and discount may be changed.
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 immediately available funds
of $.7875 per Preferred Security 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 $.50 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).
S-33
<PAGE>
The Preferred Securities have been approved for listing, subject to official
notice of issuance, 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
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 March
31, 1996, Mr. Odgers beneficially owned or had an interest in approximately
2,300 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 24,000 shares of Pacific Telesis common stock. As of March 31,
1996, Mr. Lauro beneficially owned or had an interest in approximately 1,012
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 17,300 shares of Pacific Telesis common stock. As of June 3, 1996,
members and counsel of Skadden, Arps, Slate, Meagher & Flom beneficially owned
approximately 3,000 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.
S-34
<PAGE>
PROSPECTUS [LOGO PACIFIC TELESIS GROUP (SM)]
$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. Subordinated Debt Securities may be issued and sold from
time to
(continued on next page)
----------------
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 January 3, 1996.
<PAGE>
(continued from previous page)
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".
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.
2
<PAGE>
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 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.
3
<PAGE>
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
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
4
<PAGE>
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. In addition, unless the Property
Trustee maintains its 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.
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<PAGE>
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.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------- ------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges....... 4.23 4.85 4.60 1.37 4.21 3.42 3.27
====== ====== ==== ==== ==== ==== ====
</TABLE>
DESCRIPTION OF THE SUBORDINATED DEBT SECURITIES
Subordinated Debt Securities may be issued from time to time in one or more
series under an Indenture, to be dated as of January 9, 1996 (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
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<PAGE>
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
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
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<PAGE>
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
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
8
<PAGE>
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 Subordinated
Debt Securities or, if such Subordinated Debt Securities are offered and sold
directly 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
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<PAGE>
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
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.
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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
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.
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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
(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.
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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 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.
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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
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.
PROPOSED TAX LAW CHANGES
On December 7, 1995, the U.S. Treasury Department proposed a series of tax
law changes that would, among other things, prevent companies from deducting
interest on debt instruments with a maturity of more than 40 years and on
instruments with a maximum term of more than 20 years which are not shown as
indebtedness on the consolidated balance sheet of the issuer. Either of these
proposals, if enacted, would prevent the deductibility by Pacific Telesis of
interest paid on the Subordinated Debt Securities if the terms of such
Subordinated Debt Securities are established within the scope of these
proposals. On December 19, 1995 the Treasury Department stated that, based
upon input it had received to date, it would recommend to Congress that
transitional relief from the proposed changes be granted for financial
instruments that are issued pursuant to a registration statement that was
filed with the Securities and Exchange Commission on or before December 7,
1995. In the case of a "shelf" registration statement (which registers
securities for an offering to be made on a continuous or delayed basis in the
future), transitional relief would be recommended if the issuer had filed a
prospectus supplement (including a preliminary prospectus supplement) to the
registration statement on or before December 7, 1995. Financial instruments
would be eligible for this transitional relief only to the extent of the
aggregate amount of such instruments described in the registration statement
(or prospectus supplement or preliminary prospectus supplement) as of December
7, 1995. Of the $1,000,000,000 in Offered Securities registered under the
Registration Statement, $500,000,000 of Offered Securities will be issued
pursuant to a Prospectus Supplement that is eligible for this transitional
relief. Pacific Telesis cannot predict whether the
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proposed tax law changes will become law, but will describe the effect of any
proposed or enacted tax law changes arising after the date of this Prospectus
in the Prospectus Supplement relating to any securities offered thereby. The
December 7, 1995 proposed tax law changes would not alter the United States
federal income tax consequences of the purchase, ownership and disposition of
Subordinated Debt Securities or Preferred Securities.
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 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.
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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 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
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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 Guarantees).
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
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.
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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.
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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
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.
19
<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
November 30, 1995, Mr. Odgers beneficially owned or had an interest in
approximately 2,182 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 November 30, 1995, Mr. Lauro beneficially owned or had an interest in
approximately 1,525 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 approximately 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.
20
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY PACIFIC TELESIS GROUP, PACIFIC TELESIS
FINANCING II, OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL
UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF PACIFIC TELESIS GROUP OR PACIFIC TELESIS FINANCING II, 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 QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pacific Telesis Group--Summary Financial Data............................. S-4
Pacific Telesis Group..................................................... S-5
Pacific Telesis Financing II.............................................. S-6
Risk Factors.............................................................. S-7
Ratio of Earnings to Fixed Charges........................................ S-10
Capitalization of Pacific Telesis Group................................... S-11
Use of Proceeds........................................................... S-11
Description of the Preferred Securities................................... S-12
Description of the Subordinated Debentures................................ S-23
Effect of Obligations Under the Subordinated Debentures and the
Guarantee................................................................ S-28
United States Federal Income Taxation..................................... S-29
Underwriting.............................................................. S-32
Legal Matters............................................................. S-34
PROSPECTUS
Available Information..................................................... 3
Incorporation of Certain Documents by Reference........................... 3
Pacific Telesis Group..................................................... 4
The Pacific Telesis Financing Trusts...................................... 4
Use of Proceeds........................................................... 5
Ratio of Earnings to Fixed Charges........................................ 6
Description of the Subordinated Debt Securities........................... 6
Description of the Pacific Telesis Trusts' Preferred Securities........... 15
Description of the Guarantees............................................. 16
Plan of Distribution...................................................... 19
Validity of Securities.................................................... 20
Independent Public Accountants............................................ 20
</TABLE>
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20,000,000
PREFERRED SECURITIES
[LOGO PACIFIC TELESIS GROUP (SM)]
PACIFIC TELESIS FINANCING II
8 1/2% TRUST ORIGINATED
PREFERRED SECURITIES ("TOPrS")
GUARANTEED TO THE EXTENT SET
FORTH HEREIN BY
PACIFIC TELESIS GROUP
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SALOMON BROTHERS INC
SMITH BARNEY INC.
JUNE 12, 1996
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