<PAGE> 1
As Filed Pursuant to Rule 424(b)(5)
Registration No. 033-56909
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
SUBJECT TO COMPLETION
MARCH 13, 1997
PROSPECTUS SUPPLEMENT
(To Prospectus Dated June 6, 1995)
9,000,000 DECS(SM)
(DEBT EXCHANGEABLE FOR COMMON STOCK(SM))
SBC COMMUNICATIONS INC.
LOGO
% EXCHANGEABLE NOTES DUE MARCH 15, 2001
(SUBJECT TO EXCHANGE INTO AMERICAN DEPOSITARY SHARES, EACH REPRESENTING TWENTY
SERIES L SHARES, WITHOUT PAR VALUE, OF TELEFONOS DE MEXICO, S.A. DE C.V.)
The principal amount of each of the % Exchangeable Notes Due March 15, 2001
(each, a "DECS") of SBC Communications Inc. (the "Company" or "SBC") being
offered hereby will be $ (the closing price of the American Depositary
Shares ("ADSs"), each representing twenty Series L Shares, without par value ("L
Shares"), of Telefonos de Mexico, S.A. de C.V. ("Telmex") on , 1997,
as reported on the New York Stock Exchange Composite Tape) (the "Initial
Price"). The DECS will mature on March 15, 2001. Interest on the DECS, at the
rate of % of the principal amount per annum, is payable quarterly on March
15, June 15, September 15 and December 15, beginning June 15, 1997. DECS are not
subject to redemption or any sinking fund prior to maturity.
At maturity (including as a result of acceleration or otherwise), the principal
amount of each DECS will be exchanged by SBC into a number of Telmex ADSs (or,
at SBC's option, the cash equivalent and/or such other consideration as
permitted or required by the terms of the DECS) at the Exchange Rate (as defined
herein). The Exchange Rate is equal to, subject to certain adjustments, (a) if
the Maturity Price (as defined below) is greater than or equal to $ ,
Telmex ADSs per DECS, (b) if the Maturity Price is less than
$ but is greater than the Initial Price, a fraction equal to the
Initial Price divided by the Maturity Price of one Telmex ADS per DECS and (c)
if the Maturity Price is less than or equal to the Initial Price, one Telmex ADS
per DECS. The "Maturity Price" means the average Closing Price (as defined
herein) per ADS of Telmex ADSs on the 20 Trading Days (as defined herein)
immediately prior to maturity, except as otherwise described herein.
Accordingly, the value of the Telmex ADSs to be received by holders of the DECS
(or the cash equivalent) at maturity will not necessarily equal the principal
amount thereof. The DECS will be general unsecured obligations of SBC ranking
pari passu with all of its other general unsecured and unsubordinated
indebtedness, including the Support Obligations (as defined in the accompanying
Prospectus of SBC). Telmex will have no obligations with respect to the DECS.
See "Description of the DECS."
SEE "RISK FACTORS FOR DECS" BEGINNING ON PAGE S-6 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED CAREFULLY BY PROSPECTIVE PURCHASERS.
Attached hereto is a prospectus of Telmex relating to the Telmex ADSs which may
be received by a holder of DECS at maturity. The Telmex ADSs are listed on the
New York Stock Exchange ("NYSE") under the symbol "TMX" and the L Shares are
listed on the Bolsa Mexicana de Valores, S.A. de C.V. (the "Mexican Stock
Exchange"). Application has been made to list the DECS on the NYSE.
For a discussion of certain United States federal income tax consequences for
holders of DECS, see "Certain United States Federal Income Tax Considerations."
"Debt Exchangeable for Common Stock" and "DECS" are service marks of Salomon
Brothers Inc.
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. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT SBC(1)
<S> <C> <C> <C>
Per DECS.............................................. $ $ $
Total(2).............................................. $ $ $
</TABLE>
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(1) Plus accrued interest, if any, from the issue date.
(2) SBC has granted the Underwriter a 30-day option to purchase up to an
aggregate of 1,000,000 DECS at the Price to Public, less Underwriting
Discount, solely to cover over-allotments, if any. If the Underwriter
exercises such option in full, the total Price to Public, Underwriting
Discount, and Proceeds to SBC will be $ , $ and $ ,
respectively. See "Plan of Distribution."
The DECS are offered subject to receipt and acceptance by the Underwriter, to
prior sales and to the Underwriter's right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the DECS will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the facilities of The
Depository Trust Company, on or about March , 1997.
- ---------------------
- -----------------------------------------
SALOMON BROTHERS INC
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The date of this Prospectus Supplement is March , 1997.
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE DECS, THE L
SHARES, THE ADSS OR TELMEX SERIES A SHARES (OR THE AMERICAN DEPOSITARY SHARES
REPRESENTING SUCH SERIES A SHARES), INCLUDING OVER-ALLOTMENT, STABILIZING AND
SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES AND THE IMPOSITION OF PENALTY
BIDS, DURING AND AFTER THE OFFERING. SEE "PLAN OF DISTRIBUTION".
------------------------
The DECS have not been, and will not be, registered under the Mexican
Securities Market Law (Ley del Mercado de Valores) and may not be offered or
sold in the United Mexican States. This Prospectus may not be distributed
publicly in Mexico and the DECS may not be traded in Mexico.
The L Shares are registered in the Securities Section (Seccion de Valores)
and the Special Section (Seccion Especial) of the National Registry of
Securities and Intermediaries (Registro Nacional de Valores e Intermediarios)
(the "RNVI") maintained by the Mexican National Banking and Securities
Commission (Comision Nacional Bancaria y de Valores). Registration of the L
Shares with the RNVI does not imply any certification as to the investment
quality of the L Shares, the solvency of Telmex, or the accuracy or completeness
of the information included in any Offering Material.
S-2
<PAGE> 3
SUMMARY
This summary does not contain all of the detailed information in this
Prospectus Supplement and the Prospectus. You should refer to specific sections
of this Prospectus Supplement and the Prospectus for a more complete description
of our Exchangeable Notes.
SBC COMMUNICATIONS INC. (SBC)
We are a holding company whose subsidiaries and affiliates operate
predominately in the communications services industry. Our subsidiaries and
affiliates provide landline and wireless telecommunication services and
equipment, directory advertising and cable television services. Our largest
subsidiary is Southwestern Bell Telephone Company, which provides
telecommunication services over approximately 15 million access lines in Texas,
Missouri, Oklahoma, Kansas and Arkansas. In 1996, Southwestern Bell Telephone
Company provided 70% of our operating revenues and 65% of our net income. On
April 1, 1996, we and Pacific Telesis Group jointly announced a definitive
agreement to merge one of our subsidiaries with the Pacific Telesis Group, in a
transaction in which shares of Pacific Telesis Group common stock will be
exchanged for shares of our common stock, on the basis described in the merger
agreement. After the merger, Pacific Telesis Group will be one of our wholly
owned subsidiaries.
TELEFONOS DE MEXICO, S.A. DE C.V. (TELMEX)
Telmex, together with its subsidiaries, owns and operates the largest
telecommunications system in Mexico. Telmex is currently the leading provider of
local and long-distance telephone services throughout Mexico. It owns the
nationwide network of local telephone lines and the principal public
long-distance telephone transmission facilities. It also provides
telephone-related services such as directory services and cellular mobile
telephone service. Based on total assets at December 31, 1996, Telmex was the
second-largest company in Mexico and the largest company listed on the Mexican
Stock Exchange.
THE OFFERING
Securities Offered......... We are offering up to 9,000,000 of our Exchangeable
Notes, which are called "DECS."
Offering Price............. You may purchase each DECS on the date it is issued
for $ . That amount is the principal
amount of each DECS. $ is equal to the
last sale price of one Telmex American Depositary
Share, as reported on the New York Stock Exchange
Composite Tape on March , 1997. One Telmex
American Depositary Share represents 20 Telmex L
Shares.
Maturity Date.............. The DECS will mature on March 15, 2001.
Interest................... The DECS pay interest equal to % times the
principal amount each year. You will receive an
interest payment four times a year, on March 15,
June 15, September 15 and December 15. The first
interest payment date will be June 15, 1997.
Ranking.................... The DECS will not be secured by cash, Telmex shares
or any of our other assets and will rank equally
with our other unsecured and unsubordinated debt.
Exchange................... On March 15, 2001, we must exchange each DECS for
between one and about 0.8 of a Telmex American
Depositary Share or pay cash equal to the value of
the Telmex American Depositary Shares that we would
otherwise deliver in exchange for the DECS. The
exact portion of a Telmex American Depositary Share
to be exchanged will depend
S-3
<PAGE> 4
upon what happens to the value of Telmex American
Depositary Shares. We will consider the value of a
Telmex American Depositary Share to be its average
price on the 20 days before we exchange the DECS.
- If the value of a Telmex American Depositary
Share is $ or more, you will receive
about 0.8 of a Telmex American Depositary Share
for each DECS.
- If the value of a Telmex American Depositary
Share is between $ and $ , you
will receive a fraction of a Telmex American
Depositary Share equal in value to the principal
amount of each DECS. For example, if the
principal amount of each DECS is $50 and the
value of a Telmex American Depositary Share is
$55, you would receive 0.9091 of a Telmex
American Depositary Share for each DECS
(calculation: y shares X $55 = $50; y = $50/55; y
= 0.9091).
- If the value of a Telmex American Depositary
Share is $ or less, you will receive one
Telmex American Depositary Share for each DECS.
Therefore, you will receive approximately 80% of
any appreciation in the market value of a Telmex
American Depositary Share above $ .
However, you will not receive any appreciation, if
the value of a Telmex American Depositary Share
does not exceed $ . In addition, you will
suffer all the loss if the value of a Telmex
American Depositary Share falls below $ .
Instead of exchanging the DECS for Telmex American
Depositary Shares, consistent with page S-3, we may
decide to deliver cash equal in value to the shares
we would otherwise have delivered for all of the
DECS.
Certain Adjustment
Events..................... If certain events affecting Telmex L Shares occur
prior to the maturity of the DECS, we will exchange
the DECS at maturity for a greater or lesser number
of Telmex American Depositary Shares than the
number of Shares you would otherwise receive or
exchange the DECS at maturity for cash or other
securities in addition to or instead of Telmex
American Depositary Shares. These events include
the payment of a stock or extraordinary cash
dividend to holders of Telmex L Shares, a stock
split or a recapitalization of outstanding Telmex L
Shares, a distribution of securities or other
property to holders of Telmex L Shares, such as in
a spin-off of a subsidiary of Telmex, and a merger
or consolidation of Telmex with another company.
No Early Redemption........ We do not have the option to exchange your DECS for
Telmex American Depositary Shares prior to March
15, 2001.
Investment in the DECS..... The DECS are different from ordinary notes because
the value of the Telmex American Depositary Shares,
cash or other securities you will receive when we
exchange your DECS at maturity may be more or less
than the principal amount of the DECS. In many
ways, they are like an investment in Telmex
American Depositary Shares. However, you have less
opportunity to make money from an increase in the
price of Telmex American Depositary Shares by
investing in the DECS than by investing in Telmex
American Depositary Shares. The value of
S-4
<PAGE> 5
what you receive when the DECS mature will be
greater than the principal amount of your DECS only
if the value of a Telmex American Depositary Share
exceeds $ . This is an increase of about
20% over the price of a Telmex American Depositary
Share when the DECS were first offered for sale. In
addition, you will receive only about 80% of any
increase in the value of a Telmex American
Depositary Share above $ . If the value of
a Telmex American Depositary Share when the DECS
mature is less than $ , you will receive a
Telmex American Depositary Share with a value less
than the principal amount of your DECS and you will
have lost some of the principal of your DECS
investment. Of course, the DECS pay interest at %
per year, while a direct investment in Telmex
American Depositary Shares would only pay
dividends, if any. The interest you will receive is
more than the historical annual dividend on a
Telmex American Depositary Share.
Our Obligations............ The DECS are our obligations and not the
obligations of Telmex or any other company.
U.S. Federal Taxes......... Neither the Internal Revenue Service nor any court
has decided how DECS should be treated for U.S.
federal income tax purposes. You should refer to
the tax section of this prospectus supplement for a
description of the way we think DECS should be
treated. However, the Internal Revenue Service may
disagree with us. You should consult your own tax
advisor about the consequences of your holding
DECS.
Listing.................... We will ask the New York Stock Exchange to list the
DECS under the symbol " ."
Use of Proceeds............ We will use the money we receive from the sale of
the DECS for general corporate purposes.
RISK FACTORS
Investments in the DECS are risky. You should refer to the section called
"Risk Factors for DECS" in this Prospectus Supplement for an explanation of what
those risks are.
S-5
<PAGE> 6
RISK FACTORS FOR DECS
The DECS may trade at widely different prices before maturity depending
upon factors such as changes in the market price of the Telmex American
Depository Shares and other events that we cannot predict and are beyond our
control. We describe this in more detail below.
COMPARISON TO OTHER NOTES; RELATIONSHIP TO TELMEX AMERICAN DEPOSITARY SHARES
The DECS are different from ordinary notes because the value of the Telmex
American Depositary Shares, cash or other securities you will receive when we
exchange your DECS at maturity may be more or less than the principal amount of
the DECS. If the value of a Telmex American Depositary Share when the DECS
mature is less than the principal amount of the DECS, you will receive Telmex
American Depositary Shares with a value less than the principal amount of your
DECS. This would result in your losing principal from an investment in the DECS.
If Telmex is insolvent or bankrupt when the DECS mature, you might lose your
entire investment. You take all the risk of a fall in the value of Telmex
American Depositary Shares before the DECS mature.
In addition, you have less opportunity to make money from an increase in
the price of a Telmex American Depositary Share by investing in the DECS than by
investing directly in Telmex American Depositary Shares. The value of what you
receive when the DECS mature will be greater than the principal amount of your
DECS only if the value of a Telmex American Depositary Share exceeds
$ . This is an increase of about 20% over the price of Telmex American
Depositary Shares when the DECS were first offered for sale. In addition, you
will receive only about 80% of any increase in the value of a Telmex American
Depositary Share above $ . In return, you receive annual interest of
% on the DECS, which is more than the historical annual dividend on a
Telmex American Depository Share.
We cannot predict whether the price of a Telmex American Depositary Share
will rise or fall. However, the following factors will affect the trading price
of Telmex American Depositary Shares:
- whether Telmex makes a profit and what its future prospects are;
- trading on the capital markets generally;
- trading on the NYSE where the Telmex American Depositary Shares are
traded and on the Mexican Stock Exchange where the Telmex L Shares are
traded;
- the health of the telecommunications industry;
- whether Telmex issues securities like the DECS, or Telmex or another
person in the market transfers a large number of Telmex American
Depositary Shares; and
- political and economic conditions in Mexico.
Refer to the attached prospectus for Telmex American Depositary Shares for
information about Telmex.
IMPACT OF THE DECS ON THE MARKET FOR THE TELMEX AMERICAN DEPOSITARY SHARES
We cannot predict accurately how or whether investors will resell the DECS
and how easy it will be to resell them. Any market that develops for the DECS is
likely to influence and be influenced by the market for Telmex American
Depositary Shares. For example, investors' anticipation that we may deliver
Telmex American Depositary Shares that currently equal approximately % of
the outstanding Telmex American Depositary Shares when the DECS mature could
cause the price of a Telmex American Depositary Share to be unstable or fall.
The following factors could also affect the price of Telmex American Depositary
Shares:
- sales of Telmex American Depositary Shares by investors who prefer to
invest in Telmex by investing in the DECS;
- hedging an investment in the DECS by selling Telmex American Depositary
Shares (called "selling short"); and
- arbitrage trading activity between the DECS and Telmex American
Depositary Shares.
S-6
<PAGE> 7
DILUTION OF TELMEX AMERICAN DEPOSITARY SHARES
The terms of the DECS include some protections so you will receive
equivalent value when the DECS mature even if Telmex splits or combines its
shares, pays stock dividends or does other similar things that change the number
of Telmex L Shares outstanding. However, these terms do not protect against all
events. For example, the amount you receive when the DECS mature may not change
if Telmex offers L Shares for cash or in an acquisition, even if the price of a
Telmex American Depositary Share falls and this causes the price of the DECS to
fall. We have no control over whether Telmex will offer shares or do something
similar in the future or the amount of any offering.
In addition, unless and until we decide to deliver you Telmex American
Depositary Shares when the DECS mature, you will have no dividend rights or
other similar rights associated with Telmex American Depositary Shares.
TELMEX NOT RESPONSIBLE FOR THE DECS
Telmex has no obligation to pay interest or principal on the DECS. Telmex
also does not have to take our needs or your needs into consideration for any
reason. Telmex will not receive any money from the sale of the DECS and did not
decide to issue the DECS. Telmex did not determine when we will issue the DECS,
how much we will sell them for or how many we will sell. Telmex is not involved
in managing or trading the DECS or determining or calculating the amount you
will receive when the DECS mature.
DECS MAY BE DIFFICULT TO RESELL
We cannot predict how investors will resell the DECS or whether it will be
easy or hard to resell them. The DECS are new and innovative securities, and
there is currently no market in which to resell them. Salomon Brothers Inc
currently intends to buy and sell the DECS but does not have to. A resale market
may not develop or, if it does, may not give you the opportunity to resell your
DECS and may not continue until the DECS mature.
We will ask the New York Stock Exchange to list the DECS. If it does list
them, however, the New York Stock Exchange could revoke the listing or stop
trading of them at any time. If the New York Stock Exchange will no longer list
the DECS or stops trading them, we will ask another national securities exchange
to list the DECS or another trading market to quote them. If the DECS are no
longer listed or traded on any securities exchange or trading market, or if a
securities exchange or trading market stops trading of the DECS, you may have
difficulty getting price information and it may be more difficult to resell the
DECS.
TAX TREATMENT OF DECS UNCERTAIN
Neither the Internal Revenue Service nor any court has decided how DECS or
similar securities should be treated for U.S. federal income tax purposes. As a
result, significant aspects of their tax treatment are uncertain. We will not
ask the Internal Revenue Service to rule on how the DECS should be treated. The
Internal Revenue Service may disagree with our conclusions on pages S-20 to S-22
of this Prospectus Supplement.
RISK FACTORS FOR TELMEX
You should carefully consider the information in the attached prospectus of
Telmex, including the risk factors for Telmex on pages 8 to 9 of the attached
prospectus of Telmex.
S-7
<PAGE> 8
SBC COMMUNICATIONS INC.
SBC is a holding company whose subsidiaries and affiliates operate
predominately in the communications services industry. SBC's subsidiaries and
affiliates provide landline and wireless telecommunication services and
equipment, directory advertising and cable television services.
SBC's largest subsidiary is Southwestern Bell Telephone Company (the
"Telephone Company"), which provides telecommunication services over
approximately 15 million access lines in Texas, Missouri, Oklahoma, Kansas and
Arkansas. The Telephone Company is subject to regulation by each of the state
jurisdictions in which it operates and by the Federal Communications Commission.
In 1996, the Telephone Company provided 70% of SBC's operating revenues and 65%
of its net income.
On April 1, 1996, SBC and Pacific Telesis Group ("PAC") jointly announced a
definitive agreement to merge an SBC subsidiary with PAC, in a transaction in
which shares of PAC common stock will be exchanged for shares of SBC common
stock, on the basis described in the merger agreement. After the merger, PAC
will be a wholly-owned subsidiary of SBC. The transaction is intended to be
accounted for as a pooling of interests and to be a tax-free reorganization. The
shareowners of SBC and PAC have each approved the transaction, the Public
Service Commission of Nevada and the Federal Communications Commission have
issued required approvals, and the U.S. Department of Justice has announced it
will not initiate action on the merger under the Hart-Scott-Rodino antitrust
law. The merger is subject, among other things, to approval by the California
Public Utilities Commission (a decision on which is expected before the end of
the first quarter of 1997) and allocation of the costs, fees and expenses of
state regulatory approvals among the shareowners of SBC and PAC. If approvals
are granted, the transaction is expected to close in the first half of 1997. See
"Selected Historical and Pro Forma Financial Data of SBC."
PAC includes a holding company, Pacific Telesis, and its various
communications services industry subsidiaries. PAC's telephone subsidiaries,
Pacific Bell and Nevada Bell, provide local exchange service, network access,
local toll services, directory advertising, Internet access and selected
information services in California and Nevada. Other PAC subsidiaries provide
video, communications and other services.
TELMEX
Telmex, together with its subsidiaries, owns and operates the largest
telecommunications system in Mexico. Telmex is currently the leading provider of
local and long-distance telephone services throughout Mexico. It owns the
nationwide network of local telephone lines and the principal public
long-distance telephone transmission facilities. It also provides
telephone-related services such as directory services and cellular mobile
telephone service. Based on total assets at December 31, 1996, Telmex was the
second-largest company in Mexico and the largest company listed on the Mexican
Stock Exchange.
For additional information about Telmex, including risks associated with an
investment in Telmex ADSs, see the prospectus of Telmex attached hereto. Telmex
is subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith files reports
and other information with the Commission. The prospectus of Telmex attached
hereto incorporates its 1995 Annual Report on Form 20-F, its Report on Form 6-K
dated March , 1997, and all documents filed by Telmex pursuant to the Exchange
Act on Form 20-F, Form 40-F, Form 10-K, Form 10-Q, Form 8-K and, if so indicated
therein, Form 6-K subsequent to the date of such prospectus and prior to the
termination of this DECS offering. Such documents may be inspected and copied at
the public reference facilities maintained by the Commission in Washington, D.C.
and at its regional offices and at the offices of the NYSE on which the Telmex
ADSs are listed. Such documents, without exhibits, also may be obtained by
writing to Gerardo Munoz, Investor Relations, Telmex, Parque Via 190, Colonia
Cuauhtemoc, 06599 Mexico, D.F., Mexico (telephone number (52-5) 703-3990). See
"Available Information" and "Incorporation of Certain Documents by Reference" in
the prospectus of Telmex attached hereto.
S-8
<PAGE> 9
RELATIONSHIP BETWEEN SBC AND TELMEX
Through SBC International, Inc. ("SBC International"), SBC holds a
substantial equity investment in Telmex and exercises certain rights as a result
of such investment.
In December 1990, the Mexican government, which previously owned a majority
of Telmex's capital stock, sold all of the Series AA Shares, without par value
("AA Shares"), representing 20.4% of the capital stock of Telmex but a majority
of the full voting shares, to a trust for the benefit of a consortium of certain
investors (the "Controlling Shareholders"). The Controlling Shareholders consist
of (i) a group of Mexican investors (the "Mexican Controlling Shareholders"),
who collectively own 51% of the AA Shares; (ii) SBC International, which owns
24.5% of the AA Shares; and (iii) France Telecom Financiere Internationale, a
subsidiary of the French state-owned telecommunications agency France Telecom
("FTFI"), which owns 24.5% of the AA Shares. Of the AA Shares beneficially owned
by the Mexican Controlling Shareholders, the majority is owned by Carso Global
Telecom, S.A. de C.V. ("CGT") and Seguros Inbursa, S.A., both of which are
controlled by Mr. Carlos Slim Helu, a member of SBC's Board of Directors.
Pursuant to the terms of the trust through which the AA Shares are held,
transfers of beneficial ownership of AA Shares are subject to preemptive rights,
and the AA Shares generally must be voted as a block. SBC currently has the
right to name to Telmex's Board of Directors three directors (four directors in
odd numbered years) and three alternate directors. In September 1991, SBC
International exercised an option to purchase 530,157,101 L Shares. The L Shares
have limited voting rights. After giving effect to repurchases by Telmex of
Telmex L Shares and sales by SBC of Telmex L Shares, SBC's total interest in
Telmex (AA Shares and L Shares) represents approximately 9.6% of Telmex's total
equity capitalization (AA Shares, L Shares and A Shares).
Telmex is receiving, and expects to continue to receive, substantial
consulting and management services in a broad range of areas from CGT, SBC
International and FTFI pursuant to agreements with each such party negotiated,
on behalf of Telmex, by a special committee of its Board of Directors. For such
services, CGT, SBC International and FTFI received aggregate compensation of $75
million in 1996. See "Item 4 -- Control of Registrant" in Telmex's 1995 Annual
Report on Form 20-F, incorporated by reference in the prospectus of Telmex
attached to this Prospectus Supplement.
Notwithstanding any of the foregoing, Telmex is operated and managed as an
independent corporation from SBC, and while SBC may have some influence over
Telmex, SBC does not consider that its ownership of AA Shares and L Shares
affords it the power to control the management or policies of Telmex. Moreover,
because SBC is not required to retain its present holdings of the L Shares or
its beneficial ownership interest in the AA Shares in connection with the DECS
or otherwise over the long term and may sell or transfer some or all of such
shares from time to time, there can be no assurance that SBC will continue to
have any influence over the actions and decisions taken and made by Telmex.
Telmex has no obligations with respect to the DECS, including any obligation to
take the needs of SBC or of holders of DECS into consideration for any reason.
Telmex will not receive any of the proceeds of the offering of the DECS made
hereby and is not responsible for the determination of the timing of, prices for
or quantities of the DECS to be issued, or the determination or calculation of
the amount to be paid upon exchange at maturity.
PRICE RANGE OF TELMEX ADSS AND L SHARES
The Telmex ADSs, each representing 20 L Shares, have been issued by Morgan
Guaranty Trust Company of New York (the "Depositary"), as depositary for the L
Shares. The L Shares are traded on the New York Stock Exchange, and the L Shares
are traded on the Mexican Stock Exchange. The Telmex ADSs are also quoted on the
Stock Exchange Automated Quotation system of the International Stock Exchange of
the United Kingdom and the Republic of Ireland, Ltd. ("SEAQ International") and
listed on the Frankfurt Stock Exchange. On December 31, 1996, approximately 77%
of the L Shares were held in the form of Telmex ADSs, and the DECS will
represent 2.8% of the total L Shares that were outstanding on December 31, 1996
(assuming the over-allotment option is not exercised).
S-9
<PAGE> 10
The following table sets forth, for the periods indicated, the reported
high and low closing sales prices for the L Shares on the Mexican Stock Exchange
and the reported high and low closing sales prices for the Telmex ADSs on the
New York Stock Exchange. Prices have not been restated in constant currency
units.
<TABLE>
<CAPTION>
MEXICAN NEW YORK
STOCK EXCHANGE: STOCK EXCHANGE:
PESOS PER U.S. DOLLARS PER
L SHARE TELMEX ADS
------------------- ---------------------------
HIGH LOW HIGH LOW
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
1995:
First Quarter.......................... P. 10.38 P. 8.02 U.S.$38.625 U.S.$24.250
Second Quarter......................... 9.90 8.54 31.500 27.250
Third Quarter.......................... 10.82 9.20 35.625 29.500
Fourth Quarter......................... 12.82 9.46 34.625 25.750
1996:
First Quarter.......................... 13.56 11.04 36.000 29.000
Second Quarter......................... 13.88 12.26 37.375 32.500
Third Quarter.......................... 12.90 11.30 34.375 29.500
Fourth Quarter......................... 12.98 11.72 33.250 29.625
1997:
First Quarter (through March 10,
1997)............................... 16.10 13.02 40.375 33.125
</TABLE>
DIVIDENDS
While Telmex has regularly paid cash dividends in respect of its L Shares
in the past, SBC makes no representations as to the amount of dividends, if any,
that Telmex will pay in the future. In any event, holders of the DECS will not
be entitled to receive any dividends that may be payable on the Telmex ADSs
until such time as SBC, if it so elects, delivers Telmex ADSs at Maturity of the
DECS. See "Description of the DECS".
The table below sets forth the nominal amount of dividends paid by Telmex
per share in each year indicated, in pesos and translated into U.S. dollars at
the exchange rates on the respective payment dates.
<TABLE>
<CAPTION>
YEAR ENDED PESOS U.S. DOLLARS
DECEMBER 31, PER SHARE PER SHARE
--------------------------------------------- --------- ------------
<S> <C> <C>
1992...................................... 0.0750 0.0241
1993...................................... 0.1500 0.0482
1994...................................... 0.2500 0.0734
1995...................................... 0.3000 0.0435
1996...................................... 0.3500 0.0453
</TABLE>
USE OF PROCEEDS
The net proceeds to be received by SBC from the sales of the DECS will be
used for general corporate purposes.
S-10
<PAGE> 11
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of
SBC for the periods indicated. At December 31, 1996, no preferred stock was
outstanding.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.................... 6.59x 5.81x 5.41x 4.51x 3.96x
</TABLE>
For the purpose of calculating this ratio, earnings consist of income
before income taxes, extraordinary loss, cumulative effect of changes in
accounting principles, and fixed charges. Fixed charges include interest on
indebtedness and one-third of rental expense (the portion of rentals
representative of the interest factor).
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF SBC
The following table presents selected historical financial data of SBC and
selected unaudited pro forma combined financial data after giving effect to the
merger of SBC and PAC as a "pooling-of-interests." SBC selected historical data
for each of the five years in the period ended December 31, 1996 have been
derived from audited financial statements. The pro forma combined financial data
are presented for illustrative purposes only and are not necessarily indicative
of the financial position or operating results that would have occurred or that
will occur upon consummation of the merger. This pro forma information does not
include the effect of changes, which will be applied retroactively, to conform
accounting methodologies between PAC and SBC for, among other items, pensions,
postretirement benefits, sales commissions or merger transaction costs and
certain deferred tax adjustments resulting from the merger. Based on information
currently available, management estimates these changes will not materially
affect the pro forma operating revenues or income before extraordinary loss and
cumulative effect of accounting changes, and estimates the changes will reduce
the pro forma 1995 extraordinary loss from discontinuance of regulatory
accounting by between $100 million and $200 million.
S-11
<PAGE> 12
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C> <C> <C>
SBC -- HISTORICAL
Operating revenues..................... $13,898 $12,670 $11,772 $10,840 $10,150
Income from continuing operations
before extraordinary loss and
cumulative effect of accounting
changes.............................. 2,101 1,889 1,649 1,435 1,302
Income from continuing operations
before extraordinary loss and
cumulative effect of accounting
changes per common share............. 3.46 3.10 2.74 2.39 2.17
Total assets........................... 23,449 22,003 26,005 24,308 23,810
Long-term debt......................... 5,505 5,672 5,848 5,459 5,716
Network access lines................... 14.96 14.22 13.61 13.15 12.72
PRO FORMA COMBINED
Operating revenues..................... $23,486 $21,712 $21,007 $20,084 $19,258
Income from continuing operations
before extraordinary loss and
cumulative effect of accounting
changes.............................. 3,158 2,937 2,785 1,626 2,475
Income from continuing operations
before extraordinary loss and
cumulative effect of accounting
changes per common share............. 3.43 3.19 3.05 1.80 2.76
Total assets........................... 39,534 37,176 46,144 44,871 44,914
Long-term debt......................... 10,929 10,409 10,745 10,588 10,923
Network access lines................... 31.39 30.01 28.93 28.02 27.28
</TABLE>
DESCRIPTION OF THE DECS
The following description of the particular terms of the DECS supplements,
and to the extent inconsistent therewith replaces, the description of the
general terms and provisions of Debt Securities set forth in the accompanying
Prospectus of SBC, to which description reference is hereby made.
GENERAL
The DECS are one series of Debt Securities (as defined in the Prospectus of
SBC accompanying this Prospectus Supplement), to be issued under an indenture
dated as of November 1, 1994 (as supplemented from time to time, the
"Indenture", which term includes the Officer's Certificate setting forth the
terms of the DECS pursuant to such indenture), between SBC and The Bank of New
York, as trustee (the "Trustee"). All references herein to "Debt Securities"
shall refer to debt securities issued under the Indenture. The following summary
of certain provisions of the Indenture does not purport to be complete and is
qualified in its entirety by reference to the Indenture, a copy of which is
filed as an exhibit to the Registration Statement of which this Prospectus
Supplement is a part. All article and section references appearing herein are to
articles and sections of the Indenture, and all capitalized terms have the
meanings specified in the Indenture.
The DECS will be unsecured and will rank on a parity with all other
unsecured and unsubordinated indebtedness of SBC and on a parity with the
Support Obligations (as defined in the accompanying Prospectus of SBC). The
aggregate number of DECS to be issued will be 9,000,000 plus such additional
number of DECS as may be issued pursuant to the overallotment option granted by
SBC to the Underwriter (see "Plan of Distribution"). The DECS will mature on
March 15, 2001 (including by acceleration or otherwise, "Maturity"). The
Indenture does not limit the amount of Debt Securities which may be issued
thereunder, and in the future, SBC may issue additional Debt Securities or other
securities with terms similar to those of the DECS.
S-12
<PAGE> 13
Each DECS, which will be issued with a principal amount of $ (the
"Initial Price"), will bear interest at the annual rate of % of the
principal amount per annum (or approximately $ per annum) from the date
of original issuance, or from the most recent Interest Payment Date (as defined
below) to which interest has been paid or provided for, until the principal
amount thereof is exchanged at Maturity pursuant to the terms of the DECS.
Interest on the DECS will be payable quarterly in arrears on March 15, June 15,
September 15 and December 15, commencing June 15, 1997 (each, an "Interest
Payment Date"), to the persons in whose names the DECS are registered at the
close of business on the last day of the calendar month immediately preceding
such Interest Payment Date, provided that interest payable at Maturity shall be
payable to the person to whom the principal is payable. Interest on the DECS
will be computed on the basis of a 360-day year of twelve 30-day months. If an
Interest Payment Date falls on a day that is not a Business Day (as defined
below), the interest payment to be made on such Interest Payment Date will be
made on the next succeeding Business Day with the same force and effect as if
made on such Interest Payment Date, and no additional interest will accrue as a
result of such delayed payment.
At Maturity, the principal amount of each DECS will be exchanged by SBC
into a number of Telmex ADSs (or the equivalent amount of cash) at the Exchange
Rate (as defined below). The "Exchange Rate" is equal to, (a) if the Maturity
Price (as defined below) is greater than or equal to $ (the "Threshold
Appreciation Price"), . Telmex ADS per DECS, (b) if the Maturity
Price is less than the Threshold Appreciation Price but is greater than the
Initial Price, (i) a fraction equal to the Initial Price divided by the Maturity
Price of (ii) one Telmex ADS per DECS and (c) if the Maturity Price is less than
or equal to the Initial Price, one Telmex ADS per DECS. The Exchange Rate is
subject to adjustment as provided in "-- Dilution Adjustments; Other Adjustment
Events." THE VALUE OF THE TELMEX ADSS TO BE RECEIVED BY HOLDERS OF THE DECS (OR,
AS DISCUSSED BELOW, THE CASH EQUIVALENT TO BE RECEIVED IN LIEU OF SUCH ADSS) AT
MATURITY WILL NOT NECESSARILY EQUAL THE PRINCIPAL AMOUNT OF SUCH DECS. The
ratios of Telmex ADSs per DECS specified in clauses (a), (b) and (c) above of
the Exchange Rate definition are hereinafter referred to as the "Share
Components." Any Telmex ADSs delivered by SBC to the holders of the DECS that
are not affiliated with Telmex shall be free of any transfer restrictions and
the holders of the DECS will be responsible for the payment of any and all
brokerage costs upon the subsequent sale of such ADSs. No fractional Telmex ADSs
will be issued at Maturity as provided under "-- Fractional Shares" below. SBC
may at its option deliver cash, in lieu of delivering Telmex ADSs at Maturity.
The amount of cash deliverable in respect of each DECS shall be equal to the
product of the number of Telmex ADSs otherwise deliverable in respect of such
DECS on the date of Maturity multiplied by the Maturity Price. In the event SBC
elects to deliver cash in lieu of Telmex ADSs at Maturity, it will be obligated
pursuant to the Indenture to deliver cash to all holders of DECS. On or prior to
the fourth Business Day prior to March 15, 2001, SBC will notify the Trustee,
which in turn will notify The Depository Trust Company and publish a notice in a
daily newspaper of national circulation stating whether the principal amount of
each DECS will be exchanged for Telmex ADSs or cash.
Notwithstanding the foregoing, (i) in the case of certain dilution events,
the Exchange Rate will be subject to adjustment and (ii) in the case of certain
adjustment events, the consideration received by holders of the DECS at Maturity
will be Telmex ADSs, other securities and/or cash. See "-- Dilution Adjustments;
Other Adjustment Events" below.
The "Maturity Price" is defined as the average Closing Price per Telmex ADS
on the 20 Trading Days immediately prior to (but not including) the date of
Maturity; provided, however, that if there are not 20 Trading Days for the
Telmex ADSs occurring later than the 60th calendar day immediately prior to, but
not including, the date of Maturity, "Maturity Price" will be defined as the
market value per Telmex ADS as of Maturity as determined by a nationally
recognized investment banking firm retained for such purpose by SBC. The
Maturity Price is subject to adjustment as provided in "-- Dilution Adjustments;
Other Adjustment Events." The "Closing Price" of any security on any date of
determination means
S-13
<PAGE> 14
(i) the closing sale price (or, if no closing price is reported, the last
reported sale price) of such security (regular way) on the NYSE on such date,
(ii) if such security is not listed for trading on the NYSE on any such date, as
reported in the composite transactions for the principal United States
securities exchange on which such security is so listed, (iii) if such security
is not so listed on a United States national or regional securities exchange, as
reported by the NASDAQ Stock Market, (iv) if such security is not so reported,
the last quoted bid price for such security in the over-the-counter market as
reported by the National Quotation Bureau or similar organization, or (v) if
such security is not so quoted, the average of the mid-point of the last bid and
ask prices for such security from each of at least three nationally recognized
independent investment banking firms selected by SBC for such purpose. A
"Trading Day" is defined as a Business Day on which the security, the Closing
Price of which is being determined, (A) is not suspended from trading on any
national or regional securities exchange or association or over-the-counter
market at the close of business and (B) has traded at least once on the national
or regional securities exchange or association or over-the-counter market that
is the primary market for the trading of such security. "Business Day" means any
day that is not a Saturday, a Sunday or a day on which the NYSE, banking
institutions or trust companies in The City of New York are authorized or
obligated by law or executive order to close.
For illustrative purposes only, the following chart shows the number of
Telmex ADSs or the amount of cash that a holder of DECS would receive for each
DECS at various Maturity Prices. The table assumes that there will be no
adjustments to the Exchange Rate described under "-- Dilution Adjustments; Other
Adjustment Events" below. There can be no assurance that the Maturity Price will
be within the range set forth below. Given the Initial Price of $ per
DECS and the Threshold Appreciation Price of $ , a DECS holder would
receive at Maturity the following number of Telmex ADSs or amount of cash (if
SBC elects to pay the DECS in cash):
<TABLE>
<CAPTION>
MATURITY PRICE OF NUMBER OF AMOUNT
TELMEX ADSS TELMEX ADSS OF CASH
-------------------- -------------------- --------------------
<S> <C> <C>
</TABLE>
As the foregoing chart illustrates, if at Maturity, the Maturity Price is
greater than or equal to $ , SBC will be obligated to deliver
Telmex ADS per DECS, resulting in SBC receiving
percent of the appreciation in market value above $ and the DECS holder
receiving percent of the appreciation in market value above $ . If
at Maturity, the Maturity Price is greater than $ and less than
$ , SBC will be obligated to deliver only a fraction of a Telmex ADS
having a market value equal to $ , resulting in SBC retaining all
appreciation in the market value of the Telmex ADSs. If at Maturity, the
Maturity Price is less than or equal to $ , SBC will be obligated to
deliver one Telmex ADS per DECS, regardless of the market price of such shares,
resulting in the DECS holder realizing the entire loss on the decline in market
value of Telmex ADSs.
Interest on the DECS will be payable, and delivery of ADRs evidencing the
Telmex ADSs (or, at the option of SBC, its cash equivalent and/or such other
consideration as permitted or required as described below) in exchange for the
DECS at Maturity will be made upon surrender of such DECS, at the office or
agency of SBC maintained for such purposes; provided, however, that payment of
interest may be made at the option of SBC by check mailed to the persons in
whose names the DECS are registered at the close of business on the last day of
the calendar month immediately preceding the relevant Interest Payment Date. See
"-- Book-Entry System." Initially such office will be the principal corporate
trust office of the Trustee in New York City, which is located at 101 Barclay
Street, Floor 21 West, New York, New York 10286.
S-14
<PAGE> 15
The DECS will be transferable at any time or from time to time at the
aforementioned office. No service charge will be made to the holder for any such
transfer except for any tax or governmental charge incidental thereto.
The Indenture does not contain any restriction on the ability of SBC to
sell, pledge or otherwise convey all or any portion of the Telmex L Shares or
Telmex ADSs held by it or its subsidiaries, and no such Telmex L Shares or
Telmex ADSs will be pledged or otherwise held in escrow for use at Maturity of
the DECS. Consequently, in the event of a bankruptcy, insolvency or liquidation
of SBC or its subsidiaries, the Telmex L Shares and Telmex ADSs, if any, owned
by SBC or its subsidiaries will be subject to the claims of the creditors of SBC
or its subsidiaries, respectively. In addition, as described herein, SBC will
have the option, exercisable in its sole discretion, to satisfy its obligations
pursuant to the exchange for the principal amount of each DECS at Maturity by
delivering to holders of the DECS either the specified number of Telmex ADSs or
cash in an amount equal to the product of such number of ADSs multiplied by the
Maturity Price. As a result, there can be no assurance that SBC will elect at
Maturity to deliver Telmex ADSs or, if it so elects, that it will use all or any
portion of its holdings of Telmex L Shares or Telmex ADSs at that time, if any,
to make such delivery. Holders of the DECS will not be entitled to any rights
with respect to Telmex L Shares or Telmex ADSs (including without limitation
voting rights and rights to receive any dividends or other distributions in
respect thereof) until such time, if any, as SBC shall have delivered Telmex
ADSs to holders of the DECS at Maturity thereof and the applicable record date,
if any, for the exercise of such rights occurs after such date.
DILUTION ADJUSTMENTS; OTHER ADJUSTMENT EVENTS
The Exchange Rate is subject to adjustment if Telmex shall (i) pay a stock
dividend or make a distribution, in each case, with respect to the Telmex L
Shares in Telmex L Shares or any other shares of common stock of Telmex, (ii)
subdivide or split the outstanding Telmex L Shares, (iii) combine the
outstanding Telmex L Shares into a smaller number of shares, (iv) issue by
reclassification (other than a reclassification pursuant to clause (ii), (iii),
(iv) or (v) of the definition of Adjustment Event below) of the Telmex L Shares
any shares of common stock of Telmex, (v) issue rights or warrants to all
holders of Telmex L Shares entitling them to subscribe for or purchase Telmex L
Shares (other than rights to purchase Telmex L Shares pursuant to a plan for the
reinvestment of dividends) at a price per share less than the Market Price (as
defined below) of the Telmex L Shares on the Business Day next following the
record date for the determination of holders of Telmex L Shares entitled to
receive such rights or warrants, or (vi) takes any action that results in any
increase or decrease in the number of Telmex L Shares represented by Telmex
ADSs.
In the case of the events referred to in clauses (i), (ii), (iii) and (iv)
above, the Exchange Rate shall be adjusted by adjusting each of the Share
Components of the Exchange Rate in effect immediately prior to such event so
that a holders of any DECS shall be entitled to receive, upon exchange of the
principal amount of such DECS at Maturity, the number of Telmex ADSs (or, in the
case of a stock dividend or distribution referred to clause (i) above paid or
made in other shares of common stock of Telmex or a reclassification referred to
in clause (iv) above, the number of American Depository Shares representing
other shares of common stock of Telmex issued pursuant thereto) which such
holder of such DECS would have owned or been entitled to receive immediately
following such event had such DECS been exchanged immediately prior to such
event or any record date with respect thereto.
In the case of the event referred to in clause (v) above, the Exchange Rate
shall be adjusted by multiplying each of the Share Components of the Exchange
Rate in effect on the record date for the determination of holders of Telmex L
Shares entitled to receive the rights or warrants referred to in clause (v)
above, by a fraction, of which the numerator shall be (A) the number of Telmex L
Shares outstanding on such record date, plus (B) the number of additional Telmex
L Shares offered for subscription or purchase pursuant to such rights or
warrants, and of which the denominator shall be (x) the number of Telmex L
Shares outstanding on such record date, plus (y) the number of additional Telmex
L Shares which the aggregate offering price of the total number of Telmex L
Shares so offered for subscription or purchase pursuant to such rights or
warrants would purchase at the Market Price of the Telmex L Shares
S-15
<PAGE> 16
on the Business Day next following such record date, which number of additional
shares shall be determined by multiplying such total number of shares by the
exercise price of such rights or warrants and dividing the product so obtained
by such Market Price of Telmex L Shares. To the extent that such rights or
warrants expire prior to the Maturity of the DECS and shares of Telmex L Shares
are not delivered pursuant to such rights or warrants prior to such expiration,
the Exchange Rate shall be readjusted to the Exchange Rate which would then be
in effect had such adjustments for the issuance of such rights or warrants been
made upon the basis of delivery of only the number of Telmex L Shares actually
delivered pursuant to such rights or warrants. Any Telmex L Shares issuable in
payment of a dividend shall be deemed to have been issued immediately prior to
the close of business on the record date for such dividend for purposes of
calculating the number of outstanding Telmex L Shares under this paragraph.
In the case of the event referred to in clause (vi) above, the Exchange
Rate shall be adjusted by adjusting each of the Share Components of the Exchange
Rate in effect immediately prior to such event so that a holder of any DECS
shall be entitled to receive, upon exchange of the principal amount of such DECS
at Maturity, the number of Telmex ADSs representing the same number of Telmex L
Shares as were represented by the Telmex ADSs which such holder of such DECS
would have owned or been entitled to receive immediately prior to such event had
such DECS been exchanged immediately prior to such event on any record date with
respect thereto.
"Market Price" means, as of any date of determination, the average Closing
Price per Telmex ADS for the 20 Trading Days immediately prior to the date of
determination; provided, however, that if there are not 20 Trading Days for the
Telmex ADSs occurring later than the 60th calendar day immediately prior to, but
not including, such date, the Market Price shall be determined as the market
value per Telmex ADS as of such date as determined by a nationally recognized
investment banking firm retained for such purpose by SBC. "Market Price of
Telmex L Shares" shall be determined in the same manner as Market Price pursuant
to the previous sentence, except that in computing average Closing Price, the
Closing Price per Telmex ADS for each Trading Day shall be divided by the number
of Telmex L Shares represented by one Telmex ADS on such Trading Day and market
value per Telmex L Share shall be used in the proviso instead of market value
per Telmex ADS.
All adjustments to the Exchange Rate will be calculated to the nearest
1/10,000th of a Telmex ADS (or if there is not a nearest 1/10,000th of a Telmex
ADS to the next lower 1/10,000th of a Telmex ADS). No adjustment in the Exchange
Rate shall be required unless such adjustment would require an increase or
decrease of at least one percent therein; provided, however, that any
adjustments which by reason of the foregoing are not required to be made shall
be carried forward and taken into account in any subsequent adjustment.
If an adjustment is made to the Exchange Rate pursuant to clauses (i),
(ii), (iii), (iv), (v) or (vi) above, an adjustment shall also be made to the
Maturity Price as such term is used to determine which of clauses (a), (b) or
(c) of the Exchange Rate definition will apply at Maturity. The required
adjustment to the Maturity Price shall be made at Maturity by multiplying the
original Maturity Price by the cumulative number or fraction determined pursuant
to the Exchange Rate adjustment procedure described above. In the case of a
stock dividend or distribution paid or made in, or the reclassification of any
Telmex L Shares into, any common stock of Telmex other than Telmex L Shares,
such common stock shall be deemed to be Telmex L Shares (and the Telmex ADSs to
be representing such Telmex L Shares) solely to determine the Maturity Price and
to apply the Exchange Rate at Maturity. Each such adjustment to the Exchange
Rate and the Maturity Price shall be made successively.
In the event of (i) any dividend or distribution by Telmex to all holders
of Telmex L Shares of evidences of its indebtedness or other assets (excluding
(1) dividends or distributions referred to in clause (i) of the first paragraph
under this caption "-- Dilution Adjustments; Other Adjustment Events," (2) any
common shares issued pursuant to a reclassification referred to in clause (iv)
of such paragraph and (3) Ordinary Cash Dividends (as defined below)) or any
issuance by Telmex to all holders of Telmex L Shares of rights or warrants
(other than rights or warrants referred to in clause(v) of the first
S-16
<PAGE> 17
paragraph under this caption "-- Dilution Adjustments; Other Adjustment
Events"), (ii) any consolidation or merger of Telmex with or into another entity
(other than a merger or consolidation in which Telmex is the continuing
corporation and in which the Telmex L Shares outstanding immediately prior to
the merger or consolidation are not exchanged for cash, securities or other
property of Telmex or another corporation), (iii) any sale, transfer, lease or
conveyance to another corporation of the property of Telmex as an entirety or
substantially as an entirety, (iv) any statutory exchange of securities of
Telmex with another corporation (other than in connection with a merger or
acquisition) or (v) any liquidation, dissolution or winding up of Telmex (any
such event, an "Adjustment Event"), each Holder of a DECS will receive at
Maturity, in lieu of or (in the case of an Adjustment Event described in clause
(i) above) in addition to, Telmex ADSs as described above, cash in an amount
equal to (A) if the Maturity Price is greater than or equal to the Threshold
Appreciation Price, multiplied by the Transaction Value (as defined
below), (B) if the Maturity Price is less than the Threshold Appreciation Price
but is greater than the Initial Price, the product of (x) the Initial Price
divided by the Maturity Price multiplied by (y) the Transaction Value and (C) if
the Maturity Price is less than or equal to the Initial Price, the Transaction
Value. Following an Adjustment Event, the Maturity Price, as such term is used
in this paragraph and throughout the definition of Exchange Rate, shall be
deemed to equal (A) the Maturity Price of the Telmex ADSs, as adjusted pursuant
to the method set forth in the preceding paragraph, plus (B) the Transaction
Value.
Notwithstanding the foregoing, with respect to any securities received in
an Adjustment Event that (A) are (i) listed on a United States national
securities exchange, (ii) reported on a United States national securities system
subject to last sale reporting, (iii) traded in the over-the-counter market and
reported on the National Quotation Bureau or similar organization or (iv) for
which bid and ask prices are available from at least three nationally recognized
investment banking firms and (B) are either (x) perpetual equity securities or
(y) non-perpetual equity or debt securities with a stated maturity after the
stated maturity of the DECS ("Reported Securities"), SBC may, at its option, in
lieu of delivering the amount of cash deliverable in respect of Reported
Securities received in an Adjustment Event, as determined in accordance with the
previous paragraph, deliver a number of such Reported Securities with a value
equal to such cash amount, as determined in accordance with clause (ii) of the
definition of Transaction Value, as applicable; provided, however, that (i) if
such option is exercised, SBC shall deliver Reported Securities in respect of
all, but not less than all, cash amounts that would otherwise be deliverable in
respect of Reported Securities received in an Adjustment Event, (ii) SBC may not
exercise such option if SBC has elected to deliver cash in lieu of Telmex ADSs,
if any, deliverable upon Maturity or if such Reported Securities have not yet
been delivered to the holders entitled thereto following such Adjustment Event
or any record date with respect thereto, and (iii) subject to clause (ii) of
this proviso, SBC must exercise such option if SBC does not elect to deliver
cash in lieu of Telmex ADSs, if any, deliverable upon Maturity. If SBC elects to
deliver Reported Securities, each holder of a DECS will be responsible for the
payment of any and all brokerage and other transaction costs upon the sale of
such Reported Securities. If, following any Adjustment Event, any Reported
Security ceases to qualify as a Reported Security, then (x) SBC may no longer
elect to deliver such Reported Security in lieu of an equivalent amount of cash
and (y) notwithstanding clause (ii) of the definition of Transaction Value, the
Transaction Value of such Reported Security shall mean the fair market value of
such Reported Security on the date such security ceases to qualify as a Reported
Security, as determined by a nationally recognized investment banking firm
retained for this purpose by SBC.
The amount of cash and/or the kind and amount of securities into which the
DECS shall be exchangeable after an Adjustment Event shall be subject to
adjustment following such Adjustment Event in the same manner and upon the
occurrence of the same type of events as described under this caption
"-- Dilution Adjustments; Other Adjustment Events" with respect to Telmex ADSs,
Telmex L Shares and Telmex.
For purposes of the foregoing, the term "Ordinary Cash Dividend" means,
with respect to any consecutive 365-day period, any dividend with respect to
Telmex L Shares paid in cash to the extent that the amount of such dividend,
together with the aggregate amount of all other dividends on Telmex L
S-17
<PAGE> 18
Shares paid in cash during such 365-day period, does not exceed on a per Telmex
ADS basis 10% of the average of the Closing Prices of Telmex ADSs over such
365-day period.
The term "Transaction Value" means (i) for any cash received in any
Adjustment Event, the amount of cash received per Telmex ADS, (ii) for any
Reported Securities received in any Adjustment Event, an amount equal to (x) the
average Closing Price per security of such Reported Securities for the 20
Trading Days immediately prior to Maturity multiplied by (y) the number of such
Reported Securities (as adjusted pursuant to the second preceding paragraph)
received for each Telmex ADS and (iii) for any property received in any
Adjustment Event other than cash or such Reported Securities, an amount equal to
the fair market value of the property received per Telmex ADS on the date such
property is received, as determined by a nationally recognized investment
banking firm retained for this purpose by SBC; provided, however, that in the
case of clause (ii), (x) with respect to securities that are Reported Securities
by virtue of only clause (A)(iv) of the definition of Reported Securities in the
third preceding paragraph, Transaction Value with respect to any such Reported
Security means the average of the mid-point of the last bid and ask prices for
such Reported Security as of Maturity from each of at least three nationally
recognized investment banking firms retained for such purpose by SBC multiplied
by the number of such Reported Securities (as adjusted pursuant to the method
set forth in the second preceding paragraph) received for each Telmex ADS and
(y) with respect to all other Reported Securities, if there are not 20 Trading
Days for the Telmex ADSs occurring later than the 60th calendar day immediately
prior to, but not including, the date of Maturity, Transaction Value with
respect to such Reported Security means the market value per security of such
Reported Security as of Maturity as determined by a nationally recognized
investment banking firm retained for such purpose by SBC multiplied by the
number of such Reported Securities (as adjusted pursuant to the method set forth
in the second preceding paragraph) received for each Telmex ADS. For purposes of
calculating the Transaction Value, any cash, Reported Securities or other
property receivable in any Adjustment Event shall be deemed to have been
received (i) immediately prior to the close of business on the record date for
such Adjustment Event or, if there is no record date for such Adjustment Event,
immediately prior to the close of business on the effective date of such
Adjustment Event and (ii) by holders of ADSs in proportion to the fraction of an
ADS representing one Telmex L Share, whether or not such holders actually
received or were entitled to receive such cash, Reported Securities or other
property pursuant to the terms of the Deposit Agreement under which the ADSs are
issued.
No adjustments will be made for certain other events, such as offerings of
Telmex L Shares or Telmex ADSs by Telmex for cash or in connection with
acquisitions.
SBC is required, within ten Business Days following the occurrence of an
event that requires an adjustment to the Exchange Rate or the occurrence of an
Adjustment Event (or, in either case, if SBC is not aware of such occurrence, as
soon as practicable after becoming so aware), to provide written notice to the
Trustee and to each holder of DECS of the occurrence of such event, including a
statement in reasonable detail setting forth the method by which the adjustment
to the Exchange Rate or change in the consideration to be received by holders of
DECS following the Adjustment Event was determined and setting forth the revised
Exchange Rate or consideration, as the case may be; provided, however, that in
respect of any adjustment to the Maturity Price, such notice will only disclose
the factor by which the Maturity Price is to be multiplied in order to determine
which clause of the Exchange Rate definition will apply at Maturity.
FRACTIONAL SHARES
No fractional Telmex ADSs or Reported Securities will be issued if SBC
exchanges the DECS for Telmex ADSs. If more than one DECS is surrendered for
exchange at one time by the same holder, the number of full Telmex ADSs or
Reported Securities which shall be delivered upon exchange, in whole or in part,
as the case may be, shall be computed on the basis of the aggregate number of
DECS so surrendered at Maturity. In lieu of any fractional Telmex ADSs or other
security otherwise issuable in respect of all DECS of any holder which are
exchanged at Maturity, such holder shall be entitled to
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<PAGE> 19
receive an amount in cash equal to the value of such fractional Telmex ADS or
security at the Maturity Price.
DELIVERY OF SECURITIES UPON MATURITY
All Telmex ADSs and Reported Securities deliverable to holders of the DECS
upon Maturity will be delivered to such holders, whenever practicable, in such
manner (such as by book-entry transfer) so as to assure same-day transfer of
such securities to such holders and otherwise in the manner customary at such
time for delivery of such securities and securities of the same type.
Notwithstanding the foregoing, it may not be possible under market practices
prevailing at the Maturity of the DECS to transfer Telmex ADSs and/or Reported
Securities so as to assure same-day transfer of such securities to holders of
the DECS. Accordingly, such holders of the DECS may receive all or a portion of
the Telmex ADSs and/or Reported Securities into which such DECS are exchangeable
after the date of Maturity.
REDEMPTION
The DECS are not subject to redemption prior to Maturity and do not contain
sinking fund or other mandatory redemption provisions. The DECS are not subject
to payment prior to the date of Maturity at the option of the holder.
BOOK-ENTRY SYSTEM
It is expected that the DECS will be issued in the form of one or more
global securities (the "Global Securities") deposited with The Depository Trust
Company ("DTC") and registered in the name of a nominee of DTC.
DTC has advised SBC and the Underwriter as follows: DTC is a
limited-purpose trust company organized under the laws of the State of New York,
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 Section 17A of the Exchange Act. DTC was created to hold
securities of persons who have accounts with DTC ("participants") and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of certificates. Such participants include securities brokers and dealers,
banks, trust companies and clearing corporations. Indirect access to DTC's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly.
Upon the issuance of a Global Security, DTC or its nominee will credit the
respective DECS represented by such Global Security to the accounts of
participants. The accounts to be credited shall be designated by the
Underwriter. Ownership of beneficial interests in such Global Securities will be
limited to participants or persons that may hold interests through participants.
See "Description of Debt Securities -- Book-Entry Securities" in the
accompanying Prospectus of SBC.
Payment of principal of and any interest on the DECS registered in the name
of or held by DTC or its nominee will be made to DTC or its nominee, as the case
may be, as the registered owner or the holder of the Global Security. None of
SBC, the Trustee, any Paying Agent or any securities registrar for the DECS 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 or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests. See "Description of Debt
Securities -- Book-Entry Securities" in the accompanying Prospectus of SBC.
S-19
<PAGE> 20
SAME-DAY FUNDS SETTLEMENT SYSTEM AND PAYMENT
Settlement for the DECS will be made by the Underwriter in immediately
available funds. All payments of principal and interest on the Global Securities
will be made by SBC in immediately available funds.
The DECS will trade in DTC's Same-Day Funds Settlement System until
Maturity, and secondary market trading activity in the DECS will therefore be
required by DTC to settle in immediately available funds. No assurance can be
given as to the effect, if any, of settlement in immediately available funds on
trading activity in the DECS.
REGARDING THE TRUSTEE
SBC maintains banking relationships in the ordinary course of business with
the Trustee. The Trustee is also the trustee under an indenture with SBC and SBC
Communications Capital Corporation and an indenture with the Telephone Company.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is based upon the advice of special tax counsel to
SBC, Skadden Arps Slate Meagher & Flom LLP, as to certain of the material U.S.
federal income tax consequences that may be relevant to a citizen or resident of
the United States, a corporation, partnership or other entity created or
organized under the laws of the United States and an estate or trust the income
of which is subject to U.S. federal income taxation regardless of its source
(any of the foregoing, a "U.S. person") who is the beneficial owner of a DECS (a
"U.S. Holder"). All references to "holders" (including U.S. Holders) are to
beneficial owners of the DECS. This summary is based on U.S. federal income tax
laws, regulations, rulings and decisions in effect as of the date of this
Prospectus Supplement, all of which are subject to change at any time (possibly
with retroactive effect). As the law is technical and complex, the discussion
below necessarily represents only a general summary.
This summary addresses the U.S. federal income tax consequences to holders
who are initial holders of the DECS, who purchase the DECS at par and who will
hold the DECS and, if applicable, the Telmex ADSs Shares as capital assets. This
summary does not address all aspects of federal income taxation that may be
relevant to a particular holder in light of his or its individual investment
circumstances or to certain types of holders subject to special treatment under
the U.S. federal income tax laws, such as dealers in securities or foreign
currency, financial institutions, insurance companies, tax-exempt organizations
and taxpayers holding the DECS as part of a "straddle," "hedge," "conversion
transaction," "synthetic security," or other integrated investment. Moreover,
the effect of any applicable state, local or foreign tax laws is not discussed.
No statutory, judicial or administrative authority directly addresses the
characterization of the DECS or instruments similar to the DECS for U.S. federal
income tax purposes. As a result, significant aspects of the U.S. federal income
tax consequences of an investment in the DECS are not certain. No ruling is
being requested from the Internal Revenue Service (the "IRS") with respect to
the DECS and no assurance can be given that the IRS will agree with the
conclusions expressed herein. ACCORDINGLY, A PROSPECTIVE INVESTOR (INCLUDING A
TAX-EXEMPT INVESTOR) IN THE DECS SHOULD CONSULT ITS TAX ADVISOR IN DETERMINING
THE TAX CONSEQUENCES OF AN INVESTMENT IN THE DECS, INCLUDING THE APPLICATION OF
STATE, LOCAL OR OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR
OTHER TAX LAWS.
Pursuant to the terms of the Indenture, the Company and every holder of a
DECS will be obligated (in the absence of an administrative determination or
judicial ruling to the contrary) to characterize a DECS for all tax purposes as
a forward purchase contract to purchase Telmex ADSs at Maturity (including as a
result of acceleration or otherwise), under the terms of which contract (a) at
the time of issuance of the DECS the holder deposits irrevocably with the
Company a fixed amount of cash equal to the purchase price of the DECS to assure
the fulfillment of the holder's purchase obligation described in
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<PAGE> 21
clause (c) below, which deposit will unconditionally and irrevocably be applied
at Maturity to satisfy such obligation, (b) until Maturity the Company will be
obligated to pay interest on such deposit at a rate equal to the stated rate of
interest on the DECS as compensation to the holder for the Company's use of such
cash deposit during the term of the DECS, and (c) at Maturity such cash deposit
unconditionally and irrevocably will be applied by the Company in full
satisfaction of the holder's obligation under the forward purchase contract, and
the Company will deliver to the holder the number of Telmex ADSs that the holder
is entitled to receive at that time pursuant to the terms of the DECS (subject
to the Company's right to deliver cash in lieu of the Telmex ADSs). (Prospective
investors should note that cash proceeds of this offering will not be segregated
by the Company during the term of the DECS, but instead will be commingled with
the Company's other assets and applied in a manner consistent with the "Use of
Proceeds" discussion above.) Consistent with the above characterization, (i)
amounts paid to the Company in respect of the original issue of a DECS will be
treated as allocable in their entirety to the amount of the cash deposit
attributable to such DECS, and (ii) amounts denominated as interest that are
payable with respect to the DECS will be characterized as interest payable on
the amount of such deposit, includible annually in the income of a U.S. Holder
as interest income in accordance with such holder's method of accounting.
Under the above characterization of the DECS, a holder's tax basis in a
DECS generally will equal the holder's cost for that DECS. Upon the sale or
other taxable disposition of a DECS, a U.S. Holder generally will recognize gain
or loss equal to the differences between the amount realized on the sale or
other taxable disposition and the U.S. Holder's tax basis in the DECS. Such gain
or loss generally will be long-term capital gain or loss if the U.S. Holder has
held the DECS for more than one year at the time of disposition.
Under the above characterization of the DECS, if the Company delivers
Telmex ADSs at Maturity, a U.S. Holder will recognize no gain or loss on the
purchase of the Telmex ADSs against application of the monies received by the
Company in respect of the DECS. A U.S. Holder will have a tax basis in such
stock equal to the U.S. Holder's tax basis in the DECS (less the portion of the
tax basis of the DECS allocable to any fractional share, as described in the
next sentence). A U.S. Holder will recognize gain or loss (which will be
short-term capital gain or loss) with respect to cash received in lieu of
fractional shares, in an amount equal to the difference between the cash
received and the portion of the basis of the DECS allocable to fractional shares
(based on the relative number of fractional shares and full shares delivered to
the holder). If at Maturity the Company pays the DECS in cash, a U.S. Holder
will recognize capital gain or loss equal to any difference between the amount
of cash received from the Company and the U.S. Holder's tax basis in the DECS at
that time. Such gain or loss generally will be long-term capital gain or loss if
the U.S. Holder has held the DECS for more than one year at Maturity.
Due to the absence of authority as to the proper characterization of the
DECS, no assurance can be given that the IRS will accept, or that a court will
uphold, the characterization and tax treatment described above. In particular,
the IRS could seek to analyze the federal income tax consequences of owning a
DECS under Treasury regulations promulgated in June 1996 governing contingent
payment debt instruments (the "Contingent Payment Regulations"). The Contingent
Payment Regulations apply to debt instruments issued on or after August 13,
1996. The Contingent Payment Regulations are complex, but very generally apply
the original issue discount rules of the Internal Revenue Code to a contingent
payment debt instrument by requiring that original issue discount be accrued
every year at a "comparable yield" for the issuer of the instrument, determined
at the time of issuance of the obligation. In addition, the Contingent Payment
Regulations require that a projected payment schedule, which results in such a
"comparable yield", be determined, and the adjustments to income accruals be
made to account for differences between actual payments and projected amounts.
To the extent that the comparable yield as so determined exceeds the interest
actually paid on a contingent debt instrument, the owner of that instrument will
recognize ordinary interest income in excess of the cash the owner receives. In
addition, any gain realized on the sale, exchange or redemption of a contingent
payment debt instrument will be treated as ordinary income. Any loss realized on
such sale, exchange or redemption will be treated as an ordinary loss to the
extent the holder's original issue discount inclusions with respect to the
obligation
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<PAGE> 22
exceed prior reversals of such inclusions required by the adjustment mechanism
described above. Any loss realized in excess of such amount generally will be
treated as a capital loss.
The Company believes that the Contingent Payment Regulations do not apply
to the DECS, because those Regulations apply only to debt instruments that
provide for contingent payments. The DECS are payable by the delivery of Telmex
ADSs (unless the Company exercises its option to deliver cash at Maturity) and
provide economic returns that are indexed to the performance of Telmex ADSs. The
DECS therefore offer no assurance that a holder's investment will be returned to
the holder at Maturity. Accordingly, the Company believes that the DECS properly
are characterized for tax purposes, not as debt instruments, but as forward
purchase contracts in respect of which holders have deposited a fixed amount of
cash with the Company, on which interest is payable at a fixed rate. If,
however, the IRS were successfully to maintain that the Contingent Payment
Regulations applied to the DECS, then, among other matters, (i) gain realized by
a holder on the sale or other taxable disposition of a DECS (including as a
result of payments made at Maturity) generally would be characterized as
ordinary income, rather than as short- or long-term capital gain (depending on
whether the DECS had been held for more than one year at the time of such
disposition), and (ii) a U.S. Holder would recognize ordinary income, or
ordinary or capital loss (as the case may be, under the rules summarized above)
on the receipt of Telmex ADSs, rather than capital gain or loss upon the
ultimate sale of such securities.
Even if the Contingent Payment Regulations do not apply to the DECS, it is
possible that the IRS could seek to characterize the DECS in a manner that
results in tax consequences to initial holders of the DECS different from those
reflected in the Indenture and described above. Under alternative
characterizations of the DECS, it is possible, for example, that a DECS could be
treated as including a forward contract and one or more options.
NON-UNITED STATES PERSONS
In the case of a holder of the DECS that is not a U.S. person, payments
made with respect to the DECS should not be subject to U.S. withholding tax,
provided that such holder complies with applicable certification requirements.
Any capital gain realized upon the sale or other disposition of the DECS by a
holder that is not a U.S. person will generally not be subject to U.S. federal
income tax if (i) such gain is not effectively connected with a U.S. trade or
business of such holder and (ii) in the case of an individual, such individual
is not present in the United States for 183 days or more in the taxable year of
the sale or other disposition and the gain is not attributable to a fixed place
of business maintained by such individual in the United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A holder of the DECS may be subject to information reporting and to backup
withholding at a rate of 31 percent of certain amounts paid to the holder unless
such holder provides proof of an applicable exemption or a correct taxpayer
identification number, and otherwise complies with applicable requirements of
the backup withholding rules. Any amounts withheld under the backup withholding
rules are not an additional tax and may be refunded or credited against the U.S.
Holder's U.S. federal income tax liability, provided the required information is
furnished to the IRS.
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<PAGE> 23
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among Salomon Brothers Inc (the "Underwriter"),
SBC and Telmex, SBC has agreed to sell to the Underwriter, and the Underwriter
has agreed to purchase, the aggregate number of DECS set forth below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF DECS
------------------------------------------------------------------------- ----------
<S> <C>
Salomon Brothers Inc..................................................... 9,000,000
=========
</TABLE>
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, that the obligations of the Underwriter
are subject to certain conditions precedent and that the Underwriter will be
obligated to purchase all of the DECS offered hereby if any DECS are purchased.
SBC has been advised by the Underwriter that it proposes to offer the DECS
directly to the public initially at the public offering price set forth on the
cover of this Prospectus Supplement and to certain dealers at such prices less a
concession not in excess of $. per DECS. The Underwriter may allow, and such
dealers may reallow, a concession not in excess of $. per DECS to other
dealers. After the initial public offering, such public offering price and such
concession and reallowance may be changed.
Telmex and SBC have agreed not to (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, or announce the offering of, any Telmex L
Shares, Telmex ADSs or any securities convertible into or exercisable or
exchangeable for Telmex L Shares or Telmex ADSs or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of Telmex L Shares or Telmex ADSs, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of Telmex L Shares or Telmex ADSs or such other securities, in cash or
otherwise, for a period of at least 90 days from the date of this Prospectus
Supplement without the prior written consent of the Underwriter; provided,
however, that Telmex may issue L Shares upon conversion of outstanding A Shares
and Telmex may sell L Shares pursuant to any employee stock option plan of
Telmex in effect on the date the Underwriting Agreement is executed. If any such
consent is given, it would not necessarily be preceded or followed by a public
announcement thereof.
SBC has granted to the Underwriter an option, exercisable for the 30-day
period after the date of this Prospectus Supplement, to purchase up to an
additional 1,000,000 DECS from SBC, at the same price per DECS as the initial
DECS to be purchased by the Underwriter. The Underwriter may exercise such
option only for the purpose of covering over-allotments, if any, incurred in
connection with the sale of DECS offered hereby.
The DECS will be a new issue of securities with no established trading
market. Application has been made to list the DECS on the NYSE, and the
Underwriter intends to make a market in the DECS, subject to applicable laws and
regulations. However, the Underwriter is not obligated to do so and any such
market-making may be discontinued at any time at the sole discretion of the
Underwriter without notice. Accordingly, no assurance can be given as to the
liquidity of such market.
During and after the offering of the DECS, the Underwriter and its
affiliates may engage in transactions that stabilize, maintain or otherwise
affect the market prices of the DECS, the L Shares, the ADSs or the Telmex A
Shares (or the American Depositary Shares representing such A Shares). Such
transactions may include stabilization transactions effect in accordance with
Rule 104 of Regulation M, pursuant to which such persons may bid for or purchase
DECS, L Shares, ADSs, or Telmex A Shares (or American Depositary Shares
representing such A Shares) for the purpose of stabilization of their market
prices. The Underwriter also may create a short position for its account by
selling more DECS than it is committed to purchase from SBC, and in such case
may purchase DECS in the open market following completion of the offering to
cover all or a portion of such short position. The Underwriter may also cover
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<PAGE> 24
all or a portion of such short position in the DECS, up to 1,000,000 DECS, by
exercising the Underwriter's over-allotment option referred to above. In
addition the Underwriter may impose "penalty bids" whereby it may reclaim from
dealers participating in the offering the selling concession with respect to the
DECS that are distributed in the offering but subsequently purchased for the
account of the Underwriter in the open market. Any of the transactions described
in this paragraph may result in the maintenance of the prices of the DECS, the L
Shares, the ADSs, or the Telmex A Shares (or the American Depositary Shares
representing such A Shares) at levels above those which might otherwise prevail
in the open market. These transactions may be effected on the New York Stock
Exchange, the Mexican Stock Exchange, in the over-the-counter market or
otherwise. None of the transactions described in this paragraph is required,
and, if they are undertaken, they may be discontinued at any time.
The Underwriting Agreement provides that SBC will indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act, or
contribute to payments the Underwriter may be required to make in respect
thereof.
In the ordinary course of their respective businesses, the Underwriter and
its affiliates have engaged in and may in the future engage in commercial and
investment banking transactions with Telmex, SBC and their respective
affiliates, for which customary compensation has been or may be received.
LEGAL OPINIONS
The validity of the DECS will be passed upon for SBC by Mr. James D. Ellis,
Senior Executive Vice President and General Counsel of SBC, and for the
Underwriter by Sullivan & Cromwell, New York, New York. As of December 31, 1996,
Mr. Ellis owned, and held options to purchase, less than 1% of the outstanding
shares of SBC Common Stock. Sullivan & Cromwell from time to time performs legal
services for SBC.
EXPERTS
The consolidated financial statements and schedules of SBC at December 31,
1996 and 1995, and for the years ended December 31, 1996, 1995 and 1994,
incorporated by reference in the accompanying prospectus of SBC, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports therein, which are incorporated herein by reference. Such consolidated
financial statements and financial statement schedules have been incorporated by
reference in reliance upon such reports given upon the authority of Ernst &
Young LLP as experts in accounting and auditing.
The consolidated financial statements of PAC as of December 31, 1996 and
1995 and for the years ended December 31, 1996, 1995 and 1994, incorporated by
reference in the accompanying prospectus of SBC, have been audited by Coopers &
Lybrand LLP, independent accountants. The financial statements audited by
Coopers & Lybrand LLP have been incorporated herein by reference in reliance
upon their report given upon their authority as experts in accounting and
auditing.
S-24
<PAGE> 25
PROSPECTUS
U.S. $3,000,000,000
SBC COMMUNICATIONS INC.
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
SOUTHWESTERN BELL CAPITAL CORPORATION
DEBT SECURITIES
SBC Communications Inc. (the "Corporation" or "SBC") may offer from time to
time, together or separately, (i) in one or more series, unsecured senior
debentures, notes or other obligations ("Debt Securities") of the Corporation,
any of which may be convertible or exchangeable into preferred stock, par value
$1.00 per share, of the Corporation ("Preferred Stock"), Depositary Shares (as
defined herein), common stock, par value $1.00 per share, of the Corporation
("Common Stock"), or equity securities of another issuer; (ii) Preferred Stock,
which may be convertible or exchangeable into other Preferred Stock (including
Depositary Shares), Common Stock or equity securities of another issuer; (iii)
Depositary Shares; and (iv) Common Stock. The Debt Securities, Common Stock,
Preferred Stock and Depositary Shares are collectively referred to herein as the
"Securities." The Corporation may issue Securities for proceeds up to an
aggregate of not more than U.S. $3,000,000,000 or the equivalent thereof in one
or more currencies or currency units on terms to be determined at the time such
Securities are offered for sale. As used herein, Securities shall include
securities denominated in U.S. dollars or, at the option of the Corporation and
if so specified in the applicable Prospectus Supplement, in any other currency,
including composite currencies such as the European Currency Unit. The Debt
Securities will be unsecured and will rank equally with all other unsubordinated
and unsecured indebtedness and certain other obligations of the Corporation.
When a particular series of Securities is offered, a prospectus supplement
("Prospectus Supplement") together with this Prospectus will be delivered
setting forth the terms of such Securities, including, where applicable, (i)
with regard to Debt Securities, the specific designation, aggregate principal
amount, currency or currencies in which the principal, premium, if any, and
interest are payable, denominations, maturity, rate or rates of any interest,
any index, price or formula to be used for determining the amount of any payment
of principal, premium, if any, or interest, any interest payment dates, whether
the Securities are issuable in registered form, in bearer form, or in the form
of one or more global securities or a combination thereof, any redemption
provisions, terms, if any, for conversion or exchange into other securities, any
listing on a securities exchange, the initial public offering price, methods of
distribution and any other specific terms in connection with the offering and
sale of such Securities; (ii) with regard to Preferred Stock, the specific
designation, number of shares, title, stated value and liquidation preference of
each share, dividend rate or method of calculation, dividend periods, dividend
payment dates, any redemption or sinking fund provision, any conversion or
exchange provisions, whether fractional interests in shares of Preferred Stock
will be offered through depositary arrangements, any listing on a securities
exchange, the initial public offering price, methods of distribution and any
other specific terms in connection with the offering and sale of such
Securities; (iii) with regard to Depositary Shares, the fraction of a share of
Preferred Stock which each such Depositary Share will represent; and (iv) with
regard to Common Stock, the number of shares offered, methods of distribution
and the initial public offering price. With regard to Debt Securities or
Preferred Stock that is convertible, exchangable or redeemable into or for the
securities of another issuer, the applicable Prospectus Supplement relating to
such Debt Securities or Preferred Stock will identify such other issuer (the
"Third Party"), the securities into which such Debt Securities or Preferred
Stock may be converted, or for which they may be exchanged or redeemed (the
"Third Party Securities") and, to the extent that the Third Party is subject to
the periodic reporting requirements of the Exchange Act, all documents filed by
the Third Party pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act since the end of the Third Party's last completed fiscal year, as well as
the document in which the description of the Third Party Securities is
contained.
Southwestern Bell Capital Corporation ("Capital"), a wholly owned subsidiary of
SBC, may also offer from time to time, together or separately, in one or more
series, Debt Securities of Capital. Any such Debt Securities may be issued in
such amounts and otherwise having any of the terms specified herein for Debt
Securities of the Corporation, except that Debt Securities of Capital will not
be convertible or exchangeable. Any Debt Securities issued by Capital will also
be entitled to the benefits of a Support Agreement of SBC as described herein
(the "Support Obligations"). Unless otherwise stated, the term "Securities" also
includes Debt Securities of Capital and related Support Obligations of SBC.
The Corporation's Common Stock is listed on the New York Stock Exchange, the
Chicago Stock Exchange and the Pacific Stock Exchange. Any Common Stock offered
will be listed, subject to notice of issuance, on such exchanges.
The Corporation or Capital may sell Securities to or through underwriters, and
may also sell Securities directly to other purchasers or through agents. If any
underwriters, dealers or agents are involved in the sale of Securities in
respect of which this Prospectus is being delivered, the names of such
underwriters, dealers or agents, any compensation to such underwriters, dealers
or agents will be set forth in the applicable Prospectus Supplement. See "Plan
of Distribution."
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.
The date of this Prospectus is June 6, 1995.
<PAGE> 26
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR THE PROSPECTUS SUPPLEMENT AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE CORPORATION SINCE THE DATE HEREOF OR THEREOF. THIS PROSPECTUS AND THE
PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN
ANY JURISDICTION 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.
------------------------
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934 ("Exchange Act") and in accordance therewith
files reports and other information with the Securities and Exchange Commission
("SEC"). Such reports and other information filed by the Corporation can be
inspected and copied at the public reference facilities of the SEC, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, as well as at the
following SEC Regional Offices: 7 World Trade Center, Suite 1300, New York, NY
10048; Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661-2511; and 5670 Wilshire Blvd., 11th Floor, Los Angeles, CA 90036-3648.
Copies can be obtained from the SEC by mail at prescribed rates. Requests should
be directed to the SEC's Public Reference Section, Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, DC 20549. Such material can also be
inspected at the New York Stock Exchange, 20 Broad Street, New York, NY 10005,
on which the Corporation's common stock is traded.
Capital has been advised by the SEC in a No-Action Letter that separate
financial information regarding Capital need not be included in any registration
statement on Form S-3 filed by Capital and the Corporation with respect to Debt
Securities issued by Capital and the Support Agreement. The SEC also stated in
such No-Action Letter that it will not raise any objection if Capital does not
file periodic reports pursuant to Sections 13 and 15(d) of the Exchange Act.
The Corporation and Capital have filed with the SEC a Registration
Statement on Form S-3 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended
("Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. For further information,
reference is made to the Registration Statement.
------------------------
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents have been filed by SBC with the SEC (File No.
1-8610) and are hereby incorporated herein by reference:
(1) SBC's Annual Report on Form 10-K for the year ended December 31,
1994; and
(2) SBC's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995.
ALL DOCUMENTS FILED BY SBC PURSUANT TO SECTION 13(A), 13(C), 14 OR 15(D) OF
THE EXCHANGE ACT SUBSEQUENT TO THE DATE OF THIS PROSPECTUS AND PRIOR TO THE
TERMINATION OF THE OFFERING OF THE SECURITIES SHALL BE DEEMED TO BE INCORPORATED
BY REFERENCE IN THIS PROSPECTUS AND TO BE PART HEREOF FROM THE DATE OF FILING OF
SUCH DOCUMENTS. ANY STATEMENT CONTAINED IN A DOCUMENT INCORPORATED OR DEEMED TO
BE INCORPORATED BY REFERENCE HEREIN SHALL BE DEEMED TO BE MODIFIED
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<PAGE> 27
OR SUPERSEDED FOR PURPOSES OF THIS PROSPECTUS TO THE EXTENT THAT A STATEMENT
CONTAINED HEREIN OR IN ANY OTHER SUBSEQUENTLY FILED DOCUMENT WHICH ALSO IS OR IS
DEEMED TO BE INCORPORATED BY REFERENCE HEREIN MODIFIES OR SUPERSEDES SUCH
STATEMENT. ANY SUCH STATEMENT SO MODIFIED OR SUPERSEDED SHALL NOT BE DEEMED,
EXCEPT AS SO MODIFIED OR SUPERSEDED, TO CONSTITUTE A PART OF THIS PROSPECTUS.
Copies of the above documents (other than exhibits to such documents) may
be obtained upon request without charge from SBC's Specialist -- External
Reporting, SBC Communications Inc., 175 E. Houston Street, San Antonio, Texas
78205-2233 (telephone number (210) 351-3049).
SBC COMMUNICATIONS INC.
The Corporation is a communications holding company whose subsidiaries are
engaged principally in communications services. The Corporation has several
subsidiaries, which include: Southwestern Bell Telephone Company ("Telephone
Company"), Southwestern Bell Mobile Systems, Inc. ("Mobile Systems"), SBC
International, Inc. ("SBC International"), Southwestern Bell Yellow Pages, Inc.
("Yellow Pages") and Southwestern Bell Telecommunications, Inc. ("Telecom"). The
Telephone Company provides telephone services in the states of Arkansas, Kansas,
Missouri, Oklahoma and Texas (five-state area) and is the Corporation's largest
subsidiary, accounting for approximately 65 percent of the Corporation's 1994
income before extraordinary loss and cumulative effect of changes in accounting
principles; Mobile Systems principally provides wireless communication services;
SBC International is a holding company owning interests in directory, cable
television and telecommunications businesses in Australia, Chile, France,
Israel, Mexico and the United Kingdom; Yellow Pages engages principally in the
sale of advertising for and publication of Yellow Pages and White Pages
directories and in other directory-related activities; and Telecom is engaged in
the sale of customer premises and private business exchange equipment.
The Corporation was incorporated under the laws of the State of Delaware in
1983 by AT&T as one of seven regional holding companies formed to hold AT&T's
local telephone companies. AT&T divested the Corporation by means of a spin-off
of stock to its shareowners on January 1, 1984 (the "divestiture"). The
divestiture was made pursuant to a consent decree, referred to as the
Modification of Final Judgment, issued by the United States District Court for
the District of Columbia.
Capital is a wholly owned finance subsidiary of the Corporation and was
incorporated in 1986 under the laws of the State of Delaware. Capital is engaged
principally in issuing debt securities and lending the proceeds to the
Corporation and to certain subsidiaries of the Corporation other than the
Telephone Company.
Capital and SBC have entered into a Support Agreement, dated as of November
10, 1986, in which SBC has agreed, among other things, to ensure the timely
payment of principal, premium, if any, and interest owed on any debt securities,
including Debt Securities, and certain other obligations issued by Capital
("Debt"), with the limitation that no Holder of Debt Securities issued by
Capital or other entity to which Capital Corporation owes any Debt will have
recourse to or against the stock or assets of the Telephone Company or any
interest of SBC or Capital in the Telephone Company. See "Description of Debt
Securities -- Support Obligations."
The principal office of Capital is located at 175 E. Houston Street, San
Antonio, Texas 78205-2233 (telephone number (210) 351-3888).
SBC's principal executive offices are located at 175 E. Houston Street, San
Antonio, Texas 78205-2233 (telephone number (210) 821-4105).
USE OF PROCEEDS
Unless otherwise specified in a Prospectus Supplement, the net proceeds
from the sale of the Securities by the Corporation or Capital are intended to be
used to provide funds in connection with the
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<PAGE> 28
repayment of long and short-term debt of Capital or the Corporation, if any, to
provide funds for the diversification of the Corporation's activities, to
provide funds for certain subsidiaries of the Corporation other than the
Telephone Company, and to provide funds for the general corporate purposes of
the Corporation.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of
SBC for the periods indicated. At December 31, 1994, no preferred stock was
outstanding.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
31 YEAR ENDED DECEMBER 31,
- ------------- ----------------------------------------
1995 1994 1994 1993 1992 1991 1990
- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
4.98 4.74 5.41 4.51 3.96 3.53 3.69
</TABLE>
For the purpose of calculating this ratio, earnings consist of income
before income taxes, extraordinary loss, cumulative effect of changes in
accounting principles, and fixed charges. Fixed charges include interest on
indebtedness and one-third of rental expense (the portion of rentals
representative of the interest factor).
DESCRIPTION OF DEBT SECURITIES
The following description of the Debt Securities sets forth certain general
terms and provisions of the Debt Securities of any series to which any
Prospectus Supplement may relate. The particular terms and provisions of the
series of Debt Securities offered by a Prospectus Supplement, and the extent to
which such general terms and provisions described below may apply thereto, will
be described in the Prospectus Supplement relating to such series of Debt
Securities.
The Debt Securities of the Corporation are to be issued under an Indenture
dated as of November 1, 1994 (the "SBC Indenture"), between the Corporation and
The Bank of New York, as trustee ("Trustee"). The Debt Securities of Capital are
to be issued under an Indenture dated as of February 1, 1987, as supplemented by
the First Supplemental Indenture, dated as of October 1, 1990, among Capital,
the Corporation, and the Trustee (together, the "Capital Indenture" and,
together with the SBC Indenture, the "Indentures"). Copies of the Indentures
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part. The following summaries of certain provisions of the Debt
Securities and the Indentures do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all provisions of the
Indentures, including the definitions therein of certain terms. Particular
sections of the Indentures which are relevant to the discussion are cited
parenthetically. Wherever particular sections or defined terms of the Indentures
are referred to, it is intended that such sections or defined terms shall be
incorporated herein by reference. "Principal" when used herein includes, when
appropriate, the premium, if any, on the Debt Securities.
GENERAL
The Indentures do not limit the amount of Debt Securities which may be
issued thereunder, and additional debt securities may be issued thereunder up to
the aggregate principal amount which may be authorized from time to time by, or
pursuant to, a resolution of the Board of Directors of the Corporation or
Capital, as the case may be. Reference is made to the Prospectus Supplement for
the following terms of the particular series of Debt Securities being offered
hereby: (i) the title of the Debt Securities of the series; (ii) if other than
U.S. dollars, the currency or currencies (which may include composite currencies
such as the European Currency Unit) of payment of principal of and interest on
the Debt Securities of the series; (iii) any limit upon the aggregate principal
amount of the Debt Securities of the series; (iv) the date or dates on which the
principal of the Debt Securities of the series is payable; (v) the rate or rates
(or manner of calculation thereof) at which the Debt Securities of the series
will bear interest, if any, the date or dates from which any such interest will
accrue and on which such interest will be payable, and,
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<PAGE> 29
with respect to Debt Securities of the series in registered form, the record
date for the interest payable on any interest payment date and the extent to
which, or the manner in which, any interest payable on a global security on an
interest payment date will be paid if other than in the manner described under
"Global Securities"; (vi) the place or places where the principal of and
interest on the Debt Securities of the series will be payable; (vii) any
redemption or sinking fund provisions; (viii) if in other than denominations of
$1,000 and any integral multiple thereof, the denominations in which Debt
Securities of the series shall be issuable; (ix) if other than the principal
amount thereof, the portion of the principal amount of Debt Securities of the
series which will be payable upon declaration of acceleration of the maturity
thereof; (x) whether the Debt Securities of the series will be issuable in
registered or bearer form or both, whether any such Debt Securities are to be
issuable initially in temporary global form and whether any such Debt Securities
are to be issuable in permanent global form with or without coupons and, if so,
whether beneficial owners of interests in any such permanent global Debt
Security may exchange such interests for Debt Securities of like tenor of any
authorized form and denomination and the circumstances under which any such
exchange may occur, any restrictions applicable to the offer, sale or delivery
of Debt Securities in bearer form ("bearer Debt Securities") and whether, and
the terms upon which, bearer Debt Securities will be exchangeable for Debt
Securities in registered form ("registered Debt Securities") and vice versa;
(xi) whether and under what circumstances the Corporation or Capital will pay
additional amounts on the Debt Securities of the series held by a person who is
not a U.S. person (as defined below) in respect of taxes or similar charges
withheld or deducted and, if so, whether the Corporation or Capital will have
the option to redeem such Debt Securities rather than pay such additional
amounts; (xii) any index, price or formula used to determine the amount of
payments of principal of, premium, if any, and interest on the Debt Securities
of the series; (xiii) in the case of Debt Securities of the Corporation, the
terms, if any, upon which the Debt Securities may be convertible into or
exchanged for Common Stock or Preferred Stock (which may be represented by
Depositary Shares) of the Corporation or for equity securities of another issuer
and the terms and conditions upon which such conversion or exchange will be
effected, including the initial conversion or exchange price or rate, the
conversion or exchange period and any other provision in addition to or in lieu
of those described herein; and (xiv) any additional provisions or other special
terms not inconsistent with the provisions of the Indentures, including any
terms which may be required by or advisable under United States laws or
regulations or advisable in connection with the marketing of Debt Securities of
such series. (Sections 2.01 and 2.02.)
Each series of Debt Securities will constitute unsecured and unsubordinated
indebtedness of the issuer thereof and will rank on a parity with the issuer's
other unsecured and unsubordinated indebtedness and, in the case of Debt
Securities of the Corporation, on a parity with the Support Obligations.
Debt Securities of any series may be issued as registered Debt Securities
or bearer Debt Securities or both, or in the form of one or more global
securities, as specified in the terms of the series. Unless otherwise indicated
in the Prospectus Supplement, Debt Securities will be issued in denominations of
U.S. $1,000 and integral multiples thereof. Bearer Debt Securities will be
offered, sold and delivered only outside the United States to non-U.S. persons
and to offices located outside the United States of certain U.S. financial
institutions. For purposes of this Prospectus, "United States" or "U.S." means
the United States of America, including the states and the District of Columbia,
its territories, its possessions and all other areas subject to its
jurisdiction. "U.S. person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or a political subdivision thereof, or an estate or
trust the income of which is subject to United States Federal income taxation
regardless of its source.
Particular restrictions on the offer, sale and delivery of bearer Debt
Securities and any special federal income tax considerations applicable to
bearer Debt Securities will be described in the Prospectus Supplement relating
thereto.
Except as set forth in an applicable Prospectus Supplement, interest on
bearer Debt Securities will be payable only upon presentation and surrender of
the coupons for the interest installments evidenced thereby as they mature at a
paying agency of the Corporation located outside of the United States.
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<PAGE> 30
(Section 2.05(c).) The Corporation or Capital will maintain such an agency for a
period of two years after the principal of such bearer Debt Securities has
become due and payable. During any period thereafter for which it is necessary
in order to conform to United States tax law or regulations, the Corporation or
Capital will maintain a paying agent outside the United States to which the
bearer Debt Securities may be presented for payment and will provide the
necessary funds therefor to such paying agent upon reasonable notice. (Section
2.04.) No payment with respect to any bearer Debt Securities will be made at any
office or agency in the United States or by check mailed in or to an address in
the United States or by transfer to an account maintained with a bank located in
the United States. Notwithstanding the foregoing, payments on bearer Debt
Securities denominated and payable in U.S. dollars will be made in the United
States if (but only if) payment of the full amount thereof in U.S. dollars at
each office of each paying agent outside the United States appointed and
maintained by the Corporation is illegal or effectively precluded by exchange
controls or other similar restrictions. (Section 2.05.)
Registration of transfer of registered Debt Securities may be requested
upon surrender thereof at an agency of the Corporation or Capital maintained for
such purpose ("Registrar") and upon fulfillment of all other requirements of
such Registrar. (Section 2.08(a).) Bearer Debt Securities and the coupons
related thereto will be transferable by delivery. (Section 2.08(e).)
Debt Securities may be issued under the Indentures as Original Issue
Discount Securities to be offered and sold at a substantial discount from the
principal amount thereof. Special federal income tax, accounting and other
considerations applicable thereto will be described in the Prospectus Supplement
relating to such Original Issue Discount Securities. "Original Issue Discount
Security" means any Debt Security which provides for an amount less than the
stated principal amount thereof to be due and payable upon declaration of
acceleration of the maturity thereof upon the occurrence of an event of default
and the continuation thereof. (Section 1.01.)
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of and any premium and interest on registered Debt Securities
(other than a global security) will be made at the office of such paying agent
or paying agents as the Corporation or Capital may designate from time to time,
except that, at the option of the Corporation or Capital, payment of any
interest may be made (i) by check mailed to the address of the payee entitled
thereto or (ii) by wire transfer to an account maintained by such payee. Unless
otherwise indicated in an applicable Prospectus Supplement, payment of any
installment of interest on registered Debt Securities will be made to the person
in whose name such registered Debt Security is registered at the close of
business on the record date for such interest payment.
If the purchase price of any of the Debt Securities is denominated in other
than U.S. dollars or if the principal of and any premium and interest on any
series of Debt Securities is payable in other than U.S. dollars, then the
restrictions, elections, general tax considerations, specific terms and other
information with respect to such issue of Debt Securities and such currency or
currencies will be set forth in the applicable Prospectus Supplement.
BOOK-ENTRY SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities that will be deposited with or on behalf
of a Depository (the "Depository") identified in the Prospectus Supplement
relating to such series. The specific terms of the Depository arrangement with
respect to any Debt Securities of a series will be described in the Prospectus
Supplement relating to such series. The Corporation and Capital each anticipates
that the following provisions will apply to all Depository arrangements for
registered Debt Securities issued by it.
Unless otherwise specified in an applicable Prospectus Supplement, Debt
Securities which 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 issuance of a global
security in registered form, the Depository of such global security will credit,
on its book-entry registration
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<PAGE> 31
and transfer system, the respective principal amounts of the 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 shall be designated by the underwriters or agents of such Debt
Securities, or by the Corporation or Capital if such Debt Securities are offered
and sold directly by the Corporation or Capital. Ownership of beneficial
interests in a global security will be limited to participants or persons that
may hold interests through participants. Ownership of beneficial interests in
such global securities will be shown on, and the transfer of that ownership will
be effected only through records maintained by the Depository (with respect to
participants' interests) or its nominee for such global security or by
participants or persons that hold through participants. The laws of some
jurisdictions require that certain purchasers of Debt Securities take physical
delivery of such securities in definitive form. Such laws may impair the ability
to transfer beneficial interests in a global security.
So long as the Depository for a global security in registered form, 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 Debt Securities represented by such global security for all purposes under
the Indentures. Except as set forth below, owners of beneficial interests in
such global securities will not be entitled to have 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 Debt Securities of such
series in definitive form and will not be considered the owners or holders
thereof under the Indentures.
Principal, premium, if any, and interest payments on Debt Securities
registered in the name of or held by a Depository or its nominee will be made to
the Depository or its nominee, as the case may be, as the registered owner or
the holder of the global security representing such Debt Securities. Neither the
Corporation, Capital, the Trustee, or any paying agent for such Debt Securities
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 Debt Securities or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests. The Corporation and
Capital each expects that the Depository for Debt Securities of a series, upon
receipt of any payments of principal, premium, if any, or interest in respect of
a global security, will credit immediately the accounts of the related
participants with payments in amounts proportionate to their respective
beneficial interests in the principal amount of such global security as shown on
the records of such Depository. The Corporation and Capital each also expects
that payments by participants to owners of beneficial interests in such global
security held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such participants.
Unless and until it is exchanged in whole or in part for Debt Securities in
definitive form in accordance with the terms of the Debt Securities, a global
security may not be transferred except as a whole by the Depository for such
global security to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository or by such
Depository or any such nominee to a successor of such Depository or a nominee of
such successor Depository. If a Depository for Debt Securities notifies the
Corporation or Capital that it is unwilling or unable to continue as depository
for such global security or if at any time such Depository ceases to be a
clearing agency registered under the Exchange Act, and a successor Depository is
not appointed by the Corporation or Capital within 90 days, the Corporation or
Capital will issue Debt Securities in definitive registered form in exchange for
the global security representing such Debt Securities. In addition, the
Corporation or Capital may at any time and in its sole discretion determine not
to have any Debt Securities in registered form represented by one or more global
securities and, in such event, will issue Debt Securities in definitive
registered form in exchange for all global securities representing such Debt
Securities. Further, if an event of default, or an event which, with the giving
of notice or lapse of time, or both, would constitute an event of default, under
the Indentures occurs and is continuing with respect to the Debt Securities of a
series, or if the Corporation or Capital so specifies with respect to the Debt
Securities of a series, the Depository may exchange a global security
representing Debt Securities of such series for Debt Securities of such series
in definitive registered form. In any such instance, an owner of a beneficial
interest in a global security will
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<PAGE> 32
be entitled to physical delivery in definitive form of Debt Securities of the
series represented by such global security equal in principal amount to such
beneficial interest and to have such Debt Securities registered in its name.
EXCHANGE OF SECURITIES
Registered Debt Securities in definitive form may be exchanged for an equal
aggregate principal amount of registered Debt Securities of the same series and
date of maturity in such authorized denominations as may be requested upon
surrender of the registered Debt Securities to the Registrar and upon
fulfillment of all other requirements of such Registrar. (Section 2.08(a).)
To the extent permitted by the terms of a series of Debt Securities
authorized to be issued in registered form and bearer form, bearer Debt
Securities in definitive form may be exchanged for an equal aggregate principal
amount of registered or bearer Debt Securities of the same series and date of
maturity in such authorized denominations as may be requested upon surrender of
the bearer Debt Securities with all unpaid coupons relating thereto (except as
may otherwise be provided in the Debt Securities) to the Registrar (or a paying
agent if the exchange is for bearer securities) and upon fulfillment of all
other requirements of the Registrar (or such paying agent). (Section 2.08(b).)
Registered Debt Securities may not be exchanged for bearer Debt Securities.
LIENS ON ASSETS
The Indentures do not restrict the Corporation or Capital from pledging or
otherwise encumbering any of its assets, including, in the case of the
Corporation, the stock of the Telephone Company and its right to dividends paid
thereon.
SUCCESSOR ENTITY
Neither the Corporation nor, if it issues the Debt Securities, Capital may
consolidate with or merge into, or be merged into, or transfer or lease its
property and assets substantially as an entirety to, another entity unless the
successor entity is a U.S. corporation, in the case of the Corporation, and
assumes all the obligations of the Corporation under the Debt Securities and any
coupons related thereto or the Support Obligation, as the case may be, and the
relevant Indenture and, in the case of Capital, assumes all the obligations of
Capital under the Debt Securities and any coupons related thereto, and the
Capital Indenture. Thereafter, except in the case of a lease, all such
obligations of the Corporation under the Debt Securities or the Support
Obligations, as the case may be, and such Indenture, and of Capital under the
Debt Securities and the Capital Indenture shall terminate. (Sections 5.01 and
5.02.)
EVENTS OF DEFAULT
The following events are defined in the Indentures as "Events of Default"
with respect to a series of Debt Securities: (i) default in the payment of
interest on any Debt Security of such series when the same becomes due and
payable and continues for 90 days; (ii) default in the payment of the principal
of any Debt Security of such series when the same becomes due and payable at
maturity, upon redemption, or otherwise; (iii) failure by the Corporation or, in
the case of Debt Securities issued by Capital, failure by Capital for 90 days
after notice to it to comply with any of its other agreements in the Debt
Securities of such series, in the related Indenture, in any supplemental
indenture under which the Debt Securities of that series may have been issued
(other than covenants relating only to other series); and (iv) certain events of
bankruptcy or insolvency of the Corporation or, in the case of Debt Securities
issued by Capital, of Capital. (Section 6.01.) If an Event of Default occurs
with respect to the Debt Securities of any series and is continuing, the Trustee
or the Holders of at least 25 percent in principal amount of all of the
outstanding Debt Securities of that series may declare the principal (or, if the
Debt Securities of that series are Original Issue Discount Securities, such
portion of the principal amount as may be specified in the terms of that series)
of, and any accrued interest on, all the Debt Securities of that series to be
due and payable. Upon such declaration, such principal (or, in the case of
Original Issue Discount Securities,
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<PAGE> 33
such specified amount) and any accrued interest will become due and payable
immediately. (Section 6.02.)
Debt Securityholders may not enforce the Debt Securities or related
Indenture, except as provided in such Indenture. (Section 6.06.) The Trustee may
require indemnity satisfactory to it before it enforces the Debt Securities or
related Indenture. (Section 7.07.) Subject to certain limitations, holders of a
majority in principal amount of the Debt Securities of each series affected may
direct the Trustee in its exercise of any trust power with respect to Debt
Securities of that series. (Section 6.05.) The Trustee may withhold from Debt
Securityholders notice of any continuing default (except a default in payment of
principal, premium, if any, or interest) if it determines that withholding
notice is in their interests. (Section 7.05.)
Nothing contained in this section should be construed so as to limit the
rights of Debt Securityholders under the Trust Indenture Act of 1939, as
amended.
AMENDMENT AND WAIVER
Subject to certain exceptions, the SBC Indenture or the Debt Securities
issued thereunder may be amended or supplemented by the Corporation and the
Trustee, and the Capital Indenture or the Debt Securities issued thereunder may
be amended by Capital, the Corporation or the Trustee, in each case with the
written consent of the Holders of a majority in principal amount of the
outstanding Debt Securities of each series affected by the amendment or
supplement (with each such series voting as a class), or compliance with any
provision may be waived with the consent of the Holders of a majority in
principal amount of the outstanding Debt Securities of each series affected by
such waiver (with each such series voting as a class). However, without the
consent of each Debt Securityholder affected, an amendment or waiver may not (i)
reduce the amount of Debt Securities whose holders must consent to an amendment
or waiver; (ii) reduce the rate of or change the time for payment of interest on
any Debt Security; (iii) reduce the principal of, or change the fixed maturity
of, any Debt Security; (iv) waive a default in the payment of the principal of
or interest on any Debt Security; (v) make any Debt Security payable in currency
other than that stated in the Debt Security; or (vi) impair the right to
institute suit for the enforcement of any payment on or with respect to any Debt
Securities. (Section 9.02.)
Either Indenture may be amended or supplemented without the consent of any
holder of Debt Securities issued thereunder (i) to cure any ambiguity, defect or
inconsistency in such Indenture or in such Debt Securities of any series; (ii)
to provide for the assumption of all the obligations of the Corporation under
the Debt Securities and any coupons related thereto or under the Support
Obligations, as the case may be, and the related Indenture and, in the case of
the Capital Indenture, the obligations of Capital under the Debt Securities and
any coupons related thereto and the Capital Indenture in connection with a
merger, consolidation or transfer or lease of the Corporation's or Capital's
property and assets substantially as an entirety as provided for in such
Indenture; (iii) to provide for the issuance of, and establish the form, terms
and conditions of, a series of Debt Securities or to establish the form of any
certifications required to be furnished pursuant to the terms of such Indenture
for any series of Debt Securities; (iv) to secure the Debt Securities pursuant
to Section 4.02 of such Indenture; (v) to provide for uncertificated Debt
Securities in addition to or in place of certificated Debt Securities; (vi) to
add to rights of Debt Securityholders or surrender any right or power conferred
on the Corporation or Capital; or (vii) to make any change that does not
adversely affect the rights of any Debt Securityholder. (Section 9.01.)
CONVERTIBLE AND EXCHANGEABLE DEBT SECURITIES
Certain Debt Securities issued by the Corporation (the "Convertible Debt
Securities") may be convertible into Preferred Stock (including Depositary
Shares) or Common Stock of the Corporation and certain Debt Securities issued by
the Corporation ("Exchangeable Debt Securities") may be exchangeable for equity
securities of another issuer. The holders of Convertible Debt Securities of a
specified series may be entitled or, if so provided in the applicable Prospectus
Supplement, may be required at such time
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or times specified in the applicable Prospectus Supplement, subject to prior
redemption, repayment or repurchase, to convert any Convertible Debt Securities
of such series (in denominations set forth in the applicable Prospectus
Supplement) into Preferred Stock, Depositary Shares or Common Stock, as the case
may be (collectively, the foregoing securities into which the Convertible Debt
Securities may convert are referred to herein as "Conversion Securities") at the
conversion price set forth in the applicable Prospectus Supplement, subject to
adjustment as described below, and in the applicable Prospectus Supplement. The
holders of Exchangeable Debt Securities of a specified series may be entitled
or, if so provided in the applicable Prospectus Supplement, may be required at
such time or times specified in the applicable Prospectus Supplement, subject to
prior redemption, repayment or repurchase, to exchange any Exchangeable Debt
Securities of such series (in denominations set forth in the applicable
Prospectus Supplement) for specified equity securities of another issuer
described in the Prospectus Supplement (collectively, the foregoing securities
for which the Exchangeable Debt Securities may be exchanged are referred to
herein as "Exchange Securities") at the exchange price set forth in the
applicable Prospectus Supplement, subject to adjustment as described below, and
in the applicable Prospectus Supplement. The relevant provisions for each series
of Convertible or Exchangeable Debt Securities will be set forth in the
applicable Prospectus Supplement. Except as described below or in the applicable
Prospectus Supplement, no adjustment will be made upon conversion of any
Convertible Debt Securities or exchange of any Exchangeable Debt Securities for
interest accrued thereon or for dividends on any Conversion or Exchange
Securities issued or delivered. If any Convertible or Exchangeable Debt
Securities not called for redemption are converted or exchanged between a
Regular Record Date for the payment of interest and the next succeeding Interest
Payment Date, such Convertible or Exchangeable Debt Securities must be
accompanied by funds equal to the interest payable on such succeeding Interest
Payment Date on the principal amount so converted or exchanged. The Corporation
is not required to issue fractional shares of Preferred Stock, Depositary Shares
or Common Stock upon conversion of Convertible Debt Securities or deliver
fractional shares of Exchange Securities upon exchange of Exchangeable
Securities, respectively, and, in lieu thereof, will pay a cash adjustment, in
the case of Convertible Debt Securities convertible into Preferred Stock or
Depositary Shares, based upon the liquidation preference of such series of
Preferred Stock, in the case of Convertible Debt Securities convertible into
Common Stock, based upon the market value of the Common Stock, and in the case
of Exchangeable Debt Securities, based upon the market value of the Exchange
Securities, unless otherwise specified in the Prospectus Supplement.
The conversion price for a series of Convertible Debt Securities that are
convertible into Common Stock and the exchange price for Exchangeable Debt
Securities are subject to adjustment upon the occurrence of certain events under
formulas that will be set forth in the applicable Prospectus Supplement.
In the event of a taxable distribution to holders of Common Stock or
Preferred Stock or Exchange Securities (or other transaction) which results in
any adjustment of the conversion price of Convertible Debt Securities or the
exchange price of Exchangeable Debt Securities, the holders of such Convertible
or Exchangeable Debt Securities may, in certain circumstances, be deemed to have
received a distribution subject to United States Federal income tax as a
dividend; in certain other circumstances, the absence of such an adjustment may
result in a taxable dividend to the holders of Common Stock or Preferred Stock
or Exchange Securities acquired upon conversion or exchange of such Convertible
or Exchangeable Debt Securities.
SUPPORT OBLIGATIONS
Any Debt Securities issued by Capital will be entitled to the benefits of
the Support Agreement (the "Support Agreement"), dated as of November 10, 1986,
between Capital and the Corporation. The Support Agreement provides that (a) SBC
will own all outstanding voting capital stock of Capital throughout the term of
the Support Agreement, (b) SBC will cause Capital to maintain a positive
tangible net worth as determined in accordance with generally accepted
accounting principles, and (c) if Capital is unable to make timely payment of
principal of, or premium, if any, or interest on any Debt, SBC will, at
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Capital's request, provide funds to Capital to make such payments. The Support
Agreement also provides that any Lender (as defined below) to Capital shall have
the right to demand that Capital enforce its rights against SBC under the
Support Agreement as described in the previous sentence and in the event that
Capital fails to require SBC to perform such obligations or Capital defaults in
the payment of principal of or premium, if any, or interest on any Debt owed to
a Lender, such Lender may proceed directly against SBC to enforce Capital's
rights against SBC under the Support Agreement or to obtain payment of such
defaulted principal, premium, if any, or interest owed to such Lender. The
Support Agreement provides that in no event may any Lender, on default of
Capital or SBC or upon failure by Capital or SBC to comply with the Support
Agreement, have recourse to or against the stock or assets of the Telephone
Company or any interest of SBC or Capital in the Telephone Company. Despite this
limitation, the Support Agreement provides that funds available to SBC to
satisfy any obligations under the Support Agreement will include dividends paid
by the Telephone Company to SBC. See "Ratio of Earnings to Fixed Charges." The
term "Lender" is defined in the Support Agreement as any person, firm or
corporation to which Capital is indebted for money borrowed or to which Capital
otherwise owes any Debt or which is acting as trustee or authorized
representative on behalf of such person, firm or corporation. Lender includes
the Holder of any Debt Securities issued by Capital and the Trustee acting on
such Holder's behalf.
The Support Agreement may be amended or terminated at any time by agreement
of SBC and Capital, but no amendment shall be entered into which adversely
affects the rights of creditors of Capital (Including Holders of Debt Securities
issued by Capital) and no termination shall be effective until such time as all
Debt (including the Debt Securities issued by Capital) outstanding on the date
of such amendment or termination shall have been paid in full unless all such
creditors shall have consented to such amendment or termination.
CONCERNING THE TRUSTEE
The Corporation and Capital maintain banking relationships in the ordinary
course of business with the Trustee. The Trustee is also the trustee under an
indenture with the Telephone Company which may from time to time represent a
significant portion of the Corporation's consolidated long-term debt.
DESCRIPTION OF PREFERRED STOCK
The summary of terms of the Preferred Stock contained in this Prospectus
does not purport to be complete and is subject to, and qualified in its entirety
by, the provisions of the Corporation's Restated Certificate of Incorporation
and Bylaws and the certificate of designations relating to each series of the
Preferred Stock (the "Certificate of Designations"), which will be filed as an
exhibit to or incorporated by reference in the Registration Statement of which
this Prospectus is a part at or prior to the time of issuance of such series of
the Preferred Stock.
SBC's Restated Certificate of Incorporation currently authorizes the
issuance of 10,000,000 preferred shares, par value $1.00 per share, issuable in
series (the "Preferred Stock"). SBC's Board of Directors is authorized to
approve the issuance of one or more series of Preferred Stock and to fix the
number of shares, the designations, the relative rights and the limitations of
any such series without further authorization of the stockholders of the
Corporation. At May 1, 1995, no shares of Preferred Stock were outstanding, but
the Corporation has designated 4,000,000 shares of Preferred Stock as Series A
Junior Participating Preferred Stock issuable pursuant to a Rights Agreement
(the "Rights Agreement"). See "Description of Rights" and "Description of Series
A Preferred Stock."
Each series of the Preferred Stock shall have the dividend, liquidation,
redemption and voting rights provided in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the following terms of the
series of Preferred Stock in respect of which this Prospectus is being
delivered: (i) the designation and stated value per share of such Preferred
Stock and the number of shares offered; (ii) the amount of liquidation
preference per share; (iii) the initial public offering price at which such
Preferred Stock will be issued; (iv) the dividend rate (or method of
calculation), the dates on which
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dividends shall be payable and the dates from which dividends shall commence to
cumulate, if any; (v) any redemption or sinking fund provisions; (vi) any
conversion or exchange rights; (vii) whether the Corporation has elected to
offer Depositary Shares as described below under "Description of Depositary
Shares"; and (viii) any additional voting, dividend, liquidation, redemption,
sinking fund and other rights, preferences, privileges, limitations and
restrictions.
The holders of Preferred Stock will have no preemptive rights. Preferred
Stock, upon issuance against full payment of the purchase price therefor, will
be fully paid and nonassessable. Neither the par value nor the liquidation
preference is indicative of the price at which the Preferred Stock will actually
trade on or after the date of issuance. The applicable Prospectus Supplement
will contain a description of certain United States Federal income tax
consequences relating to the purchase and ownership of the series of Preferred
Stock offered by such Prospectus Supplement.
As described under "Description of Depositary Shares," the Corporation may,
at its option, elect to offer depositary shares ("Depositary Shares") evidenced
by depositary receipts ("Depositary Receipts"), each representing a fractional
interest (to be specified in the Prospectus Supplement relating to the
particular series of the Preferred Stock) in a share of the particular series of
the Preferred Stock issued and deposited with a Depositary (as defined below).
The transfer agent for each series of Preferred Stock will be described in
the applicable Prospectus Supplement.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Corporation may, at its option, elect to offer fractional shares of
Preferred Stock, rather than full shares of Preferred Stock. In the event such
option is exercised, the Corporation will issue to the public receipts for
Depositary Shares, each of which will represent a fraction (to be set forth in
the Prospectus Supplement relating to a particular series of Preferred Stock) of
a share of a particular series of Preferred Stock as described below.
The shares of any series of Preferred Stock represented by Depositary
Shares will be deposited under a Deposit Agreement (the "Deposit Agreement")
between the Corporation and a bank or trust company selected by the Corporation
having its principal office in the United States and having a combined capital
and surplus of at least $50,000,000 (the "Depositary"). Subject to the terms of
the Deposit Agreement, each owner of a Depositary Share will be entitled, in
proportion to the applicable fraction of a share of Preferred Stock represented
by such Depositary Share, to all the rights and preferences of the Preferred
Stock represented thereby (including dividend, voting, redemption, conversion
and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the Deposit Agreement. Depositary Receipts will be distributed to
those persons purchasing the fractional shares of Preferred Stock in accordance
with the terms of the offering. Copies of the forms of Deposit Agreement and
Depositary Receipts will be filed as exhibits to, or incorporated by reference
in, the Registration Statement of which this Prospectus is a part, and the
following summary is qualified in its entirety by reference to such exhibits.
Pending the preparation of definitive engraved Depositary Receipts, the
Depositary may, upon the written order of the Corporation, issue temporary
Depositary Receipts substantially identical to (and entitling the holders
thereof to all the rights pertaining to) the definitive Depositary Receipts but
not in definitive form. Definitive Depositary Receipts will be prepared
thereafter without unreasonable delay, and temporary Depositary Receipts will be
exchangeable for definitive Depositary Receipts at the Corporation's expense.
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Upon surrender of Depositary Receipts at the principal office of the
Depositary (unless the related Depositary Shares have previously been called for
redemption), the owner of the Depositary Shares evidenced thereby is entitled to
delivery at such office, to or upon his order, of the number of whole shares of
Preferred Stock and any money or other property represented by such Depositary
Shares. Partial shares of Preferred Stock will not be issued. If the Depositary
Receipts delivered by the holder evidence a number of Depositary Shares in
excess of the number of Depositary Shares representing a number of whole shares
of Preferred Stock to be withdrawn, the Depositary will deliver to such holder
at the same time a new Depositary Receipt evidencing such excess number of
Depositary Shares. Holders of shares of Preferred Stock thus withdrawn will not
thereafter be entitled to deposit such shares under the Deposit Agreement or to
receive Depositary Shares therefor. The Corporation does not expect that there
will be any public trading market for withdrawn shares of Preferred Stock.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute all cash dividends or other cash
distributions received in respect of the Preferred Stock to the record holders
of Depositary Shares relating to such Preferred Stock in proportion to the
numbers of such Depositary Shares owned by such holders. The Depositary shall
distribute only such amount, however, as can be distributed without attributing
to any holder of Depositary Shares a fraction of one cent and any balance not so
distributed shall be added to and treated as part of the next sum received by
the Depositary for distribution to record holders of Depositary Shares.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares
entitled thereto, unless the Depositary determines that it is not feasible to
make such distribution, in which case the Depositary may, with the approval of
the Corporation, sell such property and distribute the net proceeds from such
sale to such holders.
REDEMPTION OF DEPOSITARY SHARES
If a series of Preferred Stock represented by Depositary Shares is subject
to redemption, the Depositary Shares will be redeemed from the proceeds received
by the Depositary resulting from the redemption, in whole or in part, of such
series of Preferred Stock held by the Depositary. The Depositary shall mail
notice of redemption not less than 30 nor more than 60 days prior to the date
fixed for redemption to the record holders of the Depositary Shares to be so
redeemed at their respective addresses appearing in the Depositary's books. The
redemption price per Depositary Share will be equal to the applicable fraction
of the redemption price per share payable with respect to such series of the
Preferred Stock. Whenever the Corporation redeems shares of Preferred Stock held
by the Depositary, the Depositary will redeem as of the same redemption date the
number of Depositary Shares representing shares of Preferred Stock so redeemed.
If less than all the Depositary Shares are to be redeemed, the Depositary Shares
to be redeemed will be selected by lot or pro rata as may be determined by the
Depositary.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Shares will cease, except the right to receive the
monies payable upon such redemption and any money or other property to which the
holders of such Depositary Shares were entitled upon such redemption upon
surrender to the Depositary of the Depositary Receipts evidencing such
Depositary Shares.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the Preferred
Stock are entitled to vote, the Depositary will mail the information contained
in such notice of meeting to the record holders of the Depositary Shares
relating to such Preferred Stock. Each record holder of such Depositary Shares
on the record date (which will be the same date as the record date for the
Preferred Stock) will be entitled to instruct the Depositary as to the exercise
of the voting rights pertaining to the amount of the Preferred Stock represented
by such holder's Depositary Shares. The Depositary will endeavor, insofar as
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practicable, to vote the amount of the Preferred Stock represented by such
Depositary Shares in accordance with such instructions, and the Corporation will
agree to take all action which may be deemed necessary by the Depositary in
order to enable the Depositary to do so. The Depositary will abstain from voting
shares of the Preferred Stock to the extent it does not receive specific
instructions from the holders of the Depositary Shares representing such
Preferred Stock.
CONVERSION OR EXCHANGE
Whenever the Corporation converts all of the shares of a particular series
of Preferred Stock held by the Depositary into other Preferred Stock or Common
Stock or exchanges all such shares for securities of another issuer, the
Depositary will convert or exchange as of the same date all Depositary Shares
representing the shares of the Preferred Stock so converted or exchanged,
provided that the Corporation shall have deposited with the Depositary the other
Preferred Stock, Common Stock or other securities into or for which all such
shares of Preferred Stock are to be converted or exchanged. The exchange rate
per Depositary Share shall be equal to the exchange rate per share of Preferred
Stock multiplied by the fraction of a share of Preferred Stock represented by
one Depositary Share, plus all money and other property, if any, represented by
such Depositary Shares, including all amounts paid by the Corporation in respect
of dividends which on the exchange date have accrued on the shares of Preferred
Stock to be so converted or exchanged and have not theretofore been paid.
The Depositary Shares, as such, are not convertible or exchangeable into
other Preferred Stock, Common Stock, securities of another issuer or any other
securities or property of the Corporation. Nevertheless, if so specified in the
applicable Prospectus Supplement, the Depositary Receipts may be surrendered by
holders thereof to the Depositary with written instructions to the Depositary to
instruct the Corporation to cause conversion of the Preferred Stock represented
by the Depositary Shares evidenced by such receipts into other shares of
Preferred Stock or Common Stock of the Corporation or exchange of such Preferred
Stock for securities of another issuer, as the case may be, and the Corporation
has agreed that upon receipt of such instructions and any amounts payable in
respect thereof, it will cause the conversion or exchange thereof utilizing the
same procedures as those provided for delivery of Preferred Stock to effect such
conversion or exchange. If the Depositary Shares represented by a Depositary
Receipt are to be converted in part only, a new Depositary Receipt or Receipts
will be issued for any Depositary Shares not to be converted or exchanged.
TAXATION
Owners of the Depositary Shares will be treated for Federal income tax
purposes as if they were owners of the series of Preferred Stock represented by
such Depositary Shares and, accordingly, will be entitled to take into account
for Federal income tax purposes income and deductions to which they would be
entitled if they were holders of such series of Preferred Stock. In addition,
(i) no gain or loss will be recognized for Federal income tax purposes upon the
withdrawal of Preferred Stock in exchange for Depositary Shares as provided in
the Deposit Agreement, (ii) the tax basis of each share of Preferred Stock to an
exchanging owner of Depositary Shares will, upon such exchange, be the same as
the aggregate tax basis of the Depositary Shares exchanged therefor and (iii)
the holding period for shares of the Preferred Stock in the hands of an
exchanging owner of Depositary Shares who held such Depositary Shares as a
capital asset at the time of the exchange thereof for Preferred Stock will
include the period during which such person owned such Depositary Shares.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time be amended by agreement
between the Corporation and the Depositary. However, any amendment which
materially and adversely alters the rights of the holders of Depositary Shares
will not be effective unless such amendment has been approved by the holders of
at least a majority of the Depositary Shares then outstanding. The Deposit
Agreement may be terminated by the Corporation or the Depositary only if (i) all
outstanding Depositary Shares have been redeemed or
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(ii) there has been a final distribution in respect of the Preferred Stock in
connection with any liquidation, dissolution or winding up of the Corporation
and such distribution has been distributed to the holders of Depositary
Receipts.
CHARGES OF DEPOSITARY
The Corporation will pay all transfer and other taxes and governmental
charges arising solely from the existence of the depositary arrangements. The
Corporation will pay charges of the Depositary in connection with the initial
deposit of the Preferred Stock and any redemption of the Preferred Stock.
Holders of Depositary Receipts will pay other transfer and other taxes and
governmental charges and such other charges as are expressly provided in the
Deposit Agreement to be for their accounts.
MISCELLANEOUS
The Depositary will forward to the holders of Depositary Shares all reports
and communications from the Corporation which are delivered to the Depositary
and which the Corporation is required to furnish to the holders of the Preferred
Stock.
Neither the Depositary nor the Corporation will be liable if it is
prevented or delayed by law or any circumstance beyond its control in performing
its obligations under the Deposit Agreement. The obligations of the Corporation
and the Depositary under the Deposit Agreement will be limited to performance in
good faith of their duties thereunder and they will not be obligated to
prosecute or defend any legal proceeding in respect of any Depositary Shares or
Preferred Stock unless satisfactory indemnity is furnished. They may rely upon
written advice of counsel or accountants, or information provided by persons
presenting Preferred Stock for deposit, holders of Depositary Receipts or other
persons believed to be competent and on documents believed to be genuine.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Depositary may resign at any time by delivering to the Corporation
notice of its election to do so, and the Corporation may at any time remove the
Depositary, any such resignation or removal to take effect upon the appointment
of a successor Depositary and its acceptance of such appointment. Such successor
Depositary must be appointed within 60 days after delivery of the notice of
resignation or removal and must be a bank or trust company having its principal
office in the United States and having a combined capital and surplus of at
least $50,000,000.
DESCRIPTION OF COMMON STOCK
SBC's Restated Certificate of Incorporation currently authorizes the
issuance of 1,100,000,000 shares of Common Stock. As of April 28, 1995, there
were outstanding 607,746,811 shares of Common Stock (as well as 303,873,405.5
Rights to Purchase Series A Preferred Stock pursuant to the Rights Agreement)
(each as defined below). See "Description of Rights."
The Common Stock is listed on the NYSE, the Chicago Stock Exchange and the
Pacific Stock Exchange under the symbol "SBC".
The holders of Common Stock are entitled to participate equally in
dividends when and as such dividends are declared by the SBC Board of Directors
out of funds legally available therefor.
The holders of Common Stock are entitled to one vote for each share held on
all matters voted on by stockholders, including election of directors. The
holders of Common Stock do not have any conversion, redemption, preemptive or
cumulative voting rights. In the event of the dissolution, liquidation or
winding up of SBC, holders of Common Stock are entitled to share ratably in any
assets remaining after the satisfaction in full of the prior rights of
creditors, including holders of SBC's indebtedness, and the aggregate
liquidation preference of any Preferred Stock then outstanding.
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All outstanding shares of Common Stock are, and any shares of Common Stock
offered hereby upon issuance will be, fully paid and nonassessable.
The Bylaws of the Corporation provide that the Board of Directors shall be
divided into three classes each consisting of an equal, or as nearly equal as
possible, number of Directors. The terms of each class will expire in succeeding
years. It will, therefore, require elections in three consecutive years to
reelect or to replace the entire Board of Directors. The Bylaws of the
Corporation also provide that certain business combinations must be approved by
an affirmative vote of the holders of two-thirds of the then outstanding shares
of capital stock of the Corporation entitled to vote generally in the election
of directors (the "Voting Stock"). A "business combination" subject to this vote
of approval is defined to include certain mergers or consolidations; certain
sales, leases, exchanges, or mortgages of property in excess of $10,000,000 fair
market value; any plan or proposal for liquidation or dissolution of the
Corporation, and certain reclassifications of securities or recapitalization of
the Corporation to which a stockholder beneficially owning more than ten percent
of the voting stock (an "Interested Stockholder") or any affiliate of an
Interested Stockholder is a party. The two-thirds vote of approval is not
required if the business combination is approved by a majority of Directors not
affiliated with any Interested Stockholder or if the consideration received by
the other stockholders upon the consummation of the business combination
reflects a fair value (which is determined by formulae set forth in the Bylaws)
for their interest in the Corporation and certain other requirements are met,
including maintenance of dividends during the business combination and the
furnishing of information to the stockholders of the Corporation.
The Restated Certificate of Incorporation of the Corporation requires a
two-thirds affirmative vote of the shareholders to amend any Bylaw which
provides for the maximum number of Directors on the Board, for a classified
Board with staggered items of office or for approval by the shareholders or by
the Board of Directors of any business combination. The Restated Certificate of
Incorporation also requires that shareholders representing at least two-thirds
of the total number of shares of the Corporation must sign a written consent of
any action without a meeting of the shareholders. Reference is hereby made to
the Restated Certificate of Incorporation and the Bylaws of the Corporation
which are incorporated by reference as exhibits to the Registration Statement of
which this Prospectus is a part.
The provisions described in the foregoing two paragraphs, as well as the
provisions of the Rights Agreement described under "Description of Rights"
below, may tend to defer any potential unfriendly tender offers or other efforts
to obtain control of the Corporation. On the other hand, these provisions will
tend to assure continuity of management and corporate policies and tend to
induce any persons seeking control of the Corporation or a business combination
with the Corporation to negotiate on terms acceptable to the then elected Board
of Directors of the Corporation.
The transfer agent for the Common Stock is The Bank of New York, Church
Street Station, P.O. Box 11272, New York, New York 10277-0123.
DESCRIPTION OF RIGHTS
THE RIGHTS AGREEMENT
The information set forth below summarizes certain of the provisions of the
Rights Agreement incorporated by reference as an exhibit to the Registration
Statement of which this Prospectus is a part. Such information is qualified in
its entirety by reference to such exhibit. See "Available Information."
On January 27, 1989, the Board of Directors of SBC declared a dividend
distribution of one right (a "Right") for each outstanding share of Common Stock
to shareholders of record at the close of business on February 16, 1989. After
giving effect to a stock split in May 1993, effected in the form of a stock
dividend, each share of Common Stock also represents one-half of a Right. Each
Right entitles the registered holder to purchase from SBC a unit consisting of
one one-hundredth of a share (a "Unit") of Series A Junior Participating
Preferred Stock, par value $1.00 per share (the "Series A Preferred Stock"), at
a purchase price of $160 per Unit, subject to adjustment (the "Purchase Price").
The
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description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between SBC and The Bank of New York, as successor Rights
Agent.
Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate certificate representing
the Rights (the "Rights Certificates") will be distributed. The Rights will
separate from the Common Stock and a distribution date (the "Distribution Date")
will occur upon the earliest of any of the following events:
(A) 10 business days following a public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person") has
acquired, or obtained the right to acquire (the "Stock Acquisition Date"),
beneficial ownership of 20% or more of the shares of Common Stock then
outstanding;
(B) 10 business days following the commencement of a tender offer or
exchange offer that would result in a person or group beneficially owning
20% or more of such outstanding shares of Common Stock;
(C) 10 days after the Board of Directors of SBC determines that any
person, alone or together with its affiliates and associates, has become
the beneficial owner of an amount of Common Stock which the SBC Board of
Directors determines to be substantial (which amount shall in no event be
less than 10% of the shares of Common Stock outstanding) and at least a
majority of the independent directors, after reasonable inquiry and
investigation, including consultation with such persons as such directors
shall deem appropriate, determines that (i) beneficial ownership by such
person is intended to cause SBC to repurchase the Common Stock beneficially
owned by such person or to cause pressure on SBC to take action or enter
into a transaction or series of transactions intended to provide such
person with short-term financial gain under circumstances where the SBC
Board of Directors determines that the best long-term interests of SBC and
its shareowners would not be served by taking such action or entering into
such transactions or series of transactions at that time or (ii) beneficial
ownership by such person is causing or reasonably likely to cause a
material adverse impact (including, but not limited to, impairment of
relationships with customers or regulators or impairment of SBC's ability
to maintain its competitive position) on the business or prospects of SBC
(any such person being referred to herein and in the Rights Agreement as an
"Adverse Person").
Until the Distribution Date, (i) the Rights will be evidenced by the Common
Stock certificates and will be transferred with and only with such Common Stock
certificates, (ii) new Common Stock certificates issued after February 16, 1989
will contain a notation incorporating the Rights Agreement by reference and
(iii) the surrender for transfer of any certificates for Common Stock
outstanding will also constitute the transfer of the Rights associated with the
Common Stock represented by such certificate. Pursuant to the Rights Agreement,
SBC reserves the right to require that, upon any exercise of Rights, a number of
Rights be exercised so that only whole shares of Preferred Stock will be issued.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on January 27, 1999, unless they are earlier redeemed
by SBC or expire in accordance with other provisions of the Rights Agreement as
described below.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of the Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as otherwise determined by
the SBC Board of Directors, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.
In the event that, at any time following the Distribution Date, (i) a
Person becomes the beneficial owner (except pursuant to a Flip-Over Event, as
described below, or an offer for all outstanding shares of Common Stock which
the independent directors determine to be fair to and otherwise in the best
interests of SBC and its shareowners) of more than 20% of the then outstanding
shares of Common Stock, or (ii) a Person becomes an Adverse Person, each holder
of a Right will thereafter have the right
17
<PAGE> 42
to receive, upon exercise, Series A Preferred Stock (or, in certain
circumstances, cash, property or other securities of SBC) having a value equal
to two times the Purchase Price of the Right. Notwithstanding any of the
foregoing, following the occurrence of any of the events set forth in this
paragraph ("Flip-In Events"), all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person or an Adverse Person will be null and void. However, Rights are
not exercisable following the occurrence of either of the Flip-In Events set
forth above until such time as the Rights are no longer redeemable by SBC as set
forth below.
For example, at a Purchase Price of $160 per Right, each Right not owned by
an Acquiring Person or by an Adverse Person (or by certain related parties)
following Flip-In Events set forth in the preceding paragraph would entitle its
holder to purchase $320 worth of Common Stock (or other consideration, as noted
above) for $160. Assuming that the Common Stock had a per share value of $40 at
such time, the holder of each valid Right would be entitled to purchase 8 shares
of Common Stock for $160.
Following the occurrence of any of the Flip-In Events set forth above,
subject to applicable law, the SBC Board of Directors may determine to exchange
for any or all Rights (other than Rights held by the Acquiring Person or Adverse
Person and certain transferees) Common Stock with a value equal to the Right's
Purchase Price or substitute value in the form of cash, property, debt or equity
securities, or any combination of the foregoing. Such exchange shall be on a pro
rata basis if less than all Rights are to be exchanged, and holders of Rights
pay no consideration (other than delivery of the Right) in such exchange.
In the event that, at any time following the Stock Acquisition Date, (i)
SBC is acquired in a merger or other business combination transaction in which
SBC is not the surviving corporation (other than certain mergers following a
fair offer described in the third preceding paragraph), or (ii) more than 50% of
SBC's assets, cash flow or earning power is sold or transferred (events (i) and
(ii) are referred to as "Flip-Over Events" and together with Flip-In Events, the
"Triggering Events") each holder of a Right which has not yet been exercised
(except Rights which previously have been voided as set forth above) shall
thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the Purchase Price of the
Right.
The Purchase Price payable, and the number of Units of Series A Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Series A Preferred Stock, (ii) if holders of the Series A Preferred Stock are
granted certain rights or warrants to subscribe for Series A Preferred Stock or
convertible securities at less than the current market price of Series A
Preferred Stock, or (iii) upon the distribution to holders of the Series A
Preferred Stock of evidence of indebtedness or assets (excluding regular
quarterly cash dividends) or of subscription rights or warrants (other than
those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment in
cash will be made based on the market price of the Series A Preferred Stock on
the last trading date prior to the date of exercise.
In general, at any time until 10 business days following the Stock
Acquisition Date, or such later date as the SBC Board of Directors may
designate, SBC may redeem the Rights in whole, but not in part, at a price of
$.05 per Right (payable in cash, Common Stock or other consideration deemed
appropriate by the SBC Board of Directors). Under certain circumstances set
forth in the Rights Agreement, the decision to redeem the Rights shall require
the concurrence of a majority of the Continuing Directors. Immediately upon the
action of the SBC Board of Directors ordering redemption of the Rights (with,
where required, the concurrence of the Continuing Directors) the Rights will
terminate and the only right of the holders of Rights will be to receive the
$.05 redemption price.
The term "Continuing Directors" means any member of the Board of Directors
of SBC who was a member of the Board prior to the date of the Rights Agreement,
and any person who is subsequently
18
<PAGE> 43
elected to the Board if such person is recommended or approved by a majority of
the Continuing Directors, but shall not include an Acquiring Person, Adverse
Person or an affiliate or associate of an Acquiring Person or Adverse Person, or
any representative of the foregoing entities.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareowner of SBC, including, without limitation, the right to vote
or to receive dividends. While the distribution of the Rights will not be
taxable to shareowners or to SBC, shareowners may, depending upon the
circumstances, recognize taxable income in the event that the Rights become
exercisable for Series A Preferred Stock (or for other consideration) or for
common stock of the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by the SBC
Board of Directors prior to the Distribution Date. After the Distribution Date,
the provisions of the Rights Agreement may be amended by the Board (in certain
circumstances, with the concurrence of the Continuing Directors) in order to
cure any ambiguity, to make changes which do not adversely affect the interests
of holders of Rights (excluding the interests of any Acquiring Person or Adverse
Person), or to shorten or lengthen any time period under the Rights Agreement.
DESCRIPTION OF SERIES A PREFERRED STOCK
The information set forth below summarizes certain of the provisions of the
Series A Junior Participating Preferred Stock (the "Series A Preferred Stock")
of the Corporation. Such information is qualified in its entirety by reference
to the terms of the Series A Preferred Stock set forth in the Corporation's
Restated Certificate of Incorporation, which has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
In connection with the Rights Agreement, the Board of Directors of the
Corporation has authorized the issuance of up to 4,000,000 shares of Series A
Preferred Stock. See "Rights Agreement." Upon issuance, each share of Series A
Preferred Stock is entitled to quarterly cash dividends equal to the greater of
$5 or 200 times (subject to antidilution adjustments for stock dividends and
stock splits) the aggregate value of all dividends or other distributions
declared on the Common Stock (other than distributions of Common Stock) since
the last quarterly dividend payment date. The Series A Preferred Stock is not
redeemable by the Corporation.
Each share of Series A Preferred Stock is entitled to 200 votes (subject to
antidilution adjustments) on all matters submitted to a vote of the shareholders
of the Corporation, voting together as one class with the Common Stock. In
addition, if at any time dividends in an amount equal to six quarterly dividend
payments shall have accrued and be unpaid, the Board of Directors shall be
increased by two directors and holders of the Series A Preferred Stock shall
have the right to elect two members to the Board of Directors until dividends on
the Series A Preferred Stock have been declared and paid or set apart for
payment. Except as required by applicable law, holders of Series A Preferred
Stock have no other special voting rights. Whenever dividends or distributions
on the Series A Preferred Stock are in arrears, the Corporation is prohibited
from declaring or paying dividends or distributions on, and the Corporation and
any subsidiary are prohibited from redeeming or acquiring for value, any stock
ranking junior as to dividends or upon liquidation. During any such arrearage,
the Corporation may declare or pay dividends on stock ranking on a parity with
the Series A Preferred Stock as to dividends or upon liquidation only if
declared or paid ratably with the Series A Preferred Stock. During any such
arrearage, the Corporation and any subsidiary are prohibited from redeeming or
acquiring for value any such parity stock or any Series A Preferred Stock,
except pursuant to an exchange of parity stock for stock ranking junior to the
Series A Preferred Stock or pursuant to a purchase offer to the Series A
Preferred Stock and holders of parity stock on terms the Board of Directors
determines to be fair and equitable.
The Series A Preferred Stock ranks junior to all other series of the
Corporation's preferred stock as to the payment of dividends and the
distribution of assets, unless the terms of any such series shall provide
otherwise.
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<PAGE> 44
Upon any liquidation, dissolution or winding up of the Corporation, the
Series A Preferred Stock is entitled to a liquidation preference of $100 per
share plus any accrued but unpaid dividends, subject to the prior rights of any
series of preferred stock ranking in liquidation senior to the Series A
Preferred Stock. In the event of any shortfall in the assets available for
distribution, any such liquidating distribution shall be made ratably to the
Series A Preferred Stock and any other series of preferred stock ranking on a
parity in proportion to their relative liquidation preferences. Following such
payment, no additional liquidating distributions may be made on the Series A
Preferred Stock until each share of Common Stock shall have received $0.50
(subject to antidilution adjustments). Thereafter, any remaining assets shall be
distributed to each share of Series A Preferred Stock and each share of Common
Stock in the ratio of 200 to 1 (subject to antidilution adjustments).
PLAN OF DISTRIBUTION
GENERAL
The Corporation or Capital may sell the Securities being offered hereby:
(i) directly to purchasers, (ii) through agents, (iii) through dealers, (iv)
through underwriters, or (v) through a combination of any such methods of sale.
The distribution of the Securities may be effected from time to time in one
or more transactions either (i) at a fixed price or prices, which may be
changed, (ii) at market prices prevailing at the time of sale, (iii) at prices
related to such prevailing market prices, or (iv) at negotiated prices.
Offers to purchase Securities may be solicited directly by the Corporation
or Capital or by agents designated by the Corporation or Capital from time to
time. Any such agent, which may be deemed to be an underwriter as that term is
defined in the Securities Act, involved in the offer or sale of the Securities
in respect of which this Prospectus is delivered will be named, and any
commissions payable by the Corporation or Capital to such agent will be set
forth in the Prospectus Supplement relating to the offering of such Securities.
Unless otherwise indicated in the applicable Prospectus Supplement, any such
agent will be acting on a best efforts basis for the period of its appointment.
If a dealer is utilized in the sale of the Securities in respect of which
this Prospectus is delivered, the Corporation or Capital will sell such
Securities to the dealer, as principal. The dealer, which may be deemed to be an
underwriter as that term is defined in the Securities Act, may then resell such
Securities to the public at varying prices to be determined by such dealer at
the time of resale.
If an underwriter or underwriters are utilized in the sale, the Corporation
or Capital will execute an underwriting agreement with such underwriters at the
time of sale to them and the names of the underwriters will be set forth in the
applicable Prospectus Supplement, which will be used by the underwriters to make
resales of the Securities in respect of which this Prospectus is delivered to
the public.
In the event of an offering of Debt Securities or Preferred Stock that is
convertible, redeemable or exchangeable into or for Third Party Securities, the
Prospectus Supplement relating to such offering will identify the Third Party,
the Third Party Securities and, to the extent the Third Party is subject to the
periodic reporting requirements of the Exchange Act, all documents filed by the
Third Party pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
since the end of the Third Party's last completed fiscal year, as well as the
document in which the description of the Third Party Securities is contained.
Underwriters, dealers, agents and other persons may be entitled, under
agreements which may be entered into with the Corporation or Capital, to
indemnification against certain civil liabilities, including liabilities under
the Securities Act.
20
<PAGE> 45
DELAYED DELIVERY ARRANGEMENTS
If so indicated in the Prospectus Supplement, the Corporation or Capital
will authorize underwriters, dealers or other persons acting as agents of the
Corporation or Capital to solicit offers by certain institutions to purchase
Securities from the Corporation or Capital pursuant to contracts providing for
payment and delivery on a future date or dates. Institutions with which such
contracts may be made include commercial and savings banks, insurance companies,
pension funds, investment companies, educational and charitable institutions and
others, but in all cases such institutions must be approved by the Corporation
or Capital. The obligations of any purchaser under any such contract will not be
subject to any conditions except that (a) the purchase of the Securities shall
not at the time of delivery be prohibited under the laws of the jurisdiction to
which such purchaser is subject, and (b) if the Securities are also being sold
to underwriters, the Corporation or Capital shall have sold to such underwriters
the Securities not sold for delayed delivery. The underwriters, dealers and such
other persons will not have any responsibility in respect of the validity or
performance of such contracts.
LEGAL OPINIONS
The validity of the Securities of the Corporation offered hereby and of the
Support Agreement will be passed upon for the Corporation by Mr. James D. Ellis,
Senior Executive Vice President and General Counsel of the Corporation, and for
any underwriters, dealers or agents by Sullivan & Cromwell, New York, New York.
The validity of the Debt Securities of Capital offered hereby and of the Support
Agreement will be passed upon for Capital by Mr. Wayne Wirtz, Secretary of
Capital and its counsel, and for any underwriters, dealers or agents by Sullivan
& Cromwell, New York, New York. As of April 1, 1995, Mr. Ellis owned 49,409
shares of SBC Common Stock and options to purchase 131,387 shares of SBC Common
Stock, and Mr. Wirtz owned 2,415 shares of SBC Common Stock and options to
purchase 18,913 shares of SBC Common Stock. Sullivan & Cromwell from time to
time performs legal services for SBC.
EXPERTS
The consolidated financial statements and financial statement schedules
included or incorporated by reference in SBC's Annual Report on Form 10-K for
the year ended December 31, 1994, and incorporated by reference in this
prospectus and registration statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports included and incorporated by
reference in SBC's Annual Report on Form 10-K. Such consolidated financial
statements and financial statement schedules have been incorporated by reference
in reliance upon such reports given upon the authority of Ernst & Young LLP as
experts in accounting and auditing.
21
<PAGE> 46
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED
HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY SBC OR ANY UNDERWRITER. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF SBC SINCE THE DATES AS OF WHICH INFORMATION IS
GIVEN IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION 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 ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary................................ S-3
Risk Factors for DECS.................. S-6
SBC Communications Inc................. S-8
Telmex................................. S-8
Relationship Between SBC and Telmex.... S-9
Price Range of Telmex ADSs and L
Shares............................... S-9
Dividends.............................. S-10
Use of Proceeds........................ S-10
Ratio of Earnings to Fixed Charges..... S-11
Selected Historical and Pro Forma
Financial Data of SBC................ S-11
Description of the DECS................ S-12
Certain United States Federal Income
Tax Considerations................... S-20
Plan of Distribution................... S-23
Legal Opinions......................... S-24
Experts................................ S-24
PROSPECTUS
Available Information.................. 2
Incorporation of Documents by
Reference............................ 2
SBC Communications Inc................. 3
Use of Proceeds........................ 3
Ratio of Earnings to Fixed Charges..... 4
Description of Debt Securities......... 4
Description of Preferred Stock......... 11
Description of Depositary Shares....... 12
Description of Common Stock............ 15
Description of Rights.................. 16
Plan of Distribution................... 20
Legal Opinions......................... 21
Experts................................ 21
</TABLE>
9,000,000 DECS(SM)
(DEBT EXCHANGEABLE FOR
COMMON STOCK(SM))
SBC COMMUNICATIONS INC.
% EXCHANGEABLE NOTES
DUE MARCH 15, 2001
LOGO
- --------------------------------------------------
SALOMON BROTHERS INC
- ---------------------------------------------------------------
PROSPECTUS SUPPLEMENT
DATED MARCH , 1997
