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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SBC Communications Inc.
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined.):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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SBC COMMUNICATIONS INC.
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Notice of 1998
Annual Meeting
and
Proxy Statement
[SBC LOGO]
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NOTICE OF ANNUAL MEETING OF SHAREOWNERS
TO BE HELD ON APRIL 24, 1998
TO THE HOLDERS OF COMMON STOCK OF SBC COMMUNICATIONS INC.:
The 1998 Annual Meeting of Shareowners of SBC Communications Inc. ("SBC" or the
"Company"), a Delaware corporation, will be held at 9:00 a.m. on Friday, April
24, 1998, at the Alzafar Shrine Temple, 901 North Loop 1604 West, San Antonio,
Texas. The purposes of the meeting are to:
1. Elect six Directors to serve three-year terms;
2. Ratify the appointment of Ernst & Young LLP as independent auditor of SBC for
1998;
3. Approve an amendment to the Restated Certificate of Incorporation to increase
the number of authorized shares of common stock;
4. Act upon certain proposals of shareowners; and
5. Act upon such other matters as may properly come before the meeting.
Holders of SBC common stock of record at the close of business on February 23,
1998, are entitled to vote at the meeting and any adjournment of the meeting. A
list of these shareowners will be available for inspection during business hours
from April 9 through April 23, 1998, at 175 E. Houston, San Antonio, Texas, and
will also be available at the Annual Meeting.
By Order of the Board of Directors
/s/ JUDITH M. SAHM
Judith M. Sahm
Vice President and Secretary
March 11, 1998
IMPORTANT NOTICE
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IF YOU DO NOT PLAN TO ATTEND THE ANNUAL MEETING TO VOTE YOUR SHARES, PLEASE
COMPLETE, DATE, SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY CARD IN THE RETURN
ENVELOPE PROVIDED. NO POSTAGE IS NECESSARY IF IT IS MAILED IN THE UNITED STATES.
SHAREHOLDERS OF RECORD MAY ALSO GIVE THEIR PROXY BY TELEPHONE IN ACCORDANCE WITH
THE INSTRUCTIONS ACCOMPANYING THE PROXY CARD. ANY PERSON GIVING A PROXY HAS THE
POWER TO REVOKE IT AT ANY TIME, AND SHAREOWNERS WHO ARE PRESENT AT THE MEETING
MAY WITHDRAW THEIR PROXIES AND VOTE IN PERSON.
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PROXY STATEMENT
SBC COMMUNICATIONS INC.
175 E. HOUSTON
SAN ANTONIO, TEXAS 78205
ANNUAL MEETING OF SHAREOWNERS
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This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of SBC Communications Inc. for use at the 1998 Annual
Meeting of Shareowners of SBC. The meeting will be held at 9:00 a.m. on Friday,
April 24, 1998, at the Alzafar Shrine Temple, 901 North Loop 1604 West, San
Antonio, Texas. The purposes of the meeting are set forth in the Notice of
Annual Meeting of Shareowners. This Proxy Statement and the accompanying proxy
card are being mailed beginning March 11, 1998, to shareowners of record of
SBC's common stock, $1.00 par value per share, at the close of business on
February 23, 1998. Each share entitles the registered holder to one vote. As of
January 31, 1998, there were 919,364,440 shares of SBC common stock outstanding.
All shares represented by proxies will be voted by the individuals designated on
the enclosed proxy card, all of whom are members of the Directors' Proxy
Committee, in accordance with the shareowners' directions. If the proxy card is
signed and returned without specific directions with respect to the matters to
be acted upon, the shares will be voted in accordance with the recommendations
of the Board of Directors. Any shareowner giving a proxy may revoke it at any
time before such proxy is voted at the meeting by giving written notice of
revocation to the Vice President and Secretary of SBC, by submitting a
later-dated proxy or by attending the meeting and voting in person. The Chairman
of the Board and Chief Executive Officer will announce the closing of the polls
during the Annual Meeting. Proxies must be received prior to the closing of the
polls in order to be counted.
Instead of submitting a signed proxy card, shareowners may submit their proxies
by telephone using the control number and instructions accompanying the proxy
card. Telephone proxies must be used in conjunction with, and will be subject
to, the information and terms contained on the proxy card. This procedure may
not be available to shareowners who hold their shares through a broker, nominee,
fiduciary or other custodian.
The proxy card or telephone proxy will also serve as voting instructions to the
plan administrator or trustee for shares held on behalf of participants in SBC's
Direct Stock Purchase and Reinvestment Plan (formerly the Dividend Reinvestment
Plan) or in any of the following SBC employee benefit plans: the PAYSOP, the
Savings Plan, the Savings and Security Plan, the Pacific Telesis Group ("PTG")
Supplemental Retirement and Savings Plan for Salaried Employees, the PTG
Supplemental Retirement and Savings Plan for Non-Salaried Employees, and the PTG
PAYSOP. If proxy cards or telephone proxies representing shares in the foregoing
employee benefit plans are not received, these shares will be voted for each
plan in the same proportion as the shares for which voting instructions are
received from other participants.
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If a shareowner participates in any of these plans or maintains other shareowner
accounts, which may be under different names (for example, with or without a
middle initial), the shareowner may receive more than one set of proxy
materials. To ensure that all shares are voted, please sign and return every
proxy card received or submit a proxy by telephone for each proxy card you
receive (the control numbers will differ on each card).
A shareowner may designate a person or persons to act as the shareowner's proxy
other than those persons designated on the proxy card. The shareowner may use
the proxy card to give another person authority by striking out the name or
names appearing on the enclosed proxy card, inserting the name or names of
another person or persons and delivering the signed card to such person or
persons. The person(s) designated by the shareowner must present the signed
proxy card at the meeting in order for the shares to be voted.
If shares are held through a broker, nominee, fiduciary or other custodian, the
shareowner must provide voting instructions to the record holder in accordance
with the record holder's requirements in order to ensure their shares are
properly voted.
The cost of soliciting proxies will be borne by SBC. Officers, agents and
employees of SBC and its subsidiaries and other solicitors retained by SBC may,
by letter, by telephone or in person, make additional requests for the return of
proxies and may receive proxies on behalf of SBC. Brokers, nominees, fiduciaries
and other custodians will be requested to forward soliciting material to the
beneficial owners of shares and will be reimbursed for their expenses. SBC has
retained Georgeson & Company Inc., to aid in the solicitation of proxies, at a
fee of $19,000, plus expenses.
Shareowners representing 40 percent of the common stock outstanding and entitled
to vote must be present or represented by proxy in order to constitute a quorum
to conduct business at the meeting. A list of eligible voters will be available
at the Annual Meeting.
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND RETURN YOUR PROXY CARD OR SUBMIT
YOUR PROXY BY TELEPHONE PROMPTLY SO THAT A QUORUM MAY BE REPRESENTED AT THE
MEETING. HIGHLIGHTS OF THE MEETING WILL BE INCLUDED IN THE SECOND QUARTER REPORT
TO SHAREOWNERS, WHICH WILL BE MAILED IN AUGUST 1998.
If you plan to attend the meeting in person, please bring the admission ticket
(which is attached to the proxy voting card) to the Annual Meeting. Shareowners
who do not have admission tickets will be admitted upon presentation of
identification at the door. Anyone requiring special services for the hearing
impaired or physically disabled should contact Financial Communications at
210-351-2163 in advance of the meeting to arrange for these services.
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BOARD OF DIRECTORS
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The Board of Directors is responsible for the management and direction of SBC
and for establishing broad corporate policies. Members of the Board of Directors
are kept informed of SBC's business by various reports and documents given to
them regularly, as well as by operating and financial reports presented by the
Chairman of the Board and Chief Executive Officer and other officers at meetings
of the Board of Directors and committees of the Board. In addition, the Board
has appointed three non-voting Advisory Directors, whose function is to provide
advice and counsel to the Board.
Regular meetings of the Board of Directors are held each month except February,
May, August and October. The Board held nine meetings in 1997, including a
special meeting held in February.
Under SBC's Bylaws, the Board of Directors has the authority to determine the
size of the Board, not to exceed 21 Directors, and to fill vacancies. The Board
of Directors of SBC presently consists of 19 members, two of whom are SBC
executive officers. There are no vacancies on the Board.
SBC's Bylaws provide for a classified Board of Directors under which there are
three classes of Directors, all of which are as equal in number as possible. The
class to which each Director has been assigned is designated as Group A, Group B
or Group C. The term of office of Group B Directors will expire at the 1998
Annual Meeting, Group C at the 1999 Annual Meeting, and Group A at the 2000
Annual Meeting. The SBC Board intends to nominate at the 1998 Annual Meeting the
six persons listed as nominees for Group B, all of whom are incumbent Directors,
for election to three-year terms of office expiring at the 2001 Annual Meeting.
On April 1, 1997, pursuant to the terms of the Agreement and Plan of Merger with
PTG, the Board of Directors increased the size of the Board to 19 members and
appointed the following former PTG Directors to the Board of Directors of SBC:
William P. Clark, Herman E. Gallegos, Mary S. Metz, Philip J. Quigley, S. Donley
Ritchey, and Richard M. Rosenberg. Also appointed at that time was Royce S.
Caldwell. Concurrently with the foregoing appointments, Jack S. Blanton and Tom
C. Frost resigned from the Board and, along with former PTG Directors Toni Rembe
and Gilbert F. Amelio, were appointed Advisory Directors. The terms of the
Advisory Directors expire at the 1998 Annual Meeting, except for Dr. Amelio,
whose term ends January 31, 1999. Mr. Quigley resigned from the Board of SBC on
December 30, 1997, and Ms. Toni Rembe was elected to fill the vacancy.
Biographical information about the Directors is provided on pages 6-10. Except
as otherwise noted, Directors who are shown as officers or partners of other
corporations, institutions or firms have held the positions indicated, or have
been officers of the organizations indicated, for more than five years.
Holdings of SBC common stock by SBC Directors are shown on the table on page 13.
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BOARD COMMITTEES
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From time to time the Board establishes permanent standing committees and
temporary special committees to assist the Board in carrying out its
responsibilities. The Board has established six standing committees of
Directors, the principal responsibilities of which are described below. The
biographical information included later in this Proxy Statement identifies
committee memberships held by each Director.
THE AUDIT COMMITTEE met three times in 1997. It consists of eight non-employee
Directors. The Audit Committee recommends to the Board the appointment of a firm
to serve as independent auditor, subject to ratification by the shareowners at
the Annual Meeting. The independent auditing firm examines the accounting
records of SBC and its subsidiaries for the coming year. The Audit Committee
periodically reviews the adequacy and effectiveness of SBC's internal system of
accounting controls and financial reporting procedures with representatives of
the independent auditor and with the corporate internal auditors. The Audit
Committee also examines the results of the annual audit of the financial
statements and the recommendations of the independent auditor pertaining to
accounting practices, policies and procedures followed by SBC.
THE CORPORATE DEVELOPMENT COMMITTEE met five times in 1997. It consists of four
non-employee Directors and one employee Director. The purpose of the Corporate
Development Committee is to examine proposed acquisitions and similar new
ventures and to advise management with regard to the expansion or disposition of
SBC's businesses through mergers, acquisitions, sales and similar transactions.
THE CORPORATE PUBLIC POLICY AND ENVIRONMENTAL AFFAIRS COMMITTEE met three times
in 1997. It consists of eight non-employee Directors. The Corporate Public
Policy and Environmental Affairs Committee examines corporate policy and
provides guidance and perspective to SBC management on major public issues,
including corporate governance, legislative and environmental matters and SBC's
compliance program.
THE EXECUTIVE COMMITTEE did not meet in 1997. It consists of two non-employee
Directors and two employee Directors. The Executive Committee's primary function
is to assist the Board of Directors by acting upon matters when the Board is not
in session. The Committee has the full power and authority of the Board to the
extent permitted by law, including the power and authority to declare a dividend
or to authorize the issuance of common stock.
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THE FINANCE/PENSION COMMITTEE met six times in 1997. It consists of seven non-
employee Directors and two employee Directors. This Committee is responsible for
making recommendations to the Board of Directors with respect to investment
policy, dividends, methods of financing the operations of SBC and its
subsidiaries and overseeing the investments of SBC's employee benefit plans.
THE HUMAN RESOURCES COMMITTEE met eight times in 1997. It consists of four non-
employee Directors. The Human Resources Committee oversees the management of
human resources activities of SBC, including senior management compensation and
the design of employee benefit plans. The Committee reviews and makes
recommendations to the Board with respect to compensation of Directors. The
Committee also advises the Board with respect to the nomination of members to
the Board of Directors to be elected at the Annual Meeting or to be appointed by
the Board to fill vacancies that may occur during the period between Annual
Meetings.
In recommending Board candidates, this Committee seeks individuals of proven
judgment and competence who are outstanding in their chosen fields, and it
considers factors such as anticipated participation in Board activities,
education, geographic location and special talents or personal attributes.
Shareowners who wish to suggest qualified candidates should write to the Vice
President and Secretary, SBC Communications Inc., 175 E. Houston, Room 1140, San
Antonio, Texas 78205, stating in detail the qualifications of such persons for
consideration by the Committee.
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SBC DIRECTORS TO BE ELECTED AT THE 1998 ANNUAL MEETING (GROUP B)
<TABLE>
<S> <C>
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[PHOTO] AUGUST A. BUSCH III, age 60, is Chairman of the Board and
President of Anheuser-Busch Companies, Inc., St. Louis,
Missouri. Mr. Busch has been a Director of SBC since
October 1983. He served as a Director of Southwestern Bell
Telephone Company from 1980 to 1983. Mr. Busch is a
Director of Anheuser-Busch Companies, Inc.; Emerson
Electric Co.; and General American Life Insurance Company;
and an Advisory Member of the Boards of Directors of Grupo
Modelo, S.A. de C.V., and Diblo, S.A. de C.V. He is a
member of the Corporate Development Committee, the
Executive Committee and the Human Resources Committee.
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[PHOTO] ROYCE S. CALDWELL, age 59, is President-SBC Operations,
SBC Communications Inc., and has served in this capacity
since July 1995. Mr. Caldwell was President and Chief
Executive Officer of Southwestern Bell Telephone Company
from April 1994 to June 1995. He was President-Customer
Services, Southwestern Bell Telephone Company, from July
1993 to March 1994, and President-Southwestern Bell
Services, Southwestern Bell Telephone Company, from July
1992 to July 1993. Mr. Caldwell has been a Director of SBC
since April 1997. He is a Director of Cullen/Frost
Bankers, Inc.; Pacific Bell; Pacific Telesis Group; and
Southwestern Bell Telephone Company. He is a member of the
Executive Committee and the Finance/Pension Committee.
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[PHOTO] HERMAN E. GALLEGOS, age 67, is an independent management
consultant. Mr. Gallegos was a Director of Gallegos
Institutional Investors Corporation from May 1990 to
August 1994. He served as an alternate U.S. Public
Delegate to the 49th United Nations General Assembly from
1994 to 1995. Mr. Gallegos has been a Director of SBC
since April 1997. He served as a Director of PTG from 1983
to 1997. He is a Director of UnionBanCal Corporation. He
is a member of the Audit Committee and the Corporate
Public Policy and Environmental Affairs Committee.
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[PHOTO] JESS T. HAY, age 67, is Chairman of the Texas Foundation
for Higher Education and Chairman of HCB Enterprises Inc
(a private investment firm), Dallas, Texas. Mr. Hay was
Chairman and Chief Executive Officer of Lomas Financial
Group from 1969 until his retirement in December 1994. Mr.
Hay has been a Director of SBC since April 1986. He is a
Director of Exxon Corporation; Trinity Industries, Inc.;
and Viad Corp. He is a member of the Audit Committee and
Chairman of the Human Resources Committee.
</TABLE>
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<TABLE>
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[PHOTO] BOBBY R. INMAN, age 66, Admiral, United States Navy,
Retired. Admiral Inman served as Vice Admiral, United
States Navy, and Director, National Security Agency, from
1977 to 1981, and as Admiral, United States Navy, and
Deputy Director, Central Intelligence Agency, from 1981 to
1982. He has been a Director of SBC since March 1985.
Admiral Inman is a Director of Fluor Corporation; Science
Applications International Corporation; Temple-Inland
Inc.; and Xerox Corporation. He is the Chairman of the
Finance/Pension Committee and a member of the Human
Resources Committee.
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[PHOTO] S. DONLEY RITCHEY, age 64, is Managing Partner of Alpine
Partners, Danville, California. Mr. Ritchey was Chief
Executive Officer and Chairman of the Board of Lucky
Stores, Inc. from 1980 to 1986. Mr. Ritchey has been a
Director of SBC since April 1997. He served as a Director
of PTG from 1984 to 1997. He is a Director of McClatchy
Newspapers, Inc. He is a member of the Finance/Pension
Committee and the Human Resources Committee.
</TABLE>
SBC DIRECTORS SERVING UNTIL THE 1999 ANNUAL MEETING (GROUP C)
<TABLE>
<S> <C>
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[PHOTO] JAMES E. BARNES, age 64, is Chairman of the Board,
President and Chief Executive Officer of MAPCO Inc.,
Tulsa, Oklahoma. Mr. Barnes has been a Director of SBC
since November 1990. Mr. Barnes is a Director of BOK
Financial Corporation; Kansas City Southern Industries,
Inc.; and MAPCO Inc. He is a member of the Audit Committee
and the Corporate Development Committee.
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[PHOTO] WILLIAM P. CLARK, age 66, is Chief Executive Officer of
Clark Company, Paso Robles, California, and since December
1996 has been Senior Counsel to the law firm of Clark,
Cali and Negranti. He is a retired California Supreme
Court Justice and former Secretary of the United States
Department of the Interior. Judge Clark has been a
Director of SBC since April 1997. He served as a Director
of PTG from 1985 to 1997. He is a Director of The Irish
Investment Fund and Lawter International Inc. He is a
member of the Corporate Public Policy and Environmental
Affairs Committee.
</TABLE>
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<TABLE>
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[PHOTO] MARY S. METZ, age 60, is Dean of University Extension of
the University of California, Berkeley, and is President
Emerita of Mills College. Dr. Metz has been a Director of
SBC since April 1997. She served as a Director of PTG from
1986 to 1997. She is a Director of Longs Drug Stores
Corporation; Pacific Gas and Electric Company; and
UnionBanCal Corporation. She is a member of the Audit
Committee.
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[PHOTO] HASKELL M. MONROE, JR., age 66, is Dean of Faculties
Emeritus and Director of Academic Development at Texas A&M
University, College Station, Texas, and has served in this
capacity since July 1997. He was Professor of History at
The University of Missouri-Columbia, Columbia, Missouri,
from July 1987 to August 1997. Dr. Monroe was also
Chancellor at The University of Missouri-Columbia,
Columbia, Missouri, from July 1987 through December 1991.
He has been a Director of SBC since October 1983. Dr.
Monroe served as a Director of Southwestern Bell Telephone
Company from 1982 to 1983. He is the Chairman of the
Corporate Public Policy and Environmental Affairs
Committee and a member of the Finance/Pension Committee.
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[PHOTO] PATRICIA P. UPTON, age 59, is President and Chief
Executive Officer of Aromatique, Inc., Heber Springs,
Arkansas. Mrs. Upton has been a Director of SBC since June
1993. She is a member of the Audit Committee and the
Corporate Public Policy and Environmental Affairs
Committee.
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[PHOTO] EDWARD E. WHITACRE, JR., age 56, is Chairman of the Board
and Chief Executive Officer of SBC and has served in this
capacity since January 1990. Mr. Whitacre has been a
Director of SBC since October 1986. He is a Director of
Anheuser-Busch Companies, Inc.; Burlington Northern Santa
Fe Corporation; Emerson Electric Co.; and The May
Department Stores Company. He is the Chairman of the
Executive Committee and a member of the Corporate
Development Committee and the Finance/Pension Committee.
</TABLE>
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SBC DIRECTORS SERVING UNTIL THE 2000 ANNUAL MEETING (GROUP A)
<TABLE>
<S> <C>
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[PHOTO] CLARENCE C. BARKSDALE, age 65, is Vice Chairman, Board of
Trustees, Washington University, St. Louis, Missouri. Mr.
Barksdale was Chairman of the Board and Chief Executive
Officer of Centerre Bancorporation from 1978 to 1988 and
Chairman of the Board of Centerre Bank N.A. from February
1985 through December 1988. Mr. Barksdale was Vice
Chairman of Boatmen's Bancshares, Inc., from January
through June 1989. He has been a Director of SBC since
October 1983. Mr. Barksdale served as a Director of
Southwestern Bell Telephone Company from 1982 to 1983. He
is a member of the Audit Committee and the Corporate
Public Policy and Environmental Affairs Committee.
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[PHOTO] RUBEN R. CARDENAS, age 67, is a partner in the law firm of
Cardenas, Whitis & Stephen, L.L.P., McAllen, Texas. Mr.
Cardenas has been a Director of SBC since October 1983. He
served as a Director of Southwestern Bell Telephone
Company from 1975 to 1983. Mr. Cardenas is a Director of
Cullen/Frost Bankers, Inc. He is the Chairman of the Audit
Committee and a member of the Corporate Public Policy and
Environmental Affairs Committee.
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[PHOTO] MARTIN K. EBY, JR., age 63, is Chairman of the Board and
Chief Executive Officer of The Eby Corporation, Wichita,
Kansas. Mr. Eby has been a Director of SBC since June
1992. He is a Director of Intrust Bank, N.A. and Intrust
Financial Corporation. He is a member of the Audit
Committee and the Finance/Pension Committee.
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[PHOTO] CHARLES F. KNIGHT, age 62, is Chairman and Chief Executive
Officer of Emerson Electric Co., St. Louis, Missouri. Mr.
Knight has been a Director of SBC since October 1983. He
served as a Director of Southwestern Bell Telephone
Company from 1974 to 1983. Mr. Knight is a Director of
Anheuser-Busch Companies, Inc.; The British Petroleum
Company p.l.c., London, England; Emerson Electric Co.; and
International Business Machines Corporation. He is the
Chairman of the Corporate Development Committee and a
member of the Executive Committee and the Finance/Pension
Committee.
</TABLE>
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<TABLE>
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[PHOTO] TONI REMBE, age 61, is a partner in the law firm of
Pillsbury Madison & Sutro LLP, San Francisco, California.
Ms. Rembe was elected a Director of SBC in January 1998
and had served as an Advisory Director of SBC from April
1997 to January 1998. She served as a Director of PTG from
1991 to 1997. She is a Director of Potlatch Corporation
and Transamerica Corporation. She is a member of the
Corporate Public Policy and Environmental Affairs
Committee.
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[PHOTO] RICHARD M. ROSENBERG, age 67, retired. Mr. Rosenberg was
Chairman of the Board of BankAmerica Corporation from
January 1996 to May 1996 and was Chairman of the Board and
Chief Executive Officer from May 1990 to December 1995.
Mr. Rosenberg has been a Director of SBC since April 1997.
He served as a Director of PTG from 1994 to 1997. He is a
Director of Airborne Freight Corporation; BankAmerica
Corporation; Northrop Grumman Corporation; and Potlatch
Corporation. He is a member of the Corporate Development
Committee and the Finance/Pension Committee.
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[PHOTO] CARLOS SLIM HELU, age 58, is Chairman of the Board of
Grupo Carso, S.A. de C.V., Mexico, and since January 1991
has been Chairman of the Board of Telefonos de Mexico,
S.A. de C.V., Mexico. Ing. Slim has been a Director of SBC
since September 1993. He is a Director of Empresas ICA
Sociedad Controladora S.A. de C.V.; Philip Morris
Companies Inc.; and Telefonos de Mexico, S.A. de C.V. He
is a member of the Corporate Public Policy and
Environmental Affairs Committee and the Finance/ Pension
Committee.
</TABLE>
ADVISORY DIRECTORS
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The Board of Directors has appointed the following Advisory Directors:
- - Gilbert F. Amelio, age 55, Partner, The Parkside Group, LLC, and Principal,
Aircraft Ventures, LLC. Dr. Amelio served as a Director of PTG from 1995 to
1997;
- - Jack S. Blanton, age 70, Chairman, Houston Endowment, Inc., and President and
Chief Executive Officer of Eddy Refining Company. Mr. Blanton served as a
Director of Southwestern Bell Telephone Company from 1977 to 1983 and of SBC
Communications Inc. from 1983 to 1997;
- - Tom C. Frost, age 70, Senior Chairman of the Board of Cullen/Frost Bankers,
Inc. Mr. Frost served as a Director of Southwestern Bell Telephone Company
from 1974 to 1983 and of SBC Communications Inc. from 1983 to 1997.
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COMPENSATION OF DIRECTORS
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Directors who are also employees of SBC or its subsidiaries receive no separate
compensation for serving as Directors or as members of Board committees.
Directors who are not employees of SBC or its subsidiaries receive a $35,000
annual retainer, $1,500 for each Board meeting attended and $1,200 for each
committee meeting attended. Excluding employee Directors, the chairman of each
committee receives an additional annual retainer of $5,000. Advisory Directors
receive the same retainers, fees and benefits as regular Directors. Directors
may elect to take their retainer and fees in the form of SBC common stock or
cash.
Directors may elect to defer the receipt of all or part of these retainers and
fees into either Stock Units or into a Cash Deferral Account. Each Stock Unit is
equivalent to a share of common stock and earns dividend equivalents in the form
of additional Stock Units. Stock Units are converted to common stock and paid
out at the election of the Director in up to 15 installments after the Director
ceases service with the Board. In addition to any deferrals into Stock Units, on
the date of each annual meeting of shareowners, each continuing Director also
receives an award of Stock Units valued at one-half of the annual retainer. The
award for 1997, the initial year of the award, was issued on November 21, 1997.
Deferrals into a Cash Deferral Account earn interest during the calendar year at
a rate equal to the Moody's Corporate Bond Yield Averages-Monthly Average
Corporates for September of the preceding year ("Moody's"). In addition, on the
day of each annual meeting, each continuing non-employee Director who joined the
Board after November 21, 1997, will receive a grant of Stock Units equal to
$13,000, limited to 10 annual grants.
SBC provides each non-employee Director with travel accident insurance while the
Director is on SBC business, along with $100,000 of group life insurance. The
total premiums during 1997 for these policies were $650 for the travel accident
insurance and $9,735 for the group life insurance. Directors also received
certain telecommunications services and equipment from subsidiaries of SBC or
were reimbursed for such services and equipment provided by other companies. The
value of telecommunications services and equipment received, or for which
reimbursement was provided, together with amounts necessary to offset the
Directors' federal tax liabilities resulting from such services and benefits (as
well as state tax liabilities for former PTG Directors), computed at maximum
marginal rates, including tax surcharges, averaged $7,576 per non-employee
Director in 1997. Employee Directors receive similar services and equipment in
connection with their service as officers of SBC.
Non-employee Directors may receive pension payments for life following their
retirement from the Board. (As a result of modifications made by the Board, the
only Directors eligible to receive this benefit are the Directors who joined
prior to 1997. Of those Directors, only four continue to accrue service
credits.) Eligible non-employee Directors who serve for at least five years will
receive, in quarterly installments, annual amounts equal to 10 percent of the
annual retainer in effect at the time of termination of Board service,
multiplied by the number of years of service, not to exceed 10 years. If the
Director dies prior to the expiration of 10 years from his or her date of
retirement, his or her beneficiary will be entitled to receive the payments for
11
<PAGE> 15
the remainder of the 10-year period. If an eligible non-employee Director dies
while still serving on the Board, a pre-retirement death benefit will be paid as
though the individual had retired on the date of death.
Directors who formerly served on the Board of PTG (which was acquired by SBC on
April 1, 1997) do not receive pension benefits from SBC. As part of their
service with PTG, these directors previously received PTG Deferred Stock Units,
each unit now representing the cash value of a share of SBC common stock, as
well as options to purchase common stock of PTG (now SBC common stock) and of
AirTouch Communications, Inc. (The AirTouch options were originally issued by
PTG in connection with its spin-off of that company.) PTG Deferred Stock Units
earn dividend equivalents and are paid out in the form of cash after the
retirement of the Director. The PTG Deferred Stock Units were issued in exchange
for the waiver by the Directors of certain retirement benefits. The units will
vest pro rata each year until the Director has completed seven years of service.
For purposes of vesting and payout of the PTG Deferred Stock Units and the
period during which the options may be exercised, service on the SBC Board of
Directors will be deemed to constitute service on the PTG Board. In addition,
PTG Directors were allowed to elect during 1997 to have their prior deferrals of
PTG retainers and fees continued until they leave the SBC Board. These deferrals
earn a rate of interest equal to Moody's plus 4 percent for deferrals from 1985
through 1992; Moody's plus 2 percent for deferrals from 1993 through 1995; and
for deferrals after 1995, the 10-year Treasury Note average for the month of
September for the prior year plus 2 percent. During the last quarter of 1997 or
the first quarter of 1998, the SBC Directors who previously served on the PTG
Board exercised all of their options to purchase AirTouch stock from PTG. All
the AirTouch shares were immediately resold by the Directors.
Two members of Mr. Gallegos' and one member of Mr. Quigley's immediate families
were employed by subsidiaries of PTG, and were paid a total of approximately
$362,000 in 1997. Amounts paid to these employees are comparable to compensation
paid to other employees performing similar job functions.
In 1997, PTG and its subsidiaries obtained legal services from the law firm of
Pillsbury Madison & Sutro LLP, of which Ms. Rembe is a partner, on terms which
SBC believes were as favorable as would have been obtained from unaffiliated
parties.
12
<PAGE> 16
COMMON STOCK OWNERSHIP OF
DIRECTORS AND OFFICERS
SBC DIRECTORS AND NAMED OFFICERS
The following table sets forth the beneficial ownership of SBC common stock as
of February 19, 1998 (including shares acquired under the SBC Savings Plan
through December 31, 1997), held by each Director (other than Advisory
Directors) and each officer named in the Compensation Charts on pages 25-27. As
of that date, each Director and officer listed below, and all Directors and
executive officers as a group, owned less than one percent of the outstanding
SBC common stock. Except as noted below, the persons listed in the table have
sole voting and investment power with respect to the securities indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL SBC
NAME OF BENEFICIAL OWNERSHIP
BENEFICIAL OWNER (INCLUDING OPTIONS)(1)(2)(3)
- --------------------------------------------------
<S> <C>
Clarence C.
Barksdale(4) 3,732
James E. Barnes 3,001
August A. Busch III 19,627
Ruben R. Cardenas 14,117
William P. Clark 8,845
Martin K. Eby, Jr. 12,001
Herman E. Gallegos 9,330
Jess T. Hay 10,001
Bobby R. Inman 1,601
Charles F. Knight 7,001
Mary S. Metz 9,216
Haskell M. Monroe,
Jr. 5,900
Toni Rembe 8,827
</TABLE>
<TABLE>
<CAPTION>
TOTAL SBC
NAME OF BENEFICIAL OWNERSHIP
BENEFICIAL OWNER (INCLUDING OPTIONS)(1)(2)(3)
- --------------------------------------------------
<S> <C>
S. Donley Ritchey 10,110
Richard M. Rosenberg 4,548
Carlos Slim Helu 1,001
Patricia P. Upton 2,541
Edward E. Whitacre,
Jr. 1,211,924
Royce S. Caldwell 232,348
Charles E. Foster 250,371
James D. Ellis 223,835
William E. Dreyer 198,405
All executive
officers and
Directors as a group
(consisting of 27
persons, including
those named above): 2,882,217
</TABLE>
- --------------------------------------------------------------------------------
(1) This does not give effect to a 2-for-1 stock split, effected in the form of
a stock dividend, payable March 19, 1998.
(2) Includes presently exercisable stock options and stock options which will
become exercisable within 60 days of the date of this table. The following
Directors and officers hold the number of options set forth following their
respective names: Judge Clark -- 7,310; Mr. Gallegos -- 7,310; Dr.
Metz -- 7,310; Ms. Rembe -- 6,579; Mr. Ritchey -- 7,310; Mr.
Rosenberg -- 2,924; Mr. Whitacre -- 937,717; Mr. Caldwell -- 201,852; Mr.
Foster -- 225,723; Mr. Ellis -- 176,529; Mr. Dreyer -- 161,218; and all
executive officers and Directors as a group -- 1,881,066.
(3) Included in "Total SBC Beneficial Ownership," reported in the above table,
are 1,000 restricted shares held by each non-employee Director (other than
Judge Clark, Mr. Gallegos, Dr. Metz, Ms. Rembe, Mr. Ritchey and Mr.
Rosenberg), each of whom has sole voting power but no investment power until
the lapse of the restrictions. Also included are shares held in an employee
benefit plan for the following persons, who have sole voting power but no
investment power with respect to the number of shares set forth following
their respective names: Mr. Whitacre -- 576; Mr. Caldwell -- 194; Mr.
Foster -- 672; Mr. Ellis -- 605; and Mr. Dreyer -- 54. In addition, the
following persons share voting and investment power with other persons with
respect to the number of shares set forth following their respective names:
Mr. Barnes -- 2,000; Mr. Busch -- 4,900; Judge Clark -- 438; Dr.
Monroe -- 4,785; Mr. Rosenberg -- 892; Mr. Whitacre -- 15,834; Mr.
Caldwell -- 8,122; Mr. Foster -- 7,750; Mr. Ellis -- 5,870; and Mr.
Dreyer -- 6,514.
(4) Also owns 2,000 shares of Southern New England Telecommunications.
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<PAGE> 17
VOTING
Each share of SBC common stock represented at the Annual Meeting is entitled to
one vote on each matter properly brought before the meeting. Directors are
elected by a plurality of the votes cast; the proposal to increase the number of
authorized shares will require the affirmative vote of a majority of the
outstanding shares under Delaware law. All other matters will be determined by a
majority of the votes cast. Shares represented by proxies marked "withhold
authority" with respect to the election of one or more nominees as Directors, by
proxies marked "abstain" on other proposals, and by proxies marked to deny
discretionary authority on other matters will not be counted in determining the
vote obtained on such matters. However, proxies marked "abstain" on the proposal
to increase the number of authorized shares will have the same effect as a vote
"against" the proposal. If no directions are given and the signed card is
returned, the members of the Directors' Proxy Committee will vote the shares for
the election of all listed nominees, in accordance with the Directors'
recommendations on the other subjects listed on the proxy card, and at their
discretion on any other matter that may properly come before the meeting. Under
the rules of the New York Stock Exchange, on certain routine matters, brokers
may, at their discretion, vote shares they hold in "street name" on behalf of
beneficial owners who have not returned voting instructions to the brokers.
Routine matters include the election of directors, the ratification of the
appointment of the independent auditor, and the proposal to increase the number
of authorized shares, but not shareowner proposals. In instances where brokers
are prohibited from exercising discretionary authority (so-called "broker
non-votes"), the shares they hold are not included in the vote totals and,
therefore, have no effect on the vote.
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
The following Group B Directors have been nominated by the Board of Directors on
the recommendation of the Human Resources Committee for election to three-year
terms of office that will expire at the 2001 Annual Meeting:
<TABLE>
<S> <C>
August A. Busch III Jess T. Hay
Royce S. Caldwell Bobby R. Inman
Herman E. Gallegos S. Donley Ritchey
</TABLE>
Shares represented by the accompanying form of proxy will be voted for the
election of the nominees unless other instructions are shown on the proxy card
or provided through the telephone proxy. If one or more of the nominees should
at the time of the meeting be unavailable or unable to serve as a Director, the
shares represented by the proxies will be voted to elect the remaining nominees
and any substitute nominee or nominees designated by the Board. The Board knows
of no reason why any of the nominees would be unavailable or unable to serve.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITS NOMINEES LISTED AS GROUP B
DIRECTORS.
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<PAGE> 18
RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITOR
(ITEM 2 ON PROXY CARD)
Subject to shareowner ratification, the Board of Directors, upon recommendation
of the Audit Committee, has appointed the firm of Ernst & Young LLP to serve as
independent auditor of SBC for the fiscal year ending December 31, 1998. This
firm has audited the accounts of SBC since 1983 and the accounts of Southwestern
Bell Telephone Company for many years. If shareowners do not ratify this
appointment, the Board will consider other independent auditors. One or more
members of Ernst & Young LLP are expected to be present at the Annual Meeting
and will be available to respond to questions.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITOR.
AMENDMENT OF SBC's RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF COMMON STOCK
(ITEM 3 ON PROXY CARD)
Your Board of Directors has unanimously approved and proposes and recommends the
adoption of an amendment to SBC's Restated Certificate of Incorporation to
increase the number of authorized shares of common stock from 2.2 billion shares
to 7.0 billion shares. No increase is proposed in the number of preferred shares
that are currently authorized.
The first paragraph of Article Five of the Restated Certificate of Incorporation
would be amended to read as follows:
ARTICLE FIVE
The aggregate number of shares which the corporation is
authorized to issue is 7,010,000,000 shares, consisting
of 7,000,000,000 common shares having a par value of $1
per share and 10,000,000 preferred shares having a par
value of $1 per share.
15
<PAGE> 19
At the time of your Company's divestiture from AT&T in 1984, your Company had
approximately 97 million shares of common stock outstanding, out of an
authorized 350 million shares. In 1987 and 1993, respectively, SBC declared
3-for-1 and 2-for-1 stock splits (each effected in the form of a stock
dividend). In 1988 and 1996, respectively, the shareowners approved increases in
the authorized common shares, first to 1.1 billion, then to 2.2 billion.
Following these increases, SBC issued 300 million shares in connection with the
acquisition of Pacific Telesis Group in 1997, raising the outstanding shares to
approximately 919 million.
Recently, your Directors declared another 2-for-1 split, payable March 19, 1998,
to shareowners of record on February 20, 1998. After this split, your company
will have approximately 1.84 billion shares outstanding out of an authorized 2.2
billion, making further such stock splits unavailable without an increase in the
number of authorized shares.
Therefore, in order to have sufficient number of shares of common stock
available for issuance in connection with subsequent stock splits, acquisitions,
financings, compensation and benefit plans and other proper corporate purposes,
your Directors recommend increasing the number of authorized shares. Although
the Company has no specific plans at this time for the use of the additional
common stock, having such additional authorized shares available for issuance in
the future would give the Company greater flexibility and would allow such
shares to be issued without the expense and delay of a special shareowners'
meeting. The additional common stock would be identical to the common stock the
Company now has authorized. Holders of common stock do not have preemptive
rights to subscribe to additional securities which may be issued by the Company.
Although the Board has no present intention of doing so, the additional shares
of common stock could be used to make it more difficult to effect a change in
control of the Company. The Company has other defenses available against
coercive or unfair acts of third parties that are designed to effect a change in
control of the Company. Presently, the Board knows of no such attempt to obtain
control of the Company.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT OF ARTICLE FIVE OF
SBC'S RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK.
16
<PAGE> 20
OTHER PROPOSALS
Certain shareowners have advised the Company that they intend to introduce at
the 1998 Annual Meeting the proposals set forth below. The names and addresses
of, and the number of shares owned by, each such shareowner will be provided
upon request to the Secretary of the Company.
SHAREOWNER PROPOSAL A
(ITEM 4 ON PROXY CARD)
Resolved: SBC, hereafter referred to as the corporation, shall obtain
shareholder consent/approval for political contributions in excess of
$10,000.00 annually to a political party. Be it further resolved that
the corporation shall publish in its annual report to shareholders a
list of political contributions for the previous 12 month period.
SHAREOWNER'S SUPPORTING STATEMENT
The Corporation, through its Board of Directors, contributes many thousands of
dollars to the political process in an effort to influence political decisions
dealing with a variety of items ranging from socio-economic issues to
environmental factors.
Oftentimes, an individual shareholder may differ with the corporate view toward
the above issues. But, by virtue of ownership of shares, the shareholder is
giving tacit approval to the Directors to contribute to a political party which
is in opposition to the shareholder's individual views.
At the very least, a shareholder of a public-traded corporation is entitled to
know where and when his/her views differ from the corporate view regarding the
political process and its bearing on socio-economic and environmental factors.
This proposal would reveal any differences between the shareholder's individual
views and corporate activity in the political process. Consequently, the
shareholder would have an opportunity to defend his/her views by taking
appropriate action.
Without this proposal, a corporate decision to support a political party could
be tantamount to coercive cooptation of shareholders in accepting or supporting
a political party contrary to a shareholder's individual view.
The publication of political contributions should be in tandem with a limit on
political contributions of $10,000.00. The $10,000.00 limit will help abate
"influence peddling". Huge corporate contributions to a political party
(referred to as "soft money") are ultimately and indirectly used to buy
influence on a particular issue from a candidate (referred to as "hard money").
Until such a time that effective campaign finance laws are enacted (which
appears remote at this junction) shareholders must initiate action at the grass
roots level in order to curb the abuse of corporate contributions to the
political process.
17
<PAGE> 21
A past statesman cautioned us on this subject: All that remains to insure
corrupt government is for all good (wo)men to do nothing. The words may not be
the exact quotation, but the message is clear: sit on your rights too long and
you may lose the privilege to exercise them.
If shareholders fail to act on this proposal, its failure could seriously
undermine the principle of "One (wo)man -- one vote!"
If shareholders wish to contribute or participate in the political process, most
of us are mature enough to do so on an individual basis. We should not be
subjected to coercive cooptation in supporting a political party which stands in
opposition to our individual beliefs.
YOUR DIRECTORS' POSITION
The Company's expenditures in support of federal and state government affairs
and activities on legislative and regulatory matters are a legitimate business
expense. The Company takes positions with respect to proposed legislation and
ballot measures which could affect the business activities of the Company and
the shareowners' investment in it. It communicates such positions in a variety
of ways, including testimony before congressional and other legislative
committees, articles in company publications which shareowners receive, and
occasionally, special letters to shareowners.
The Company also makes contributions to political candidates and to political
parties, which are fully in keeping with applicable laws. Further, employees who
wish to participate in the political process are given the opportunity to do so
by contributing to candidates through Company sponsored Political Action
Committees ("PACs").
This proposal would require the Company to publish in its annual report to
shareowners a list of political contributions for the previous 12 month period.
As required by applicable federal and state election laws, information about
political contributions made by the Company and PACs is already publicly
available. Therefore, information about political expenditures is available
without the need for your Company and its shareowners to expend funds on
unnecessary and unwarranted publications.
The proposal would also require that shareowners give advance approval of
political contributions. The political climate constantly changes, and since the
shareowners only meet annually, this would create an unnecessary burden on the
Company's ability to participate in the political process; a burden not shared
by companies with whom it competes. This participation is vital to the Company
and its shareowners and should not be impeded by unneeded and cumbersome
restrictions.
Your Directors believe that this proposal would result in publishing information
that is already publicly available, create an unnecessary expense, and would
unnecessarily restrict the Company's participation in the political arena.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THIS SHAREOWNER PROPOSAL.
18
<PAGE> 22
SHAREOWNER PROPOSAL B
(ITEM 5 ON PROXY CARD)
RESOLVED; We the stockholders assembled in person and by proxy, do hereby
request that the Board of Directors take the necessary steps so that (i) the
pensions currently granted to "outside" directors be reviewed with an eye
towards their cancellation and (ii) no such pensions be granted in the future,
nor increased if granted, without the direct and specific vote of such
stockholders assembled in Annual Meeting.
SHAREOWNER'S SUPPORTING STATEMENT
REASONS; Although it was commonplace some years ago for "outside" directors to
be pensioned, these people are employees of the stockholders and not the
Company. These ladies and gentlemen are currently being handsomely remunerated
for their services in the form of retainers, per diems, and expenses, for their
work for the Company. Further, these same ladies and gentlemen are otherwise
employed, or retired with pensions, and are being paid for their services at the
place of primary employment. Such "double dipping" is not in the interests of
we, the stockholders and owners of the Corporation, nor fair to us. While we
certainly require top talent as our directors, there are many corporations
today, despite what management may say to the contrary, where this practice is
not permitted, and numerous others where it has been voluntarily withdrawn.
Your vote in favor is requested.
YOUR DIRECTORS' POSITION
While the Company believes that its Retirement Plan for Non-Employee Directors
was, at one time, an appropriate part of the compensation program for Directors,
the Company took action last year to eliminate pensions for outside Directors by
limiting eligibility for pension benefits under the Retirement Plan to current
Directors. Specifically, those individuals who became Directors in 1997 or
subsequently will not be eligible for a pension. While your Directors believe
that the actions taken in 1997 to eliminate pensions complies with the intent of
this proposal, the Board intends to keep its commitment to provide pension
benefits to those outside directors who joined the Board before 1997.
The proponent alleges that Directors probably have other retirement benefits and
should not be "double dipping." However, since the benefits provided by the
Company to non-employee Directors relate solely to the services they provide to
the Company, their receipt of benefits from others is irrelevant.
Your Directors believe the Company's shareholders are best served by having
talented, experienced and committed individuals serving as Directors. To attract
and retain such individuals, the Company must provide a compensation package
that is comparable with compensation packages provided by other major U.S.
companies. While this plan met those needs at one time, your Directors believe
it is no longer needed as part of the Company's compensation package.
Accordingly, your Board ceased participation by future Directors in a way that
did not unfairly prejudice the directors who joined the Board while the plan was
a part of the Board compensation package.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THIS SHAREOWNER PROPOSAL.
19
<PAGE> 23
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Human Resources Committee, composed entirely of independent, outside
Directors, is responsible for establishing and administering SBC's policies
involving the compensation of officers. No employee of SBC serves on this
committee. During the 1997 fiscal year, the members of the Human Resources
Committee were (and are currently): Jess T. Hay (Chairman since April 1, 1997),
August A. Busch III, Admiral Bobby R. Inman and S. Donley Ritchey. Mr. Busch is
Chairman of the Board and President of Anheuser-Busch Companies, Inc., where Mr.
Whitacre also serves as a member of the Board of Directors.
EXECUTIVE COMPENSATION
REPORT OF THE HUMAN RESOURCES COMMITTEE ON EXECUTIVE COMPENSATION
Responsibilities of the Human Resources Committee (the "Committee") of the Board
of Directors include establishing policies governing the compensation of
officers of SBC and certain key executives of its subsidiaries. The Committee is
composed of four non-employee Directors.
The Committee's principal objective in establishing compensation policies is to
develop and administer a comprehensive program designed to attract and retain
outstanding managers who are most likely to enhance the profitability of SBC and
create value for our shareowners. The policies are designed to attract and
retain high-quality executives, to encourage them to make career commitments to
SBC and to accomplish SBC's short and long term objectives. To achieve these
results, the Committee, in consultation with a nationally recognized
compensation and benefits consulting firm, has developed a compensation program
that combines annual base salaries with annual and long term incentives
principally tied to the performance of SBC and SBC's common stock. The
principles used by the Committee in developing the program include the
following:
- - In order to align the financial interests of SBC's executives with those of
SBC and its shareowners, a significant portion of executive compensation
should be "at risk" and tied to the achievement of certain short and long term
performance objectives of SBC.
- - Ownership of SBC's common stock by executives should be encouraged through
SBC's compensation program.
- - Sustained superior performance by individual officers that enhances the
profitabitity of SBC should be recognized and appropriately rewarded. As
measured by the Committee, such performance may include increasing revenues,
reducing expenses, efficiently deploying capital, and improving service and
product quality, while always complying with the high ethical standards
established by SBC for the conduct of its officers and employees.
The Committee is responsible for approving the compensation of officers of SBC,
including the Named Officers (defined below), and certain officers of
subsidiaries.
20
<PAGE> 24
ANNUAL BASE SALARY The Committee has established a policy that annual base
salaries for officers will be market-based; that is, the salaries will relate
reasonably to salaries for similar positions in the 50th percentile of a group
of companies with similar revenues (the "Comparator Group"), developed in
consultation with the Committee's outside compensation consultant. The majority
of the companies selected for salary comparison purposes are companies having
telecommunications or related operations for which compensation information is
available. Accordingly, the Comparator Group includes, among others, the
companies in the Stock Performance Graph on page 32. The Committee may, at its
discretion, choose to pay above the 50th percentile of the market because of
sustained superior performance or to meet significant needs of the Company.
INCENTIVES In order to create incentives for superior efforts on behalf of SBC
and to allow employees to share in the very success for which they are
responsible, the Committee has determined that a significant portion of each
officer's total compensation shall be dependent upon the annual and long term
performance of SBC.
Annual Incentives During 1997, officers and other key executives of SBC and
certain subsidiaries received annual incentives under either the Short Term
Incentive Plan ("STIP") or the 1996 Stock and Incentive Plan ("SIP"). The latter
plan allows certain compensation paid to Named Officers to be deductible under
Section 162(m) of the Internal Revenue Code (discussed below). Under each plan,
the Committee awards an annual bonus contingent upon the yearly performance of
the SBC business to which the officer is assigned.
Under each plan, a target award for each officer and the specific performance
objectives applicable to the officer, composed of "value added" objectives, are
established at the beginning of the year. The term "value added" refers to
after-tax cash operating profit less depreciation and less a capital charge. The
value added objectives are designed to encourage employees to focus on exceeding
a specified level of return. Under the STIP, the targets are set with a view
toward making an officer's combined target award and base salary fall between
the 50th and 75th percentile of the Comparator Group, as determined by the
Committee's outside compensation consultant. Officers receive their full target
awards if their respective value added objectives are met; however, the formula
driven portion of the award is capped at 100 percent of the target amount. If
less than the value added objectives is achieved, the target awards are
forfeited or, at a minimum, reduced in progressively increasing proportions. The
Committee has discretion to award individual officers additional awards based
upon the performance of SBC and its subsidiaries, an overall evaluation of each
officer's performance and/or the contribution of the officer to increasing
shareowner value.
Officers who participated in the SIP had their target awards set with the view
of having the total of base salary and 50 percent of the officer's target award
fall between the 50th and 75th percentile of the Comparator Group. The Committee
intends that if the Company's objectives are achieved, the officer will receive
at least 50 percent of the officer's target award; if less than the stated
objectives is achieved, the award will be forfeited or, at a minimum, the target
award will be reduced in progressively increasing proportions. In addition,
based on the officer's performance during the year,
21
<PAGE> 25
the Committee may increase or decrease the award, but not beyond the target
award amount. The Committee may also make annual discretionary awards in
addition to any awards under the plan.
The Committee has determined that the performance objectives were met or
exceeded by all of the Company's executive officers, excluding, in one case,
where the expenditures related to a relocation and consolidation of certain
business functions were not contemplated in setting the target. The Committee is
pleased to report that in an extraordinarily challenging year, the Company's
results exceeded the Committee's expectations and reflected exceptional
performances by all the executive officers. Accordingly, the Committee made
additional discretionary awards beyond the target award based upon individual
performance.
Long Term Incentives Since its inception, SBC has provided stock-based long
term incentives to officers and other key executives of SBC and certain
subsidiaries in the form of performance shares and stock options.
Performance shares are designed to tie the executive's financial interests to
those of our shareowners through the establishment of long term performance
awards and the payment of awards in common stock and/or in cash based upon the
price of common stock. Performance shares are granted under the 1996 Stock and
Incentive Plan (prior to 1996, they were granted under the Senior Management
Long Term Incentive Plan). Performance shares are designed to provide rewards
for the achievement of SBC's value added goals as well as increases in the price
of SBC's common stock. Each officer, including each of the Named Officers, is
granted a specific number of performance shares, each equivalent in value to a
share of common stock. At the end of the performance period, a percentage of the
performance shares, not to exceed 100 per cent of the performance shares
granted, is paid out (i.e., converted into common stock and/or cash), based on
the achievement of SBC's earnings and/or value added goals over a three- (or
two-) year period. No awards are paid out if SBC fails to achieve certain
minimum earnings and/or value added requirements. The Committee also recognizes
the importance of stock options as a means to further tie the executive's
financial interests directly to those of our shareowners. The Committee uses
stock options to link the executives' and shareowners' interests by basing a
portion of the executives' compensation on the performance of SBC's common
stock. To strengthen the linkage between executives and shareowners, the
Committee granted stock options to all managers, including all of the Named
Officers, during the year. The target value of the regular long term grants
(combined value of performance shares and stock options) made in 1997 was
designed to relate reasonably to the value of all long term type awards made to
the 75th percentile of employees holding similar positions with companies in the
Comparator Group, as determined by the Committee's outside compensation
consultant. In addition to the foregoing awards, the Committee, at its
discretion, may grant additional performance shares to persons who have
exhibited superior performance during the prior year (these additional
performance shares generally have two-year performance periods). During 1997,
Mr. Whitacre received such an award. Also during 1997, the Committee made
special grants of options, in addition to the foregoing grants, to certain
officers of
22
<PAGE> 26
SBC and its subsidiaries, including the Named Officers, that vest in 4 years or
upon the attainment of certain earnings per share goals.
In 1997, SBC's officers received the payout of their performance share awards
for the 1994-1996 and 1995-1996 performance periods. The Committee determined
that during these performance periods SBC exceeded the value added goals set by
the Committee. In accordance with a predetermined formula, 100 percent of the
target numbers of units granted to the officers were distributed. Each of the
Named Officers elected to receive his award half in common stock and half in
cash.
SBC now faces extraordinary new challenges in the telecommunications industry
resulting from legislative and industry changes as well as from the dramatic
increase in the size and scope of SBC's operation. SBC senior managers are
widely recognized as being among the most qualified and talented leaders in the
telecommunications industry, and from time to time they receive inquiries and
offers from competitors, sometimes successfully, who seek to hire them away from
SBC. Your Committee considers it vital to the future success of SBC and its
shareowners that certain key officers be adequately rewarded for their past and
current success and performance and be given sufficient incentive to remain in
SBC's employ at this crucial period. As a result, your Committee made special
retention awards of restricted stock to certain key officers, including the
Named Officers. One-third of the restricted stock will vest and be issued to the
officers each year beginning on the third anniversary of the grant.
The Company also provides several alternatives for its managers to invest a
portion of their salaries and annual incentive awards in SBC common stock,
thereby giving these managers an even greater stake in the performance of SBC.
One such opportunity is the Stock Savings Plan, under which middle level and
above managers may receive stock options based upon the number of shares
purchased under the program through payroll deductions.
During 1997, SBC completed its historic acquisition of Pacific Telesis Group,
including Pacific Bell and Nevada Bell. This transaction permits SBC to provide
landline telecommunications, wireless, and related services in California and
Nevada. The Committee commends the officers and employees of SBC and Pacific
Telesis in making the acquisition a successful and profitable transaction for
the shareowners of SBC. Integration of the two companies has been executed on a
timely basis with excellent results for the Company and its shareowners.
COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER The foregoing principles and
policies were applied by the Committee in determining the compensation for the
Chairman of the Board and Chief Executive Officer, Mr. Whitacre, for the last
fiscal year. The Committee established Mr. Whitacre's annual base salary for
1997, targeted to the median base salary paid by companies in the Comparator
Group.
Mr. Whitacre's annual incentive bonus for 1997 was determined under the 1996
Stock and Incentive Plan as described above. The Committee determined that in
1997, Mr. Whitacre's personal performance was excellent, exceeding his
value-added performance objective. Under Mr. Whitacre's leadership, SBC has
continued to achieve outstanding financial results while positioning itself for
future growth
23
<PAGE> 27
opportunities. Most notably, Mr. Whitacre led SBC through the merger with
Pacific Telesis - one of the largest business mergers in U.S. history - which
brought SBC into attractive new markets and provided exceptional opportunities
for growth. Following completion of the merger, Mr. Whitacre guided a swift but
comprehensive analysis of the merger's potential for value creation. That
analysis identified opportunities to add $1 billion in net income by the year
2000, and by late 1997 efforts to realize those opportunities were well
underway.
Also in 1997, Mr. Whitacre led the Company's identification and analysis of
growth opportunities, which resulted in the announcement, on January 5, 1998, of
an agreement to acquire Southern New England Telecommunications Corporation, an
initiative that is intended to further strengthen the Company's competitive
position in key markets.
The Committee believes that Mr. Whitacre's performance was instrumental in SBC's
being named the world's most admired telecommunications Company in a poll of
industry executives and analysts conducted by Fortune magazine. Because of the
crucial role Mr. Whitacre has played in the continuing leadership and success of
SBC, the Committee determined that Mr. Whitacre's annual incentive award should
be $3.3 million for 1997. As part of the special retention grant made to certain
officers, described above under "Long Term Incentives," the Committee granted
Mr. Whitacre 50,000 phantom stock units (each convertible into a cash value
equal to one share of stock) and 100,000 shares of restricted stock.
Mr. Whitacre, along with other Named Officers, received stock options,
performance shares and restricted stock. These matters are discussed above under
"Long Term Incentives."
LIMIT ON DEDUCTIBILITY OF CERTAIN COMPENSATION In 1993, Congress adopted
legislation that prohibited publicly held companies, such as SBC, from deducting
certain compensation paid to a Named Officer that exceeds one million dollars
during the tax year. To the extent compensation is based upon the attainment of
performance goals set by the Committee pursuant to plans approved by the
shareowners, the compensation is not included in the computation of the limit.
The Committee intends, to the extent feasible and where it believes it is in the
best interests of SBC and its shareowners, to attempt to qualify such
compensation as tax deductible. Notwithstanding this, the Committee will
continue to exercise discretion in those instances where the mechanistic
approaches necessary under tax law considerations would compromise the interests
of shareholders.
THE HUMAN RESOURCES COMMITTEE:
<TABLE>
<S> <C>
Jess T. Hay, Chairman August A. Busch III
Admiral Bobby R. Inman S. Donley Ritchey
</TABLE>
24
<PAGE> 28
SUMMARY
COMPENSATION
TABLE The table below contains information concerning annual and long term
compensation provided to the Chairman of the Board and Chief Executive
Officer and the other most highly compensated executive officers of
SBC (the "Named Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------
NAME AND OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
<S> <C> <C> <C> <C>
EDWARD E. WHITACRE, JR. 1997 $975,000 $3,300,000 $407,455
Chairman of the Board and
Chief 1996 $900,000 $2,500,000 $259,355
Executive Officer 1995 $825,000 $1,500,000 $285,338
ROYCE S. CALDWELL 1997 $476,980 $1,054,000 $169,297
President-SBC Operations 1996 $434,980 $ 854,000 $92,508
1995 $380,000 $ 450,000 $91,970
CHARLES E. FOSTER 1997 $425,980 $ 550,000 $107,577
Group President-SBC 1996 $388,980 $ 512,000 $65,133
1995 $321,000 $ 260,040 $59,914
WILLIAM E. DREYER 1997 $376,980 $ 550,000 $125,632
Senior Executive Vice
President- 1996 $356,980 $ 532,500 $76,413
External Affairs 1995 $330,000 $ 423,000 $73,938
JAMES D. ELLIS 1997 $372,980 $ 600,000 $124,434
Senior Executive Vice
President 1996 $347,980 $ 492,800 $102,139
and General Counsel 1995 $315,000 $ 350,400 $85,055
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------
AWARDS PAYOUTS
------------------------ ----------
NUMBER OF
RESTRICTED SECURITIES ALL OTHER
NAME AND STOCK UNDERLYING LTIP COMPEN-
PRINCIPAL POSITION AWARD(S)(1) OPTIONS(2) PAYOUTS(3) SATION(4)
<S> <C> <C> <C> <C>
EDWARD E. WHITACRE, JR. $8,737,500 344,920 $2,232,082 $54,429
Chairman of the Board and
Chief 0 160,040 $2,876,953 $49,773
Executive Officer 0 219,490 $2,200,090 $45,195
ROYCE S. CALDWELL $2,912,500 165,848 $ 677,116 $25,077
President-SBC Operations 0 48,645 $ 615,218 $22,669
0 53,954 $ 436,989 $20,555
CHARLES E. FOSTER $2,912,500 100,127 $ 363,522 $22,580
Group President-SBC 0 51,378 $ 531,165 $17,856
0 59,367 $ 441,073 $17,467
WILLIAM E. DREYER $2,912,500 77,749 $ 506,447 $17,280
Senior Executive Vice
President- 0 31,210 $ 712,554 $16,320
External Affairs 0 31,676 $ 591,530 $15,840
JAMES D. ELLIS $2,912,500 87,663 $ 465,049 $18,975
Senior Executive Vice
President 0 40,882 $ 630,932 $17,513
and General Counsel 0 33,390 $ 523,876 $16,537
</TABLE>
(1) This column represents the grant date value of restricted stock
and phantom stock units awarded to the Named Officers. These
awards will vest and be issued and paid out over a three year
period beginning June 3, 2000. The number of shares or units
granted, and their values as of December 31, 1997, are as follows:
Mr. Whitacre has 100,000 restricted shares valued at $7,325,000
and 50,000 phantom stock units valued at $3,662,500; Messrs.
Caldwell, Dreyer, Ellis, and Foster each have 50,000 restricted
shares valued at $3,662,500. Dividends or dividend equivalents are
paid on all restricted stock and phantom stock units.
(2) After giving effect to a 2-for-1 stock split, payable March 19,
1998, the number of options granted will be doubled in order to
avoid any dilution or increase in value resulting from the stock
split.
(3) The long term incentive award payouts are for the 1994-1996 and
1995-1996 performance periods. All the Named Officers elected to
receive 50% of their awards in stock and 50% in cash. During the
same time, the market price of SBC common stock rose from $41.50
on December 31, 1993 (adjusted for May 1993 stock split) to
$51.875 on December 30, 1996, resulting in an increase in the
value of common stock held by our shareowners of approximately
$6.4 billion.
(4) All Other Compensation for 1997 reflects benefits imputed to the
Named Officers with respect to premiums on SBC-owned life
insurance, as determined in accordance with IRS guidelines. For
Messrs. Whitacre, Caldwell, Ellis, and Foster these amounts were
$7,629, $2,997, $1,887, and $2,948, respectively. All other
amounts reported under this heading represent employer matching
contributions made to employee benefit plans.
25
<PAGE> 29
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
- --------------------------------------------------------------------------------
The purpose of the following table is to report exercises of stock options and
stock appreciation rights ("SARs") by the Named Officers during 1997 and the
value of their unexercised stock options and SARs as of December 31, 1997. None
of the Named Officers exercised stock options during 1997. SBC has not issued
any SARS to the Named Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE MONEY OPTIONS AT
SHARES YEAR END(1) FISCAL YEAR END(2)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Edward E. Whitacre,
Jr. 0.0000 $0 932,092 494,920 $30,580,455 $9,798,284
Royce S. Caldwell 0.0000 $0 199,239 209,847 $ 6,358,908 $4,028,363
Charles E. Foster 0.0000 $0 223,398 140,126 $ 7,093,361 $2,726,513
William E. Dreyer 0.0000 $0 160,013 106,748 $ 5,317,478 $2,089,591
James D. Ellis 0.0000 $0 174,460 116,662 $ 5,666,921 $2,240,517
</TABLE>
(1) After giving effect to a 2-for-1 stock split, payable March 19, 1998, the
number of options granted will be doubled and their respective exercise
prices halved in order to avoid any dilution or increase in value resulting
from the stock split.
(2) "Value of Unexercised In-the-Money Options" figures are based on the year
end, December 31, 1997, SBC common stock price of $73.25.
LONG TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------
The table below reports performance shares granted under the 1996 Stock and
Incentive Plan.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
NUMBER OF PERFORMANCE OR OTHER UNDER NON-STOCK PRICE-BASED PLANS
SHARES, UNITS OR PERIOD UNTIL ----------------------------------
NAME OTHER RIGHTS MATURATION OR PAYOUT THRESHOLD TARGET MAXIMUM
<S> <C> <C> <C> <C> <C>
Edward E. Whitacre,
Jr. 25,049 1997-1999 21,292 25,049 25,049
13,333 1997-1998 11,333 13,333 13,333
Royce S. Caldwell 11,089 1997-1999 9,426 11,089 11,089
Charles E. Foster 6,565 1997-1999 5,580 6,565 6,565
William E. Dreyer 6,124 1997-1999 5,205 6,124 6,124
James D. Ellis 5,841 1997-1999 4,965 5,841 5,841
</TABLE>
This table reports performance shares granted to the Named Officers during the
last fiscal year, applicable to the performance periods indicated. Each
performance share is equivalent in value to one share of SBC common stock. After
giving effect to a 2-for-1 stock split, payable March 19, 1998, the number of
performance shares reflected in the table will be doubled in order to avoid any
dilution or increase in value resulting from the stock split. At the end of a
performance period, a percentage of the performance shares is converted into
cash and/or SBC common stock, based upon the achievement of certain value added
performance levels. Value added is defined as after-tax cash operating profit
less depreciation and less a capital charge.
The performance levels are set on a yearly basis, and the extent to which a
performance level is met or exceeded is expressed as a percentage. The annual
percentages are then averaged over the term of each performance period to
determine the percentage of performance shares which may be converted and paid
out. The maximum number of performance shares that may be converted at the end
of a performance period may not exceed 100% of the target number of performance
shares.
26
<PAGE> 30
OPTION GRANTS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------
The table below contains the estimated present value of the stock options as of
their issue date. The first and fourth options set forth opposite each name were
issued under a plan where middle level and above managers receive options based
on the number of shares purchased.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR BASE
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION GRANT DATE
NAME GRANTED(1) FISCAL YEAR(4) ($/SHARE) DATE PRESENT VALUE
<S> <C> <C> <C> <C> <C>
Edward E. Whitacre, Jr. 5,625 0.03% $54.375 2/3/07 $ 71,325
152,250(2) 0.94% $55.000 5/1/07 $1,997,520
181,820(3) 1.13% $55.625 5/2/07 $2,236,386
5,225 0.03% $58.375 8/1/07 $ 79,054
Royce S. Caldwell 2,613 0.02% $54.375 2/3/07 $ 33,133
69,860(2) 0.43% $55.000 5/1/07 $ 916,563
90,910(3) 0.56% $55.625 5/2/07 $1,118,193
2,465 0.02% $58.375 8/1/07 $ 37,295
Charles E. Foster 2,325 0.01% $54.375 2/3/07 $ 29,481
39,860(2) 0.25% $55.000 5/1/07 $ 522,963
45,450(3) 0.28% $55.625 5/2/07 $ 559,035
12,492 0.08% $58.375 8/1/07 $ 189,004
William E. Dreyer 1,205 0.01% $54.375 2/3/07 $ 15,279
30,000(2) 0.19% $55.000 5/1/07 $ 393,600
45,450(3) 0.28% $55.625 5/2/07 $ 559,035
1,094 0.01% $58.375 8/1/07 $ 16,552
James D. Ellis 2,069 0.01% $54.375 2/3/07 $ 26,235
30,000(2) 0.19% $55.000 5/1/07 $ 393,600
45,450(3) 0.28% $55.625 5/2/07 $ 559,035
10,144 0.06% $58.375 8/1/97 $ 153,479
</TABLE>
References to grants A, B, C, and D in the following discussion correspond to
first, second, third, and fourth grants of options, respectively, listed
opposite the name of each of the Named Officers. The option values in the table
represent the estimated present value of the options as of their issue date.
These values were determined by a nationally recognized compensation and
benefits consulting firm in accordance with the Black-Scholes option valuation
model. The significant assumptions incorporated in the Black-Scholes in
estimating the value of the options include the following:
Options were issued with an exercise price equal to the fair market value of
stock on the date of issuance. The term of each option is 10 years (unless
otherwise shortened or forfeited due to termination of employment), but no
option may be exercised during the 12-month period following the date of
issuance.
The model assumed an interest rate of 6.42 percent in calculating the value
of the options in grant A, 6.71 percent for grants B and C, and 6.30 percent
for grant D. These interest rates represent the interest rates on U.S.
Treasury securities on the date of grant with a maturity date corresponding
to that of the option term. Volatility was calculated using daily stock
prices for the one-year period prior to the grant date, resulting in
volatility of 20.437 percent for grant A, 21.598 percent for grant B, 21.587
percent for grants C, and 24.201 percent for grant D. The model reflected
annual per share dividends at the date of issuance of $1.72 per share for
grant A and $1.79 per share for grants B, C and D.
The present values of the options were reduced approximately 7.82 percent for
grant B and 15.07 percent for grant C to reflect the probability of
forfeiture due to termination prior to vesting, and 16.68 percent for grant
A, 10.12 percent for grant B, 9.37 percent for grant C, and 15.55 percent for
grant D, to reflect the probability of a shortened option term due to
termination of employment prior to the option expiration date.
27
<PAGE> 31
The ultimate value of the options will depend on the future market price of
SBC's common stock, which cannot be forecast with reasonable accuracy. The
actual value, if any, an optionee will realize upon exercise of an option will
depend on the excess of the market value of SBC's common stock over the exercise
price on the date the option is exercised.
(1) After giving effect to a 2-for-1 stock split, payable March 19, 1998, the
number of options granted will be doubled and their respective exercise
prices halved in order to avoid any dilution or increase in value resulting
from the stock split.
(2) One-third of these options vest on each anniversary of the grant. As of
December 31, 1997, none of these options have vested.
(3) These options vest on the earlier of May 2, 2001, or the date on which SBC
reports certain earnings per share results.
(4) Percentages are based on 16,115,229 options granted to employees in 1997.
PENSION PLANS
SBC has a noncontributory pension plan for employees known as the SBC Pension
Benefit Plan. Beginning June 1, 1997, management participants, including
executive officers, are entitled to receive the greater of two pension benefits,
the Cash Balance Benefit or the Grandfathered Benefit, each of which is subject
to Internal Revenue Code limitations on pay used to calculate pensions. A
participant's Cash Balance Benefit is equal to the balance in the participant's
cash balance account, which is made up of (i) an opening account balance as of
June 1, 1997, which reflects the lump sum present value of the participant's
approximate "age 65" accrued benefit under the old plan design, (ii) subsequent
monthly basic benefit credits equal to 5 percent of the participant's
compensation (generally, base pay, commissions, and other nondiscretionary
bonuses such as group incentive awards), and (iii) monthly interest credits on
the participant's cash balance account. The interest rate is equal to the
published average annual yield for the 30-year Treasury Bond, reset quarterly as
of the middle of the preceding quarter. In addition, over the period June 30,
1997 through May 31, 2002, the participant's account receives a monthly pro rata
share of the participant's transition benefit, which is based on an estimate of
what the participant's account balance would have been if the cash balance
design had been applied throughout the participant's employment with SBC, plus
additional credits if the total of the participant's age plus service exceeds
25. The Grandfathered Benefit is equal to the sum of 1.6 percent of a
participant's average compensation (generally, base pay, commissions, and other
nondiscretionary bonuses such as group incentive awards) for the five years
ended December 31, 1996 (or any prior 5 year averaging period if it would result
in a higher benefit), multiplied by the number of years of service through the
end of the participant's averaging period, plus 1.6 percent of the participant's
pension compensation subsequent to the averaging period. (The participant may
also be eligible for an alternative Grandfathered Benefit under an early
retirement program. Under the alternative benefit, the pension is equal to the
number of years of service (plus an additional 5 years of age and service
credits) multiplied by the participant's average compensation for the 5 year
period ending December 31, 1990, plus 1.6% of 1991 pay in 1991, and no credit
for service after 1991.)
28
<PAGE> 32
Pension amounts are not subject to reduction for Social Security benefits or any
other offset amounts. The Internal Revenue Code places certain limitations on
pensions that may be paid under federal income tax qualified plans. Benefits
that are so limited are restored from the general funds of SBC either under the
Supplemental Retirement Income Plan (see paragraph below) or another SBC
nonqualified plan. If they continue in their current positions at their current
levels of compensation and retire at the mandatory retirement age of 65, the
total estimated annual pension amounts from the Pension Benefit Plan, and the
estimated credited years of service at retirement under the Plan for Messrs.
Whitacre, Caldwell, Foster, Dreyer, and Ellis would be $132,656 (44 years),
$123,436 (41 years), $123,352 (40 years), $52,613 (18 years), and $105,630 (36
years), respectively.
The Supplemental Retirement Income Plan (which is not funded by, nor is it a
part of, the Pension Benefit Plan) establishes a target annual retirement
benefit for all officers and certain senior managers, stated as a percentage of
their annual salaries and annual incentive bonus averaged over a specified
averaging period described below ("Average Annual Compensation"). The percentage
is increased by .71 percent for each year of actual service in excess of, or
decreased by 1.43 percent for each year of actual service below, 30 years of
service for executive officers and other officers and 35 years of service for
other senior managers. Average Annual Compensation is determined by averaging
salaries and annual incentive bonus earned during the 36-consecutive-month
period out of the last 120 months preceding retirement that generates the
highest average earnings. The target percentages of Average Annual Compensation
are: Chairman of the Board and Chief Executive Officer, 75 percent; certain
executive officers, 70 percent; other executive officers and other officers, 55
to 60 percent; and certain other senior managers, 50 percent. This plan pays the
difference, if any, between the target amount and what would be payable under
the Pension Benefit Plan if the benefits under the Pension Benefit Plan were
paid in the form of an immediate annuity for life. In the event the participant
retires before reaching his or her 60th birthday, a discount of .5 percent for
each month remaining until the participant's 60th birthday is applied reducing
the amount payable under this plan, except for officers who have 30 years or
more of service at the time of retirement. If they continue in their current
positions at their current levels of salary and most recent bonuses, and if they
retire at the mandatory retirement age of 65, the estimated annual amounts that
will be paid in accordance with the Supplemental Retirement Income Plan for
Messrs. Whitacre Caldwell, Foster, Dreyer, and Ellis would be $2,743,744,
$1,146,100, $651,403, $615,167 and $672,420, respectively. In calculating Mr.
Dreyer's benefits under the plan, the Company recognizes Mr. Dreyer's prior
service with the Company as well as his prior service with a former affiliate of
the Company (estimated to give him a total of 44 years of actual service at
retirement); however, these benefits are reduced by payments to be received by
Mr. Dreyer pursuant to such former affiliate's defined pension benefit plan.
29
<PAGE> 33
CONTRACTS WITH MANAGEMENT
On November 21, 1997, the Board of Directors approved revised Change of Control
Severance Agreements (the "Agreements") for each of the officers named in the
"Summary Compensation Table" as well as certain other officers. The purpose of
the Agreements is to reinforce and encourage the officers to maintain
objectivity and a high level of attention to their duties without distraction
from the possibility of a change in control of SBC. These Agreements provide
that in the event of a change in control of SBC, as that term is defined in the
Agreements and summarized below, each officer is entitled to certain benefits
(the "Severance Benefits") upon the subsequent termination or constructive
termination of his or her employment, unless such termination is due to death or
disability, or the termination is by SBC for cause (as defined in the
Agreements); or is by the officer for other than good reason (as defined in the
Agreements).
The Severance Benefits include the payment of the officer's full base salary
through the date of termination plus all other amounts to which the officer is
entitled under any compensation plan of SBC in effect immediately prior to the
change in control. Also, each officer is entitled to a lump sum payment equal to
three (in the case of Messrs. Whitacre, Caldwell, Foster and Ellis) or two (in
the case of Mr. Dreyer) times the sum of (a) the officer's annual base salary in
effect immediately prior to termination, (b) the most recently paid amount under
the Short Term Incentive Plan or as a Key Executive Officer Short Term Award
under the 1996 Stock and Incentive Plan and (c) the cash value of the target
award of performance shares granted under the 1996 Stock and Incentive Plan
applicable to each officer for the most current performance cycle. Additionally,
each officer will be provided with life and health benefits, including
supplemental medical, vision and dental benefits, for three years from the date
of termination, if the officer is not otherwise entitled to the same.
In the event any payment or benefit received or to be received by an officer in
connection with a change in control or the termination of his or her employment,
whether pursuant to his or her Agreement and/or under the 1996 Stock and
Incentive Plan (the "Total Payments"), is determined to be an excess parachute
payment as defined in the Internal Revenue Code and thus subject to the 20
percent Federal excise tax, SBC will pay the officer an amount equal to the
excise tax and all Federal and applicable state taxes resulting from the payment
of the excise tax or from payment of such Federal and state taxes.
Under the Agreements, in general, change in control is deemed to occur (a) if
anyone (other than an employee benefit plan of SBC) acquires more than 20
percent of SBC's common stock, (b) if within a two-year period, the individuals
who were Board members at the beginning of such period cease to constitute a
majority of the Board, or (c) if SBC's shareowners either approve a merger or
consolidation which results in someone other than the shareowners immediately
prior thereto holding more than 35 percent of the voting power of the surviving
entity or approve the complete liquidation of SBC or the disposition of
substantially all of SBC's assets.
30
<PAGE> 34
As a result of SBC's acquisition of Pacific Telesis Group and pursuant to a
change-in-control agreement entered into prior to the acquisition by PTG and
Philip J. Quigley, Chief Executive Officer of PTG, PTG became obligated to make
certain payments to Mr. Quigley in the event of his termination of employment.
In a separate agreement with SBC, Mr. Quigley agreed to serve as President and
Chief Executive Officer of PTG for up to three years, but not less than one
year, following the merger. Under the agreement, upon Mr. Quigley's resignation,
Mr. Quigley would receive the severance payments under his change-in-control
agreement and, if he served less than three years, he would make himself
available to provide consulting services for the remainder of the period after
April 1, 1998, in exchange for $70,417 per month. Subsequently, in an agreement
dated October 24, 1997, Mr. Quigley resigned from the Board of Directors and as
Chief Executive Officer of PTG, effective December 30, 1997, and will be paid
$885,000. Under that agreement, Mr. Quigley is also required to make himself
available for consulting between December 30, 1997, and March 31, 1998, in
addition to his other consulting obligations. For purposes of the PTG Executive
Supplemental Cash Balance Plan, the PTG Executive Deferral Plan, and the PTG
1996 Executive Deferred Compensation Plan, he will be treated as if he had been
employed through March 30, 1998. He will also receive health benefits and
financial counseling in accordance with those plans, as well as other amenities
afforded other former chairmen of PTG. Mr. Quigley also received the sum of
$4,712,365 as payment under his change-in-control agreement with PTG. Mr.
Quigley gave SBC an option to extend his consulting agreement on its original
terms for a period of two additional years, and he will receive an additional
$500,000. The Human Resources Committee also accelerated the vesting of 107,120
stock options, granted Mr. Quigley on May 1, 1997, and May 2, 1997. Under PTG's
qualified pension plan, Mr. Quigley will receive a lump sum payout of $619,890,
and under a nonqualified plan of PTG, a ten-year annuity of $61,194 per month.
31
<PAGE> 35
STOCK PERFORMANCE GRAPH
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
SBC, S&P 500 AND PEER GROUP
- --------------------------------------------------------------------------------
[GRAPH]
Assumes $100 invested on December 31, 1992, in SBC common stock, Standard &
Poor's 500 Index and a Peer Group of other large U.S. telecommunications
companies (Ameritech Corporation, Bell Atlantic Corporation, BellSouth
Corporation, and U S West Communications Group).
The index of telecommunications companies ("Peer Group") is weighted according
to the market capitalization of its component companies at the beginning of each
period.
Total return equals stock price appreciation plus reinvestment of dividends on a
quarterly basis.
32
<PAGE> 36
SHAREOWNER PROPOSALS
Proposals of shareowners intended for presentation at the 1999 Annual Meeting
must be received by SBC for inclusion in its Proxy Statement and form of Proxy
relating to that meeting by November 11, 1998. Such proposals should be sent in
writing by certified mail to the Vice President and Secretary of SBC at 175 E.
Houston, Room 1140, San Antonio, Texas 78205. Faxed proposals will not be
accepted.
Shareowners whose proposals are not included in the Proxy Statement but who
still intend to submit a proposal at the 1999 Annual Meeting and shareowners who
intend to submit nominations for Directors at the meeting are required to notify
the Vice President and Secretary of SBC of their proposal or nominations and to
provide certain other information not less than 60 days, nor more than 90 days,
prior to the meeting, in accordance with SBC's Bylaws.
OTHER BUSINESS
The Board of Directors is not aware of any matters that will be presented at the
meeting for action on the part of shareowners other than those described herein.
A COPY OF SBC'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM
10-K FOR THE YEAR 1997 MAY BE OBTAINED WITHOUT CHARGE UPON WRITTEN REQUEST TO
THE ASSISTANT DIRECTOR-EXTERNAL REPORTING, 175 E. HOUSTON, 9TH FLOOR, SAN
ANTONIO, TEXAS 78205.
By Order of the Board of Directors
/s/ JUDITH M. SAHM
Judith M. Sahm
Vice President and Secretary
March 11, 1998
33
<PAGE> 37
APPENDIX
(SBC LOGO) SBC Communications Inc.
Submit your proxy by mail or telephone.
Dear SBC Shareowner:
You can now submit your proxy either by telephone or by completing the proxy
below and returning it in the enclosed postage paid envelope. To submit your
proxy by telephone, call 1-800-840-6013 (only available in the United States) to
authorize the members of the Proxy Committee to vote your shares as if you
marked and returned your proxy card. You will be asked to enter a control
number which is located below in the box marked "CONTROL NUMBER". You will then
hear these instructions:
OPTION #1: To have your shares voted as the Board of Directors recommends on
ALL matters, press 1 now.
OPTION #2: If you choose to provide voting directions on each item separately,
press 0 now.
Item 1: To have your shares voted FOR all nominees, press 1; to WITHHOLD
FOR ALL nominees, press 9. To withhold for certain nominees, press 0 and
follow the directions (see reverse side of proxy card for 2 digit number).
Items 2 through 5: To have your shares voted FOR this proposal, press 1;
AGAINST, press 9; ABSTAIN, press 0. The instructions are the same for Items
2 through 5.
AFTER YOU SUBMIT YOUR VOTING INSTRUCTIONS, YOUR CHOICES WILL BE REPEATED BACK
TO YOU. AFTER REVIEWING YOUR CHOICES, PRESS 1 TO CONFIRM YOUR VOTING
INSTRUCTIONS.
If you submit your proxy by telephone there is no need for you to mail back
your proxy. THANK YOU FOR VOTING!
CONTROL NUMBER ____________
Call ** Toll Free ** on a U.S. Touch Tone Telephone 1-800-840-6013 - Anytime
There is NO CHARGE to you for this call.
DETACH PROXY CARD HERE IF YOU ARE NOT SUBMITTING YOUR PROXY BY TELEPHONE
- ------------------------------------------------------------------------
(FACE OF PROXY CARD)
Your Directors recommend a vote "FOR" the Director proposals 1, 2, and 3.
1. Election of Directors
For _____ Withhold Authority _____ Exception* _____
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<PAGE> 38
*Exception(s):__________________________________________
To have your shares voted for all Director nominees, mark the "For" box on item
1. To withhold authority to vote your shares for all nominees, mark the
"Withhold Authority" box. If you do not wish your shares voted for a
particular nominee, mark the "Exception" box and enter the name(s) of the
exception(s) in the space provided.
2. Ratification of Independent Auditor
For _____ Against _____ Abstain_____
3. Amendment of Restated Certificate of Incorporation to Increase
Authorized Shares
For _____ Against _____ Abstain _____
Your Directors recommend a vote "AGAINST" the Shareowner proposals 4 and 5.
4. Shareowner Proposal A
For ______ Against _____ Abstain _____
5. Shareowner Proposal B
For ______ Against _____ Abstain _____
Votes MUST be indicated (X) in Black or Blue ink.
Comments: If you have noted either an Address Change or Comments on the other
side of this card, mark here.
Please sign exactly as name or names appear on this proxy. If stock is held
jointly, each holder should sign. If signing as attorney, trustee, executor,
administrator, custodian, guardian or corporate officer, please give full
title.
DATE_________________________________
SIGNATURE(S):_____________________________
Please Sign, Date and Return the Proxy Card Promptly Using the Enclosed
Envelope.
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<PAGE> 39
(REVERSE OF PROXY CARD)
Two maps detailing the location of the Annual Meeting will appear on the
reverse side of the letter to shareowners:
Admission Ticket
SBC Communications Inc.
Annual Meeting of Shareowners
April 24, 1998
Alzafar Shrine Temple
901 North Loop 1604 West
San Antonio, Texas 78216
(LOGO) SBC COMMUNICATIONS INC. PROXY/VOTING INSTRUCTION CARD
- ------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING ON APRIL 24, 1998.
The undersigned hereby appoints the following members of the Directors' Proxy
Committee: Edward E. Whitacre, Jr., Ruben R. Cardenas, Royce S. Caldwell, and
each of them, proxies, with full power of substitution, to vote all common
shares of the undersigned in SBC Communications Inc. at the Annual Meeting of
Shareowners to be held on April 24, 1998, and at any adjournment thereof, upon
all subjects that may properly come before the meeting, including the matters
described in the proxy statement furnished herewith, in accordance with the
directions indicated on the reverse side of this card or through the telephone
proxy procedures, and at the discretion of the proxies on any other matters that
may properly come before the meeting. IF SPECIFIC VOTING DIRECTIONS ARE NOT
GIVEN WITH RESPECT TO THE MATTERS TO BE ACTED UPON AND THE SIGNED CARD IS
RETURNED, THE PROXIES WILL VOTE FOR THE ELECTION OF ALL LISTED NOMINEES AND IN
ACCORDANCE WITH THE DIRECTORS' RECOMMENDATIONS ON THE OTHER SUBJECTS LISTED ON
THE REVERSE SIDE OF THIS CARD. (If you make any changes or voting exceptions in
this paragraph, you must mark the box for "Comments" on the reverse side of this
card in order to process your request.)
The Board of Directors recommends a vote "FOR" each of the three Director
proposals and "AGAINST" each of the two Shareowner proposals listed on the
reverse side of this card.
The nominees for the Board of Directors are: 01-August A. Busch III, 02-Royce S.
Caldwell, 03-Herman E. Gallegos, 04-Jess T. Hay, 05-Bobby R. Inman, and
06-S. Donley Ritchey.
PLEASE SIGN ON THE REVERSE SIDE OF THIS CARD AND RETURN PROMPTLY TO P.O. BOX
1138, NEWARK, NEW JERSEY 07101-9758; OR, IF YOU CHOOSE, YOU CAN SUBMIT YOUR
PROXY BY CALLING 1-800-840-6013. IF YOU DO NOT SIGN AND RETURN A PROXY, SUBMIT
YOUR PROXY BY TELEPHONE, OR ATTEND THE MEETING AND VOTE BY BALLOT, YOUR SHARES
CANNOT BE VOTED.
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<PAGE> 40
This proxy card or your telephone proxy will constitute voting instructions to
the plan administrator or trustee for shares held in SBC's Direct Stock Purchase
and Reinvestment Plan (formerly the Dividend Reinvestment Plan) or in any of the
following SBC employee benefit plans: the PAYSOP, the Savings Plan, the Savings
and Security Plan, the Pacific Telesis Group ("PTG") Supplemental Retirement and
Savings Plan for Salaried Employees, the PTG Supplemental Retirement and Savings
Plan for Non-Salaried Employees, and the PTG PAYSOP. If proxy cards or
telephone proxies representing shares in the foregoing employee benefit plans
are not received, those shares will be voted with respect to each Plan in the
same proportion as the shares for which voting instructions are received from
other participants.
SBC COMMUNICATIONS INC.
P.O. BOX 1138
Newark, N.J. 07101-9758
General comments:
================================================================================
(If you have written in the above space, please mark the box for "Comments" on
the reverse side of this card so that your comments can be directed to the
appropriate group for review.) (Continued, and please sign on reverse side.)
LOGO SBC COMMUNICATIONS INC.
ANNUAL MEETING OF SHAREOWNERS TO BE HELD APRIL 24, 1998.
- ----------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints the following members of the Directors' Proxy
Committee: Edward E. Whitacre, Jr., Ruben R. Cardenas, Royce S. Caldwell, and
each of them, proxies, with full power of substitution, to vote all common
shares of the undersigned in SBC Communications Inc. at the Annual Meeting of
Shareowners to be held on April 24, 1998, and at any adjournment thereof, upon
all subjects that may properly come before the meeting including the matters
described in the proxy statement furnished herewith, in accordance with the
directions indicated on the reverse side of this card, and at the discretion of
the proxies on any other matters that may properly come before the meeting. IF
SPECIFIC VOTING DIRECTIONS ARE NOT GIVEN WITH RESPECT TO THE MATTERS TO BE ACTED
UPON AND THE SIGNED CARD IS RETURNED, THE PROXIES WILL VOTE FOR THE ELECTION OF
ALL LISTED NOMINEES AND IN ACCORDANCE WITH THE DIRECTORS' RECOMMENDATIONS ON THE
OTHER SUBJECTS LISTED ON THE REVERSE SIDE OF THIS CARD.
-38-
<PAGE> 41
The Board of Directors recommends a vote "FOR" each of the three Director
proposals and "AGAINST" each of the two Shareowner proposals listed on the
reverse side of this card.
The nominees for the Board of Directors are: August A. Busch III, Royce S.
Caldwell, Herman E. Gallegos, Jess T. Hay, Bobby R. Inman, and S. Donley
Ritchey.
(REVERSE SIDE OF CARD)
Directors recommend a vote "FOR" the Director proposals 1, 2 and 3 and
"AGAINST" Shareowner proposals A and B.
1. Election of All Directors
For _____ Withhold _____ Exception _____
If you do not wish your shares voted for a particular nominee, mark the
"Exception" box and enter the name(s) of the exception(s) in the line below.
2. Ratification of Independent Auditor
For _____ Against _____ Abstain _____
3. Amendment of Restated Certificate of Incorporation to Increase Authorized
Shares
For _____ Against _____ Abstain _____
4. Shareowner Proposal A
For _____ Against _____ Abstain _____
5. Shareowner Proposal B
For _____ Against _____ Abstain _____
Date _______________________
Signature __________________
Signature __________________
IMPORTANT: Please sign your name(s) exactly as shown hereon.
PLEASE DATE, SIGN, AND RETURN YOUR PROXY TODAY.
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