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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 31, 2000
PRODIGY COMMUNICATIONS CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
000-25333 04-3323363
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(Commission File Number) (IRS Employer Identification No.)
44 SOUTH BROADWAY, WHITE PLAINS, NY 10601
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(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including area code): (914) 448-8000
Not Applicable
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
On May 31, 2000, Prodigy Communications Corporation and SBC Communications Inc.
completed the transactions described in Prodigy's Current Report on Form 8-K
filed on December 2, 1999. A more complete description of the transactions is
contained in Prodigy's proxy statement dated May 5, 2000.
OVERVIEW OF THE SBC TRANSACTION
In the SBC transaction:
. SBC acquired an approximate 43% indirect interest in Prodigy;
. Prodigy became the exclusive retail Internet service marketed by SBC to
consumers and small businesses in the United States;
. SBC will purchase the Prodigy Internet service from Prodigy on wholesale
terms and provide it to SBC's existing Internet subscribers (approximately
703,000 at March 31, 2000) the wholesale price to be paid by SBC to Prodigy
for the Prodigy Internet service that SBC will resell to its existing
Internet subscribers will equal SBC's average retail price as of the closing
less reasonable and necessary expenses actually incurred by SBC in serving
its existing Internet subscribers;
. SBC committed to obtain for Prodigy 1,200,000 additional Internet subscribers
over a three-year period all new subscribers obtained for Prodigy by SBC will
be Prodigy subscribers;
. Prodigy agreed to pay SBC a fee of between $40 and $75 for each subscriber
obtained by SBC;
. SBC agreed to pay Prodigy a penalty, under a specified formula, if SBC does
not obtain 1,200,000 additional Internet subscribers for Prodigy over the
three-year period, with the size of the penalty based on the number of
subscribers actually obtained by SBC who pay at least one monthly bill from
Prodigy for example, the penalty will range from $165,000,000 if SBC acquires
no new subscribers for Prodigy, to $105,000,000 if SBC acquires 600,000 new
subscribers for Prodigy, to no penalty if SBC acquires 1,200,000 new
subscribers for Prodigy;
. Prodigy granted SBC the exclusive right to market its long-distance phone
service, local phone service, wireless phone services, paging services and
related calling services to Prodigy's subscribers, so long as SBC's service
offerings are competitive with service offerings from other providers;
. SBC became Prodigy's exclusive network provider so long as SBC offers its
network services to Prodigy at the most favorable rates that it offers to
other similar
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purchasers, so long as SBC's terms are competitive with those offered by
other providers;
. Prodigy granted SBC the exclusive right to provide telecommunications,
advertising, telecommunications e-commerce and Internet telephony
applications in conjunction with the Prodigy Internet service to Prodigy's
subscribers, so long as SBC's terms are competitive with those offered by
other providers; and
. SBC became the exclusive provider of electronic yellow and white pages and
city guides to Prodigy's subscribers.
SBC's exclusive rights described in the four preceding bullet points are subject
to Prodigy's existing agreements with other providers. Prodigy currently has
agreements with other providers of network, telecommunications and related
services. These agreements are not affected by the SBC's transaction. When these
agreements terminate, SBC's exclusive rights described above will apply.
STRUCTURE OF THE SBC TRANSACTION
In order to implement the SBC transaction:
. Prodigy contributed substantially all of its assets and liabilities and
transferred its employees to an operating partnership called Prodigy
Communications Limited Partnership;
. SBC contributed to the operating partnership selected routers, servers and
associated hardware used in connection with SBC's consumer and small business
Internet operations;
. SBC contributed to the operating partnership intangible assets consisting
primarily of royalty-free licenses to use SBC's trademarks in connection with
the marketing and operation of the Prodigy Internet service and Prodigy's
right to manage SBC's existing Internet customers;
. Prodigy received an initial interest in the operating partnership of
approximately 57%;
. SBC received an initial interest in the operating partnership of
approximately 43%; and
. SBC may convert its interest in the operating partnership into a direct
equity interest in Prodigy at any time, or may require the operating
partnership to be merged into Prodigy at any time.
Upon the liquidation of the operating partnership, the assets contributed by
Prodigy and SBC will be distributed to them after payment of the operating
partnership's liabilities.
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At the closing, Prodigy issued to SBC one share of Prodigy Class B common stock
in consideration of $100. Prodigy Class B common stock is convertible at any
time, on a one-for-one basis, into the same number of shares of Prodigy Class A
common stock. When transferred to any person or entity not affiliated with SBC,
Prodigy Class B common stock automatically converts into Prodigy Class A common
stock. Only one share of Class B common stock is authorized for issuance and
Prodigy does not anticipate issuing any additional shares of Class B common
stock to SBC or anyone else.
As a result of the SBC transaction:
. Prodigy became a holding company;
. Prodigy's sole assets consist of its approximate 57% interest in the
operating partnership and rights under stock-related agreements and plans;
. Prodigy's sole business is to act as the general partner of the operating
partnership; and
. Prodigy became an affiliate of SBC and became subject to the restrictions
imposed on affiliates of Bell operating companies under the federal
Communications Act.
AGREEMENTS BETWEEN PRODIGY AND SBC
Prodigy and SBC entered into the following agreements as part of the SBC
transaction:
. an investment agreement covering SBC's acquisition of its equity interest in
Prodigy and related matters;
. a strategic and marketing agreement governing the marketing of the Prodigy
Internet service and related matters;
. an amended limited partnership agreement governing the ownership and
operation of the operating partnership; and
. a registration rights agreement for the future registration of SBC's shares
in Prodigy under the federal securities laws and related matters.
The strategic and marketing agreement has an initial term of three years and
will automatically renew for additional three-year terms unless either Prodigy
or SBC terminates it. The strategic and marketing agreement may be terminated
earlier by SBC if Prodigy fails to provide a competitive portal service for
three consecutive quarters or by either party if the other party breaches the
agreement.
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RIGHTS OF PRODIGY STOCKHOLDERS FOLLOWING THE SBC TRANSACTION
Upon completion of the SBC transaction, all outstanding shares of Prodigy common
stock were reclassified into Prodigy Class A common stock. Prodigy Class A
common stock is listed on the Nasdaq National Market and is freely tradeable to
the same extent as Prodigy common stock formerly was. Holders of Prodigy Class A
common stock generally have rights identical to holders of Prodigy Class B
common stock, except that:
. each holder of Prodigy Class A common stock is entitled to one vote per
share;
. SBC, as the holder of the Prodigy Class B common stock, is entitled to one
vote for the share of Prodigy Class B common stock held by it and one vote
for each unit in the operating partnership not held by Prodigy; and
. SBC has the right to directly elect three of Prodigy's nine directors.
Otherwise, holders of Prodigy Class A common stock and Prodigy Class B common
stock generally vote together as a single class on all matters, including the
election of the directors who are not elected directly by SBC. SBC, as the
holder of Prodigy Class B common stock, may approve a merger of the operating
partnership into Prodigy by a vote of at least 75% of Prodigy Class B common
stock without a vote of the holders of Prodigy Class A common stock.
GOVERNANCE OF PRODIGY AND THE OPERATING PARTNERSHIP
As part of the SBC transaction, Prodigy amended its certificate of incorporation
and by-laws to implement the corporate governance arrangements described below.
Prodigy's board of directors consists of nine members:
. three directors elected by SBC;
. three directors designated by Carso Global Telecom and Telmex (Prodigy's
principal stockholders prior to the SBC transaction);
. Prodigy's chief executive officer; and
. two independent directors.
Immediately after the completion of the SBC transaction, Prodigy's directors
were: Samer F. Salameh (Prodigy's chief executive officer); Arturo Elias and
Jaime Chico Pardo (designated by Carso Global Telecom and Telmex); James D.
Gallemore,
James S. Kahan and Charles J. Roesslein (elected by SBC); and James R. Adams (an
independent director). There currently are two vacancies on Prodigy's board,
one to be filled by Carso Global Telecom and Telmex and one to be filled with an
independent director.
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Upon completion of the SBC transaction, Prodigy established an executive
steering committee of the board of directors. This committee consists of four
members, two of whom were selected by SBC (Messrs. Gallemore and Kahan) and two
of whom were selected by Carso Global Telecom and Telmex (Messrs. Chico Pardo
and Salameh). The purpose of the committee is to evaluate all major corporate
actions of Prodigy and its subsidiaries, such as mergers, acquisitions, capital
expenditures or borrowings in excess of $20,000,000. The executive steering
committee must unanimously approve major corporate actions before it submits
them to the board of directors of Prodigy for approval.
Prodigy is the sole general partner of the operating partnership. As sole
general partner of the operating partnership, Prodigy has unilateral control
over all of the affairs and decision making of the operating partnership. As the
sole general partner, Prodigy is responsible for nearly all operational and
administrative decisions of the operating partnership and the day-to-day
management of the operating partnership's business. With some exceptions,
Prodigy cannot be removed as the sole general partner of the operating
partnership and the operating partnership cannot be dissolved without Prodigy's
approval.
OWNERSHIP OF THE OPERATING PARTNERSHIP
Prodigy is the sole general partner of the operating partnership. Subsidiaries
of Prodigy and SBC are the limited partners of the operating partnership.
Upon issuance of the units and Prodigy Class B common stock to SBC, the
aggregate number of units owned by Prodigy and the Prodigy subsidiary equaled
the number of outstanding shares of Prodigy common stock. Following the closing
of the SBC transaction, the aggregate number of units owned by Prodigy and the
Prodigy subsidiary is intended to be at all times equal to the number of shares
of outstanding common stock of Prodigy. The net cash proceeds received by
Prodigy from any issuance of shares of common stock, such as from the exercise
of options and warrants, will be concurrently transferred to the operating
partnership in exchange for units equal in number to the number of shares of
Prodigy common stock issued by Prodigy.
Upon completion of the SBC transaction, the units in the operating partnership
were owned as follows:
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<CAPTION>
Units Percentage
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<S> <C> <C>
Prodigy 1,216,497 1.0%
Prodigy Subsidiary 68,589,583 56.4%
SBC Subsidiary 51,843,631 42.6%
</TABLE>
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Not applicable.
(b) Pro Forma Financial Information.
The pro forma financial information required to be filed by Item 7(a) of
Form 8-K relative to the transactions described in the Registrant's Current
Report on Form 8-K filed on December 2, 1999 are incorporated herein by
reference from the proxy statement dated May 5, 2000.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
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<C> <S>
3.1 (1) Restated Certificate of Incorporation of the Registrant, effective as
of May 31, 2000.
3.2 (1) Amended and Restated By-laws of the Registrant, effective as of May
31, 2000.
3.3* Amended and Restated Limited Partnership Agreement for
Prodigy Communications Limited Partnership dated as of May 31, 2000 by
and among the Registrant, SBC Internet Communications, Inc. and
Prodigy Transition Corporation.
10.1(1)* Investment, Issuance, Contribution and Assumption Agreement, dated
as of November 19, 1999 and as amended as of April 19, 2000, by and
among SBC Communications Inc., SBC Internet Communications, Inc., the
Registrant, Prodigy Transition Corporation and Prodigy
Communications Limited Partnership.
10.2(1) Strategic and Marketing Agreement, dated as of November 19, 1999, by
and among SBC Communications Inc., SBC Internet Communications, Inc.,
the Registrant and Prodigy Communications Limited Partnership.
10.3 Registration Rights Agreement dated as of May 31, 2000 by and among
the Registrant, SBC Communications Inc. and SBC Internet
Communications, Inc.
99 Press Release issued by the Registrant on June 1, 2000.
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(1) Incorporated by reference to the Registrant's Definitive Proxy Statement on
Schedule 14A filed on May 5, 2000.
* The exhibits and schedules to this agreement were omitted from the agreement
by registrant. Registrant agrees to furnish any exhibit or schedule to this
agreement supplementally to the Securities and Exchange Commission upon written
request.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 14, 2000 PRODIGY COMMUNICATIONS CORPORATION
By: /s/ Andrea S. Hirsch
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Andrea S. Hirsch
Executive Vice President and General
Counsel
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EXHIBIT INDEX
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<CAPTION>
Exhibit
Number Description
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<C> <S>
3.1 (1) Restated Certificate of Incorporation of the Registrant, effective as
of May 31, 2000.
3.2 (1) Amended and Restated By-laws of the Registrant, effective as of May
31, 2000.
3.3* Amended and Restated Limited Partnership Agreement for
Prodigy Communications Limited Partnership dated as of May 31, 2000 by
and among the Registrant, SBC Internet Communications, Inc. and
Prodigy Transition Corporation.
10.1(1)* Investment, Issuance, Contribution and Assumption Agreement, dated
as of November 19, 1999 and as amended as of April 19, 2000, by and
among SBC Communications Inc., SBC Internet Communications, Inc., the
Registrant, Prodigy Transition Corporation and Prodigy
Communications Limited Partnership.
10.2(1) Strategic and Marketing Agreement, dated as of November 19, 1999, by
and among SBC Communications Inc., SBC Internet Communications, Inc.,
the Registrant and Prodigy Communications Limited Partnership.
10.3 Registration Rights Agreement dated as of May 31, 2000 by and among
the Registrant, SBC Communications Inc. and SBC Internet
Communications, Inc.
99 Press Release issued by the Registrant on June 1, 2000.
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(1) Incorporated by reference to the Registrant's Definitive Proxy Statement on
Schedule 14A filed on May 5, 2000.
* The exhibits and schedules to this agreement were omitted from the agreement
by registrant. Registrant agrees to furnish any exhibit or schedule to this
agreement supplementally to the Securities and Exchange Commission upon written
request.
