UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. __ )
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 (S)240.14a-12
SBC Communications Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(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:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(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):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] 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:
--------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------------------
LOGO
[LOGO] SBC Communications Inc.
Notice of
Annual Meeting of Stockholders
The 2005 Annual Meeting of Stockholders of SBC Communications Inc. ("SBC"),
a Delaware corporation, will be held at 9:00 a.m. Central Time on Friday, April
29, 2005, at the Alzafar Shrine Temple, 901 North Loop 1604 West, San Antonio,
Texas. The items of business are:
. Election of 14 Directors
. Approval of appointment of Ernst & Young LLP as independent auditors of
SBC for 2005
. Approval of Stock Purchase and Deferral Plan, and
. Act upon such other matters, including certain stockholder proposals if
submitted, as may properly come before the meeting.
Holders of SBC common stock of record at the close of business on March 1,
2005, are entitled to vote at the meeting and any adjournment of the meeting. A
list of these stockholders will be available for inspection during business
hours from April 14 through April 28, 2005, at 175 E. Houston, San Antonio,
Texas, and will also be available at the Annual Meeting.
By Order of the Board of Directors.
/s/ Joy Rick
Joy Rick
Vice President and Secretary
March 11, 2005
IMPORTANT NOTICE
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. Stockholders of record may also give their proxy by telephone or
through the Internet in accordance with the instructions accompanying the
proxy card. Any person giving a proxy has the power to revoke it at any time,
and stockholders who are present at the meeting may withdraw their proxies and
vote in person.
[LOGO] SBC Communications Inc.
PROXY STATEMENT
--------------------------------------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of SBC Communications Inc. ("SBC") for use at
the 2005 Annual Meeting of Stockholders of SBC. The meeting will be held at
9:00 a.m. Central Time on Friday, April 29, 2005, 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 Stockholders. This Proxy Statement
and the accompanying proxy card are being mailed beginning March 11, 2005, to
stockholders of record of SBC's common stock, $1.00 par value per share, at the
close of business on March 1, 2005. Each share entitles the registered holder
to one vote. As of January 31, 2005, there were 3,302,810,791 shares of SBC
common stock outstanding.
All shares represented by proxies will be voted by one or more of the
persons designated on the enclosed proxy card in accordance with the
stockholders' 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 stockholder 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, stockholders may submit their
proxies by telephone or through the Internet using the instructions
accompanying the proxy card. Telephone and Internet proxies must be used in
conjunction with, and will be subject to, the information and terms contained
on the proxy card. Similar procedures may also be available to stockholders who
hold their shares through a broker, nominee, fiduciary or other custodian.
1
The proxy card, or a proxy submitted by telephone or through the Internet,
will also serve as voting instructions to the plan administrator or trustee for
any shares held on behalf of a participant under any of the following employee
benefit plans: the SBC Savings Plan, the SBC Savings and Security Plan, the Old
Heritage Advertising & Publishers, Inc. Profit Sharing Plan, the SBC PAYSOP,
the Pacific Telesis Group Employee Stock Ownership Plan, the Tax Reduction Act
Stock Ownership Plan (the "TRASOP") sponsored by The Southern New England
Telephone Company, the Cingular Wireless 401(k) Savings Plan, and the Cingular
Wireless 401(k) Savings Plan for Bargained Employees. Shares in each of the
foregoing employee benefit plans (except the Old Heritage plan) for which
voting instructions are not received, subject to the trustees' fiduciary
obligations, will be voted by the trustees in the same proportion as the shares
for which voting instructions are received from other participants in each such
plan. For shares held in the Old Heritage plan, the trustee has discretionary
authority to vote the shares for which no voting instructions are received. To
allow sufficient time for voting by the trustees and/or administrators of the
plans, your voting instructions must be received by April 26, 2005.
In addition, the proxy card or a proxy submitted by telephone or through
the Internet will constitute voting instructions to the plan administrator
pursuant to The DirectSERVICE Investment Program sponsored and administered by
EquiServe Trust Company, N.A. (SBC's transfer agent) for shares held on behalf
of plan participants.
If a stockholder participates in these plans and/or maintains stockholder
accounts under more than one name (including minor differences in registration,
such as with or without a middle initial), the stockholder 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 or
through the Internet for each proxy card.
Only one annual report and one Proxy Statement are being delivered to
multiple stockholders sharing an address, unless SBC has received contrary
instructions from one or more of the stockholders at that address. Stockholders
may request a separate copy of the most recent annual report and/or the Proxy
Statement by writing the transfer agent at: EquiServe Trust Company, N.A., P.O.
Box 43078, Providence, RI 02940-3078, or by calling (800) 351-7221.
Stockholders calling from outside the United States may call (816) 843-4280.
Requests will be responded to promptly. Stockholders sharing an address who
desire to receive multiple copies, or who wish to
2
receive only a single copy, of the annual report and/or the Proxy Statement may
write or call the transfer agent at the above address or phone numbers to
request a change.
A stockholder may designate a person or persons other than those persons
designated on the proxy card to act as the stockholder's proxy by striking out
the name(s) appearing on the enclosed proxy card, inserting the name(s) of
another person(s) and delivering the signed card to such person(s). The
person(s) designated by the stockholder must present the signed proxy card at
the meeting in order for the shares to be voted.
Where the stockholder is not the record holder, such as where the shares
are held through a broker, nominee, fiduciary or other custodian, the
stockholder must provide voting instructions to the record holder of the shares
in accordance with the record holder's requirements in order to ensure the
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 D. F. King & Co., Inc. to aid in the solicitation of
proxies at a fee of $15,000, plus expenses.
Stockholders who represent 40% of the common stock outstanding and are
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.
If you plan to attend the meeting in person, please bring the admission
ticket (which is attached to the proxy card) to the Annual Meeting. If you do
not have an admission ticket, you will be admitted upon presentation of
identification at the door.
SBC's executive offices are located at 175 E. Houston, San Antonio, Texas
78205.
Your vote is important. Please sign, date and return your proxy card or
submit your proxy and/or voting instructions by telephone or through the
Internet promptly so that a quorum may be represented at the meeting.
3
--------------------------------------------------------------------------------
BOARD OF DIRECTORS
The Board of Directors is responsible for the management and direction of
SBC and for establishing broad corporate policies. The Board of Directors and
various committees of the Board regularly meet to receive and discuss operating
and financial reports presented by the Chairman of the Board and Chief
Executive Officer as well as reports by experts and other advisors. Corporate
review sessions are also offered to Directors to help familiarize them with
SBC's businesses, technology, and operations. Members of the Board are
encouraged to attend Board meetings in person, unless the meeting is held by
teleconference. The Board held 11 meetings in 2004. Similarly, Directors are
expected to attend the Annual Meeting absent unusual circumstances, although
SBC has no formal policy on the matter. All of the Directors except one
attended the 2004 Annual Meeting.
At least four times a year, the non-employee members of the Board of
Directors meet in executive session, i.e., with no employee Directors or
management personnel present. August A. Busch III has been appointed the Lead
Director to preside over these meetings. Interested persons may contact the
Lead Director or the non-employee Directors by sending written comments through
the Office of the Secretary of the company. The Office will either forward the
original materials as addressed or provide Directors with summaries of the
submissions, with the originals available for review at the Directors' request.
Under SBC's Bylaws, the Board of Directors has the authority to determine
the size of the Board and to fill vacancies. Currently, the Board is comprised
of 16 Directors, one of whom is an executive officer of SBC. Current Directors
Clarence C. Barksdale and William P. Clark will retire from service on the
Board of Directors at the 2005 Annual Meeting and will not stand for
re-election. As a result of their upcoming retirements, the Board voted to
reduce the size of the Board of Directors to 14 Directors, effective
immediately before the 2005 Annual Meeting. There are no vacancies on the Board.
In January SBC entered into an agreement and plan of merger with AT&T
Corp., whereby AT&T Corp. would become a wholly-owned subsidiary of SBC. SBC
has agreed that upon closing of the merger it will appoint to the SBC Board of
Directors David W. Dorman and two other members of the AT&T Board who will be
mutually selected by SBC and AT&T. Mr. Dorman is currently the Chairman and
Chief Executive Officer
4
of AT&T Corp. Because the merger is not expected to close prior to the date of
SBC's 2005 Annual Meeting, these individuals will not be nominated for election
at that meeting.
At the 2004 Annual Meeting, the stockholders approved a Bylaw amendment,
proposed by the Board of Directors, to eliminate the classified Board structure
and require that all Directors be elected annually, beginning in 2005. As a
result, the terms of each of the Directors will expire at the 2005 Annual
Meeting. The Board of Directors has nominated the 14 persons listed as
nominees, each of whom is an incumbent Director, for election at the 2005
Annual Meeting to one-year terms of office expiring at the 2006 Annual Meeting.
Biographical information about the Directors is provided on pages 10-16.
Holdings of SBC common stock by SBC Directors are shown on the table on page 19.
The Corporate Governance and Nominating Committee is responsible for
identifying candidates who are eligible under the qualification standards set
forth in SBC's Corporate Governance Guidelines to serve as members of the
Board. It is authorized to retain search firms and other consultants to assist
it in identifying candidates and fulfilling its other duties. The Committee is
not limited to any specific process in identifying candidates and will consider
candidates suggested by stockholders. Candidates are recommended to the Board
after consultation with the Chairman of the Board. In recommending Board
candidates, the Committee considers a candidate's: (1) general understanding of
elements relevant to the success of a large publicly traded company in the
current business environment, (2) understanding of SBC's business, and (3)
educational and professional background. The Committee also gives consideration
to a candidate's judgment, competence, anticipated participation in Board
activities, experience, geographic location and special talents or personal
attributes. Stockholders who wish to suggest qualified candidates should write
to the Vice President and Secretary, SBC Communications Inc., 175 E. Houston,
San Antonio, Texas 78205, stating in detail the qualifications of such persons
for consideration by the Committee.
5
. Board Committees
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 seven standing committees of
Directors, the principal responsibilities of which are described below. The
charters for each of these committees may be found on SBC's
website: http://www.sbc.com. The biographical information included later in
this Proxy Statement identifies committee memberships held by each Director.
Audit Committee--The Committee met eight times in 2004. It consists of four
non-employee Directors. The Audit Committee oversees the integrity of the
financial statements of SBC, the independent auditor's qualifications and
independence, the performance of the internal audit function and independent
auditors, and the compliance by SBC with legal and regulatory matters. The
Committee is responsible for the appointment, compensation, retention and
oversight of the work of the independent auditor. The independent auditing
firm examines the accounting records of SBC and its subsidiaries.
Corporate Development Committee--The Committee met four times in 2004. It
consists of five non-employee Directors and one employee Director. The
Committee reviews mergers, acquisitions, dispositions, and similar
transactions.
Corporate Governance and Nominating Committee--The Committee met five times in
2004 and consists of five non-employee Directors. It is responsible for
recommending candidates to be nominated by the Board for election by the
stockholders or to be appointed by the Board of Directors to fill vacancies
consistent with the criteria approved by the Board, periodically assessing
SBC's Corporate Governance Guidelines and making recommendations to the
Board for amendments, recommending to the Board the compensation of
Directors, taking a leadership role in shaping corporate governance, and
overseeing an annual evaluation of the Board.
Executive Committee--The Committee did not meet in 2004. It consists of six
non-employee Directors, each of whom is the chairperson of a standing
committee, and the Chairman of the Board. The Committee assists 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.
6
Finance/Pension Committee--The Committee met four times in 2004. It consists of
six non-employee Directors and one employee Director. The Committee assists
the Board in its oversight of SBC's finances, the payment by SBC of
dividends, and SBC's investment policies.
Human Resources Committee--The Committee met five times in 2004. It consists of
four non-employee Directors. The Committee oversees the management of human
resources activities of SBC, including the design of employee benefit plans.
The Committee is also responsible for establishing the compensation of the
Chief Executive Officer and other officers, as determined by the Committee.
Public Policy and Environmental Affairs Committee--The Committee met three
times in 2004. It consists of six non-employee Directors. The Committee
assists the Board in its oversight of corporate policies, including
legislative matters and environmental matters.
. Independence of Directors
The New York Stock Exchange ("NYSE") has recently adopted new independence
standards for companies listed on the NYSE, including SBC. These standards
require a majority of the Board to be independent and every member of each of
the Audit Committee, Human Resources Committee, and Corporate Governance and
Nominating Committee to be independent. A Director is considered independent
only if the Board of Directors "affirmatively determines that the director has
no material relationship with the listed company (either directly or as a
partner, stockholder or officer of an organization that has a relationship with
the company)." In addition, the Board of Directors has adopted certain
additional standards for determining the independence of its members. In
accordance with the following standards of the NYSE, a Director is not
independent if:
. The Director is, or has been within the last three years, an employee of
SBC, or an immediate family member is, or has been within the last three
years, an executive officer, of SBC.
. The Director has received, or has an immediate family member who has
received, during any 12-month period within the last three years, more
than $100,000 in direct compensation from SBC, other than director and
committee fees and pension or other forms of deferred compensation for
prior service (provided such compensation is not contingent in any way on
continued service).
7
. (A) The Director or an immediate family member is a current partner of a
firm that is SBC's internal or external auditor; (B) the Director is a
current employee of such a firm; (C) the Director has an immediate family
member who is a current employee of such a firm and who participates in
the firm's audit, assurance or tax compliance (but not tax planning)
practice; or (D) The Director or an immediate family member was within
the last three years (but is no longer) a partner or an employee of such
a firm and personally worked on SBC's audit within that time period.
. The Director or an immediate family member is, or has been within the
last three years, employed as an executive officer of another company
where any of SBC's present executives officers at the same time serves or
served on that company's compensation committee.
. The Director is a current employee, or an immediate family member is a
current executive officer, of a company that has made payments to, or
received payments from, SBC for property or services in an amount which,
in any of the last three fiscal years, exceeds the greater of $1 million,
or 2% of such other company's consolidated gross revenues.
The following are additional standards for determining independence of
Directors, established by the SBC Board of Directors:
. A Director who owns, together with any ownership interests held by
members of the Director's immediate family, 10% of another company that
makes payments to, or receives payments from, SBC (together with its
consolidated subsidiaries) for property or services in an amount which,
in any single fiscal year, exceeds the greater of $1 million or 2% of
such other company's consolidated gross revenues, is not independent
until three years after falling below such threshold.
. A Director who is, or whose immediate family member is, a director,
trustee or officer of a charitable organization, or holds a similar
position with such an organization, and SBC (together with its
consolidated subsidiaries) makes contributions to the charitable
organization in an amount which exceeds, in any single fiscal year, the
greater of $1 million per year or at least 5% of such organization's
consolidated gross revenues, is not independent until three years after
falling below such threshold.
8
The Board of Directors, using the above standards for determining
the independence of its members, has determined that the following Directors
are independent: Gilbert F. Amelio, Clarence C. Barksdale, August A. Busch III,
William P. Clark, Martin K. Eby, Jr., James A. Henderson, Lynn M. Martin, John
B. McCoy, Mary S. Metz, S. Donley Ritchey, Joyce M. Roche, Laura D'Andrea
Tyson, and Patricia P. Upton. In addition, the Board has determined that every
member of the Audit Committee, the Human Resources Committee and the Corporate
Governance and Nominating Committee is independent.
9
--------------------------------------------------------------------------------
ELECTION OF DIRECTORS
[PHOTO]
EDWARD E. WHITACRE, JR., age 63, 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 the Chairman of the Executive
Committee and a member of the Corporate Development Committee
and the Finance/Pension Committee. He is a Director
of Anheuser-Busch Companies, Inc. and Burlington Northern Santa
Fe Corporation.
[PHOTO]
GILBERT F. AMELIO, age 62, is Senior Partner of Sienna Ventures
(a privately-held venture capital firm), Sausalito, California,
and has served in this capacity since April 2001. Dr. Amelio is
also Chairman and Chief Executive Officer of Beneventure
Capital, LLC (a full-service venture capital firm), San
Francisco, California, and has served as such since 1999 and was
Principal of Aircraft Ventures, LLC (a consulting firm), Newport
Beach, California, from April 1997 to December 2004. In 2003,
AmTech, LLC (a high technology investments and consulting
services firm), where Dr. Amelio served as Chairman and Chief
Executive Officer from 1999 to April 2004, declared bankruptcy.
Dr. Amelio was elected a Director of SBC in February 2001 and
had previously served as an Advisory Director of SBC from April
1997 to February 2001. He served as a Director of Pacific
Telesis Group from 1995 until the company was acquired by SBC in
1997. He is a member of the Audit Committee and the Human
Resources Committee. Dr. Amelio is a Director of SiVault
Systems, Inc.
10
[PHOTO]
AUGUST A. BUSCH III, age 67, is Chairman of the Board of
Anheuser-Busch Companies, Inc. (a brewing, packaging, and family
entertainment holding company), St. Louis, Missouri, and has
served in this capacity since 1977. Mr. Busch also served as
Chief Executive Officer of Anheuser-Busch Companies, Inc. from
1975 until June 2002. 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. He is the Chairman of the
Corporate Governance and Nominating Committee and a member of
the Corporate Development Committee and the Executive Committee.
Mr. Busch is a Director of Anheuser-Busch Companies, Inc. and
Emerson Electric Co.; and an Advisory Member of the Board of
Directors of Grupo Modelo, S.A. de C.V.
[PHOTO]
MARTIN K. EBY, JR., age 70, retired. Mr. Eby was Chairman of the
Board of The Eby Corporation (a commercial general contractor
holding company), Wichita, Kansas, from April 1979 until his
retirement in July 2004. Mr. Eby was also President and Chief
Executive Officer of The Eby Corporation from June 1967 to
December 1997. He has been a Director of SBC since June 1992. He
is a member of the Audit Committee and the Human Resources
Committee.
[PHOTO]
JAMES A. HENDERSON, age 70, retired. Mr. Henderson was Chairman
of the Board from 1995 and Chief Executive Officer from 1994 of
Cummins Inc. (manufacturer of diesel and natural gas engines),
Columbus, Indiana, until his retirement in December 1999. Mr.
Henderson has been a Director of SBC since October 1999. He
served as a Director of Ameritech Corporation from 1983 until
the company was acquired by SBC in 1999. He also served as a
Director of Indiana Bell Telephone Company (which became a
subsidiary of Ameritech) from 1978 until 1983. He is the
Chairman of the Human Resources Committee and a member of the
Executive Committee and the Finance/Pension Committee. Mr.
Henderson is a Director of International Paper Company;
Nanophase Technologies Corporation; Rohm and Haas Company; and
Ryerson Tull, Inc.
11
[PHOTO]
CHARLES F. KNIGHT, age 69, retired. Mr. Knight was Chairman of
the Board of Emerson Electric Co. (manufacturer of electrical
and electronic equipment), St. Louis, Missouri, from 1974 until
his retirement in September 2004, when he was elected to the
honorary position of Chairman Emeritus. Mr. Knight was also
Chief Executive Officer of Emerson Electric Co. from 1973 to
2000. He has been a Director of SBC since October 1983. He
served as a Director of Southwestern Bell Telephone Company from
1974 to 1983. He is the Chairman of the Corporate Development
Committee and a member of the Executive Committee and the
Finance/Pension Committee. Mr. Knight is a Director of
Anheuser-Busch Companies, Inc.; BP p.l.c.; International
Business Machines Corporation; and Morgan Stanley.
[PHOTO]
LYNN M. MARTIN, age 65, is Chair of the Council for the
Advancement of Women and Advisor to the firm of Deloitte &
Touche LLP (an auditing and management consulting services
firm), Chicago, Illinois, and has served in this capacity since
1993. She has also been President of The Martin Hall Group, LLC
(a human resources consulting firm), Chicago, Illinois, since
January 2005. Ms. Martin served as U.S. Secretary of Labor from
1991 to 1993 and as a member of the U.S. House of
Representatives from Illinois from 1981 to 1991. Ms. Martin has
been a Director of SBC since October 1999. She served as a
Director of Ameritech Corporation from 1993 until the company
was acquired by SBC in 1999. She is a member of the
Finance/Pension Committee and the Public Policy and
Environmental Affairs Committee. She is a Director of
Constellation Energy Group, Inc.; certain Dreyfus Funds; The
Procter & Gamble Company; and Ryder System, Inc.
12
[PHOTO]
JOHN B. MCCOY, age 61, retired. Mr. McCoy was Chairman from
November 1999 and Chief Executive Officer from October 1998 of
BANK ONE CORPORATION (commercial and consumer bank) until his
retirement in December 1999, and Chairman and Chief Executive
Officer of its predecessor, BANC ONE CORPORATION, from 1987 to
1998. Mr. McCoy has been a Director of SBC since October 1999.
He served as a Director of Ameritech Corporation from 1991 until
the company was acquired by SBC in 1999. He is the Chairman of
the Finance/Pension Committee and a member of the Corporate
Governance and Nominating Committee and the Executive Committee.
He is a Director of Cardinal Health, Inc.; ChoicePoint Inc.; and
Federal Home Loan Mortgage Corporation.
[PHOTO]
MARY S. METZ, age 67, is Chair of the Board of Trustees of
American Conservatory Theater (a nonprofit nationally renowned
theater and an accredited conservatory), San Francisco,
California, and has served in this capacity since November 2004.
Dr. Metz is also President Emerita of Mills College. She was
President of S. H. Cowell Foundation, San Francisco, California,
from January 1999 until her retirement in March 2005 and was
Dean of the University Extension of the University of
California, Berkeley, from 1991 until 1998. Dr. Metz has been a
Director of SBC since April 1997. She served as a Director of
Pacific Telesis Group from 1986 until the company was acquired
by SBC in 1997. She is a member of the Corporate Governance and
Nominating Committee and the Public Policy and Environmental
Affairs Committee. Dr. Metz is a Director of Longs Drug Stores
Corporation; Pacific Gas and Electric Company; and UnionBanCal
Corporation.
13
[PHOTO]
TONI REMBE, age 68, retired. Ms. Rembe was a partner in the law
firm of Pillsbury Winthrop LLP, San Francisco, California, from
1971 until her retirement in December 2004. Ms. Rembe was
elected a Director of SBC in January 1998 and had previously
served as an Advisory Director of SBC from April 1997 to January
1998. She served as a Director of Pacific Telesis Group from
1991 until the company was acquired by SBC in 1997. She is a
member of the Corporate Development Committee and the Public
Policy and Environmental Affairs Committee. Ms. Rembe is a
Director of AEGON N.V.
[PHOTO]
S. DONLEY RITCHEY, age 71, is Managing Partner of Alpine
Partners (a family investment general partnership), Danville,
California, and has served in this capacity since 1981. Mr.
Ritchey was Chairman of the Board of Lucky Stores, Inc. from
1981 until his retirement in 1986 as well as Chief Executive
Officer from 1980 to 1985. Mr. Ritchey has been a Director of
SBC since April 1997. He served as a Director of Pacific Telesis
Group from 1984 until the company was acquired by SBC in 1997.
He is a member of the Audit Committee and the Corporate
Governance and Nominating Committee. Mr. Ritchey is a Director
of The McClatchy Company.
14
[PHOTO]
JOYCE M. ROCHE, age 57, is President and Chief Executive Officer
of Girls Incorporated (a national nonprofit research, education,
and advocacy organization), New York, New York, and has served
in this capacity since September 2000. Ms. Roche was an
independent marketing consultant from 1998 to 2000. She was
President and Chief Operating Officer of Carson, Inc. from 1996
to 1998, and Executive Vice President of Global Marketing of
Carson, Inc. from 1995 to 1996. Ms. Roche has been a Director of
SBC since October 1998. She served as a Director of Southern New
England Telecommunications Corporation from 1997 until the
company was acquired by SBC in 1998. She is a member of the
Finance/Pension Committee and the Public Policy and
Environmental Affairs Committee. She is a Director of
Anheuser-Busch Companies, Inc.; The May Department Stores
Company; and Tupperware Corporation.
[PHOTO]
LAURA D'ANDREA TYSON, age 57, is Dean of the London Business
School, London, England, and has served in this capacity since
January 2002. Dr. Tyson was Dean of the Walter A. Haas School of
Business at the University of California, Berkeley, from July
1998 to December 2001. Dr. Tyson served as Professor of
Economics and Business Administration at the University of
California, Berkeley, from 1997 to 1998. She served as National
Economic Adviser to the President of the United States from 1995
to 1996 and as Chair of the White House Council of Economic
Advisers from 1993 to 1995. Dr. Tyson has been a Director of SBC
since October 1999. She served as a Director of Ameritech
Corporation from 1997 until the company was acquired by SBC in
1999. She is a member of the Corporate Development Committee and
the Finance/Pension Committee. Dr. Tyson is a Director of
Eastman Kodak Company and Morgan Stanley.
15
[PHOTO]
PATRICIA P. UPTON, age 66, is President and Chief Executive
Officer of Aromatique, Inc. (manufacturer and wholesaler of
decorative fragrances), Heber Springs, Arkansas, and has served
in this capacity since 1982. Ms. Upton has been a Director of
SBC since June 1993. She is the Chairwoman of the Public Policy
and Environmental Affairs Committee and a member of the
Executive Committee and the Human Resources Committee.
. Compensation of Directors
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 $65,000 annual retainer, $2,000 for each Board meeting and review session
attended, and $1,700 for each committee meeting attended. Excluding employee
Directors, the Chairperson of each committee receives an additional annual
retainer of $5,000, except for the Chairperson of the Audit Committee who
receives an additional annual retainer of $15,000, and the Lead Director who
receives an additional annual retainer of $10,000.
Directors may elect to take their retainer in the form of SBC common stock
or cash. Directors may also elect to defer the receipt of their fees and all or
part of their retainers 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 as elected by the Director in up to 15
annual installments after the Director ceases service with the Board. Each
Director also receives an annual award of Stock Units equal in value to one and
one-half times the base annual retainer. In addition, each non-employee
Director who joined the Board after November 21, 1997, and before September 24,
2004, receives an annual grant of Stock Units equal to $13,000, limited to 10
annual grants. Deferrals into the Cash Deferral Account earn interest during
the calendar year at a rate equal to the Moody's Long Term Corporate Bond Yield
Average for September of the preceding year ("Moody's"). Annually, Directors
may elect to convert their Cash Deferral Accounts into Stock Units at the fair
market value of SBC stock at the time of the conversion.
16
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 2004 for these policies were $1,238 for
travel accident insurance and $7,683 for group life insurance. Directors and
former Directors also receive certain telecommunications and satellite TV
services and equipment. The value of the services and equipment received by
Directors who served at any time during 2004, or for whom reimbursement was
provided, together with amounts necessary to offset the Directors' applicable
tax liabilities resulting from such services and benefits, computed at maximum
marginal rates, averaged $9,548 per non-employee Director in 2004. Employee
Directors receive similar services and equipment in connection with their
service as officers of SBC.
SBC does not offer non-employee Directors a retirement plan or pension.
However, Directors who joined the Board prior to 1997 have vested rights in a
former pension plan no longer offered to Directors. Only benefits that have
already vested are payable under the plan. Each Director who is vested in the
former pension plan, upon retirement, will receive annually 10% of the annual
retainer in effect at the time of his or her retirement multiplied by the
number of years of service, not to exceed 10 years. The payments will continue
for the life of the Director. If the Director dies before receiving 10 years of
payments, the Director's beneficiaries will receive the payments for the
remainder of the 10-year period.
Upon the acquisition of Pacific Telesis Group ("PTG") by SBC on April 1,
1997, certain of the former PTG Directors joined the SBC Board. As part of
their service with PTG, these Directors previously received stock options and
PTG Deferred Stock Units, the latter of which were issued in exchange for the
waiver by the Directors of certain retirement benefits. The PTG Deferred Stock
Units earn dividend equivalents and are paid out in the form of cash after the
retirement of the Director. After the acquisition of PTG, both the Deferred
Stock Units and the stock options were modified so that their value was based
on SBC stock instead of PTG stock. Service as a Director of SBC is deemed
service with PTG for these benefits. 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% for deferrals from 1985 through 1992; Moody's
plus 2% for deferrals from 1993 through 1995; and the 10-year Treasury Note
average for the month of September for the prior year plus 2% for deferrals
after 1995.
17
One member of the immediate family of Herman E. Gallegos, who retired as a
Director on April 30, 2004, was employed by a subsidiary of SBC in 2004 and was
paid a total of approximately $129,000. Amounts paid to this employee were
comparable to compensation paid to other employees performing similar job
functions.
In 2004, SBC and/or its subsidiaries obtained legal services from the law
firm of Pillsbury Winthrop LLP, of which Ms. Rembe was a partner, on terms
which SBC believes were as favorable as would have been obtained from
unaffiliated parties. Ms. Rembe retired from the law firm December 31, 2004.
--------------------------------------------------------------------------------
COMMON STOCK OWNERSHIP
. Certain Beneficial Owners
The following table sets forth the beneficial ownership of each person
holding more that 5% of SBC's outstanding common stock as of December 31, 2004
(as reported in filings made with the Securities and Exchange Commission on
Schedule 13G by the respective stockholders listed below).
----------------------------------------------------------------------
Amount and
Nature of
Name and Address Beneficial Percent
Title of Class of Beneficial Owner Ownership of Class
--------------- --------------------------------- ----------- --------
Common stock, Capital Research & Management Co.
$1.00 par value 333 South Hope Street
Los Angeles, CA 90071 229,344,700 6.9%
Common stock, FMR Corp.
$1.00 par value 82 Devonshire Street
Boston, MA 02109 189,224,180 5.7%
----------------------------------------------------------------------
18
. Directors and Officers
The following table sets forth the beneficial ownership of SBC common stock
as of December 31, 2004, held by each Director, nominee and officer named in
the Compensation Table on page 47. 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.
------------------------------------------------------------------------------------------------
Total SBC Total SBC
Beneficial Beneficial
Ownership Non-Voting Ownership Non-Voting
Name of (including Stock Name of Beneficial (including Stock
Beneficial Owner options)(1) Units(2) Owner options)(1) Units(2)
----------------------- ----------- ---------- -------------------------- ----------- ----------
Gilbert F. Amelio 5,396 30,027 Laura D'Andrea Tyson 11,648 21,708
Clarence C. Barksdale 10,977 24,728 Patricia P. Upton 12,638 20,091
August A. Busch III (3) 46,354 70,095 Edward E. Whitacre, Jr. 9,693,811 271,385
William P. Clark 13,081 19,368 John H. Atterbury III 769,277 95,811
Martin K. Eby, Jr. 26,856 33,158 James D. Ellis 1,367,358 418,974
James A. Henderson 13,476 25,795 Randall L. Stephenson 652,613 98,041
Charles F. Knight 24,978 35,529 Rayford Wilkins, Jr. 753,285 15,220
Lynn M. Martin 13,386 18,410
John B. McCoy 31,584 34,718 All executive officers and
Mary S. Metz 10,314 23,614 Directors as a group
Toni Rembe (4) 22,341 27,376 (consisting of 26
S. Donley Ritchey 15,150 35,786 persons, including
Joyce M. Roche 2,041 28,618 those named above): 16,709,148 1,673,618
------------------------------------------------------------------------------------------------
(1) This table includes presently exercisable stock options and stock options
that 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--5,848; Dr. Metz--5,848; Ms.
Rembe--5,848; Mr. Ritchey--5,848; Mr. Whitacre--8,175,472; Mr.
Atterbury--731,917; Mr. Ellis--1,342,803; Mr. Stephenson--647,289; Mr.
Wilkins--702,175; and all executive officers and Directors as a
group--14,692,873.
This table also includes 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--1,154; Mr. Atterbury--1,183; Mr. Ellis--1,210;
Mr. Stephenson--63; and Mr. Wilkins--606. In addition, of the shares shown
in the above table, the following persons share voting and investment power
with other persons with respect to the number of shares set forth following
their respective names: Dr. Amelio--5,380; Mr. Busch--6,600;
Judge Clark--7,233; Dr. Metz--1,592, Ms. Rembe--2,518; Mr. Ritchey--9,300;
Dr. Tyson--11,648; Ms. Upton--5,025; Mr. Whitacre--31,668; Mr.
Ellis--15,475; and Mr. Wilkins--15,456.
(2) Represents number of Stock Units held by the Director or officer, where
each Stock Unit is convertible into a share of SBC stock at times specified
by the relevant plan. None of the Stock Units listed may be converted into
common stock within 60 days of the date of this table. As noted under
"Compensation of Directors," non-employee Directors may acquire Stock Units
by deferring the receipt of fees and retainers into Stock Units. Directors
also receive yearly grants of Stock Units. Officers may acquire Stock Units
by participating in stock-based compensation deferral plans. Stock Units
earn dividend equivalents at the same rate as the underlying stock, which
are reinvested in additional Stock Units. Stock Units carry no voting
rights.
(3) Mr. Busch disclaims beneficial ownership of 3,300 shares held in a trust
for a sister.
(4) Ms. Rembe disclaims beneficial ownership of 2,145 shares held in a trust
for her spouse and 373 shares held by her spouse's corporation.
19
--------------------------------------------------------------------------------
MATTERS TO BE VOTED UPON
. 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. All other matters will
be determined by a majority of the votes cast. Shares represented by proxies
marked to withhold authority to vote 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. If no directions are
given and the signed card is returned, the person or persons designated on the
card will vote the shares for the election of the Board of Directors' nominees
and in accordance with the recommendations of the Board of Directors 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 and the approval of
the appointment of the independent auditors. 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. At the 2005 Annual Meeting, brokers will
be prohibited from exercising discretionary authority only with respect to the
Approval of Stock Purchase and Deferral Plan (Item 3) and each of the
stockholder proposals (Items 4, 5, 6 and 7).
. Election of Directors (Item 1 on Proxy Card)
The following persons, each of whom is currently a Director of SBC, have
been nominated by the Board of Directors on the recommendation of the Corporate
Governance and Nominating Committee for election to one-year terms of office
that would expire at the 2006 Annual Meeting.
20
Edward E. Whitacre, Jr. John B. McCoy
Gilbert F. Amelio Mary S. Metz
August A. Busch III Toni Rembe
Martin K. Eby, Jr. S. Donley Ritchey
James A. Henderson Joyce M. Roche
Charles F. Knight Laura D'Andrea Tyson
Lynn M. Martin Patricia P. Upton
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 or Internet 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 Directors.
. Approval of Appointment of Ernst & Young LLP as Independent Auditors (Item 2
on Proxy Card)
The Audit Committee of the Board of Directors has appointed the firm of
Ernst & Young LLP to serve as independent auditors of SBC for the fiscal year
ending December 31, 2005, subject to stockholder approval. This firm has
audited the accounts of SBC since 1983. If stockholders do not approve this
appointment, the Committee will consider other independent auditors. One or
more members of Ernst & Young LLP are expected to be present at the Annual
Meeting, will be able to make a statement if they so desire, and will be
available to respond to appropriate questions.
Your Board of Directors Recommends a Vote "FOR" Approval
of the Appointment of Ernst & Young LLP as Independent Auditors.
. Approval of Stock Purchase and Deferral Plan
(Item 3 on Proxy Card)
The Stock Purchase and Deferral Plan (the "Plan") offers mid-level and
above management employees the opportunity to purchase SBC common stock through
payroll deductions, and based on the number of shares purchased, participants
may receive limited, partial matching employer contributions in the form of
additional common stock and receive options to
21
purchase additional common stock. The Plan is designed to encourage managers to
invest in SBC common stock and, thereby, give these managers an even greater
interest in the continued success of SBC. The Plan is administered by the Human
Resources Committee (the "Committee"), a committee of the Board of Directors
made up of independent Directors.
The Plan replaces a similar program, with the same core features described
above, that was originally approved by stockholders in 1991 and re-approved in
1994. In 2001, the Board of Directors authorized additional shares for the
1991/1994 program, modified the distribution alternatives and made other
changes.
In 2004, the tax laws governing the timing of elections and the payment of
benefits under deferred compensation plans were significantly changed. The
Board of Directors believes the program has been successful and that it is in
the interest of SBC to continue to offer managers the opportunity to invest in
SBC stock through the new Plan. To comply with the new law on compensation
deferral and to make additional shares available to participants, the Board of
Directors adopted the new Plan, subject to stockholder approval, with new
participation, distribution and other provisions, but maintaining the basic
premise of the original program. If the Plan is not approved by stockholders at
the 2005 Annual Meeting, the Plan will terminate and all contributions to the
Plan will be returned to employees along with the cash value of any matching
contributions. As of January 1, 2005, no new contributions may be made to the
old plan (other than the reinvestment of dividend equivalents on existing
deferrals).
The terms of the Plan are summarized below. In addition, the full text of
the Plan is set forth in Appendix A to this Proxy Statement, and the following
summary is qualified in its entirety by reference to the text of the Plan.
Plan Summary
The Plan is offered to mid-level and above management employees, which
currently total approximately 2,700 managers.
Each year, a participant may elect to establish a Share Deferral Account to
purchase share units through payroll deductions during the upcoming year. The
purchase price of a share unit is equal to the price of a share of common stock
at the time of purchase. Each share unit is converted into a share of common
stock at distribution. Share units earn dividend equivalents at the same rate
as common stock and are reinvested in additional share units. SBC may refuse or
terminate, in whole or in part, any election to participate in the Plan.
22
A participant may elect to contribute from 6% to 30% of the participant's
annual base compensation. Base compensation includes base salary and the annual
bonus known as a "Team Award"; commissions are excluded. Employees who receive
commissions as a part of their compensation may contribute up to 40% of their
non-commission based compensation. The Committee has authority to add or
subtract various types of compensation from the definition of "base
compensation."
Share units are credited to a participant's account based upon the closing
price of SBC's common stock as of the last day of the month in which the
contributions are credited. The share units are distributed up to five calendar
years after a Share Deferral Account commences, at the election of the
participant. Distributions may be deferred for additional five-year periods, so
long as the election is made while an employee. Distributions may be
accelerated in the event of the death or disability of the participant, and, in
certain circumstances, upon the termination of employment of the participant.
Employees purchasing share units with base compensation receive a limited,
partial matching contribution from SBC. SBC credits up to 8/10 of a share unit
for each share unit purchased by the employee. This matching contribution is
only applicable to the first 6% of the employee's compensation. These amounts
approximate the company match available under the company's tax-qualified
401(k) plans offered to almost all employees. However, to the extent an
employee receives a matching contribution under this Plan, the employee may not
receive a match under another SBC plan. In the event a tax qualified plan
offered to an employee has a greater match rate or greater percentage of
compensation that can be matched than is available in this Plan, the Committee
may increase the matching benefit in this Plan for the affected employee.
Matching share units vest upon three years of service with SBC; employees
who leave SBC before vesting will forfeit their matching share units. Matching
share units are distributed in the calendar year after the participant
terminates employment or the year the participant reaches age 55, whichever is
earlier. Thereafter, matching share units in a Share Deferral Account are
distributed with other share units in the account.
Participants who receive an annual cash bonus under the Short Term
Incentive Plan or similar plan and/or another cash award designated by the
Committee (collectively, "STIP Award") may make a separate election to
23
contribute all or part of the STIP Award to the Plan and purchase share units.
An STIP Award is not considered "base compensation" and is not eligible for
matching shares.
Participants may also contribute stock awards that have been earned under
the 2001 Incentive Plan (or any successor plan) but not yet distributed. These
contributions are solely for the purpose of deferring receipt of these awards.
These contributions do not earn matching shares or stock options. Distributions
of common stock from these awards (other than stock acquired with reinvested
dividends) do not count against the share limits of this Plan, but, instead,
are counted against the limits under the 2001 Incentive Plan (or successor
plan).
The Committee may permit an employee to purchase share units with other
amounts from time to time; however, these purchases shall not earn matching
contributions or stock options.
For each share unit purchased with a participant's payroll deductions under
a Share Deferral Account, SBC will issue the participant two non-tax qualified
stock options, each of which will allow the participant to purchase one share
of common stock at the fair market value of the stock at the time of the
issuance of the option. (Also, reinvestments of dividend equivalents derived
from these participant-purchased Share Units during the first 13 months of a
Share Deferral Account will also earn stock options). Options may not be
re-priced. Matching contributions do not earn options. Stock options are issued
twice a year and are exercisable no earlier than one year (or upon termination
of employment, if earlier), and no later than 10 years, after issuance. Unless
otherwise provided by the Committee, in the event the employee terminates
employment, the options will expire on the earlier of the regular expiration
date or as follows: retirement - five years; death or disability - three years;
other termination - one year. Stock Options are not transferable except by will
or the laws of descent and distribution and are exercisable during the
optionee's lifetime only by the optionee.
In the event the Committee reduces the number of options issued for each
share unit purchased, the Plan permits the Committee to provide an additional
company matching contribution that may not exceed 20% of the employee
contribution.
SBC believes that, under present law, the following are the Federal income
tax consequences of the issuance and exercise of Stock Options issued under the
Plan as to the recipient and SBC. A participant will not be
24
deemed to have received any income subject to tax at the time a non-qualified
stock option is granted, nor will SBC be entitled to a tax deduction at that
time. When a non-qualified Stock Option is exercised, the participant will
recognize compensation income equal to the amount by which the fair market
value of the shares acquired exceed the exercise price. Subject to the
satisfaction of applicable tax withholding requirements, SBC will be allowed a
tax deduction in the year the options are exercised in an amount equal to the
compensation income recognized by the participant.
The Committee is responsible for administration of the Plan. It has the
power to amend the Plan or adopt rules for its operation. Under New York Stock
Exchange rules, material amendments to the Plan must be submitted to
stockholders for approval.
The Plan provides that the number of shares of common stock that may be
distributed under the Plan as a result of employee and matching employer
contributions and reinvested dividend equivalents, is limited to 21 million
shares. In addition, no more than 34 million additional shares may be issued
pursuant to the issuance of Stock Options. No participant may receive more than
400,000 Stock Options during a calendar year. As of February 15, 2005, SBC
common stock closed at $24.52.
Your Board of Directors Recommends a Vote "FOR"
Approval of the Stock Purchase and Deferral Plan.
. Stockholder Proposals (Items 4, 5, 6 and 7 on Proxy Card)
Certain stockholders have advised the company that they intend to introduce
at the 2005 Annual Meeting the proposals set forth below. The names and
addresses of, and the number of shares owned by, each such stockholder will be
provided upon request to the Secretary of the company.
Stockholder Proposal A (Item 4 on Proxy Card)
Resolved: The Shareholders of SBC Communications (The "Company") hereby
request that the Company provide a report updated semi-annually, disclosing the
Company's:
1. Policies and procedures for political contributions (both direct
and indirect) made with corporate funds.
2. Monetary and non-monetary contributions to political candidates,
political parties, political committees and other political
25
entities organized and operation under 26 USC Sec. 527 of the Internal
Revenue Code including the following:
a. An accounting of the Company's funds contributed to any of the
persons described above;
b. The business rationale for each of the Company's political
contributions; and
c. Identification of the person or persons in the Company who
participated in making the decisions to contribute.
This report shall be posted on the company's website to reduce costs to
shareholders.
Supporting Statement: As long-term shareholders of SBC Communications, we
support policies that apply transparency and accountability to corporate
political giving. In our view, such disclosure is consistent with public policy
in regard to public company disclosure.
Company executives exercise wide discretion over the use of corporate
resources for political purposes. They make decisions without a stated business
rationale for such donations. We believe shareholders are entitled to know how
their company is spending its funds for political purposes. However, although
there are various disclosure requirements for political contributions, this
information is difficult for shareholders to access and is not complete.
Although the Bi-Partisan Campaign Reform Act enacted in 2002 prohibits
corporate contributions to political parties at the federal level, corporate
soft money state-level contributions are legal in 49 states, and disclosure
standards vary widely. Corporations can also make unlimited contributions to
"Section 527" organizations, political committees formed for the purpose of
influencing elections, but not supporting or opposing specific candidates.
These do not have to be reported.
In 2001-02, the last fully reported election cycle, SBC made at least
$1,480,645.00 in political contributions. (The Center for Responsive Politics:
http://www.opensecrets.org/softmoney/index.asp.)
Relying only on the limited data available from the Federal Election
Commission, the Internal Revenue Service, and the Center for Responsive
Politics, a leading campaign finance watchdog organization, provides an
26
incomplete picture of the Company's political donations. Current disclosures is
insufficient to allow the Company's Board and its shareholders to fully
evaluate the political use of corporate assets.
Absent a system of accountability, corporate executives will be free to use
the Company's assets for political objectives that are not shared by and may be
inimical to the interests of the Company and it shareholders, potentially
harming long-term shareholders value.
There is currently no single source of information that provides the
information sought by this resolution. This report should represent a minimal
cost to the company, as presumably management already monitors corporate
resources used for such purposes. We believe that transparency and
accountability in this area will advance our company's interests, and help
build long-term shareholder value. We urge your support for this critical
governance reform.
YOUR DIRECTORS' POSITION
Political contributions, where permitted, are an important part of the
legislative process. Your company is subject to legislation that significantly
impacts its operations, including rates it can charge customers, its
profitability and even how it must provide services to competitors. It is
important that your company participate in the political process to protect
your interests as stockholders. SBC complies with all applicable Federal and
state laws concerning political contributions.
Each year, your Board of Directors authorizes maximum aggregate
contributions that can be made by your company, as permitted by, and in strict
compliance with, applicable law, for the purposes of supporting or opposing any
party, committee, candidate for public office, or ballot measure, or for any
other political purpose. Except for contributions for ballot measures, no
expenditure over $1,000 may be made unless approved by the Chief Executive
Officer (lesser amounts may be approved by delegates). All expenditures must be
submitted to the company's attorneys to confirm that each contribution is
lawful.
In addition, no company funds, by law, are expended to make Federal
political contributions. Federal law has long prohibited corporate
contributions to Federal candidates or their political committees. With the
enactment of the Bi-Partisan Campaign Finance Reform Act of 2002 (known as the
"McCain Feingold Act"), corporate contributions to Federal political parties
and Leadership Committees are prohibited, effective November 6, 2002.
27
As to state and local contributions, state laws determine when and under
what circumstances political contributions are permissible. Moreover, a number
of states in which SBC operates have extensive reporting requirements. These
rules, in general, are applicable to all participants in the political process.
This proposal, on the other hand, would impose a set of rules only on your
company.
This proposal would require an unwarranted expenditure of funds by your
company and would be uniquely applicable only to your company and not to our
competitors, unions or any other participants in the process. Your Directors
believe that any reporting requirements that go beyond those required under
existing law should be applicable to all participants in the process, not just
to SBC as the proponent asks.
Your Board of Directors Recommends a
Vote "AGAINST" this Proposal.
Stockholder Proposal B (Item 5 on Proxy Card)
WHEREAS, excesses in executive compensation have become a major issue for
stakeholders. Opposition to excessive pay packages continues to mount,
particularly among investors angry at compensation seemingly unrelated to
financial performance. In fact, many mainstream investors have voted NO on
compensation packages they felt were unreasonable. We also believe that boards,
in setting executive compensation, should consider social and environmental
performance, as well as financial performance.
. The relationship between compensation and the social responsibility and
environmental performance is an important question. For instance,
shouldn't the pay of top officers be reconsidered if the company is found
guilty of systematic sexual harassment or race discrimination or poor
environmental performance, especially if the result is costly fines or
expensive, protracted litigation?
. Too often top executives have received considerable increases in
compensation packages even when the company's financial performance or
social responsibility performance has been mediocre or poor. When
compensation is tied to social responsibility, better social
responsibility performance will inevitably follow.
. Business Week reports that executive compensation has skyrocketed from 42
to 1 in 1982 to over 400 times the pay of average employees in 2004.
28
. "The size of the CEO compensation is simply out of hand," said Business
Week in an April 22, 2002 editorial. Also the Conference Board issued a
September 17, 2002 report acknowledging that executive compensation has
become excessive in many instances and bears no relationship to a
company's long-term performance.
. New York Federal Reserve Bank President, William J. McDonough, said:
"CEOs and their boards should simply reach the conclusion that executive
pay is excessive and adjust to more reasonable and justifiable levels."
. Companies involved in significant downsizing of employees don't "share
the pain," but escalate executive pay.
. Many Board compensation committees fall prey to the desire to have their
CEO paid in the top quartile of CEOs, thus creating a magnet effect
pulling all executive compensation upward, regardless of contribution to
shareholder value.
Resolved: The shareholders request the Board Compensation Committee undertake
a special executive compensation review and provide a summary report to
investors by Summer 2005. The report shall supplement information in the proxy
statement.
Questions to be addressed in the review and report shall include:
1. The rationale for the compensation packages for our top executives,
including an explanation of whether the Committee has considered a cap on
the size of the compensation package for the future.
2. How or if executive compensation is compared to the pay package of
the average employee and if the increasing ratio between the two over the
last decade is taken into account.
3. How social and environmental performance is integrated into the
formula for executive compensation and whether our corporation's employee
downsizing or outsourcing is considered.
4. An evaluation of whether our top executive compensation packages
(including options, benefits, pension and retirement agreements) are
excessive and should be modified.
5. A summary description of opposition registered by stakeholders to
our compensation package.
29
YOUR DIRECTORS' POSITION
Each year, in SBC's annual Proxy Statement, the Human Resources Committee
includes an extensive report on the company's compensation policies for
executive officers. In its report, the Human Resources Committee explains the
methods it uses to determine compensation, including the use of outside
consultants. This report is subject to detailed and complex rules of the
Securities and Exchange Commission ("SEC").
Moreover, in 2003, all new members joined the Committee and immediately
began, with the aid of outside consultants, a comprehensive review of SBC's
executive compensation program, including the strategic use of salaries,
short-term bonuses and long-term incentive awards. As a result, the Committee
made numerous changes to the program and adopted a set of principles with
respect to SBC's executive compensation that it included in its detailed report.
Your Directors believe that requiring the Human Resources Committee to
undertake yet another review of this report would result in unnecessary costs
to the company, would repeat efforts made in the prior review, and is unlikely
to produce any additional benefits.
Your Board of Directors Recommends a
Vote "AGAINST" this Proposal.
Stockholder Proposal C (Item 6 on Proxy Card)
Performance and Time-Based Restricted Shares Proposal
Resolved: That the shareholders of SBC Communications, Inc. ("Company") hereby
request that the Board of Directors' Compensation Committee adopt a performance
and time-based restricted share grant program for senior executives that
includes the following features:
(1) Operational Performance-Vesting Measures--The restricted share
program should utilize justifiable operational performance criteria
combined with challenging performance benchmarks for each criteria
utilized. The performance criteria and associated performance benchmarks
selected by the Compensation Committee should be clearly disclosed to
shareholders.
(2) Time-Based Vesting--A time-based vesting requirement of at least
three years should also be a feature of the restricted shares program, so
that operational performance and time-vesting requirements must be met in
order for restricted shares to vest.
30
The Board and Compensation Committee should implement this restricted share
program in a manner that does not violate any existing employment agreement or
equity compensation plan.
Supporting Statement: The Company's executive compensation program should
include a long-term equity compensation component with clearly defined
operational performance criteria and challenging performance benchmarks. We
believe that performance and time-vesting restricted shares should be an
important component of such a program. In our opinion, performance and
time-based restricted shares provide an effective means to the equity
compensation to meaningful operational performance beyond stock price
performance.
A well-designed restricted share program can serve to help focus senior
executives on achieving strong operational performance as measured over several
years in areas determined by the Board to be important to the long-term success
of the Company. The use of operational performance measures in a restricted
share program can serve to complement the stock price performance measures
common in senior executive equity compensation plans. In addition to
operational performance requirements, time vesting requirements of at least
three years will help reinforce the long-term performance orientation of the
plan.
Our proposal recognizes that the Compensation Committee is in the best
position to determine the appropriate operational performance criteria and
associated performance benchmarks. It is requested that detailed disclosure of
the performance criteria be provided in the Compensation Committee Report.
Further, clear disclosure should be provided on the performance benchmarks
associated with each performance criteria to the extent this information can be
provided without revealing proprietary information. This disclosure will enable
shareholders to assess whether the long-term equity compensation portion of the
executive compensation plan provides challenging performance targets for senior
executives to meet.
We believe that a performance and time-based restricted share program with
the features described above offers senior executives the opportunity to
acquire significant levels of equity compensation commensurate with their
contributions to long-term corporate performance. We believe such a system best
advances the long-term interests of our Company, its shareholders, employees
and other important constituents. We urge shareholders to support this
important executive compensation reform.
31
YOUR DIRECTORS' POSITION
The proponent calls for a restricted stock program to be implemented, with
operational performance vesting measures and time-based vesting requirements.
SBC already has in place similar compensation programs.
SBC's programs are designed to reward achievement of company objectives and
link compensation to the interests of SBC stockholders.
SBC's short-term and long-term compensation programs are carefully reviewed
and approved by the Board's Human Resources Committee, as are the annual
performance targets. In 2004, after undertaking a comprehensive review of SBC's
executive compensation programs the Human Resources Committee decided to use
performance shares for long-term compensation, instead of stock options and
time-based restricted stock. This is more fully described in the "Report of the
Human Resources Committee on Executive Compensation" in this Proxy Statement.
Each performance share is equal in value to a share of stock. When they are
granted, the Committee establishes financial and/or other operational goals to
be achieved over a three-year performance period. If the employee fails to meet
his goals, the number of performance shares paid out are reduced or forfeited
completely. If the employee exceeds his target he can receive additional
performance shares. Performance shares are paid out one-half in cash and
one-half in stock. Employees who terminate employment, but are not retirement
eligible, receive a pro-rated payout.
This is substantially the same compensation program called for by the
proponent--stock-based payment tied to performance goals. In addition, the
company has stock ownership guidelines that provide for substantial SBC stock
holdings by officers.
SBC's existing executive compensation program provides needed flexibility
in the administration of management compensation and contributes to SBC's
ability to attract and retain highly qualified and capable key employees
consistent with SBC's strategic business objectives. This proposal provides no
additional benefit to stockholders.
Your Board of Directors Recommends a
Vote "AGAINST" this Proposal.
32
Stockholder Proposal D (Item 7 on Proxy Card)
Adopt Simple Majority Vote
RECOMMEND: That our Board of Directors take each step necessary for a simple
majority vote to apply on each issue that can be subject to shareholder
vote--to the greatest extent possible.
75% Yes-Vote
This topic won a 75% yes-vote average at 7 major companies in 2004. The Council
of Institutional Investors www.cii.org formally recommends adoption of this
proposal topic.
Terminate the Frustration of the Shareholder Majority
Our current rule allows a small minority to frustrate the will of the
shareholder majority. For example, in requiring a 67% vote of shares to make
certain governance changes, if 66% vote yes and only 1% vote no - only 1% could
force their will on the overwhelming 66% majority.
Advancement Begins with a First Step
I believe that the importance of taking the above RECOMMEND step is reinforced
by viewing our overall corporate governance fitness which was not impeccable.
For instance in 2004 it was reported:
. Eight directors were allowed to hold from 4 to 11 director seats
each--over-extension concern.
. Our Lead Director, who was also the chairman of our key Audit Committee,
had 21-years director tenure--independence concern. Furthermore he was
age 72.
. Only one member of our key Audit Committee was not in his 70s.
. 2003 CEO pay was reported as $24 million including stock option grants.
Source: Executive Pay Watch Database,
http://www.aflcio.org/corporateamerica/paywatch/ceou/database.cfm
. "Target" bonuses of almost 200% of salary were paid out despite targets
not actually being met. Source: The Corporate Library (TCL), an
independent investment research firm in Portland, Maine
. The Corporate Library's ratings for our company were:
OVERALL RATING = F
Board Composition = F
CEO Compensation = F
. James Henderson was designed a "problem director" by The Corporate
Library, because he was the chairperson of the committee that set
executive compensation at SBC, which received a CEO Compensation rating
of "F" by TCL.
33
. John McCoy was designated a "problem director" because he was the
chairperson of the committee responsible for director nominations at SBC,
which received a Board Composition grade of "F".
. Our Board had 17 directors - unwieldy Board concern.
One Step Forward
I believe the above practices reinforce the importance to take one step forward
and adopt simple majority vote. This will terminate the potential frustration
of the shareholder majority.
Adopt Simple Majority Vote
Yes on 7
YOUR DIRECTORS' POSITION
Almost all stockholder votes at SBC are already determined by a majority of
the votes cast. Other than election of Directors, which is determined by a
plurality of votes cast, and other matters where state law requires a greater
number of votes, there are only three issues that require more than a majority
of votes cast in order to pass. SBC's governing documents require a two-thirds
majority vote of outstanding shares for amending or repealing any provision of
the Bylaws that:
. Provides for a classified Board with staggered terms of office;
. Provides for the maximum number of Directors on the Board; or
. Requires approval by the stockholders or the Board for any business
combination.
In each of these cases, there are several reasons why your Board of
Directors does not recommend the proposal.
Adoption of this proposal would make it much easier to reinstate the
staggered board. Resolutions removing the staggered board from SBC's governing
documents were approved by greater than two-thirds majority stockholder vote at
SBC's 2004 Annual Meeting. If this proposal is adopted, the staggered board
could be reinstated with a simple majority vote, instead of a two-thirds
majority. Changing the method of electing the Board of Directors repeatedly is
costly, and can disrupt the management of the company.
Adoption of this proposal would also remove an important form of
stockholder protection. SBC's Bylaws presently require approval of a two-
34
thirds majority for certain transactions with stockholders who own 10% or more
of the company's stock, unless the action is approved by the Board of Directors
or it offers a fair value to the stockholders. These transactions include
mergers, consolidations, disposition of assets, issuance of securities and
liquidation. Similar provisions are included in the governing documents of many
public corporations. Without such a provision, it may be possible for one or a
few large stockholders to take actions at a stockholders meeting that may not
be in the best interest of the other stockholders. Elimination of the
two-thirds majority vote for business combinations could make it more difficult
for your independent Board to maximize stockholder value for all stockholders.
This proposal could increase the vote required to elect or replace
directors. This proposal could change the way Directors are elected. Currently,
the Directors who receive the most votes (referred to as a "plurality" of the
votes) are elected regardless of whether they have a majority of the votes. If
the company were to require that a director must receive a majority vote to be
elected, director candidates who do not receive a majority of the votes would
not be elected or reelected, as the case may be. Under Delaware law, however,
directors serve until their successors are duly elected and qualified.
Accordingly, if no successor is elected, under Delaware law the director whose
seat was up but for whom no successor received a majority of the votes would
remain in office as a holdover director, even if the director was not
re-elected. For this reason, the proposal makes it much more difficult to
replace incumbent Directors, since it requires a majority, rather than a
plurality, of the votes to do so.
Your Directors believe that this proposal is not in the best interests of
the company or the stockholders, and that it would limit the Board's ability to
take actions consistent with the best interests of all stockholders.
Your Board of Directors Recommends a
Vote "AGAINST" this Proposal.
35
--------------------------------------------------------------------------------
AUDIT COMMITTEE
The Audit Committee oversees the integrity of the financial statements of
SBC, the independent auditors' qualifications and independence, the performance
of the internal audit function and independent auditors, and the compliance by
SBC with legal and regulatory matters. The members of the Audit Committee are
Messrs. Barksdale (Chairman), Amelio, Eby, and Ritchey, each of whom was
appointed by the Board of Directors. The Audit Committee is composed entirely
of independent Directors in accordance with the applicable independence
standards of the New York Stock Exchange and SBC.
The Board of Directors has determined that Messrs. Barksdale and Ritchey
are "audit committee financial experts" and are independent as defined in the
listing standards of the New York Stock Exchange and in accordance with SBC's
additional standards. Although the Board of Directors has determined that these
individuals have the requisite attributes defined under the rules of the
Securities and Exchange Commission, their responsibilities are the same as
those of the other Audit Committee members. They are not auditors or
accountants, do not perform "field work" and are not full-time employees. The
Commission has determined that an audit committee member who is designated as
an audit committee financial expert will not be deemed to be an "expert" for
any purpose as a result of being identified as an audit committee financial
expert. The Audit Committee is responsible for oversight of management in the
preparation of SBC's financial statements and financial disclosures. The Audit
Committee relies on the information provided by management and the independent
auditors. The Audit Committee does not have the duty to plan or conduct audits
or to determine that SBC's financial statements and disclosures are complete
and accurate. SBC's Audit Committee charter provides that these are the
responsibility of management and the independent auditors.
. Report of the Audit Committee
The Audit Committee: (1) reviewed and discussed with management SBC's
audited financial statements for the year ended December 31, 2004;
(2) discussed with the independent auditors the matters required by Statement
on Auditing Standards No. 61, Communication with Audit Committees, as amended
by Statement on Auditing Standards No. 90, Audit Committee Communications; (3)
received the written disclosures and the letter from the independent auditors
required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees; and (4) discussed with the auditors the
auditors' independence.
36
Based on the review and discussions, the Audit Committee recommended to the
Board of Directors that the audited financial statements for the year ended
December 31, 2004, be included in SBC's Annual Report on Form 10-K for filing
with the Securities and Exchange Commission.
February 17, 2005
The Audit Committee:
Clarence C. Barksdale,
Chairman Martin K. Eby, Jr.
Gilbert F. Amelio S. Donley Ritchey
. Principal Accountant Fees and Services
Ernst & Young LLP acts as the principal auditor for SBC and also provides
certain audit-related, tax and other services. The Audit Committee has
established a pre-approval policy for services to be performed by Ernst &
Young. Under this policy the Audit Committee approves specific engagements when
the engagements have been presented in reasonable detail to the Audit Committee
before services are undertaken.
This policy also allows for the approval of certain services in advance of
the Audit Committee being presented details concerning the specific service to
be undertaken. These services must meet service definitions and fee limitations
previously established by the Audit Committee. Additionally, engagements
exceeding $500,000 must receive advance concurrence from the Audit Committee
Chairman. After an auditor is engaged under this authority, the services must
be described in reasonable detail to the Audit Committee at the next meeting.
All pre-approved services must commence, if at all, within 14 months of the
approval.
The fees for the services provided by Ernst & Young to SBC in 2004 and 2003
were as follows (dollars in millions):
. Audit Fees were $14.7 and $22.2 for 2004 and 2003, respectively. Included
in this category are fees for the annual financial statement audit,
quarterly financial statement reviews, and audits required by Federal and
state regulatory bodies.
. Audit-Related Fees were $2.6 and $4.8 for 2004 and 2003, respectively.
These fees, which are for assurance and related services other than those
included in Audit Fees, include charges
37
for audits of employee benefit plans, consultations concerning financial
accounting and reporting standards, audits and due diligence in
conjunction with proposed or consummated acquisitions and dispositions,
and internal control reviews.
. Tax Fees were $1.9 and $5.9 for 2004 and 2003, respectively. These fees
include charges for tax services for SBC employees working in foreign
countries, executive financial counseling (including tax return
preparation), and various Federal and state tax research projects.
Beginning in 2004, Ernst & Young no longer provided executive financial
counseling (including tax return preparation services) for SBC.
. All Other Fees were $0.1 and $0 for 2004 and 2003, respectively. These
fees include charges for assisting SBC in state regulatory proceedings,
as well as assessing processes used by SBC to accumulate and analyze
operating data.
38
--------------------------------------------------------------------------------
HUMAN RESOURCES COMMITTEE
The Human Resources Committee, composed entirely of independent,
non-employee Directors, is responsible for the compensation of SBC's executives
and overseeing the compensation practices of SBC. No employee of SBC serves on
this Committee. The current members of the Committee are: James A. Henderson
(Chairman), Gilbert F. Amelio, Martin K. Eby, Jr., and Patricia P. Upton.
--------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
. Report of the Human Resources Committee
on Executive Compensation
The Human Resources Committee is responsible for the compensation of the
Chief Executive Officer and other executives, including the Named Officers
(defined on page 47), as well as overseeing the benefit and compensation plans
of the company.
In 2003, the Board of Directors adopted a number of corporate governance
initiatives, including a new Code of Ethics, new Corporate Governance
Guidelines and a new committee devoted to corporate governance matters and
Director nominations. Previously, the Human Resources Committee had carried out
many of the new committee's functions, and the Board determined to move all the
members of the then Human Resources Committee to the Corporate Governance and
Nominating Committee. The five Directors that were appointed to the Corporate
Governance and Nominating Committee had served a combined total of 50 years on
the Human Resources Committee. As a result of this change, an entirely new
Human Resources Committee was appointed in March 2003. The new members of the
Committee are James A. Henderson (Chairman), Gilbert F. Amelio, James E. Barnes
(who resigned from the Board in December 2004), Martin K. Eby, Jr., and
Patricia P. Upton.
Review of SBC's Executive Compensation Program
Upon assuming office in 2003, the current Committee undertook a
comprehensive review of SBC's executive compensation program, including the use
of salaries, short-term bonuses and long-term incentive awards. The Committee,
assisted by independent consultants, analyzed current compensation trends,
studied published recommendations of respected
39
business organizations on the subject of executive compensation, reviewed proxy
statements of other companies, and compared SBC's program to those of other
leading companies. The Committee also solicited input from former members of
the Committee and the Board of Directors.
The Committee found that SBC compensation programs were sound and
consistent with those of other firms of similar size. They had enabled SBC to
attract and retain a high quality management team. An individual and business
unit performance evaluation system based upon financial and non-financial
objectives was in place and rigorously followed. Executive pay was targeted to
the 62/nd/ percentile for annual cash compensation and the median for long-term
compensation as compared with other firms of similar size and financial
performance (except for the CEO which is covered later in this report.)
The Committee found that there were opportunities to tie the incentive pay
of executives more directly to performance and to minimize dilution from
equity-based compensation programs.
As a result of its review, the new Committee adopted the following
principles with respect to SBC executive compensation:
. Maximize the alignment of executive compensation with the long-term
interests of stockholders.
. Provide competitive compensation to attract, retain and motivate
executives.
. Base both short-term bonuses and long-term compensation on performance
measures.
. Balance equity-based compensation awarded to executives with the
interests of stockholders concerning dilution.
. Establish short-term incentives with a view toward achievement of
long-term corporate goals.
. Provide opportunities for executives to acquire and hold SBC stock and
establish minimum ownership requirements.
Because executive compensation for 2003 had already been determined at the
time the new Committee members were appointed, the first time the new members
would determine compensation would be in 2004.
40
2004 Compensation
To help properly implement the Committee's policies and to determine
appropriate compensation, the Committee employs independent compensation and
benefits consultants to assist in establishing compensation and analyzing the
actual compensation of executives. The Committee reviews compensation including
salaries, short-term incentives and long-term incentives at a group of
companies (the "Comparator Group") selected with the advice of an outside
independent compensation consultant. The Comparator Group consists of large
companies in diverse businesses and telecommunications companies, including
companies subject to comparable governmental regulation. Compensation data from
the Comparator Group is adjusted using statistical analysis to eliminate
differences arising from the relative sizes of the companies in the Comparator
Group in comparison to SBC. This market data is then used to establish a target
compensation range for each executive officer position.
Annual Base Salaries The Committee determined executive officer salaries
(other than the Chief Executive Officer) for 2004 by targeting the median of
the salary market data for the Comparator Group and by considering individual
performance, level of responsibility and experience.
Short-Term Incentives In 2004, the Committee used short-term incentives in
the form of performance based annual cash bonuses to compensate executive
officers as well as other executives. The Committee established performance
targets for executive officers using financial and/or operational goals linked
to SBC's overall performance. Target bonuses for executive officers (except the
Chief Executive Officer) were established using the 62/nd/ percentile of cash
compensation (salary plus annual bonus) for the Comparator Group. The Committee
also considered individual performance, level of responsibility and experience
to determine the final target bonus amounts. Bonuses are paid at the discretion
of the Committee based on the accomplishment of company and/or business unit
performance targets set at the beginning of the year and individual performance.
The 2004 financial and operational targets for bonuses for executive
officers were based on SBC's net income, free cash flow and customer
satisfaction (weighted 50%, 30% and 20%, respectively); similar targets were
established for non-executive officers. If the objectives are not completely
met, the bonuses are reduced, or if certain minimum targets are not met, they
are eliminated. If a target is exceeded, the payout increases, subject to a cap
at 125% of the target opportunity. The Committee reviewed the performance
objectives and corresponding results for 2004 and
41
determined that each of the targets for the executive officers, including all
of the Named Officers, had been exceeded, with customer satisfaction having the
best results. The Committee authorized bonuses at 109% of the target, together
with a limited number of special discretionary awards based on individual
performance.
Long-Term Incentives In 2004, the Committee granted executive officers
long-term incentives in the form of performance shares for the 2004-2006
performance period. The Committee determined the total amount of long-term
incentives to grant each executive officer (except the Chief Executive Officer)
by using the median long-term market data for the Comparator Group and
adjusting for individual performance, level of responsibility and experience.
In 2002 and before, the long-term incentive was made up of 40% performance
shares and 60% stock options. In 2003, the previous committee modified the mix
of those elements to one-third performance shares, one-third stock options and
one-third restricted stock. The performance objectives for performance shares
granted in 2002 and 2003 are based on a net income target for each year in the
three-year performance cycle.
For 2004, the new Committee decided to deliver the entire long-term
incentive in the form of performance shares. While stock options and time-based
restricted stock are linked to the interests of stockholders, they do not have
a performance component or measure. In addition, current accounting rules cause
stock options to be dilutive in calculating earnings per share. Therefore, the
Committee decided to grant performance shares exclusively in 2004 and not use
stock options or time-based restricted stock as long-term compensation. The
value of performance shares fluctuates directly with changes in the price of
SBC stock (each performance share is equal in value to a share of SBC stock),
which ties managers' interests directly to those of stockholders. The
performance shares are paid out only to the extent specific internal financial
and/or operational objectives are achieved. No payout is made if minimum
objectives are not met. Payouts, when earned, are to be paid in a combination
of stock and cash which reduces dilution.
--------------------------------------------------------------------------------
Comparison of the Compensation Elements Used for
Delivering Value in Long-Term Compensation Plans
--------------------------------------------------------------
2002 Long-Term 2003 Long-Term 2004 Long-Term
Compensation Compensation Compensation
-------------------- -------------------- --------------------
. Performance Shares . Performance Shares . Performance Shares
. Stock Options . Stock Options
. Restricted Stock
--------------------------------------------------------------------------------
42
The Committee also determined to use return on invested capital instead of
net income as the long-term performance measure for target awards granted in
2004. This measurement is calculated by dividing (1) the company's net income
before extraordinary items plus after-tax interest expense over the three-year
measurement period by (2) the sum of the average debt and average stockholder
equity. This encourages managers to not only focus on net income, but also to
ensure that the company's capital is invested effectively.
Another change made by the Committee provided that if the target is
exceeded, more shares can be earned, but the number of shares that can be
earned is capped at 150% of the target award. For performance awards granted in
2002 and 2003 up to 200% of target awards could be paid out based upon
performance.
In 2004, SBC's officers, including the executive officers and the Chief
Executive Officer, received the payout of their performance share awards for
the 2001-2003 performance period, having substantially met the performance
goals set by the Committee. The performance goals for these awards were annual
net income targets averaged over the three-year performance period from 2001 to
2003. (By comparison, the annual bonus described above covers the 2004
performance period.) In accordance with a predetermined formula, 95% of the
target performance shares were distributed. However, since the SBC share price
at the time of distribution was approximately 51% of the price it was at the
time of the establishment of the incentive target, the value of the performance
plan payout, with a 95% distribution, was approximately 48% of the target value.
Compensation for the Chief Executive Officer
Employment Contract In 2001, the previous Committee initiated and approved
an Employment Contract to retain Mr. Whitacre as the Chief Executive Officer of
SBC for a period of five years which coincides with his reaching the normal
retirement age of 65. The Employment Contract was subsequently reviewed and
approved by the Board of Directors and was effective November 16, 2001.
The contract was designed to assure SBC of the services of Mr. Whitacre for
this five-year period. In return, the contract provided:
. 2.5 million stock options at $39.13 to vest in part at three years and,
in total, at five years
. post-retirement benefits including a three-year consulting agreement
43
. target compensation for salary, total cash compensation and long-term
incentives would be set at the 75th percentile
. the provision that Mr. Whitacre's yearly salary and incentive targets
expressed in dollars would not be reduced for the life of the contract.
During 2004, the Committee conducted a review of the Employment Contract
with the assistance of independent outside consultants. The target compensation
established in 2001 was analyzed based on 2001 market data, CEO employment
agreements for other telecommunication companies and current market data. Based
on this review and the competitive demand for CEOs in the telecommunications
industry, the Committee has determined that the 2001 target compensation levels
were appropriate.
The contract was entered into at a time when telecommunications and
technology companies were, in general, performing well and in favor with
investors. Equity markets were at an all-time high, which drove compensation
packages. Compensation for experienced CEOs was at especially high levels. It
was not clear which companies were going to emerge as "winners." Several major
companies were searching for new CEOs. The Committee at the time was facing an
extraordinarily competitive environment for executives with proven track
records in telecommunications and technology.
The provisions of the contract, including the post-retirement benefits and
the stipulation that salary and incentive targets not be reduced, were
consistent with compensation practice for long-serving and successful CEOs at
the time.
2004 Compensation In determining the 2004 compensation for the Chief
Executive Officer, the Committee decided that the Employment Contract continued
in the best interests of the stockholders. The telecommunications industry has
experienced even more intense competition in part because of government
regulation since the contract signing. Mr. Whitacre has led a successful effort
to retain SBC's traditional strength in local wireline services, while moving
aggressively into long distance and Internet access. He expanded the footprint
of SBC while retaining a strong balance sheet, which has permitted the
investment in major growth initiatives in the wireless and data businesses. The
ground-breaking mergers under Mr. Whitacre's leadership and his disciplined
stewardship of the company during the time of economic downturn and significant
government regulation has enabled SBC to emerge as one of the clear leaders in
the
44
industry. The Committee believes his leadership of SBC is as important today as
when the contract was written.
The Committee made no change to base salary or to short-term and long-term
incentive targets for 2004. The Committee reviewed its findings with the Board.
Mr. Whitacre's annual bonus and long-term incentives are based totally on
performance measures and will be realized only if targets are met. In order to
tie Mr. Whitacre's long-term compensation even more closely to the interests of
the stockholders, the Committee made one change to the 2004 long-term incentive
program put in place for other executives. The performance shares for Mr.
Whitacre are based 75% on return on invested capital (described above) with the
ability to receive a payout of 150% of the target award in the same manner as
the other executive officers. Another 25% of the performance share award is
based on the comparison of SBC's total stockholder return (stock appreciation
plus reinvestment of dividends) compared to companies in the North American
Telecom Index, excluding equipment manufacturers, and adding several cable
company competitors not in the Index. The following chart shows the potential
payouts:
--------------------------------------------------------------------------------
SBC Total Stockholder Return compared to the
adjusted North American Telecom Index Payout Percentage
-------------------------------------------- ---------------------------
SBC is the top company 200%
SBC in top 75 - 99% of the Index 150%
SBC in top 50 - 74.99% of the Index 100%
SBC in top 25 - 49.99% of the Index 50%
SBC below 25% of the Index 0% (if results exceed a 20%
return, then 10% payout)
--------------------------------------------------------------------------------
In each case, the payout is reduced by 10% if SBC's total stockholder return is
negative.
--------------------------------------------------------------------------------
As noted above, all the executive officers, including Mr. Whitacre,
exceeded the net income, cash flow and customer satisfaction targets. After
considering his achievements and performance, the Committee determined to pay
Mr. Whitacre 109% of his target bonus in accordance with a pre-determined
formula. The Committee also determined that for the 2001-2003 performance
period, he substantially met his cumulative income targets under his
performance share grant, receiving a payout of 95% of the target performance
shares. However, since the SBC share price at the time of distribution was
approximately 51% of the price at the time the incentive target was
established, the value of the performance plan payout, with a 95% distribution,
was approximately 48% of the target value.
45
Stock Ownership Guidelines
The Committee has established stock ownership guidelines for the Chief
Executive Officer, other executive officers, and all other officer level
employees. The guidelines set a minimum level of ownership of four times base
salary for the Chief Executive Officer, the lesser of three times base salary
or 50,000 shares for other executive officers and the lesser of one times base
salary or 25,000 shares for all other officers. Newly appointed officers are
expected to be in compliance with the ownership guidelines within five years of
their appointments.
To encourage all employees, as well as officers, to acquire and hold SBC
stock, the company offers several ways to invest in SBC through payroll
deductions, a limited portion of which SBC matches in SBC stock. SBC offers a
tax-qualified savings plan that allows employees to purchase SBC stock, among
other investment choices. The company also offers the Stock Savings Plan (which
is being replaced with the Stock Purchase and Deferral Plan, subject to
stockholder approval at the 2005 Annual Meeting and is described on page 22),
where middle managers and above may receive stock options based on the amount
of SBC stock purchased with payroll deductions.
Limit on Deductibility of Certain Compensation
Federal income tax law prohibits 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 that compensation is based upon the
attainment of performance goals set by the Committee pursuant to plans approved
by the stockholders, 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 stockholders, to attempt to qualify
executive compensation as tax deductible where it does not adversely affect the
Committee's development and execution of effective compensation plans. The
Committee intends to maintain the flexibility to take actions it considers to
be in the best interests of SBC and its stockholders.
February 9, 2005
The Human Resources Committee:
James A. Henderson, Chairman Martin K. Eby, Jr.
Gilbert F. Amelio Patricia P. Upton
46
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").
--------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
--------------------------------
Annual Compensation Awards Payouts
--------------------------------------- --------------------- ----------
Number of
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name Year Salary Bonus Compensation Award(s) Options Payouts Compensation
--------------------------------------------------------------------------------------------------------------------------
Edward E. Whitacre, Jr. 2004 $2,124,000 $6,213,000 $1,617,303 $ 0 400,000 $3,466,930 $ 730,594
Chairman & Chief Executive Officer 2003 $2,122,000 $5,700,000 $ 843,613 $7,197,990 1,352,128 $2,444,000 $1,227,272
2002 $2,100,000 $4,000,000 $ 523,345 $ 0 1,434,242 $1,827,800 $1,653,884
John H. Atterbury 2004 $ 814,500 $1,057,301 $ 297,168 $ 0 12,148 $ 250,669 $ 74,336
Group President--IP Services 2003 $ 777,000 $ 950,000 $ 124,659 $1,199,997 187,239 $ 218,274 $ 67,165
2002 $ 712,000 $ 697,000 $ 64,188 $ 0 196,782 $ 239,076 $ 59,413
James D. Ellis 2004 $ 783,667 $1,981,000 $ 353,453 $ 0 97,377 $ 578,440 $ 201,703
Senior Executive Vice President & 2003 $ 744,500 $ 925,000 $ 152,586 $1,334,001 265,712 $ 480,197 $ 219,607
General Counsel 2002 $ 727,000 $ 600,000 $ 102,056 $ 0 215,637 $ 265,616 $ 243,218
Randall L. Stephenson 2004 $ 819,167 $1,044,586 $ 247,181 $ 0 44,600 $ 324,195 $ 40,268
Chief Operating Officer 2003 $ 566,500 $ 775,000 $ 126,694 $1,199,997 227,354 $ 72,025 $ 28,786
2002 $ 542,500 $ 450,000 $ 52,659 $ 0 181,161 $ 53,116 $ 27,753
Rayford Wilkins, Jr. 2004 $ 814,500 $1,057,301 $ 238,973 $ 0 13,319 $ 578,440 $ 41,201
Group President 2003 $ 777,000 $ 950,000 $ 137,536 $1,133,993 174,090 $ 327,423 $ 39,739
2002 $ 738,667 $ 650,000 $ 81,089 $ 0 157,046 $ 75,707 $ 38,279
--------------------------------------------------------------------------------
Notes:
(1) Amounts shown under Restricted Stock Awards represent the grant date values
of SBC restricted stock (including stock units having the same terms as
restricted stock, but payable in cash) awarded to the Named Officers.
One-third of each grant vests on each anniversary of the grant and entirely
vests upon the retirement of the recipient. However, stock is
non-transferable until the third anniversary of the grant and is forfeited
if, at the third anniversary, the company is in material default on the
payment of a dividend. The number of shares remaining unvested, and their
values as of December 31, 2004, are as follows: Mr. Whitacre--197,313
restricted shares valued at $5,084,765; Mr. Atterbury--32,895 restricted
shares valued at $847,696; Mr. Ellis--36,568 restricted shares valued at
$942,357; Mr. Stephenson--32,895 restricted shares valued at $847,696, and
Mr. Wilkins--31,085 restricted shares valued at $801,069. Dividends or
dividend equivalents are paid on all restricted stock.
47
Summary Compensation Table--Notes (continued)
(2) Other Annual Compensation includes earnings on long-term incentive plan
compensation and amounts reimbursed for the payment of taxes. In accordance
with SEC regulations, if a Named Officer receives personal benefits that
exceed $50,000, these benefits are also included in the column and any
benefit that exceeds 25% of an officer's total benefits is disclosed. In
valuing personal benefits, SBC uses the incremental cost of the benefit to
the company. Payments for club memberships (dues and initiation fees) are
included as personal benefits unless the use is primarily for business, in
which case SBC will include the pro-rata portion related to personal use.
Personal benefits include personal transportation, club memberships, home
security, financial counseling, tax preparation and executive health
benefits. SBC believes that the need for services provided for the security
of the officer, such as home security and company-provided transportation,
arise out of the officer's business duties and are for the benefit of the
company and, therefore, are not properly characterized as personal
benefits. However, beginning with the reporting for 2004 compensation, it
will now voluntarily include such services in the calculation of personal
benefits. Personal benefits reported under Other Annual Compensation for
2004 include personal flights on company transportation as follows: Mr.
Whitacre--$32,312, Mr. Atterbury--$23,989, Mr. Ellis--$42,594.
(3) All Other Compensation for 2004 includes 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,
Atterbury, Ellis, Stephenson and Wilkins this amount was $18,293, $1,909,
$4,264, $928, and $1,502, respectively. All Other Compensation also
includes the difference between market interest rates determined pursuant
to SEC rules and actual rates used to determine earnings on deferred
compensation for Messrs. Whitacre, Atterbury, Ellis, Stephenson and Wilkins
of $611,501, $33,961, $160,451, $1,260 and $1,233, respectively. All other
amounts reported under this heading represent employer matching
contributions made to employee benefit plans.
48
. 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 2004 and
the value of their unexercised stock options and SARs as of December 31, 2004.
SBC has not issued any SARs to the Named Officers. "Value of Unexercised
In-the-Money Options" figures are based on the year end, December 31, 2004, SBC
common stock price of $25.77.
Number of Securities
Underlying Unexercised Value of Unexercised In-
Shares Options at Fiscal the-Money Options at
Acquired Year End Fiscal Year End
on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------------------- -------- -------- ----------- ------------- ----------- -------------
Edward E. Whitacre, Jr. 164,574 $748,894 7,379,823 2,485,428 $1,625,226 $1,616,161
John H. Atterbury 170,719 $285,805 610,572 179,767 $ 0 $ 154,597
James D. Ellis 8,758 $ 38,496 1,204,566 282,662 $ 285,359 $ 333,173
Randall L. Stephenson 10,446 $ 37,945 524,413 212,219 $ 100,764 $ 217,366
Rayford Wilkins, Jr. 44,240 $138,733 589,165 171,223 $ 99,560 $ 152,162
. Long-term Incentive Plans--Awards in Last Fiscal Year
The table below reports performance shares and phantom stock units granted
to the Named Officers during the last fiscal year, applicable to the
performance periods indicated.
Number
of Performance
Shares, or Other Estimated Future Payouts Under
Units or Period Until Non-Stock Price-Based Plans
Other Maturation ------------------------------
Name Rights or Payout Threshold Target Maximum
----------------------- -------- ------------ ---------- -------- ----------
Edward E. Whitacre, Jr. 915,691 2004-2006 0 915,691 1,487,998
John H. Atterbury 135,708 2004-2006 0 135,708 203,562
James D. Ellis 161,154 2004-2006 0 161,154 241,731
Randall L. Stephenson 148,430 2004-2006 0 148,430 222,645
Rayford Wilkins, Jr. 135,708 2004-2006 0 135,708 203,562
Each performance share is equivalent in value to one share of SBC common
stock. At the end of the three-year performance period, a percentage of the
performance shares is converted 50% into cash and 50% into SBC common stock.
The percentage of performance shares earned is dependent upon the achievement
of a performance objective based on return on invested capital. In addition,
25% of Mr. Whitacre's award is based on the total stockholder return of SBC as
compared to a group of telecommunications companies. Each level of achievement
of a performance objective is assigned a payout percentage ranging from 0% to
150% (0% to 200% for the total stockholder return measurement), with higher
percentages reflecting greater performance achievement. Achievement of the
target objective results in a 100% payout. To the extent an award exceeds
400,000 performance shares, it is made in the form of phantom stock units
having the same terms as performance shares, except that upon achieving the
performance goals, they are paid only in cash.
49
. Option Grants in Last Fiscal Year
The table below contains the estimated present value of stock options
granted in 2004 as of their issue date. The options were issued under a stock
purchase plan where mid-level and above managers received options based on the
number of SBC shares they purchased.
Number of Percent of Grant
Securities Total Options Exercise Date
Underlying Granted to or Base Present
Options Employees in Price ($/ Expiration Value
Name Grant Granted Fiscal Year Share) Date ($000s)
-----------------------------------------------------------------------------------
Edward E. Whitacre, Jr. A 52,935 1.48% $26.46 01/31/2014 $ 232
B 347,065 9.73% $23.74 05/30/2014 $1,303
John H. Atterbury A 10,869 0.30% $26.46 01/31/2014 $ 48
B 1,279 0.04% $23.74 05/30/2014 $ 5
James D. Ellis A 16,428 0.46% $26.46 01/31/2014 $ 72
B 80,949 2.27% $23.74 05/30/2014 $ 304
Randall L. Stephenson A 12,400 0.35% $26.46 01/31/2014 $ 54
B 32,200 0.90% $23.74 05/30/2014 $ 121
Rayford Wilkins, Jr. A 9,058 0.25% $26.46 01/31/2014 $ 40
B 4,261 0.12% $23.74 05/30/2014 $ 16
The option values in the table represent the estimated present value of the
options as of their issue date. These values were determined in accordance with
a Black-Scholes option valuation model. The significant assumptions
incorporated in the Black-Scholes model 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). The expected life of the option grants are seven years.
. In calculating the value of the options, the model assumed an interest
rate of 3.92% for grant A and 4.50% for grant B. These interest rates
represent the interest rates on U.S. Treasury securities on the date of
grant with maturity dates corresponding to that of the expected option
lives.
. Expected volatility was calculated for each grant using daily stock
prices for the period prior to the grant date corresponding with the
expected option life, resulting in volatility of 23.91% for grant A and
23.66% for grant B.
. The model reflected an expected annual dividend yield of 4.72% for grant
A and 5.27% for grant B.
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, that 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.
50
. Pension Plans
SBC has noncontributory pension plans that cover almost all of its
employees. Management employees, including each of the Named Officers, are
generally entitled to receive the greater of the Cash Balance Benefit or the
Career Average Minimum (CAM) Benefit, each of which is subject to Internal
Revenue Code limitations on pay used to calculate pensions. Certain employees,
other than the Named Officers, may receive larger benefits based on pension
formulas offered to employees at companies acquired by SBC. Benefits under
these alternative formulas have been frozen with respect to accruing further
benefit credits, though they can continue to earn interest credits, if
applicable. A participant's Cash Balance Benefit is equal to the balance in the
participant's cash balance account, which is made up of (a) 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,
(b) subsequent monthly basic benefit credits equal to 5% of the participant's
compensation (generally, base pay, commissions, and group incentive awards),
(c) monthly interest credits on the participant's cash balance account, and (d)
a transition benefit, which was 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 for
those participants whose age plus service exceeded 25 on May 1, 1997. The Cash
Balance Benefit for managers was frozen as of January 14, 2005, so that they
will no longer receive future accruals, but interest credits will continue to
apply. 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. The CAM Benefit is equal to the sum of 1.6% of a participant's average
compensation (generally, base pay, commissions, and group incentive awards) for
the five years ended December 31, 1999, multiplied by the number of years of
service through the end of the averaging period, plus 1.6% of the participant's
pension compensation subsequent to the averaging period.
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 for officers and certain
senior managers from the general funds of SBC either under the Supplemental
Retirement Income Plan or its successor, the 2005 Supplemental Employee
Retirement Plan (see paragraph below), or another
51
SBC non-qualified 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, Atterbury, Ellis, Stephenson, and Wilkins would be $114,646
(44 years), $139,362 (43 years), $97,185 (36 years), $127,509 (43 years), and
$123,171 (42 years), respectively.
SBC offers a non-qualified pension for officers and certain senior
managers, which is neither funded by nor a part of the Pension Benefit Plan or
any other qualified pension plan of SBC. As a result of changes in the tax
laws, benefits under the original plan, known as the Supplemental Retirement
Income Plan ("SRIP"), were frozen effective December 31, 2004; future benefits
are earned under the 2005 Supplemental Employee Retirement Plan ("SERP").
Separate distribution elections (annuity or lump sum) are made by the
participants for benefits accrued before 2005 (under the SRIP) and for benefits
accrued in and after 2005 (under the SERP). Elections for the portion of the
pension that accrues in and after 2005, however, must be made when the officer
first participates in the plan.
Under the non-qualified pension, a target annual retirement benefit is
established for officers and certain senior managers, stated as a percentage of
their annual salaries and annual incentive bonuses averaged over a specified
averaging period described below ("Average Annual Compensation"). The
percentage is increased by .715% for each year of actual service in excess of,
or decreased by 1.43% (.715% for mid-career hires) for each year of actual
service below, 30 years of service for executive officers and other officers
and 35 years of service for eligible senior managers. Average Annual
Compensation is determined by averaging salaries and actual annual incentive
bonuses (or such other portion of the target or annual bonus amount as the
Human Resources Committee may determine) 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% and executive other
officers-55% to 70%. In the event the participant retires before reaching his
or her 60/th/ birthday, a discount of .5% for each month remaining until the
participant's 60/th/ birthday is applied to reduce the amount payable under
this plan, except for officers who have 30 years or more of service at the time
of retirement.
52
Benefits may be received as an annuity payable for the greater of the life
of the participant or 10 years. If the participant dies before the 10/th/
anniversary of his or her termination of employment, then the payments for the
balance of the 10 years will be paid to the participant's beneficiary.
Alternatively, the Participant can elect to have the annuity payable for life
with 100% or 50% payable upon his death to his beneficiary for the
beneficiary's life. The amounts paid under each alternative (and the lump sum
alternative described below) are actuarially equivalent. As noted above,
separate distribution elections are made for pre-2005 benefits and 2005 and
later benefits.
Participants may elect to receive the actuarially determined net present
value of the benefit as a lump sum if they are at least 55 years old upon
termination, rather than in the form of an annuity. Participants also may elect
to defer distribution of a portion or all of their lump sum benefit. Those who
elect to defer any portion also have to elect the time period, not to exceed 20
years after their termination of employment, and the manner in which the lump
sum will be paid. The participant is not permitted to receive more than 30% of
the lump sum benefit prior to the third anniversary of the termination of
employment, unless he or she is at least 60 years old at termination, in which
case the participant may receive 100% of the lump sum benefit as early as six
months after the termination of employment. Participants receiving their entire
lump sum after six months from their termination must enter into a written
non-competition agreement with the company, and agree to forfeit and repay the
lump sum if they breach that agreement. Regardless of the payment form, no
benefits under the SERP are payable until six months after termination of
employment.
The non-qualified pension pays only the difference, if any, between the
target amount and that which would be payable under the Pension Benefit Plan
calculated as if the benefits under the Pension Benefit Plan were paid in the
form of an immediate annuity for life.
If they continue in their current positions and if they retire at the
mandatory retirement age of 65, the estimated annual retirement amounts that
will be paid in accordance with the SRIP (for benefits earned prior to 2005)
for Messrs. Whitacre, Atterbury, Ellis, Stephenson and Wilkins would be
$5,380,795, $793,781, $986,988, $39,087, and $803,267, respectively.
Each of Messrs. Whitacre, Atterbury, Ellis, Stephenson and Wilkins have
elected to receive SERP (2005 and later) benefits in a lump sum. If they
continue in their present positions and if they retire at the mandatory
retirement age of 65, using their current Average Annual Compensation and
53
the discount rate applicable to terminations that occur in 2005, the amounts
they will be paid in accordance with the SERP are $8,603,285 (lump sum),
$2,408,029 (lump sum), $1,564,110 (lump sum), $8,851,727 (lump sum), and
$2,321,884 (lump sum), respectively. Unless the officer elects a later
distribution date, each benefit is payable six months after termination of
employment. Pending distribution, amounts earn interest at the same rate as the
discount rate. The discount rate is the interest rate used by the company to
value plan liabilities at the end of the year before retirement. This rate is
currently 6.25%. Mr. Ellis elected to receive his payment three years after
retirement. Messrs. Atterbury, Stephenson, and Wilkins have also elected to
receive delayed distributions, but only in the event they retire before age 60.
. Contracts With Management
On November 21, 1997, the Board of Directors approved revised Change of
Control Severance Agreements (the "Agreements") for the Named Officers 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 the termination 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 (Messrs. Whitacre and Ellis) or two (other executive
officers) 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 2001 Incentive Plan, and (c) the cash value of the target award of
performance shares granted under the 2001 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.
54
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 a benefit
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% 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 if:
(a) anyone (other than an employee benefit plan of SBC) acquires more than 20%
of SBC's common stock, (b) within a two-year period, the Directors at the
beginning of such period (together with any new Directors elected or nominated
for election by a two-thirds majority of Directors then in office who were
Directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease to constitute a majority of the
Board, or (c) SBC's stockholders either approve a merger or consolidation that
results in someone other than the stockholders immediately prior thereto
holding more than 35% 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.
In 2001, SBC entered into an employment agreement with Mr. Whitacre to act
as Chairman of the Board and Chief Executive Officer for a five-year term
ending November 15, 2006. During the term of the contract, his base salary, the
target for his bonus, and the value of his long-term awards will not be less
than that in effect for calendar year 2001. The bonus and long-term award are
not guaranteed, but are subject to attainment of performance objectives.
Pursuant to the agreement, SBC granted Mr. Whitacre options that expire in 2011
to acquire 2,500,000 shares of SBC at $39.13 per share. Three-fifths of the
options vested on the third anniversary of the agreement and, assuming his
continued employment, the remaining options vest on the fifth anniversary; the
options also vest if his employment is terminated without cause. SBC will
provide Mr. Whitacre with office facilities and support staff, automobile
benefits, limited access to SBC's aircraft, and health care for the rest of his
life. If the company terminates his employment without cause before the end of
the term or if he is unable to perform his duties because of disability or
accident, he shall be entitled to continue to receive his salary and other
benefits through the end of the term.
55
Upon retirement, Mr. Whitacre has agreed to provide consulting services and
advice to SBC for three years after his termination of employment in exchange
for an annual fee equal to 50% of his annual salary at retirement. In the event
Mr. Whitacre receives a change in control payment under the Change of Control
Severance Agreements (described above), his employment term will immediately
expire, and the consulting term will be extended by the same period the
employment term was reduced.
One member of the immediate family of each of Mr. Ellis and Ms. Jennings as
well as two members of the immediate family of each of Mr. Stephenson and Mr.
Whitacre were employed by subsidiaries of SBC and were paid a total of
approximately $429,000 in 2004. Amounts paid to these employees include salary
and bonus, and are comparable to compensation paid to other employees
performing similar job functions.
56
--------------------------------------------------------------------------------
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2004,
concerning shares of SBC common stock authorized for issuance under SBC's
existing equity compensation plans.
Equity Compensation Plan Information
--------------------------------------------------------------------------------
Number of securities
remaining available
for future issuance
Number of securities under equity
to be issued upon Weighted-average compensation plans
exercise of exercise price of (excluding
outstanding options, outstanding options, securities reflected
warrants and rights warrants and rights in column (a))
Plan Category (a) (b) (c)
-------------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders 91,683,395 $35.91 38,797,293(2)
Equity compensation
plans not approved by
security holders (3) 122,226,678 $38.62 6,034,084
-------------------------------------------------------------------------------------
Total 213,910,073(1) $37.46 44,831,377
--------------------------------------------------------------------------------
(1) In addition to the shares shown in the above table, certain stock options
issued by companies acquired by SBC were converted into options to acquire
SBC stock. As of December 31, 2004, there were 22,406,123 shares of SBC
common stock subject to the converted options, having a weighted-average
exercise price of $30.52. No further grants may be issued under the assumed
plans.
(2) Of the shares reported, no more than 17,997,668 shares may be issued as
performance shares, and of these 17,997,668 shares, no more than 4,531,845
shares may be issued as restricted stock under the 2001 Incentive Plan and
its predecessor.
(3) Plans that have not been approved by stockholders include the 1995
Management Stock Option Plan ("1995 Plan"), 2001 Stock Option Grant to
Bargained-for and Certain Other Employees ("Bargained-For Plan"), and the
Non-Employee Director Stock and Deferral Plan ("Non-Employee Director
Plan"). The 1995 Plan and the Bargained-For Plan provide for grants of
stock options to management employees (10-year terms) and Bargained-For
employees (5-year terms), respectively, subject in each case to vesting
requirements and shortened exercise terms upon termination of employment.
No further options may be issued under these plans. Under the Non-Employee
Director Plan, participants may elect to receive stock units in lieu of
retainers and fees. In addition, each non-employee Director receives an
annual award of stock units equal in value to one and one-half times the
annual retainer. Directors who become board members after November 21,
1997, but before September 24, 2004, also receive up to 10 annual grants of
stock units equal to $13,000 each. The stock units are paid out in the form
of SBC stock only after the termination of their employment as a Director.
Under the plan, 444,792 shares remain available for future issuance and are
included in the table.
Also included in column (c) are up to 4,075,476 shares that may be
purchased under the Stock Savings Plan with reinvested dividend equivalents
on deferred Share Units purchased by mid-level and above managers and
limited company partial matching contributions. No new contributions may be
made to the plan. The shares purchased are not delivered to the employee
until after retirement, subject to certain accelerated delivery provisions.
In addition, participants receive 2 options for each share purchased with
employee payroll deductions. The options have a 10-year term and a strike
price equal to the fair market value of the stock on the date of grant.
There are also 1,513,816 shares available under the plan for future
issuances of options (all of which were issued in February 2005, which was
the final grant permitted). The Stock Savings Plan was last approved by
stockholders in 1994. The plan was amended by the Board of Directors in
2000 to increase the number of shares available for purchase under the plan
(including shares from the company match and reinvested dividend
equivalents) and shares subject to options. Stockholder approval was not
required for the amendment. To the extent applicable, the amounts shown for
non-approved plans in columns (a) and (c) include these additional shares.
Shares subject to outstanding options that were previously approved by
stockholders are included under approved plans.
57
--------------------------------------------------------------------------------
STOCK PERFORMANCE GRAPH
Comparison of Five Year Cumulative Total Return
SBC, S&P 500 and Peer Group
[CHART]
Peer
SBC Group S&P 500
--- ----- -------
12-31-99 100 100 100
12-31-00 100 85 91
12-31-01 84 82 80
12-31-02 60 66 62
12-31-03 61 66 80
12-31-04 64 75 89
Assumes $100 invested on December 31, 1999, in SBC common stock, Standard &
Poor's 500 Index ("S&P 500") and a Peer Group of other large U.S.
telecommunications companies (BellSouth Corporation and Verizon, Inc.). 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.
58
--------------------------------------------------------------------------------
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 stockholders 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 2004 may be obtained without charge upon written request
to SBC Stockholder Services, 175 E. Houston, Room 7-F-8, San Antonio, Texas
78205.
SBC's Corporate Governance Guidelines, Code of Ethics, and Committee
Charters may also be viewed online at www.sbc.com.
. Stockholder Proposals
Proposals of stockholders intended for presentation at the 2006 Annual
Meeting must be received by SBC for inclusion in its Proxy Statement and form
of proxy relating to that meeting by November 11, 2005. Such proposals should
be sent in writing by certified mail to the Vice President and Secretary of SBC
at 175 E. Houston, San Antonio, Texas 78205.
Stockholders whose proposals are not included in the Proxy Statement but
who still intend to submit a proposal at an Annual Meeting and stockholders who
intend to submit nominations for Directors at an Annual 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 120 days, nor more than
150 days, before the meeting, in accordance with SBC's Bylaws.
59
APPENDIX A
STOCK PURCHASE AND DEFERRAL PLAN
APPENDIX A
SBC COMMUNICATIONS INC.
STOCK PURCHASE AND DEFERRAL PLAN
Article 1--Statement of Purpose
The purpose of the Stock Purchase and Deferral Plan ("Plan") is to increase
stock ownership by, and to provide savings opportunities to, a select group of
management employees consisting of Eligible Employees of SBC Communications
Inc. ("SBC") and its Subsidiaries.
Article 2--Definitions
For the purpose of this Plan, the following words and phrases shall have the
meanings indicated, unless the context indicates otherwise:
Base Compensation. The following types of cash-based compensation paid by an
Employer (but not including payments made by a non-Employer, such as state
disability payments), before reduction due to any contribution pursuant to this
Plan or reduction pursuant to any deferral plan of an Employer, including but
not limited to a plan that includes a qualified cash or deferral arrangement
under Section 401(k) of the Code:
(a) annual base salary;
(b) lump sum payments in lieu of a salary increase; and
(c) Team Award.
Payments by an Employer under a disability plan made in lieu of any
compensation described above, shall be deemed to be a part of the respective
form of compensation it replaces for purposes of this definition. Base
Compensation does not include zone allowances or any other geographical
differential and shall not include payments made in lieu of unused vacation or
other paid days off, and such payments shall not be contributed to this Plan.
Determinations by SBC (the Committee with respect to Officer Level Employees)
of the items that make up Base Compensation shall be final. The Committee may,
from time to time, add or subtract types of compensation to or from the
definition of "Base Compensation" provided, however, any
A-1
addition to the definition of Base Compensation shall only be effective with
respect to the next period in which a Participant may make an election to
establish a Share Deferral Account.
Business Day. Any day during regular business hours that SBC is open for
business.
Chief Executive Officer. The Chief Executive Officer of SBC Communications Inc.
Cingular. Cingular Wireless LLC, the successor thereto, or a direct or
indirect majority owned subsidiary thereof.
Code. References to the Code shall be to provisions of the Internal Revenue
Code, as amended, including regulations promulgated thereunder and successor
provisions.
Committee. The Human Resources Committee of the Board of Directors of SBC
Communications Inc.
Disability. Absence of an Employee from work with an Employer under the
relevant Employer's disability plan.
Disabled. Where a person either (a) is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or can be expected to last
for a continuous period for not less than 12 months or (b) is, by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or can be expected to last for a continuous period of not less
than 12 months, receiving income replacement benefits for a period of not less
than 3 months under an accident and health plan covering Employees of the
Participant's Employer. It is intended that "Disabled" have the same meaning in
this Plan as in Section 409A of the Code.
Eligible Employee. An Employee who:
(a) is a full or part time, salaried Employee of SBC or an Employer in
which SBC has a direct or indirect 100% ownership interest and who is on active
duty, Disability (but only while such Employee is deemed by the Employer to be
an Employee of such Employer) or Leave of Absence;
(b) is, as determined by SBC, a member of Employer's "select group of
management or highly compensated employees" within the meaning of the
A-2
Employee Retirement Income Security Act of 1974, as amended, and regulations
thereunder ("ERISA"), which is deemed to include each Officer Level Employee;
and
(c) has an employment status which has been approved by SBC to be eligible
to participate in this Plan or is an Officer Level Employee.
Notwithstanding the foregoing, SBC (the Committee with respect to Officer Level
Employees) may, from time to time, exclude any Employee or group of Employees
from being deemed an "Eligible Employee" under this Plan.
In the event a court or other governmental authority determines that an
individual was improperly excluded from the class of persons who would be
considered Eligible Employees during a particular time for any reason, that
individual shall not be an Eligible Employee for purposes of the Plan for the
period of time prior to such determination.
Employee. Any person employed by an Employer and paid on an Employer's payroll
system, excluding persons hired for a fixed maximum term and excluding persons
who are neither citizens nor permanent residents of the United States, all as
determined by SBC. For purposes of this Plan, a person on Leave of Absence who
otherwise would be an Employee shall be deemed to be an Employee.
Employer. SBC Communications Inc. or any of its Subsidiaries.
Exercise Price. The price per share of Stock purchasable under an Option.
Fair Market Value or FMV. In valuing Stock or any other item subject to
valuation under this Plan, the Committee may use such index or measurement as
the Committee may reasonably determine from time to time, and such index or
measurement shall be the FMV of such Stock or other item. In the absence of
such action by the Committee, FMV means, with respect to Stock, the closing
price on the New York Stock Exchange ("NYSE") of the Stock on the relevant
date, or if on such date the Stock is not traded on the NYSE, then the closing
price on the immediately preceding date such Stock is so traded.
Leave of Absence. Where a person is absent from employment with an Employer on
a formally granted leave of absence (i.e., the absence is with formal
permission in order to prevent a break in the continuity of term of employment,
which permission is granted (and not revoked) in conformity
A-3
with the rules of the Employer that employs the individual, as adopted from
time to time). For purposes of this Plan, a Leave of Absence shall be deemed to
also include a transfer by an Employer of a person to, and continuous
employment by, an entity for a rotational work assignment. In the event a
transfer to such an entity lasts more than 5 years or the rotational work
assignment status is canceled by SBC, it shall be deemed a Termination of
Employment with the Employer at that time for purposes of this Plan. To be a
rotational work assignment, the Employer must have indicated in writing to the
person that the person was to be rehired by the Employer upon termination of
the rotational work assignment.
Officer Level Employee. Any executive officer of SBC, as that term is used
under the Securities Exchange Act of 1934, as amended, and any Employee that is
an "officer level" Employee for compensation purposes as shown on the records
of SBC.
Options or Stock Options. Options to purchase Stock issued pursuant to this
Plan.
Participant. An Eligible Employee or former Eligible Employee who participates
in this Plan.
Plan Year. The period from January 16 through the following January 15.
Retirement or Retire. Termination of Employment on or after the earlier of the
following dates, unless otherwise provided by the Committee: (a) for Officer
Level Employees, the date the Participant is at least age 55 and has five (5)
years of Net Credited Service; or (b) the date the Participant has attained one
of the following combinations of age and Net Credited Service:
Net Credited Service Age
-------------------- ---
10 years or more 65 or older
20 years or more 55 or older
25 years or more 50 or older
30 years or more Any age
For purposes of this Plan only, Net Credited Service shall be calculated in the
same manner as "Pension Eligibility Service" under the SBC Pension Benefit
Plan--Nonbargained Program ("Pension Plan"), as that may be amended from time
to time, except that service with an Employer shall be counted as though the
Employer were a "Participating Company" under the Pension Plan and the Employee
was a participant in the Pension Plan.
Shares or Share Units. An accounting entry representing the right to receive
an equivalent number of shares of Stock.
A-4
Share Deferral Account or Account. The Account established annually by an
election by a Participant to make Employee Contributions to the Plan over the
Plan Year relating to such election. The Plan Year shall run from and including
January 16 (the commencement date of the Share Deferral Account) through the
following January 15. One Share Deferral Account is created by each yearly
election, and all Share Units credited pursuant to such election, including
through Employee Contributions, SBC Matching Contributions, conversions of
right to receive Stock, earnings on Share Units, or otherwise, shall be part of
the same Share Deferral Account. Each annual Account is a separate Share
Deferral Account; only one Share Deferral Account will relate to a Plan Year.
Short Term Incentive Award. A cash award paid by an Employer (and not by a
non-Employer, such as state disability payments) under the Short Term Incentive
Plan or any successor plan; an award under a similar plan intended by the
Committee to be in lieu of an award under such Short Term Incentive Plan,
including, but not limited to, Performance Units granted under the 2001
Incentive Plan or any successor plan; or any other award that the Committee
designates as a Short Term Incentive Award specifically for purposes of this
Plan (regardless of the purpose of the award).
Stock. The common stock of SBC Communications Inc.
Subsidiary. Any corporation, partnership, venture or other entity in which SBC
holds, directly or indirectly, a 50% or greater ownership interest. The
Committee may, at its sole discretion, designate any other corporation,
partnership, limited liability company, venture or other entity a Subsidiary
for the purpose of participating in this Plan. Unless otherwise provided by the
Committee, Cingular shall be deemed a Subsidiary so long as SBC holds a direct
or indirect 25% interest in Cingular Wireless LLC or its successor.
Team Award. The annual award determined to be the "Team Award" by SBC,
together with any individual award determined by SBC to be the Individual
Discretionary Award made in connection therewith or comparable awards, if any,
determined by SBC to be used in lieu of these awards.
Termination of Employment. References herein to "Termination of Employment,"
"Terminate Employment" or a similar reference, shall mean the event where the
Employee ceases to be an Employee of any Employer, including but not limited to
where the employing company ceases to be an Employer.
A-5
Article 3--Administration of the Plan
3.1 The Committee.
The Committee shall be the administrator of the Plan and will administer the
Plan, interpret, construe and apply its provisions and determine entitlement to
benefits, all in its discretion. The Committee may further establish, adopt or
revise such rules and regulations and such additional terms and conditions
regarding participation in the Plan as it may deem necessary or advisable for
the administration of the Plan. References to determinations or other actions
by SBC, herein, shall mean actions authorized by the Committee, the Chief
Executive Officer, the Senior Executive Vice President of SBC in charge of
Human Resources, or their respective successors or duly authorized delegates,
in each case in the discretion of such person. All decisions by SBC shall be
final and binding.
3.2 Authorized Shares of Stock.
(a) Except as provided below, the number of shares of Stock which may be
distributed pursuant to the Plan, exclusive of Article 8, is 21,000,000. The
number of shares of Stock which may be issued pursuant to the exercise of Stock
Options is 34,000,000 (together with an equal number of Stock Options). Only
the actual number of shares of Stock that are issued (shares issued would not
include, for example, any reduction in shares to be issued as a result of tax
withholding in connection with a distribution of Stock, exercise of options, or
otherwise) shall be counted against the authorized number of shares of Stock.
To the extent an Option issued under this Plan is canceled, terminates,
expires, or lapses for any reason, such Option shall again be available for
issuance under the Plan. Conversions of Stock awards into Share Units and their
eventual distribution (excluding the effects of any dividends on such Share
Units) shall count only against the limits of the plans from which they
originated and shall not be applied against the limits in this Plan. To the
extent Share Units are credited through deferrals of Stock or Employee
Contributions where the distribution of which would be deductible by SBC under
Section 162(m) of the Code without regard to the size of the distribution, and
such deductible Share Units are available for distribution, such Share Units
shall be distributed first.
(b) In the event the Committee determines that continuing the purchase of
Share Units under the Plan may cause the number of shares of Stock that are to
be distributed under this Plan (which may take into account, among other
things, the number of Share Units acquired and the number of Stock
A-6
Options issued or required to be issued, reduced by the number of shares of
Stock that would be withheld for income tax purposes) to exceed the number of
authorized shares of Stock, then the Committee may cancel further purchases of
Share Units and require that any further dividend equivalents on Share Units be
paid in cash to the Participants.
(c) In the event of a merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, stock split, share
combination, or other change in the corporate structure of SBC affecting the
shares of Stock (including a conversion of Stock into cash or other property),
such adjustment shall be made to the number and class of the shares of Stock
which may be delivered under the Plan (including but not limited to individual
limits), and in the number and class of and/or price of shares of Stock subject
to outstanding Options granted under the Plan, and/or in the number of
outstanding Options and Share Units, or such other adjustment determined by the
Committee, in each case as may be determined to be appropriate and equitable by
the Committee, in its sole discretion, to prevent dilution or enlargement of
rights.
3.3 Claims Procedure.
Subject to the authority of the Committee over the Plan, SBC shall appoint a
Claims Board to adjudicate claims brought by or in respect to Participants and
their beneficiaries relating to benefits under the Plan. A Participant may
apply in writing to the Claims Board to make a claim under this Plan. The
Claims Board shall provide written notice within 90 days to a Participant whose
claim hereunder has been denied, setting forth reasons for such denial or
explaining that an extension of the time for processing the claim is necessary,
written in a manner calculated to be understood by such person. After receipt
of such notice, or expiration of 90 days without any response from the Claims
Board, the Participant may appeal the decision in writing to the Senior
Executive Vice President of SBC in charge of Human Resources, or to the
person's successor, within 90 days, except that if the Participant is an
Insider, as that term is used in the 2001 Incentive Plan, then the
Participant's appeal shall be to the Committee. The Participant shall receive a
full and fair review of the decision denying the claim in accordance with the
requirements of ERISA.
A-7
Article 4--Contributions
4.1 Election to Make Contributions.
(a) The Committee shall establish dates and other conditions for
participation in the Plan and making contributions as it deems appropriate.
Except as otherwise provided by the Committee, each year:
(1) an Employee who is an Eligible Employee as of April 30 may
thereafter make an election on or prior to the last Business Day of the
immediately following June to establish a Share Deferral Account in order
to elect any combination of the following:
(A) to make contributions to the Plan ("Employee Contributions"),
through payroll deductions, during the immediately following Plan Year
(which shall be the Plan Year of such Account), to acquire Share Units
in such Account with any combination of the following:
(i) from 6% to 30% (in whole percentage increments) of the
Participant's monthly Base Compensation, as the same may change from
time to time (Participants who, at the time of the determination of
their eligibility to participate in an Account, are paid through a
"sales plan" involving the use of commissions) may contribute up to
40% of Base Compensation, provided that upon removal of a
Participant from such "sales plan," the deferral election shall not
exceed 30% for the rest of the Plan Year, beginning with the
Employee Contributions relating to the first pay period following
such change in status; or
(ii) up to 100% (in whole percentage increments or in dollars)
of a Short Term Incentive Award (with any contribution of a
discretionary award related thereto determined separately). If a
Participant did not have a target Short Term Incentive Award on June
30, but was subsequently granted such an award before the end of
such Plan Year, the Participant will be deemed to have made the same
percentage contribution election for the Short Term Incentive Award
as the Participant made for Base Compensation.
(B) to convert up to 100% (in whole percentage increments) of Stock
that would be distributed under the 2001 Incentive Plan or any successor
Plan (other than through the exercise of stock options or the removal of
restrictions on restricted Stock) during
A-8
such Plan Year into an equal number of Share Units in such Account;
provided such election would not cause the recognition of income for
Federal income tax purposes in respect of the Stock prior to payment
under this Plan and so long as the Participant is an Employee or has
Retired as of the conversion date.
(2) an Employee who was not an Eligible Employee as of April 30 but who
is an Eligible Employee the immediately following September 30 may
thereafter make an election on or prior to the last Business Day of the
immediately following November to establish a Share Deferral Account in
order to contribute Base Compensation, other than Team Award, in the same
manner as if the Employee was an Eligible Employee as of such April 30.
(b) The Committee may permit an Eligible Employee to purchase Share Units
under this Plan with amounts other than Base Compensation or Short Term
Incentive Awards on such terms and conditions as such Committee may permit from
time to time. In no event shall an acquisition of Share Units pursuant to this
paragraph (b) or pursuant to the conversion of a right to receive Stock into
Share Units (such as through a distribution of Stock under the 2001 Incentive
Plan) result in the crediting of an SBC Matching Contribution or Options.
(c) No contribution of compensation, other than for performance-based
compensation (as that term is defined under Section 409A of the Code), shall be
made to the Plan out of compensation for services where such services are
performed during or before the taxable year of the election to make such
Employee Contributions. In the case of the above referenced performance-based
compensation (based on services performed over a period of at least 12 months),
such election may be made no later than 6 months before the end of the period.
(d) Notwithstanding anything to the contrary in this Plan, no election
shall be effective to the extent it would permit an Employee Contribution or
distribution to be made that is not in compliance with Section 409A of the
Code. To the extent such election related to Employee Contributions that
complied with such statute and regulations, that portion of the election shall
remain valid, except as otherwise provided under this Plan.
(e) SBC may refuse or terminate, in whole or in part, any election to
purchase Share Units in the Plan at any time; provided, however, only the
Committee may take such action with respect to persons who are Officer Level
Employees.
A-9
(f) In the event the Participant takes a hardship withdrawal from a benefit
plan qualified under the Code and sponsored by an Employer, any election to
make Employee Contributions by such Participant shall be cancelled on a
prospective basis, and the Participant shall not be permitted to make a new
election with respect to Employee Contributions that would be contributed
during the then current and immediately following calendar year.
4.2 Purchase of Share Units.
(a) Employee Contributions (as well as any corresponding SBC Matching
Contributions) shall be made solely pursuant to a proper election and only
during the Employee's lifetime and while the Employee remains an Eligible
Employee (if the Employee ceases to be an Eligible Employee, his or her
election to make Employee Contributions shall be cancelled on a prospective
basis); provided, however, Termination of Employment of an Eligible Employee
shall not constitute loss of eligibility solely with respect to contribution of
annual base salary earned prior to termination but paid within 60 days
thereafter or with respect to a Short Term Incentive Award paid after
Retirement (and such person shall be deemed an Eligible Employee for such
contributions).
(b) The number of Share Units purchased by a Participant during a calendar
month shall be found by dividing the Participant's Employee Contributions
during the month by the FMV on the last day of such month.
(c) A contribution to the Plan shall be made when the compensation--from
which the contribution is to be deducted--is paid ("paid," as used in this
Plan, includes amounts contributed to the Plan that would have been paid were
it not for an election under this Plan) using the "check date" shown on the
related pay record (sometimes referred to as the "paycheck stub") as the
contribution date (if no "check date" is shown, then the date of the pay
record). When a payment is made to correct an underpayment, or as a delayed
payment, of gross compensation for any reason, the related Employee
Contribution to the Plan shall be made when such correcting or delayed payment
is made, again using the date on the pay record. No correcting or delayed
payment may be contributed to the Plan if it is made after the period for
making contributions in Article 4 for the Share Deferral Account covering the
payment to be corrected. For example, if an underpayment is made in June 2005,
but not corrected until May 2006, regardless of the cause of such events, no
part of the correcting payment may be contributed to the Plan. Where there has
been an overpayment of
A-10
gross compensation, the amount of the overpayment will not be considered in
determining the contribution amount. In no event shall the Participant have any
recourse against an Employer under this Plan for any underpayment, overpayment
or delayed or correcting payment of compensation. In the event a pay period
(the period over which services are rendered for the relevant compensation)
relates to services rendered during or before the taxable year of the relevant
election, then only the compensation relating to services performed in the
calendar year following the calendar year of the election may be contributed to
this Plan. The Committee may modify or change this paragraph (c) from time to
time.
4.3 Reinvestment of Dividends.
In the month containing a record date for a cash dividend on Stock, each Share
Deferral Account shall be credited with that number of Share Units equal to the
declared dividend per share of Stock, multiplied by the sum of (a) the number
of Share Units held in such Share Deferral Account as of such record date, plus
(b) all Share Units purchased after such record date with contributions made on
or prior to such record date, and dividing the product by the FMV on the last
day of such month.
Article 5--SBC Matching Contributions
5.1 SBC Match.
(a) SBC shall credit each Participant's relevant Share Deferral Account
with the number of Matching Share Units (defined below) found by taking eighty
percent (80%) of the Participant's Employee Contributions (the "Match Rate")
from no more than six percent (6%) of the Participant's Base Compensation (the
"Match Compensation Percentage") contributions made during the month with
respect to such Share Deferral Account and dividing the resulting figure by the
FMV of the Stock on the last day of such month ("SBC Matching Contribution").
However, if during any month the Participant is concurrently participating in
this Plan and (1) the match eligible portion of the SBC Savings Plan (which may
be referred to as "Basic Allotments") or (2) the match eligible portion of any
other tax qualified or nonqualified plan of an Employer, then the monthly Match
Compensation Percentage shall be reduced by the Participant's match eligible
percentage determined under such other plan.
In no event shall matching contributions under this Plan and all other plans of
SBC and all Employers combined (including but not limited to the SBC Savings
Plan) be paid with respect to more than six percent (6%) of
A-11
Participant's monthly Base Compensation, except as provided below. SBC Matching
Contributions shall only be paid on Base Compensation contributed to the Plan.
The Committee, in its discretion, may reduce or eliminate the SBC Matching
Contributions with respect to those Employee Contributions that have not been
the subject of a contribution election by the Participant.
Notwithstanding the foregoing, in the event that the tax-qualified plan
applicable to a Participant provides for a greater match rate and/or applies to
a larger percentage of compensation than this Plan provides, the Committee may,
to the extent it deems appropriate, raise the percentage of the Match Rate (set
at 80%, above) and/or the Match Compensation Percentage (set at 6%, above) to
approximate the matching benefit provided in such tax qualified plan for
applicable Participants.
(b) In the sole discretion of the Committee, in the event the Committee
reduces the number of Options that SBC issues for each Share Unit purchased,
the Committee may provide for the contribution of a Bonus Matching Contribution
on such terms as the Committee determines. Such Bonus Matching Contribution may
not exceed 20% of the Participant's Employee Contributions for the month. The
Bonus Matching Contribution shall be subject to such terms and conditions as
required by the Committee and, unless otherwise provided by the Committee, to
the same vesting and distribution requirements as SBC Matching Contributions.
5.2 Vesting and Distribution of Share Units Acquired with Matching
Contributions.
A Participant's interest in Share Units purchased with SBC Matching
Contributions, as well as earnings thereon, (collectively, "Matching Share
Units") shall vest when a Participant shall have three (3) years of Net
Credited Service (regardless of any subsequent break in service after achieving
vesting) as reflected on the records of SBC. Matching Share Units shall be
distributed in a lump sum, in accordance with the Plan's distribution
provisions only upon becoming vested, in the earlier of: (a) the calendar year
following the calendar year of the Termination of Employment of the
Participant, or (b) the calendar year in which the Participant reaches age 55.
Matching Share Units acquired as part of a Share Deferral Account that
commences in or after the calendar year the Participant reaches age 55 will be
distributed in the same manner and time as other Share Units in such Share
Deferral Account.
A-12
Upon the Participant's Termination of Employment, all the Participant's
unvested Share Units shall be forfeited and shall not be reinstated if
Participant is re-Employed.
Article 6--Distributions
6.1 Distributions of Share Units.
(a) Initial Election with Respect to a Share Deferral Account. At the time
the Participant makes an election to make Employee Contributions with respect
to a Share Deferral Account, the Participant shall also elect the calendar year
the Share Deferral Account shall be distributed, which may be from one through
five years after the calendar year the Account commenced. For example, if an
Account commenced in 2005, the Participant may elect to commence the
distribution in any calendar year from and including 2006 to and including
2010. If no timely distribution election is made by the Participant, then the
Participant will be deemed to have made an election to have the Share Deferral
Account distributed in a single installment in the first calendar year after
the calendar year the Account commenced. However, for purposes of the Initial
Election only, in the event the Participant Terminates Employment, the
distribution of the Share Deferral Unit shall occur in the calendar year
following the calendar year of the Participant's Termination of Employment. If
the Participant Terminates Employment but has a Share Deferral Account that
commenced in the same year the Share Deferral Account would be distributed,
then that Account would instead distribute in the calendar year following the
year of the contribution. For example, if a Retirement eligible Employee
Terminated Employment in 2005 after making an election with regard to an
Incentive Award to be paid in 2006, the Share Deferral Account relating to that
award would be distributed in 2007.
(b) Election to Delay a Scheduled Distribution. While an Employee, a
Participant may elect to defer a scheduled distribution of a Share Deferral
Account for five (5) additional calendar years beyond that previously elected.
Unless otherwise provided by the Committee, the election to defer the
distribution must be made before the last Business Day of the December that is
at least one year before the scheduled distribution. An election to defer the
distribution of a Share Deferral Account may not be made in the same calendar
year that the election to establish the Share Deferral Account is made.
Notwithstanding anything to the contrary in this Plan, (1) an election to defer
the distribution of a Share Deferral Account must be made at least 12 months
prior to the date of the first scheduled payment under the
A-13
prior distribution election and (2) the election shall not take effect until at
least 12 months after the date on which the election is made.
(c) A Participant's Share Deferral Account shall be distributed to the
Participant on March 10 (or as soon thereafter as administratively practicable
as determined by SBC) of the calendar year elected by the Participant. In the
event the distribution is to be made to an Officer Level Employee or a "key
employee" (as defined in Section 416(i) of the Code, without regard to
paragraph (5) thereof) as a result of the Participant's Termination of
Employment, the distribution shall not occur until the later of such March 10
or six (6) months after the Termination of Employment, except it shall be
distributed promptly upon the Participant's earlier death
6.2 Death of the Participant or if the Participant Becomes Disabled.
In the event of the death of a Participant, all undistributed Share Deferral
Accounts shall be distributed to the Participant's beneficiary in accordance
with the SBC Rules for Employee Beneficiary Designations, as the same may be
amended from time to time. In the event a Participant becomes Disabled and
Terminates Employment, all undistributed Share Deferral Accounts shall be
promptly distributed to the Participant.
6.3 Unforeseeable Emergency Distribution.
In the event that SBC (the Committee in the case of Officer Level Employees),
upon written petition of the Participant, determines in its sole discretion
that the Participant has suffered an unforeseeable emergency, SBC shall make
such distributions to the Participant from the Participant's Share Deferral
Accounts (other than Matching Share Units), on a pro-rata basis, as it deems
necessary, as soon as practicable following such determination, subject to the
following. For purposes of this Plan, an unforeseeable emergency is a severe
financial hardship to the Participant resulting from an illness or accident of
the Participant, the Participant's spouse, or a dependent (as defined in
Section 152(a) of the Code) of the Participant, loss of the Participant's
property due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant. The amounts distributed with respect to an emergency may not
exceed the amounts necessary to satisfy such emergency plus amounts necessary
to pay taxes reasonably anticipated as a result of the distribution, after
taking into account the extent to which such hardship is or may be relieved
through reimbursement or compensation by insurance or otherwise or by
liquidation of the Participant's assets (to the
A-14
extent the liquidation of such assets would not itself cause severe financial
hardship). It is the intent of this Plan that this provision comply with the
Unforeseeable Emergency provisions of Section 409A of the Code. Upon such
distribution, any election to make Employee Contributions by such Participant
shall be immediately cancelled, and the Participant shall not be permitted to
make a new election with respect to Employee Contributions that would be
contributed during the then current and immediately following calendar year.
6.4 Ineligible Participant.
Notwithstanding any other provisions of this Plan to the contrary, if SBC
receives an opinion from counsel selected by SBC, or a final determination is
made by a Federal, state or local government or agency, acting within its scope
of authority, to the effect that an individual is not, or was not at the time
of his or her making Employee Contributions to this Plan, a member of
Employer's "select group of management or highly compensated employees" within
the meaning of ERISA, then such person will not be eligible to make further
contributions to the Plan.
6.5 Distribution Process.
A Share Deferral Account shall be distributed under this Plan by taking the
number of Share Units comprising the Account to be distributed and converting
them into an equal number of shares of Stock. (Once distributed, a Share Unit
shall be canceled.)
Article 7--Transition Provisions
7.1 Stockholder Approval
All acquisitions of Share Units under this Plan are subject to Stockholder
approval of the Plan at the 2005 Annual Meeting of Stockholders. If the
Stockholders fail to approve the Plan, further contributions will be terminated
and all funds and Stock distributions contributed to the Plan by Participants
and all funds contributed as SBC Matching Contributions will be promptly paid
to the Participants, without interest, and, upon payment of such amounts to a
Participant, the Participant shall have no further rights under the Plan.
7.2 2005 Share Deferral Accounts.
Notwithstanding Article 4 to the contrary, if an Employee is an Eligible
Employee on September 30, 2004, the Employee may make an election
A-15
under Article 4 on or prior to December 15, 2004, with respect to the
establishment of a Stock Deferral Account for the (i) contribution of Base
Compensation and/or Short Term Incentive Awards paid during the period from
January 1, 2005, through January 15, 2006, which shall be the Plan Year for
such Stock Deferral Account; and/or (ii) the conversion of a distribution of
Stock that would be made during the same Plan Year pursuant to the 2001
Incentive Plan into an equal number of Share Units, so long as such conversion
would not cause the recognition of income for Federal income tax purposes in
respect of such distribution of Stock prior to distribution of Share Units
under this Plan.
Article 8--Options
8.1 Grants.
Options may be issued in definitive form or recorded on the books and records
of SBC for the account of the Participant, at the discretion of SBC. If SBC
elects not to issue the Options in definitive form, they shall be deemed
issued, and the Participants shall have all rights incident thereto as if they
were issued on the dates provided herein, without further action on the part of
SBC or the Participant. In addition to the terms herein, all Options shall be
subject to such additional provisions and limitations as provided in any
Administrative Procedures adopted by the Committee prior to the issuance of
such Options. The number of Options issued to a Participant shall be reflected
on the Participant's annual statement of account.
8.2 Term of Options.
The Options may only be exercised: (a) after the earlier of (i) the expiration
of one (1) year from date of issue or (ii) the Participant's Termination of
Employment, and (b) no later than the tenth (10/th/) anniversary of their
issue; and Options shall be subject to earlier termination as provided herein.
8.3 Exercise Price.
The Exercise Price of an Option shall be the FMV of the Stock on the date of
issuance of the Options and Options may not be repriced.
8.4 Issuance of Options.
(a) For each Share Deferral Account established by a Participant:
(1) on each June 15 the Participant shall receive two (2) Options for
each Share Unit acquired by the Participant as part of such Share
A-16
Deferral Account during the immediately preceding January through May
period with Employee Contributions of Base Compensation and/or Short Term
Incentive Award. A fractional number of Options shall be rounded up to the
next whole number.
(2) on each February 15 a Participant shall receive:
(i) two (2) Options for each Share Unit acquired by the Participant
as part of such Share Deferral Account during the immediately preceding
June through January period with Employee Contributions of Base
Compensation and/or Short Term Incentive Award; and
(ii) two (2) Options for each Share Unit acquired prior to such date
by the Participant with dividend equivalents that were derived, directly
or indirectly (such as dividend equivalents paid on Share Units acquired
with dividend equivalents), from Share Units acquired with Employee
Contributions as part of such Share Deferral Account during the
immediately preceding thirteen (13) calendar months.
(b) A fractional number of Options shall be rounded up to the next whole
number.
(c) If Stock is not traded on the NYSE on any of the foregoing Option
issuance dates, then the Options shall not be issued until the next such day on
which Stock is so traded.
(d) If a Participant Terminates Employment other than (i) while Retirement
eligible or (ii) because of death or Disability, no further Options shall be
issued to or with respect to such Participant. In the event of re-Employment
following a Termination of Employment, the preceding sentence shall not apply
to those Options resulting from participation in the Plan after such
re-Employment until a subsequent Termination of Employment.
(e) No more than 400,000 Options shall be issued to any individual under
this Plan during a calendar year. No Share Unit may be counted more than once
for the issuance of Options.
(f) The Committee may, in its sole discretion, at any time, increase or
lower the number of Options that are to be issued for each Share Unit acquired,
not to exceed two (2) Options per Share Unit purchased. However,
A-17
if the Committee lowers the number of Options, then such change shall only be
effective with respect to the next Share Deferral Account a Participant may
elect to establish.
(g) The Committee may also, at any time and in any manner, limit the number
of Options which may be acquired as a result of the Short Term Incentive Award
being contributed to the Plan. Further, except as otherwise provided by the
Committee, in determining the number of Options to be issued to a Participant
with respect to a Participant's contribution of a Short Term Incentive Award to
the Plan and subsequent crediting of Share Units, Options may be issued only
with respect to an amount which does not exceed the target amount of such award
(or such other portion of the award as may be determined by the Committee).
(h) No options shall be issued to or in respect of a Participant for a
particular issuance, unless at least ten (10) Options will be issued to that
Participant.
8.5 Exercise and Payment of Options.
Options shall be exercised by providing notice to the designated agent selected
by SBC (if no such agent has been designated, then to SBC), in the manner and
form determined by SBC, which notice shall be irrevocable, setting forth the
exact number of shares of Stock with respect to which the Option is being
exercised and including with such notice payment of the Exercise Price. When
Options have been transferred, SBC or its designated agent may require
appropriate documentation that the person or persons exercising the Option, if
other than the Participant, has the right to exercise the Option. No Option may
be exercised with respect to a fraction of a share of Stock.
Exercises of Options may be effected only on days and during the hours that the
New York Stock Exchange is open for regular trading or as otherwise provided or
limited by SBC. If an Option expires on a day or at a time when exercises are
not permitted, then the Options may be exercised no later than the immediately
preceding date and time that the Options were exercisable.
The Exercise Price shall be paid in full at the time of exercise. No Stock
shall be issued or transferred until full payment has been received therefore.
Payment may be made:
(a) in cash, or
A-18
(b) unless otherwise provided by the Committee at any time, and subject to
such additional terms and conditions and/or modifications as SBC may impose
from time to time, and further subject to suspension or termination of this
provision by SBC at any time, by:
(i) delivery of Stock owned by the Participant in partial (if in
partial payment, then together with cash) or full payment; provided,
however, as a condition to paying any part of the Exercise Price in Stock,
at the time of exercise of the Option, the Participant must establish to
the satisfaction of SBC that the Stock tendered to SBC must have been held
by the Participant for a minimum of six (6) months preceding the tender; or
(ii) if SBC has designated a stockbroker to act as SBC's agent to
process Option exercises, issuance of an exercise notice to such
stockbroker together with instructions irrevocably instructing the
stockbroker: (A) to immediately sell (which shall include an exercise
notice that becomes effective upon execution of a sell order) a sufficient
portion of the Stock to pay the Exercise Price of the Options being
exercised and the required tax withholding, and (B) to deliver on the
settlement date the portion of the proceeds of the sale equal to the
Exercise Price and tax withholding to SBC. In the event the stockbroker
sells any Stock on behalf of a Participant, the stockbroker shall be acting
solely as the agent of the Participant, and SBC disclaims any
responsibility for the actions of the stockbroker in making any such sales.
No Stock shall be issued until the settlement date and until the proceeds
(equal to the Exercise Price and tax withholding) are paid to SBC.
If payment is made by the delivery of Stock, the value of the Stock delivered
shall be equal to the FMV of the Stock on the day preceding the date of
exercise of the Option.
Restricted Stock may not be used to pay the Option exercise price.
8.6 Restrictions on Exercise and Transfer.
No Option shall be transferable except: (a) upon the death of a Participant in
accordance with SBC's Rules for Employee Beneficiary Designations, as the same
may be amended from time to time; and (b) in the case of any holder after the
Participant's death, only by will or by the laws of descent and distribution.
During the Participant's lifetime, the Participant's Options shall be
exercisable only by the Participant or by the Participant's guardian or legal
representative. After the death of the Participant, an Option shall only
A-19
be exercised by the holder thereof (including but not limited to an executor or
administrator of a decedent's estate) or his or her guardian or legal
representative.
8.7 Termination of Employment.
(a) Not Retirement Eligible. Unless otherwise provided by the Committee, if
a Participant Terminates Employment while not Retirement eligible, a
Participant's Options may be exercised, to the extent then exercisable:
(i) if such Termination of Employment is by reason of death or
Disability, then for a period of three (3) years from the date of such
Termination of Employment or until the expiration of the stated term of
such Option, whichever period is shorter; or
(ii) if such Termination of Employment is for any other reason, then
for a period of one (1) year from the date of such Termination of
Employment or until the expiration of the stated term of such Option,
whichever period is shorter.
(b) Retirement Eligible. Unless otherwise provided by the Committee, if a
Participant Terminates Employment while Retirement eligible, a Participant's
Option may be exercised, to the extent then exercisable: (i) for a period of
five (5) years from the date of Retirement or (ii) until the expiration of the
stated term of such Option, whichever period is shorter.
(c) Re-Employment of a Participant after a Termination of Employment shall
have no effect on the periods during which Options resulting from the prior
Employment may be exercised. For example, if the Option exercise period has
been shortened because of the prior Termination of Employment, it shall not be
extended because of the re-Employment.
Article 9--Discontinuation, Termination, Amendment.
9.1 SBC's Right to Discontinue Offering Share Units.
The Committee may at any time discontinue offerings of Share Units under the
Plan. Any such discontinuance shall have no effect upon existing Share Units or
the terms or provisions of this Plan as applicable to such Share Units.
A-20
9.2 SBC's Right to Terminate Plan.
The Committee may terminate the Plan at any time. Upon termination of the Plan,
contributions shall no longer be made under the Plan.
After termination of the Plan, Participants shall continue to earn dividend
equivalents in the form of Share Units on undistributed Share Units and shall
continue to receive all distributions under this Plan at such time as provided
in and pursuant to the terms and conditions of Participant's elections and this
Plan.
9.3 Amendment.
The Committee may at any time amend the Plan in whole or in part including but
not limited to changing the formulas for determining the amount of SBC Matching
Contributions under Article 5 or decreasing the number of Options to be issued
under Article 8; provided, however, that no amendment, including but not
limited to an amendment to this section, shall be effective, without the
consent of a Participant, to alter, to the material detriment of such
Participant, a Share Deferral Account of the Participant. For purposes of this
section, an alteration to the material detriment of a Participant shall
include, but not be limited to, a material reduction in the period of time over
which Stock may be distributed to a Participant, any reduction in the
Participant's number of vested Share Units or Options, or an increase in the
Exercise Price or decrease in the term of an Option. Any such consent may be in
a writing, telecopy, or e-mail or in another electronic format. An election to
acquire Share Units with Employee Contributions shall be conclusively deemed to
be the consent of the Participant to any and all amendments to the Plan prior
to such election, and such consent shall be a condition to making any election
with respect to Employee Contributions.
Notwithstanding anything to the contrary contained in this section of the Plan,
the Committee may modify this Plan with respect to any person subject to the
provisions of Section 16 of the Securities Exchange Act of 1934, as amended
("Exchange Act") to place additional restrictions on the exercise of any Option
or the transfer of any Stock not yet issued under the Plan.
A-21
Article 10--Miscellaneous.
10.1 Tax Withholding.
Upon distribution of Stock, including but not limited to, shares of Stock
issued upon the exercise of an Option, SBC shall withhold shares of Stock
sufficient in value, using the FMV on the date determined by SBC to be used to
value the Stock for tax purposes, to satisfy the minimum amount of Federal,
state, and local taxes required by law to be withheld as a result of such
distribution.
Any fractional share of Stock payable to a Participant shall be withheld as
additional Federal withholding, or, at the option of SBC, paid in cash to the
Participant.
Unless otherwise determined by the Committee, when the method of payment for
the Exercise Price is from the sale by a stockbroker pursuant to Section 8.5,
hereof, of the Stock acquired through the Option exercise, then the tax
withholding shall be satisfied out of the proceeds. For administrative purposes
in determining the amount of taxes due, the sale price of such Stock shall be
deemed to be the FMV of the Stock.
10.2 Elections and Notices.
Notwithstanding anything to the contrary contained in this Plan, all elections
and notices of every kind under this Plan shall be made on forms prepared by
SBC or the General Counsel, Secretary or Assistant Secretary, or their
respective delegates or shall be made in such other manner as permitted or
required by SBC or the General Counsel, Secretary or Assistant Secretary, or
their respective delegates, including through electronic means, over the
Internet or otherwise. An election shall be deemed made when received by SBC
(or its designated agent, but only in cases where the designated agent has been
appointed for the purpose of receiving such election), which may waive any
defects in form. Unless made irrevocable by the electing person, each election
with regard to making Employee Contributions or distributions of Share Deferral
Accounts shall become irrevocable at the close of business on the last day to
make such election. SBC may limit the time an election may be made in advance
of any deadline.
If not otherwise specified by this Plan or SBC, any notice or filing required
or permitted to be given to SBC under the Plan shall be delivered to the
principal office of SBC, directed to the attention of the Senior Executive Vice
President in charge of Human Resources for SBC or his or her successor. Such
notice shall be deemed given on the date of delivery.
A-22
Notice to the Participant shall be deemed given when mailed (or sent by
telecopy) to the Participant's work or home address as shown on the records of
SBC or, at the option of SBC, to the Participant's e-mail address as shown on
the records of SBC. It is the Participant's responsibility to ensure that the
Participant's addresses are kept up to date on the records of SBC. In the case
of notices affecting multiple Participants, the notices may be given by general
distribution at the Participants' work locations.
By participating in the Plan, each Participant agrees that SBC may provide any
documents required or permitted under the Federal or state securities laws,
including but not limited to the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, by e-mail, by e-mail attachment,
or by notice by e-mail of electronic delivery through SBC's Internet Web site
or by other electronic means.
10.3 Unsecured General Creditor.
Participants and their beneficiaries, heirs, successors, and assigns shall
have no legal or equitable rights, interest, or claims in any property or
assets of any Employer. No assets of any Employer shall be held under any trust
for the benefit of Participants, their beneficiaries, heirs, successors, or
assigns, or held in any way as collateral security for the fulfilling of the
obligations of any Employer under this Plan. Any and all of each Employer's
assets shall be, and remain, the general, unpledged, unrestricted assets of
such Employer. The only obligation of an Employer under the Plan shall be
merely that of an unfunded and unsecured promise of SBC to distribute shares of
Stock corresponding to Share Units and Options, under the Plan.
10.4 Offset.
SBC may offset against the amount of Stock otherwise distributable to a
Participant, any amounts due an Employer by a Participant, including but not
limited to overpayments under any compensation or benefit plans. In addition,
SBC may also cancel a Stock Option to satisfy such an obligation to an
Employer. For this purpose, each Stock Option shall be valued by subtracting
the Exercise Price of the Stock Option from the FMV of the Stock on such date.
10.5 Non-Assignability.
Neither a Participant nor any other person shall have any right to commute,
sell, assign, transfer, pledge, anticipate, mortgage, or otherwise encumber,
A-23
transfer, hypothecate or convey in advance of actual receipt, shares of Stock
corresponding to Share Units under the Plan, if any, or any part thereof, which
are, and all rights to which are, expressly declared to be unassignable and
non-transferable. No part of the Stock distributable shall, prior to actual
distribution, be subject to seizure or sequestration for the payment of any
debts, judgments, alimony or separate maintenance owed by a Participant or any
other person, nor be transferable by operation of law in the event of a
Participant's or any other person's bankruptcy or insolvency.
10.6 Employment Not Guaranteed.
Nothing contained in this Plan nor any action taken hereunder shall be
construed as a contract of employment or as giving any employee any right to be
retained in the employ of an Employer or to serve as a director.
10.7 Errors.
At any time SBC or an Employer may correct any error made under the Plan
without prejudice to SBC or any Employer. Such corrections may include, among
other things, changing or revoking a Stock Option issuance, canceling Share
Units and refunding contributions to a Participant with respect to any period
he or she made Employee Contributions while not an Eligible Employee, or
canceling the enrollment of a non-Eligible Employee. Neither SBC nor any
Employer shall be liable for any damages resulting from failure to timely allow
any contribution to be made to the Plan or for any damages resulting from the
correction of, or a delay in correcting, any error made under the Plan. In no
event shall SBC or any Employer be liable for consequential or incidental
damages arising out of a failure to comply with the terms of the Plan.
10.8 Captions.
The captions of the articles, sections, and paragraphs of this Plan are for
convenience only and shall not control nor affect the meaning or construction
of any of its provisions.
10.9 Governing Law.
To the extent not preempted by Federal law, the Plan, and all benefits and
agreements hereunder, and any and all disputes in connection therewith, shall
be governed by and construed in accordance with the substantive laws of the
State of Texas, without regard to conflict or choice of law principles
A-24
which might otherwise refer the construction, interpretation or enforceability
of this Plan to the substantive law of another jurisdiction.
Because benefits under the Plan are granted in Texas, records relating to the
Plan and benefits thereunder are located in Texas, and the Plan and benefits
thereunder are administered in Texas, SBC and the Participant under this Plan,
for themselves and their successors and assigns, irrevocably submit to the
exclusive and sole jurisdiction and venue of the state or Federal courts of
Texas with respect to any and all disputes arising out of or relating to this
Plan, the subject matter of this Plan or any benefits under this Plan,
including but not limited to any disputes arising out of or relating to the
interpretation and enforceability of any benefits or the terms and conditions
of this Plan. To achieve certainty regarding the appropriate forum in which to
prosecute and defend actions arising out of or relating to this Plan, and to
ensure consistency in application and interpretation of the Governing Law to
the Plan, the parties agree that (a) sole and exclusive appropriate venue for
any such action shall be an appropriate Federal or state court in Bexar County,
Texas, and no other, (b) all claims with respect to any such action shall be
heard and determined exclusively in such Texas court, and no other, (c) such
Texas court shall have sole and exclusive jurisdiction over the person of such
parties and over the subject matter of any dispute relating hereto and (d) that
the parties waive any and all objections and defenses to bringing any such
action before such Texas court, including but not limited to those relating to
lack of personal jurisdiction, improper venue or forum non conveniens.
10.10 Plan to Comply with Section 409A.
In the event any provision of this Plan is held invalid, void, or
unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provision of this Plan. Notwithstanding any provision to
the contrary in this Plan, each provision in this Plan shall be interpreted to
permit the deferral of compensation in accordance with Section 409A of the Code
and any provision that would conflict with such requirements shall not be valid
or enforceable.
10.11 Successors and Assigns.
This Plan shall be binding upon SBC and its successors and assigns.
A-25
[GRAPHIC]
Printed on recycled paper
Printed entirely on recycled paper
meeting or exceeding the Environmental
Protection Agency minimum requirements
for recycled paper stock.
[front of card]
[LOGO]
PROXY CARD/VOTING INSTRUCTION CARD
This proxy is solicited on behalf of the Board of Directors for the Annual
Meeting on April 29, 2005. The undersigned hereby appoints Edward E. Whitacre,
Jr. and Richard G. Lindner, 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 Stockholders to be held on April
29, 2005, 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 provided through the telephone or Internet 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 such shares (except for shares held in the employee
benefit plans noted below) in accordance with the Directors' recommendations on
the matters listed 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.
The Board of Directors recommends a vote FOR each of the three Director
proposals (Items 1, 2 and 3) and AGAINST the Stockholder proposals (Items 4, 5,
6 and 7) listed on the reverse side of this card (each of which is described in
the proxy statement). The Board of Directors knows of no other matters that are
to be presented at the meeting.
The nominees for the Board of Directors are:
1) Gilbert F. Amelio 5) Charles F. Knight 9) Toni Rembe 12) Laura D'Andrea Tyson
2) August A. Busch III 6) Lynn M. Martin 10) S. Donley Ritchey 13) Patricia P. Upton
3) Martin K. Eby, Jr. 7) John B. McCoy 11) Joyce M. Roche 14) Edward E. Whitacre, Jr.
4) James A. Henderson 8) Mary S. Metz
Please sign on the reverse side of this card and return promptly in the
enclosed envelope or, if you choose, you can submit your proxy by telephone or
through the Internet.
This proxy card, when signed and returned, or your telephone or Internet proxy,
will also constitute voting instructions to the plan administrator or trustee
for any shares held on your behalf under any of the following employee benefit
plans: the SBC Savings Plan, the SBC Savings and Security Plan, the Old
Heritage Advertising & Publishers, Inc. Profit Sharing Plan, the SBC PAYSOP,
the Pacific Telesis Group Employee Stock Ownership Plan, the Tax Reduction Act
Stock Ownership Plan (the "TRASOP") sponsored by The Southern New England
Telephone Company, the Cingular Wireless 401(k) Savings Plan, and the Cingular
Wireless 401(k) Savings Plan for Bargained Employees. Shares in each of the
foregoing employee benefit plans (except the Old Heritage plan) for which
voting instructions are not received, subject to the trustees' fiduciary
obligations, will be voted by the trustees in the same proportion as the shares
for which voting instructions are received from other participants in each such
plan. For shares held in the Old Heritage plan, the trustee has discretionary
authority to vote the shares for which no voting instructions are received.
Similarly, the proxy card or telephone or Internet proxy will constitute voting
instructions to the plan administrator for any shares held on your behalf
pursuant to The DirectSERVICE Investment Program (dividend reinvestment plan).
(Please mark your proxy and sign on the reverse side.)
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
ADMISSION TICKET
[map] [map]
The Alzafar Shrine Temple is located in San Antonio on the westbound frontage
road of North Loop 1604 between the Stone Oak Parkway and Blanco Road exits.
SBC Communications Inc.
Annual Meeting of Stockholders
Friday, April 29, 2005
Alzafar Shrine Temple
901 North Loop 1604 West
San Antonio, TX
Doors open at 8:00 a.m. C.T.
Meeting begins at 9:00 a.m. C. T.
--------------------------------------------------------------------------------
[back of card]
[X] Please mark your votes as in this example.
SBC COMMUNICATIONS INC. THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
Your Directors recommend a vote Your Directors recommend a vote
FOR Items 1, 2 and 3. AGAINST Items 4, 5, 6 and 7.
Withhold
FOR Authority FOR ALL
ALL For All EXCEPT* FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
1. Election of Directors [_] [_] [_] 2. Approval of [_] [_] [_] 4. Stockholder [_] [_] [_]
(SEE REVERSE) Appointment of Proposal A
Independent
Auditors
* Withhold authority to vote for the following 3. Approval of [_] [_] [_] 5. Stockholder [_] [_] [_]
nominee(s): Stock Purchase and Proposal B
Deferral Plan
6. Stockholder [_] [_] [_]
Proposal C
7. Stockholder [_] [_] [_]
Proposal D
------------------------------------------
Discontinue mailing Annual Report for this
account because I already receive multiple
copies at this address. [_]
------------------------------------------
Signature ______________ Signature (joint owner) ______________ Date __________
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, corporate officer, trustee,
guardian, or custodian, please give full title.
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
[LOGO]
Your Vote Is Important!
You can submit your proxy by mail, by telephone, or through the Internet by
following the instructions below.
If you submit your proxy and/or voting instructions by telephone or through the
Internet, you will be authorizing the voting of your shares as if you marked
and returned your proxy card.
-------------------------------- ------------------------------------------- -----------------------------------------------
BY MAIL BY TELEPHONE THROUGH THE INTERNET
[graphic] [graphic] [graphic]
Mark, sign and date Please have your proxy card in www.eproxyvote.com/sbc Please
your proxy card and hand and call toll free have your proxy card in hand and
return it in the 1-877-779-8683 on access the above website. Then just
enclosed envelope. any touch-tone telephone. follow the simple instructions. You
Then just follow the simple may access the site 24 hours a day,
instructions. You may call 24 7 days a week.
hours a day, 7 days a week.
-------------------------------- ------------------------------------------- -----------------------------------------------
THANK YOU FOR VOTING!
[Broker Card]
[LOGO]
PROXY CARD
This proxy is solicited on behalf of the Board of Directors for the Annual
Meeting on April 29, 2005. The undersigned hereby appoints Edward E. Whitacre,
Jr. and Richard G. Lindner, 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 Stockholders to be held on April
29, 2005, 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 provided through the telephone or Internet 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 such shares in accordance with the Directors'
recommendations on the matters listed 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.
The Board of Directors recommends a vote FOR each of the three Director
proposals (Items 1, 2 and 3) and AGAINST the Stockholder proposals (Items 4, 5,
6 and 7) listed on the reverse side of this card (each of which is described in
the proxy statement). The Board of Directors knows of no other matters that are
to be presented at the meeting.
The nominees for the Board of Directors are:
1) Gilbert F. Amelio 5) Charles F. Knight 9) Toni Rembe 12) Laura D'Andrea Tyson
2) August A. Busch III 6) Lynn M. Martin 10) S. Donley Ritchey 13) Patricia P. Upton
3) Martin K. Eby, Jr. 7) John B. McCoy 11) Joyce M. Roche 14) Edward E. Whitacre, Jr.
4) James A. Henderson 8) Mary S. Metz
Please sign on the reverse side of this card and return promptly in the
enclosed envelope or, if you choose, you can submit your proxy by telephone or
through the Internet.
(Please mark your proxy and sign on the reverse side.)
SBC COMMUNICATIONS INC. THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
Your Directors recommend a vote Your Directors recommend a vote
FOR Items 1, 2 and 3. AGAINST Items 4, 5, 6 and 7.
Withhold
FOR Authority FOR ALL
ALL For All EXCEPT* FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
1. Election of Directors [_] [_] [_] 2. Approval of [_] [_] [_] 4. Stockholder [_] [_] [_]
(SEE REVERSE) Appointment of Proposal A
Independent
Auditors
* Withhold authority to vote for the following 3. Approval of [_] [_] [_] 5. Stockholder [_] [_] [_]
nominee(s): Stock Purchase and Proposal B
Deferral Plan
6. Stockholder [_] [_] [_]
Proposal C
7. Stockholder [_] [_] [_]
Proposal D
Signature ______________ Signature (joint owner) ______________ Date __________