FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From _________ to _________
Commission File Number 1-1105
AT&T CORP.
A NEW YORK I.R.S. EMPLOYER
CORPORATION NO. 13-4924710
32 Avenue of the Americas, New York, New York 10013-2412
Telephone Number 212-387-5400
Securities registered pursuant to Section 12(b) of the Act: See attached
SCHEDULE A.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes....x.... No........
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
At February 28, 1998, the aggregate market value of the voting stock held by
non-affiliates was $98,828,206,879.
At February 28, 1998, 1,620,390,922 common shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's annual report to shareholders for the year
ended December 31, 1997 (Part II)
(2) Portions of the registrant's definitive proxy statement dated March 26,
1998, issued in connection with the annual meeting of shareholders (Part
III)
<PAGE>
SCHEDULE A
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Shares # New York, Boston, Chicago,
(Par Value $1 Per Share) ## Philadelphia and Pacific Stock
# Exchanges
Thirty-Seven Year 4-3/4% Debentures, #
due June 1, 1998 #
#
Thirty-Six Year 4-3/8% Debentures, #
due May 1, 1999 #
#
Thirty-Three Year 6% Debentures, #
due August 1, 2000 #
#
Thirty-Five Year 5-1/8% Debentures, # ##New York Stock Exchange
due April 1, 2001 #
#
Ten Year 7-1/8% Notes, #
due January 15, 2002 #
#
Ten Year 6-3/4% Notes, #
due April 1, 2004 #
#
Ten Year 7% Notes, #
due May 15, 2005 #
#
Twelve Year 7-1/2% Notes, #
due June 1, 2006 #
#
Twelve Year 7-3/4% Notes, #
due March 1, 2007 #
#
Thirty Year 8-1/8% Debentures, #
due January 15, 2022 #
#
Medium Term Note 8.2%, #
due February 15, 2005 #
#
Thirty Year 8.35% Debentures, #
due January 15, 2025 #
#
Thirty-Two Year 8-1/8% Debentures, #
due July 15, 2024 #
#
Forty Year 8-5/8% Debentures, #
due December 1, 2031 #
<PAGE>
TABLE OF CONTENTS
PART I
Item Description Page
1. Business ........................................................ 1
2. Properties ...................................................... 9
3. Legal Proceedings ............................................... 10
4. Submission of Matters to a Vote of Security-Holders ............. 11
PART II
Description
5. Market for Registrant's Common Equity and Related Stockholder
Matters ....................................................... 13
6. Selected Financial Data ......................................... 13
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................... 13
8. Financial Statements and Supplementary Data ..................... 13
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ...................................... 13
PART III
Description
10. Directors and Executive Officers of the Registrant .............. 13
11. Executive Compensation .......................................... 13
12. Security Ownership of Certain Beneficial Owners and Management .. 13
13. Certain Relationships and Related Transactions .................. 13
PART IV
Description
14. Exhibits, Financial Statement Schedule, and Reports on
Form 8-K....................................................... 14
See page 12 for "Executive Officers of the Registrant."
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
AT&T Corp. ("AT&T" or the "Company") was incorporated in 1885
under the laws of the State of New York and has its principal executive offices
at 32 Avenue of the Americas, New York, New York 10013-2412 (telephone number
212-387-5400).Internet users can access information about AT&T and its services
at http://www.att.com.
AT&T is among the world's communications leaders, providing
voice, data and video telecommunications services to large and small businesses,
consumers and government entities. AT&T and its subsidiaries furnish regional,
domestic, international and local communication services. AT&T's wholly owned
subsidiaries, including AT&T Wireless Services, Inc., provide cellular telephone
and other wireless services. AT&T also provides billing, directory, and calling
card services to support its communications business.
DEVELOPMENT OF BUSINESS
During 1996 AT&T separated its business into three publicly
held stand-alone companies: the current AT&T, focused on communication and
information services, Lucent Technologies Inc. ("Lucent") focused on
communications systems and technology and NCR Corporation ("NCR") focused on
transaction-intensive computing. AT&T distributed to its shareowners all of the
shares AT&T owned of Lucent on September 30, 1996 and all of the shares of NCR
on December 31, 1996.
Following the separation, AT&T has focused on its core
business and disposed of assets and businesses that were not strategic. In
October 1996, AT&T completed the sale of its majority interest in AT&T Capital
Corporation (leasing services business) in which AT&T received $1.8 billion in
cash. In 1997, AT&T completed the sales of AT&T Skynet (satellite services),
AT&T Tridom (satellite data and video communications services) and its submarine
systems business. In addition, AT&T sold its investments in DirectTV
(direct-broadcast television service and DSS equipment business) and decreased
its investment in Smartone Communications (a wireless joint venture in Hong
Kong).
In addition, in 1997, AT&T agreed to sell AT&T Universal Card
Services, Inc.(credit card services business), American Transtech Inc. (customer
care services), its investment in LIN Television Corporation (commercial
television broadcasting) and WOOD-TV (AT&T's television station in Grand Rapids,
Michigan).
On January 8, 1998, AT&T entered into a definitive merger
agreement with Teleport Communications Group, Inc. ("TCG"). The merger with TCG,
which remains subject to regulatory approvals and a number of other conditions,
is expected to close mid to late 1998. Under the merger agreement, each share of
TCG will be exchanged for .943 of an AT&T share in an all-stock transaction
valued at the time at approximately $11.3 billion. TCG is the largest
competitive local exchange carrier in the United States, with networks in
operation or under construction in 66 U.S. markets as of December 31, 1997. As
of September 30, 1997, TCG's local networks encompassed over 8,680 route miles,
over 460,285 fiber miles, and 33 local digital voice switches. These local
networks are aimed at addressing high-volume business customers. AT&T believes
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that the TCG merger will accelerate its ability to offer local services to
business customers and, ultimately, to other customers.
LONG DISTANCE SERVICES
AT&T's communication and information services business
addresses the needs of consumers, large and small businesses, the Federal
government and state and local governments for voice, data and video
telecommunications services. Business units within this group provide regular
and custom long distance communications services, data transmission services,
500 services, toll-free or 800 and 888 services, 900 services, private line
services, software defined network services ("SDN"), integrated services digital
network ("ISDN") technology based services, and electronic mail, electronic data
interchanges and enhanced facsimile services.
AT&T also provides special long distance services, including
AT&T Calling Card services, special calling plans and the Company's domestic and
international operator services. AT&T provides communications services
internationally, including transaction services, global networks, network
management and value added network services (i.e., services offered over
communications transmission facilities that employ computer processing
applications).
AT&T provides interstate and intrastate long distance
telecommunications services throughout the continental United States and
provides, or joins in providing with other carriers, telecommunications services
to and from Alaska, Hawaii, Puerto Rico and the Virgin Islands and international
telecommunications services to and from virtually all nations and territories
around the world.
In the continental United States, AT&T provides long distance
telecommunications services over its own network. Virtually all switched
services are computer controlled and digitally switched and interconnected by a
packet switched signaling network. Transmission facilities consist of
approximately 2 billion circuit-miles using lightwave, satellite, wire and
coaxial cable and microwave radio technology. International telecommunications
services are provided via multiple international transoceanic submarine cable
(primarily lightwave) systems and via international satellite and radio
facilities.
WIRELESS SERVICES
AT&T is one of the world's largest wireless service providers.
In the United States, AT&T holds licenses to operate systems providing 850 Mhz
broadband wireless services covering markets with a population of over 92
million nationwide and messaging and air-to-ground services throughout the
country. The services provided by AT&T currently include cellular, voice and
data, messaging and air-to-ground communications. As of December 1997, AT&T
served over 6 million cellular subscribers.
In addition, AT&T has purchased (primarily in auctions
conducted by the Federal Communications Commission ("FCC")) 1900 Mhz wireless
broadband licenses covering markets with a population of over 112 million. AT&T
is required by the FCC to provide adequate broadband PCS service to at least
one-third of the population in its licensed areas within five years of being
licensed and two-thirds of the population in its licensed areas within ten years
of being licensed. The licenses are granted for ten year terms from the original
<PAGE>
date of issuance and may be renewed by AT&T by meeting the FCC's renewal
criteria and upon compliance with the FCC's renewal procedures.
AT&T has created service clusters in major metropolitan areas
and linked its and other service providers systems into a network which permits
its wireless cellular subscribers to both place and receive calls anywhere they
travel in areas served by the network, even if the local wireless telephone
service is not provided by AT&T. AT&T is now integrating other communications
technologies into the network. AT&T will continue to explore the use of emerging
technologies to expand the reach of the network and to provide additional
services (especially data and internet services).
AT&T also offers one-way messaging systems such as paging
services. As of December 31, 1997, the Company had over 1.3 million messaging
service subscribers. The majority of these subscribers are in locations where
AT&T holds cellular licenses.
AT&T's wireless services are conducted primarily through
subsidiaries of AT&T Wireless Services, Inc. (formerly McCaw Cellular
Communications, Inc., which was merged with a special-purpose subsidiary of AT&T
in September 1994).
LOCAL SERVICES
Following passage of the Telecommunications Act of 1996 (the
"Telecommunications Act"), AT&T applied for permission to provide local service
in all 50 states. As of December 31, 1997, AT&T had received authority to
provide service in 48 states and the District of Columbia. As of December 31,
1997, AT&T offered AT&T Digital Link service for business customers on an
outbound only basis in 48 states and on an inbound and outbound basis in one
state. Also as of such date, AT&T offered resold local service to consumers in
Alaska, California, Connecticut, Georgia, Illinois, Michigan, Texas and
Rochester, New York as well as offering resold local service to small business
customers in California and Connecticut.
Notwithstanding these efforts, AT&T has experienced
significant difficulty in penetrating local markets. AT&T's ability to purchase
combined network elements from incumbent local exchange carriers (ILECS), one of
the primary methods by which AT&T intends to provide local service to
residential and small business customers, was severely limited by, among other
factors, regulatory and judicial actions and a lack of technical and operational
interfaces necessary to order network elements from ILECs. In spite of strong
demand, in the fourth quarter of 1997 AT&T stopped actively marketing resold
local service to residential and small business customers in most of the areas
in which it offered such service because of limitations on ILECs' ability to
handle anticipated demand and because discounts AT&T receives from ILECs on the
sale of such service are insufficient to make resale a viable long-term method
of offering service. AT&T's ability to provide facilities-based local service to
business customers through AT&T Digital Link service was also hampered by the
inability to provide local number portability and other factors. AT&T will
continue to pursue the development of alternative methods of local entry, which
remains a key growth opportunity. See "Competition" and "Forward Looking
Statements" for a discussion of the potential impact on AT&T of an inability to
profitably provide local service.
<PAGE>
AT&T SOLUTIONS
AT&T Solutions, Inc., established in 1995, provides
outsourcing, consulting, networking integration and multimedia call center
services. AT&T Solutions provides clients with customized information technology
solutions to operate and manage voice, data and video services, including local
and wide area networks, PBXs, voice-processing systems and voice and data
terminals.
ONLINE SERVICES
AT&T also provides a variety of online and internet access
services. These include AT&T WorldNet(R) Service, a service providing dedicated
and dial-up access to the internet, AT&T Easy World Wide Web(R) Service, an
internet web site creation and hosting service, custom web site hosting
services, and AT&T SecureBuy SM Service, an Internet transaction service that
simplifies buying and selling on the Internet.
INTERNATIONAL
AT&T has established a number of international alliances to
increase the reach and scope of AT&T's services and network over time and has
invested in certain countries in order to increase the range of services AT&T
offers in those countries. For example, AT&T founded the WorldPartners alliance
in 1993 to provide multinational customers with seamless telecommunications and
related services. As of the end of 1997, WorldPartners included 17 members who
provide services to multinational customers in North America, Latin America,
Europe, the Middle East and Asia. In addition, in 1996 AT&T began offering
business and consumer services in the United Kingdom and in early 1997 AT&T's
joint venture in Mexico, Alestra, began offering long distance service. AT&T
also has an interest in several wireless communications companies outside of the
United States, including cellular operators licensed to serve Hong Kong,
Columbia, Taiwan and parts of India.
LEGISLATIVE AND REGULATORY DEVELOPMENTS
Telecommunications Act of 1996
In February 1996, the Telecommunications Act became law. The
Telecommunications Act, among other things, was designed to foster local
exchange competition by establishing a regulatory framework to govern new
competitive entry in local and long distance telecommunications services. The
Telecommunications Act will permit the Regional Bell Operating Companies
("RBOCs") to provide interexchange services originating in any state in its
region after demonstrating to the FCC that such provision is in the public
interest and satisfying the conditions for developing local competition
established by the Telecommunications Act.
In August 1996, the FCC adopted rules and regulations,
including pricing rules (the "Pricing Rules") to implement the local competition
provisions of the Telecommunications Act, including with respect to the terms
and conditions of interconnection with local exchange carrier ("LEC") networks
and the standards governing the purchase of unbundled network elements and
wholesale services from LECs. These implementing rules rely on state public
utilities commissions to develop the specific rates and procedures applicable to
particular states within the framework prescribed by the FCC.
<PAGE>
On July 18, 1997, the United States Court of Appeals for the
8th Circuit issued a decision holding that the FCC lacks authority to establish
pricing rules to implement the sections of the local competition provisions of
the Telecommunications Act applicable to interconnection with LEC networks and
the purchase of unbundled network elements and wholesale services from LECs.
Accordingly, the Court vacated the rules that the FCC had adopted in August
1996, and which had been stayed by the Court since September 1996.
Absent effectiveness of the Pricing Rules, each state will
determine the applicable rates and procedures independent of the framework
established by the FCC. However, since the stay was issued, many states have
used the Pricing Rules as guidelines in establishing permanent rates, or interim
rates that will apply pending the determination of permanent rates in subsequent
state proceedings. Nevertheless, there can be no assurance that the prices and
other conditions established in each state will provide for effective local
service entry and competition or provide AT&T with new market opportunities.
On October 14, 1997, the 8th Circuit Court of Appeals vacated
an FCC Rule that had prohibited incumbent LECs from separating network elements
that are combined in the LEC's network, except at the request of the competitor
purchasing the elements. This decision could increase the difficulty and costs
of providing competitive local service through the use of unbundled network
elements purchased from the incumbent LECs.
On January 26, 1998, the United States Supreme Court agreed to
review the aforementioned decisions of the Eighth Circuit Court of Appeals.
Under the normal procedures of the Court, arguments are expected to be heard in
October 1998, and a decision is expected sometime in the first half of 1999.
On December 31, 1997, the U.S. District Court for the Northern
District of Texas issued a memorandum opinion and order holding that the
Telecommunications Act's restrictions on the provision of in-region, interLATA
service by the RBOCSs are unconstitutional. AT&T and other carriers
(collectively, "intervenors") and the FCC filed prompt appeals with the United
States Court of Appeals for the Fifth Circuit. On February 11, 1998, the
District Court stayed the effectiveness of its December 31 memorandum opinion
and order pending appeal.
The United States Court of Appeals for the Fifth Circuit will
review the aforementioned decision of the U.S. District Court for the Northern
District of Texas under an expedited briefing schedule, whereby oral arguments
will be heard in July 1998. If the memorandum opinion and order is permitted to
take effect, the Telecommunications Act's restrictions on the provision of
in-region interLATA services will no longer apply to the plaintiffs in the case,
SBC Communications, Inc., U S West, Inc. and Bell Atlantic Corporation.
Modification of Final Judgment of 1982
Prior to 1996, AT&T and the RBOCs were subject to the
provisions of the Modification of Final Judgment of 1982 (the "MFJ") since its
implementation. The Telecommunications Act effectively superseded future
operation of the MFJ.Consequently, on April 11, 1996, Judge Harold Greene issued
an order terminating the MFJ.
<PAGE>
Regulation of Rates
AT&T is subject to the jurisdiction of the FCC with respect to
interstate and international rates, lines and services, and other matters. From
July 1989 to October 1995, the FCC regulated AT&T under a system known as "price
caps" whereby AT&T's prices, rather than its earnings, were limited. On October
12, 1995, recognizing a decade of enormous change in the long distance market
and finding that AT&T lacked market power in the interstate long distance
market, the FCC reclassified AT&T as a "non-dominant" carrier for its domestic
interstate services. As a result, AT&T became subject to the same regulations as
its long distance competitors for such services. Thus, AT&T was no longer
subject to price cap regulation for these services, was able to file tariffs
that are presumed lawful on one day's notice, and was free of other regulations
and reporting requirements that apply only to dominant carriers.
In addition, on October 31, 1996, the FCC issued an order that
would have prohibited non-dominant carriers, including AT&T, from filing tariffs
for their domestic interstate services. AT&T and other parties have filed an
appeal of the FCC's order with the United States Court of Appeals for the D.C.
Circuit. In February 1997, the D.C. Circuit stayed the effectiveness of the
FCC's order pending appeal. Oral argument has not yet been scheduled. If the
Court affirms the FCC's order and lifts the stay, non-dominant carriers,
including AT&T, will have to utilize mechanisms other than tariffs to establish
the terms and conditions that apply to domestic, interstate telecommunications
services.
Furthermore, in May 1997, the FCC adopted three orders
relating to Price Caps, Access Reform, and Universal Service that will result in
substantial revisions to the level and structure of access charges that AT&T as
a long distance carrier pays to incumbent LECs. AT&T has agreed to pass through
to consumers any savings to AT&T as a result of access charge reform. AT&T began
implementing these reductions July 15, 1997. Consequently, AT&T's results after
June 1997 reflects lower revenue per minute of usage and lower access and other
interconnection costs per minute of usage.
The Price Cap Order requires LECs to reduce their price cap
indices by 6.5 percent annually, less an adjustment for inflation, which is
likely to result in a reduction in the interstate access charges that long
distance carriers, such as AT&T, pay to LECs. The Access Charge Reform Order
restructured access charges so that certain costs that do not vary with usage
will be recovered on a flat-rate basis and permitted increased flat-rate
assessments on multiline business customers and on residential lines beyond the
primary telephone line. This restructuring allows a reduction in access charges
assessed on long distance carriers on a usage basis. Finally, the Universal
Service Order (which represents an FCC mandated contribution to support schools
and libraries and rural health care programs, high cost support and low income
support mechanisms which are paid to the Universal Service Administrative
Company) adopts a new mechanism for funding universal service which expands the
set of carriers that must contribute to support universal service from only
long-distance carriers to all carriers, including LECs, that provide interstate
telecommunications services. Similarly, the set of carriers eligible for the
universal service support has been expanded from only LECs to any eligible
carrier providing local service to a customer, including AT&T as a new entrant
in local markets. The Universal Service Order also adopted measures to provide
discounts on telecommunications services, Internet access and inside wire to
eligible schools and libraries and rural health carrier providers.
<PAGE>
AT&T remains subject to the statutory requirements of Title II
of the Communications Act. AT&T must offer service under rates, terms and
conditions that are just, reasonable and not unreasonably discriminatory; it is
subject to the FCC's complaint process, and it must give notice to the FCC and
affected customers prior to discontinuance, reduction, or impairment of service.
AT&T has also made certain commitments that address concerns that had been
raised with regard to the potential impact of declaring AT&T to be non-dominant,
including a three-year rate assurance for low income and low usage residential
users and a three-year limit on, and 5 days advance notice for, rate increases
on 800 directory assistance and analog private line services.
AT&T's international private line services have been
classified as non-dominant for several years. AT&T's switched international
services have become subject to increased competition, similar to its domestic
services and on May 9, 1996, the FCC adopted an order reclassifying AT&T as a
non-dominant carrier for such services. AT&T has made certain voluntary
commitments that address issues raised in that proceeding, including
commitments: (i) to maintain its annual average revenue per minute for
international residential calls at or below the 1995 level through May 9, 1999,
and in the event of a significant change that substantially raises AT&T's costs,
to provide the FCC five business days notice prior to implementing rate
increases that would raise the annual average revenue per minute for such calls
above the 1995 level; and (ii) to maintain certain discount calling plans
providing at least a 15% discount off basic pricing schedules until May 9, 1999.
AT&T also made voluntary commitments relating to its operation of international
cable facilities, its negotiation of settlement agreements with foreign carriers
and its relationship with foreign partners.
In addition to the matters described above with respect to the
Telecommunications Act, state public service commissions or similar authorities
having regulatory power over intrastate rates, lines and services and other
matters regulate AT&T's local and intrastate communications services. The system
of regulation used in many states is rate-of-return regulation. In recent years,
many states have adopted different systems of regulation, such as: complete
removal of rate-of-return regulation, pricing flexibility rules, price caps and
incentive regulation.
COMPETITION
AT&T currently faces significant competition in the
communication and information services industry and expects that the level of
competition will continue to increase. As competitive, regulatory and
technological changes occur, including those occasioned by the
Telecommunications Act, AT&T anticipates that new and different competitors will
enter and expand their position in the communications services markets. These
may include entrants from other segments of the communication and information
services industry or global competitors seeking to expand their market
opportunities. Many such new competitors are likely to enter with a strong
market presence, well recognized names and pre-existing direct customer
relationships.
The Telecommunications Act has already impacted the
competitive environment. Anticipating changes in the industry, non-RBOC LECs,
which are not required to implement the Telecommunications Act's competitive
checklist prior to offering long distance in their home markets, have begun
integrating their local service offerings with long distance offerings in
<PAGE>
advance of AT&T being able to offer combined local and long distance service in
these areas, adversely affecting AT&T's revenues and earnings in these service
regions.
In addition, the Telecommunications Act will permit RBOCs to
provide interLATA interexchange services after demonstrating to the FCC that
such provision is in the public interest and satisfying the conditions for
developing local competition established by the Telecommunications Act. Three
RBOCs have petitioned the FCC for permission to provide interLATA interexchange
services in one or more states within their home market; to date the FCC has not
granted any petition. To the extent that the RBOCs obtain in-region interLATA
authority before the Telecommunications Act's checklist of conditions have been
fully or satisfactorily implemented and adequate facilities-based local exchange
competition exists, there is a substantial risk that AT&T and other
interexchange service providers would be at a disadvantage to the RBOCs in
providing both local service and combined service packages. Because it is widely
anticipated that substantial numbers of long distance customers will seek to
purchase local, interexchange and other services from a single carrier as part
of a combined or full service package, any competitive disadvantage, inability
to profitably provide local service at competitive rates or delays or
limitations in providing local service or combined service packages could
adversely affect AT&T's future revenues and earnings. In any event, the
simultaneous entrance of numerous new competitors for interexchange and combined
service packages is likely to adversely affect AT&T's future long distance
revenues and could adversely affect future earnings.
Furthermore, in February 1997, a General Agreement on Trade in
Services (the "GATS") was reached under the World Trade Organization. The GATS,
which became effective January 1, 1998, is designed to open each country's
domestic telecommunications markets to foreign competitors. The GATS, and future
trade agreements, may accelerate the entrance into the U.S. market of foreign
telecommunications providers, certain of whom are likely to possess dominant
home market positions in which there is not effective competition. The GATS may
also permit AT&T's entrance into other markets as only a small number of
countries refused to eliminate their foreign ownership restrictions.
In addition to the matters referred to above, various other
factors, including market acceptance, start-up and ongoing costs associated with
the provision of new services and local conditions and obstacles, could
adversely affect the timing and success of AT&T's entrance into the local
exchange services market and AT&T's ability to offer combined service packages
that include local service.
FORWARD LOOKING STATEMENTS
Except for the historical statements and discussions contained
herein, statements contained in this Report on Form 10-K constitute "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. Any Form 10-K,
Annual Report to Shareholders, Form 10-Q or Form 8-K of AT&T may include forward
looking statements. In addition, other written or oral statements which
constitute forward looking statements have been made and may in the future be
made by or on behalf of AT&T, including statements concerning future operating
performance, AT&T's share of new and existing markets, AT&T's short- and
long-term revenue and earnings growth rates, and general industry growth rates
and AT&T's performance relative thereto. These forward looking statements rely
on a number of assumptions concerning future events, including the outcome of
<PAGE>
litigation, the adoption and implementation of balanced and effective rules and
regulations by the FCC and the state public regulatory agencies, and AT&T's
ability to achieve a significant market penetration in new markets. These
forward looking statements are subject to a number of uncertainties and other
factors, many of which are outside AT&T's control, that could cause actual
results to differ materially from such statements. These factors include, but
are not limited to:
- - the efficacy of the rules and regulations to be adopted by the FCC and state
public regulatory agencies to implement the provisions of the Telecommunications
Act; the outcome of litigation relative thereto; and the impact of regulatory
changes relating to access reform and international settlement reform;
- - the outcome of negotiations with LECs and state regulatory arbitrations and
approvals with respect to interconnection agreements; and the ability to
purchase unbundled network elements or wholesale services from LECs at a price
sufficient to permit the profitable offering of local exchange service at
competitive rates;
- - success and market acceptance for new initiatives, many of which are untested;
the level and timing of the growth and profitability of new initiatives,
particularly local (consumer and business) service and business data service;
start-up costs associated with entering new markets, including advertising and
promotional efforts; successful deployment of new systems and applications to
support new initiatives; and local conditions and obstacles;
- - competitive pressures, including pricing pressures, technological
developments, alternative routing developments, and the ability to offer
combined service packages that include local service; the extent and pace at
which different competitive environments develop for each segment of the
telecommunications industry; the extent at and duration for which competitors
from each segment of the telecommunications industry are able to offer combined
or full service packages prior to AT&T being able to; and the degree to which
AT&T experiences material competitive impacts to its traditional service
offerings prior to achieving adequate local service entry;
- - the availability, terms and deployment of capital; the impact of regulatory
and competitive developments on capital outlays; the ability to achieve cost
savings and realize productivity improvements; the ability to effectively
integrate TCG's operations with AT&T; the ability to realize cost-saving and
revenue synergies from the merger; and
- - general economic conditions, government and regulatory policies, and business
conditions in the communications industry.
Readers are cautioned not to put undue reliance on such
forward looking statements. For a more detailed description of these and
additional uncertainties and other factors that could cause actual results to
differ materially from such forward looking statements, see "Results of
Operations", "Financial Condition", "Regulatory and Legislative Developments",
and "Competition" included in or incorporated by reference into this Form 10-K.
As described elsewhere in this Form 10-K, these uncertainties and factors could
adversely affect the timing and success of AT&T's entrance into the local
exchange services market and AT&T's ability to offer combined service packages
that include local service, thereby adversely affecting AT&T's future revenues
and earnings. AT&T disclaims any intention or obligation to update or revise any
forward looking statements, whether as a result of new information, future
events or otherwise.
<PAGE>
SEGMENT, OPERATING REVENUE AND RESEARCH AND DEVELOPMENT EXPENSE INFORMATION
For information about the Company's research and development
expense, see Note 5 to the Consolidated Financial Statements. For information
about the consolidated operating revenues contributed by the Company's major
classes of products and services, see the revenue tables and descriptions on
pages 28 through 30 and Consolidated Statements of Income on page 40 of the
Company's annual report to shareholders for the year ended December 31, 1997.
All such information is incorporated herein by reference pursuant to General
Instruction G(2).
EMPLOYEE RELATIONS
At December 31, 1997 AT&T employed approximately 128,000
persons in its operations, approximately 122,000 of whom are located
domestically. About 48% of the domestically located employees of AT&T are
represented by unions. Of those so represented, about 96% are represented by the
Communications Workers of America ("CWA"), which is affiliated with the AFL-CIO;
about 4% by the International Brotherhood of Electrical Workers ("IBEW"), which
is also affiliated with the AFL-CIO. In addition, there is a very small
remainder of domestic employees represented by other unions. Labor agreements
with most of these unions extend through May 1998.
ITEM 2. PROPERTIES.
The properties of AT&T consist primarily of plant and
equipment used to provide long distance and wireless telecommunications services
and administrative office buildings.
Telecommunications plant and equipment consists of: central
office equipment, including switching and transmission equipment; connecting
lines (cables, wires, poles, conduits, etc.); land and buildings; and
miscellaneous properties (work equipment, furniture, plant under construction,
etc.). The majority of the connecting lines are on or under public roads,
highways and streets and international and territorial waters. The remainder are
on or under private property. AT&T also operates a number of sales offices,
customer care centers, and other facilities, such as research and development
laboratories.
AT&T continues to manage the deployment and utilization of its
assets in order to meet its global growth objectives while at the same time
ensuring that these assets are generating economic value added for the
shareholder. AT&T will continue to manage its asset base consistent with
globalization initiatives, marketplace forces, productivity growth and
technology change.
A substantial number of the administrative offices of AT&T are
in leased buildings. Substantially all of the important long distance
communications facilities are in buildings wholly owned by AT&T or in buildings
owned partially by AT&T and partially by the regional holding companies created
at divestiture. Many of the smaller facilities are in rented quarters. Most of
the important buildings used in connection with long distance services are on
land held in fee, but a few are on land held under long-term leases.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
In the normal course of business, AT&T is subject to
proceedings, lawsuits and other claims, including proceedings under government
laws and regulations related to environmental and other matters. Such matters
are subject to many uncertainties and outcomes are not predictable with
assurance. Consequently, AT&T is unable to ascertain the ultimate aggregate
amount of monetary liability or financial impact with respect to these matters
at December 31, 1997. While these matters could affect operating results of any
one quarter when resolved in future periods, it is management's opinion that
after final disposition, any monetary liability or financial impact to AT&T
beyond that provided for at year-end would not be material to AT&T's annual
consolidated financial position or results of operations.
On July 6, 1997, MCI Telecommunications Corp. and Ronald A.
Katz Technology Licensing, L.P. filed suit in United States District Court in
Philadelphia, Pennsylvania against AT&T. The suit alleges that a number of AT&T
services infringe patents owned by Katz but licensed to MCI for enforcement
against AT&T. AT&T is reviewing the allegations of the Complaint. Based on
review to date, it is management's opinion that the claims do not present any
material monetary liability or financial impact to AT&T that is not subject to
patent indemnity agreements with third-party equipment vendors.
AT&T is also a named party in a number of environmental
actions, none of which is material to the consolidated financial statements or
business of the Company. In addition, pursuant to the Separation and
Distribution Agreement by and among AT&T, Lucent, and NCR, dated as of February
1, 1996, and amended and restated as of March 29, 1996, Lucent has assumed
liability, subject to the liability sharing provisions of that agreement, for a
number of actions in which AT&T remains a named party. AT&T is working to be
released as a party to these actions, although there can be no assurance that it
will be successful in this regard.
There are four environmental proceedings which are required to
be reported pursuant to Instruction 5.C. of Item 103 of Regulation S-K. In
September 1997, the government of the U.S. Virgin Islands filed suit in the
federal district court of the Virgin Islands against the Company, AT&T Submarine
Systems International ("SSI International"), A&L Underground, Inc., a contractor
for SSI International at that time, and other entities. In connection with the
purported 1996 release of non-toxic bentonite drilling mud within the coastal
region of St. Croix by the contractor, the suit seeks penalties for violations
of various federal and Virgin Island statutes; damages under several statutory
and common law theories; removal of the mud (which has since been completed to
the satisfaction of the federal agency that ordered the cleanup); and
restitution of response costs allegedly incurred by the Virgin Islands. SSI
International was a wholly owned subsidiary of AT&T at the time of the alleged
violation. The foregoing environmental proceeding is not material to the
consolidated financial statements or business of the Company and would not be
reported but for Instruction 5 C. of Item 103 of Regulation S-K, which requires
disclosure of such matters.
In addition, three proceedings involve matters for which
Lucent has assumed liability, as described above. On July 31, 1991, the United
States Environmental Protection Agency Region III issued a complaint pursuant to
Section 3008a of the Resource Conservation and Recovery Act alleging violations
of various waste management regulations at the Company's Richmond Works,
Richmond, Virginia. The complaint seeks a total of $4.2 million in penalties. In
<PAGE>
addition, on July 31, 1991, the United States Environmental Protection Agency
filed a civil complaint in the U.S. District Court for the Southern District of
Illinois against the Company and nine other parties seeking enforcement of its
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
Section 106 cleanup order, issued in November 1990 for the NL Granite City
Superfund site, Granite, Illinois, past costs, civil penalties of $25,000 per
day and treble damages related to certain United States' costs. Finally, during
1994, AT&T Nassau Metals Corporation ("Nassau"), a wholly owned subsidiary of
AT&T, and the New York State Department of Environmental Conservation ("NYSDEC")
were engaged in negotiations over a study and cleanup of the Nassau plant
located on Richmond Valley Road in Staten Island, New York. During these
negotiations, in June 1994, NYSDEC presented Nassau with a draft consent order
which included not only provisions relating to site investigation and
remediation but also a provision for payment of a $3.5 million penalty for
alleged violations of hazardous waste management regulations. No formal
proceeding has been commenced by NYSDEC.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matter was submitted to a vote of security holders in the
fourth quarter of the fiscal year covered by this report.
Executive Officers of the Registrant
(as of March 25, 1998)
Became AT&T
Executive
Name Age Officer On
- ---- --- -----------
C. Michael Armstrong* . 59 Chairman of the Board and Chief
Executive Officer . . . . . . . . . . . . . 10-97
R.C.M. Baker . . . . . 51 Executive Vice President, International . . 9-97
Harry S. Bennett . . . 53 Executive Vice President, Local Services
Division . . . . . . . . . . . . . . . . . . 3-97
Harold W. Burlingame . 57 Executive Vice President, Human Resources . . 9-86
Dan R. Hesse. . . . . 44 Executive Vice President & President,
AT&T Wireless Services . . . . . . . . . . . 3-97
Frank Ianna . . . . . 48 Executive Vice President, Network &
Computing Services . . . . . . . . . . . . . 3-97
Jim G. Kilpatric***. . 59 Executive Vice President, Law & Government
Affairs . . . . . . . . . . . . . . . . . . 11-97
Marilyn Laurie***. . . 58 Executive Vice President, Brand Strategy &
Marketing Communications . . . . . . . . . 2-87
Richard J. Martin . . . 51 Executive Vice President, Public Relations . 11-97
Gail J. McGovern . . . 45 Executive Vice President, Consumer Markets
Division . . . . . . . . . . . . . . . . . 1-96
David C. Nagel . . . . 53 President, AT&T Labs & Chief Technology
Officer . . . . . . . . . . . . . . . . . 3-97
John C. Petrillo . . . 48 Executive Vice President, Corporate Strategy
& Business Development . . . . . . . . . 1-96
Richard Roscitt . . . . 46 Executive Vice President & President,
AT&T Solutions . . . . . . . . . . . . . . 9-97
Daniel E. Somers . . . 50 Senior Executive Vice President and Chief
Financial Officer . . . . . . . . . . . . . 5-97
John D. Zeglis**. . . . 50 President . . . . . . . . . . . . . . . . . . 9-86
- -----------
*Chairman of the Board of Directors and Chairman of the Executive
and Proxy Committees.
**Member of the Board of Directors.
***Mr. Kilpatric and Ms. Laurie will retire from the Company in April 1998.
All of the above executive officers have held high level
managerial positions with AT&T or its affiliates for more than the past five
years, except Messrs. Armstrong, Nagel and Somers. Prior to joining AT&T in
October 1997, Mr. Armstrong was Chairman and Chief Executive Officer of Hughes
Electronics from 1991 and prior to that time, Mr. Armstrong held various other
positions with IBM, including Senior Vice President and Chairman of the board of
IBM World Trade Corporation. Prior to joining AT&T in April 1996, Mr. Nagel was
with Apple Computer, a computer company, serving as Senior Vice President from
1995 and General Manager from 1988 through 1995. Prior to joining AT&T in May
1997, Mr. Somers was Chairman and Chief Executive Officer for Bell Cablemedia,
plc, of London for two years and from 1992 to 1995, Mr. Somers was Executive
Vice President and Chief Financial Officer for Bell Canada International.
<PAGE>
PART II
Items 5. through 8.
The information required by these items is included in pages
25 through 56 of the Company's annual report to shareholders for the year ended
December 31, 1997. Such information is incorporated herein by reference,
pursuant to General Instruction G(2). The referenced information from the
Company's annual report to share holders has been filed as Exhibit 13 to this
document.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There have been no changes in independent accountants and no
disagreements with independent accountants on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure during the last two years.
PART III
Items 10. through 13.
Information regarding executive officers required by Item 401
of Regulation S-K is furnished in a separate disclosure in Part I of this report
because the Company did not furnish such information in its definitive proxy
statement prepared in accordance with Schedule 14A.
The other information required by Items 10 through 13 is
included in the Company's definitive proxy statement dated March 26, 1998, the
third and fourth paragraphs on page 6, the carryover paragraph on page 7, the
first, second and third full paragraphs on page 7, the second full paragraph on
page 8 through the final footnote on page 13 and the last paragraph on page 23
through page 48. Such information is incorporated herein by reference, pursuant
to General Instruction G(3).
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a) Documents filed as a part of the report:
(1) Financial Statements:
Pages
-----
Report of Management ...................................... *
Report of Independent Accountants ......................... *
Statements:
Consolidated Statements of Income ..................... *
Consolidated Balance Sheets ........................... *
Consolidated Statements of Changes in
Shareowners' Equity ................................ *
Consolidated Statements of Cash Flows ................. *
Notes to Consolidated Financial Statements ........... *
(2) Financial Statement Schedule:
Report of Independent Accountants ..................... 18
Schedule:
II -- Valuation and Qualifying Accounts ............... 19
Separate financial statements of subsidiaries not consolidated and
50 percent or less owned persons are omitted since no such entity
constitutes a "significant subsidiary" pursuant to the provisions of
Regulation S-X, Article 3-9.
(3) Exhibits:
Exhibits identified in parentheses below, on file with the
Securities and Exchange Commission ("SEC"), are incorporated herein
by reference as exhibits hereto.
Exhibit
Number:
(3)a Restated Certificate of Incorporation of the registrant
filed January 10, 1989, Certificate of Correction of the
registrant filed June 8, 1989, Certificate of Change of
the registrant filed March 18, 1992, Certificate of
Amendment of the registrant filed June 1, 1992, and
Certificate of Amendment of the registrant filed
April 20, 1994. (Exhibit 4 to Registration Statement
No. 333-00573).
- ------------
*Incorporated herein by reference to the appropriate portions of the Company's
annual report to shareholders for the year ended December 31, 1997. (See
Part II.)
<PAGE>
(3)b By-Laws of the registrant, as amended January 15, 1997
(Exhibit (3)b to Form 10-K for 1996, File
No. 1-1105).
(4) No instrument which defines the rights of holders of
long term debt, of the registrant and all of its
consolidated subsidiaries, is filed herewith pursuant to
Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this
regulation, the registrant hereby agrees to furnish a
copy of any such instrument to the SEC upon request.
(10)(i)1 Form of Separation and Distribution Agreement by and
among AT&T Corp., Lucent Technologies Inc. and NCR
Corporation, dated as of February 1, 1996 and amended
and restated as of March 29, 1996 (Exhibit
(10)(i)1 to Form 10-K for 1996, File No. 1-1105).
(10)(i)2 Form of Distribution Agreement, dated as of November 20,
1996, by and between AT&T Corp. and NCR Corporation
(Exhibit (10)(i)2 to Form 10-K for 1996, File No.
1-1105).
(10)(i)3 Tax Sharing Agreement by and among AT&T Corp., Lucent
Technologies Inc. and NCR Corporation, dated as of
February 1, 1996 and amended and restated as of
March 29, 1996 (Exhibit (10)(i)3 to Form 10-K for
1996, File No. 1-1105).
(10)(i)4 Employee Benefits Agreement by and between AT&T Corp.
and Lucent Technologies Inc., dated as of February 1,
1996 and amended and restated as of March 29, 1996
(Exhibit (10)(i)4 to Form 10-K for 1996, File No.
1-1105).
(10)(i)5 Form of Employee Benefits Agreement, dated as of
November 20, 1996, between AT&T Corp. and NCR
Corporation (Exhibit (10)(i)5 to Form 10-K for
1996, File No. 1-1105).
(10)(ii)(B)1 General Purchase Agreement between AT&T Corp. and
Lucent Technologies Inc., dated February 1, 1996 and
amended and restated as of March 29, 1996 (Exhibit (10)
ii)(B)1 to Form 10-K for 1996, File No. 1-1105).
(10)(ii)(B)2 Form of Volume Purchase Agreement, dated as of
November 20, 1996, by and between AT&T Corp. and NCR
Corporation (Exhibit (10)(ii)(B)2 to Form 10-K for
1996, File No. 1-1105).
(10)(iii)(A)1 AT&T Short Term Incentive Plan as amended March, 1994
(Exhibit (10)(iii)(A)1 to Form 10-K for 1994, File No.
1-1105).
(10)(iii)(A)2 AT&T 1987 Long Term Incentive Program as amended
December 17, 1997.
<PAGE>
(10)(iii)(A)3 AT&T Senior Management Individual Life Insurance Program
as amended March 3, 1998.
(10)(iii)(A)4 AT&T Senior Management Long Term Disability and Survivor
Protection Plan, as amended and restated effective
January 1, 1995 (Exhibit (10)(iii)(A)4 to Form 10-K for
1996, File No. 1-1105).
.
(10)(iii)(A)5 AT&T Senior Management Financial Counseling Program
dated December 29, 1994 (Exhibit (10)(iii)(A)5 to Form
10-K for 1994, File No. 1-1105).
(10)(iii)(A)6 AT&T Deferred Compensation Plan for Non-Employee
Directors, as amended December 15, 1993 (Exhibit (10)
(iii)(A)6 to Form 10-K for 1993, File No. 1-1105).
(10)(iii)(A)7 The AT&T Directors Individual Life Insurance Program as
amended March 2, 1998.
(10)(iii)(A)8 AT&T Plan for Non-Employee Directors' Travel Accident
Insurance (Exhibit (10)(iii)(A)8 to Form 10-K for 1990,
File No. 1-1105).
(10)(iii)(A)9 AT&T Excess Benefit and Compensation Plan, as amended
and restated effective October 1, 1996 (Exhibit (10)
(iii)(A)9 to Form 10-K for 1996, File No. 1-1105).
(10)(iii)(A)10 AT&T Non-Qualified Pension Plan, as amended and restated
January 1, 1995 (Exhibit (10)(iii)(A)10 to Form 10-K for
1996, File No. 1-1105).
(10)(iii)(A)11 AT&T Senior Management Incentive Award Deferral Plan, as
amended December 17, 1997.
(10)(iii)(A)12 AT&T Mid-Career Hire Program revised effective January
1, 1988 (Exhibit (10)(iii)(A)4 to Form SE, dated March
25, 1988, File No. 1-1105) including AT&T Mid-Career
Pension Plan, as amended and restated October 1, 1996
(Exhibit (10)(iii)(A)(12) to Form 10-K for 1996, File
No. 1-1105).
(10)(iii)(A)13 AT&T 1997 Long Term Incentive Program as amended
December 17, 1997.
(10)(iii)(A)14 Form of Indemnification Contract for Officers and
Directors (Exhibit (10)(iii)(A)6 to Form SE, dated
March 25, 1987, File No. 1-1105).
(10)(iii)(A)15 Pension Plan for AT&T Non-Employee Directors revised
February 20, 1989 (Exhibit (10)(iii)(A)15 to Form 10-K
for 1993, File No. 1-1105).
(10)(iii)(A)16 AT&T Corp. Senior Management Basic Life Insurance
Program, as amended February 27, 1998.
(10)(iii)(A)17 Form of AT&T Benefits Protection Trust Agreement
(Exhibit (10)(iii)(A)17 to Form SE, dated March 25,
1992, File No. 1-1105).
<PAGE>
(10)(iii)(A)18 AT&T Senior Officer Severance Plan effective October 9,
1997, as amended October 30, 1997.
(10)(iii)(A)19 Form of Pension Agreement between AT&T Corp. and Frank
Ianna dated October 30, 1997.
(10)(iii)(A)20 Form of Pension Agreement between AT&T Corp. and Gail J.
McGovern dated October 30, 1997.
(10)(iii)(A)21 Form of Pension Agreement between AT&T Corp. and John C.
Petrillo dated October 30, 1997.
(10)(iii)(A)22 Form of Pension Agreement between AT&T Corp. and John
Zeglis dated May 7, 1997.
(10)(iii)(A)23 Form of Employment Agreement between AT&T Corp. and
C. Michael Armstrong dated October 17, 1997.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) Specified portions (pages 25 through 56) of the
Company's Annual Report to Shareholders for the year
ended December 31, 1997.
(21) List of subsidiaries of AT&T.
(23) Consent of Coopers & Lybrand L.L.P.
(24) Powers of Attorney executed by officers and directors
who signed this report.
(27) Financial Data Schedules.
AT&T will furnish, without charge, to a shareholder upon
request a copy of the annual report to shareholders and the proxy statement,
portions of which are incorporated herein by reference thereto. AT&T will
furnish any other exhibit at cost.
(b) Reports on Form 8-K:
During the fourth quarter 1997, Form 8-K dated October 20,
1997 was filed pursuant to Item 5 (Other Events) and Item 7 (Financial
Statements and Exhibits) on October 24, 1997, Form 8-K dated October 20, 1997
was filed pursuant to Item 5 (Other Events) on November 4, 1997 and Form 8-K
dated December 18, 1997 was filed pursuant to Item 2 (Acquisition or Disposition
of Assets) and Item 7 (Financial Statements and Exhibits) on December 23, 1997.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareowners of AT&T Corp.:
Our report on the consolidated financial statements of AT&T
Corp. and subsidiaries has been incorporated by reference in this Form 10-K from
page 39 of the 1997 Annual Report to the Shareowners of AT&T Corp. In connection
with our audits of such financial statements, we have also audited the related
consolidated financial statement schedule listed in the index on page 14 of this
Form 10-K.
In our opinion, the consolidated financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
COOPERS & LYBRAND L.L.P.
1301 Avenue of the Americas
New York, New York
January 26, 1998
<PAGE>
<TABLE>
Schedule II--Sheet 1
AT&T CORP.
AND ITS CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(Millions of Dollars)
<CAPTION>
- -------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------------------------------------------------------------------
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions(a) of Period
- -------------------------------------------------------------------------------------------------------
Year 1997
<S> <C> <C> <C> <C>
Allowances for doubtful accounts (b) ..... $ 994 $1,957 $1,925 $1,026
Reserves related to business
restructuring, including force
and facility consolidation (c) ..........$1,388 $ -- $ 481 $ 907
Deferred tax asset valuation allowance ... $ 166 $ 48 $ 2 $ 212
Year 1996
Allowances for doubtful accounts (b) ..... $ 832 $1,938 $1,776 $ 994
Reserves related to business
restructuring, including force
and facility consolidation (c) ......... $2,092 $ -- $ 704 $1,388
Deferred tax asset valuation allowance ... $ 129 $ 39 $ 2 $ 166
The Notes on Sheet 2 are an integral part of this Schedule.
</TABLE>
<PAGE>
<TABLE>
Schedule II--Sheet 2
AT&T CORP.
AND ITS CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(Millions of Dollars)
<CAPTION>
- -------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------------------------------------------------------------------
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions(a) of Period
- -------------------------------------------------------------------------------------------------------
Year 1995
<S> <C> <C> <C> <C>
Allowances for doubtful accounts (b) ..... $ 611 $1,613 $1,392 $ 832
Reserves related to business
restructuring, including force
and facility consolidation (c) ......... $ 699 $1,712 $ 319 $2,092
Deferred tax asset valuation allowance ... $ 36 $ 109 $ 16 $ 129
- ------------
<FN>
(a) Amounts written off as uncollectible, net of recoveries.
(b) Includes allowances for doubtful accounts on long-term receivables of $49
$52 and $35 in 1997, 1996 and 1995, respectively (included in long-term
receivables in the Consolidated Balance Sheets).
(c) Included primarily in other current liabilities and in other long-term
liabilities and deferred credits in the Consolidated Balance Sheets.
</FN>
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
AT&T Corp.
By: M. J. Wasser
Vice President - Law and Secretary
March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Principal Executive Officers: #
#
C. Michael Armstrong Chairman #
of the Board and #
Chief Executive #
Officer #
#
John Zeglis President and #
Director #
#
Principal Financial Officer: #
#
Daniel E. Somers Senior Executive #
Vice President and#
Chief Financial #
Officer #
#
Principal Accounting Officer: #
#
Maureen B. Tart Vice President ## By M. J. Wasser
and Controller # (attorney-in-fact)*
#
Directors: #
# March 26, 1998
Kenneth T. Derr #
M. Kathryn Eickhoff #
Walter Y. Elisha #
George M. C. Fisher #
Donald V. Fites #
Ralph S. Larsen #
Donald F. McHenry #
Michael I. Sovern #
Thomas H. Wyman #
<PAGE>
Exhibit Index
Exhibit
Number:
(3)b By-Laws of the registrant, as amended January 15,
1997 (Exhibit (3)b to Form 10-K for 1996,
File No. 1-1105).
(4) No instrument which defines the rights of holders of
long term debt, of the registrant and all of its
consolidated subsidiaries, is filed herewith pursuant
to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant
to this regulation, the registrant hereby agrees to
furnish a copy of any such instrument to the SEC upon
request.
(10)(i)1 Form of Separation and Distribution Agreement by and
among AT&T Corp., Lucent Technologies Inc. and NCR
Corporation, dated as of February 1, 1996 and amended
and restated as of March 29, 1996 (Exhibit (10)(i)1
to Form 10-K for 1996, File No. 1-1105).
(10)(i)2 Form of Distribution Agreement, dated as of November
20, 1996, by and between AT&T Corp. and NCR
Corporation (Exhibit (10)(i)2 to Form 10-K for
1996, File No. 1-1105).
(10)(i)3 Tax Sharing Agreement by and among AT&T Corp., Lucent
Technologies Inc. and NCR Corporation, dated as of
February 1, 1996 and amended and restated as of
March 29, 1996 (Exhibit (10)(i)3 to Form 10-K
for 1996, File No. 1-1105).
(10)(i)4 Employee Benefits Agreement by and between AT&T Corp.
and Lucent Technologies Inc., dated as of February 1,
1996 and amended and restated as of March 29, 1996
(Exhibit (10)(i)4 to Form 10-K for 1996, File
No. 1-1105).
(10)(i)5 Form of Employee Benefits Agreement, dated as of
November 20, 1996, between AT&T Corp. and NCR
Corporation (Exhibit (10)(i)5 to Form 10-K for
1996, File No. 1-1105).
(10)(ii)(B)1 General Purchase Agreement between AT&T Corp. and
Lucent Technologies Inc., dated February 1, 1996 and
amended and restated as of March 29, 1996
(Exhibit (10)(ii)(B)1 to Form 10-K for 1996, File
No. 1-1105).
(10)(ii)(B)2 Form of Volume Purchase Agreement, dated as of
November 20, 1996, by and between AT&T Corp. and
NCR Corporation (Exhibit (10)(ii)(B)2 to Form 10-K
for 1996, File No. 1-1105).
(10)(iii)(A)1 AT&T Short Term Incentive Plan as amended March, 1994
(Exhibit (10)(iii)(A)1 to Form 10-K for 1994, File
No. 1-1105).
<PAGE>
(10)(iii)(A)2 AT&T 1987 Long Term Incentive Program as amended
December 17, 1997.
(10)(iii)(A)3 AT&T Senior Management Individual Life Insurance
Program as amended March 3, 1998.
(10)(iii)(A)4 AT&T Senior Management Long Term Disability and
Survivor Protection Plan, as amended and restated
effective January 1, 1995 (Exhibit (10)(iii)(A)4 to
Form 10-K for 1996, File No. 1-1105).
.
(10)(iii)(A)5 AT&T Senior Management Financial Counseling Program
dated December 29, 1994 (Exhibit (10)(iii)(A)5 to
Form 10-K for 1994, File No. 1-1105).
(10)(iii)(A)6 AT&T Deferred Compensation Plan for Non-Employee
Directors, as amended December 15, 1993 (Exhibit (10)
(iii)(A)6 to Form 10-K for 1993, File No. 1-1105).
(10)(iii)(A)7 The AT&T Directors Individual Life Insurance Program
as amended March 2, 1998.
(10)(iii)(A)8 AT&T Plan for Non-Employee Directors' Travel Accident
Insurance (Exhibit (10)(iii)(A)8 to Form 10-K for
1990, File No. 1-1105).
(10)(iii)(A)9 AT&T Excess Benefit and Compensation Plan, as amended
and restated effective October 1, 1996 (Exhibit (10)
(iii)(A)9 to Form 10-K for 1996, File No. 1-1105).
(10)(iii)(A)10 AT&T Non-Qualified Pension Plan, as amended and
restated January 1, 1995 (Exhibit (10)(iii)(A)10 to
Form 10-K for 1996, File No. 1-1105).
(10)(iii)(A)11 AT&T Senior Management Incentive Award Deferral Plan,
as amended December 17, 1997.
(10)(iii)(A)12 AT&T Mid-Career Hire Program revised effective
January 1, 1988 (Exhibit (10)(iii)(A)4 to Form SE,
dated March 25, 1988, File No. 1-1105) including
AT&T Mid-Career Pension Plan, as amended and restated
October 1, 1996 (Exhibit (10)(iii)(A)(12) to Form
10-K for 1996, File No. 1-1105).
(10)(iii)(A)13 AT&T 1997 Long Term Incentive Program as amended
December 17, 1997.
(10)(iii)(A)14 Form of Indemnification Contract for Officers and
Directors (Exhibit (10)(iii)(A)6 to Form SE, dated
March 25, 1987, File No. 1-1105).
(10)(iii)(A)15 Pension Plan for AT&T Non-Employee Directors revised
February 20, 1989 (Exhibit (10)(iii)(A)15 to Form
10-K for 1993, File No. 1-1105).
(10)(iii)(A)16 AT&T Corp. Senior Management Basic Life Insurance
Program, as amended February 27, 1998.
<PAGE>
(10)(iii)(A)17 Form of AT&T Benefits Protection Trust Agreement
(Exhibit (10)(iii)(A)17 to Form SE, dated March 25,
1992, File No. 1-1105).
(10)(iii)(A)18 AT&T Senior Officer Severance Plan effective October
9, 1997, as amended October 30, 1997.
(10)(iii)(A)19 Form of Pension Agreement between AT&T Corp. and
Frank Ianna dated October 30, 1997.
(10)(iii)(A)20 Form of Pension Agreement between AT&T Corp. and Gail
J. McGovern dated October 30, 1997.
(10)(iii)(A)21 Form of Pension Agreement between AT&T Corp. and John
C. Petrillo dated October 30, 1997.
(10)(iii)(A)22 Form of Pension Agreement between AT&T Corp. and John
Zeglis dated May 7, 1997.
(10)(iii)(A)23 Form of Employment Agreement between AT&T Corp. and
C. Michael Armstrong dated October 17, 1997.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) Specified portions (pages 25 through 56) of the
Company's Annual Report to Shareholders for the year
ended December 31, 1997.
(21) List of subsidiaries of AT&T.
(23) Consent of Coopers & Lybrand L.L.P.
(24) Powers of Attorney executed by officers and directors
who signed this report.
(27) Financial Data Schedules.
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS DOCUMENT IS
DATED NOVEMBER 22, 1991
AT&T 1987 LONG TERM INCENTIVE PROGRAM
(as amended December 17, 1997)
SECTION 1. PURPOSE. The purposes of the AT&T 1987 Long Term Incentive
Program (the "Plan") are to encourage selected key employees of American
Telephone and Telegraph Company (the "Company") and its Affiliates to acquire a
proprietary and vested interest in the growth and performance of the Company, to
generate an increased incentive to contribute to the Company's future success
and prosperity, thus enhancing the value of the Company for the benefit of share
owners, and to enhance the ability of the Company and its Affiliates to attract
and retain individuals of exceptional managerial talent upon whom, in large
measure, the sustained progress, growth and profitability of the Company
depends.
SECTION 2. DEFINITIONS. As used in the Plan, the following terms shall have
the meanings set forth below:
(a) "Affiliate" shall mean (i) any Person that directly, or through one or
more intermediaries, controls, or is controlled by, or is under common control
with, the Company or (ii) any entity in which the Company has a significant
equity interest, as determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock Award, Performance Share, Performance Unit, Dividend Equivalent, Other
Stock Unit Award, or any other right, interest, or option relating to Shares or
other securities of the Company granted pursuant to the provisions of the Plan.
(c) "Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award granted by the Committee hereunder
and signed by both the Company and the Participant.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(f) "Committee" shall mean the Compensation Committee of the Board, composed
of not less than three directors each of whom is a Disinterested Person.
(g) "Company" shall mean American Telephone and Telegraph Company.
(h) "Disinterested Person" shall have the meaning set forth in Rule
16b-3(d)(3) promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934 as amended, or any successor definition adopted
by the Commission.
(i) "Dividend Equivalent" shall mean any right granted pursuant to Section
13(h) hereof.
<PAGE>
(j) "Employee" shall mean any salaried employee of the Company or of any
Affiliate.
(k) "Fair Market Value" shall mean, with respect to any property, the market
value of such property determined by such methods or procedures as shall be
established from time to time by the Committee.
(l) "Incentive Stock Option" shall mean an Option granted under Section 6
hereof that is intended to meet the requirements of Section 422A of the Code or
any successor provision thereto.
(m) "Nonstatutory Stock Option" shall mean an Option granted under Section 6
hereof that is not intended to be an Incentive Stock Option.
(n) "Option" shall mean any right granted to a Participant under the Plan
allowing such Participant to purchase Shares at such price or prices and during
such period or periods as the Committee shall determine.
(o) "Other Stock Unit Award" shall mean any right granted to a Participant
by the Committee pursuant to Section 10 hereof.
(p) "Participant" shall mean an Employee who is selected by the Committee to
receive an award under the Plan.
(q) "Performance Award" shall mean any Award of Performance Shares or
Performance Units pursuant to Section 9 hereof.
(r) "Performance Period" shall mean that period established by the Committee
at the time any Performance Award is granted or at any time thereafter during
which any performance goals specified by the Committee with respect to such
Award are to be measured.
(s) "Performance Share" shall mean any grant pursuant to Section 9 hereof of
a unit valued by reference to a designated number of Shares, which value may be
paid to the Participant by delivery of such property as the Committee shall
determine, including, without limitation, cash, Shares, or any combination
thereof, upon achievement of such performance goals during the Performance
Period as the Committee shall establish at the time of such grant or thereafter.
(t) "Performance Unit" shall mean any grant pursuant to Section 9 hereof of
a unit valued by reference to a designated amount of property other than Shares,
which value may be paid to the Participant by delivery of such property as the
Committee shall determine, including, without limitation, cash, Shares, or any
combination thereof, upon achievement of such performance goals during the
Performance Period as the Committee shall establish at the time of such grant or
thereafter.
(u) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof.
(v) "Restricted Stock" shall mean any Share issued with the restriction that
the holder may not sell, transfer, pledge, or assign such Share and with such
other restrictions as the Committee, in its sole discretion, may impose
(including, without limitation, any restriction on the right to vote such Share,
and the right to receive any cash dividends), which restrictions may lapse
separately or in combination at such time or times, in installments or
otherwise, as the Committee may deem appropriate.
<PAGE>
(w) "Restricted Stock Award" shall mean an award of Restricted Stock under
Section 8 hereof.
(x) "Senior Manager" shall mean any manager of the Company or any Affiliate
holding a position above salary grade 14 or any future salary grade that is the
equivalent thereof.
(y) "Shares" shall mean the common shares of the Company, $1.00 par value,
and such other securities of the company as the Committee may from time to time
determine.
(z) "Stock Appreciation Right" shall mean any right granted to a Participant
pursuant to Section 7 hereof to receive, upon exercise by the Participant, the
excess of (i) the Fair Market Value of one Share on the date of exercise or, if
the Committee shall so determine in the case of any such right other than one
related to any Incentive Stock Option, at any time during a specified period
before the date of exercise over (ii) the grant price of the right on the date
of grant, or if granted in connection with an outstanding Option on the date of
grant of the related Option, as specified by the Committee in its sole
discretion, which shall not be less than the Fair Market Value of one Share on
such date of grant of the right or the related Option, as the case may be. Any
payment by the Company in respect of such right may be made in cash, Shares,
other property, or any combination thereof, as the Committee, in its sole
discretion, shall determine.
SECTION 3. ADMINISTRATION. The Plan shall be administered by the Committee.
The Committee shall have full power and authority, subject to such orders or
resolutions not inconsistent with the provisions of the Plan as may from time to
time be adopted by the Board, to: (i) select the Employees of the Company and
its Affiliates to whom Awards may from time to time be granted hereunder; (ii)
determine the type or types of Award to be granted to each Participant
hereunder; (iii) determine the number of Shares to be covered by each Award
granted hereunder; (iv) determine the terms and conditions, not inconsistent
with the provisions of the Plan, of any Award granted hereunder; (v) determine
whether, to what extent and under what circumstances Awards may be settled in
cash, Shares or other property or cancelled or suspended; (vi) determine
whether, to what extent and under what circumstances cash, Shares and other
property and other amounts payable with respect to an Award under this Plan
shall be deferred either automatically or at the election of the Participant;
(vii) interpret and administer the Plan and any instrument or agreement entered
into under the Plan; (viii) establish such rules and regulations and appoint
such agents as it shall deem appropriate for the proper administration of the
Plan; and (ix) make any other determination and take any other action that the
Committee deems necessary or desirable for administration of the Plan. Decisions
of the Committee shall be final, conclusive and binding upon all persons,
including the Company, any Participant, any shareholder, and any employee of the
Company or of any Affiliate. A majority of the members of the Committee may
determine its actions and fix the time and place of its meetings.
SECTION 4. SHARES SUBJECT TO THE PLAN.
(a) Subject to adjustment as provided in Section 4(b), the total number of
Shares available for grant under the Plan in each calendar year shall be
three-fifths of one percent (0.6%) of the total outstanding Shares as of the
first day of such year for which the Plan is in effect; PROVIDED that such
number shall be increased in any year by the number of Shares available for
grant hereunder in previous years but not covered by Awards granted hereunder in
such years; and PROVIDED, FURTHER that no more than twenty million (20,000,000)
<PAGE>
Shares shall be cumulatively available for the grant of Incentive Stock Options
under the Plan. In addition, any Shares issued by the Company through the
assumption or substitution of outstanding grants from an acquired company shall
not reduce the shares available for grants under the Plan. Any Shares issued
hereunder may consist, in whole or in part, of authorized and unissued shares or
treasury shares. If any Shares subject to any Award granted hereunder are
forfeited or such Award otherwise terminates without the issuance of such Shares
or of other consideration in lieu of such Shares, the Shares subject to such
Award, to the extent of any such forfeiture or termination, shall again be
available for grant under the Plan.
(b) In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Shares, such adjustment shall be made in the aggregate number and
class of Shares which may be delivered under the Plan, in the number, class and
option price of Shares subject to outstanding Options granted under the Plan,
and in the value of, or number or class of Shares subject to, Awards granted
under the Plan as may be determined to be appropriate by the Committee, in its
sole discretion, PROVIDED that the number of Shares subject to any Award shall
always be a whole number.
SECTION 5. ELIGIBILITY. Any Employee (excluding any member of the Committee)
shall be eligible to be selected as a Participant.
SECTION 6. STOCK OPTIONS. Options may be granted hereunder to Participants
either alone or in addition to other Awards granted under the Plan. Any Option
granted under the Plan shall be evidenced by an Award Agreement in such form as
the Committee may from time to time approve. Any such Option shall be subject to
the following terms and conditions and to such additional terms and conditions,
not inconsistent with the provisions of the Plan, as the Committee shall deem
desirable:
(a) OPTION PRICE. The purchase price per Share purchasable under an Option
shall be determined by the Committee in its sole discretion; PROVIDED that such
purchase price shall not be less than the Fair Market Value of the Share on the
date of the grant of the Option.
(b) OPTION PERIOD. The term of each Option shall be fixed by the Committee
in its sole discretion; PROVIDED that no Incentive Stock Option shall be
exercisable after the expiration of ten years from the date the Option is
granted.
(c) EXERCISABILITY. Options shall be exercisable at such time or times as
determined by the Committee at or subsequent to grant. Unless otherwise
determined by the Committee at or subsequent to grant, no Incentive Stock Option
shall be exercisable during the year ending on the day before the first
anniversary date of the granting of the Incentive Stock Option.
(d) METHOD OF EXERCISE. Subject to the other provisions of the Plan and any
applicable Award Agreement, any Option may be exercised by the Participant in
whole or in part at such time or times, and the Participant may make payment of
the option price in such form or forms, including, without limitation, payment
by delivery of cash, Shares or other consideration (including, where permitted
by law and the Committee, Awards) having a Fair Market Value on the exercise
date equal to the total option price, or by any combination of cash, Shares and
other consideration as the Committee may specify in the applicable Award
Agreement.
<PAGE>
(e) INCENTIVE STOCK OPTIONS. In accordance with rules and procedures
established by the Committee, the aggregate Fair Market Value (determined as of
the time of grant) of the Shares with respect to which Incentive Stock Options
held by any Participant which are granted after December 31, 1986, and
exercisable for the first time by such Participant during any calendar year
under the Plan (and under any other benefit plans of the Company or of any
parent or subsidiary corporation of the Company) shall not exceed $100,000 or,
if different, the maximum limitation in effect at the time of grant under
Section 422A of the Code, or any successor provision, and any regulations
promulgated thereunder. The terms of any Incentive Stock Option granted
hereunder shall comply in all respects with the provisions of Section 422A of
the Code, or any successor provision, and any regulations promulgated
thereunder.
(f) FORM OF SETTLEMENT. In its sole discretion, the Committee may provide,
at the time of grant, that the shares to be issued upon an Option's exercise
shall be in the form of Restricted Stock or other similar securities, or may
reserve the right so to provide after the time of grant.
SECTION 7. STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may be
granted hereunder to Participants either alone or in addition to other Awards
granted under the Plan and may, but need not, relate to a specific Option
granted under Section 6. The provisions of Stock Appreciation Rights need not be
the same with respect to each recipient. Any Stock Appreciation Right related to
a Nonstatutory Stock Option may be granted at the same time such Option is
granted or at any time thereafter before exercise or expiration of such Option.
Any Stock Appreciation Right related to an Incentive Stock Option must be
granted at the same time such Option is granted. In the case of any Stock
Appreciation Right related to any Option, the Stock Appreciation Right or
applicable portion thereof shall terminate and no longer be exercisable upon the
termination or exercise of the related Option, except that a Stock Appreciation
Right granted with respect to less than the full number of Shares covered by a
related Option shall not be reduced until the exercise or termination of the
related Option exceeds the number of shares not covered by the Stock
Appreciation Right. Any Option related to any Stock Appreciation Right shall no
longer be exercisable to the extent the related Stock Appreciation Right has
been exercised. The Committee may impose such conditions or restrictions on the
exercise of any Stock Appreciation Right as it shall deem appropriate.
SECTION 8. RESTRICTED STOCK.
(a) ISSUANCE. Restricted Stock Awards may be issued hereunder to
Participants, for no cash consideration or for such minimum consideration as may
be required by applicable law, either alone or in addition to other Awards
granted under the Plan. The provisions of Restricted Stock Awards need not be
the same with respect to each recipient.
(b) REGISTRATION. Any Restricted Stock issued hereunder may be evidenced in
such manner as the Committee in its sole discretion shall deem appropriate,
including, without limitation, book-entry registration or issuance of a stock
certificate or certificates. In the event any stock certificate is issued in
respect of shares of Restricted Stock awarded under the Plan, such certificate
shall be registered in the name of the Participant, and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award.
<PAGE>
(c) FORFEITURE. Except as otherwise determined by the Committee at the time
of grant, upon termination of employment for any reason during the restriction
period, all shares of Restricted Stock still subject to restriction shall be
forfeited by the Participant and reacquired by the Company; PROVIDED that in the
event of a Participant's retirement, permanent disability, other termination of
employment or death, or in cases of special circumstances, the Committee may, in
its sole discretion, when it finds that a waiver would be in the best interests
of the Company, waive in whole or in part any or all remaining restrictions with
respect to such Participant's shares of Restricted Stock. Unrestricted Shares,
evidenced in such manner as the Committee shall deem appropriate, shall be
issued to the grantee promptly after the period of forfeiture, as determined or
modified by the Committee, and shall expire without forfeiture in respect of
such shares of Restricted Stock.
SECTION 9. PERFORMANCE AWARDS. Performance Awards may be issued hereunder to
Participants, for no cash consideration or for such minimum consideration as may
be required by applicable law, either alone or in addition to other Awards
granted under the Plan. The performance criteria to be achieved during any
Performance Period and the length of the Performance Period shall be determined
by the Committee upon the grant of each Performance Award. Except as provided in
Section 11, Performance Awards will be distributed only after the end of the
relevant Performance Period. Performance Awards may be paid in cash, Shares,
other property or any combination thereof, in the sole discretion of the
Committee at the time of payment. The performance levels to be achieved for each
Performance Period and the amount of the Award to be distributed shall be
conclusively determined by the Committee. Performance Awards may be paid in a
lump sum or in installments following the close of the Performance Period or, in
accordance with procedures established by the Committee, on a deferred basis.
SECTION 10. OTHER STOCK UNIT AWARDS.
(a) STOCK AND ADMINISTRATION. Other Awards of Shares and other Awards that
are valued in whole or in part by reference to, or are otherwise based on,
Shares or other property ("Other Stock Unit Awards") may be granted hereunder to
Participants, either alone or in addition to other Awards granted under the
Plan. Other Stock Unit Awards may be paid in Shares, other securities of the
Company, cash or any other form of property as the Committee shall determine.
Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to determine the Employees of the Company and its Affiliates
to whom and the time or times at which such Awards shall be made, the number of
shares of Stock to be granted pursuant to such Awards, and all other conditions
of the Awards. The provisions of Other Stock Unit Awards need not be the same
with respect to each recipient.
(b) TERMS AND CONDITIONS. Subject to the provisions of this Plan and any
applicable Award Agreement, Shares subject to Awards made under this Section 10,
may not be sold, assigned, transferred, pledged or otherwise encumbered prior to
the date on which the Shares are issued, or, if later, the date on which any
applicable restriction, performance or deferral period lapses. Shares (including
securities convertible into Shares) granted under this Section 10 may be issued
for no cash consideration or for such minimum consideration as may be required
by applicable law; Shares (including securities convertible into Shares)
purchased pursuant to a purchase right awarded under this Section 10 shall be
purchased for such consideration as the Committee shall in its sole discretion
determine, which shall not be less than the Fair Market Value of such Shares or
other securities as of the date such purchase right is awarded.
<PAGE>
SECTION 11. CHANGE IN CONTROL.
(a) In order to maintain the Participants' rights in the event of any Change
in Control of the Company, as hereinafter defined, the Committee, as constituted
before such Change in Control, may, in its sole discretion, as to any Award,
either at the time an Award is made hereunder or any time thereafter, take any
one or more of the following actions: (i) provide for the acceleration of any
time periods relating to the exercise or realization of any such Award so that
such Award may be exercised or realized in full on or before a date fixed by the
Committee; (ii) provide for the purchase of any such Award, upon the
Participant's request, for an amount of cash equal to the amount that could have
been attained upon the exercise of such Award or realization of the
Participant's rights had such Award been currently exercisable or payable; (iii)
make such adjustment to any such Award then outstanding as the Committee deems
appropriate to reflect such Change in Control; or (iv) cause any such Award then
outstanding to be assumed, or new rights substituted therefor, by the acquiring
or surviving corporation after such Change in Control. The Committee may, in its
discretion, include such further provisions and limitations in any agreement
documenting such Awards as it may deem equitable and in the best interests of
the Company.
(b) A "Change in Control" shall be deemed to have occurred if (a) there
shall have been a change in the composition of the Board such that at any time a
majority of the Board shall have been members of the Board for less than
twenty-four months, unless the election of each new director who was not a
director at the beginning of the period was approved by at least two-thirds of
the directors then still in office who were directors at the beginning of such
period (but in no event by fewer than three such directors); or (b) any Person
acquires 30% or more of the outstanding common shares of the Company.
SECTION 12. AMENDMENTS AND TERMINATION. The Board may amend, alter or
discontinue the Plan, but no amendment, alteration, or discontinuation shall be
made that would impair the rights of an optionee or Participant under an Award
theretofore granted, without the optionee's or Participant's consent, or that
without the approval of the Stockholders would:
(a) except as is provided in Section 4(b) of the Plan, increase the total
number of shares reserved for the purpose of the Plan; or
(b) change the employees or class of employees eligible to participate in
the Plan.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant without his consent. The Committee may also substitute new
Awards for previously granted Awards, including without limitation previously
granted Options having higher option prices.
SECTION 13. GENERAL PROVISIONS.
(a) Unless the Committee determines otherwise at the time the Award is
granted or thereafter: (i) no Award, and no Shares subject to Awards described
in Section 10 which have not been issued or as to which any applicable
restriction, performance or deferral period has not lapsed, may be sold,
assigned, transferred, pledged or otherwise encumbered, except by will or by the
laws of descent and distribution; provided that, if so determined by the
Committee, a Participant may, in the manner established by the Committee,
designate a beneficiary to exercise the rights of the Participant with respect
<PAGE>
to any Award upon the death of the Participant; and (ii) each Award shall be
exercisable, during the Participant's lifetime, only by the Participant or, if
permissible under applicable law, by the Participant's guardian or legal
representative.
(b) The term of each Award shall be for such period of months or years from
the date of its grant as may be determined by the Committee; PROVIDED that in no
event shall the term of any Incentive Stock Option or any Stock Appreciation
Right related to any Incentive Stock Option exceed a period of ten (10) years
from the date of its grant.
(c) No Employee or Participant shall have any claim to be granted any Award
under the Plan and there is no obligation for uniformity of treatment of
Employees or Participants under the Plan.
(d) The prospective recipient of any Award under the Plan shall not, with
respect to such Award, be deemed to have become a Participant, or to have any
rights with respect to such Award, until and unless such recipient shall have
executed an agreement or other instrument evidencing the Award and delivered a
fully executed copy thereof to the Company, and otherwise complied with the then
applicable terms and conditions.
(e) The Committee shall be authorized to make adjustments in performance
award criteria or in the terms and conditions of other Awards in recognition of
unusual or nonrecurring events affecting the Company or its financial statements
or changes in applicable laws, regulations or accounting principles. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem desirable to carry it into effect. In the event the Company shall assume
outstanding employee benefit awards or the right or obligation to make future
such awards in connection with the acquisition of another corporation or
business entity, the Committee may, in its discretion, make such adjustments in
the terms of Awards under the Plan as it shall deem appropriate.
(f) The Committee shall have full power and authority to determine whether,
to what extent and under what circumstances any Award shall be canceled or
suspended. In addition, all outstanding Awards to any Participant shall be
canceled if the Participant, without the consent of the Company, while employed
by the Company or after termination of such employment, establishes a
relationship with a competitor of the Company or engages in activity which is in
conflict with or adverse to the interest of the Company, as determined under the
AT&T Non-Competition Guideline.
(g) All certificates for Shares delivered under the Plan pursuant to any
Award shall be subject to such stock-transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Shares are then listed, and any applicable Federal or state securities
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
(h) Subject to the provisions of this Plan and any Award Agreement, the
recipient of an Award (including, without limitation, any deferred Award) may,
if so determined by the Committee, be entitled to receive, currently or on a
deferred basis, interest or dividends, or interest or dividend equivalents, with
respect to the number of shares covered by the Award, as determined by the
Committee, in its sole discretion, and the Committee may provide that such
amounts (if any) shall be deemed to have been reinvested in additional Shares or
otherwise reinvested.
<PAGE>
(i) Except as otherwise required in any applicable Award Agreement or by the
terms of the Plan, recipients of Awards under the Plan shall not be required to
make any payment or provide consideration other than the rendering of services.
(j) The Committee may delegate to one or more Senior Managers or a committee
of Senior Managers the right to grant Awards to Employees who are not officers
or directors of the Company and to cancel or suspend Awards to Employees who are
not officers or directors of the Company.
(k) The Company shall be authorized to withhold from any Award granted or
payment due under the Plan the amount of withholding taxes due in respect of an
Award or payment hereunder and to take such other action as may be necessary in
the opinion of the Company to satisfy all obligations for the payment of such
taxes.
(l) Nothing contained in this Plan shall prevent the Board of Directors from
adopting other or additional compensation arrangements, subject to shareholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases.
(m) The validity, construction, and effect of the Plan and any rules and
regulations relating to the Plan shall be determined in accordance with the laws
of the State of New York and applicable Federal law.
(n) If any provision of this Plan is or becomes or is deemed invalid,
illegal or unenforceable in any jurisdiction, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision shall
be construed or deemed amended to conform to applicable laws or if it cannot be
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan, it shall be stricken and the
remainder of the Plan shall remain in full force and effect.
SECTION 14. EFFECTIVE DATE OF PLAN. The Plan shall be effective as of July
15, 1987.
SECTION 15. TERM OF PLAN. No Award shall be granted pursuant to the Plan
after 10 years from the date of shareowner approval, but any Award theretofore
granted may extend beyond that date.
AGREEMENT
SENIOR MANAGEMENT INDIVIDUAL LIFE INSURANCE PROGRAM
AND COLLATERAL ASSIGNMENT
THIS AGREEMENT is entered into this day of __________19__, by and between AT&T
Corp., a New York corporation, (hereinafter referred to as "the Employer" in
Part I or "Assignee" in Part II), and
INSTRUCTIONS -- Trustee as Policyholder: Check this box and fill in the
blanks to the right of it if the initial Policyholder will be a trustee
acting for the benefit of the Employee.
___
/__/ _____________________________________________ (hereinafter referred
(Name of Trustee)
to as the "Policyholder"), trustee for ____________________________
(Name of Employee)
(hereinafter referred to as the "Employee").
INSTRUCTIONS -- Employee as Policyholder: Check this box and fill in
the blank to the right of it if the initial Policyholder will be the
Employee.
___
/__/ _____________________________________________ (hereinafter referred
(Name of Employee)
to as either the "Policyholder" or "Employee", as applicable).
WHEREAS, the Employee is currently a valued employee and Senior Manager of the
Employer and the Employer wishes to assist the Employee with his/her personal
life insurance program; and
WHEREAS, the Employee (if also the Policyholder) or otherwise, the above-named
trustee, acting on behalf of the Employee, desires to accept such assistance;
NOW, THEREFORE, the Employer and the Policyholder agree as follows:
PART I - Individual Life Insurance Agreement
1. Description of Policy
In furtherance of the purposes of the Agreement, the Policyholder will
purchase and own a certain policy of life insurance on the life of the
Employee, being Policy No._________ issued by the Metropolitan Life
<PAGE>
Insurance Company (hereinafter referred to as "the Insurer") in an
initial face amount of $_________ with an initial annual premium of
$___________ (said policy being hereinafter referred to as "the
Policy"). The Policyholder's ownership shall be subject to all the
terms and conditions set forth in this Agreement.
2. Payment of Premiums
The Employer shall pay such part of the annual premium for such Policy
(excluding the premium for any supplemental benefits not part of the
Policy at initial issuance) as is equal to the amount of the annual
premium which is in excess of the value of the "economic benefit" of
the life insurance protection for Federal Income Tax purposes as
described in Rev. Rule 64-328, Rev. Rule 66-110, and Rev. Rule 67-154.
For purposes of this Section 2, "economic benefit" means the cost of
the pure life insurance coverage (i.e. death benefit less any cash
value) portion of the Policy. The Employer's contribution to the
premium shall be reduced by any dividend used to reduce premiums. For
the convenience of the parties, the Employer shall pay the entire
premium directly to the Insurer. The Employee shall reimburse the
Employer for that portion of the premium equal to the "economic
benefit," of the life insurance protection by withholding monthly from
the Employee's paycheck, pension check, or other post-employment
payment received from the Employer, as applicable; provided, however,
that such withholding from an Employee's pension check from the AT&T
Management Pension Plan shall not exceed 10% of the gross monthly
pension and shall be revocable at the request of the Employee. If the
Employee shall have transferred or assigned his/her interest in the
Policy to a third party, such third party (in the absence of continued
payment by the Employee) shall make payment of the appropriate portion
of the premium to the Employer. If the Employee is not receiving
sufficient amounts from which premiums can be withheld, the Employee
shall make payment of the appropriate amount directly to the Employer
or to the Insurer. While this Agreement is in effect, the Employer
shall maintain a schedule (a copy of which shall be open to inspection
by the Employee), recording annually the portion of the premium paid by
the Employer and the portion paid by the Employee.
3. Collateral Assignment and Possession of Policy
To secure repayment of premiums paid by the Employer provided for in
Section 2, Part II of this Agreement includes an assignment of the
Policy or the Policyholder's interest therein (hereinafter "Collateral
Assignment") and provides for the transfer of possession of the Policy
to the Employer during the term specified in Part II of this Agreement.
Except as provided in or as otherwise consistent with the provisions of
this Agreement, the Employer covenants that it will not exercise its
rights under the Collateral Assignment provisions of this Agreement in
such a manner as to defeat the rights of the Policyholder or the policy
beneficiary under this Agreement. Specifically, the Employer covenants
that it will not surrender the Policy unless the Policyholder has
defaulted on his/her obligations under this Agreement, or the Agreement
has terminated as provided in Section 8. The Employer shall have
possession of the Policy during the period that the Employer makes
premium payments and until all such payments are repaid. The Employer
shall make the Policy available to the Insurer in order to make any
change desired by the Policyholder as to the designation of beneficiary
or the selection of a settlement option, subject, however, to the
Collateral Assignment provisions hereof.
<PAGE>
4. Beneficiary Designation and Payment of Policy Proceeds
The Policyholder shall have the right to name the Policy beneficiary.
However, in the event of the Employee's death, the Employer shall have
an interest in the Policy proceeds equal to the value of the premiums
which the Employer has made to the extent not previously reimbursed,
less any Policy indebtedness of the Employer to the Insurer. The
balance, if any, of the proceeds of the Policy shall be paid to the
beneficiary designated in the Policy by the Policyholder.
5. Procedure at Employee's Death
Upon the death of the Employee while the Policy and this Agreement are
in force and subject to the provisions of Parts I and II hereof, the
Employer shall promptly take all necessary steps, including rendering
of such assistance as may reasonably be required by the beneficiary, to
obtain payment from the Insurer of the amounts payable under the Policy
to the respective parties, as provided under Section 4 above.
6. Disability Waiver of Premium
In the event that a supplemental agreement providing for waiver of
premium in the event of disability or any additional death benefit
becomes operational, the additional premium for such supplemental
agreement shall be paid by the Policyholder for the benefit of the
Employee. The Employer's interest in the Policy at death, under Section
4, or on surrender, under Section 9, shall be limited to total premiums
paid by the Employer and not previously reimbursed less any Policy
indebtedness of the Employer to the Insurer.
7. Choice of Dividend Option(s)
To the extent that the Insurer declares dividends on the Policy, the
Employer shall have the right to choose the option or combination of
options it desires from among those offered by the Insurer as to the
disposition of such dividends. The Employer shall notify the
Policyholder and Insurer of its choice, and the Policyholder agrees to
execute any documents necessary to choose or change the Policy's
dividend option.
8. Termination of Agreement
Part I of this Agreement shall terminate when the first of any of the
following events occurs:
(a) Termination of the Employee's employment with the Employer,
for reasons other than retirement on a disability allowance or
a minimum pension or after becoming retirement eligible. For
purposes of this Agreement, an Employee shall be considered
retirement eligible if the Employee has satisfied one of the
following minimum age and length of service (as determined
under the AT&T Management Pension Plan) combinations: (a) any
age and 30 years of service; (b) age 50 and 25 years of
service; (c) age 55 and 20 years of service; or (d) age 65 and
10 years of service;
(b) The Employee's attainment of the age 65 (in some cases later)
on or after retirement on a disability allowance or a minimum
pension or after becoming retirement eligible or, if later,
fifteen (15) years from the date of issuance of the Policy;
<PAGE>
(c) Either party's submission of written notice, to the other
party, of intent to terminate Part I of this Agreement;
(d) Performance of the Agreement's terms, following the death of
the Employee;
(e) Failure by either the Employer or the Policyholder, for any
reason to make the premium contributions required under
Section 2 of this Agreement;
(f) Demotion of the Employee to a non-Senior Manager position; or
(g) The Employee engages in any competitive activity as determined
in accordance with the provisions of the AT&T Non-Competition
Guideline (unless either (i) the Employee has obtained the
advance written consent of the Employer's Executive Vice
President-Human Resources to engage in such competitive
activity as provided in the AT&T Non-Competition Guideline; or
(ii) the Employer's Executive Vice President-Human Resources
has waived the application of the AT&T Non-Competition
Guideline to the Employee with respect to the Agreement as
provided for in the AT&T Non-Competition Guideline).
9. Disposition of Policy Upon Termination of Agreement
Upon the termination of this Agreement for any reason other than
Section 8(d) above, the Policyholder shall have a thirty (30) day
option to satisfy the Collateral Assignment regarding the Policy held
by the Employer in accordance with the terms of this Section 9. The
amount necessary to satisfy such Collateral Assignment shall be an
amount equal to the total premium payments made, from time to time, by
the Employer pursuant to Section 2 hereof, and, at the option of the
Policyholder, either shall be paid directly by the Policyholder or
through the Employer's collection from the cash value under the Policy.
If the Policy shall then be encumbered by assignment, policy loan, or
other means which have been the result of the Employer's actions, the
Employer shall either remove such encumbrance, or reduce the amount
necessary to satisfy the Collateral Assignment by the total amount of
indebtedness outstanding against the Policy. The provisions of this
Section 9 are subject to the terms of Section 6 if the Policy's
supplemental agreements have been activated. If the Policyholder
exercises his/her option to satisfy the Collateral Assignment, the
Employer shall execute all necessary documents required by the Insurer
to remove and satisfy the Collateral Assignment outstanding on the
Policy. If the Policyholder does not exercise his/her option to satisfy
the Collateral Assignment outstanding on the Policy, the Policyholder
shall execute all documents necessary to transfer ownership of the
Policy to the Employer. Such transfer shall constitute satisfaction of
any obligation the Policyholder has to the Employer with respect to
this Agreement. The Employer shall then pay to the Policyholder the
amount, if any, by which the cash surrender value of the Policy exceeds
the amount necessary to satisfy the Collateral Assignment.
10. Taxable Income
The Employee is responsible for determining the amount of taxable
income, if any, includable in his/her gross income for tax purposes as
a result of this Agreement or coverage under the Policy.
<PAGE>
11. Policyholder's Right to Assign His/Her Interest
The Policyholder shall have the right to transfer his/her entire
interest in the Policy (other than rights assigned to the Employer
pursuant to this Agreement and subject to the obligations of any
outstanding Collateral Assignment) to another person, trust or entity
(herein the "Transferee"). If the Policyholder makes such a transfer,
all his/her rights shall be vested in the Transferee and the
Policyholder shall have no further interest in the Policy and
Agreement. Any Transferee shall be subject to all obligations of the
Policyholder under both Parts I and II of this Agreement.
12. Insurer's Obligations
The Insurer is not a party to this Agreement. It is understood by the
parties hereto that in issuing such Policy of insurance, the Insurer
shall have no liability except as set forth in the Policy and except as
set forth in any assignment of the Policy filed at its Home Office.
Except as set forth in Sections 13 and 14, the Insurer shall not be
bound to inquire into, or take notice of, any of the covenants herein
contained as to the Policy of insurance or as to application
of proceeds of such Policy. Upon the death of the Employee and payment
of the proceeds in accordance with Sections 13 and 14 of this
Agreement, the Insurer shall be discharged from all liability.
13. Administrative and Fiduciary Provisions
AT&T Corp. shall be the administrator with respect to any rights or
obligations of the Employer hereunder and shall have the authority to
control and manage the operation and administration of this Agreement.
The Insurer shall be the fiduciary of the Policy solely with regard to
the review and final decision on the claim for benefits under the
Policy, as provided in the claims procedure set forth in Section 14.
14. Claims Procedure
The following claims procedure shall apply to the Policy and the Senior
Management Individual Life Insurance Program:
(a) Filing of a claim for benefits: The Policyholder or the
beneficiary of the Policy shall make a claim for the benefits
provided under the Policy in the manner provided in the
Policy.
(b) Claim denial: With respect to a claim for benefits under said
Policy, the Insurer shall be the entity which reviews and
makes decisions on claim denials according to the terms of the
Policy.
(c) Notification to claimant of decisions. If a claim is wholly or
partially denied, notice of the decision, meeting the
requirements of Section (d) following shall be furnished to
the claimant within a reasonable period of time after a claim
has been filed.
(d) Content of notice: The Insurer shall provide, to any claimant
who is denied a claim for benefits, written notice setting
forth in a manner calculated to be understood by the claimant,
the following:
<PAGE>
(1) The specific reason or reasons for the denial;
(2) Specific reference to pertinent Policy provisions or
provisions of this Agreement on which the denial is
based;
(3) A description of any additional material or
information necessary for the claimant to perfect the
claim and an explanation of why such material or
information is necessary; and
(4) An explanation of this Agreement's claim review
procedure, as set forth in Sections (e) and (f)
following.
(e) Review procedure: The purposes of the review procedure set
forth in this Section and Section (f) following is to provide
a method by which a claimant under the Policy and the Senior
Management Individual Life Insurance Program may have a
reasonable opportunity to appeal a denial of claim for a full
and fair review. To accomplish that purpose, the claimant or
his/her duly authorized representative:
(1) May request a review upon written application to the
Insurer;
(2) May review the Policy or pertinent Senior Management
Individual Life Insurance Program documents or
agreements; and
(3) May submit issues and comments in writing.
A claimant, (or his/her duly authorized representative), shall
request a review by filing a written application for review at
any time within sixty (60) days after receipt by the claimant
of written notice of the denial of the claim.
(f) Decision on review. A decision on review of a denial of a
claim shall be made in the following manner:
(1) the decision on review shall be made by the Insurer
which may, at its discretion, hold a hearing on the
denied claim. The Insurer shall make its decision
promptly, unless special circumstances (such as the
need to hold a hearing) require an extension of time
for processing, in which case a decision shall be
rendered as soon as possible, but not later than one
hundred twenty (120) days after receipt of the
request for review.
(2) The decision on review shall be in writing and shall
include specific reasons for the decision, written in
a manner calculated to be understood by the claimant,
and specific references to the pertinent Policy
provision or provision of this Agreement on which the
decision is based.
Notwithstanding any provision of the Agreement or the Policy, no Employee,
Policyholder, Transferee, assignee or beneficiary may commence any action in any
court regarding the Policy or the Senior Management Individual Life Insurance
Program prior to pursuing all rights of Policyholder under this Section 14.
<PAGE>
PART II - Assignment of Life Insurance Policy as Collateral
A. For value received and in specific consideration of the premium
payments made by the Employer as set forth in Section 2 of Part I
hereof, the Policyholder hereby assigns, transfers and sets over to the
Employer (in this Part II referred to as the "Assignee"), its
successors and assigns, the Policy issued by the
Insurer upon the life of the Employee and all claims, options,
privileges, rights, title and interest therein and thereunder (except
as provided in Paragraph C hereof), subject to all the terms and
conditions of the Policy and to all superior liens, if any, which the
insurer may have against the Policy. The Policyholder by this
instrument agrees and the Assignee by the acceptance of this
assignment agrees to the conditions and provisions herein set forth.
B. It is expressly agreed that, without detracting from the generality of
the foregoing, the following specific rights are included in this
Agreement and Collateral Assignment and pass to the Assignee by virtue
hereof:
1. The sole right to collect from the Insurer the net proceeds
of the Policy when it becomes a claim by death or maturity;
2. The sole right to surrender the Policy and receive the
surrender value thereof at any time provided by the terms of
the Policy and at such other times as the Insurer may allow;
3. The sole right to obtain one or more loans or advances on the
Policy, either from the Insurer or, at any time, from other
persons, and to pledge or assign the Policy as security for
such loans or advances;
4. The sole right to collect and receive all distributions or
shares of surplus, dividend deposits or additions to the
Policy now or hereafter made or apportioned thereto, and to
exercise any and all options contained in the Policy with
respect thereto; provided, that unless and until the Assignee
shall notify the Insurer in writing to the contrary, the
distributions or shares of surplus, dividend deposits and
additions shall continue on the Policy in force at the time of
this assignment; and
5. The sole right to exercise all nonforfeiture rights permitted
by the terms of the Policy or allowed by the Insurer and to
receive all benefits and advantages derived therefrom.
C. It is expressly agreed that the following specific rights, so long as
the Policy has not been surrendered, are reserved and excluded from
this Agreement and Collateral Assignment and do not pass by virtue
hereof:
1. The right to collect from the Insurer any disability benefit
payable in cash that does not reduce the amount of insurance
or the cash value of the Policy;
2. The right to designate any change in the beneficiary;
<PAGE>
3. The right to elect any optional mode of settlement permitted
by the Policy or allowed by the Insurer;
provided, however, that the reservation of these rights shall in no way
impair the right of the Assignee to surrender the Policy completely
with all its incidents or impair any other right of the Assignee
hereunder, and any designation or change of beneficiary or election of
a mode of settlement shall be made subject to this Agreement and
Collateral Assignment and to the rights of the Assignee hereunder.
D. This Collateral Assignment is made and the Policy is to be held as
collateral security for any and all liabilities of the Policyholder to
the Assignee arising under this Agreement (all of which liabilities
secured to or to become secured are herein referred to as
"Liabilities"). It is expressly agreed that all sums received by the
Assignee hereunder whether in the event of death of the Employee, the
maturity or surrender of the Policy, the obtaining of a loan or advance
on the Policy, or otherwise, shall first be applied to the payment of
the liability for premiums paid by the Assignee on the Policy.
E. The Assignee covenants and agrees with the Policyholder as follows:
1. That any balance of sums, if any, received hereunder from the
Insurer remaining after payment of the existing Liabilities,
matured or unmatured, shall be paid by the Assignee to the
persons entitled thereto under the terms of the Policy had
this Collateral Assignment not been executed;
2. That the Assignee will not exercise either the right to
surrender the Policy or the right to obtain policy loans from
the Insurer, until there has been either default in any of the
Liabilities pursuant to this Agreement or termination of said
Agreement as therein provided; and
3. That the Assignee will, upon request, forward without
reasonable delay to the Insurer the Policy for endorsement of
any designation or change of beneficiary or any election of an
optional mode of settlement.
F. The Policyholder declares that no proceedings in bankruptcy are pending
against him/her and that his/her property is not subject to any
assignment for the benefit of creditors.
Provisions Applicable to Parts I and II
1. Amendments
Amendments may be added to this Agreement by a written agreement signed
by each of the parties and attached hereto.
2. Choice of Law
This Agreement shall be subject to, and construed according to, the
laws of the State of New Jersey.
<PAGE>
3. A Binding Agreement
This Agreement shall bind the Employer and the Employer's successors
and assigns, the Policyholder and his/her heirs, executors,
administrators, and assigns (including a Transferee), and any Policy
beneficiary.
4. Severability Provision
The Employer and the Policyholder agree that if any provision of this
Agreement is determined to be invalid or unenforceable, in whole or
part, then all remaining provisions of this Agreement and, to the
extent valid or enforceable, the provision in question shall remain
valid, binding and fully enforceable as if the invalid or unenforceable
provision, to the extent necessary, was not a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, including
the provisions regarding Collateral Assignment, on the day and year first above
written.
POLICYHOLDER
______________________________ ______________________________
Signature of Witness Signature of Policyholder
AT&T CORP.
(As Employer and Assignee)
______________________________ ______________________________
Signature of Witness H. W. Burlingame
Executive Vice President-Human Resources
<PAGE>
AT&T SENIOR MANAGEMENT INDIVIDUAL LIFE INSURANCE PROGRAM
(revised 3/3/98)
Program Overview
The Senior Management Individual Life Insurance Program (SMILIP) is an
arrangement where the Company and you purchase a permanent life insurance policy
on your life and share the premium payment. If you die while AT&T is still a
party to the policy, typically before you reach age 65, the death benefit is
also shared between the Company and your designated beneficiary. This type of
arrangement is known in the insurance industry as "Split Dollar." After
attaining age 65 or if later, 15 years from the date of issuance of this policy,
the Company will recoup its premium payments from the cash value build-up in the
policy and cease to have any interest in the policy. The remaining cash value
will be sufficient to give you a "paid-up" death benefit after attaining normal
retirement age, i.e., all premiums will cease and the death benefit of the
policy will be secured for the designated beneficiary with no further cost to
you.
At the time of enrollment your death benefit will be one-and-one-half times
annual salary. Your death benefit will increase annually at 7% to approximate
assumed growth in annual salary over an extended period of time. The premium
cost to you will also increase to reflect your increasing age as well as the
increased death benefit. The Company will pay a significant portion of the
premium. Over time, the Company portion of the premium will decrease.
Although this arrangement is primarily designed to pay a benefit upon your
death, there is also a cash value build-up occurring coincident with the premium
payments that continues after the premium payments cease. Once sufficient funds
have accumulated and the Company no longer has an interest in the policy,
because it has recouped its premiums, you have the option to use some or all of
the remaining cash in lieu of some or all of the death benefit.
Eligibility
SMILIP is available to active AT&T Senior Managers. Employees who are promoted
or hired into Senior Management are immediately eligible to enroll in this
program.
Coverage
Your death benefit will automatically increase 7% on January 1 of each year to
approximate salary increases. Periodically over the life of the policy this
amount may be adjusted by the Company to more closely approximate your actual
salary.
Insurability
If you enroll within 60 days of becoming a Senior Manager, you are guaranteed to
be insured. If you delay enrollment proof of insurability may be required at
that time before a policy can be written or coverage increased. If you are on
disability (i.e., receiving Sickness and Disability Benefits) at the time of
eligibility, enrollment must be delayed until you return to work.
<PAGE>
Premium Sharing/Benefit Sharing
SMILIP has its origin in what the insurance industry calls a "Split Dollar"
program. The term "Split Dollar" insurance comes from a concept of the Employer
and the Employee sharing the premium payment on a life insurance policy on the
employee. At age 65 or if later, 15 years from the date of issuance of the
policy, the Company's aggregate premiums are returned from a "special" cash
value built into the policy expressly for this purpose. Should you die before
the Company's aggregate premiums are returned, death benefit payments are made
to both the Company and your beneficiary. However, the benefit the Company
receives does not reduce the death benefit paid to your beneficiary. After the
Company's aggregate premiums are returned, the Company no longer has an interest
in the policy. At that time you will have a "paid up" permanent life insurance
policy with a cash value that can be made available to you at your option.
Sample Senior Manager's Program*
Current Age 50
Annual Premium
Cash Value
Attained Death Senior Senior
Age Benefit Manager Company Manager Company
- --- ------- ------- ------- ------- -------
50 $200,000 $ 880 $17,090 0 $ 14,350
55 280,500 1,740 16,232 $ 15,700 101,000
60 393,400 4,092 13,878 85,350 178,500
64 515,700 5,364 12,606 195,700 231,000
65# 515,700 0 0 203,800 0
* This example is for illustrative purposes only and assumes a 7% annual growth
in death benefit (assumed annual salary) and an 8% yield on investment for
the cash value.
The yield on investment is not guaranteed.
# At normal retirement the death benefit becomes constant, premiums cease, the
Company's aggregate premiums are returned and your cash value may continue to
grow.
Premium Period
SMILIP is designed for premiums to be extended over a period of time to ease the
impact on cash flow to both you and the Company. This period is normally from
the time of your enrollment until you reach age 65, however, premiums must be
paid for a minimum of 15 years. Therefore, if you enroll in the program after
age 50, you and the Company will continue premium contributions until the 15
year minimum is reached.
Premium Amount
You will be provided with a personal illustration which reflects the Company's
as well as your annual premiums through the life of the policy.
Premium Waivers
There are no Premium Waivers associated with this policy.
<PAGE>
Ownership
There are three options:
Senior Manager as Owner
All paperwork must be signed by Senior Manager as proposed insured and
owner.
Owner at Enrollment is not the Senior Manager
Another option is for you not to take ownership, but rather another,
i.e., individual, trust, etc., apply for ownership of the policy. It is
of particular importance that if the owner of the policy is not you,
the owner must sign the applications as the "Applicant/Owner" and you
must sign as the "Proposed Insured".
Transfer of Ownership
The owner of this policy may subsequently transfer ownership to
another, i.e., an individual, trust, etc.
Since ownership has long term and/or irrevocable implications, we urge you to
consult with an attorney and/or tax advisor before making this decision.
Cash Value
This program is designed to provide you with a pre- and post-retirement death
benefit. However, in addition to the death benefit, there is a cash value
build-up. That is, part of each premium is placed in an "investment fund" to
earn income. Investment earnings beyond the amounts necessary to increase the
death benefit (as your salary increases) build on a tax advantaged basis in the
policy.
Cash Availability
Cash Build-up
Your share of the cash build-up will not begin until several years into
the policy but will build quickly after that. As with any cash amount,
the longer it is left intact the greater the amount will be.
Loans
The cash value attributed to you may be withdrawn in the form of a loan
after the Company no longer has an interest in the policy. There are
certain restrictions and tax implications associated with a loan. We
suggest that you speak with your financial counselor/tax advisor before
taking such a step.
Income Stream or Lump Sum
It is possible, after the Company no longer has an interest in the
policy, to convert all or any portion of the policy from a death
benefit to either an income "stream" (i.e., an annuity) or a lump sum
cash payout. The extent to which you convert to income or cash will
cancel or reduce the valuable death benefit. Once you convert, it is
not possible to re-establish the original death benefit.
<PAGE>
Secured Benefit
Changes to the tax law over the years have required an increasing portion of the
Senior Management benefit programs to be paid from Company operating income.
SMILIP allows the Company to contribute towards the cost of this program on a
timely basis while securing the benefit payment from a third party (the
insurance company).
Early Retirement, Termination or Demotion
If, at retirement, you are "Pension Eligible" or "Retirement Eligible" and you
have not reached normal retirement age (65), the death benefit will continue to
increase until age 65. Both you and the Company will continue to pay premiums
until you reach age 65 or if later, 15 years from the date of issuance of the
policy. At that time the premiums will cease and the Company's aggregate
premiums will be returned to the Company.
For purposes of the SMILIP, you will be considered "Pension Eligible" if you
retire with a Disability Allowance or Minimum Retirement Benefit under the AT&T
Senior Management Long Term Disability and Survivor Protection Plan. You will be
considered "Retirement Eligible" for purposes of the SMILIP if you retire after
having satisfied one of the following minimum age and length of service (as
determined under the AT&T Management Pension Plan) combinations: (a) any age and
30 years of service; (b) age 50 and 25 years of service; (c) age 55 and 20 years
of service; or (d) age 65 and 10 years of service.
Whether or not you are Pension Eligible or Retirement Eligible, if you leave the
Company, and without the Company's consent or an appropriate waiver, establish a
relationship with a competitor of the Company or engage in activity in conflict
with or adverse to the interests of the Company under the standards of the AT&T
Non-Competition Guideline and as determined by the AT&T Executive Vice President
- - Human Resources, the process will be the same as with retirement/termination
without being Pension Eligible or Retirement Eligible.
If you separate from the Company without being Pension Eligible, Retirement
Eligible or are demoted to a non Senior Manager position, the Company's
aggregate premiums will be immediately returned to the Company. You can, at your
option, either maintain the policy by continuing to pay the total premium, i.e.,
both your amount and the amount previously paid by the Company, use the
remaining cash value (if any) to buy paid up life insurance, or withdraw any
remaining cash value and cancel the policy.
Contractual Agreement
One of the unique aspects of this insurance policy is the existence of a
contract between you and AT&T. This agreement has no relationship to employment
or any other benefit but rather defines the responsibilities of both the Company
and you in the operation of the policy. You will own the policy and determine
the beneficiary. The Company will hold the policy and have a "Collateral
Assignment" from the owner (you or another you name) entitling AT&T, as long as
it has a collateral interest in the policy, to an amount equal to its premiums
paid. This document is a legal agreement and as such includes a significant
amount of detail and warrants your careful review before signing. Although
somewhat unique to life insurance, a collateral assignment is similar in context
to an automobile loan where the car becomes "collateral" for the money lent to
buy it. In this case, a portion of the value and benefit of the policy is the
collateral the Company receives for contributing premium payments to "buy" the
life insurance policy. The agreement is satisfied when the premium paid by the
<PAGE>
Company is returned. Some of the major sections of the agreement are:
- Description of the policy
- How the premiums are paid
- How the proceeds are paid
- How the agreement terminates
- Claims procedure
- Description of the assignment
Taxes
Split Dollar life insurance policies have been in existence for decades. The IRS
has issued several rulings over this period which treat these policies favorably
from a tax perspective. However, the Company does not assure any particular tax
treatment and recommends that you review your own situation with your personal
attorney and/or tax advisor.
Enrollment
You will be provided with enrollment documents for completion. Enrollment in
SMILIP and any future changes (i.e., assignment of ownership, beneficiary
change, etc.) is processed through Executive Human Resources.
Enrollment Package
(revised 3/2/98)
Program Overview
The Directors Individual Life Insurance Program (DILIP) is an arrangement where
the Company and you purchase a permanent life insurance policy on your life and
share the premium payment. If you die while AT&T is still a party to the policy,
typically before you reach age 70, the death benefit is also shared between the
Company and your designated beneficiary. This type of arrangement this known in
the insurance industry as "Split Dollar." After attaining age 70 or if later, 15
years from the date of issuance of this policy, the Company will recoup its
premium payments from the cash value build-up in the policy and cease to have
any interest in the policy. The remaining cash value will be sufficient to give
you a "paid-up" death benefit after attaining normal retirement age, i.e., all
premiums will cease and the death benefit of the policy will be secured for the
designated beneficiary with no further cost to you.
At the time of enrollment your death benefit will be $100,000. Your death
benefit will increase annually at 7%. The premium cost to you will also increase
to reflect your increasing age as well as the increased death benefit. The
Company will pay a significant portion of the premium (see the attached
illustration). Over time, the Company portion of the premium will decrease.
Although this arrangement is primarily designed to pay a benefit upon your
death, there is also a cash value build-up occurring coincident with the premium
payments that continues after the premium payments cease. Once sufficient funds
have accumulated and the Company no longer has an interest in the policy,
because it has recouped its premiums, you have the option to use some or all of
the remaining cash in lieu of some or all of the death benefit.
Eligibility
DILIP is for non-employee members of the AT&T Board of Directors.
Coverage
The death benefit will automatically increase 7% on January 1 of each year.
Insurability
If you enroll within 60 days of becoming a Board Member, you are guaranteed to
be insured. If you choose to delay enrollment, proof of insurability may be
required at that time before a policy can be written or coverage increased. If
you are on disability at the time of eligibility, enrollment must be delayed
until you return to work.
Premium Sharing/Benefit Sharing
DILIP has its origin in what the insurance industry calls a "Split Dollar"
program. The term "Split Dollar" insurance comes from a concept of the Employer
and the Employee sharing the premium payment on a life insurance policy on the
employee. At age 70 or if later, 15 years from the date of issuance of the
<PAGE>
policy, the Company's aggregate premiums are returned from a "special" cash
value built into the policy expressly for this purpose. Should you die before
the Company's aggregate premiums are returned, death benefit payments are made
to both the Company and your beneficiary. However, the benefit the Company
receives does not reduce the death benefit paid to your beneficiary. After the
Company's aggregate premiums are returned, the Company no longer has an interest
in the policy. At that time you will have a "paid up" permanent life insurance
policy with a cash value that can be made available to you at your option.
Example:*
Sample Director's Program
Current Age 55
Annual Premium Cash Value
Attained Death
Age Benefit Director Company Director Company
- --- ------- -------- ------- -------- -------
55 $100,000 $ 620 $10,959 0 $ 9,085
60 140,300 1,459 10,120 $ 9,362 64,447
65 196,700 3,345 8,234 52,636 112,066
69 257,900 4,384 7,195 118,594 142,495
70# 257,900 0 0 122,893 0
* This example is for illustrative purposes only and assumes a 7% annual growth
in death benefit (assumed base salary) and an 8% yield on investment for the
cash value. The yield on investment is not guaranteed.
# At normal retirement the death benefit becomes constant, premiums cease, the
Company's aggregate premiums are returned and your cash value may continue to
grow.
Premium Period
DILIP is designed for premiums to be extended over a period of time to ease the
impact on cash flow to both you and the Company. This period is normally from
the time of your enrollment until you reach age 70, however, premiums must be
paid for a minimum of 15 years. Therefore, if you enroll in the program after
age 55, you and the Company will continue premium contributions until the
minimum is reached.
Premium Amount
Included as an attachment is a personal illustrations. The illustration shows
the Company's as well as your annual premium through the life of the policy.
Premium Waivers
There are no Premium Waivers associated with this policy.
<PAGE>
Ownership
There are three options:
Board Member as Owner
---------------------
All paperwork should be signed by the Director as proposed insured and
owner.
Owner at Enrollment is not the Board Member
-------------------------------------------
Another option is for you not to take ownership, but rather another,
i.e., individual, trust, etc., apply for ownership of the policy. It is
of particular importance that if the owner of the policy is not you,
the owner must sign as the "Applicant/Owner" and you must sign the
application as the "Proposed Insured".
Transfer of Ownership
---------------------
The owner of this policy may subsequently transfer ownership to
another, i.e., an individual, trust, etc. Please contact Kathy Pruna at
908 630-2827 for the necessary forms and/or information.
Since ownership has long term and/or irrevocable implications, we urge you to
consult with an attorney and/or tax advisor before making this decision.
Cash Value
This program is designed to provide you with a pre- and post-retirement death
benefit. However, in addition to the death benefit, there is a cash value
build-up. That is, part of each premium is placed in an "investment fund" to
earn income. Investment earnings beyond the amounts necessary to increase the
death benefit, build on a tax advantaged basis in the policy.
Cash Availability
Cash Build-up
Your share of the cash build-up will not begin until several years into
the policy but will build quickly after that. As with any cash amount,
the longer it is left intact the greater the amount will be.
Loans
The cash value attributed to you may be withdrawn in the form of a loan
after the Company no longer has an interest in the policy. There are
certain restrictions and tax implications associated with a loan. We
suggest that you speak with your financial counselor/tax advisor before
taking such a step.
Income Stream or Lump Sum
It is possible, after retirement, to convert all or any portion of the
policy from a death benefit to either an income "stream" (i.e., an
annuity) or a lump sum cash payout. The extent to which you convert to
income or cash will cancel or reduce the valuable death benefit. Once
you convert, it is not possible to re-establish the original death
benefit.
<PAGE>
Early Retirement
If you retire before age 70, the death benefit will continue to increase until
age 70. Both you and the Company will continue to pay premiums until you reach
age 70 or if later, 15 years from the date of issuance of the policy. At that
time the premiums will cease and the Company's aggregate premiums will be
returned to the Company. If you leave the Company and engage in competitive
activity as determined by AT&T, the Company's aggregate premiums will be
immediately returned to the Company. You can, at your option, either maintain
the policy by continuing to pay the total premium, i.e., both your amount and
the amount previously paid by the Company, use the remaining cash value (if any)
to buy paid up life insurance, or withdraw any remaining cash value and cancel
the policy.
Contractual Agreement
One of the unique aspects of this insurance policy is the existence of a
contract between you and AT&T. This agreement has no relationship to employment
or any other benefit but rather defines the responsibilities of both the Company
and you in the operation of the policy. You will own the policy and determine
who beneficiary. The Company will hold the policy and have a "Collateral
Assignment" from the owner (you or another you name) entitling AT&T, as long as
it has a collateral interest in the policy, to an amount equal to its premiums
paid. This document is a legal agreement and as such includes a significant
amount of detail and warrants your careful review before signing. Although
somewhat unique to life insurance, a collateral assignment is similar in context
to an automobile loan where the car becomes "collateral" for the money lent to
buy it. In this case, a portion of the value and benefit of the policy is the
collateral the Company receives for contributing premium payments to "buy" the
life insurance policy. The agreement is satisfied when the premium paid by the
Company is returned. Some of the major sections of the agreement are:
- Description of the policy
- How the premiums are paid
- How the proceeds are paid
- How the agreement terminates
- Claims procedure
- Description of the assignment
The Agreement is included with this package.
Taxes
Split Dollar life insurance policies have been in existence for decades. The IRS
has issued several rulings over this period which treat these policies favorably
from a tax perspective. However, the Company does not assure any particular tax
treatment and recommends that you review your own situation with your personal
attorney and/or tax advisor.
Enrollment
Included with this package are the documents required for enrolling in the
Directors Individual Life Insurance Program. The Application Form while
appearing lengthy requires, for our purposes, just a few basic pieces of
information, as does the Beneficiary Designation form. Both of these documents
include instructions on how to complete. The Collateral Assignment requires
signatures only.
<PAGE>
AGREEMENT
DIRECTOR'S INDIVIDUAL LIFE INSURANCE PROGRAM
AND COLLATERAL ASSIGNMENT
THIS AGREEMENT is entered into this day of __________19__, by and between AT&T
Corp., a Delaware corporation, (hereinafter referred to as "the Company" in Part
I or "Assignee" in Part II), and
INSTRUCTIONS -- Trustee as Policyholder: Check this box and fill in the
blanks to the right of it if the initial Policyholder will be a trustee
acting for the benefit of the Director.
___
/__/ ______________________________________________(hereinafter referred
(Name of Trustee)
to as the "Policyholder"), trustee for ___________________________
(Name of Director)
(hereinafter referred to as the "Director").
INSTRUCTIONS -- Director as Policyholder: Check this box and fill in
the blank to the right of it if the initial Policyholder will be the
Director.
___
/__/ ______________________________________________(hereinafter referred
(Name of Director)
to as either the "Policyholder" or "Director", as applicable).
WHEREAS, the Director is currently a valued Director of the Company and the
Company wishes to assist the Director with his/her personal life insurance
program; and
WHEREAS, the Director (if also the Policyholder) or otherwise, the above-named
trustee, acting on behalf of the Director, desires to accept such assistance;
NOW, THEREFORE, the Company and the Policyholder agree as follows:
PART I - Individual Life Insurance Agreement
1. Description of Policy
In furtherance of the purposes of the Agreement, the Policyholder will
purchase and own a certain policy of life insurance on the life of the
Director, being Policy No._________ issued by the Metropolitan Life
Insurance Company (hereinafter referred to as "the Insurer") in an
initial face amount of $100,000 with an initial annual premium of
$___________ (said policy being hereinafter referred to as "the
Policy"). The Policyholder's ownership shall be subject to all the
terms and conditions set forth in this Agreement.
2. Payment of Premiums
The Company shall pay such part of the annual premium for such Policy
<PAGE>
(excluding the premium for any supplemental benefits not part of the
Policy at initial issuance) as is equal to the amount of the annual
premium which is in excess of the value of the "economic benefit" of
the life insurance protection for Federal Income Tax purposes as
described in Rev. Rule 64-328, Rev. Rule 66-110, and Rev. Rule 67-154.
For purposes of this Section 2, "economic benefit" means the cost of
the pure life insurance coverage (i.e. death benefit less any cash
value) portion of the Policy. The Company's contribution to the premium
shall be reduced by any dividend used to reduce premiums. For the
convenience of the parties, the Company shall pay the entire premium
directly to the Insurer. The Director shall reimburse the Company for
that portion of the premium equal to the "economic benefit," of the
life insurance protection. If the Director shall have transferred or
assigned his/her interest in the Policy to a third party, such third
party (in the absence of continued payment by the Director) shall make
payment of the appropriate portion of the premium to the Company. While
this Agreement is in effect, the Company shall maintain a schedule (a
copy of which shall be open to inspection by the Director), recording
annually the portion of the premium paid by the Company and the portion
paid by the Director.
3. Collateral Assignment and Possession of Policy
To secure repayment of premiums paid by the Company provided for in
Section 2, Part II of this Agreement includes an assignment of the
Policy or the Policyholder's interest therein (hereinafter "Collateral
Assignment") and provides for the transfer of possession of the Policy
to the Company during the term specified in Part II of this Agreement.
Except as provided in or as otherwise consistent with the provisions of
this Agreement, the Company covenants that it will not exercise its
rights under the Collateral Assignment provisions of this Agreement in
such a manner as to defeat the rights of the Policyholder or the policy
beneficiary under this Agreement. Specifically, the Company covenants
that it will not surrender the Policy unless the Policyholder has
defaulted on his/her obligations under this Agreement, or the Agreement
has terminated as provided in Section 8. The Company shall have
possession of the Policy during the period that the Company makes
premium payments and until all such payments are repaid. The Company
shall make the Policy available to the Insurer in order to make any
change desired by the Policyholder as to the designation of beneficiary
or the selection of a settlement option, subject, however, to the
Collateral Assignment provisions hereof.
4. Beneficiary Designation and Payment of Policy Proceeds
The Policyholder shall have the right to name the Policy beneficiary.
However, in the event of the Director's death, the Company shall have
an interest in the Policy proceeds equal to the value of the premiums
which the Company has made to the extent not previously reimbursed,
less any Policy indebtedness of the Company to the Insurer. The
balance, if any, of the proceeds of the Policy shall be paid to the
beneficiary designated in the Policy by the Policyholder.
5. Procedure at Director's Death
Upon the death of the Director while the Policy and this Agreement are
in force and subject to the provisions of Parts I and II hereof, the
Company shall promptly take all necessary steps, including rendering of
such assistance as may reasonably be required by the beneficiary, to
obtain payment from the Insurer of the amounts payable under the Policy
to the respective parties, as provided under Section 4 above.
<PAGE>
6. Disability Waiver of Premium
In the event that a supplemental agreement providing for waiver of
premium in the event of disability or any additional death benefit
becomes operational, the additional premium for such supplemental
agreement shall be paid by the Policyholder for the benefit of the
Director. The Company's interest in the Policy at death, under Section
4, or on surrender, under Section 9, shall be limited to total premiums
paid by the Company and not previously reimbursed less any Policy
indebtedness of the Company to the Insurer.
7. Choice of Dividend Option(s)
To the extent that the Insurer declares dividends on the Policy, the
Company shall have the right to choose the option or combination of
options it desires from among those offered by the Insurer as to the
disposition of such dividends. The Company shall notify the
Policyholder and Insurer of its choice, and the Policyholder agrees to
execute any documents necessary to choose or change the Policy's
dividend option.
8. Termination of agreement
Part I of this Agreement shall terminate when the first of any of the
following events occurs:
(a) Termination of the Director with the Company, for reasons
other than retirement;
(b) The Director's attainment of the age 70 (in some cases later)
on or after retirement or, if later, fifteen (15) years from
the date of issuance of the Policy;
(c) Either party's submission of written notice, to the other
party, of intent to terminate Part I of this Agreement;
(d) Performance of the Agreement's terms, following the death of
the Director;
(e) Failure by either the Company or the Policyholder, for any
reason to make the premium contributions required under
Section 2 of this Agreement; or
(f) The Director engages in any competitive activity as determined
in accordance with the provisions of the AT&T Non-Competition
Guidelines.
9. Disposition of Policy Upon Termination of Agreement
Upon the termination of this Agreement for any reason other than
Section 8(d) above, the Policyholder shall have a thirty (30) day
option to satisfy the Collateral Assignment regarding the Policy held
by the Company in accordance with the terms of this Section 9. The
amount necessary to satisfy such Collateral Assignment shall be an
amount equal to the total premium payments made, from time to time, by
the Company pursuant to Section 2 hereof, and, at the option of the
Policyholder, either shall be paid directly by the Policyholder or
through the Company's collection from the cash value under the Policy.
If the Policy shall then be encumbered by assignment, policy loan, or
other means which have been the result of the Company's actions, the
Company shall either remove such encumbrance, or reduce the amount
necessary to satisfy the Collateral Assignment by the total amount of
<PAGE>
indebtedness outstanding against the Policy. The provisions of this
Section 9 are subject to the terms of Section 6 if the Policy's
supplemental agreements have been activated. If the Policyholder
exercises his/her option to satisfy the Collateral Assignment, the
Company shall execute all necessary documents required by the Insurer
to remove and satisfy the Collateral Assignment outstanding on the
Policy. If the Policyholder does not exercise his/her option to satisfy
the Collateral Assignment outstanding on the Policy, the Policyholder
shall execute all documents necessary to transfer ownership of the
Policy to the Company. Such transfer shall constitute satisfaction of
any obligation the Policyholder has to the Company with respect to this
Agreement. The Company shall then pay to the Policyholder the amount,
if any, by which the cash surrender value of the Policy exceeds the
amount necessary to satisfy the Collateral Assignment.
10. Taxable Income
The Director is responsible for determining the amount of taxable
income, if any, includable in his/her gross income for tax purposes as
a result of this Agreement or coverage under the Policy.
11. Policyholder's Right to Assign His/Her Interest
The Policyholder shall have the right to transfer his/her entire
interest in the Policy (other than rights assigned to the Company
pursuant to this Agreement and subject to the obligations of any
outstanding Collateral Assignment) to another person, trust or entity
(herein the "Transferee"). If the Policyholder makes such a transfer,
all his/her rights shall be vested in the Transferee and the
Policyholder shall have no further interest in the Policy and
Agreement. Any Transferee shall be subject to all obligations of the
Policyholder under both Parts I and II of this Agreement.
12. Insurer's Obligations
The Insurer is not a party to this Agreement. It is understood by the
parties hereto that in issuing such Policy of insurance, the Insurer
shall have no liability except as set forth in the Policy and except as
set forth in any assignment of the Policy filed at its Home Office.
Except as set forth in sections 13 and 14, the Insurer shall not be
bound to inquire into, or take notice of, any of the covenants
herein contained as to the Policy of insurance or as to application
of proceeds of such Policy. Upon the death of the Director and
payment of the proceeds in accordance with Sections 13 and 14 of this
Agreement, the Insurer shall be discharged from all liability.
13. Administrative and Fiduciary Provisions
AT&T Corp. shall be the administrator with respect to any rights or
obligations of the Company hereunder and shall have the authority to
control and manage the operation and administration of this Agreement.
The Insurer shall be the fiduciary of the Policy solely with regard to
the review and final decision on the claim for benefits under the
Policy, as provided in the claims procedure set forth in Section 14.
<PAGE>
14. Claims Procedure
The following claims procedure shall apply to the Policy and the
Director's Individual Life Insurance Program:
(a) Filing of a claim for benefits: The Policyholder or the
beneficiary of the Policy shall make a claim for the benefits
provided under the Policy in the manner provided in the
Policy.
(b) Claim denial: With respect to a claim for benefits under said
Policy, the Insurer shall be the entity which reviews and
makes decisions on claim denials according to the terms of the
Policy.
(c) Notification to claimant of decisions: If a claim is wholly or
partially denied, notice of the decision, meeting the
requirements of Section (d) following shall be furnished to
the claimant within a reasonable period of time after a claim
has been filed.
(d) Content of notice: The Insurer shall provide, to any claimant
who is denied a claim for benefits, written notice setting
forth in a manner calculated to be understood by the claimant,
the following:
(1) The specific reason or reasons for the denial;
(2) Specific reference to pertinent Policy provisions or
provisions of this Agreement on which the denial is
based;
(3) A description of any additional material or
information necessary for the claimant to perfect the
claim and an explanation of why such material or
information is necessary; and
(4) An explanation of this Agreement's claim review
procedure, as set forth in Sections (e) and (f)
following.
(e) Review procedure: The purposes of the review procedure set
forth in this Section and Section (f) following is to provide
a method by which a claimant under the Policy and the
Director's Individual Life Insurance Program may have a
reasonable opportunity to appeal a denial of claim for a full
and fair review. To accomplish that purpose, the claimant or
his/her duly authorized representative:
(1) May request a review upon written application to the
Insurer;
(2) May review the Policy or pertinent Director's
Individual Life Insurance Program documents or
agreements; and
(3) May submit issues and comments in writing.
<PAGE>
A claimant, (or his/her duly authorized representative), shall
request a review by filing a written application for review at
any time within sixty (60) days after receipt by the claimant
of written notice of the denial of the claim.
(f) Decision on review. A decision on review of a denial of a
claim shall be made in the following manner:
(1) the decision on review shall be made by the Insurer
which may, at its discretion, hold a hearing on the
denied claim. The Insurer shall make its decision
promptly, unless special circumstances (such as the
need to hold a hearing) require an extension of time
for processing, in which case a decision shall be
rendered as soon as possible, but not later than one
hundred twenty (120) days after receipt of the
request for review.
(2) The decision on review shall be in writing and shall
include specific reasons for the decision, written in
a manner calculated to be understood by the claimant,
and specific references to the pertinent Policy
provision or provision of this Agreement on which the
decision is based.
Notwithstanding any provision of the Agreement or the Policy, no Director,
Policyholder, Transferee, assignee or beneficiary may commence any action in any
court regarding the Policy or the Director's Individual Life Insurance Program
prior to pursuing all rights of Policyholder under this Section 14.
PART II - Assignment of Life Insurance Policy as Collateral
A. For value received and in specific consideration of the premium
payments made by the Company as set forth in Section 2 of Part I
hereof, the Policyholder hereby assigns, transfers and sets over
to the Company (in this Part II referred to as the "Assignee"),
its successors and assigns, the Policy issued by the Insurer upon the
life of the Director and all claims, options, privileges, rights,
title and interest therein and thereunder (except as provided in
Paragraph C hereof), subject to all the terms and conditions of the
Policy and to all superior liens, if any, which the insurer may
have against the Policy. The Policyholder by this instrument
agrees and the Assignee by the acceptance of this assignment
agrees to the conditions and provisions herein set forth.
B. It is expressly agreed that, without detracting from the generality of
the foregoing, the following specific rights are included in this
Agreement and Collateral Assignment and pass to the Assignee by virtue
hereof:
1. The sole right to collect from the Insurer the net proceeds
of the Policy when it becomes a claim by death or maturity;
2. The sole right to surrender the Policy and receive the
surrender value thereof at any time provided by the terms of
the Policy and at such other times as the Insurer may allow;
<PAGE>
3. The sole right to obtain one or more loans or advances on the
Policy, either from the Insurer or, at any time, from other
persons, and to pledge or assign the Policy as security for
such loans or advances;
4. The sole right to collect and receive all distributions or
shares of surplus, dividend deposits or additions to the
Policy now or hereafter made or apportioned thereto, and to
exercise any and all options contained in the Policy with
respect thereto; provided, that unless and until the Assignee
shall notify the Insurer in writing to the contrary, the
distributions or shares of surplus, dividend deposits and
additions shall continue on the Policy in force at the time of
this assignment; and
5. The sole right to exercise all non-forfeiture rights permitted
by the terms of the Policy or allowed by the Insurer and to
receive all benefits and advantages derived therefrom.
C. It is expressly agreed that the following specific rights, so long as
the Policy has not been surrendered, are reserved and excluded from
this Agreement and Collateral Assignment and do not pass by virtue
hereof:
1. The right to collect from the Insurer any disability benefit
payable in cash that does not reduce the amount of insurance
or the cash value of the Policy;
2. The right to designate any change in the beneficiary;
3. The right to elect any optional mode of settlement permitted
by the Policy or allowed by the Insurer;
provided, however, that the reservation of these rights shall in no way
impair the right of the Assignee to surrender the Policy completely
with all its incidents or impair any other right of the Assignee
hereunder, and any designation or change of beneficiary or election of
a mode of settlement shall be made subject to this Agreement and
Collateral Assignment and to the rights of the Assignee hereunder.
D. This Collateral Assignment is made and the Policy is to be held as
collateral security for any and all liabilities of the Policyholder to
the Assignee arising under this Agreement (all of which liabilities
secured to or to become secured are herein referred to as
"Liabilities"). It is expressly agreed that all sums received by the
Assignee hereunder whether in the event of death of the Director, the
maturity or surrender of the Policy, the obtaining of a loan or advance
on the Policy, or otherwise, shall first be applied to the payment of
the liability for premiums paid by the Assignee on the Policy.
E. The Assignee covenants and agrees with the Policyholder as follows:
1. That any balance of sums, if any, received hereunder from the
Insurer remaining after payment of the existing Liabilities,
matured or unmatured, shall be paid by the Assignee to the
persons entitled thereto under the terms of the Policy had
this Collateral Assignment not been executed;
<PAGE>
2. That the Assignee will not exercise either the right to
surrender the Policy or the right to obtain policy loans from
the insurer, until there has been either default in any of the
Liabilities pursuant to this Agreement or termination of said
Agreement as therein provided; and
3. That the Assignee will, upon request, forward without
reasonable delay to the Insurer the Policy for endorsement of
any designation or change of beneficiary or any election of an
optional mode of settlement.
F. The Policyholder declares that no proceedings in bankruptcy are pending
against him/her and that his/her property is not subject to any
assignment for the benefit of creditors.
Provisions Applicable to Parts I and II
1. Amendments
Amendments may be added to this Agreement by a written agreement signed
by each of the parties and attached hereto.
2. Choice of Law
This Agreement shall be subject to, and construed according to, the
laws of the State of New Jersey.
3. A Binding Agreement
This Agreement shall bind the Company and the Company's successors and
assigns, the Policyholder and his/her heirs, executors, administrators,
and assigns (including a Transferee), and any Policy beneficiary.
4. Severability Provision
The Company and the Policyholder agree that if any provision of this
Agreement is determined to be invalid or unenforceable, in whole or
part, then all remaining provisions of this Agreement and, to the
extent valid or enforceable, the provision in question shall remain
valid, binding and fully enforceable as if the invalid or unenforceable
provision, to the extent necessary, was not a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, including
the provisions regarding Collateral Assignment, on the day and year first above
written.
POLICYHOLDER
_____________________________ ___________________________________
Signature of Witness Signature of Policyholder
AT&T CORP.
(As Employer and Assignee)
_____________________________ By:________________________________
Signature of Witness H. W. Burlingame
Executive Vice President-Human Resources
AT&T SENIOR MANAGEMENT INCENTIVE AWARD DEFERRAL PLAN
(as amended December 17, 1997)
1. ELIGIBILITY
Any Senior Manager (as defined in the AT&T 1997 Long Term Incentive
Program [the "1997 Plan"]) of AT&T Corp. ("AT&T") or an Affiliate (as defined in
the 1997 Plan) who is eligible for an award under the AT&T Short Term Incentive
Plan (the "Short Term Incentive Plan") and/or who has been granted a Performance
Award or a Stock Unit Award under the AT&T Senior Management Long Term Incentive
Plan (the "Long Term Incentive Plan") the 1987 Long Term Incentive Plan (the
"1987 Plan") or the 1997 Plan shall be eligible to participate in this AT&T
Senior Management Incentive Award Deferral Plan (the "Plan"). For purposes of
the Plan, AT&T and any Affiliate shall be referred to as a "Participating
Company". Prior to January 1, 1984, the Plan was named the Bell System Senior
Management Incentive Award Deferral Plan.
2. PARTICIPATION
(a) Prior to the beginning of any calendar year, any Senior Manager may
elect to participate in the Plan by directing that (i) all or part of an award
under the Short Term Incentive Plan, or a Performance Award or a Stock Unit
Award under the Long Term Incentive Plan, the 1987 Plan or the 1997 Plan and/or
(ii) all or part of the dividend equivalent payments under the Long Term
Incentive Plan, the 1987 Plan or the 1997 Plan, that such employee's
Participating Company would otherwise pay currently to such employee in such
calendar year, shall be credited to a deferred account subject to the terms of
the Plan. However, in no event shall the part of an award under any plan
credited during any calendar year be less than $1,000 (based on a valuation at
the time the award would otherwise be paid). There shall be no such minimum
limitation on amounts credited during any calendar year that are related to
dividend equivalent payments.
In addition, prior to the beginning of any calendar year, any Senior
Manager may elect to participate in the Plan by directing that all or part of
the compensation related to the exercise (more than six months following such
election and prior to the employee's retirement or other termination of
employment) of an Option awarded under the 1987 Plan or the 1997 Plan shall be
credited to a deferred account subject to the terms of the Plan. The exercise of
an Option shall be considered as an exercise described in the preceding sentence
only if the exercise would otherwise satisfy the requirements for a
stock-for-stock exercise under the stock option award agreement pertaining to
such Option.
In addition, prior to the beginning of any calendar year, the Chairman
of the Board and any other Senior Manager designated by the Chairman of the
Board may elect to participate in the Plan by directing that all or part of such
Senior Manager's salary that such employee's Participating Company would
otherwise pay currently to such employee in such calendar year shall be credited
to a deferred account subject to the terms of the Plan.
<PAGE>
In addition, provided such participation shall have been approved by
the Compensation and Employee Benefits Committee of the AT&T Board of Directors
(the "Committee"), prior to the beginning of any calendar year, any Senior
Manager may elect to participate in the Plan as to other awards under the 1987
Plan or 1997 Plan, or other amounts of compensation of such Senior Manager, by
directing that all or part of such awards or compensation that such Senior
Manager's Participating Company would otherwise pay currently to such Senior
Manager in such calendar year be credited to a deferred account subject to the
terms of the Plan.
(b) Such an election to participate in the Plan shall be in the form of
a document executed by the employee and filed with the employee's Participating
Company. An election related to awards, dividend equivalent payments, salary
and/ or other compensation otherwise payable currently in any calendar year
shall become irrevocable on the last day prior to the beginning of such calendar
year.
(c) Notwithstanding anything to the contrary contained in this Section
2, in the case of a Senior Manager who is newly eligible to participate in the
Plan, or in the case of any Senior Manager with respect to awards or
compensation newly eligible to be deferred under the Plan, a deferral election
may be made with respect to compensation otherwise receivable in the same
calendar year and subsequent to such election, provided such election is made
within ninety (90) days of such eligibility.
3. DEFERRED ACCOUNTS
(a) (i) Except as provided in Section 3(b)(iii), deferred amounts
related to awards, dividend equivalent payments which would otherwise have been
distributed in cash by a Participating Company and deferred amounts related to
salary and/or other cash compensation shall be credited to the employee's
account and shall bear interest from the date the awards, dividend equivalent
payments, salary and/or other cash compensation would otherwise have been paid.
The interest credited to the account will be compounded at the end of each
calendar quarter, and the annual rate of interest applied at the end of any
calendar quarter shall be determined by the Committee from time to time,
provided however, that the interest rate to be applied, for any subsequent
quarter, to an employee's (or former employee's) deferred account balance as of
December 31, 1998, plus any additions to such account after December 31, 1998
that result from deferral elections made by an employee prior to December 31,
1998, (reduced by any distributions attributable to such account balance) shall
not be less than the applicable 10 Year U.S. Treasury Note Rate for the prior
calendar quarter, plus five (5) percent.
(ii) Furthermore, if an employee made an election described in Section
2, which election was effective on December 31, 1983, then such employee's
account shall also be credited during 1984 with an amount equal to the deferred
amounts which would have been credited to the employee's account during 1984 had
the company which employed the employee on December 31, 1983 continued to be a
Participating Company during 1984, and such amount shall bear interest in
accordance with (a)(i) above from the date such amount would have been credited
had such company continued to be a Participating Company during 1984.
(b)(i) Deferred amounts related to awards that would otherwise have
been distributed in AT&T common shares by a Participating Company shall be
credited to the employee's account as deferred AT&T shares. Furthermore, if an
employee made an election described in Section 2, which election was effective
on December 31, 1983, then such employee's account shall also be credited during
<PAGE>
1984 with the deferred AT&T shares which would have been credited to the
employee's account had the company which employed the employee on December 31,
1983 continued to be a Participating Company in the Plan and in the Long Term
Incentive Plan during 1984.
(ii) Deferred amounts related to the compensation on the exercise of an
Option also shall be credited to the employee's account as deferred AT&T shares.
The number of deferred AT&T shares credited under the preceding sentence shall
equal the number of additional AT&T shares the employee would have received on
the actual stock-for-stock exercise of such Option.
(iii) Prior to the beginning of any calendar year, the Chairman of the
Board and any other Senior Manager designated by the Chairman of the Board may
elect that deferred amounts related to dividend equivalent payments, which would
otherwise have been distributed in cash by a Participating Company during such
calendar year, shall be credited to the employee's account as deferred AT&T
shares. The number of deferred AT&T shares credited, with respect to each
dividend equivalent, shall be determined in accordance with the conversion
formula set forth in the following paragraph, as if such dividend equivalent
were the amount to be converted to a number of additional deferred AT&T shares.
(iv) The employee's account shall also be credited on each dividend
payment date for AT&T shares with an amount equivalent to the dividend payable
on the number of AT&T common shares equal to the number of deferred AT&T shares
in the employee's account on the record date for such dividend. Such amount
shall then be converted to a number of additional deferred AT&T shares
determined by dividing such amount by the price of AT&T common shares, as
determined in the following sentence. The price of AT&T common shares related to
any dividend payment date shall be the average of the daily high and low sale
prices of AT&T common shares on the New York Stock Exchange ("NYSE") for the
period of five trading days ending on such dividend payment date, or the period
of five trading days immediately preceding such dividend payment date if the
NYSE is closed on the dividend payment date.
(c) In the event of any change in outstanding AT&T common shares by
reason of any stock dividend or split, recapitalization, merger, consolidation,
combination or exchange of shares or other similar corporate change, the
Committee shall make such adjustments, if any, that it deems appropriate in the
number of deferred AT&T shares then credited to employees' accounts. Any and all
such adjustments shall be conclusive and binding upon all parties concerned.
4. DISTRIBUTION
(a) At the time an eligible employee makes an election to participate
in the Plan, the employee shall also make an election with respect to the
distribution (during the employee's lifetime or in the event of the employee's
death) of the amounts credited to the employee's deferred account. Such an
election related to the distribution during the employee's lifetime, of amounts
otherwise payable currently in any calendar year, shall become irrevocable on
the last day prior to the beginning of such calendar year.
The election related to the distribution in the event of the employee's
death, including the designation of a beneficiary or beneficiaries, may be
changed by the employee at any time by filing the appropriate document with the
Secretary of the Company.
<PAGE>
Amounts credited as cash plus accumulated interest shall be distributed
in cash; amounts credited as deferred AT&T shares shall be distributed in the
form of an equal number of AT&T shares.
(b)(i) With respect to amounts related to deferred cash credited to the
employee's account under Section 3(a), and to deferred AT&T shares credited to
the employee's account under Section 3(b)(i) or (iii), an employee may elect to
receive such amounts in one payment or in some other number of approximately
equal annual installments (not exceeding 20), provided however, that the number
of annual installments may not extend beyond the life expectancy of the
employee, determined as of the date the first installment is paid. The
employee's election shall also specify that the first installment (or the single
payment if the employee has so elected) shall be paid either (1) as soon as
practicable after the first day of the calendar quarter next following the end
of the month in which the employee attains the age specified in such election,
which age shall not be earlier than age 55 or later than age 70-1/2, or (2) as
soon as practicable after the first day of the calendar quarter next following
the end of the month in which the employee retires from a Participating Company
or otherwise terminates employment with a Participating Company (except for a
transfer to another Participating Company); provided, however, that the
Committee may, in its sole discretion, direct that the first installment (or the
single payment) shall be paid on the first day of the first calendar quarter in
the calendar year next following the year of retirement or other termination of
employment. In addition any Senior Manager eligible to defer salary may specify
that the first installment (or the single payment if the employee has so
elected) shall be paid as soon as practicable after the first day of the first
calendar quarter in the calendar year next following the calendar year in which
the employee retires from a Participating Company or otherwise terminates
employment with a Participating Company (except for a transfer to another
Participating Company).
(ii) With respect to deferred AT&T shares credited to the employee's
account under Section 3(b)(ii), an employee may elect to receive the deferred
AT&T shares in one payment or in some other number of approximately equal annual
installments (not exceeding 20), provided however, that the number of annual
installments may not extend beyond the life expectancy of the employee,
determined as of the date the first installment is paid. The employee's election
shall also specify that the first installment (or the single payment if the
employee has so elected) shall be paid as soon as practicable after the first
day of the calendar quarter next following the later of (1) the end of the month
that is five years following the month in which the related deferred AT&T shares
were initially credited, and (2)(A) the end of the month in which the employee
attains the age specified in such election, which age shall not be earlier than
age 55 or later than age 70-1/2, or (B) the end of the month in which the
employee retires from a Participating Company or otherwise terminates employment
with a Participating Company (except for a transfer to another Participating
Company); provided, however, that the Committee may, in its sole discretion,
direct that the first installment (or the single payment) shall be paid on the
first day of the first calendar quarter in the calendar year next following the
year of retirement or other termination of employment.
(c) Notwithstanding an election pursuant to Paragraph (b) of this
Section 4, the entire amount then credited to an employee's account shall be
paid immediately in a single payment (1) if the employee is discharged for cause
by his or her Participating Company, (2) if the such Participating Company
determines that the employee engaged in misconduct in connection with the
employee's employment with the Participating Company, (3) if the employee
without the consent of his or her Participating Company, while employed by such
<PAGE>
Participating Company or after the termination of such employment, establishes a
relationship with a competitor of the Company or engages in activity which is in
conflict with or adverse to the interest of the Company as determined under the
AT&T Non-Competition Guideline, or (4) the employee becomes employed by a
governmental agency having jurisdiction over the activities of a Participating
Company or any of its subsidiaries.
(d) An employee may elect that, in the event the employee should die
before full payment of all amounts credited to the employee's account, the
balance of the deferred amounts shall be distributed in one payment or in some
other number of approximately equal annual installments (not exceeding 10) to
the beneficiary or beneficiaries designated in writing by the employee, or if no
designation has been made, to the estate of the employee. The first installment
(or the single payment if the employee has so elected) shall be paid on the
first day of the calendar quarter next following the month of death; provided,
however, that the Committee may, in its sole discretion, direct that the first
installment (or the single payment) shall be paid on the first day of the first
calendar quarter in the calendar year next following the year of death.
(e) Installments subsequent to the first installment to the employee,
or to a beneficiary or to the employee's estate, shall be paid on the first day
of the applicable calendar quarter in each succeeding calendar year until the
entire amount credited to the employee's deferred account shall have been paid.
Deferred amounts held pending distribution shall continue to be credited with
interest or additional deferred AT&T shares, as applicable, determined in
accordance with Section 3(a) and (b).
(f) In the event an employee, or the employee's beneficiary after the
employee's death, incurs a severe financial hardship, the Committee, in its sole
discretion, may accelerate or otherwise revise the payment schedule from the
employee's account to the extent reasonably necessary to eliminate the severe
financial hardship. For the purpose of this subsection (f), a severe financial
hardship must have been caused by an accident, illness, or other event beyond
the control of the employee or, if applicable, the beneficiary.
(g) The obligation to make a distribution of deferred amounts credited
to an employee's account during any calendar year plus the additional amounts
credited on such deferred amounts pursuant to Section 3(a) and (b) shall be
borne by the Participating Company which otherwise would have paid the related
award or salary currently. However, the obligation to make distribution with
respect to deferred amounts which are related to amounts credited to an
employee's account under Section 3(a)(ii) and under the second sentence of
Section 3(b)(i), and with respect to which no Participating Company would
otherwise have paid the related award currently, shall be borne by the
Participating Company which employed the employee on January 1, 1984.
5. MISCELLANEOUS
(a) The deferred amounts shall be held in the general funds of the
Participating Companies. The Participating Companies shall not be required to
reserve, or otherwise set aside, funds for the payment of such amounts.
(b) The rights of an employee to any deferred amounts plus the
additional amounts credited pursuant to Section 3(a) and (b) shall not be
subject to assignment by the employee.
<PAGE>
(c) The Executive Vice President - Human Resources of AT&T shall have
the authority to administer the Plan.
(d) The Committee may at any time amend the Plan or terminate the Plan,
but such amendment or termination shall not adversely affect the rights of any
employee, without his or her consent, to any benefit under the Plan to which
such employee may have previously become entitled prior to the effective date of
such amendment or termination. The Executive Vice President - Human Resources of
AT&T with the concurrence of the General Counsel of AT&T shall be authorized to
make minor or administrative changes to the Plan, as well as amendments required
by applicable federal or state law (or authorized or made desirable by such
statutes).
[OBJECT OMITTED]
AT&T 1997 LONG TERM INCENTIVE PROGRAM
(as amended December 17, 1997)
SECTION 1. PURPOSE. The purposes of the AT&T 1997 Long Term Incentive
Program (the "Plan") are to encourage selected employees of AT&T Corp. (the
"Company") and its Affiliates to acquire a proprietary and vested interest in
the growth and performance of the Company, to generate an increased incentive to
contribute to the Company's future success and prosperity, thus enhancing the
value of the Company for the benefit of shareholders, and to enhance the ability
of the Company and its Affiliates to attract and retain individuals of
exceptional managerial talent upon whom, in large measure, the sustained
progress, growth and profitability of the Company depends.
SECTION 2. DEFINITIONS. As used in the Plan, the following terms shall have
the meanings set forth below:
(a) "Affiliate" shall mean (i) any Person that directly, or through one or
more intermediaries, controls, or is controlled by, or is under common control
with, the Company or (ii) any entity in which the Company has a significant
equity interest, as determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock Award, Performance Share, Performance Unit, Dividend Equivalent, Other
Stock Unit Award, or any other right, interest, or option relating to Shares or
other property granted pursuant to the provisions of the Plan.
(c) "Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award granted by the Committee hereunder,
which may, but need not, be executed or acknowledged by both the Company and the
Participant.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Change in Control" shall mean the happening of any of the following
events:
(i) An acquisition by any individual, entity or group (within the
meaning of Section 13 (d) (3) or 14 (d) (2) of the Exchange Act) (an "Entity")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (A) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); excluding, however, the following: (1) any
acquisition directly from the Company, other than an acquisition by virtue of
the exercise of a conversion privilege unless the security being so converted
was itself acquired directly from the Company, (2) any acquisition by the
Company, (3) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company, or (4) any acquisition by any corporation pursuant to a transaction
which complies with clauses (A), (B) and (C) of subsection (iii) of this Section
2(e);
<PAGE>
(ii) A change in the composition of the Board such that the individuals
who, as of the effective date of the Plan, constitute the Board (such Board
shall be hereinafter referred to as the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; provided, however, that for
purposes of this definition, any individual who becomes a member of the Board
subsequent to the effective date of the Plan, whose election, or nomination for
election, by the Company's stockholders was approved by a vote of at least a
majority of those individuals who are members of the Board and who were also
members of the Incumbent Board (or deemed to be such pursuant to this proviso)
shall be considered as though such individual were a member of the Incumbent
Board; and provided, further however, that any such individual whose initial
assumption of office occurs as a result of or in connection with either an
actual or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of an Entity other than the
Board shall not be so considered as a member of the Incumbent Board;
(iii) The approval by the stockholders of the Company of a merger,
reorganization or consolidation or sale or other disposition of all or
substantially all of the assets of the Company (each, a "Corporate Transaction")
or, if consummation of such Corporate Transaction is subject, at the time of
such approval by stockholders, to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or implicitly by
consummation); excluding however, such a Corporate Transaction pursuant to which
(A) all or substantially all of the individuals and entities who are the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly, more than 60% of,
respectively, the outstanding shares of common stock, and the combined voting
power of the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation resulting from
such Corporate Transaction (including, without limitation, a corporation or
other Person which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries (a "Parent Company")) in substantially the same proportions as
their ownership, immediately prior to such Corporate Transaction, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (B) no Entity (other than the Company, any employee benefit
plan (or related trust) of the Company, such corporation resulting from such
Corporate Transaction or, if reference was made to equity ownership of any
Parent Company for purposes of determining whether clause (A) above is satisfied
in connection with the applicable Corporate Transaction, such Parent Company)
will beneficially own, directly or indirectly, 20% or more of, respectively, the
outstanding shares of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of the outstanding voting
securities of such corporation entitled to vote generally in the election of
directors unless such ownership resulted solely from ownership of securities of
the Company prior to the Corporate Transaction, and (C) individuals who were
members of the Incumbent Board will immediately after the consummation of the
Corporate Transaction constitute at least a majority of the members of the board
of directors of the corporation resulting from such Corporate Transaction (or,
if reference was made to equity ownership of any Parent Company for purposes of
determining whether clause (A) above is satisfied in connection with the
applicable Corporate Transaction, of the Parent Company); or
<PAGE>
(iv) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(f) "Change in Control Price" means the higher of (A) the highest reported
sales price, regular way, of a Share in any transaction reported on the New York
Stock Exchange Composite Tape or other national exchange on which Shares are
listed or on NASDAQ during the 60-day period prior to and including the date of
a Change in Control or (B) if the Change in Control is the result of a tender or
exchange offer or a Corporate Transaction, the highest price per Share paid in
such tender or exchange offer or Corporate Transaction; provided however, that
in the case of Incentive Stock Options and Stock Appreciation Rights relating to
Incentive Stock Options, the Change in Control Price shall be the Fair Market
Value of a Share on the date such Incentive Stock Option or Stock Appreciation
Right is exercised or deemed exercised pursuant to Section 11(b). To the extent
that the consideration paid in any such transaction described above consists all
or in part of securities or other noncash consideration, the value of such
securities or other noncash consideration shall be determined in the sole
discretion of the Board.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(h) "Committee" shall mean the Compensation and Employee Benefits Committee
of the Board, or any successor to such committee, composed of no fewer than two
directors each of whom is a Non-Employee Director and an "outside director"
within the meaning of Section 162(m) of the Code, or any successor provision
thereto.
(i) "Company" shall mean AT&T Corp., a New York corporation.
(j) "Covered Employee" shall mean a "covered employee" within the meaning of
Section 162(m)(3) of the Code, or any successor provision thereto.
(k) "Employee" shall mean any employee of the Company or of any Affiliate.
Unless otherwise determined by the Committee in its sole discretion, for
purposes of the Plan, an employee shall be considered to have terminated
employment and to have ceased to be an Employee if his or her employer ceases to
be an Affiliate, even if he or she continues to be employed by such employer.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" shall mean, with respect to any property, the market
value of such property determined by such methods or procedures as shall be
established from time to time by the Committee.
(n) "Incentive Stock Option" shall mean an Option granted under Section 6
hereof that is intended to meet the requirements of Section 422 of the Code or
any successor provision thereto.
(o) "Non-Employee Director" shall have the meaning set forth in Rule
16b-3(b)(3) promulgated by the Securities and Exchange Commission under the
Exchange Act, or any successor definition adopted by the Securities and Exchange
Commission.
(p) "Nonstatutory Stock Option" shall mean an Option granted under Section 6
hereof that is not intended to be an Incentive Stock Option.
<PAGE>
(q) "Option" shall mean any right granted to a Participant under the Plan
allowing such Participant to purchase Shares at such price or prices and during
such period or periods as the Committee shall determine.
(r) "Other Stock Unit Award" shall mean any right granted to a Participant
by the Committee pursuant to Section 10 hereof.
(s) "Participant" shall mean an Employee who is selected by the Committee to
receive an Award under the Plan.
(t) "Performance Award" shall mean any Award of Performance Shares or
Performance Units pursuant to Section 9 hereof.
(u) "Performance Period" shall mean that period established by the Committee
at the time any Performance Award is granted or at any time thereafter during
which any performance goals specified by the Committee with respect to such
Award are to be measured.
(v) "Performance Share" shall mean any grant pursuant to Section 9 hereof of
a unit valued by reference to a designated number of Shares, which value may be
paid to the Participant by delivery of such property as the Committee shall
determine, including, without limitation, cash, Shares, or any combination
thereof, upon achievement of such performance goals during the Performance
Period as the Committee shall establish at the time of such grant or thereafter.
(w) "Performance Unit" shall mean any grant pursuant to Section 9 hereof of
a unit valued by reference to a designated amount of property other than Shares,
which value may be paid to the Participant by delivery of such property as the
Committee shall determine, including, without limitation, cash, Shares, or any
combination thereof, upon achievement of such performance goals during the
Performance Period as the Committee shall establish at the time of such grant or
thereafter.
(x) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof.
(y) "Restricted Stock" shall mean any Share issued with the restriction that
the holder may not sell, transfer, pledge, or assign such Share and with such
other restrictions as the Committee, in its sole discretion, may impose
(including, without limitation, any restriction on the right to vote such Share,
and the right to receive any cash dividends), which restrictions may lapse
separately or in combination at such time or times, in installments or
otherwise, as the Committee may deem appropriate.
(z) "Restricted Stock Award" shall mean an award of Restricted Stock under
Section 8 hereof.
(Aa) "Senior Manager" shall mean any Employee of the Company or any
Affiliate holding a position above E band or any future salary band that is the
equivalent thereof.
(Bb) "Shares" shall mean the shares of common stock of the Company, $1.00
par value.
(Cc) "Stock Appreciation Right" shall mean any right granted to a
Participant pursuant to Section 7 hereof to receive, upon exercise by the
Participant, the excess of (i) the Fair Market Value of one Share on the date of
<PAGE>
exercise or, if the Committee shall so determine in the case of any such right
other than one related to any Incentive Stock Option, at any time during a
specified period before the date of exercise over (ii) the grant price of the
right on the date of grant, or if granted in connection with an outstanding
Option on the date of grant of the related Option, as specified by the Committee
in its sole discretion, which, except in the case of Substitute Awards or in
connection with an adjustment provided in Section 4(d), shall not be less than
the Fair Market Value of one Share on such date of grant of the right or the
related Option, as the case may be. Any payment by the Company in respect of
such right may be made in cash, Shares, other property, or any combination
thereof, as the Committee, in its sole discretion, shall determine.
(Dd) "Subsidiary" shall mean any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
granting of the Award, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50 percent or more of the total
combined voting power of all classes of stock in one of the other corporations
in the chain.
(Ee) "Substitute Awards" shall mean Awards granted or Shares issued by the
Company in assumption of, or in substitution or exchange for, awards previously
granted, or the right or obligation to make future awards, by a company acquired
by the Company or with which the Company combines.
SECTION 3. ADMINISTRATION. The Plan shall be administered by the Committee.
The Committee shall have full power and authority, subject to such orders or
resolutions not inconsistent with the provisions of the Plan as may from time to
time be adopted by the Board, to: (i) select the Employees of the Company and
its Affiliates to whom Awards may from time to time be granted hereunder; (ii)
determine the type or types of Award to be granted to each Participant
hereunder; (iii) determine the number of Shares to be covered by each Award
granted hereunder; (iv) determine the terms and conditions, not inconsistent
with the provisions of the Plan, of any Award granted hereunder; (v) determine
whether, to what extent and under what circumstances Awards may be settled in
cash, Shares or other property or canceled or suspended; (vi) determine whether,
to what extent and under what circumstances cash, Shares and other property and
other amounts payable with respect to an Award under this Plan shall be deferred
either automatically or at the election of the Participant; (vii) interpret and
administer the Plan and any instrument or agreement entered into under the Plan;
(viii) establish such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and (ix) make any
other determination and take any other action that the Committee deems necessary
or desirable for administration of the Plan. Decisions of the Committee shall be
final, conclusive and binding upon all persons, including the Company, any
Participant, any shareholder, and any employee of the Company or of any
Affiliate. A majority of the members of the Committee may determine its actions
and fix the time and place of its meetings.
SECTION 4. SHARES SUBJECT TO THE PLAN.
(a) Subject to adjustment as provided in Section 4(d), a total of fifteen
(15) million Shares shall be available for a one time grant of Options to
substantially all Employees during 1997. Shares available for such one time
grant of Options, but not used for such Options, shall be available for other
Awards under the Plan, in 1997 or later years.
(b) In addition to the number of Shares available under Section 4(a), and
subject to adjustment as provided in Section 4(d), a total of eighty-five (85)
<PAGE>
million Shares shall be available for Awards granted under the Plan; provided
that the number of Shares available for Awards other than Options shall not
exceed fifteen (15) million; and provided, further, that if any Shares subject
to an Award or to an award under the Company's 1987 Long Term Incentive Program
or 1984 Stock Option Plan (the "Prior Plans") are forfeited or if any Award or
award under the Prior Plans based on Shares is settled for cash, or expires or
otherwise is terminated without issuance of such Shares, the Shares subject to
such Award shall to the extent of such cash settlement, forfeiture or
termination again be available for Awards under the Plan. In the event that any
Option or other Award granted hereunder is exercised through the delivery of
Shares or in the event that withholding tax liabilities arising from such Option
or other Award are satisfied by the withholding of Shares by the Company, the
number of Shares available for Awards under the Plan shall be increased by the
number of Shares so surrendered or withheld. In addition, Substitute Awards
shall not reduce the Shares available for grants under the Plan or to a
Participant in any calendar year.
(c) Any Shares issued hereunder may consist, in whole or in part, of
authorized and unissued shares, treasury shares, or shares purchased in the open
market or otherwise.
(d) In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, reverse stock split, spin-off or
similar transaction or other change in corporate structure affecting the Shares,
such adjustments and other substitutions shall be made to the Plan and to Awards
as the Committee in its sole discretion deems equitable or appropriate,
including without limitation such adjustments in the aggregate number, class and
kind of securities which may be delivered under the Plan, in the aggregate or to
any one Participant, in the number, class, kind and option or exercise price of
securities subject to outstanding Options, Stock Appreciation Rights or other
Awards granted under the Plan, and in the number, class and kind of securities
subject to Awards granted under the Plan (including, if the Committee deems
appropriate, the substitution of similar options to purchase the shares of, or
other awards denominated in the shares of, another company) as the Committee may
determine to be appropriate in its sole discretion, provided that the number of
Shares subject to any Award shall always be a whole number.
SECTION 5. ELIGIBILITY. Any Employee shall be eligible to be selected as a
Participant.
SECTION 6. STOCK OPTIONS. Options may be granted hereunder to Participants
either alone or in addition to other Awards granted under the Plan. Any Option
granted under the Plan shall be evidenced by an Award Agreement in such form as
the Committee may from time to time approve. Any such Option shall be subject to
the following terms and conditions and to such additional terms and conditions,
not inconsistent with the provisions of the Plan, as the Committee shall deem
desirable:
(a) OPTION PRICE. The purchase price per Share purchasable under an Option
shall be determined by the Committee in its sole discretion; provided that,
except in the case of Substitute Awards or in connection with an adjustment
provided for in Section 4(d), such purchase price shall not be less than the
Fair Market Value of the Share on the date of the grant of the Option.
(b) OPTION PERIOD. The term of each Option shall be fixed by the Committee
in its sole discretion; provided that no Incentive Stock Option shall be
exercisable after the expiration of ten years from the date the Option is
granted.
<PAGE>
(c) EXERCISABILITY. Options shall be exercisable at such time or times as
determined by the Committee at or subsequent to grant.
(d) METHOD OF EXERCISE. Subject to the other provisions of the Plan, any
Option may be exercised by the Participant in whole or in part at such time or
times, and the Participant may make payment of the option price in such form or
forms, including, without limitation, payment by delivery of cash, Shares or
other consideration (including, where permitted by law and the Committee,
Awards) having a Fair Market Value on the exercise date equal to the total
option price, or by any combination of cash, Shares and other consideration as
the Committee may specify in the applicable Award Agreement.
(e) INCENTIVE STOCK OPTIONS. In accordance with rules and procedures
established by the Committee, and except as otherwise provided in Section 11,
the aggregate Fair Market Value (determined as of the time of grant) of the
Shares with respect to which Incentive Stock Options held by any Participant
which are exercisable for the first time by such Participant during any calendar
year under the Plan (and under any other benefit plans of the Company or any
Subsidiary) shall not exceed $100,000 or, if different, the maximum limitation
in effect at the time of grant under Section 422 of the Code, or any successor
provision, and any regulations promulgated thereunder. Incentive Stock Options
shall be granted only to participants who are employees of the Company or a
Subsidiary of the Company. The terms of any Incentive Stock Option granted
hereunder shall comply in all respects with the provisions of Section 422 of the
Code, or any successor provision, and any regulations promulgated thereunder.
(f) FORM OF SETTLEMENT. In its sole discretion, the Committee may provide,
at the time of grant, that the Shares to be issued upon an Option's exercise
shall be in the form of Restricted Stock or other similar securities, or may
reserve the right so to provide after the time of grant.
SECTION 7. STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may be
granted hereunder to Participants either alone or in addition to other Awards
granted under the Plan and may, but need not, relate to a specific Option
granted under Section 6. The provisions of Stock Appreciation Rights need not be
the same with respect to each recipient. Any Stock Appreciation Right related to
a Nonstatutory Stock Option may be granted at the same time such Option is
granted or at any time thereafter before exercise or expiration of such Option.
Any Stock Appreciation Right related to an Incentive Stock Option must be
granted at the same time such Option is granted. In the case of any Stock
Appreciation Right related to any Option, the Stock Appreciation Right or
applicable portion thereof shall terminate and no longer be exercisable upon the
termination or exercise of the related Option, except that a Stock Appreciation
Right granted with respect to less than the full number of Shares covered by a
related Option shall not be reduced until the exercise or termination of the
related Option exceeds the number of Shares not covered by the Stock
Appreciation Right. Any Option related to any Stock Appreciation Right shall no
longer be exercisable to the extent the related Stock Appreciation Right has
been exercised. The Committee may impose such conditions or restrictions on the
exercise of any Stock Appreciation Right as it shall deem appropriate.
SECTION 8. RESTRICTED STOCK.
(a) ISSUANCE. A Restricted Stock Award shall be subject to restrictions
imposed by the Committee during a period of time specified by the Committee (the
"Restriction Period"). Restricted Stock Awards may be issued hereunder to
Participants, for no cash consideration or for such minimum consideration as may
be required by applicable law, either alone or in addition to other Awards
granted under the Plan. The provisions of Restricted Stock Awards need not be
the same with respect to each recipient.
<PAGE>
(b) REGISTRATION. Any Restricted Stock issued hereunder may be evidenced in
such manner as the Committee in its sole discretion shall deem appropriate,
including, without limitation, book-entry registration or issuance of a stock
certificate or certificates. In the event any stock certificate is issued in
respect of shares of Restricted Stock awarded under the Plan, such certificate
shall be registered in the name of the Participant, and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award.
(c) FORFEITURE. Except as otherwise determined by the Committee at the time
of grant or thereafter, upon termination of employment for any reason during the
restriction period, all Shares of Restricted Stock still subject to restriction
shall be forfeited by the Participant and reacquired by the Company.
Unrestricted Shares, evidenced in such manner as the Committee shall deem
appropriate, shall be issued to the grantee promptly after the period of
forfeiture, as determined or modified by the Committee, shall expire.
(d) MINIMUM VESTING CONDITION. The minimum Restriction Period applicable to
any Restricted Stock Award that is not subject to performance conditions
restricting transfer shall be three (3) years from the date of grant; provided,
however, that a Restriction Period of less than three (3) years may be approved
for such Awards with respect to up to five (5) million Shares under the Plan.
SECTION 9. PERFORMANCE AWARDS. Performance Awards may be issued hereunder to
Participants, for no cash consideration or for such minimum consideration as may
be required by applicable law, either alone or in addition to other Awards
granted under the Plan. The performance criteria to be achieved during any
Performance Period and the length of the Performance Period shall be determined
by the Committee upon the grant of each Performance Award. Except as provided in
Section 11, Performance Awards will be distributed only after the end of the
relevant Performance Period. Performance Awards may be paid in cash, Shares,
other property or any combination thereof, in the sole discretion of the
Committee at the time of payment. The performance levels to be achieved for each
Performance Period and the amount of the Award to be distributed shall be
conclusively determined by the Committee. Performance Awards may be paid in a
lump sum or in installments following the close of the Performance Period or, in
accordance with procedures established by the Committee, on a deferred basis.
SECTION 10. OTHER STOCK UNIT AWARDS.
(a) STOCK AND ADMINISTRATION. Other Awards of Shares and other Awards that
are valued in whole or in part by reference to, or are otherwise based on,
Shares or other property ("Other Stock Unit Awards") may be granted hereunder to
Participants, either alone or in addition to other Awards granted under the
Plan. Other Stock Unit Awards may be paid in Shares, cash or any other form of
property as the Committee shall determine. Subject to the provisions of the
Plan, the Committee shall have sole and complete authority to determine the
Employees of the Company and its Affiliates to whom and the time or times at
which such Awards shall be made, the number of Shares to be granted pursuant to
such Awards, and all other conditions of the Awards. The provisions of Other
Stock Unit Awards need not be the same with respect to each recipient.
(b) TERMS AND CONDITIONS. Subject to the provisions of this Plan and any
applicable Award Agreement, Awards and Shares subject to Awards made under this
Section 10, may not be sold, assigned, transferred, pledged or otherwise
encumbered prior to the date on which the Shares are issued, or, if later, the
date on which any applicable restriction, performance or deferral period lapses.
<PAGE>
For any Award or Shares subject to any Award made under this Section 10 the
transferability of which is conditioned only on the passage of time, such
restriction period shall be a minimum of three (3) years. Shares (including
securities convertible into Shares) subject to Awards granted under this Section
10 may be issued for no cash consideration or for such minimum consideration as
may be required by applicable law. Shares (including securities convertible into
Shares) purchased pursuant to a purchase right awarded under this Section 10
shall be purchased for such consideration as the Committee shall in its sole
discretion determine, which, except in the case of Substitute Awards, shall not
be less than the Fair Market Value of such Shares or other securities as of the
date such purchase right is awarded.
SECTION 11. CHANGE IN CONTROL PROVISIONS.
(a) IMPACT OF EVENT. Notwithstanding any other provision of the Plan to the
contrary, unless the Committee shall determine otherwise at the time of grant
with respect to a particular Award, in the event of a Change in Control:
(i) any Options and Stock Appreciation Rights outstanding as of the
date such Change in Control is determined to have occurred, and which are not
then exercisable and vested, shall become fully exercisable and vested to the
full extent of the original grant;
(ii) the restrictions and deferral limitations applicable to any
Restricted Stock shall lapse, and such Restricted Stock shall become free of all
restrictions and limitations and become fully vested and transferable to the
full extent of the original grant;
(iii) all Performance Awards shall be considered to be earned and
payable in full, and any deferral or other restriction shall lapse and such
Performance Awards shall be immediately settled or distributed; and
(iv) The restrictions and deferral limitations and other conditions
applicable to any Other Stock Unit Awards or any other Awards shall lapse, and
such Other Stock Unit Awards or such other Awards hall become free of all
restrictions, limitations or conditions and become fully vested and transferable
to the full extent of the original grant.
(b) CHANGE IN CONTROL CASH-OUT. Notwithstanding any other provision of the
Plan, during the 60-day period from and after a Change in Control (the "Exercise
Period"), if the Committee shall determine at, or at any time after, the time of
grant, a Participant holding an Option or Stock Appreciation Right shall have
the right, whether or not the Option or Stock Appreciation Right is fully
exercisable and in lieu of the payment of the purchase price for the Shares
being purchased under the Option or Stock Appreciation Right and by giving
notice to the Company, to elect (within the Exercise Period) to surrender all or
part of the Option or Stock Appreciation Right to the Company and to receive
cash, within 30 days of such notice, in an amount equal to the amount by which
the Change in Control Price per Share on the date of such election shall exceed
the purchase price per Share under the Option or Stock Appreciation Right (the
"Spread") multiplied by the number of Shares granted under the Option or Stock
Appreciation right as to which the right granted under this Section 11(b) shall
have been exercised.
(c) Notwithstanding any other provision of this Plan, if any right granted
pursuant to this Plan would make a Change in Control transaction ineligible for
pooling-of-interests accounting under APB No. 16, that (after giving effect to
any other actions taken to cause such transaction to be eligible for such
<PAGE>
pooling-of-interests accounting treatment) but for the nature of such right
would otherwise be eligible for such accounting treatment, the Committee shall
have the ability to substitute for the cash payable pursuant to such right
Shares with a Fair Market Value equal to the cash that would otherwise be
payable pursuant thereto.
SECTION 12. CODE SECTION 162(m) PROVISIONS.
(a) Notwithstanding any other provision of this Plan, if the Committee
determines at the time Restricted Stock, a Performance Award or an Other Stock
Unit Award is granted to a Participant who is then a Senior Manager or an E band
employee that such Participant is, or is likely to be as of the end of the tax
year in which the Company would claim a tax deduction in connection with such
Award, a Covered Employee, then the Committee may provide that this Section 12
is applicable to such Award.
(b) If an Award is subject to this Section 12, then the lapsing of
restrictions thereon and the distribution of cash, Shares or other property
pursuant thereto, as applicable, shall be subject to the achievement of one or
more objective performance goals established by the Committee, which shall be
based on the attainment of specified levels of one or any combination of the
following: net cash provided by operating activities, earnings per share from
continuing operations, operating income, revenues, gross margin, return on
operating assets, return on equity, economic value added, stock price
appreciation, total stockholder return, or cost control, of the Company or the
Affiliate or division of the Company for or within which the Participant is
primarily employed. Such performance goals also may be based upon the
achievement of specified levels of Company performance (or performance of
applicable Affiliate or division of the Company) under one or more of the
measures described above relative to the performance of other corporations. Such
performance goals shall be set by the Committee within the time period
prescribed by, and shall otherwise comply with the requirements of, Section
162(m) of the Code, or any successor provision thereto, and the regulations
thereunder.
(c) Notwithstanding any provision of this Plan other than Section 11, with
respect to any Award that is subject to this Section 12, the Committee may
adjust downwards, but not upwards, the amount payable pursuant to such Award,
and the Committee may not waive the achievement of the applicable performance
goals except in the case of the death or disability of the Participant.
(d) The Committee shall have the power to impose such other restrictions on
Awards subject to this Section 12 as it may deem necessary or appropriate to
ensure that such Awards satisfy all requirements for "performance-based
compensation" within the meaning of Section 162(m) (4) (C) of the Code, or any
successor provision thereto.
(e) Notwithstanding any provision of this Plan other than Section 4(d), no
Participant may be granted Options and/or SARs in any three calendar year period
with respect to more than two million (2,000,000) Shares, and the maximum dollar
value payable with respect to Performance Units and/or Other Stock Unit Awards
that are valued with reference to property other than Shares and granted to any
Participant in any one calendar year is $10,000,000.
SECTION 13. AMENDMENTS AND TERMINATION. The Board may amend, alter, suspend,
discontinue or terminate the Plan or any portion thereof at any time; provided
that no such amendment, alteration, suspension, discontinuation or termination
shall be made without (i) shareholder approval if such approval is necessary to
<PAGE>
qualify for or comply with any tax or regulatory requirement for which or with
which the Board deems it necessary or desirable to qualify or comply or (ii) the
consent of the affected Participant, if such action would impair the rights of
such Participant under any outstanding Award. Notwithstanding anything to the
contrary herein, the Committee may amend the Plan in such manner as may be
necessary so as to have the Plan conform to local rules and regulations in any
jurisdiction outside the United States.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant without his or her consent. Notwithstanding any provision of
this plan, the Committee may not amend the terms of any Option to reduce the
option price.
SECTION 14. GENERAL PROVISIONS.
(a) Unless the Committee determines otherwise at the time the Award is
granted or thereafter: (i) no Award, and no Shares subject to Awards described
in Section 10 which have not been issued or as to which any applicable
restriction, performance or deferral period has not lapsed, may be sold,
assigned, transferred, pledged or otherwise encumbered, except by will or by the
laws of descent and distribution; provided that, if so determined by the
Committee, a Participant may, in the manner established by the Committee,
designate a beneficiary to exercise the rights of the Participant with respect
to any Award upon the death of the Participant; and (ii) each Award shall be
exercisable, during the Participant's lifetime, only by the Participant or, if
permissible under applicable law, by the Participant's guardian or legal
representative.
(b) The term of each Award shall be for such period of months or years from
the date of its grant as may be determined by the Committee; provided that in no
event shall the term of any Incentive Stock Option or any Stock Appreciation
Right related to any Incentive Stock Option exceed a period of ten (10) years
from the date of its grant.
(c) No Employee or Participant shall have any claim to be granted any Award
under the Plan and there is no obligation for uniformity of treatment of
Employees or Participants under the Plan.
(d) The prospective recipient of any Award under the Plan shall not, with
respect to such Award, be deemed to have become a Participant, or to have any
rights with respect to such Award, until and unless such recipient shall have
executed an agreement or other instrument evidencing the Award and delivered a
copy thereof to the Company, and otherwise complied with the then applicable
terms and conditions.
(e) Except as provided in Section 12, the Committee shall be authorized to
make adjustments in performance award criteria or in the terms and conditions of
other Awards in recognition of unusual or nonrecurring events affecting the
Company or its financial statements or changes in applicable laws, regulations
or accounting principles. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in the manner
and to the extent it shall deem desirable to carry it into effect. In the event
the Company shall assume outstanding employee benefit awards or the right or
obligation to make future such awards in connection with the acquisition of or
combination with another corporation or business entity, the Committee may, in
its discretion, make such adjustments in the terms of Awards under the Plan as
it shall deem appropriate.
<PAGE>
(f) The Committee shall have full power and authority to determine whether,
to what extent and under what circumstances any Award shall be canceled or
suspended. In addition, all outstanding Awards to any Participant shall be
canceled if the Participant, without the consent of the Company, while employed
by the Company or after termination of such employment, establishes a
relationship with a competitor of the Company or engages in activity which is in
conflict with or adverse to the interest of the Company, as determined under the
AT&T Non-Competition Guideline.
(g) All certificates for Shares delivered under the Plan pursuant to any
Award shall be subject to such stock-transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Shares are then listed, and any applicable Federal or state securities
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
(h) No Award granted hereunder shall be construed as an offer to sell
securities of the Company, and no such offer shall be outstanding, unless and
until the Committee in its sole discretion has determined that any such offer,
if made, would be in compliance with all applicable requirements of the U.S.
federal securities laws and any other laws to which such offer, if made, would
be subject.
(i) The Committee shall be authorized to establish procedures pursuant to
which the payment of any Award may be deferred. Subject to the provisions of the
Plan and any Award Agreement, the recipient of an Award (including, without
limitation, any deferred Award) may, if so determined by the Committee, be
entitled to receive, currently or on a deferred basis, cash dividends, or cash
payments in amounts equivalent to cash dividends on Shares ("dividend
equivalents"), with respect to the number of Shares covered by the Award, as
determined by the Committee, in its sole discretion, and the Committee may
provide that such amounts (if any) shall be deemed to have been reinvested in
additional Shares or otherwise reinvested.
(j) Except as otherwise required in any applicable Award Agreement or by the
terms of the Plan, recipients of Awards under the Plan shall not be required to
make any payment or provide consideration other than the rendering of services.
(k) The Committee may delegate to one or more Senior Managers or a committee
of Senior Managers the right to grant Awards to Employees who are not officers
or directors of the Company and to cancel or suspend Awards to Employees who are
not officers or directors of the Company.
(l) The Company shall be authorized to withhold from any Award granted or
payment due under the Plan the amount of withholding taxes due in respect of an
Award or payment hereunder and to take such other action as may be necessary in
the opinion of the Company to satisfy all obligations for the payment of such
taxes. The Committee shall be authorized to establish procedures for election by
Participants to satisfy such obligations for the payment of such taxes by
delivery of or transfer of Shares to the Company, or by directing the Company to
retain Shares otherwise deliverable in connection with the Award.
(m) Nothing contained in this Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to shareholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases.
<PAGE>
(n) The validity, construction, and effect of the Plan and any rules and
regulations relating to the Plan shall be determined in accordance with the laws
of the State of New York and applicable Federal law.
(o) If any provision of this Plan is or becomes or is deemed invalid,
illegal or unenforceable in any jurisdiction, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision shall
be construed or deemed amended to conform to applicable laws or if it cannot be
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan, it shall be stricken and the
remainder of the Plan shall remain in full force and effect.
(p) Awards may be granted to Employees who are foreign nationals or employed
outside the United States, or both, on such terms and conditions different from
those applicable to Awards to Employees employed in the United States as may, in
the judgment of the Committee, be necessary or desirable in order to recognize
differences in local law or tax policy. The Committee also may impose conditions
on the exercise or vesting of Awards in order to minimize the Company's
obligation with respect to tax equalization for Employees on assignments outside
their home country.
SECTION 15. EFFECTIVE DATE OF PLAN. The Plan shall be effective as of
June 1, 1997.
SECTION 16. TERM OF PLAN. No Award shall be granted pursuant to the Plan
after May 31, 2002, but any Award theretofore granted may extend beyond that
date.
AGREEMENT
SENIOR MANAGEMENT BASIC LIFE INSURANCE PROGRAM
AND COLLATERAL ASSIGNMENT
THIS AGREEMENT is entered into this _______ day of ____________________, 19___,
by and between AT&T Corp., a New York corporation (hereinafter referred to as
the "Employer" in Part I or "Assignee" in Part II), and
INSTRUCTIONS - Trustee as Policyholder: Check this box and fill in the
blanks to the right of it if the initial Policyholder will be a trustee
acting for the benefit of the Employee.
____
/___/ __________________________________________ (hereinafter referred
(Name of Trustee)
to as the "Policyholder"), trustee for
__________________________________________ (hereinafter referred
(Name of Employee)
to as the "Employee").
INSTRUCTIONS - Employee as Policyholder: Check this box and fill in the
blank to the right of it if the initial Policyholder will be the
Employee.
____
/___/ __________________________________________ (hereinafter referred
(Name of Employee)
to as either the "Policyholder" or the "Employee", as applicable).
WHEREAS, the Employee is currently a valued employee and Senior Manager of the
Employer and the Employer wishes to assist the Employee with his/her personal
life insurance program; and
WHEREAS, the Employee (if also the Policyholder) or otherwise, the above-named
trustee, acting on behalf of the Employee, desires to accept such assistance;
NOW, THEREFORE, the Employer and the Policyholder agree as follows:
PART I - Basic Life Insurance Agreement
1. Description of Policy: In furtherance of the purposes of the Agreement,
the Policyholder will purchase and own two certain policies of life
insurance on the life of the Employee, being Policy No. ____________
issued by the Metropolitan Life Insurance Company, and Policy No.
____________ issued by the Pacific Life Insurance Company. Said
policies are hereinafter collectively referred to as the "Policy" and
said life insurance companies are hereinafter collectively referred to
as the "Insurer". The Policyholder's ownership shall be subject to all
the terms and conditions set forth in this Agreement.
<PAGE>
2. Payment of Premiums: The Employer shall pay the entire annual premium
for the Policy (excluding the premium for any supplemental benefits not
part of the Policy at initial issuance). The Employer's contribution to
the premium shall be reduced by any dividend used to reduce premiums.
The Employer shall pay the entire premium directly to the Insurer.
3. Collateral Assignment and Possession of Policy: To secure repayment of
premiums paid by the Employer provided for in Section 2, Part II of
this Agreement includes an assignment of the Policy or the
Policyholder's interest therein (hereinafter "Collateral Assignment")
and provides for the transfer of possession of the Policy to the
Employer during the term specified in Part II of this Agreement.
Except as provided in or as otherwise consistent with the provisions
of this Agreement, the Employer covenants that it will not exercise
its rights under the Collateral Assignment provisions of this
Agreement in such a manner as to defeat the rights of the Policyholder
or the policy beneficiary under this Agreement. Specifically, the
Employer covenants that it will not surrender the Policy unless the
Policyholder has defaulted on his/her obligations under this
Agreement, or the Agreement has terminated as provided in Section 8.
The Employer shall have possession of the Policy during the period
that the Employer makes premium payments and until all such payments
are repaid. The Employer shall make the Policy available to the
Insurer in order to make any change desired by the Policyholder as to
the designation of beneficiary or the selection of a settlement
option, subject, however, to the Collateral Assignment provisions
hereof.
4. Beneficiary Designation and Payment of Policy Proceeds: The
Policyholder shall have the right to name the Policy beneficiary.
However, in the event of the Employee's death, the beneficiary
designated in the Policy by the Policyholder, or the Policyholder's
Transferee, shall have an interest in the Policy proceeds limited to
an amount equal to the Employee's annual rate of salary payable by the
Employer, rounded to the next higher $1,000 (one thousand dollars),
and determined as of the date of death, or, if earlier, the date of
the Employee's retirement on a disability allowance or a minimum
pension or after becoming retirement eligible. The balance, if any, of
the proceeds of the Policy shall be paid to the Employer. For purposes
of this Agreement, an Employee shall be considered retirement eligible
if the Employee has satisfied one of the following minimum age and
length of service (as determined under the AT&T Management Pension
Plan) combinations: (a) any age and 30 years of service; (b) age 50
and 25 years of service; (c) age 55 and 20 years of service; or (d)
age 65 and 10 years of service.
5. Procedure at Employee's Death: Upon the death of the Employee while the
Policy and this Agreement are in force and subject to the provisions of
Parts I and II hereof, the Employer shall promptly take all necessary
steps, including rendering of such assistance as may reasonably be
required by the beneficiary, to obtain payment from the Insurer of the
amounts payable under the Policy to the respective parties, as provided
under Section 4 above.
6. Disability Waiver of Premium: In the event that a supplemental
agreement providing for waiver of premium in the event of disability or
any additional death benefit becomes operational, the additional
premium for such supplemental agreement shall be paid by the
<PAGE>
Policyholder for the benefit of the Employee. The Employer's interest
in the Policy at death, under Section 4, or on surrender, under Section
9, shall be limited to total premiums paid by the Employer and not
previously reimbursed less any Policy indebtedness of the Employer to
the Insurer, but in no event will the Employer's interest in the Policy
on surrender exceed the cash value under the Policy.
7. Choice of Dividend Option(s): To the extent that the Insurer declares
dividends on the Policy, the Employer shall have the right to choose
the option or combination of options it desires from among those
offered by the Insurer as to the disposition of such dividends. The
Employer shall notify the Policyholder and Insurer of its choice, and
the Policyholder agrees to execute any documents necessary to choose or
change the Policy's dividend option.
8. Termination of Agreement: Part I of this Agreement shall terminate when
the first of any of the following events occurs:
(a) Termination of the Employee's employment with the Employer,
for reasons other than retirement on a disability allowance or
a minimum pension or after becoming retirement eligible;
(b) The Employee's attainment of the age 65 (in some cases later)
on or after retirement on a disability allowance or a minimum
pension or after becoming retirement eligible or, if later,
fifteen (15) years (in some cases later) from the date of
issuance of the Policy;
(c) Either party's submission of written notice, to the other
party, of intent to terminate Part I of this Agreement;
(d) Performance of the Agreement's terms, following the death of
the Employee;
(e) Failure by either the Employer or the Policyholder, for any
reason, to make the premium contributions required under
Section 2 of this Agreement;
(f) Demotion of the Employee to a non-Senior Manager position; or
(g) The Employee engages in any competitive activity as determined
in accordance with the provisions of the AT&T Non-Competition
Guideline (unless either (i) the Employee has obtained the
advance written consent of the Employer's Executive Vice
President-Human Resources to engage in such competitive
activity as provided in the AT&T Non-Competition Guideline; or
(ii) the Employer's Executive Vice President-Human Resources
has waived the application of the AT&T Non-Competition
Guideline to the Employee with respect to the Agreement as
provided for in the AT&T Non-Competition Guideline).
9. Disposition of Policy Upon Termination of Agreement: Upon the
termination of this Agreement for any reason other than Section 8(d)
above, the Policyholder shall have a thirty (30) day option to satisfy
the Collateral Assignment regarding the Policy held by the Employer in
accordance with the terms of this Section 9. The amount necessary to
satisfy such Collateral Assignment shall be an amount equal to the
total premium payments made, from time to time, by the Employer
<PAGE>
pursuant to Section 2 hereof, and, at the option of the Policyholder,
either shall be paid directly by the Policyholder or through the
Employer's collection from the cash value under the Policy. If the
Policy shall then be encumbered by assignment, policy loan, or other
means which have been the result of the Employer's actions, the
Employer shall either remove such encumbrance, or reduce the amount
necessary to satisfy the Collateral Assignment by the total amount of
indebtedness outstanding against the Policy. The provisions of this
Section 9 are subject to the terms of Section 6 if the Policy's
supplemental agreements have been activated. If the Policyholder
exercises his/her option to satisfy the Collateral Assignment, the
Employer shall execute all necessary documents required by the Insurer
to remove and satisfy the Collateral Assignment outstanding on the
Policy. If the Policyholder does not exercise his/her option to
satisfy the Collateral Assignment outstanding on the Policy, the
Policyholder shall execute all documents necessary to transfer
ownership of the Policy to the Employer. Such transfer shall
constitute satisfaction of any obligation the Policyholder has to the
Employer with respect to this Agreement. The Employer shall then pay
to the Policyholder the amount, if any, by which the cash surrender
value of the Policy exceeds the amount necessary to satisfy the
Collateral Assignment.
10. Taxable Income: The Employee is responsible for determining the amount
of taxable income, if any, includable in his/her gross income for tax
purposes as a result of this Agreement or coverage under the Policy.
11. Policyholder's Right to Assign His/Her Interest: The Policyholder shall
have the right to transfer his/her entire interest in the Policy (other
than rights assigned to the Employer pursuant to this Agreement and
subject to the obligations of any outstanding Collateral Assignment) to
another person, trust or entity (herein the "Transferee"). If the
Policyholder makes such a transfer, all his/her rights shall be vested
in the Transferee and the Policyholder shall have no further interest
in the Policy and Agreement. Any Transferee shall be subject to all
obligations of the Policyholder under both Parts I and II of this
Agreement.
12. Insurer's Obligations: The Insurer is not a party to this Agreement.
It is understood by the parties hereto that in issuing such Policy of
insurance, the Insurer shall have no liability except as set forth in
the Policy and except as set forth in any assignment of the Policy
filed at its Home Office. Except as set forth in Sections 13 and 14,
the Insurer shall not be bound to inquire into, or take notice of, any
of the covenants herein contained as to the Policy of insurance or as
to application of proceeds of such Policy. Upon the death of
the Employee and payment of the proceeds in accordance with Sections 13
and 14 of this Agreement, the Insurer shall be discharged from
all liability.
13. Administrative and Fiduciary Provisions: AT&T Corp. shall be the
administrator with respect to any rights or obligations of the Employer
hereunder and shall have the authority to control and manage the
operation and administration of this Agreement. The Insurer shall be
the fiduciary of the Policy solely with regard to the review and final
decision on the claim for benefits under the Policy, as provided in the
claims procedure set forth in Section 14.
<PAGE>
14. Claims Procedure: The following claims procedure shall apply to the
Policy and the Senior Management Basic Life Insurance Program:
(a) Filing of a claim for benefits: The Policyholder or the
beneficiary of the Policy shall make a claim for the benefits
provided under the Policy in the manner provided in the
Policy.
(b) Claim denial: With respect to a claim for benefits under said
Policy, the Insurer shall be the entity which reviews and
makes decisions on claim denials according to the terms of the
Policy.
(c) Notification to claimant of decisions. If a claim is wholly or
partially denied, notice of the decision, meeting the
requirements of Section (d) following shall be furnished to
the claimant within a reasonable period of time after a claim
has been filed.
(d) Content of notice: The Insurer shall provide, to any claimant
who is denied a claim for benefits, written notice setting
forth, in a manner calculated to be understood by the
claimant, the following:
(1) The specific reason or reasons for the denial;
(2) Specific reference to pertinent Policy provisions or
provisions of this Agreement on which the denial is
based;
(3) A description of any additional material or
information necessary for the claimant to perfect the
claim and an explanation of why such material or
information is necessary; and
(4) An explanation of this Agreement's claim review
procedure, as set forth in Sections (e) and (f)
following.
(e) Review procedure: The purposes of the review procedure set
forth in this Section and Section (f) following is to provide
a method by which a claimant under the Policy and the Senior
Management Basic Life Insurance Program may have a reasonable
opportunity to appeal a denial of claim for a full and fair
review. To accomplish that purpose, the claimant or his/her
duly authorized representative:
(1) May request a review upon written application to the
Insurer;
(2) May review the Policy or pertinent Senior Management
Basic Life Insurance Program documents or agreements;
and
(3) May submit issues and comments in writing.
A claimant, (or his/her duly authorized representative), shall
request a review by filing a written application for review at
any time within sixty (60) days after receipt by the claimant
of written notice of the denial of the claim.
<PAGE>
(f) Decision on review. A decision on review of a denial of a
claim shall be made in the following manner:
(1) The decision on review shall be made by the Insurer
which may, at its discretion, hold a hearing on the
denied claim. The Insurer shall make its decision
promptly, unless special circumstances (such as the
need to hold a hearing) require an extension of time
for processing, in which case a decision shall be
rendered as soon as possible, but not later than one
hundred twenty (120) days after receipt of the
request for review.
(2) The decision on review shall be in writing and shall
include specific reasons for the decision, written in
a manner calculated to be understood by the claimant,
and specific references to the pertinent Policy
provision or provision of this Agreement on which the
decision is based.
Notwithstanding any provision of the Agreement or the Policy, no
Employee, Policyholder, Transferee, assignee or beneficiary may
commence any action in any court regarding the Policy or the Senior
Management Basic Life Insurance Program prior to pursuing all rights of
a Policyholder under this Section 14.
PART II - Assignment of Life Insurance Policy as Collateral
A. For value received and in specific consideration of the premium
payments made by the Employer as set forth in Section 2 of Part I
hereof, the Policyholder hereby assigns, transfers and sets over to
the Employer (in this Part II referred to as the "Assignee"), its
successors and assigns, the Policy issued by the Insurer upon
the life of the Employee and all claims, options, privileges,
rights, title and interest therein and thereunder (except as provided
in Paragraph C hereof), subject to all the terms and conditions
of the Policy and to all superior liens, if any, which the Insurer
may have against the Policy. The Policyholder by this instrument
agrees and the Assignee by the acceptance of this assignment agrees to
the conditions and provisions herein set forth.
B. It is expressly agreed that, without detracting from the generality of
the foregoing, the following specific rights are included in this
Agreement and Collateral Assignment and pass to the Assignee by virtue
hereof:
1. The sole right to collect from the Insurer the net proceeds
of the Policy when it becomes a claim by death or maturity;
2. The sole right to surrender the Policy and receive the
surrender value thereof at any time provided by the terms of
the Policy and at such other times as the Insurer may allow;
3. The sole right to obtain one or more loans or advances on the
Policy, either from the Insurer or, at any time, from other
persons, and to pledge or assign the Policy as security for
such loans or advances;
<PAGE>
4. The sole right to collect and receive all distributions or
shares of surplus, dividend deposits or additions to the
Policy, now or hereafter made or apportioned thereto, and to
exercise any and all options contained in the Policy with
respect thereto; provided, that unless and until the Assignee
shall notify the Insurer in writing to the contrary, the
distributions or shares of surplus, dividend deposits and
additions shall continue on the Policy in force at the time of
this assignment; and
5. The sole right to exercise all nonforfeiture rights permitted
by the terms of the Policy or allowed by the Insurer and to
receive all benefits and advantages derived therefrom.
C. It is expressly agreed that the following specific rights, so long as
the Policy has not been surrendered, are reserved and excluded from
this Agreement and Collateral Assignment and do not pass by virtue
hereof:
1. The right to collect from the Insurer any disability benefit
payable in cash that does not reduce the amount of insurance
or the cash value of the Policy;
2. The right to designate any change in the beneficiary;
3. The right to elect any optional mode of settlement permitted
by the Policy or allowed by the Insurer;
provided, however, that the reservation of these rights shall in no way
impair the right of the Assignee to surrender the Policy completely
with all its incidents or impair any other right of the Assignee
hereunder, and any designation or change of beneficiary or election of
a mode of settlement shall be made subject to this Agreement and
Collateral Assignment and to the rights of the Assignee hereunder.
D. This Collateral Assignment is made and the Policy is to be held as
collateral security for any and all liabilities of the Policyholder to
the Assignee arising under this Agreement (all of which liabilities
secured to or to become secured are herein referred to as
"Liabilities"). It is expressly agreed that all sums received by the
Assignee hereunder whether in the event of death of the Employee, the
maturity or surrender of the Policy, the obtaining of a loan or advance
on the Policy, or otherwise, shall first be applied to the payment of
the liability for premiums paid by the Assignee on the Policy.
E. The Assignee covenants and agrees with the Policyholder as follows:
1. That any balance of sums, if any, received hereunder from the
Insurer remaining after payment of the existing Liabilities,
matured or unmatured, shall be paid by the Assignee to the
persons entitled thereto under the terms of the Policy had
this Collateral Assignment not been executed;
2. That the Assignee will not exercise either the right to
surrender the Policy or the right to obtain policy loans from
the Insurer, until there has been either default in any of the
Liabilities pursuant to this Agreement or termination of said
Agreement as herein provided; and
<PAGE>
3. That the Assignee will, upon request, forward without
reasonable delay to the Insurer the Policy for endorsement of
any designation or change of beneficiary or any election of an
optional mode of settlement.
F. The Policyholder declares that no proceedings in bankruptcy are pending
against him/her and that his/her property is not subject to any
assignment for the benefit of creditors.
Provisions Applicable to Parts I and II
1. Amendments: Amendments may be added to this Agreement by a written
agreement signed by each of the parties and attached hereto.
2. Choice of Law: This Agreement shall be subject to, and construed
according to, the laws of the State of New Jersey.
3. A Binding Agreement: This Agreement shall bind the Employer and the
Employer's successors and assigns, the Policyholder and his/her heirs,
executors, administrators, and assigns (including a Transferee), and
any Policy beneficiary.
4. Severability Provision: The Employer and the Policyholder agree that if
any provision of this Agreement is determined to be invalid or
unenforceable, in whole or part, then all remaining provisions of this
Agreement and, to the extent valid or enforceable, the provision in
question shall remain valid, binding and fully enforceable as if the
invalid or unenforceable provision, to the extent necessary, was not a
part of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, including
the provisions regarding Collateral Assignment, on the day and year first above
written.
POLICYHOLDER
______________________________ ______________________________
Signature of Witness Signature of Policyholder
AT&T CORP.
(As Employer and Assignee)
______________________________ By:______________________________
Signature of Witness H. W. Burlingame
Executive Vice President-Human Resources
<PAGE>
AT&T SENIOR MANAGEMENT BASIC LIFE INSURANCE PROGRAM
(revised 2/27/98)
Program Overview
The Senior Management Basic Life Insurance Program (SMBLIP) is an arrangement
where the Company and you purchase a permanent life insurance policy on your
life. SMBLIP replaces the Executive Basic Life Insurance Program (EBLIP). There
are several advantages to this program including access to cash value prior to
age 65 and a greater accumulation cash value at age 65.
The Company will pay the entire annual premium for your SMBLIP coverage. Your
W-2 will reflect an imputed income amount associated with the insurance coverage
provided to you under the policy. In certain cases, e.g., your death before
retirement, the total benefits will be shared between the Company and your
designated beneficiary but the Company will share in the death benefit only to
the extent that the total insurance amount exceeds one times your salary rounded
to the next higher $1,000. This type of arrangement is known in the insurance
industry as "Split Dollar."
After attaining normal retirement age 65 (or 15 years of participation in the
program, if later), the Company will recoup its premium payments from the cash
value build-up and cease to have any interest in the policy. The remaining cash
value will be sufficient to maintain your death benefit without further premium
payments.
Your death benefit will change to reflect any change in your salary. At
retirement, your death benefit will become frozen at your final annual salary
rounded to the next higher $1,000. During the period in which the Company makes
premium payments, your imputed income will increase to reflect your increasing
age, as well as any increase in death benefit. After premium payments cease,
i.e., the later of your attaining age 65 or 15 years from the policy issue date,
you will have no further imputed income.
Although this arrangement is primarily designed to pay a benefit upon your
death, there is also a cash value build-up. Once sufficient funds have
accumulated and the Company no longer has an interest in the policy because it
has recouped its premiums, you have the option to use some or all of the
remaining cash in lieu of some or all of the death benefit.
AT&T has selected two insurers, Metropolitan Life Insurance Company and Pacific
Life Insurance Company, to provide the SMBLIP coverage. You will therefore have
two policies on your life; one from each insurer, and each insurer will provide
half the defined amount of death benefit.
Secured Benefit
Changes to the tax law over the years have required an increasing portion of the
Senior Management benefit programs to be paid from Company operating income.
SMBLIP allows the Company to contribute towards the cost of this program on a
timely basis while securing the benefit payment from a third party (the
insurance companies).
<PAGE>
Eligibility
SMBLIP is provided to active AT&T Senior Managers. Employees who are promoted to
or hired as Senior Managers are immediately eligible to enroll in this program.
Coverage
SMBLIP is provided as a replacement to the death benefit coverage provided under
the Executive Basic Life Insurance Plan (EBLIP). The benefit is one times annual
salary rounded to the next higher $1,000.
The death benefit will be updated to reflect changes in your salary. There may
be circumstances where a large increase in salary and, therefore, a
corresponding increase in death benefit, will require providing medical
information to the insurer. By providing this medical information, the insurer
is able to keep the premium payments at the lowest level. A medical information
waiver, signed by you, will be kept on file in the event this circumstance
occurs. This will allow the Company to release to the insurer the required
information from your Company medical records. Higher death benefit coverage
associated with salary increases is guaranteed, no matter what your health
circumstances may be at that time.
Conversion Rights
If you are a participant in the Executive Basic Life Insurance Plan at the time
you become eligible for SMBLIP, for a limited period of time you have the right
to convert your coverage under EBLIP to a separate individual policy provided by
the insurance carrier. We suggest you discuss this with your financial advisor
before exercising or declining this right. You may exercise this right by
contacting Harris, Crouch, Long, Scott & Miller, Inc., the administrator for
EBLIP, at 1-800-510-2050.
Program Illustration
You will be provided with a personal illustration based on your current salary.
This illustration reflects your costs and benefits, as well as the Company's,
over the life of the policy. It provides a picture of how the policy works and
what your tax on imputed income might be, using an assumed salary growth. The
actual ongoing life insurance amounts will be different from this illustration.
Premium Period
SMBLIP is designed for premiums to be extended over a period of time to ease the
impact on cash flow to the Company. This period is normally from the time of
your enrollment until the first policy anniversary after you reach age 65.
However, in all cases, premiums must be paid for a minimum of 15 years.
Therefore, if you enroll in the program after age 50, the Company will continue
premium payments and you will continue to recognize income until the 15 year
minimum is reached.
Imputed Income
SMBLIP offers a cost-effective life insurance program for Senior Managers. The
cost to you of the SMBLIP will be the income tax payable on the amount of your
imputed income.
<PAGE>
Cash Value
This program is designed to provide you with a pre- and post retirement death
benefit. However, in addition to the death benefit, there is a cash value
build-up. That is, part of each premium is placed in an "investment fund" to
earn income. Investment earnings beyond the amounts necessary to provide the
death benefit coverage build on a tax advantaged basis in the policy. The
policy's cash value is the basis for your subsequent "premium free" death
benefit.
Cash Availability
Under SMBLIP you have considerable flexibility. After the Company interest has
been satisfied, you may reduce your death benefit and utilize the policy cash
value in a number of ways. For example:
a) Loans
The cash value attributed to you may be withdrawn in the form of a loan.
There could be tax implications as well as death benefit diminution
associated with a loan.
b) Income Stream or Lump Sum
It is possible to convert all or any portion of the policy from a death
benefit to either an income "stream" (i.e., an annuity) or a lump sum cash
payout. The extent to which you convert to income or cash will cancel or
reduce the death benefit. Once you convert, it is not possible to
re-establish the original death benefit.
We suggest that you consult with your financial advisor before exercising these
options.
Insurability
If you enroll within 60 days of becoming a Senior Manager you will be guaranteed
to be insured. Your imputed income rate will not depend on your health or
smoking status. It will differ from others depending only on age and amount of
death benefit. Enrollment after 60 days may require a medical questionnaire or
examination.
Transfer/Assignment of Ownership
After you enroll in the program, you may transfer ownership to another, e.g., an
individual, trust, etc. Another option is for you to not take ownership, but
rather another individual or trust, etc., may apply for ownership of the policy.
It is of particular importance that if the original owner of the policy is not
you, that the owner sign the applications as the "Applicant/Policyowner" and you
sign as the "Proposed Insured". Since these transfers are generally construed to
be irrevocable, we urge you to consult with an attorney and/or tax advisor
before making this decision.
Early Retirement or Termination
If, at retirement, you are "Pension Eligible" or "Retirement Eligible" and you
have not reached normal retirement age (65), the Company will continue to pay
premiums until you reach age 65 or 15 years of participation in the program, if
later. During this period you will continue to have imputed income based on your
age and the amount of insurance in force. At the end of this period, i.e., the
later of the policy anniversary immediately following your attainment of age 65
or the 15th policy anniversary, the premiums will cease and the aggregate
Company premiums will be returned to the Company.
<PAGE>
For purposes of the SMBLIP, you will be considered "Pension Eligible" if you
retire with a Disability Allowance or Minimum Retirement Benefit under the AT&T
Senior Management Long Term Disability and Survivor Protection Plan. You will be
considered "Retirement Eligible" for purposes of the SMBLIP if you retire after
having satisfied one of the following minimum age and length of service (as
determined under the AT&T Management Pension Plan) combinations: (a) any age and
30 years of service; (b) age 50 and 25 years of service; (c) age 55 and 20 years
of service; or (d) age 65 and 10 years of service.
If you separate from the Company without being Pension Eligible or Retirement
Eligible, the aggregate amount of Company premiums paid up to that point will be
immediately returned to the Company from the cash value of the policy. You can,
at your option, either maintain the policy by paying the policy premiums, or you
may use the remaining cash value (if any) to buy other "self-supporting" life
insurance, or you may withdraw any remaining cash value and cancel the policy.
Whether or not you are Pension Eligible or Retirement Eligible, if you leave the
Company, and without the Company's consent or an appropriate waiver, establish a
relationship with a competitor of the Company or engage in activity in conflict
with or adverse to the interests of the Company under the standards of the AT&T
Non-Competition Guideline and as determined by the AT&T Executive Vice President
- - Human Resources, the process will be the same as with retirement/termination
without being Pension Eligible or Retirement Eligible.
Demotion
If you are demoted to a position which is not a Senior Manager, the effect is
the same as if terminated from the Company. You will however, automatically
become re-eligible for coverage under the Executive Basic Life Insurance Plan
(EBLIP).
Contractual Agreement
One of the unique aspects of this insurance policy is the existence of a
contract between you and AT&T. This agreement has no relationship to employment
or any other benefit but rather defines the responsibilities of both the Company
and you in the operation of the policy. You, or another, will own the policy and
determine the beneficiary. The Company will hold the policy and have a
"Collateral Assignment" from the owner entitling AT&T, as long as it has a
collateral interest in the policy, to any death benefit amounts in excess of one
times your annual salary rounded to the next higher $1,000, and all cash values
up to an amount equal to its cumulative premiums paid. This document is a legal
agreement and as such includes a significant amount of detail and warrants
careful review before signing. Although somewhat unique to life insurance, a
collateral assignment is similar in context to an automobile loan where the car
becomes "collateral" for the money lent to buy it. In this case, a portion of
the cash value and death benefit of the policy is the collateral the Company
receives for contributing premium payments to "buy" the life insurance policy.
The agreement is satisfied when the aggregate premiums paid by the Company are
returned. Some of the major sections of the agreement are:
- Description of the policy
- How the premiums are paid
- How the proceeds are paid
- How the agreement terminates
- Claims procedure
- Description of the assignment
<PAGE>
The Agreement is included with the enrollment documents and requires signature
of the owner of your policy (i.e. you, another individual, trustee, etc.).
Taxes
Split Dollar life insurance policies have been in existence for decades. The IRS
has issued several rulings over this period which treat these policies favorably
from a tax perspective. However, the Company does not assure any particular tax
treatment and recommends that you review your own situation with your personal
attorney and/or tax advisor.
Enrollment
AT&T has selected Metropolitan Life Insurance Company and Pacific Life Insurance
Company to provide the coverage. This is to provide the best combination of
premium rates and Senior Manager protection. As such, there is some duplication
of forms. Once enrollment has been completed, however, this two insurer approach
should have a minimal impact on you. Enrollment, and any future changes to your
policy (i.e., assignment of ownership, beneficiary change, etc.) is processed
through AT&T Executive Human Resources.
AT&T SENIOR OFFICER SEVERANCE PLAN
PLAN DOCUMENT
AND
SUMMARY PLAN DESCRIPTION
(Effective October 9, 1997)
(As Amended October 30, 1997)
THIS DOCUMENT, LIKE ALL COMPANY PLANS, PERSONNEL POLICIES OR PRACTICES, IS NOT A
CONTRACT OF EMPLOYMENT. IT IS NOT INTENDED TO CREATE, AND IT SHOULD NOT BE
CONSTRUED TO CREATE, ANY CONTRACTUAL RIGHTS, EITHER EXPRESS OR IMPLIED, BETWEEN
THE COMPANY AND ITS EMPLOYEES.
AT AT&T, THE EMPLOYMENT RELATIONSHIP WITH EMPLOYEES COVERED BY THIS PLAN IS
"AT-WILL". THIS MEANS THAT EMPLOYEES HAVE THE RIGHT TO QUIT THEIR EMPLOYMENT AT
ANY TIME AND FOR ANY REASON, AND THE COMPANY RESERVES THE RIGHT TO TERMINATE ANY
EMPLOYEE'S EMPLOYMENT, WITH OR WITHOUT CAUSE, AT ANY TIME FOR ANY REASON.
IN THE EVENT THERE IS A CONFLICT BETWEEN STATEMENTS IN THIS PLAN REGARDING
BENEFITS PROVIDED BY ANOTHER PLAN AND THE TERMS OF THAT OTHER BENEFIT PLAN,
POLICY, OR PRACTICE, THE APPLICABLE BENEFIT PLAN, POLICY OR PRACTICE PROVIDING
THE BENEFITS IN QUESTION WILL CONTROL. AT&T RESERVES THE RIGHT, AT ANY TIME, TO
MODIFY, SUSPEND, CHANGE, OR TERMINATE ITS EMPLOYEE BENEFIT PLANS OR SENIOR
MANAGER INCENTIVE, BENEFIT AND/OR PERQUISITE PLANS, PROGRAMS, POLICIES OR
PRACTICES.
<PAGE>
AT&T SENIOR OFFICER SEVERANCE PLAN
PLAN DOCUMENT
AND
SUMMARY PLAN DESCRIPTION
A. OVERVIEW
The AT&T Senior Officer Severance Plan ("the Plan" or "this Plan"), effective
October 9, 1997 ("Effective Date"), is designed to provide certain supplemental
payments and benefit enhancements to eligible Senior Management employees (each,
a "Participant" or collectively "Participants") of AT&T Corp. ("the Company"
and/or "AT&T") whose employment is terminated under certain circumstances set
forth in this Plan.
Benefits under this Plan shall be in place of any other current or future plan,
program, policy, or arrangement providing severance payments or post-retirement
ancillary benefits, except as provided in Section N. The other benefits provided
by this Plan, to the extent they differ from benefits provided by current AT&T
benefit plans and programs, will be in addition to the benefits provided by the
regular AT&T benefit plans and programs. See "About Your Benefits" for
descriptions of those plans and programs.
For purposes of this Plan, "Service Pension eligibility" or "Service Pension
eligible" shall have the meaning set forth in the AT&T Management Pension Plan
(AT&TMPP) prior to the amendments effective August 1, 1997.
B. TYPE OF PLAN
Under Section 3 (1) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), this Plan is classified and is to be interpreted as an
employee welfare benefit plan.
C. PLAN PARTICIPATION
Participants in this Plan are certain current members of the AT&T Senior
Management Team, including all members of the AT&T Operations Team, as
identified on Exhibit A.
D. ELIGIBILITY TO RECEIVE BENEFITS
1. You will become entitled to receive the benefits described in Section F. in
the event you cease to be a Company employee:
a) by reason of Company-initiated termination for other than Cause
(as defined in Section E. below); or
b) by reason of your election to terminate your Company employment
for Good Reason (in accordance with the Notification provisions
set forth below); and
c) you execute a valid Separation Agreement and Release ("Release"),
and the time during which you may revoke the Release has expired.
<PAGE>
Any Participant who receives any payments or benefits under this Plan shall not
be entitled to receive any severance payments or severance benefits under any
other plan, program, policy, agreement or practice of the Company, except as
provided in Section N; provided, however, that agreement to participate in this
AT&T Senior Officer Severance Plan will not preclude future participation in any
similar arrangement that provides a greater level of benefits.
2. Notification of Termination for Good Reason. In the event you determine that
Good Reason exists for you to elect to terminate your employment with the
Company, you must notify the Executive Vice President - Human Resources in
writing of the specific event which you believe constitutes Good Reason within
thirty (30) days of the occurrence of such event. Upon receipt of such notice,
the Company shall have thirty (30) days in which to remedy the event specified
in your notice as constituting Good Reason, as defined below.
In the event the Company disagrees with your determination that the event
specified in your notice constitutes Good Reason, you shall be so notified
within ten (10) days of the Company's receipt of your written notice. In such
event, or in the event you determine that the actions taken by the Company fail
to adequately address your claimed event of Good Reason specified in your
notice, the procedures set forth in Sections K. and L. of this Plan shall apply.
E. DEFINITIONS
For purposes of this Plan:
a) "Cause" termination shall mean:
(i) your conviction (including a plea of guilty or nolo contendere)
of a crime involving theft, fraud, dishonesty or moral turpitude;
(ii) violation by you of the Company's Code of Conduct or
Non-Competition Guideline;
(iii) gross omission or gross dereliction of any statutory, common law
or other duty of loyalty to the Company or any of its affiliates;
or
(iv) repeated failure to carry out the duties of your position despite
specific instruction to do so.
b) "Good Reason" shall mean the occurrence without your express written
consent of any of the following events:
(i) Your demotion to a position which is not of a rank and
responsibility comparable to members of the current Senior
Management Team or those of a similar/replacing governance
body; provided, however, that the Company's decision not to
continue a Senior Management Team shall not be Good Reason, and
provided, further, that (1) changes in reporting relationships
shall not, alone, constitute Good Reason and/or (2) a reduction
in your business unit's budget or a reduction your business
unit's head count, by themselves, do not constitute Good
Reason; or
<PAGE>
(ii) a reduction in your "Total Annual Compensation" (defined as the
sum of your Annual Base Salary Rate, Target Annual Incentive
and "Target Annual Long Term Incentive Grants") for any
calendar or fiscal year, as applicable, to an amount that is
less than the Total Annual Compensation that existed in the
prior calendar or fiscal year, as applicable. For purposes of
this Paragraph E.b)(ii) the dollar value of the "Target Annual
Long Term Incentive Grants" shall exclude the value of any
special one-time or periodic long-term incentive grants, and
shall be determined by valuing Performance Shares, Stock Units,
Restricted Stock, Restricted Stock Units, etc., at the market
share price utilized in valuing the annual Senior Management
compensation structures in the materials presented to the
Compensation and Employee Benefits Committee of the Company's
Board of Directors ("the Committee") when authorizing such
grants, and assuming 100% performance achievement if such
grants include performance criteria. Stock Options and Stock
Appreciation Rights will be valued by the Black-Scholes
methodology (and related share price) as utilized in the
materials presented to the Committee when authorizing such
grants.
c) "Termination Date" shall mean the date the Participant ceases to be an
employee of the Company.
F. PLAN PAYMENTS AND BENEFITS
As a Participant who becomes eligible to receive benefits under this Plan, you
shall be entitled to the following:
1. Severance Payment
A Severance Payment under this Section F.1. that will be the greater of 1) two
hundred percent (200%) of the sum of your final annual base salary plus the
target annual incentive in effect for you at your Termination Date, or 2) two
hundred percent (200%) of the sum of your annual base salary plus the target
annual incentive in effect for you at the Effective Date.
2. Deferral Option
At your election prior to termination of employment you may defer receipt of all
or a portion of the Severance Payment under Section F.1. for up to five (5)
years from your Termination Date. Payout of the Severance Payment may be in the
form of a lump sum or up to a maximum of five approximately equal annual
installments. In the event of your death prior to either the commencement or
completion of payout of the deferred amount, the unpaid balance shall be paid to
your named beneficiary (or to your estate if no beneficiary has been named) in a
lump sum within thirty (30) business days of such death.
The interest rate on such deferred amounts will be the interest rate formula
applicable under the AT&T Senior Management Incentive Award Deferral Plan for
deferred cash amounts which otherwise would have been payable in the calendar
year which includes the Effective Date.
Your initial election to defer must be made within thirty (30) days after you
first become eligible to participate in this Plan. Thereafter, you may change
your election, provided, however, that any such change must be made prior to
your Termination Date in the event of a Company-initiated termination for other
than Cause, or at the time of or prior to your notification of termination for
Good Reason.
<PAGE>
If you elect to defer, the obligation to pay the deferred amounts will be
evidenced by the separate written agreement of AT&T to pay the amounts, together
with interest on those amounts, determined pursuant to the terms of this Plan,
which agreement will constitute the unsecured and unfunded obligation of AT&T.
3. Annual Incentive
Your award program currently is comprised of two components: APA (AT&T
Performance Award and MA (Merit Award).
You will be eligible to receive a pro-rated portion of the annual incentive (APA
and MA, or successor program) applicable to the year of your termination for
your time on the active payroll during the performance year, in an amount equal
to the amount produced by the actual achievement level for such year multiplied
by a fraction, the numerator of which is the number of complete months you were
employed during the calendar year (including the last month if your Termination
Date is on or after the 15th of the month) and the denominator of which is 12.
Such amount shall be payable during the first quarter of the following year, in
accordance with existing practices and terms of the award program.
4. Outstanding Long Term Incentives
You will be entitled to the following treatment with respect to your outstanding
long term incentive grants:
For Participants who are not Service Pension eligible, any
outstanding AT&T Performance Shares/Stock Units will continue
after your Termination Date in the same way that they would
continue if you were Service Pension eligible;
For Participants who are not Service Pension eligible, any
unexercised AT&T Stock Options, excluding any Leveraged Stock
Options, outstanding as of your Termination Date will continue in
the same way they would continue if you had been Service Pension
eligible;
Any unvested Restricted Stock Units, Leveraged Stock Options or
such other long-term incentives which are not automatically
continued by virtue of Service Pension eligibility, and which are
outstanding as of your Termination Date will continue as if you
continued to be an active employee of the Company; and
Any unvested Restricted Stock outstanding as of your Termination
Date will vest as of your Termination Date.
5. Life Insurance/Death Benefit
For Participants who are not Service Pension eligible, your AT&T Senior
Management Basic Life Insurance and AT&T Senior Management Individual (split
dollar) Life Insurance, will continue after your Termination Date in the same
way they would continue if you had been Service Pension eligible on your
Termination Date. Moreover, the one times pay (i.e. base salary plus annual
incentive) Death Benefit currently provided to Service Pension eligible Senior
Managers under the AT&TMPP (for base salary) and AT&T Non-Qualified Pension Plan
(AT&TNQPP) (for annual incentive) will be paid to your qualified survivors
provided that Service Pension eligible Senior Managers are eligible to receive
this benefit as of your Termination Date. The definition of qualified survivor
will be the same as provided for in the comparable Death Benefit provision of
<PAGE>
the AT&TMPP and AT&TNQPP provided, however, that the Death Benefit paid to
non-Service Pension eligible Participants will be paid entirely out of the
Company's operating income. Any Death Benefit paid under the AT&T Senior
Management Long Term Disability and Survivor Protection Plan ("SMLTD&SPP") will
reduce, by the amount of such SMLTD&SPP Death Benefit, any Death Benefit payable
under this Section F.5.
6. Financial Counseling
You will be entitled to financial counseling services in accordance with the
Company's then current Senior Management Financial Counseling Program for two
full years from your Termination Date, including income tax preparation during
the subsequent calendar year with respect to income tax returns for the calendar
year which includes the second anniversary of your Termination Date.
7. Outplacement Services
You will be entitled to receive services of a Company paid outplacement
consultant in accordance with the practice then current for Senior Management
employees as of your Termination Date; provided, however, that an election to
use such services must be made within one year subsequent to your Termination
Date.
8. Telephone Reimbursement
You will continue to be eligible for telephone reimbursement through the Senior
Management Telephone Reimbursement Program under the same terms and conditions
as Service Pension eligible Senior Managers as of your Termination Date.
9. Vacation
As a Participant, you should make every reasonable effort, consistent with the
needs of the business, to take all vacation, personal days, and floating
holidays to which you are entitled before your Termination Date. If you are
unable to do so, you will be paid for any unused vacation days for the calendar
year in which your Termination Date occurs and any approved carry-over days. You
will not receive pay in lieu of floating holidays and management personal days
if these days are not taken prior to your Termination Date.
10. Medical/Dental/Vision Coverage
If, at your Termination Date, you are not eligible for post-retirement
medical/dental/vision coverage provided to Service Pension eligible employees
(or replacement coverage) under the Company's plans, you may be entitled as of
your Termination Date to continuing healthcare coverage under the Consolidated
Omnibus Budget Reconciliation Act ("COBRA"). In such event, the Company will
reimburse you for the cost of such COBRA coverage for up to eighteen (18)
months, plus a tax gross-up amount to negate the effect of taxes resulting from
such reimbursement. All coverage for you and your eligible dependents will be
the same as the coverage provided as of your Termination Date, subject to the
terms of the AT&T Medical Expense Plan for Management Employees. You should
immediately notify the COBRA administrator if you become covered under another
group health plan, at which time your COBRA coverage will cease.
G. SEPARATION AGREEMENT AND RELEASE
In order to receive benefits under this Plan, you must sign a Release (a copy of
which is attached hereto as Exhibit "B") which, among other provisions, releases
<PAGE>
and discharges AT&T, its benefit committees, and all of its affiliates,
subsidiaries, and their respective successors and assigns, and the respective
shareholders, officers, directors, employees and members of all of the named
entities from all claims, demands or causes of action of any kind whatsoever
arising out of your employment and the termination of your employment.
The Release must be signed on your Termination Date and returned to the
Company's Executive Vice President-Human Resources, within seven days of your
actual Termination Date.
H. WITHHOLDINGS
The amount of the Severance Payment paid pursuant to this Plan is subject to the
withholding of federal, state and local taxes, FICA (Social Security taxes), and
FUTA and SUTA (unemployment taxes) at the time of payment and will be reported
on IRS form W-2. The Severance Payment will not be reduced for contributions to,
or be recognized under, any AT&T employee or Senior Management benefit plan or
program.
I. FORFEITURE
You will forfeit all or a portion of your benefits under this Plan (excluding
$25,000.00 deemed as consideration for signing and not revoking the Release),
under the following circumstances:
Violation of AT&T Code of Conduct or AT&T Non-Competition Guideline
Notwithstanding any other provision of this Plan, if it is determined by the
Executive Vice President - Human Resources of AT&T, in consultation with the
Company's most senior legal counsel, that you violated AT&T's Code of Conduct,
and/or violated the AT&T Non-Competition Guideline, you will be required to
repay to the Company all of the Severance Payment and an amount equal to the
economic value of the other benefits provided to you under the Plan, except
$25,000. In the event you have elected to defer receipt of your Severance
Payment in accordance with the procedures set forth in Section F.2., you shall
forfeit the right to receive any of the amounts set forth in the deferral
agreement specified in such Section.
J. PLAN TERM PLUS TERMS AND CONDITIONS OF HR PLANS AND PROGRAMS
The Initial Term ("Initial Term") of the Plan will be three years from the
Effective Date and the Plan may not be canceled during this Initial Term.
Thereafter, the Plan will automatically continue unless the Company notifies
each Participant in writing of its decision to cancel the Plan; provided,
however, that such written notification will be sent no less than one year prior
to the effective date of such cancellation. Notwithstanding the above, and
except as otherwise specifically provided for in this Plan, your rights and
benefits under any of the Company's employee or Senior Management compensation,
incentive, benefit and/or perquisite plans and programs, including annual and
long-term incentive plans, continue to be subject to the terms of those plans
and programs as they may be modified or amended from time to time or terminated
in accordance with the Company's reservation of rights to so modify, amend or
terminate. In the event there is a conflict between the material in this Plan
and the terms of the respective compensation, incentive, benefit and/or
perquisite plan documents, the benefit plan documents will control and govern
the operation of the plans.
<PAGE>
The Executive Vice President - Human Resources of AT&T (or any successor to that
officer's responsibilities) with the concurrence of the Company's most senior
legal counsel shall be authorized to make minor or administrative amendments to
the Plan, as well as amendments required by applicable federal or state law (or
authorized or made desirable by such statutes).
K. PLAN ADMINISTRATION
AT&T is the Plan Administrator and Named Fiduciary of the Plan. AT&T has
delegated administrative authority and responsibility to the Chairman -
Compensation and Employee Benefits Committee of the AT&T Board of Directors.
AT&T, 295 North Maple Avenue, Basking Ridge, New Jersey, solely administers this
Plan through the Chairman of such Committee or his delegate who makes
determinations concerning when and to what positions or groups payments should
be made and any other determinations regarding interpretation and administration
of this Plan and shall have sole and complete discretionary authority to
determine such matters.
The Chairman of such Committee is also a Named Fiduciary who shall serve as the
final review authority, under this Plan, and shall have sole and complete
discretionary authority to determine conclusively for all parties and in
accordance with the terms of the documents or instruments governing the plan,
any and all questions arising from the administration of this Plan and
interpretation of all Plan provisions, determination of all questions relating
to participation of eligible employees and eligibility for benefits,
determination of all relevant facts, the amount and type of benefits payable to
any Participant, spouse, heirs or estate, and construction of all terms of this
Plan. All determinations and decisions of the Named Fiduciary are conclusive and
binding on all parties and not subject to further review. The Named Fiduciary
under this Plan has delegated to the Executive Vice President - Human Resources
of AT&T the authority to review all initial claims for payments and benefits
under the terms of this Plan. The Chairman of the Committee shall afford a full
and fair review of any denial of a claim by the Executive Vice President - Human
Resources of AT&T for payments under the terms of this Plan. Any Named Fiduciary
or any fiduciary designated by a Named Fiduciary may delegate any
responsibilities hereunder. Moreover, in a circumstance which requires an
administrator who is also a Participant to make judgment(s) about
himself/herself, such administrator/Participant will be automatically recused
and replaced by another administrator named by the Chairman of the Committee.
How to Appeal a Plan Determination If you believe that the benefits of the Plan
have been improperly denied or the Plan's provisions incorrectly applied to your
situation, you may appeal the determination by forwarding a written request for
a review to:
Chairman of the Compensation and Employee Benefits Committee of
the Board of Directors
AT&T Corp.
295 North Maple Avenue
Basking Ridge, NJ 07920
Your written appeal should state the reasons you feel your situation was
improperly handled. Be sure to include your name, Social Security number, work
location, and the specific provisions you believe were improperly handled in
your case. You may submit issues and comments in writing.
During the course of the review, you may be required to provide additional
information. This information will be requested in writing.
<PAGE>
You will be notified of a final decision within sixty (60) days following the
receipt of your claim or the date all information requested from you is
furnished, whichever is later. Notification of the result of the review will be
written in a manner calculated to be understood by you and will specify reasons
for the decision.
If there are special circumstances requiring delay, you will be notified of the
final decision no later than 120 days after your appeal is received.
Official Plan Name and Plan Number:
AT&T Senior Officer Severance Plan, Plan #_________.
Plan Sponsor and Administrator:
AT&T Corp.
295 North Maple Avenue
Basking Ridge, NJ
Employer Identification Number: ________
Type of Plan:
Welfare benefit plan.
Type of Administration and Funding:
The Severance Payment is provided through direct payments by the Company from
operating assets.
Agent for Legal Process:
The Company hopes that any disagreement you have with the application of the
provisions described in this material can be resolved without resorting to legal
process. If you wish to begin legal proceedings, however, service of legal
process may be made upon the plan administrator to the attention of the person
listed in this Section K. above.
Plan Document:
This package serves as the plan document for the AT&T Senior Officer Severance
Plan.
Effective Date:
The Effective Date of this Plan shall be October XX, 1997.
Your rights under ERISA. The AT&T Senior Officer Severance Plan is an employee
welfare benefit plan governed by the Employee Retirement Income Security Act of
1974 (ERISA). You are entitled to certain rights and protection under ERISA.
In addition to creating rights for Plan Participants, ERISA imposes duties upon
the people who are responsible for the operation of the Plan. The people who
operate the Plan, called "Fiduciaries" of the Plan, have a duty to do so
prudently, in your interest and in the interest of all members and
beneficiaries.
No one, including the Company, may terminate your employment for the purpose of
preventing you from receiving the benefits to which you are entitled, and no
one, including the Company, a union, or any other person, may discriminate
against you in any other way for that purpose or in order to keep you from
exercising your rights under ERISA.
<PAGE>
If your benefit request is denied in whole or in part, you have the right to
have the Plan Administrator review and reconsider your benefit request.
Under ERISA, there are steps you can take to enforce the above rights. For
instance, if you request materials from the Plan and do not receive them within
thirty (30) days you may file suit in federal court. In such a case, the court
may require the Plan Administrator to provide the materials and pay you up to
$100 a day until you receive the materials unless they were not sent or received
because of reasons beyond the control of the Administrator.
If you have a benefit request which is denied or ignored, in whole or in part,
you may file suit in a state or federal court. If you are discriminated against
for asserting your rights, you may seek assistance from the US Department of
Labor, or you may file suit in a federal court. The court will decide who should
pay court costs and legal fees. If you are successful, the court may order the
person you have sued to pay these costs and fees. If you lose, the court may
order you to pay these costs and fees, for example, if it finds your claim is
frivolous.
If you have any questions, you should contact the Director - Executive Human
Resources.
If you have any questions about this statement on or about your rights under
ERISA, you should contact the nearest Area Office of the US Labor-Management
Services Administration, Department of Labor.
L. ARBITRATION
Any dispute, controversy, or question arising under, out of, or relating to this
Agreement or the breach thereof, remaining after a Participant has filed a claim
with the Executive Vice President - Human Resources, and the denial of that
claim has been reviewed by the Chairman of the Committee, in accordance with the
procedures set forth in or adopted pursuant to the provisions of Section K.
hereof, and been denied, shall be, at a Participant's election, referred for
arbitration in the State of New Jersey to a neutral arbitrator selected by the
Participant and the Company. The proceeding shall be governed by the Commercial
Rules of the American Arbitration Association then in effect or such rules last
in effect (in the event such Association is no longer in existence) and the
decision of the arbitrator shall be governed by the rule of law, and in
particular ERISA and its related rules and regulations and relevant case law. If
the parties are unable to agree upon a neutral arbitrator within thirty (30)
days after a Participant has given the Company written notice of the desire to
submit the dispute, controversy or question for decision as aforesaid, then
either party may apply to the American Arbitration Association for the
appointment of a neutral arbitrator, or, if such Association is not then in
existence or does not desire to act in the matter, either party may apply to the
Presiding Judge of the Superior Court of any county in New Jersey for the
appointment of a neutral arbitrator to hear the parties and settle the dispute,
controversy or question, and such right to submit a dispute arising hereunder to
arbitration and the decision of the neutral arbitrator shall be final,
conclusive and binding on all interested persons and no action at law or in
equity shall be instituted, or, if instituted, further prosecuted by either
party other than to enforce the award of the neutral arbitrator. The Participant
and the Company shall each bear all your and its own costs and attorney fees,
except that the Company shall pay the costs of any arbitrator appointed
hereunder as well as the copy of any official transcript of the proceeding.
<PAGE>
M. PLAN DOCUMENTS
This document is both the Summary Plan Description and the official Plan
document which regulates the operation of this Plan.
N. MISCELLANEOUS
Messers Zeglis, Somers and Nagel are covered by individual arrangements that
may, in certain circumstances, duplicate the Severance Payment provided for in
Section F.1. and/or certain of the post-retirement benefits provided for in
Sections F.2-F.10. In the event that such individual agreement provisions are in
effect as of the Termination Date of such individual, the Executive Vice
President - Human Resources is specifically empowered to reduce or eliminate the
duplicative benefits provided for under the Plan. In taking such action, the
Executive Vice President - Human Resources will be guided by the principles that
(1) Messers Zeglis, Somers and Nagel will be treated, for the Sections specified
above, no more or no less favorably than are other Participants not covered by
individual agreements and (2) individual agreement provisions (e.g., individual
pension/deferral accounts) which are not duplicative of the Severance Payment
provided for in Section F.1. and/or post-retirement benefits specified in
Sections F.2.- F.10. will not be considered in determining elimination and/or
reductions in Plan benefits.
O. ASSIGNMENT OR ALIENATION
No payments or benefits under this Plan or any right or interest in such
payments or benefits shall be assignable or subject in any manner to
anticipation, alienation, sale, transfer, assignment, claims of creditors,
garnishment, pledge, execution, attachment or encumbrance of any kind,
including, but not limited to, pursuant to any domestic relations order (within
the meaning of Section 206(d)(3) of ERISA and Section 414(p)(1)(B) of the
Internal Revenue Code) and any such attempted disposition shall be null and
void.
<PAGE>
AT&T Senior Officer Severance Plan
Participant List
(for 1998 10K Filing)
3/6/98
F. Ianna
G. J. McGovern
J. C. Petrillo
J. D. Zeglis
October 30, 1997
Mr. Frank Ianna
425 Devonshire Drive
Franklin Lakes, NJ 07417
Dear Frank:
The purpose of this letter agreement (hereinafter "Agreement") is to
detail and document a special individual non-qualified supplemental retirement
arrangement we have developed for you. Under this Agreement, a deferred account
(hereinafter "Deferred Account") will be established in your name. The
maintenance, vesting, forfeiture and distribution of the Deferred Account shall
be in accordance with the following terms and conditions.
On November 1, 1997 (hereinafter the "Effective Date"), AT&T Corp.
(hereafter "the Company") shall credit the Deferred Account with an initial
balance of Eight Hundred and Twenty Eight Thousand Dollars ($828,000). The
Company shall credit interest to the Deferred Account as of the end of each
calendar quarter at a rate equal to one-quarter of the average 30 Year Treasury
Bond Rate in effect for the last previous quarter.
The Deferred Account will be maintained as a bookkeeping account on the
records of the Company and you will have no present ownership right or interest
in the Deferred Account, nor in any assets of the Company with respect thereto.
The Deferred Account may not be assigned, pledged or otherwise alienated by you
and any attempt to do so, or any garnishment, execution or levy of any kind with
respect to the Deferred Account, will not be recognized. You shall not have any
right to receive any payment with respect to the Deferred Account, except as
expressly provided below.
In the event you cease to be a Company employee prior to the sixth
anniversary of the Effective Date:
(a) by reason of death or Long-Term Disability (as
defined below), all amounts credited to the Deferred
Account through the date of such termination, shall
be paid to you [or, upon your death to
your beneficiary, as designated on a form filed
with Executive Human Resources, or to your estate
if no beneficiary has been designated, (hereinafter
your Survivors)] within the calendar quarter
immediately following the quarter which includes the
date of your termination of Company employment;
(b) by reason of Company-initiated termination for other
than Cause (as defined below), all amounts credited
to the Deferred Account through the sixth anniversary
<PAGE>
of the Effective Date shall be paid to you (or to
your Survivors) within the calendar quarter
immediately following the quarter which includes such
sixth anniversary;
(c) by reason of your election to terminate your Company
employment for Good Reason (as defined below), all
amounts credited to the Deferred Account through the
sixth anniversary of the Effective Date shall be paid
to you (or to your Survivors) within the calendar
quarter immediately following the quarter which
includes such sixth anniversary; and
(d) for any reason other than death, "Long Term
Disability," Company-initiated termination for other
than "Cause," or your election to terminate your
employment for "Good Reason," then all amounts in the
Deferred Account shall be canceled and you shall not
receive any distribution with respect to the Deferred
Account or have any further interest in the Deferred
Account.
In the event you cease to be a Company employee on or after the sixth
anniversary of the Effective Date for any reason other than your death, all
amounts credited to the Deferred Account will be paid to you in ____ (1 to 10)
_____ (initials) approximately equal annual installments commencing within the
first calendar quarter of the calendar year following the year in which your
termination of employment occurs. Unpaid Deferred Account balances after
termination continue to be credited with interest. In the event of your death
prior to either commencement or completion of Deferred Account payment(s) to
you, the unpaid balance of the Deferred Account as of your death shall be paid
to your Survivors in a lump sum within the calendar quarter immediately
following the quarter which includes the date of your death.
For purposes of this Agreement:
(a) "Long Term Disability" shall mean termination of your employment with
the Company with eligibility to receive a disability allowance
under the AT&T Senior Management Long Term Disability and
Survivor Protection Plan or a replacement plan;
(b) "Cause" shall mean:
(i) your breach of any of the terms of this Agreement;
(ii) your conviction (including a plea of guilty or nolo
contendere) of a crime involving theft, fraud, dishonesty or
moral turpitude;
(iii) gross omission or gross dereliction of any statutory, common
law or other duty of loyalty to the Company or any of its
affiliates;
(iv) violation by you of the Company's Code of Conduct or
Non-Competition Guideline; or
(v) repeated failure to carry out the duties of your position
despite specific instruction to do so.
<PAGE>
(c) "Good Reason" shall mean the occurrence without your express written
consent of any of the following events:
(i) Your demotion to a position which is not of a rank and
responsibility comparable to members of the current Senior
Management Team or those of a similar/replacing governance
body; provided, however, that the Company's decision not to
continue a Senior Management Team shall not be Good Reason,
and provided, further, that (1) changes in reporting
relationships shall not, alone, constitute Good Reason and/or
(2) a reduction in your business unit's budget or a reduction
in your business unit's head count, by themselves, do not
constitute Good Reason; or
(ii) a reduction in your "Total Annual Compensation" (defined as
the sum of your Annual Base Salary Rate, Target Annual
Incentive and "Target Annual Long Term Incentive Grants") for
any calendar or fiscal year, as applicable, to an amount that
is less than the Total Annual Compensation that existed in the
prior calendar or fiscal year, as applicable. For purposes
of this paragraph (c)(ii) the dollar value of the "Target
Annual Long Term Incentive Grants" shall exclude the value of
any special one-time or periodic long-term incentive grants,
and shall be determined by valuing Performance Shares, Stock
Units, Restricted Stock, Restricted Stock Units, etc., at the
market share price utilized in valuing the annual Senior
Management compensation structures in the materials presented
to the Compensation and Employee Benefits Committee of the
Company's Board of Directors when authorizing such grants,
and assuming 100% performance achievement if such grants
include performance criteria. Stock Options and Stock
Appreciation Rights will be valued by the Black Scholes
methodology (and related share price) as utilized in the
materials presented to such Compensation and Employee Benefits
Committee when authorizing such grants.
It is understood and agreed that you will not talk about, write about
or otherwise publicize the terms or existence of this Agreement or any fact
concerning its execution or implementation. You may, however, discuss its
contents with your spouse, legal and/or financial counselor. IN ADDITION,
DEFERRED ACCOUNT AMOUNTS PROVIDED UNDER THIS AGREEMENT ARE SUBJECT TO FORFEITURE
(OR REPAYMENT IF SUCH AMOUNTS ALREADY HAVE BEEN PAID) IF YOU VIOLATE THE AT&T
NON-COMPETITION GUIDELINE IN EFFECT AT THE TIME OF THE VIOLATION ANYTIME PRIOR
TO THE THIRD ANNIVERSARY OF YOUR TERMINATION OF COMPANY EMPLOYMENT. (THE CURRENT
GUIDELINE SUMMARY IS ATTACHED.)
THIS AGREEMENT IS NOT AN EMPLOYMENT CONTRACT AND SHOULD NOT BE
CONSTRUED OR INTERPRETED AS CONTAINING ANY GUARANTEE OF CONTINUED EMPLOYMENT.
THE EMPLOYMENT RELATIONSHIP WITH THE COMPANY IS BY MUTUAL CONSENT
("EMPLOYMENT-AT-WILL"). THIS MEANS THAT EMPLOYEES HAVE THE RIGHT TO TERMINATE
THEIR EMPLOYMENT AT ANY TIME AND FOR ANY REASON. LIKEWISE, THE COMPANY RESERVES
THE RIGHT TO DISCONTINUE YOUR EMPLOYMENT WITH OR WITHOUT CAUSE AT ANY TIME AND
FOR ANY REASON.
Payments from the Deferred Account are in addition to and not in lieu
of any qualified or non-qualified pension, savings, or other retirement plan,
program or arrangement covering you, nor are such payments in lieu of any
payments or other benefits which may be provided to you under the AT&T Senior
<PAGE>
Officer Severance Plan. The Deferred Account payments provided under this
Agreement are subject to payroll tax withholding and reporting, and amounts
credited to the Deferred Account are not included in the base for calculating
benefits under any employee or Senior Management benefit plan, program or
practice.
Any dispute, controversy, or question arising under, out of, or
relating to this Agreement or the breach thereof, shall be referred for
arbitration in the State of New Jersey to a neutral arbitrator selected by you
and the Company. The proceeding shall be governed by the Commercial Rules of the
American Arbitration Association then in effect or such rules last in effect (in
the event such Association is no longer in existence) and the decision of the
arbitrator shall be governed by the rule of law. If the parties are unable to
agree upon a neutral arbitrator within thirty (30) days after each party has
given the other written notice of the desire to submit the dispute, controversy
or question for decision as aforesaid, then either party may apply to the
American Arbitration Association for the appointment of a neutral arbitrator,
or, if such Association is not then in existence or does not desire to act in
the matter, either party may apply to the Presiding Judge of the Superior Court
of any county in New Jersey for the appointment of a neutral arbitrator to hear
the parties and settle the dispute, controversy or question, and such right to
submit a dispute arising hereunder to arbitration and the decision of the
neutral arbitrator shall be final, conclusive and binding on all interested
persons and no action at law or in equity shall be instituted, or, if
instituted, further prosecuted by either party other than to enforce the award
of the neutral arbitrator. You and the Company shall each bear all your and its
own costs and attorney fees, except that the Company shall pay the costs of any
arbitrator appointed hereunder as well as the copy of any official transcript of
the proceeding.
The construction, interpretation and performance of this Agreement
shall be governed by the laws of the State of New Jersey, without regard to its
conflict of laws rule.
Frank, I am happy to present this special arrangement to you. It
recognizes the extraordinary contribution you have made to our business. If you
agree with the terms and conditions detailed above, please enter your payout
election and initial in the spaces provided on page 2, sign and date this
Agreement in the spaces provided below and, prior to November 14, 1997, return
the original executed copy to me.
Sincerely,
Attachment
______________________________ ___________________________________
Acknowledged and Agreed to Date
Frank Ianna
October 30, 1997
Ms. Gail J. McGovern
28 Mt. Pleasant Rd.
Morristown, NJ 07960
Dear Gail:
The purpose of this letter agreement (hereinafter "Agreement") is to
detail and document a special individual non-qualified supplemental retirement
arrangement we have developed for you. Under this Agreement, a deferred account
(hereinafter "Deferred Account") will be established in your name. The
maintenance, vesting, forfeiture and distribution of the Deferred Account shall
be in accordance with the following terms and conditions.
On November 1, 1997 (hereinafter the "Effective Date"), AT&T Corp.
(hereafter "the Company") shall credit the Deferred Account with an initial
balance of Eight Hundred and Twenty Thousand Dollars ($820,000). The Company
shall credit interest to the Deferred Account as of the end of each calendar
quarter at a rate equal to one-quarter of the average 30 Year Treasury Bond Rate
in effect for the last previous quarter.
The Deferred Account will be maintained as a bookkeeping account on the
records of the Company and you will have no present ownership right or interest
in the Deferred Account, nor in any assets of the Company with respect thereto.
The Deferred Account may not be assigned, pledged or otherwise alienated by you
and any attempt to do so, or any garnishment, execution or levy of any kind with
respect to the Deferred Account, will not be recognized. You shall not have any
right to receive any payment with respect to the Deferred Account, except as
expressly provided below.
In the event you cease to be a Company employee prior to the seventh
anniversary of the Effective Date:
(a) by reason of death or Long-Term Disability (as
defined below), all amounts credited to the Deferred
Account through the date of such termination, shall
be paid to you [or, upon your death to your
beneficiary, as designated on a form filed
with Executive Human Resources, or to your estate
if no beneficiary has been designated, (hereinafter
your Survivors)] within the calendar quarter
immediately following the quarter which includes
the date of your termination of Company employment;
(b) by reason of Company-initiated termination for other
than Cause (as defined below), all amounts credited
to the Deferred Account through the seventh
anniversary of the Effective Date shall be paid to
<PAGE>
you (or to your Survivors) within the calendar
quarter immediately following the quarter which
includes such seventh anniversary;
(c) by reason of your election to terminate your Company
employment for Good Reason (as defined below), all
amounts credited to the Deferred Account through the
seventh anniversary of the Effective Date shall be
paid to you (or to your Survivors) within the
calendar quarter immediately following the quarter
which includes such seventh anniversary; and
(d) for any reason other than death, "Long Term
Disability, "Company-initiated termination for other
than "Cause,"or your election to terminate your
employment for "Good Reason," then all amounts in
the Deferred Account shall be canceled and you shall
not receive any distribution with respect to the
Deferred Account or have any further interest in the
Deferred Account.
In the event you cease to be a Company employee on or after the seventh
anniversary of the Effective Date for any reason other than your death, all
amounts credited to the Deferred Account will be paid to you in ____ (1 to 10)
_____ (initials) approximately equal annual installments commencing within the
first calendar quarter of the calendar year following the year in which your
termination of employment occurs. Unpaid Deferred Account balances after
termination continue to be credited with interest. In the event of your death
prior to either commencement or completion of Deferred Account payment(s) to
you, the unpaid balance of the Deferred Account as of your death shall be paid
to your Survivors in a lump sum within the calendar quarter immediately
following the quarter which includes the date of your death.
For purposes of this Agreement:
(a) "Long Term Disability" shall mean termination of your employment with
the Company with eligibility to receive a disability allowance under
the AT&T Senior Management Long Term Disability and Survivor
Protection Plan or a replacement plan;
(b) "Cause" shall mean:
(i) your breach of any of the terms of this Agreement;
(ii) your conviction (including a plea of guilty or nolo
contendere) of a crime involving theft, fraud, dishonesty or
moral turpitude;
(iii) gross omission or gross dereliction of any statutory, common
law or other duty of loyalty to the Company or any of its
affiliates;
(iv) violation by you of the Company's Code of Conduct or
Non-Competition Guideline; or
(v) repeated failure to carry out the duties of your position
despite specific instruction to do so.
<PAGE>
(c) "Good Reason" shall mean the occurrence without your express written
consent of any of the following events:
(i) Your demotion to a position which is not of a rank and
responsibility comparable to members of the current Senior
Management Team or those of a similar/replacing governance
body; provided, however, that the Company's decision not to
continue a Senior Management Team shall not be Good Reason,
and provided, further, that (1) changes in reporting
relationships shall not, alone, constitute Good Reason and/or
(2) a reduction in your business unit's budget or a reduction
in your business unit's head count, by themselves, do not
constitute Good Reason; or
(ii) a reduction in your "Total Annual Compensation" (defined as
the sum of your Annual Base Salary Rate, Target Annual
Incentive and "Target Annual Long Term Incentive Grants")
for any calendar or fiscal year, as applicable, to an amount
that is less than the Total Annual Compensation that existed
in the prior calendar or fiscal year, as applicable. For
purposes of this paragraph (c)(ii) the dollar value of the
"Target Annual Long Term Incentive Grants" shall exclude the
value of any special one-time or periodic long-term incentive
grants, and shall be determined by valuing Performance Shares,
Stock Units, Restricted Stock, Restricted Stock Units, etc.,
at the market share price utilized in valuing the annual
Senior Management compensation structures in the materials
presented to the Compensation and Employee Benefits Committee
of the Company's Board of Directors when authorizing such
grants, and assuming 100% performance achievement if such
grants include performance criteria. Stock Options and
Stock Appreciation Rights will be valued by the Black Scholes
methodology (and related share price) as utilized in the
materials presented to such Compensation and Employee Benefits
Committee when authorizing such grants.
It is understood and agreed that you will not talk about, write about
or otherwise publicize the terms or existence of this Agreement or any fact
concerning its execution or implementation. You may, however, discuss its
contents with your spouse, legal and/or financial counselor. IN ADDITION,
DEFERRED ACCOUNT AMOUNTS PROVIDED UNDER THIS AGREEMENT ARE SUBJECT TO FORFEITURE
(OR REPAYMENT IF SUCH AMOUNTS ALREADY HAVE BEEN PAID) IF YOU VIOLATE THE AT&T
NON-COMPETITION GUIDELINE IN EFFECT AT THE TIME OF THE VIOLATION ANYTIME PRIOR
TO THE THIRD ANNIVERSARY OF YOUR TERMINATION OF COMPANY EMPLOYMENT. (THE CURRENT
GUIDELINE SUMMARY IS ATTACHED.)
THIS AGREEMENT IS NOT AN EMPLOYMENT CONTRACT AND SHOULD NOT BE
CONSTRUED OR INTERPRETED AS CONTAINING ANY GUARANTEE OF CONTINUED EMPLOYMENT.
THE EMPLOYMENT RELATIONSHIP WITH THE COMPANY IS BY MUTUAL CONSENT
("EMPLOYMENT-AT-WILL"). THIS MEANS THAT EMPLOYEES HAVE THE RIGHT TO TERMINATE
THEIR EMPLOYMENT AT ANY TIME AND FOR ANY REASON. LIKEWISE, THE COMPANY RESERVES
THE RIGHT TO DISCONTINUE YOUR EMPLOYMENT WITH OR WITHOUT CAUSE AT ANY TIME AND
FOR ANY REASON.
Payments from the Deferred Account are in addition to and not in lieu
of any qualified or non-qualified pension, savings, or other retirement plan,
program or arrangement covering you, nor are such payments in lieu of any
payments or other benefits which may be provided to you under the AT&T Senior
<PAGE>
Officer Severance Plan. The Deferred Account payments provided under this
Agreement are subject to payroll tax withholding and reporting, and amounts
credited to the Deferred Account are not included in the base for calculating
benefits under any employee or Senior Management benefit plan, program or
practice.
Any dispute, controversy, or question arising under, out of, or
relating to this Agreement or the breach thereof, shall be referred for
arbitration in the State of New Jersey to a neutral arbitrator selected by you
and the Company. The proceeding shall be governed by the Commercial Rules of the
American Arbitration Association then in effect or such rules last in effect (in
the event such Association is no longer in existence) and the decision of the
arbitrator shall be governed by the rule of law. If the parties are unable to
agree upon a neutral arbitrator within thirty (30) days after each party has
given the other written notice of the desire to submit the dispute, controversy
or question for decision as aforesaid, then either party may apply to the
American Arbitration Association for the appointment of a neutral arbitrator,
or, if such Association is not then in existence or does not desire to act in
the matter, either party may apply to the Presiding Judge of the Superior Court
of any county in New Jersey for the appointment of a neutral arbitrator to hear
the parties and settle the dispute, controversy or question, and such right to
submit a dispute arising hereunder to arbitration and the decision of the
neutral arbitrator shall be final, conclusive and binding on all interested
persons and no action at law or in equity shall be instituted, or, if
instituted, further prosecuted by either party other than to enforce the award
of the neutral arbitrator. You and the Company shall each bear all your and its
own costs and attorney fees, except that the Company shall pay the costs of any
arbitrator appointed hereunder as well as the copy of any official transcript of
the proceeding.
The construction, interpretation and performance of this Agreement
shall be governed by the laws of the State of New Jersey, without regard to its
conflict of laws rule.
Gail, I am happy to present this special arrangement to you. It
recognizes the extraordinary contribution you have made to our business. If you
agree with the terms and conditions detailed above, please enter your payout
election and initial in the spaces provided on page 2, sign and date this
Agreement in the spaces provided below and, prior to November 14, 1997, return
the original executed copy to me.
Sincerely,
Attachment
- ---------------------------------- -------------------------------
Acknowledged and Agreed to Date
Gail J. McGovern
October 30, 1997
Mr. John C. Petrillo
295 No. Maple Ave., Rm 5204A2
Basking Ridge, NJ 07920
Dear John:
The purpose of this letter agreement (hereinafter "Agreement") is to
detail and document a special individual non-qualified supplemental retirement
arrangement we have developed for you. Under this Agreement, a deferred account
(hereinafter "Deferred Account") will be established in your name. The
maintenance, vesting, forfeiture and distribution of the Deferred Account shall
be in accordance with the following terms and conditions.
On November 1, 1997 (hereinafter the "Effective Date"), AT&T Corp.
(hereafter "the Company") shall credit the Deferred Account with an initial
balance of Eight Hundred and Seventy Thousand Dollars ($870,000). The Company
shall credit interest to the Deferred Account as of the end of each calendar
quarter at a rate equal to one-quarter of the average 30 Year Treasury Bond Rate
in effect for the last previous quarter.
The Deferred Account will be maintained as a bookkeeping account on the
records of the Company and you will have no present ownership right or interest
in the Deferred Account, nor in any assets of the Company with respect thereto.
The Deferred Account may not be assigned, pledged or otherwise alienated by you
and any attempt to do so, or any garnishment, execution or levy of any kind with
respect to the Deferred Account, will not be recognized. You shall not have any
right to receive any payment with respect to the Deferred Account, except as
expressly provided below.
In the event you cease to be a Company employee prior to the sixth
anniversary of the Effective Date:
(a) by reason of death or Long-Term Disability (as defined
below), all amounts credited to the Deferred Account
through the date of such termination, shall be paid to you
[or, upon your death to your beneficiary, as designated
on a form filed with Executive Human Resources, or
to your estate if no beneficiary has been designated,
(hereinafter your Survivors)] within the calendar quarter
immediately following the quarter which includes the
date of your termination of Company employment;
(b) by reason of Company-initiated termination for other than
Cause (as defined below), all amounts credited to the
Deferred Account through the sixth anniversary of the
Effective Date shall be paid to you (or to your Survivors)
within the calendar quarter immediately following the
quarter which includes such sixth anniversary;
<PAGE>
(c) by reason of your election to terminate your Company
employment for Good Reason (as defined below), all amounts
credited to the Deferred Account through the sixth
anniversary of the Effective Date shall be paid to you (or
to your Survivors) within the calendar quarter
immediately following the quarter which includes such
sixth anniversary; and
(d) for any reason other than death, "Long Term Disability,"
Company-initiated termination for other than "Cause," or
your election to terminate your employment for "Good
Reason," then all amounts in the Deferred Account shall
be canceled and you shall not receive any distribution
with respect to the Deferred Account or have any further
interest in the Deferred Account.
In the event you cease to be a Company employee on or after the sixth
anniversary of the Effective Date for any reason other than your death, all
amounts credited to the Deferred Account will be paid to you in ____ (1 to 10)
_____ (initials) approximately equal annual installments commencing within the
first calendar quarter of the calendar year following the year in which your
termination of employment occurs. Unpaid Deferred Account balances after
termination continue to be credited with interest. In the event of your death
prior to either commencement or completion of Deferred Account payment(s) to
you, the unpaid balance of the Deferred Account as of your death shall be paid
to your Survivors in a lump sum within the calendar quarter immediately
following the quarter which includes the date of your death.
For purposes of this Agreement:
(a) "Long Term Disability" shall mean termination of your employment with
the Company with eligibility to receive a disability allowance
under the AT&T Senior Management Long Term Disability and Survivor
Protection Plan or a replacement plan;
(b) "Cause" shall mean:
(i) your breach of any of the terms of this Agreement;
(ii) your conviction (including a plea of guilty or nolo
contendere) of a crime involving theft, fraud, dishonesty or
moral turpitude;
(iii) gross omission or gross dereliction of any statutory, common
law or other duty of loyalty to the Company or any of its
affiliates;
(iv) violation by you of the Company's Code of Conduct or
Non-Competition Guideline; or
(v) repeated failure to carry out the duties of your position
despite specific instruction to do so.
(c) "Good Reason" shall mean the occurrence without your express written
consent of any of the following events:
<PAGE>
(i) Your demotion to a position which is not of a rank and
responsibility comparable to members of the current Senior
Management Team or those of a similar/replacing governance
body; provided, however, that the Company's decision not to
continue a Senior Management Team shall not be Good Reason,
and provided, further, that (1) changes in reporting
relationships shall not, alone, constitute Good Reason and/or
(2) a reduction in your business unit's budget or a reduction
in your business unit's head count, by themselves, do not
constitute Good Reason; or
(ii) a reduction in your "Total Annual Compensation" (defined as
the sum of your Annual Base Salary Rate, Target Annual
Incentive and "Target Annual Long Term Incentive Grants") for
any calendar or fiscal year, as applicable, to an amount that
is less than the Total Annual Compensation that existed in the
prior calendar or fiscal year, as applicable. For purposes of
this paragraph (c)(ii) the dollar value of the "Target Annual
Long Term Incentive Grants" shall exclude the value of any
special one-time or periodic long-term incentive grants, and
shall be determined by valuing Performance Shares, Stock
Units, Restricted Stock, Restricted Stock Units, etc., at
the market share price utilized in valuing the annual
Senior Management compensation structures in the materials
presented to the Compensation and Employee Benefits Committee
of the Company's Board of Directors when authorizing such
grants, and assuming 100% performance achievement if such
grants include performance criteria. Stock Options and Stock
Appreciation Rights will be valued by the Black Scholes
methodology (and related share price) as utilized in the
materials presented to such Compensation and Employee Benefits
Committee when authorizing such grants.
It is understood and agreed that you will not talk about, write about
or otherwise publicize the terms or existence of this Agreement or any fact
concerning its execution or implementation. You may, however, discuss its
contents with your spouse, legal and/or financial counselor. IN ADDITION,
DEFERRED ACCOUNT AMOUNTS PROVIDED UNDER THIS AGREEMENT ARE SUBJECT TO FORFEITURE
(OR REPAYMENT IF SUCH AMOUNTS ALREADY HAVE BEEN PAID) IF YOU VIOLATE THE AT&T
NON-COMPETITION GUIDELINE IN EFFECT AT THE TIME OF THE VIOLATION ANYTIME PRIOR
TO THE THIRD ANNIVERSARY OF YOUR TERMINATION OF COMPANY EMPLOYMENT. (THE CURRENT
GUIDELINE SUMMARY IS ATTACHED.)
THIS AGREEMENT IS NOT AN EMPLOYMENT CONTRACT AND SHOULD NOT BE
CONSTRUED OR INTERPRETED AS CONTAINING ANY GUARANTEE OF CONTINUED EMPLOYMENT.
THE EMPLOYMENT RELATIONSHIP WITH THE COMPANY IS BY MUTUAL CONSENT
("EMPLOYMENT-AT-WILL"). THIS MEANS THAT EMPLOYEES HAVE THE RIGHT TO TERMINATE
THEIR EMPLOYMENT AT ANY TIME AND FOR ANY REASON. LIKEWISE, THE COMPANY RESERVES
THE RIGHT TO DISCONTINUE YOUR EMPLOYMENT WITH OR WITHOUT CAUSE AT ANY TIME AND
FOR ANY REASON.
Payments from the Deferred Account are in addition to and not in lieu
of any qualified or non-qualified pension, savings, or other retirement plan,
program or arrangement covering you, nor are such payments in lieu of any
payments or other benefits which may be provided to you under the AT&T Senior
Officer Severance Plan. The Deferred Account payments provided under this
Agreement are subject to payroll tax withholding and reporting, and amounts
credited to the Deferred Account are not included in the base for calculating
benefits under any employee or Senior Management benefit plan, program or
practice.
<PAGE>
Any dispute, controversy, or question arising under, out of, or
relating to this Agreement or the breach thereof, shall be referred for
arbitration in the State of New Jersey to a neutral arbitrator selected by you
and the Company. The proceeding shall be governed by the Commercial Rules of the
American Arbitration Association then in effect or such rules last in effect (in
the event such Association is no longer in existence) and the decision of the
arbitrator shall be governed by the rule of law. If the parties are unable to
agree upon a neutral arbitrator within thirty (30) days after each party has
given the other written notice of the desire to submit the dispute, controversy
or question for decision as aforesaid, then either party may apply to the
American Arbitration Association for the appointment of a neutral arbitrator,
or, if such Association is not then in existence or does not desire to act in
the matter, either party may apply to the Presiding Judge of the Superior Court
of any county in New Jersey for the appointment of a neutral arbitrator to hear
the parties and settle the dispute, controversy or question, and such right to
submit a dispute arising hereunder to arbitration and the decision of the
neutral arbitrator shall be final, conclusive and binding on all interested
persons and no action at law or in equity shall be instituted, or, if
instituted, further prosecuted by either party other than to enforce the award
of the neutral arbitrator. You and the Company shall each bear all your and its
own costs and attorney fees, except that the Company shall pay the costs of any
arbitrator appointed hereunder as well as the copy of any official transcript of
the proceeding.
The construction, interpretation and performance of this Agreement
shall be governed by the laws of the State of New Jersey, without regard to its
conflict of laws rule.
John, I am happy to present this special arrangement to you. It
recognizes the extraordinary contribution you have made to our business. If you
agree with the terms and conditions detailed above, please enter your payout
election and initial in the spaces provided on page 2, sign and date this
Agreement in the spaces provided below and, prior to November 14, 1997, return
the original executed copy to me.
Sincerely,
Attachment
______________________________ ______________________________
Acknowledged and Agreed to Date
John C. Petrillo
May 7, 1997
Mr. John D. Zeglis
1 Colonial Way
Madison, NJ 07940
Dear John:
This letter agreement (hereinafter Agreement) will establish an
individual non-qualified pension arrangement (hereinafter Individual Pension)
which, subject to the terms and conditions below, will provide you with a
pension payable upon your termination/retirement from the Company, in the same
form as applicable to the AT&T Non-Qualified Pension Plan. As part of the
Individual Pension, survivor benefits may be provided to your spouse upon your
death. Moreover, subject to the terms and conditions below, related
post-retirement/termination benefits (hereinafter Post-Retirement Benefits) will
be provided to you (hereinafter the Individual Pension and Post-Retirement
Benefits are collectively referred to as the Special Benefits).
If you terminate your Company employment prior to your age 52, the
Special Benefits provisions of this Agreement will be null and void in their
entirety, provided, however, such provisions will continue to apply in the event
of a termination for (i) "Disability" (as defined) or (ii) a Company initiated
termination for other than "Cause" (as defined), or you terminate your Company
employment for "Good Reason" (as defined) both (i) and (ii) terminations
hereinafter referred to as a "Termination".
Individual Pension:
The Individual Pension formula assumes you commenced Company employment
on January 1, 1973 and utilizes the pension/retirement benefit formulas in the
AT&T Management Pension Plan (AT&TMPP) and the AT&T Non-Qualified Pension Plan
(AT&TNQPP), and plan amendments implemented in 1997 and thereafter provided,
however, that in no event will the Individual Pension benefits be less than
those Minimum Pension Schedule detailed in Appendix A:
In addition, the Individual Pension will also provide for an Automatic
Survivor Annuity. In the event of your death as an active employee, your spouse
will receive 50% of your accrued Individual Pension benefit which you would have
received in the event a Termination had occurred on your date of death.
(Assuming the annuitant's pension was not declined.)
In the event you do not decline the post-departure/Termination
annuitant's pension, then under this Individual Pension your spouse will
receive, after your death, an annuitant's pension for her lifetime. Under this
provision, the benefit payable to you during your lifetime will be reduced for
early retirement, if applicable (i.e., for pre-age 55 retirement), and reduced
by the cost of the annuitant's pension (such annuitant's pension cost determined
<PAGE>
in accordance with the terms and conditions of the AT&TMPP and AT&TNQP at the
time of your departure or Termination). The annuitant's pension will be a
percentage of your lifetime benefit, such percentage determined in accordance
with the terms and conditions of the AT&TMPP and AT&TNQPP at the time of your
departure/Termination.
Moreover, in the event the value of the survivor benefits under the
AT&TMPP and AT&TNQPP, as amended in 1997, exceeds the value of the Automatic
Survivor Annuity or elected Survivor Annuity as described in the two prior
paragraphs, such higher amounts will be payable to your survivor.
All AT&T qualified (e.g., AT&TMPP) and non-qualified (e.g., AT&TNQPP
and AT&T Mid Career Pension Plan) pension/retirement plan benefits (except the
AT&T Long Term Savings Plan and AT&T Incentive Award Deferral Plan) are offsets
to (i.e., subtracted from) the amount of the Individual Pension (payable to
you and/or your surviving spouse). It is further understood and agreed that
any payment under the Individual Pension made as a result of a Disability will
be an offset (subtracted from) the Disability Allowance payable under the AT&T
SMLTD&SP or successor plan.
Post-Retirement Benefits:
If upon your termination of Company employment, you are eligible to
receive an Individual Pension, you shall also be eligible, except as indicated
in the following sentence, for such Post-Retirement Benefits as are then
available (i.e., at your departure/Termination date) to Service Pension eligible
Senior Managers. Any post-retirement benefit available to Service Pension
eligible Senior Mangers which the Company is legally precluded from extending to
non-Service Pensioners will not be part of your Post -Retirement Benefit
package.
Other Provisions:
"Cause" shall be defined as follows: (1) conviction (including a plea
of guilty or nolo contendere) of a felony or any crime or theft, dishonesty or
moral turpitude; or (2) gross omission or gross dereliction of any statutory or
common law duty of loyalty to the Company or (3) violation of AT&T's Code of
Conduct.
"Disability" shall be defined as being disabled after the first
fifty-two week period following the onset of a physical or mental impairment as
detailed in the AT&T Senior Management Long Term Disability and Survivor
Protection Plan
(AT&T SMLTD&SP).
"Good Reason" shall be defined as any termination of your Company
employment, initiated by you prior to reaching your 52nd birthday, resulting
from any of the following events which are not cured by the Company within 20
days of your giving the Company written notice thereof:
a) A reduction in annual total compensation (i.e., annual base
salary rate, target annual incentive, "Long Term Incentive" as
valued below) to less than $2,267,000. For purposes of the
prior sentence, the dollar value of your annual "Long Term
Incentive" grants shall be determined by valuing Performance
Shares, Performance Units, Stock Units, Restricted Stock,
Restricted Stock Units, etc., at the market price when the
Compensation Committee approves such grants, and assuming 100%
<PAGE>
performance achievement if such grants include performance
criteria, and Stock Options and SARs will be valued at 30%
of the market price of the shares or related shares when the
Compensation Committee approves such grants, as applicable.
b) The assignment to you, without your expressed written consent,
of any duties inconsistent with, or, any substantial
alteration in, your status or responsibilities as in effect as
of the date of this Agreement.
It is understood and agreed that until this Agreement becomes part of
the public record (e.g. Proxy, 10K), you will not talk about, write about or
otherwise publicize the terms or existence of this Agreement or any fact
concerning its negotiation, execution or implementation. You may, however,
discuss its contents with your spouse, legal and/or financial counselor.
This Agreement is subject to the AT&T Non-Competition Guideline
(Attachment B).
The Special Benefits provided by this Agreement are made in lieu of
all Company severance benefits and are conditioned upon you, within thirty days
of your termination of Company employment, signing and not revoking, a Release
and Agreement not to sue the Company. The form of this Release and Agreement
will be that then (i.e., upon your Termination/retirement) in use for departing
AT&T Senior Managers.)
This Agreement reflects the entire understanding regarding the terms
and conditions of the Special Benefits. Accordingly, it supersedes and
completely replaces any prior oral or written communication on this subject.
Moreover, the Agreement shall not be amended or modified without specific
written provision to that effect, signed by you and the Company. This Agreement
is not an employment contract and should not be construed or interpreted as
containing any guarantee of continued employment. The employment relationship at
AT&T is by mutual consent ("Employment-at-Will"). This means that employees have
the right to terminate their employment at any time and for any reason.
Likewise, the Company reserves the right to discontinue your employment with or
without cause at any time and for any reason. The Agreement shall be construed
and enforced in accordance with the laws of the State of New Jersey without
reference to any applicable conflict of law provisions. The incentive plans, as
well as the employee and the Senior Management benefit plans, programs and
practices (as may be mentioned in this Agreement), reflect their current
provisions. The Company reserves the right to discontinue or modify any such
plans, programs and practices at any time.
At your or the Company's option, any dispute, controversy, or question
arising under, out of or relating to this Agreement or the breach thereof, shall
be referred for decision by arbitration in the State of New Jersey by a neutral
arbitrator selected by the parties hereto. The proceeding shall be governed by
the Rules of the American Arbitration Association then in effect or such rules
last in effect (in the event such Association is no longer in existence). If the
parties are unable to agree upon such a neutral arbitrator within thirty (30)
days after one party has given the other written notice of the desire to submit
the dispute, controversy or question for decision as aforesaid, then either
party may apply to the Presiding Judge of the Superior Court of any county in
New Jersey for the appointment of a neutral arbitrator to hear the parties and
settle the dispute, controversy or question, and such Judge is hereby authorized
to make such appointment. In the event that either party exercises the right to
submit a dispute arising hereunder to arbitration, the decision of the neutral
<PAGE>
arbitrator shall be final, conclusive and binding on all interested persons and
no action at law or in equity shall be instituted or, if instituted, further
prosecuted by either party other than to enforce the award of the neutral
arbitrator. Both parties shall each bear all their own costs and attorney fees
relating to any arbitration, except that the Company shall pay the costs of any
arbitrator appointed hereunder.
John, I am happy to present this special arrangement to you. It
recognizes the extraordinary contribution you have made to our business. If you
agree with the terms and conditions detailed above, please sign this Agreement
in the space provided below and return the executed copy to me.
Sincerely,
Attachments
- ----------------------------------- ------------------------------
Acknowledged and Agreed to Date
J. D. Zeglis
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 17th day of October, 1997,
and herein amended and restated, by and between AT&T Corp., a New York
corporation (together with its successors and assigns permitted under this
Agreement, the "Company"), and C. Michael Armstrong (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to employ the Executive and to enter into
an agreement, as herein amended and restated, embodying the terms of such
employment (this "Agreement") and the Executive desires to enter into this
Agreement and to accept such employment, subject to the terms and provisions of
this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Affiliate" of a person or other entity shall mean a
person or other entity that directly or indirectly controls, is controlled by,
or is under common control with the person or other entity specified.
(b) "Base Salary" shall mean the salary provided for
in Section 4 below or any increased salary granted to the Executive pursuant
to Section 4.
(c) "Board" shall mean the Board of Directors of the
Company.
(d) "Cause" shall mean:
(i) the Executive is convicted of a felony
involving moral turpitude; or
(ii) the Executive is guilty of willful gross
neglect or willful gross misconduct in carrying out his duties under this
Agreement, resulting, in either case, in material economic harm to the Company,
unless the Executive believed in good faith that such act or nonact was in the
best interests of the Company.
(e) "Change in Control" shall mean the occurrence of any
of the following events:
(i) An acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 (the "Exchange Act") (an "Entity") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (A) the then outstanding shares of Stock of the Company (the
<PAGE>
"Outstanding Company Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
excluding, however, the following: (1) any acquisition directly from the
Company, other than an acquisition by virtue of the exercise of a conversion
privilege unless the security being so converted was itself acquired directly
from the Company, (2) any acquisition by the Company, (3) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (4) any acquisition by any
corporation pursuant to a transaction which complies with clauses (A), (B) and
(C) of subsection (iii) of this Section 1(e);
(ii) A change in the composition of the Board such
that the individuals who, as of the effective date of this Agreement, constitute
the Board (such Board shall be hereinafter referred to as the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board; provided,
however, that for purposes of this definition, any individual who becomes a
member of the Board subsequent to the effective date of this Agreement, whose
election, or nomination for election, by the Company's stockholders was approved
by a vote of at least a two-thirds majority of those individuals who are members
of the Board and who were also members of the Incumbent Board (or deemed to be
such pursuant to this proviso) shall be considered as though such individual
were a member of the Incumbent Board; and provided, further however, that any
such individual whose initial assumption of office occurs as a result of or in
connection with either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act)
or other actual or threatened solicitation of proxies or consents by or on
behalf of an Entity other than the Board shall not be so considered as a member
of the Incumbent Board;
(iii) A merger, reorganization or consolidation to
which the Company is a party or a sale or other disposition of all or
substantially all of the assets of the Company (each, a "Corporate
Transaction"); excluding however, such a Corporate Transaction pursuant to which
(A) all or substantially all of the individuals and entities who are the
beneficial owners, respectively, of the Outstanding Company Stock and
Outstanding Company Voting Securities immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly, more than 60% of,
respectively, the outstanding shares of common stock, and the combined voting
power of the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation resulting from
such Corporate Transaction (including, without limitation, a corporation or
other person which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries (a "Parent Company")) in substantially the same proportions as
their ownership, immediately prior to such Corporate Transaction, of the
Outstanding Company Stock and Outstanding Company Voting Securities, as the case
may be, (B) no Entity (other than the Company, any employee benefit plan (or
related trust) of the Company, such corporation resulting from such Corporate
Transaction (or, if reference was made to equity ownership of any Parent Company
for purposes of determining whether clause (A) above is satisfied in connection
with the applicable Corporate Transaction, such Parent Company) will
beneficially own, directly or indirectly, 20% or more of, respectively, the
outstanding shares of common stock of the corporation resulting from such
Corporate Transaction (or, if reference was made to equity ownership of any
Parent Company for purposes of determining whether clause (A) above is satisfied
in connection with the applicable Corporate Transaction, such Parent Company) or
the combined voting power of the outstanding voting securities of such
<PAGE>
corporation entitled to vote generally in the election of directors unless such
ownership resulted solely from ownership of securities of the Company prior to
the Corporate Transaction, and (C) individuals who were members of the Incumbent
Board will immediately after the consummation of the Corporate Transaction
constitute at least a two-thirds majority of the members of the board of
directors of the corporation resulting from such Corporate Transaction (or, if
reference was made to equity ownership of any Parent Company for purposes of
determining whether clause (A) above is satisfied in connection the applicable
Corporate Transaction, of the Parent Company); or
(iv) The approval by the stockholders of the
Company of a plan of complete liquidation or dissolution of the Company.
(f) "Constructive Termination Without Cause" shall mean
termination by the Executive of his employment at his initiative following the
occurrence of any of the following events without his consent:
(i) a reduction in the Executive's then current
Base Salary or target bonus opportunity as a percentage of Base Salary or
long-term performance incentive or the termination or material reduction of any
employee benefit or perquisite enjoyed by him (other than as part of an
across-the-board reduction applicable to all executive officers of the Company);
(ii) the failure to elect or reelect the Executive
to any of the positions described in Section 3 or the removal of him from any
such position;
(iii) a material diminution in the Executive's
duties or the assignment to the Executive of duties which are materially
inconsistent with his duties or which materially impair the Executive's ability
to function as the Chairman and Chief Executive Officer of the Company;
(iv) the relocation of the Company's principal
office, or the Executive's own office location, as assigned to him by the
Company to a location more than 50 miles from Basking Ridge, New Jersey; or
(v) the failure of the Company to obtain the
assumption in writing of its obligation to perform this Agreement by any
successor to all or substantially all of the assets of the Company within 15
calendar days after a merger, consolidation, sale or similar transaction.
Following written notice from the Executive, as described above, the Company
shall have 15 calendar days in which to cure. If the Company fails to cure, the
Executive's termination shall become effective on the 16th calendar day
following the written notice.
(g) "Disability" shall mean the Executive's inability, due
to physical or mental incapacity, to substantially perform his duties and
responsibilities under this Agreement as determined by a medical doctor selected
by the Company and the Executive. If the Parties cannot agree on a medical
doctor, each Party shall select a medical doctor and the two doctors shall
select a third who shall be the approved medical doctor for this purpose.
(h) "Effective Date" shall mean the date as of which this
Agreement was entered into.
(i) "Fair Market Value" shall mean the value of a share
of Stock as traded on the New York Stock Exchange on the date in question, based
on the mean of the high and low reported prices.
<PAGE>
(j) "Pro Rata" shall mean a fraction, the numerator of
which is the number of days that the Executive was employed in the applicable
performance period (a calendar year in the case of an annual bonus and a
performance cycle in the case of an award under the Long-Term Incentive Plan)
and the denominator of which shall be the number of days in the applicable
performance period.
(k) "Stock" shall mean the Common Stock of the Company.
(l) "Term of Employment" shall mean the period specified
in Section 2 below (including any extension as provided therein).
2. Term of Employment.
The Term of Employment shall begin on the Effective Date, and
shall extend until October 31, 2003. Notwithstanding the foregoing, the Term of
Employment may be earlier terminated by either Party in accordance with the
provisions of Section 12.
3. Position, Duties and Responsibilities.
(a) Commencing on the Effective Date and continuing for
the remainder of the Term of Employment, the Executive shall be employed as the
Chairman of the Board and Chief Executive Officer of the Company and be
responsible for the general management of the affairs of the Company. The
Executive has also been elected by the Board as a member of the Board, effective
October 20, 1997. The Executive, in carrying out his duties under this
Agreement, shall report to the Board. During the Term of this Agreement, the
Executive shall devote his full business time and attention to the business and
affairs of the Company and shall use his best efforts, skills and abilities to
promote its interests.
(b) Nothing herein shall preclude the Executive from
(i) serving on the boards of directors of a reasonable number of other
corporations subject to the approval of the Board in each case (which approval
has been given as to the boards listed in Exhibit A attached), (ii) serving on
the boards of a reasonable number of trade associations and/or charitable
organizations, (iii) engaging in charitable activities and community affairs,
and (iv) managing his personal investments and affairs, provided that such
activities set forth in this Section 3(b) do not materially interfere with the
proper performance of his duties and responsibilities under Section 3(a).
4. Base Salary.
The Executive shall be paid an annualized Base Salary, payable
in accordance with the regular payroll practices of the Company, of $1,400,000.
The Base Salary shall be reviewed annually for increase in the discretion of the
Board.
5. Annual Incentive Award.
During the Term of Employment, commencing in 1998 the
Executive shall participate in the AT&T Short Term Incentive Award Plan or any
successor annual incentive award plan of the Company. Under such plan, the
Executive shall have a target bonus opportunity each year equal to 100% of his
then Base Salary, payable in that amount if the performance goals established
for the relevant year are met. If such performance goals are not met, the
Executive shall receive a lesser amount (or nothing) as determined in accordance
<PAGE>
with applicable plan guidelines. If such performance goals are exceeded, the
Executive may receive a greater amount as determined in accordance with
applicable plan guidelines. For 1998 the Executive shall be paid a guaranteed
annual incentive award of no less than 100% of his target bonus (whether or not
performance goals have been met in such year). The Executive shall be paid his
annual incentive awards no later than other senior executives of the Company are
paid their annual incentive awards.
6. Cash Award.
In order to address certain forfeitures experienced when the
Executive left his previous employer, the Company shall pay a premium of
$2,050,000 to purchase a split-dollar survivorship insurance policy under an
Estate Enhancement Program insuring the Executive and his spouse. Such policy
shall, upon the death of the last surviving insured, provide insurance proceeds
equal to the sum of the face amount of the policy and the policy's cash value.
An amount equal to the policy face amount shall be payable to the Executive's
beneficiaries or to a trust which may be established to own the Executive's
interest in such policy. The balance of the proceeds shall be paid to the
Company, and from its share of the death benefit, the Company will pay a
Company-paid death benefit to the Executive's beneficiaries equal to the death
benefit received by the Company, minus the Company-paid premium. It is agreed
and understood that the face amount of such split-dollar survivorship insurance
policy will be determined in accordance with the underwriting requirements of
the insurance company providing such coverage, based on the Company's premium
payment of $2,050,000, pursuant to this Section 6 and any additional premium
payments, if any, that the Executive may become eligible for under any similar
program adopted by the Company for its senior executives and in which the
Executive elects to participate.
Prior to the Company purchasing insurance under this paragraph,
Executive will make a reasonable effort (but not including litigation) to obtain
all or a portion of his 1997 annual bonus and his long-term incentive bonus for
the 1995-1997 performance cycle from his current employer, and he will notify
the Company, in writing, of the outcome of such efforts.
7. Stock Awards.
(a) General. On the Effective Date, the Company shall
grant the Executive restricted stock, restricted stock units and stock option
awards described in this Section 7. The Executive also shall be eligible to
participate in the Company's 1997 Long-Term Incentive Plan ("LTIP") as provided
in Section 8 below.
(b) Restricted Stock Award. As of the Effective Date, the
Company shall grant the Executive an award of 105,330 shares of restricted Stock
("Restricted Stock") substantially in the form attached to this Agreement as
Exhibit C, vesting as follows:
(i) 19,072 shares shall vest on January 1, 1999;
(ii) 18,294 shares shall vest on January 1, 2000;
(iii) 8,022 shares shall vest at the rate of 25%,
2006 shares on each of May 1, 1998 and May 1, 1999 and 2005 shares on each of
May 1, 2000 and May 1, 2001;
<PAGE>
(iv) 26,815 shares shall vest as follows: 8,939
shares on May 1, 1998, and 8,938 shares on each of May 1, 1999 and May 1, 2000;
and
(v) 33,127 shares shall vest at the rate of 25%,
8282 shares on each of the first three anniversaries of the Effective Date
and 8281 shares on the fourth anniversary of the Effective Date.
(c) Restricted Stock Unit Award. As of the Effective Date,
the Company shall grant the Executive an award of 224,561 shares of restricted
stock units (the "Restricted Stock Units") substantially in the form attached to
this Agreement as Exhibit D, vesting as provided in and subject to the
provisions of Exhibit D.
(d) Stock Option Award. As of the Effective Date, the
Company shall grant the Executive a ten-year stock option award, substantially
in the form attached to this Agreement as Exhibit E, to purchase 750,000 shares
of Stock. The exercise price shall be the Fair Market Value on the Effective
Date which the Board has fixed as the date of grant, which is $44.53125 per
share. The award shall vest as provided in Exhibit E.
(e) Anything herein to the contrary notwithstanding, the
numbers of shares of restricted stock and restricted stock units referred to in
Section 7(b) and (c) above shall be reduced to the extent the Executive's
similarly related awards from his prior employer (to which such awards under
Section 7(b) and (c) relate) are not in fact forfeited.
8. Long-Term Incentive Awards.
(a) Performance Awards. The Executive shall be eligible
to participate in the LTIP, commencing with the 1998-2000 cycle. The Executive
shall not be eligible to participate in any prior LTIP performance cycles
including the 1996-1998 and the 1997-1999 LTIP performance cycles. The Executive
shall receive a target award under each of the 1998-2000 and 1999-2001
performance cycles that shall be no less than 100% of his then Base Salary
(target amount).
(b) Stock Option Awards. The Executive shall be eligible
for stock option awards commencing with awards in 1998 in accordance with
Company practices applicable to an executive in his position.
9. Supplemental Pension.
(a) The Executive shall be entitled to a pension benefit
in the form of a single life annuity commencing upon retirement at or after age
65 (subject to earlier commencement as provided in Section 9(e) below) equal to
50% of his Final Average Compensation offset by certain amounts as provided in
Section 9(b) below. For purposes of this Section 9, Final Average Compensation
shall mean the sum of the base salary and annual incentive award payments paid
in respect of the three calendar years of the Executive's employment by the
Company during the last five calendar years of such employment during which he
received the highest level of such payments, divided by three. If the
Executive's employment with the Company terminates prior to his completion of
three calendar years of employment, his Final Average Compensation shall be
based on the average of his complete calendar years of employment with the
Company. If the Executive does not complete one calendar year of employment, his
Final Average Compensation shall be calculated by deeming his Base Salary for
<PAGE>
the year to be his Base Salary at the annualized rate in effect immediately
prior to his termination of employment and by deeming his Annual Incentive Award
for that year to be the original target Annual Incentive Award for that year.
(b) The annual annuity payment determined under Section
9(a) for any year shall be offset by (i) the greater of (A) $655,642 and (B) the
actual pension benefits to be paid to the Executive with respect to that year by
the Executive's prior employers under their respective tax-qualified and
non-tax-qualified defined benefit pension plans, (ii) any other pension benefits
provided to the Executive under any other pension plan or pension arrangement
except the AT&T Long-Term Savings Plan for Management Employees and the AT&T
Senior Management Incentive Award Deferral Plan of the Company and (iii) any
government-sponsored pension including Social Security retirement benefits. The
supplemental pension benefits payable under this Section 9 shall be afforded the
same post-employment "ad hoc" inflation adjustments, if any, as may from time to
time be given to comparable former senior executives of the Company receiving
benefits under the Company's Management Pension Plan. Payment of the pension
benefit provided under this Section 9 shall be conditioned upon the Executive
furnishing the Company promptly following retirement with written information
regarding offsetting payments from prior employers and any government-sponsored
pension and shall continue to be conditioned upon his promptly furnishing the
Company with written information as to any changes in such offsetting payments.
(c) In determining the amount of any offset under Section
9(b), such amount shall be calculated on an actuarially equivalent basis
assuming the same frequency of payment and the same form of annuity as the
pension benefit to be paid under this Section 9.
(d) Except as otherwise provided in Section 12, the
Executive's entitlement to the pension benefit under this Section 9 shall vest
at the rate of 20% on each of the first five anniversaries of the Effective
Date, with the entitlement fully vested on the fifth anniversary.
(e) Except as otherwise provided in this Section 9, the
Executive's entitlements to the pension benefit under this Section 9, including
without limitation methods of payment, rights to elect lump sum payment or joint
and survivor benefits, rights of survivors, claims procedures, actuarial
assumptions, etc., shall be determined in accordance with the provisions and
practices of the Company's Management Pension Plan as then in effect; provided,
however, that the Executive shall be deemed to have satisfied any service-period
requirement for eligibility for pre-retirement survivor annuity benefits and all
other Plan purposes except for vesting and the determination of the amount of
any early retirement benefit. In the event the Executive terminates employment
so as to be entitled to a pension benefit under this Section 9(a) prior to age
65, the actual pension benefit payable to him under this Section 9 shall be
adjusted for early commencement in accordance with the actuarial assumptions
then in effect under the Company's Management Pension Plan.
10. Employee Benefit Programs.
During the Term of Employment, the Executive shall be entitled
to participate in all employee pension and welfare benefit plans and programs
made available to the Company's senior level executives or to its employees
generally, as such plans or programs may be in effect from time to time,
including, without limitation, pension, profit sharing, savings and other
retirement plans or programs, 401(k), medical, dental, hospitalization,
short-term and long-term disability and life insurance plans, accidental death
and dismemberment protection, travel accident insurance, and any other pension
<PAGE>
or retirement plans or programs and any other employee welfare benefit plans or
programs that may be sponsored by the Company from time to time, including any
plans that supplement the above-listed types of plans or programs, whether
funded or unfunded. The Executive's participation shall be based on, and the
calculation of all benefits shall be based on, the assumptions that the
Executive has met all service-period or other requirements for such
participation provided that no such assumptions shall be made as to a
tax-qualified plan if such assumption would jeopardize the tax-qualified status
of such plan.
11. Reimbursement of Business and Other Expenses;
Perquisites; Vacations.
(a) The Executive is authorized to incur reasonable
expenses in carrying out his duties and responsibilities under this Agreement
and the Company shall promptly reimburse him for all business expenses incurred
in connection with carrying out the business of the Company, subject to
documentation in accordance with the Company's policy. The Company shall pay all
reasonable financial consultant and legal fees and expenses incurred by the
Executive in connection with the negotiation of the Executive's employment
arrangements with the Company.
(b) During the Term of Employment, the Executive shall
be entitled to participate in each of the Company's perquisites in accordance
with the terms and conditions of such arrangements as they are in effect from
time to time for the Company's chief executive officer, including without
limitation security protection, automobile, club dues, tax preparation and
financial counseling, use of corporate aircraft and limousine services.
(c) The Executive shall be entitled to reimbursement of
his relocation expenses in accordance with the Company's Management Relocation
Plan. In connection with establishing a new principal residence in the
Morristown, New Jersey area, the Executive shall in all events be entitled to
reimbursement of expenses incurred in moving his family and personal belongings
to that area. The Executive shall be entitled to reimbursement for reasonable
expenses in the form of real estate listings, commissions, legal costs and
similar expenses in disposing of his residence in the Manhattan Beach,
California area as well as any similar expenses incurred in acquiring a
residence in the Morristown, New Jersey area. The Executive shall also be
entitled to protection against any loss on the Manhattan Beach residence, which
will be based on his cost (acquisition cost plus costs of improvement) less (i)
market appraisal (as described below) or, if greater, (ii) the actual sale
price. The Company's obligation to protect the Executive against loss as
described above is subject to the following condition: The Executive shall have
15 calendar days following receipt of an appraisal as described in the following
sentence to sell the Manhattan Beach residence to the Company. The appraisal
shall be based on an appraisal by a nationally recognized appraiser agreed upon
by the Parties, the cost of the appraisal to be paid by the Company. If the
Parties do not agree upon an appraiser, each shall designate an appraiser and
the two appraisers shall select from among nationally recognized appraisers a
third appraiser who shall make the appraisal. If the Executive does not agree to
sell the residence to the Company based on the appraisal, the Company shall have
no further obligation except to pay the Executive the difference between the
cost of the residence as described above and the appraisal, assuming that this
results in a loss to the Executive. The Company also shall pay the Executive's
temporary living expenses in New Jersey and provide assistance in connection
with financing the purchase of a new home there in accordance with its regular
practices. To the extent the Company's reimbursement of the Executive's
<PAGE>
relocation expenses results in taxable income to the Executive, the Company
shall gross up such expenses so that the Executive is not out of pocket for any
Federal, state or local income, employment, excise or other taxes on such
reimbursement including the gross-up amounts.
(d) The Executive shall be entitled to five weeks paid
vacation per year of employment, which shall accrue and otherwise be subject to
the Company's vacation policy for senior executives.
12. Termination of Employment.
(a) Termination Due to Death. In the event that the
Executive's employment is terminated due to his death, his estate or his
beneficiaries, as the case may be, shall be entitled to the following benefits:
(i) Base Salary through the end of the month in
which death occurs;
(ii) annual incentive award for the year in which
the Executive's death occurs, based on the original target award performance for
such year, payable in a single installment promptly after his death;
(iii) all outstanding options, whether or not then
exercisable, shall become exercisable and shall remain exercisable until the end
of their originally scheduled terms;
(iv) the restrictions on restricted stock shall
lapse;
(v) payment of Restricted Stock Units in
accordance with Section 7(c) and Exhibit D;
(vi) payout for each LTIP performance cycle in
which the Executive was participating at the time of his death, based on the
original target performance under the plan, payable in a single installment
promptly after his death; and
(vii) the supplemental pension benefit provided in
Section 9 shall fully vest.
(b) Termination Due to Disability. In the event that the
Executive's employment is terminated due to his Disability, he shall be entitled
to the following benefits:
(i) disability benefits in accordance with the
long-term disability program then in effect for senior executives of the
Company;
(ii) Base Salary through the end of the month in
which disability benefits commence;
(iii) annual incentive award for the year in which
the Executive's termination occurs, based on the original target award for such
year, payable in a single installment promptly after his termination;
(iv) all outstanding options, whether or not then
exercisable, shall become exercisable and shall remain exercisable until the end
of their originally scheduled terms;
<PAGE>
(v) the restrictions on any restricted stock shall
lapse;
(vi) payment of Restricted Stock Units in
accordance with Section 7(c) and Exhibit D;
(vii) a payout for each LTIP performance cycle in
which the Executive was participating at the time of his termination, based on
the original target performance under the plan, payable in accordance with the
plan; and
(viii) the supplemental pension benefit provided in
Section 9 shall fully vest with offset for any Company-provided disability
benefits.
In no event shall a termination of the Executive's employment
for Disability occur until the Party terminating his employment gives written
notice to the other Party in accordance with Section 25 below.
(c) Termination by the Company for Cause.
(i) A termination for Cause shall not take effect
unless the provisions of this paragraph (i) are complied with. The Executive
shall be given written notice by the Board of the intention to terminate him for
Cause, such notice (A) to state in detail the particular act or acts or failure
or failures to act that constitute the grounds on which the proposed termination
for Cause is based and (B) to be given within six months of the Board learning
of such act or acts or failure or failures to act. The Executive shall have ten
calendar days after the date that such written notice has been given to the
Executive in which to cure such conduct, to the extent such cure is possible. If
he fails to cure such conduct, the Executive shall then be entitled to a hearing
before the Board. Such hearing shall be held within 15 calendar days of such
notice to the Executive, provided he requests such hearing within ten calendar
days of the written notice from the Board of the intention to terminate him for
Cause. If, within five calendar days following such hearing, the Executive is
furnished written notice by the Board confirming that, in its judgment, grounds
for Cause on the basis of the original notice exist, he shall thereupon be
terminated for Cause.
(ii) In the event the Company terminates the
Executive's employment for Cause:
(A) he shall be entitled to Base Salary
through the date of the termination;
(B) all outstanding options which are not
exercisable shall be forfeited; exercisable options shall remain exercisable
until the earlier of the ninetieth day after the date of termination or the
originally scheduled expiration date of the options unless the Compensation and
Employee Benefits Committee determines otherwise;
(C) all restricted stock as to which
restrictions have not lapsed shall be forfeited;
(D) Restricted Stock Units shall be
forfeited in accordance with Exhibit D;
<PAGE>
(E) all LTIP awards with respect to
performance cycles which have not yet been completed shall be forfeited; and
(F) any unvested supplemental pension
benefit to which the Executive would otherwise be entitled under Section 9 shall
be forfeited.
(d) Termination without Cause or Constructive Termination
without Cause. In the event the Executive's employment is terminated by the
Company without Cause, other than due to Disability or death, or in the event
there is a Constructive Termination without Cause, the Executive shall be
entitled to the following benefits:
(i) Base Salary through the date of termination;
(ii) Base Salary, at the annualized rate in effect
on the date of termination, for a period of 24 months following such
termination, provided that, at the Executive's option, the Company shall pay him
the present value of such salary continuation payments in a lump sum (using as
the discount rate the applicable Federal rate specified under Section 1274 of
the Internal Revenue Code of 1986, as amended (the "Code"), for short-term
Treasury obligations as published by the Internal Revenue Service for the month
in which such termination occurs);
(iii) a Pro Rata annual incentive award for the year
in which termination occurs, based on his original target award for such year,
payable when annual incentive awards are paid to other senior executives (or in
a lump sum in accordance with the proviso in Section 12(d)(ii));
(iv) an annual incentive award for a period of 24
months following the date of termination, based on his original target award for
the year in which termination occurs and payable in equal monthly installments
over the 24-month period of Base Salary continuation payments pursuant to
Section 12(d)(ii) (or in a lump sum in accordance with the proviso in Section
12(d)(ii));
(v) all outstanding options, whether or not then
exercisable, shall become exercisable and shall remain exercisable until the end
of their originally scheduled terms;
(vi) the restrictions on restricted stock shall
lapse;
(vii) payment of Restricted Stock Units in
accordance with Section 7(c) and Exhibit D;
(viii) payout for each LTIP performance cycle in
which the Executive was then participating, based on the original target
performance, payable in accordance with the plan (or in a lump sum in accordance
with the proviso in Section 12(d)(ii));
(ix) the supplemental pension benefit provided in
Section 9 shall fully vest; and
(x) the Executive shall be entitled to continued
participation in all medical, dental, vision and hospitalization insurance
coverage and in other employee benefit plans or programs in which he was
participating on the date of his termination until the earlier of:
<PAGE>
(A) 24 months following the date of
termination and
(B) the date, or dates, he receives
equivalent coverage and benefits under the plans and programs of a subsequent
employer. The Executive shall promptly advise the Company of any such subsequent
employment and the benefits he receives in connection therewith.
(e) Voluntary Termination; Retirement.
(i) A termination of employment by the Executive
on his own initiative, other than a termination due to death or Disability or a
Constructive Termination without Cause or retirement following the end of the
Term of Employment, shall have the same consequences as provided in Section
12(c)(ii) for a termination for Cause. A voluntary termination under this
Section 12(e) shall be effective 30 calendar days after prior written notice is
received by the Company.
(ii) The Executive may retire at any time following
the end of the Term of Employment and thereupon commence receiving payments of
his supplemental pension as provided in Section 9 and any other benefits to
which he is entitled as a retired senior executive in accordance with the
Company's then existing plans and practices. Upon such retirement all
restrictions on restricted stock which have not already lapsed will thereupon
lapse, payment of all Restricted Stock Units will be made in accordance with
their terms and all stock options will continue to be exercisable for the
remainder of their respective terms.
(f) Consequences of a Change in Control.
(i) If, following a Change in Control, the
Executive's employment is terminated by the Company without Cause, other than
due to Disability or death, or there is a Constructive Termination without
Cause, the Executive shall be entitled to the benefits provided in Section 12(d)
above, except that the period for which salary, annual incentive and benefits
are provided in Sections 12(d)(ii), 12(d)(iv) and 12(d)(x) (except that the
Executive may in his discretion, to the extent the plans permit, elect to
continue his benefits under Section 12(d)(x) in lieu of the lump sum payment
therefor) shall be 48 months, and all payments to be made pursuant to those
Sections and the payments to be made pursuant to Sections 12(d)(iii) and
12(d)(viii) shall be paid to the Executive in a lump sum promptly following the
date of termination.
(ii) Immediately following a Change in Control, all
amounts and benefits to which the Executive is entitled but not yet vested,
whether under this Agreement or otherwise, and except as provided in Exhibit D
with respect to Restricted Stock Units, shall become fully vested.
(iii) If, following a Change in Control, the
aggregate of all payments or benefits made or provided to the Executive under
Section 12(f)(i) and under all other plans and programs of the Company (the
"Aggregate Payment") is determined to constitute a Parachute Payment within the
meaning of Section 280G(b)(2) of the Code, the Company shall pay to the
Executive, prior to the time any excise tax imposed by Section 4999 of the Code
("Excise Tax") is payable with respect to such Aggregate Payment, an additional
amount (the "Gross-Up Payment") which, after the imposition of all income,
employment, excise and other taxes thereon, is equal to the Excise Tax on the
Aggregate Payment. The determination of whether the Aggregate Payment
constitutes a Parachute Payment and, if so, the amount to be paid to the
<PAGE>
Executive and the time of payment pursuant to this Section 12(f)(iii) shall be
made by an independent auditor (the "Auditor") selected by the Parties and paid
by the Company. The Auditor shall be a nationally recognized United States
public accounting firm which has not, during the two years preceding the date of
its selection, acted in any way on behalf of the Company or any Affiliate
thereof. If the Executive and the Company cannot agree on the firm to serve as
the Auditor, then the Executive and the Company shall each designate one
accounting firm and those two firms shall jointly select the accounting firm to
serve as the Auditor. All fees and expenses of the Auditor shall be borne solely
by the Company. Any Gross-Up Payment shall be paid by the Company to the
Executive within five calendar days of the receipt of the Auditor's
determination. Any determination by the Auditor shall be binding upon the
Company and the Executive.
As a result of uncertainty in the application of Sections 280G
and 4999 of the Code at the time of the initial determination by the Auditor
hereunder, it is possible that the Gross-Up Payment made will have been an
amount more than the Company should have paid pursuant to this Section
12(f)(iii) (the "Overpayment") or that the Gross-Up Payment made will have been
an amount less than the Company should have paid pursuant to this Section
12(f)(iii) (the "Underpayment"). In the event that there is a final
determination by the Internal Revenue Service, or a final determination by a
court of competent jurisdiction, that an Overpayment has been made, any such
Overpayment shall be treated for all purposes as a loan to the Executive which
the Executive shall repay to the Company together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code. In the
event that there is a final determination by the Internal Revenue Service, a
final determination by a court of competent jurisdiction or a change in the
provisions of the Code or regulations pursuant to which an Underpayment arises
under this Agreement, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code.
The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would result in an
Underpayment and would require the payment by the Company of an additional
Gross-Up Payment. Such notification shall be given as soon as practicable but no
later than 10 business days after the Executive is informed in writing of such
claim and shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. The Executive shall not pay such claim
prior to the expiration of the 30 calendar day period following the date on
which the Executive gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(A) give the Company any information
reasonably requested by the Company relating to such claim,
(B) take such action in connection with
contesting such claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the Company,
(C) cooperate with the Company in good
faith in order effectively to contest such claim, and
<PAGE>
(D) permit the Company to participate in
any proceeding relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income or employment tax (including
interest and penalties with respect thereto) imposed as a result of such
proceeding and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 12(f)(iii), the Company shall control all
proceedings taken in connection with such contest, provided that the Company's
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(g) Other Termination Benefits. In the case of any of the
foregoing terminations, the Executive or his estate shall also be entitled to:
(i) the balance of any incentive awards due for
performance periods which have been completed, but which have not yet been paid;
(ii) the entire amount of all amounts owing under
Section 6, including all deferrals pursuant to Section 6 (if any such amounts
have been deferred);
(iii) any expense reimbursements due the Executive;
and
(iv) other benefits, if any, in accordance with
applicable plans and programs of the Company.
(h) No Mitigation; No Offset. In the event of any
termination of employment under this Section 12, the Executive shall be under no
obligation to seek other employment and there shall be no offset against amounts
due the Executive under this Agreement on account of any remuneration
attributable to any subsequent employment that he may obtain.
(i) Nature of Payments. Any amounts due under this Section
12 are in the nature of severance payments considered to be reasonable by the
Company and are not in the nature of a penalty.
13. Confidentiality.
(a) The Executive agrees that he will not, at any time
during the Term of Employment or thereafter, disclose or use any trade secret,
proprietary or confidential information of the Company or any subsidiary or
affiliate of the Company, obtained during the course of his employment, except
as required in the course of such employment or with the written permission of
the Company or, as applicable, any subsidiary or affiliate of the Company or as
may be required by law, provided that, if the Executive receives legal process
with regard to disclosure of such information, he shall promptly notify the
Company and cooperate with the Company in seeking a protective order.
(b) The Executive agrees that at the time of the
termination of his employment with the Company, whether at the instance of the
Executive or the Company, and regardless of the reasons therefor, he will
deliver to the Company, and not keep or deliver to anyone else, any and all
notes, files, memoranda, papers and, in general, any and all physical matter
<PAGE>
containing information, including any and all documents significant to the
conduct of the business of the Company or any subsidiary or Affiliate of the
Company which are in his possession, except for any documents for which the
Company or any subsidiary or Affiliate of the Company has given written consent
to removal at the time of the termination of the Executive's employment and his
personal rolodex, phone book and similar items.
(c) The Executive agrees that the Company's remedies at
law would be inadequate in the event of a breach or threatened breach of this
Section 13; accordingly, the Company shall be entitled, in addition to its
rights at law, to an injunction and other equitable relief without the need to
post a bond.
14. Noncompetition.
(a) Subject to the provisions of Section 14(b) below
and notwithstanding any other provisions of this Agreement, any and all payments
(except those made from Company-sponsored tax-qualified pension or welfare
plans), benefits or other entitlements to which the Executive may be eligible in
accordance with the terms hereof, may be forfeited, whether or not in pay
status, at the discretion of the Company, if the Executive at any time without
the consent of the Company "establishes a relationship with a competitor" or
"engages in an activity" which is in conflict with or adverse to the interest of
the Company, all within the meaning of the Non-Competition Guideline referred to
below (a "Competitive Activity"). The payments, benefits and other entitlements
hereunder are being made in part in consideration of the obligations of this
Section 14 and in particular the post-employment payments, benefits and other
entitlements are being made in consideration of, and dependent upon, compliance
with this Section 14(a) and, to the extent set forth in Section 14(e), the
Release and Agreement referred to in Section 14(e). Exhibit F is a copy of the
Non-Competition Guideline.
(b) Anything in Section 14(a) to the contrary
notwithstanding, no forfeiture or cancellation shall take place with respect to
any payments, benefits or entitlements hereunder or under any other award
agreement, plan or practice unless the Company shall have first given the
Executive written notice of its intent to so forfeit, or cancel or pay out and
Executive has not, within 30 calendar days of giving such notice, ceased such
unpermitted Competitive Activity, provided that the foregoing prior notice
procedure shall not be required with respect to (x) a Competitive Activity which
the Executive initiated after the Company had informed the Executive in writing
that it believed such Competitive Activity violated Section 14(a) or the AT&T
Non-Competition Guideline, (y) any Competitive Activity regarding local,
regional or long distance telephone services or other products or services which
are part of a line of business which represents more than 5% percent of the
Company's consolidated gross revenues for its most recent completed fiscal year
at the time the Competitive Activity commences.
(c) Nothing in this Section 14 shall prohibit the
Executive from being a passive owner of not more than one percent of the
outstanding common stock, capital stock and equity of any firm, corporation or
enterprise so long as the Executive has no active participation in the
management of business of such firm, corporation or enterprise.
(d) If the restrictions stated herein are found by a court
to be unreasonable, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area and that the court shall revise the
restrictions contained herein to cover the maximum period, scope and area
permitted by law.
<PAGE>
(e) Any payments or benefits made pursuant to Section 12
are: (1) subject to the provisions, restrictions and limitations of Section 14
above, but not otherwise subject to offset or mitigation, (2) subject to the
Executive's signing a Release and Agreement not to sue the company in the form
of Exhibit G hereto with such changes therein or additions thereto as needed
under then applicable law to give effect to the intent of the Release and
Agreement and (3) receipt of Executive's resignation from all offices,
directorships and fiduciary positions with the Company, its Affiliates and their
respective benefit plans. Notwithstanding the due date of any post-employment
payment, any amounts due under Section 12 shall not be due until after the end
of any applicable revocation period with regard to the Release and Agreement.
(f) In no event shall the Executive be required to repay
to the Company any amount previously received by the Executive from the Company,
except to the extent required by the AT&T Non-Competition Guideline.
15. Resolution of Disputes.
Any disputes arising under or in connection with this
Agreement shall be resolved by third party mediation of the dispute and, failing
that, by binding arbitration, to be held in New Jersey, in accordance with the
rules and procedures of the American Arbitration Association. Judgment upon the
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. Each Party shall bear his or its own costs of the
mediation, arbitration or litigation, except that the Company shall bear all
such costs if the Executive prevails in such mediation, arbitration or
litigation on any material issue.
16. Indemnification.
(a) The Company agrees that if the Executive is made a
party, or is threatened to be made a party, to any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding"), by
reason of the fact that he is or was a director, officer or employee of the
Company or is or was serving at the request of the Company as a director,
officer, member, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether or not the basis of such Proceeding is the Executive's
alleged action in an official capacity while serving as a director, officer,
member, employee or agent, the Executive shall be indemnified and held harmless
by the Company to the fullest extent legally permitted or authorized by the
Company's certificate of incorporation or bylaws or resolutions of the Company's
Board of Directors or, if greater, by the laws of the State of New Jersey,
against all cost, expense, liability and loss (including, without limitation,
attorney's fees, judgments, fines, ERISA excise taxes or other liabilities or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by the Executive in connection therewith, and such indemnification
shall continue as to the Executive even if he has ceased to be a director,
member, employee or agent of the Company or other entity and shall inure to the
benefit of the Executive's heirs, executors and administrators. The Company
shall advance to the Executive all reasonable costs and expenses incurred by him
in connection with a Proceeding within 20 calendar days after receipt by the
Company of a written request for such advance. Such request shall include an
undertaking by the Executive to repay the amount of such advance if it shall
ultimately be determined that he is not entitled to be indemnified against such
costs and expenses.
<PAGE>
(b) Neither the failure of the Company (including its
board of directors, independent legal counsel or stockholders) to have made a
determination prior to the commencement of any proceeding concerning payment of
amounts claimed by the Executive under Section 16(a) above that indemnification
of the Executive is proper because he has met the applicable standard of
conduct, nor a determination by the Company (including its board of directors,
independent legal counsel or stockholders) that the Executive has not met such
applicable standard of conduct, shall create a presumption that the Executive
has not met the applicable standard of conduct.
(c) The Company agrees to continue and maintain a
directors' and officers' liability insurance policy covering the Executive to
the extent the Company provides such coverage for its other executive officers.
17. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit
of the Parties and their respective successors, heirs (in the case of the
Executive) and assigns. Rights or obligations of the Company under this
Agreement may be assigned or transferred by the Company pursuant to a merger or
consolidation in which the Company is not the continuing entity, or the sale or
liquidation of all or substantially all of the assets of the Company, provided
that the assignee or transferee is the successor to all or substantially all of
the assets of the Company and such assignee or transferee assumes the
liabilities, obligations and duties of the Company, as contained in this
Agreement, either contractually or as a matter of law. The Company further
agrees that, in the event of a sale of assets or liquidation as described in the
preceding sentence, it shall take whatever action it reasonably can in order to
cause such assignee or transferee to expressly assume the liabilities,
obligations and duties of the Company hereunder. No rights or obligations of the
Executive under this Agreement may be assigned or transferred by the Executive
other than his rights to compensation and benefits, which may be transferred
only by will or operation of law.
18. Representation.
The Company represents and warrants that it is fully
authorized and empowered to enter into this Agreement and that the performance
of its obligations under this Agreement will not violate any agreement between
it and any other person, firm or organization. The Executive represents that the
performance of his obligations under this Agreement will not violate any
agreement between him and any other person, firm or organization that would be
violated by the performance of his obligations under this Agreement.
19. Entire Agreement.
This Agreement contains the entire understanding and agreement
between the Parties concerning the subject matter hereof and supersedes all
prior agreements, understandings, discussions, negotiations and undertakings,
whether written or oral, between the Parties with respect thereto.
20. Amendment or Waiver.
No provision in this Agreement may be amended unless such
amendment is agreed to in writing and signed by the Executive and an authorized
officer of the Company. No waiver by either Party of any breach by the other
Party of any condition or provision contained in this Agreement to be performed
by such other Party shall be deemed a waiver of a similar or dissimilar
<PAGE>
condition or provision at the same or any prior or subsequent time. Any waiver
must be in writing and signed by the Executive or an authorized officer of the
Company, as the case may be.
21. Severability.
In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, in whole or
in part, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by law
so as to achieve the purposes of this Agreement.
22. Survivorship.
Except as otherwise expressly set forth in this Agreement, the
respective rights and obligations of the Parties hereunder shall survive any
termination of the Executive's employment. This Agreement itself (as
distinguished from the Executive's employment) may not be terminated by either
Party without the written consent of the other Party.
23. References.
In the event of the Executive's death or a judicial
determination of his incompetence, reference in this Agreement to the Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative.
24. Governing Law/Jurisdiction.
This Agreement shall be governed in accordance with the laws
of New Jersey without reference to principles of conflict of laws.
25. Notices.
All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed given when (a) delivered
personally, (b) sent by certified or registered mail, postage prepaid, return
receipt requested or (c) delivered by overnight courier (provided that a written
acknowledgment of receipt is obtained by the overnight courier) to the Party
concerned at the address indicated below or to such changed address as such
Party may subsequently give such notice of:
If to the Company: AT&T
295 North Maple Avenue
Basking Ridge, NJ 07920
Attention: Executive Vice President
Human Resources
If to the Executive: Mr. C. Michael Armstrong
c/o AT&T
295 North Maple Avenue
Basking Ridge, NJ 07920
26. Headings.
The headings of the sections contained in this Agreement are
for convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
<PAGE>
27. Counterparts.
This Agreement may be executed in two or more counterparts.
28. Conditions.
The effectiveness of this Agreement is conditioned upon the
following:
(i) there being no agreement between the Executive
and any prior employer that interferes or could interfere with his employment
with the Company unless such agreement is to the satisfaction of the Company
waived by such prior employer; and
(ii) the Executive passes a physical examination to
the satisfaction of the Company in accordance with its policy on pre-employment
physical examinations.
IN WITNESS WHEREOF, the undersigned have executed this Amended and
Restated Agreement on March __, 1998 as of the date first written above.
AT&T Corp.
By:______________________________
H. W. Burlingame
------------------------------
C. Michael Armstrong
<PAGE>
EXHIBITS
[To be supplied]
A. DIRECTORSHIPS
B. DEFERRED ACCOUNT AGREEMENT
C. RESTRICTED STOCK AWARD
D. RESTRICTED STOCK UNIT AWARD
E. STOCK OPTION AGREEMENT
F. A CO. NON-COMPETITION GUIDELINES
G. RELEASE AND AGREEMENT
<PAGE>
EXHIBIT A
DIRECTORSHIPS
The Times Mirror Company
Travelers Group Inc.
TBG (private company, Supervisory Board)
<PAGE>
EXHIBIT B
AT&T SENIOR MANAGEMENT INCENTIVE AWARD DEFERRAL PLAN
DEFERRAL ELECTION
Pursuant to the terms of the AT&T Senior Management Incentive Award Deferral
Plan (the "Plan"), I hereby elect to defer receipt of the amounts and/or shares
which would otherwise be payable to me during the calendar year ____ and each
calendar year thereafter, to the extent indicated on LINE 1 below. This election
shall continue until I terminate or modify such election by written notice. Any
such termination or modification shall become effective as of the end of the
calendar year in which such notice is given with respect to all awards which
would otherwise be payable to me in subsequent calendar years.
I also hereby elect:
(A) that all amounts and/or shares deferred pursuant to this election
together with accumulated interest and/or additional shares shall be
distributed to me in the number of annual installment(s) indicated on
LINE 2 below, or the number of annual installments which do not extend
beyond my life expectancy at the time the installments begin, if less.
The first installment (or single payment if I have so elected) shall be
paid as soon as practicable:
I. after the first day of the calendar quarter following the end
of the month in which I retire or otherwise terminate
employment with a Company participating in the Plan (other
than a transfer to another such Company).
II. after the first day of the calendar quarter following the end
of the month in which I attain the age indicated on LINE 3
below.
Indicate Option I or II on LINE 3 below: (Retirees may only elect Option II)
(B) in the event I should die before full payment of the amounts deferred
plus accumulated interest, the balance shall be distributed to my
beneficiary or beneficiaries in the number of annual installments
indicated on LINE 4 below of which the first installment (or single
payment if I have so elected) shall be paid as soon as practicable
after the first day of the calendar quarter following the month of
death.
<PAGE>
LONG TERM LONG TERM DIVIDEND SHORT TERM
LINE ELECTION SHARE CASH EQUIVALENTS AWARD
1 % Deferred See % from See % from
Summary Summary __________% _________%
Request Request
2 # Payments to
Self (not to
exceed 20) __________ __________ __________ __________
3 Indicate Option
I or II __________ __________ __________ __________
If Option II,
indicate age
(not less than
55 nor greater
than 70.5
years) __________ __________ __________ __________
4 # Payments to
(not to exceed
10) __________ __________ __________ __________
The elections made herein, as they relate to amounts and/or shares otherwise
payable in any calendar year, shall become IRREVOCABLE on the last day prior to
the beginning of such calendar year. The only exception is that the number of
installments elected for your beneficiary (LINE 4) may be changed at any time.
___________________________________ ___________________________________
Print Name Social Security Number
___________________________________ ___________________________________
Signature Date
<PAGE>
EXHIBIT C
AT&T 1997 Long Term Incentive Program
Restricted Stock Award Agreement
- --------------------------------------------------------------------------------
Name of Participant Social Security Number Date of Grant
- --------------------------------------------------------------------------------
Capitalized terms not otherwise defined herein shall have the same meanings as
in the Plan.
- --------------------------------------------------------------------------------
Pursuant to the AT&T 1997 Long Term Incentive Program of AT&T Corp. (the
"Plan"), a copy of which has been delivered to you, and in accordance with the
terms and conditions of the Plan and your agreement to the further terms,
conditions and restrictions set forth below, you have been granted as of the
date hereof 00,000 common shares of the Company (the "Restricted Shares").
1. The Restricted Shares shall vest and become nonforfeitable in accordance
with paragraphs 2 and 3 hereof. the period beginning on the date hereof and
ending on the day prior to the date on which any Restricted Share becomes
nonforfeitable in accordance with paragraphs 2 and 3 (the "Vesting Date") is
herein referred to as the "Restriction Period" with respect to any such
Restricted Share.
2. (a) A number of the Restricted Shares shall vest and become
nonforfeitable on the following schedule:
Number of Shares Vesting Date
---------------- ------------
00,000 00-00-0000
(b) Unless the Committee shall otherwise determine, any
Restricted Shares that are not vested upon termination of employment for any
reason shall be forfeited, except as set forth in paragraph 3.
3. (a) If your employment with the Company terminates during the
Restriction Period by reason of your death, Disability (as defined in Section
1(g) of the Employment Agreement between AT&T and you dated as of October 17,
1997 (the "Employment Agreement")), a Termination without Cause (as provided in
Section 12(d) of the Employment Agreement) or a Constructive Termination without
Cause (as defined in Section 1(f) of the Employment Agreement), all Restricted
Shares shall vest upon such termination.
(b) Upon termination of your employment for any reason other than as
described in Paragraph 3(a) above, any Restricted Shares which have not then
vested shall be forfeited.
4. Certificates evidencing the Restricted Shares shall be issued by the
Company and registered in your name on the stock transfer books of the Company
promptly after the date hereof, but shall remain in the physical custody of the
Company or its designee at all times during the respective Restriction Period.
As a condition to the receipt of this Restricted Stock Award, you shall deliver
to the Company a stock power, duly endorsed in blank, relating to the Restricted
Shares.
<PAGE>
5. You shall be the record owner of the Restricted Shares until or unless
such Shares are forfeited pursuant to paragraphs 2 and 3 hereof, and as the
record owner you shall be entitled to all rights of a common shareholder of the
Company, including, without limitation, voting rights and rights to cash and
in-kind dividends, if any, on the Restricted Shares. As soon as practicable
after termination of the respective Restriction Period, certificates for the
Restricted Shares then vesting shall be delivered to you or to your legal
representative along with the stock powers relating thereto.
6. At all times during the respective Restriction Period, the Restricted
Shares shall be nontransferable, and may not be pledged, assigned or alienated
in any way.
7. Notwithstanding any other provision of this Agreement, in the event of
a Change in Control, as defined in the Employment Agreement, the respective
Restriction Periods shall terminate and all Restricted Shares shall vest and
become 100% nonforfeitable, and such termination and vesting shall be deemed to
occur immediately prior to such Change in Control.
8. Neither the Plan nor this Restricted Share Award shall be construed as
giving you the right to be retained in the employ of the Company or any
Affiliate.
9. The Company shall have the right to deduct or cause to be deducted from
or collect or cause to be collected with respect to, any distribution hereunder
any federal, state, or local taxes required by law to be withheld or paid with
respect to such distribution, and you or your legal representative or
beneficiary shall be required to pay any such amounts. The Company shall have
the right to take such action as may be necessary, in the Company's opinion, to
satisfy such obligations.
10. You may, in accordance with procedures established by the Committee,
designate one or more beneficiaries to receive all or part of any Restricted
Shares to be distributed to you hereunder in case of your death, and you may
change or revoke such designation at any time. In the event of your death, any
Restricted Shares distributable to you hereunder that are subject to such a
designation (to the extent such designation is valid and enforceable under
applicable law) shall be distributed to such beneficiary or beneficiaries in
accordance with this Agreement. Any other Restricted Shares distributable to you
hereunder shall be distributable to your estate. If there shall be any question
as to the legal right of any beneficiary to receive a distribution hereunder,
the amount in question may be paid to your estate, in which event neither the
Company nor any Affiliate shall have any further liability to anyone with
respect to such amount.
11. Notwithstanding any provision of this Agreement to the contrary, this
Award may be canceled, and the Restricted Shares forfeited, if you, without the
Company's consent, become associated with, employed by or render services to, or
own a interest in (other than as a shareholder with a nonsubstantial interest in
such business), any business that is in competition with the Company or in
competition with any business in which the Company has a substantial interest.
The provisions of this paragraph 12 will be interpreted by the AT&T Management
Committee in accordance with the AT&T Non-Competition Guideline (the
"Guideline"), a summary of which has been given to you, and shall be effective
to the extent not prohibited by applicable law.
12. The validity, construction and effect of this Agreement shall be
determined in accordance with the laws of the State of New York and applicable
Federal Law.
<PAGE>
Please indicate your acceptance of the terms hereof, and acknowledge that you
have received copies of the Plan and the Guideline summary, in each case as
currently in effect, by signing at the place provided and returning the original
of this Agreement.
Accepted and Agreed: AT&T Corp.
By:
- ----------------------------------- -----------------------------------
<PAGE>
EXHIBIT D
AT&T 1997 Long Term Incentive Program
Restricted Stock Unit Award Agreement
- --------------------------------------------------------------------------------
Name of Participant Social Security No. Date of Grant
- --------------------------------------------------------------------------------
Capitalized terms not otherwise defined herein shall have the same meanings as
in the Plan.
- --------------------------------------------------------------------------------
Pursuant to the Employment Agreement, dated October 17, 1997, between AT&T Corp.
("AT&T") and yourself (the "Employment Agreement") and to the AT&T 1997 Long
Term Incentive Program (the "Plan"), a copy of which has been delivered to you,
and in accordance with the terms and conditions of the Plan and the Employment
Agreement and your agreement to the further terms, conditions and restrictions
set forth below, you have been granted as of the date hereof 224,561 restricted
stock units ("Restricted Stock Units" or "Units").
1. The Restricted Stock Units shall vest and become payable in accordance
with sections 2 and 3 hereof. The period beginning on the date hereof and ending
on the day prior to the date on which any Unit becomes vested and payable in
accordance with sections 2 and 3 (the "Vesting Date") is herein referred to as
the "Restriction Period" with respect to any such Restricted Stock Unit.
2. The Restricted Stock Units shall vest and become nonforfeitable (subject
to section 12) on October 1, 2003, provided that you are employed with AT&T on
that date, and AT&T shall distribute to you (or your legal representative) a
certificate representing 224,561 common shares of AT&T ("Shares") as soon as
practicable thereafter. In the event that, on October 1, 2003, the Fair Market
Value of such Shares is less than $10,000,000, you shall be entitled to a cash
payment equal to the shortfall.
3. (a) In the event that, on or before April 1, 2002, a Change in
Control occurs that is followed within three years thereafter by a "Second
Trigger Event" (as defined below), then you shall be entitled (subject to
section 12 and in lieu of any other benefit under this grant) to a cash payment
as follows:
(i) If such Second Trigger Event occurs on or after April 1,
1998 but before April 1, 1999, a cash payment equal to the greater of (a) the
Fair Market Value, on the date of such Second Trigger Event, of 25% of the
224,561 Shares that underlie this grant and (b) $2,500,000.
(ii) If such Second Trigger Event occurs on or after April 1,
1999 but before April 1, 2000, a cash payment equal to the greater of (a) the
Fair Market Value, on the date of such Second Trigger Event, of 50% of the
224,561 Shares that underlie this grant and (b) $5,000,000.
(iii) If such Second Trigger Event occurs on or after April 1,
2000 but before April 1, 2001, a cash payment equal to the greater of (a) the
Fair Market Value, on the date of such Second Trigger Event, of 75% of the
224,561 Shares that underlie this grant and (b) $7,500,000.
<PAGE>
(iv) If such Second Trigger Event occurs on or after April 1,
2001, but before April 1, 2002, a cash payment equal to the greater of (a) the
Fair Market Value, on the date of such Second Trigger Event, of 100% of the
224,561 Shares that underlie this grant and (b) $10,000,000.
(b) In the event that you die while employed by the Company, unless a
Second Trigger Event under section 3(a) has occurred, your beneficiaries or
estate shall be entitled (subject to section 12 and in lieu of any other benefit
under this grant) to a cash payment as follows:
(i) If such death occurs before October 1, 1998, a cash
payment equal to the greater of (a) the Fair Market Value, on the date of your
death, of 20% of the 224,561 Shares that underlie this grant and (b) $2,000,000.
(ii) If such death occurs on or after October 1, 1998 but
before October 1, 1999, a cash payment equal to the greater of (a) the Fair
Market Value, on the date of your death, of 40% of the 224,561 Shares that
underlie this grant and (b) $4,000,000.
(iii) If such death occurs on or after October 1, 1999 but
before October 1, 2000, a cash payment equal to the greater of (a) the Fair
Market Value, on the date of your death, of 60% of the 224,561 Shares that
underlie this grant and (b) $6,000,000.
(iv) If such death occurs on or after October 1, 2000 but
before October 1, 2001, a cash payment equal to the greater of (a) the Fair
Market Value, on the date of your death, of 80% of the 224,561 Shares that
underlie this grant and (b) $8,000,000.
(v) If such death occurs on or after October 1, 2001 but
before October 1, 2003, a cash payment equal to the greater of (a) the Fair
Market Value, on the date of your death, of 100% of the 224,561 Shares that
underlie this grant and (b) $10,000,000.
(c) For purposes of this section 3, "Second Trigger Event" shall mean
any termination of your employment with AT&T without "Cause" (other than due to
"Disability" or death), and any "Constructive Termination Without Cause," with
the quoted terms having the meaning ascribed to them in the Employment
Agreement. For purposes of this Award, termination of your employment with AT&T
due to Disability shall be treated the same as for death under section 3(b) and
any other provision of this Award.
(d) Notwithstanding anything to the contrary in the Employment
Agreement or the Plan, the Restricted Stock Units that are the subject of this
grant shall vest and become nonforfeitable in connection with a Change in
Control only to the extent provided in section 3(a).
(e) If you retire on or after attaining age 62 at the request of
AT&T, or voluntarily at any time with the consent of AT&T, you shall be treated
as employed by AT&T on October 1, 2003, for purposes of section 2.
(f) Upon termination of your employment for any reason other than as
described above in this section 3 (including, without limitation, termination as
a result of your employer ceasing to be either AT&T or an Affiliate), any
Restricted Stock Units that are not vested shall be forfeited, unless the
Committee shall otherwise determine in its sole discretion.
<PAGE>
4. A cash payment in an amount equal to the dividend payable on one Share
will be made to you for each Restricted Stock Unit held by you on the record
date for such dividend that has not been forfeited, canceled or converted to a
Share and distributed.
5. You may elect, in accordance with policies adopted by the Committee,
to receive any payment to which you are entitled under this Agreement in the
form of Shares rather than cash, such Shares to have a Fair Market Value on the
date of distribution equivalent to the cash payment forgone.
6. You may irrevocably elect, in accordance with policies adopted by
the Committee, to defer the distribution of all or any portion of any cash
payment or Shares that you otherwise would have become entitled to receive
pursuant to the terms of this Agreement.
7. At all times during the Restriction Period and any elected deferral
period, the Units awarded hereunder shall be nontransferable, and may not be
pledged, assigned or alienated in any way.
8. Transfer to or from AT&T and any Affiliate shall not be considered
a termination of employment for purposes of this Agreement. Nor shall it be
considered a termination of employment for purposes of this Agreement if you are
placed on a military leave or other approved leave of absence, unless the
Committee shall otherwise determine.
9. Neither the Plan nor this Restricted Stock Unit Award shall be construed
as giving you the right to be retained in the employ of AT&T or any Affiliate.
10. AT&T shall have the right to deduct, to cause to be deducted from, or to
collect with respect to, any distribution hereunder any federal, state, or local
taxes required by law to be withheld or paid with respect to such distribution,
and as may be necessary, in AT&T's opinion, to satisfy such obligations.
11. You may, in accordance with procedures established by the Committee,
designate one or more beneficiaries to receive all or part of any distribution
to be made hereunder in case of your death, and you may change or revoke such
designation at any time. In the event of your death, any distribution hereunder
that is subject to such a designation (to the extent such designation is valid
and enforceable under applicable law) shall be made to such beneficiary or
beneficiaries in accordance with this Agreement. Any other distribution
hereunder shall be made to your estate. If there shall be any question as to the
legal right of any beneficiary to receive a distribution hereunder, the amount
in question may be paid to your estate, in which event neither AT&T nor any
Affiliate shall have any further liability to anyone with respect to such
amount.
12. (a) You recognize and acknowledge that you have had access to highly
confidential and proprietary Company information and trade secrets; that the
use, misappropriation or disclosure of such confidential information would
constitute a breach of trust and could cause irreparable injury to AT&T; and
that it is essential to the protection of AT&T's good will and to the
maintenance of AT&T's competitive position that such confidential information be
kept secret and that you not disclose such confidential information to others or
use such confidential information to your own advantage or the advantage of
others. You further recognize and acknowledge that it is essential for the
proper protection of the business of AT&T that you be restrained (i) from
soliciting or inducing any employee of AT&T to leave the employ of AT&T, (ii)
from hiring or attempting to hire any employee of AT&T, (iii) from soliciting
<PAGE>
the trade of or trading with the customers and suppliers of AT&T for any
business purpose, and (iv) from competing against AT&T following the termination
of your employment with AT&T. You therefore agree that this grant will be
forfeited and canceled immediately in its entirety (and that any benefit already
paid out within 18 months prior to AT&T's notice of violation shall, at the
discretion of AT&T, be repaid by you to AT&T within 10 business days of AT&T's
written request) if you, during your employment or thereafter, engage in
activity, which, in the sole discretion of AT&T, is deemed to be in conflict
with or adverse to the interests of AT&T. Such adverse activity by you shall
include, but is not limited to, the following: (i) becoming associated with,
becoming employed by, rendering services to, or owning an interest in (other
than as a shareholder with a nonsubstantial interest in such business) any
business or enterprise that is engaged in competition with AT&T; (ii)
recruiting, soliciting or inducing, any employee or employees of AT&T or of any
affiliate of AT&T to terminate their employment with, or otherwise cease their
relationship with, AT&T or any affiliate of AT&T; (iii) soliciting, diverting or
taking away, or attempting to divert or to take away, the business or patronage
of any of the clients, customers or accounts, or prospective clients, customers
or accounts, which were contacted, solicited or served by those segments of AT&T
that fell within, or related to, the scope of your responsibilities in Company
positions you held during your employment with AT&T; (iv) using or disclosing
the confidential information of AT&T; (v) initiating litigation against AT&T;
(vi) criticizing, denigrating or otherwise speaking adversely against AT&T; and
(vii) violating AT&T's Code of Conduct.
(b) If any restriction set forth in this section 12 is found by any
arbitrator or court of competent jurisdiction to be unenforceable because it
extends for too long a period of time or over too great a range of activities or
in too broad a geographic area, it shall be interpreted to extend only over the
maximum period of time, range of activities or geographic areas as to which it
may be enforceable.
(c) The restrictions contained in this section 12 are necessary for
the protection of the business and goodwill of AT&T and are considered by you to
be reasonable for such purpose. Further, the restrictions set forth in this
section 12 are of the essence of this grant, and shall be construed as
independent of any other provision in this grant; and the existence of any claim
or cause of action by you against AT&T, whether predicated on this grant or not,
shall not constitute a defense to the enforcement by AT&T of these restrictions.
(d) The terms and provisions in this section 12 shall be administered
in accordance with the AT&T Non-Competition Guideline (the "Guideline").
13. The validity, construction and effect of this Agreement shall be
determined in accordance with the laws of the State of New York and applicable
Federal law.
- --------------------------------------------------------------------------------
Please indicate your acceptance of the terms in sections 1-13, and in particular
the restrictions contained in section 12, hereof, and acknowledge that you have
received copies of the Plan and the Guideline summary, in each case as currently
in effect, by signing at the place provided and returning the original of this
Agreement.
ACCEPTED AND AGREED:
- --------------------------------------------------------------------------------
SIGNATURE BY (AT&T Corp.)
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT E
AT&T 1997 LONG TERM INCENTIVE PROGRAM
NONSTATUTORY STOCK OPTION
- --------------------------------------------------------------------------------
Name of Optionee Social Security No. Date of Grant
- --------------------------------------------------------------------------------
Capitalized terms not otherwise defined herein shall have the same meanings as
in the Plan.
- --------------------------------------------------------------------------------
Pursuant to the AT&T 1997 LONG TERM INCENTIVE PROGRAM (the "Plan") of AT&T Corp.
("AT&T"), a copy of which has been delivered to you, you have been granted as of
the date hereof an option (the "Option") to purchase from AT&T 750,000 common
shares of AT&T ("Shares") at the price of $44.53125 per Share, subject to the
terms and conditions of the Plan and to your agreement to the additional terms
and conditions set forth herein.
1. (a) Your right to exercise this Option shall expire ten (10) years
from the date hereof, unless sooner terminated upon certain terminations of your
employment as provided in (b) or (c) below or canceled as provided in (e) or
section 2 below.
(b) Upon your termination of employment by reason of death,
Disability (as defined in section 1(g) of the Employment Agreement between you
and AT&T dated as of October 17, 1997, (the "Employment Agreement")),
Termination without Cause (as defined in section 12(d) of the Employment
Agreement, a Constructive Termination without Cause (as defined in section 1(f)
of the Employment Agreement) or on or after your retirement after reaching age
65, then you or your legal representative shall have the right to exercise any
portion of this Option that is then outstanding, and any unvested portion of
this Option shall immediately become exercisable, and remain exercisable, until
the earlier of five years after the date of such termination of employment or
the expiration of this Option.
(c) Upon your termination of employment for any reason other than as
described in (b) above (including your employer ceasing to be either an
Affiliate or AT&T), any portion of this Option then outstanding which is
unexercisable shall be cancelled and any portion which is then exercisable shall
remain exercisable until the earlier of the ninetieth day after the date of
termination or the originally scheduled expiration date of this Option unless
the Committee determines otherwise.
2. (a) You recognize and acknowledge that you have had access to
highly confidential and proprietary Company information and trade secrets and
the use, misappropriation or disclosure of the confidential information would
constitute a breach of trust and could cause irreparable injury to AT&T; and it
is essential to the protection of AT&T's good will and to the maintenance of
AT&T's competitive position that the confidential information be kept secret and
that you not disclose the confidential information to others or use the
confidential information to your own advantage or the advantage of others. You
further recognize and acknowledge that it is essential for the proper protection
of the business of AT&T that you be restrained (i) from soliciting or inducing
any employee of AT&T to leave the employ of AT&T, (ii) from hiring or attempting
to hire any employee of AT&T, (iii) from soliciting the trade of or trading with
<PAGE>
the customers and suppliers of AT&T for any business purpose, and (iv) from
competing against AT&T following the termination of your employment with AT&T
and therefore you agree that this Option will be forfeited and canceled
immediately in its entirety (and any benefit already paid out within 18 months
prior to AT&T's notice of violation shall, at the discretion of AT&T be required
to be repaid to AT&T by you within 10 business days of AT&T's request in
writing) if you, during your employment or thereafter, engage in activity,
which, in the sole discretion of AT&T, is deemed to be in conflict with or
adverse to the interests of AT&T. Such adverse activity by you shall include,
but is not limited to, or own an interest in (other than as a shareholder with a
nonsubstantial interest in such business) any business or enterprise that is
engaged in competition with AT&T; or (ii) recruit, solicit or induce, or attempt
to induce, any employee or employees of AT&T or any affiliate of AT&T to
terminate their employment with, or otherwise cease their relationship with,
AT&T or any affiliate of AT&T; or (iii) solicit, divert or take away, or attempt
to divert or to take away, the business or patronage of any of the clients,
customers or accounts, or prospective clients, customers or accounts, which were
contacted, solicited or served by those segments of AT&T that fall within or
relate to your scope of responsibilities in Company positions you held during
your employment with AT&T; or (iv) use or disclose the confidential information;
or (v) initiate litigation against AT&T; or (vi) criticize, denigrate or
otherwise speak adversely against AT&T; or (vii) violate AT&T's Code of Conduct.
(b) If any restriction set forth in this section 2 is found by any
arbitrator or court of competent jurisdiction to be unenforceable because it
extends for too long a period of time or over too great a range of activities or
in too broad a geographic area, it shall be interpreted to extend only over the
maximum period of time, range of activities or geographic areas as to which it
may be enforceable.
(c) The restrictions contained in this section 2 are necessary for
the protection of the business and goodwill of AT&T and are considered by you to
be reasonable for such purpose. Further, the restrictions set forth in this
section 2 are of the essence of this Option, they shall be construed as
independent of any other provision in this Option; and the existence of any
claim or cause of action by you against AT&T, whether predicated on this Option
or not, shall not constitute a defense to the enforcement by AT&T of these
restrictions.
(d) The terms and provisions in this section 2 shall be administered
in accordance with the AT&T Non-Competition Guideline (the "Guideline").
3. Except as provided in section 1 hereof, this Option may be exercised at
any time prior to its expiration or cancellation as follows: one-third of the
Shares may be purchased under the Option on the third anniversary of the date of
grant; one-third of such Shares on or after the fourth anniversary of the date
of grant; and the remaining one-third of such Shares on after the fifth
anniversary of the date of grant.
4. This Option shall be exercised by delivering to AT&T written notice on a
form to be provided for this purpose. The notice shall specify the number of
Shares as to which the Option is being exercised (which number shall be at least
fifty or the number of Shares that may then be exercised under this Option,
whichever is less). The Option or any portion thereof may be exercised only upon
payment of the exercise price thereof in full, and in accordance with procedures
established by AT&T Board of Directors or the Committee. Payment shall be made
in cash or in AT&T common shares or a combination of cash and AT&T common shares
such that the total of the cash plus the Fair Market Value, as determined in
<PAGE>
accordance with procedures established by the Committee, of the AT&T common
shares on the date of exercise at least equals the aggregate exercise price of
the Shares as to which the Option is being exercised; provided, however, that
any AT&T common shares surrendered as payment must have been owned by you at
least six months prior to the date of exercise. Exercise of the Option shall
take effect on the date the notice of exercise, in good order, is actually
received at the address specified thereon, such date to be acknowledged to you
in writing.
5. Within a reasonable period after the Option is exercised, AT&T will
deliver to you or your legal representative a statement reflecting ownership of
Shares in the form of book entry or certificates for the number of Shares with
respect to which you exercised the Option. Neither you nor your legal
representative shall be, or have any of the rights and privileges of, a
shareowner of AT&T in respect of any shares purchasable upon the exercise of
this Option, in whole or in part, unless and until certificates for such Shares
shall have been issued.
6. (a) This Option is not transferable by you otherwise than by will or
the laws of descent and distribution, and during your lifetime the Option may be
exercised only by you or your guardian or legal representative if permitted by
Section 422 and related sections of the Internal Revenue Code and any
regulations promulgated thereunder.
(b) You may, in accordance with procedures established by the
Committee, designate one or more beneficiaries to receive all or part of the
Option in case of your death, and you may change or revoke such designation at
any time. In the event of your death, any portion of this Option that is subject
to such a designation (to the extent such designation is valid and enforceable
under applicable law) shall be distributed to such beneficiary or beneficiaries
in accordance with this Agreement. Any other portion of this Option shall be
distributable to your estate. If there shall be any question as to the legal
right of any beneficiary to receive a distribution hereunder, the Shares in
question may be purchased by and distributed to your estate, in which event
neither AT&T nor any Affiliate shall have any further liability to anyone with
respect to such Shares.
7. Notwithstanding any other provision of this Agreement, in the event of
Change in Control, as defined in the Employment Agreement, any unvested portion
of the Option shall immediately become exercisable.
8. Neither the Plan nor this Agreement shall be construed as giving you the
right to be retained in the employ of AT&T nor any Affiliate.
9. If the Company shall determine, on advise of counsel, that the listing,
registration or qualification of the Shares upon any securities exchange or
under any state or federal law, or the consent or approval of any governmental
or regulatory agency or authority, is necessary or desirable as a condition of,
or in connection with , the exercise of the Option, no portion of the Option may
be exercised until or unless such listing, registration, qualification, consent
or approval shall have been effected or obtained.
10. Any determinations or decisions made or actions taken arising out of or
in connection with the interpretation and administration of this Agreement and
the Plan by the AT&T Board of Directors of the Committee shall be final and
conclusive.
<PAGE>
11. This Agreement may be amended by the AT&T Board of Directors or the
Committee provided that no such amendment shall impair your rights hereunder
without your consent.
12. AT&T may withhold or require you to pay any applicable withholding or
other employment taxes due upon the exercise of this Option. You may elect to
satisfy such withholding tax obligations by requesting that AT&T withhold Shares
with a value equal to such tax obligations from the Shares otherwise deliverable
upon the exercise of this Option.
13. The validity, construction and effect of this Agreement shall be
determined in accordance with the laws of the State of New York and applicable
Federal Law.
- --------------------------------------------------------------------------------
Please indicate your acceptance of terms 1-13, and in particular the
restrictions contained in section 2, hereof, and acknowledge that you have
received copies of the Plan and the Guideline summary, in each case as currently
in effect, by signing at the place provided and returning the original of this
Agreement.
ACCEPTED AND AGREED:
- --------------------------------------------------------------------------------
SIGNATURE BY (AT&T Corp.)
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT F
AT&T NON-COMPETITION GUIDELINE
As approved effective
August 1, 1986
<PAGE>
AT&T NON-COMPETITION GUIDELINE
TABLE OF CONTENTS
SECTION 1. STATEMENT OF PURPOSE 1
SECTION 2. DEFINITIONS 1
SECTION 3. MANAGEMENT COMMITTEE 3
1. Membership 3
2. Responsibility and Authority 4
3. Conflict of Interest 5
SECTION 4. COMPETITIVE ACTIVITY 5
1. Limitation 5
2. Definition 6
SECTION 5. EVALUATION AND DETERMINATION OF COMPETITIVE ACTIVITY 7
1. Request for a Determination 7
2. Company's Right to Initiate an Evaluation 8
3. Evaluation 9
4. Conflict of Interest 10
5. Determination 10
6. Notice of Forfeiture 11
7. Opportunity to Withdraw 12
8. Reevaluation and Determination 13
9. Subsequent Competitive Activity 13
10. Consent to Compete 15
SECTION 6. GENERAL PROVISIONS 16
1. Guideline Modifications 16
2. Severability 16
3. No Intent to Prejudice Employees' Rights 16
SECTION 1. STATEMENT OF PURPOSE
The purpose of this AT&T Non-Competition Guideline is to set
uniform standards and establish administrative responsibilities and procedures
for evaluating activity in possible violation of the non-competition clauses
contained in various AT&T incentive and benefit plans.
<PAGE>
SECTION 2. DEFINITIONS
1. The word "Guideline" shall mean this AT&T Non-Competition
Guideline.
2. The words "AT&T" or "Company" shall mean collectively the American
Telephone and Telegraph Company, a New York corporation, all of its
subsidiaries, related entities, lines of business and corporate successors and
all business enterprises, including joint ventures, in which it is a partner or
has a substantial ownership interest.
3. The term "Board of Directors" or "Board" shall mean the Board of
Directors of the American Telephone and Telegraph Company.
4. The word "Committee" shall mean the AT&T Management Committee
established and authorized by the Board to interpret and implement the standards
and procedures of the Guideline.
5. The word "Plans" shall mean the AT&T Senior Management Long Term
Incentive Plan, AT&T Senior Management Short Term Incentive Plan, AT&T 1984
Stock Option Plan, AT&T Non-Qualified Pension Plan, AT&T Senior Management Life
Insurance Program, AT&T Senior Management Long Term Disability and Survivor
Protection Plan, the AT&T Mid-Career Pension Plan, and any such other plans that
my from time to time contain non-competition clauses or that the Board shall
deem appropriate to make subject to the standards of this Guideline.
6. The word "benefit" shall mean any payment or entitlement to payment
conferred pursuant to the terms of any or all of the Plans, regardless of how,
when or in what form it is made or intended to be made.
7. The term "affected employee" shall mean an individual who, as a
former or present employee, has received, is receiving or would be eligible to
receive benefits under any of the Plans by virtue of his currently holding or,
if a former employee, by virtue of his having held at the time of his
termination of employment with the Company (i) a level higher than Division
Level or equivalent fourth level or (ii) a position that the Board of Directors
designates to be within the Senior Management Group.
8. The term "Senior Officer" shall mean an employee who has attained a
level higher than Corporate Vice President or equivalent.
9. The phrase "non-competition clauses" shall mean those provisions,
paragraphs, divisions or portions of the Plans which state in words or substance
that an affected employee will forfeit and relinquish all entitlement to
benefits if he engages in activity deemed to be in competition with the Company.
10. The use in this Guideline of personal pronouns of the masculine
gender is intended to include both the masculine and feminine genders.
11. The use in this Guideline of singular or plural nouns is intended
to have individual or collective meaning as applicable to the context as used
therein and is in no way to be construed narrowly or such as to limit the scope
of this Guideline or any of its provisions.
SECTION 3. MANAGEMENT COMMITTEE
1. Membership. The Management Committee shall consist of the Senior
Vice President-Personnel (or the corporate successor to that officer's
<PAGE>
responsibilities) and up to four other, but at no time less than two other,
Senior Officers of the Company, such other Senior Officers to serve on a
rotating basis terms of not less than one year. The Senior Vice
President-Personnel shall serve as Chairman and Secretary of the Committee and
shall have full authority to select and designate other Senior Officers to serve
on the Committee, including the authority to select and designate Senior
Officers to serve on an interim basis when regular Committee members are
unavailable or are recused as described in Paragraph 3 of this Section 3.
2. Responsibility and Authority. Responsibility for interpreting and
implementing the standards and provisions of this Guideline is vested solely and
exclusively in the Committee, which is empowered to perform or to delegate,
through and by its Chairman acting on its behalf, performance of all function
necessary to fulfill its responsibilities in connection with the forfeiture of
benefits, such functions explicitly to include, but which are not limited to,
the following: seeking the advice and counsel and directing the participation of
the heads of the Company's lines of business and any such other individuals as
it deems necessary, at whatever intervals and for whatever function it deems
appropriate ; making final determination that certain activity is or is not
competitive activity and that the benefits of the affected employee who engages
in such activity are or are not forfeited by such activity, respectively;
directing or delegating the directing of whatever such Payroll, Benefit and
other organizations of the Company as are affected to suspend or terminate
payment of benefits or to refrain from initiating payments of benefits under any
or all of the Plans to an affected employee who is found to be engaging in
competitive activity or whose activity, in the case of the suspension of
payment, is under evaluation; taking or delegating the taking of such legal
steps as are necessary to recover benefits paid to an affected employee since
the date on which he commenced engaging in activity deemed to be competitive
activity; making such minor changes to this Guideline as may be required by law,
by administrative efficiency or by changes in the Company structure; and acting
on the Company's behalf and in its best interests in all matters relating to the
issues covered by this Guideline.
3. Conflict of Interest. When a Senior Officer serving on the
Committee is unable, for personal or professional reasons, to make a fair and
objective determination of an affected employee's activity, then he shall recuse
himself and shall not participate in the discussions concerning or in the final
determination of appropriate action, in which case the Chairman of the Committee
shall nominate and appoint another Senior Officer to substitute for the Senior
Officer who has been recused, which substitute shall serve as a full member of
the Committee and shall have all authority and responsibility thereto until full
resolution off the matter has been accomplished.
SECTION 4. COMPETITIVE ACTIVITY
1. Limitation. Notwithstanding the definitions and procedures
contained in this Guideline, in all questions relating to whether certain
activity of any affected employee or any business or any product or service of
any business is or would be competitive with AT&T or whether such affected
employee's activity is grounds for the Company's invoking any non-competition
clause in any of the Plans and for terminating or preventing payment of benefits
or recovering benefits already paid to such affected employee, the Committee, in
its discretion and judgment, has sole authority to interpret the spirit and
intent of the Guideline and of the non-competition clauses, and each and every
decision of the Committee shall, with respect to all questions and matters
relative to the subjects of forfeiture and competition, be final.
<PAGE>
2. Definition. For purposes of the non-competition clauses as
contained in the Company's Plans and subject to the limitation contained in
Paragraph 1 of this Section 4, an affected employee's activity is competitive
activity and any or all of his benefits under the Plans are subject to
forfeiture to the fullest extent allowable by law if such affected employee
either (A), as more fully described below, establishes a relationship with a
competitor of the Company or (B) engages in activity which, in the Committee's
discretion or judgment, is in conflict with or adverse to the interests of the
Company.
a. As used above in Paragraph 2 of this Section 4, the phrase
"establishes a relationship with" shall mean, but shall not be limited to,
founding, organizing, establishing, becoming associated with, becoming employed
by, rendering services to, consulting or acting as consultant to, serving as
director for, being a partner in or owning a substantial interest in, as
shareholder or otherwise, such an interest to include, but not be limited to,
for example, an interest subject to the reporting requirements of Section 13(d)
of the Securities Exchange Act of 1934.
b. As used above in Paragraph 2 of this Section 4, a "competitor
of the Company" is a business, entity or enterprise which either (A) designs,
develops, manufactures, produces, offers for sale or sells a product or service
which can be used as a substitute for, performs substantially the same function
as, is a practical alternative for or is generally intended to satisfy the same
customer or client needs for any product or service designed, developed,
manufactured, produced, offered for sale or sold by the Company, or (B) is a
business or activity which the Committee, based upon review of the individual
facts and circumstances and in its discretion and judgment, determines, in order
to protect the best interests of the Company, to be a competitor within the
spirit and intent of the Guideline and the non-competition clauses.
SECTION 5. EVALUATION AND DETERMINATION OF COMPETITIVE ACTIVITY
1. Request for a Determination. An affected employee who is
considering engaging in an activity which an individual would reasonably believe
to be competitive activity as that term is used and defined in this Guideline
and which thus may be grounds for the Company's invoking the non-competition
clauses of the Plans should request, prior to engaging in such activity, that it
be evaluated as described in this Section 5 of the Guideline and that a
determination be made and an opinion rendered as to whether such activity is
deemed to violate such non-competition clauses. Such affected employee's request
may be made to the Director, Executive Personnel Matters, who, as the
Committee's delegate in correspondence and administrative functions, will
coordinate evaluation of the activity. To insure that the valuation and
determination are based on all relevant facts and circumstances and thus are
consistent with the spirit and intent of this Guideline, such affected employee
should accompany his request with a full explanation in writing of whatever
information he deems pertinent as well as of a description of the contemplated
activity, such explanation to include, but not to be limited to, (A) his
contemplated relationship, including, as applicable, his proposed position,
title, responsibilities and the nature and extent of his ownership interest, (B)
the nature of the business, including, for example, all products and/or services
currently being or expected to be designed, developed, manufacturing, produced,
offered for sale and sold by the business and (C) the most recently available
financial information on the business.
2. Company's Right to Initiate an Evaluation. The Company reserves
the right to initiate an evaluation of any activity of an affected employee
<PAGE>
which may be competitive activity as that phrase is used and defined in this
Guideline. Upon receipt of a request from or on behalf of the head of any of the
Company's lines of business, from the Board, from the Committee or from any
Senior Officer, the Director, Executive Personnel Matters, shall notify the
affected employee in writing that such an evaluation has been initiated and that
he has the opportunity to submit in writing for consideration by the Committee
whatever information he deems pertinent to its determination, including, but not
limited to, a full explanation of the activity as described above in Divisions
(A) through (C), inclusive, of Paragraph 1 of this Section 5.
3. Evaluation. Whether an affected employee's contemplated or
actual activity is or is not competitive activity within the scope and intent of
the non-competition clauses shall be separately evaluated by the head and by an
attorney serving as counsel to the head of each of the Company's lines of
business responsible for the design, development, manufacture, production, offer
for sale or sale of the product or service with which such activity is suspected
to be in competition, by the head of each entity responsible for paying benefits
under any of the affected Plans or his delegate, by a Corporate Vice
President-Law of the Company and, in addition, by such other individuals as the
Committee may designate as appropriate. Such evaluations are to be based upon
information submitted by the affected employee (including his position and
responsibilities), the financial state of the line of business, the competitive
marketplace, the extent to which the activity is adverse to the Company, the
impact on the affected employee's line of business and any other facts and
circumstances deemed relevant under the standards of this Guideline. After such
evaluations, each head and his counsel of each such line of business, each head
of each such entity or his delegate, the Corporate Vice President-Law and each
of any such other specially-designated individuals as described above shall
provide to the Committee in writing his independent recommendation as to its
determination, which recommendation shall identify, if applicable, any fact or
circumstance not readily apparent from the affected employee's submittal or not
generally known but upon which fact or circumstance the recommendation was
based.
4. Conflict of Interest. When an individual who, under the standards
of this Guideline, is to evaluate an affected employee's activity but is unable,
for personal or professional reasons, to make in that instance a fair and
objective evaluation, then he shall recuse himself and shall not evaluate the
activity nor make a recommendation to the Committee nor participate in any way
in the resolution of the matter; provided, however, that at the express
direction of the Chairman he can participate, in which case, the conflict of
interest shall be duly noted and taken into consideration when weighing his
involvement. An individual who recuses himself from evaluating activity shall
designate the individual in his line of business, entity or another Corporate
Vice President-Law, as appropriate, who shall evaluate the activity and make a
recommendation as his delegate.
5. Determination. Final determination of whether an affected
employee's activity is or is not competitive activity and thus whether his
benefits are or are not, respectively, subject to forfeiture shall be made by
the Committee and the Committee alone, and such final determination shall be
based on the recommendations as described above in Paragraphs 3 and 4 of this
Section 5 as well as on such other facts and circumstances as the Committee
deems pertinent. No single recommendation nor any or all of the recommendations
in the aggregate shall be binding or conclusive on the Committee in making its
determination. After the Committee's determination, the Director, Executive
Personnel Matters, shall notify the affected employee in writing of the decision
of the Committee. If the Committee's determination is that an affected
<PAGE>
employee's activity is not or would not be competitive activity, the Committee
reserves the right to seek, at whatever intervals it deems appropriate, written
assurance from the affected employee that the facts and circumstances upon which
the activity was evaluated and the determination based have not changed.
6. Notice of Forfeiture. If, after activity has been evaluated and
recommendations submitted as described above in Paragraph 3 of this Section 5,
the Committee determines that contemplated activity would be competitive
activity, the Director, Executive Personnel Matters, will notify the affected
employee in writing of the Committee's determination and advise such affected
employee that his benefits are at risk of forfeiture. An affected employee who
receives such notice and advice shall, within thirty business days of the date
of such notice and advice, provide the Company with written assurance that he
has not engaged and will not engage in such contemplated activity. If, after the
expiration of the thirty business day period, the Director, Executive Personnel
Matters, has not received such assurance, he shall so advise the Committee and
shall notify the appropriate Payroll and Benefit organizations to terminate
immediately or not to initiate payments of benefits to the affected employee. If
the Committee's determination is that an affected employee is currently engaging
in competitive activity, the Director, Executive Personnel Matters, upon receipt
of notice of such determination from the Chairman of the Committee shall so
advise the affected employee, shall also if so authorized by the Chairman direct
the appropriate Payroll, Benefit and other affected organizations of the Company
to terminate immediately payments of benefits to the affected employee and, in
addition, may at the Committee's express direction take such legal steps as are
necessary to recover from the affected employee all benefits paid by the Company
or on its behalf since the date when such competitive activity is deemed to have
commenced.
7. Opportunity to Withdraw. If, after activity has been evaluated and
recommendations submitted as described above in Paragraphs 3 and 4 of this
Section 5, the Committee determines that there are unusual or special
circumstances which mitigate against withdrawal of benefits from or denial of
benefits to an affected employee who is and has been engaging in activity which
is competitive activity within the spirit and intent of the non-competition
clauses, the Committee may, in its discretion and judgment, withhold termination
of benefits and offer the affected employee in writing the opportunity to
withdraw from the competitive activity; provided, however, that any affected
employee who is the recipient of and accepts such an offer shall provide the
Committee, within a reasonable time of the date of such offer as prescribed by
the Committee, written assurance that such withdrawal has been accomplished, or
such offer shall lapse and a final determination and termination of benefits be
ordered.
8. Reevaluation and Determination. Notwithstanding prior evaluations
and regardless of a previous determination by the Committee as described in this
Guideline, the Company reserves the right, without prior notice to the affected
employee, to institute a reevaluation of his activity if, in the Committee's
discretion and judgment, it believes that under the facts and circumstances such
reevaluation is warranted. In case of such reevaluation, the affected employee
shall be notified by the Director, Executive Personnel Matters, that such
reevaluation has been instituted and shall have the opportunity to submit in
writing for consideration by the Committee a full explanation of whatever
information he deems pertinent to the Committee's redetermination, such
explanation to include, but not to be limited to, a full explanation of the
activity as described above in Divisions (A) through (C), inclusive, of
Paragraph 1 of this Section 5. After such reevaluation, there shall be a
determination substantively and procedurally consistent with that described
above in Paragraph 5 of this Section 5.
<PAGE>
9. Subsequent Competitive Activity. If an affected employee commences
engaging in activity which is not at the time of commencement considered
competitive activity as that phrase is used and defined in this Guideline but
within a reasonable period of time thereafter )such period, under ordinary
circumstances and unless the Committee determines otherwise, to be three years)
the activity becomes competitive activity as that phrase is used and defined in
this Guideline, then the affected employee so engaging in such competitive
activity should advise the Director, Executive Personnel Matters. Upon receipt
of such advice, the Director, Executive Personnel Matters, shall then offer such
affected employee the opportunity to withdraw without forfeiture of benefits
under the term of and consistent with the provisions of such an opportunity as
described in Paragraph 7 of this Section 5. If an affected employee engages in
subsequent competitive activity in a situation such as that described in the
first sentence of this Paragraph 9 of this Section 5 but such affected employee
fails to come forward and so advise the Company, then, notwithstanding anything
herein to the contrary, after evaluation or reevaluation and determination as
described above in Paragraphs 2, 3, 5 and 8 of this Section 5, benefits to such
affected employee shall be immediately terminated and the Company may take such
steps as are necessary to recover any benefits paid since the date on which such
activity became competitive. If an affected employee commences engaging in
activity which is not at the time of commencement competitive with AT&T as that
phrase is used and defined in this Guideline but, subsequent thereto, AT&T
designs, develops, manufactures, produces, offers for sale or sells a product or
service such as to render the activity competitive, no question of forfeiture
arises; provided, however, that, if the affected employee, knew or had reason to
know at the time he commenced the activity that AT&T intended to design,
develop, manufacture, produce, offer for sale or sell such product or service,
then the Company may invoke the non-competition clauses.
10. Consent to Compete. In extraordinary circumstances and
notwithstanding that an affected employee's competitive activity would, under
the provisions of the Guideline, be grounds for invoking the non-competition
clauses and terminating payment of benefits to such affected employee, the
Committee may consent to an affected employee's engaging in such activity if, in
its discretion and judgment, the Committee determines that, despite such
activity's technical isolation, the facts are overwhelmingly compelling or it is
otherwise in the Company's best interest that relief from application of the
non-competition clauses is warranted. In such a case the Director, Executive
Personnel Matters, shall notify the affected employee of such consent; provided,
however, that, despite such consent, the Company reserve the right to withdraw
such consent and to invoke the non-competition clauses within a reasonable
period of time thereafter (such period, under ordinary circumstances and unless
the Committee determines otherwise, to be three years) and without prior notice
if and when, in the Committee's discretion and judgment, the facts and
circumstances warrant it.
<PAGE>
SECTION 6. GENERAL PROVISIONS
1. Guideline Modifications. The Committee, in its discretion and
judgment and without notice, may from time to time make such minor changes in
the Guideline as it deems required by law, by administrative efficiency or by
change in the Company structure.
2. Severability. To the extent that one or more of the provisions of
this Guideline may be found to be unenforceable in any federal or state
jurisdiction, such provisions are intended and are declared to be severable from
the whole, and such a judgment shall not jeopardize the enforceability of the
balance of the Guideline.
3. No Intent to Prejudice Employees' Rights. No act of the Company,
the Board, the Committee or any Senior Officer or employee of the Company acting
in connection with the design, approval, interpretation or implementation of
this Guideline or any of its standards, provisions or procedures is in any way
intended to interfere with or prejudice any individual's right to consider,
accept, continue or terminate employment, to engage in any activity or to
establish any kind of business relationship or ownership interest with any
enterprise.
<PAGE>
EXHIBIT G
AGREEMENT AND RELEASE
This AGREEMENT is made this _____ day of September 1997 by and between
AT&T Corp., (hereinafter "Company" or "AT&T") and ________________ (hereinafter
"Employee").
WHEREAS, Employee has been employed by AT&T since _____________; and
WHEREAS, Employee and the Company have decided to settle fully and
finally all obligations related to Employee's employment and resignation from
the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
1. Employee will resign his active employment with the Company on or
before ____________________, this date or such later resignation date under
Paragraph 8, hereinafter "Resignation Date".
2. Should Employee die after executing this Agreement but before the
intended Resignation Date, this Agreement shall be null and void in its
entirety.
3. As special consideration for this Agreement, the Company will pay
the Employee a Severance Benefit in the amount of ________________________
(______________). Such Severance Benefit will be paid to the Employee in _______
monthly installments beginning the month after the month which includes
Employee's Resignation Date and will be less legally required deductions for
applicable taxes.
4. Except as provided in Paragraphs 3 and 4 of this Agreement,
Employee hereby waives any and all claims to salary, incentives, payments, or
benefits of any kind, including, but not limited to, any entitlements Employee
may have under his Employment Agreement with the Company signed and dated by
Employee on ________________ and any amendments thereto, other than:
a. Employee and/or his survivors, will receive payout of
previously deferred incentive plan awards made under the AT&T
Senior Management Incentive Award Deferral Plan in accordance
with Employee's elected payout schedules and with the terms
and conditions of such plan, and
b. Those payments and other benefits shown in Appendix A.
5. Except as required by law or valid legal process, Employee shall
not disclose or discuss, other than with legal counsel, personal tax or
financial advisors, or members of Employee's immediate family, any facts
concerning the negotiation, execution or implementation of this Agreement.
Moreover, Employee specifically agrees that he will not criticize, denigrate or
otherwise speak adversely or originate, disclose or otherwise be the source of
any negative information about the operations, management or performance of the
Company, affiliates of the Company, or about any director, officer, employee or
agent of any of the foregoing; or the circumstances related to his resignation,
other than to state that Employee was __________________________ and that he
resigned voluntarily to pursue other opportunities.
<PAGE>
6. Employee specifically covenants that:
a. he will not for 18 months from the Resignation Date,
recruit, solicit or induce, attempt to induce or cause to induce, any employee
or employees of the Company to terminate their employment with, or otherwise
cease their relationship with the Company.
b. The Severance Benefit in Paragraph 3 is conditioned upon
Employee adhering to and not violating the AT&T Non- Competition Guideline (a
summary is attached as Appendix B). Such Guideline, in addition to
Non-Competition constraints includes a provision which calls for forfeiture of
benefits in the event Employee engages in activities in conflict with or adverse
to the interest of the Company.
c. The Employee recognizes and acknowledges that the Company
considers its confidential and proprietary information and trade secrets to be
among its most valuable assets, including, but not limited to, its customer and
vendor lists, databases, computer programs, frameworks, models, its marketing
programs, its sales, financial, marketing, training and technical information,
and any other information, whether communicated orally, electronically, in
writing or in other tangible forms concerning how AT&T creates, develops or
maintains its products, services and its marketing plans, targets its potential
customers and operates its business. The parties to this Agreement recognize
that AT&T has invested, and continues to invest, considerable amounts of time
and money in obtaining and developing the goodwill of its customers, its other
external relationships, its data systems and data bases, and all the proprietary
and other information described above (hereinafter collectively referred to as
"AT&T Confidential Information"), that it is essential to the protection of
AT&T's goodwill and to the maintenance of AT&T's competitive position and that
AT&T Confidential Information be kept secret and that Employee not disclose AT&T
Confidential Information to others or use AT&T Confidential Information to
Employee's own advantage or the advantage of others, and agrees that any
misappropriation or unauthorized disclosure of AT&T Confidential Information
(including trade secrets) in any form would irreparably harm AT&T. (Such AT&T
Confidential Information does not include any publicly available material.)
Employee affirms his obligation to keep secret all AT&T Confidential Information
and that he will not disclose it to any third party in the future.
d. Employee acknowledges that the restrictions set forth in this
Paragraph 6 are necessary and reasonable to prevent the use and disclosure of
AT&T Confidential Information and to otherwise protect the legitimate business
interests of the Company. Employee further acknowledges that when Employee's
employment with AT&T terminates, he will be able to earn a livelihood without
violating any of the foregoing restrictions.
7. Employee acknowledges that remedies at law, and those remedies
contained in Paragraph 11, for any breach by Employee of the provisions of
Paragraphs 5 and 6 will be inadequate and that the Company shall be entitled to
injunctive relief against Employee in the event of any such breach. This Release
is in addition to any other remedy and damages available. Employee acknowledges
that the restrictions contained therein are reasonable, but agrees that if any
court of competent jurisdiction shall hold such restrictions unreasonable as to
time, geographic area, activities, or otherwise, such restrictions shall be
deemed to be reduced to the extent necessary in the opinion of such court to
make them reasonable. The Company's waiver, or failure to seek enforcement or
remedy for a breach or suspected breach of any provision of this Agreement in a
particular instance shall not be deemed a waiver of such provision in the
<PAGE>
future. In addition, such waiver or failure to act with respect to one
provision, shall not be deemed to be a waiver of any other provision of this
Agreement.
8. If Employee becomes disabled after executing this Agreement, but
before ___________________, and if he is receiving or entitled to receive
sickness or accident disability benefit payments from the Company as of
____________________, then:
a. Should Employee die while disabled and receiving sickness or
accident benefit payments, this Agreement shall be null and void in its
entirety; OR
b. Should Employee's period of disability be determined by the
Company to terminate prior to the expiration of the period during which in
accordance with the terms of the Sickness and Accident Disability Benefit Plan,
he could become entitled to receive sickness and accident disability benefit
payments, Employee will resign his active employment with the Company effective
on the day following the last day of disability for which he receives such
payments (hereinafter his "actual resignation date"); further, Employee
understands and agrees that, in such event, the total amount of the payment
specified in Paragraph 3 above shall be reduced by the total amount of sickness
or accident disability benefit payments which he has received from the Company
for the period of disability after his intended resignation date, i.e.,
___________________ to his actual resignation date inclusive and shall be paid
out in accordance with Paragraph 3 above OR
c. Should Employee be determined by the Company to continue to be
disabled at the expiration of the period during which he is entitled to receive
sickness or accident disability benefit payments, Employee understands and
agrees that he will thereupon be retired by action of the Company's Benefit
Committee, effective on the day following the last day of eligibility for such
sickness or accident disability payments (hereafter his "actual resignation
date") and that, under such circumstances, the total amount of the payment
specified in Paragraph 3 above shall be reduced by the total amount of sickness
or accident disability benefit payments which he has received from the Company
for the period of disability after his intended resignation date, i.e., from
____________________ to his actual resignation date inclusive and shall be paid
out in accordance with Paragraph 3 above.
9. The Employee agrees that he will submit all vouchers for reasonable
business expenses prior to his Resignation Date or as soon thereafter as is
practicable. The Employee understands and agrees that after his Resignation Date
he will no longer be authorized to incur any expenses, obligations or
liabilities on behalf of the Company.
10. In accordance with his existing and continuing obligations to the
Company, Employee agrees to return to the Company, on or before his Resignation
Date, all Company property or copies thereof, including, but not limited to,
files, records, computer access codes, computer programs, instruction manuals,
documents, business plans and other property which he received or prepared or
helped to prepare in connection with his employment with the Company, and to
assign to the Company all right, title and interest in such property, and any
other inventions, discoveries or works of authorship created by Employee during
the course of his employment.
<PAGE>
11. Employee understands and agrees that a violation of any portion of
Paragraphs 5, 6, or 10, relating to the negotiation of the Agreement, disclosure
of adverse information about the Company, recruiting employees of the Company,
violation of the AT&T Non-Competition Guideline, the return of Company property,
(except the Company car if Employee elects to purchase such vehicle), and the
use or disclosure of AT&T Confidential Information, will be considered a
material breach of this Agreement, for which Employee will forfeit all benefits
(other than tax qualified welfare and retirement plan benefits) as well as any
monies not already paid under this Agreement and/or be obligated to return
immediately all monies which have already been paid under this Agreement -
except $1,000.00. The provisions of this Paragraph 11 in no way limit the
Company's right to also commence an action for damages and/or pursue other legal
or equitable remedies in the event Employee breaches any provision of this
Agreement. In the event that the Company takes such action, all of Employee's
other obligations under this Agreement shall remain in full force and effect.
12. Employee acknowledges that there are various state local and
federal laws that prohibit employment discrimination on the basis of age, sex,
race, color, national origin, religion, disability, sexual orientation or
veteran status and that these laws are enforced through the Equal Employment
Opportunity Commission, Department of Labor and State or Local Human Rights
agencies. Such laws include, without limitation, Title VII of the Civil Rights
Act of 1964 as amended 42 U.S.C. Sec. 2000 et. seq.; the Age Discrimination in
Employment Act, 29 U.S.C. Sec. 621 et. seq.; the Americans with Disabilities
Act, 42 U.S.C. Sec. 12101; the Employee Retirement Income Security Act, as
amended 29 U.S.C. Sec. 1001 et. seq.; and 42 U.S.C. Section 1981, the New Jersey
Conscientious Employee Protection Act, the New Jersey Law Against Discrimination
and other state and local human or civil rights laws as well as other statutes
which regulate employment; and the common law of contracts and torts. In
consideration of this Agreement, Employee hereby waives and releases any rights
he may have under these laws as to events which have occurred prior to the date
of this Agreement or Resignation Date, whichever is later. Employee acknowledges
that the Company has not (a) discriminated against him, (b) breached any
contract with him (c) committed any cruel wrong (tort) against him or (d)
otherwise acted unlawfully toward him. Employee, also waives any right to
become, and promises not to consent to become, a member of any class in a case
in which claims are asserted against any Releasee that is related in any way to
his employment or the termination of his employment with AT&T, and that involve
events which have occurred as of the date of this Agreement or Resignation Date.
If Employee, without his prior knowledge and consent is made a member of a class
in any proceeding, he shall opt out of the class at the first opportunity
afforded to him after learning of his inclusion. In this regard Employee agrees
that he will execute, without objection or delay, an "opt-out" form presented to
him either by the court in which such proceeding is pending or by counsel for
any Releasee who is made a defendant in any such proceeding.
13. Employee, on behalf of himself, his heirs, executors,
administrators, successors and assigns, releases and discharges the Company and
its successors, assigns, subsidiaries, affiliates, directors, officers,
representatives, agents and employees ("Releasees") from any and all claims,
including claims for attorney's fees and costs, charges, actions and causes of
action, including but not limited to those with respect to his employment or
termination of employment with the Company, as well as from all claims for
personal injury, actual or potential, to the date of this Agreement or
Employee's Resignation Date, whichever is later. This includes, but is not
limited to, claims arising under federal, state, or local laws prohibiting age,
sex, race or any other forms of discrimination such as the Age Discrimination in
Employment Act, claims arising under the New Jersey Conscientious Employee
<PAGE>
Protection Act and the New Jersey Law Against Discrimination, and claims growing
out of any legal restrictions on the Company's right to terminate its employees.
This also includes claims based on theories of contract or tort, whether arising
out of common law or otherwise. Employee represents that he has not filed any
charge or lawsuit against the Company with any governmental agency or Court and
that he will not institute any actions against the Company or any Releasee for
any reason. With respect to any administrative charges that have been or may be
filed concerning events or actions relating to his employment or the termination
of his employment that occurred on or before Resignation Date, Employee waives
and releases any right he may have to recover in any lawsuit or proceeding
brought by him or by an Administrative Agency on his behalf. If Employee
breaches this Paragraph, Employee understands that he will be liable for all
expenses, including costs and reasonable attorney's fees, incurred by any
Releasee in defending the lawsuit or charge of discrimination. Employee agrees
to pay such expenses within thirty (30) calendar days of written demand. This
Paragraph is not intended to limit Employee from instituting legal action for
the sole purpose of enforcing this Agreement.
<PAGE>
14. Except to the extent expressly provided herein, nothing in this
Agreement shall be deemed to alter, amend, modify or otherwise affect any
employee benefit, compensation or other plan, program or policy maintained by
the Company or any provision thereof.
15. If any provision, or portion thereof, of this Agreement is
determined to be invalid under applicable statute or rule of law, only such
provision, and only to the extent determined to be invalid, shall be deemed
omitted from this Agreement, the remainder of which shall remain fully in force
and effect.
16. The construction, interpretation and performance of this Agreement
shall be governed by the laws of the State of New Jersey without regard to its
Conflict of Laws principles.
17. Employee understands that, pursuant to the Older Workers Benefit
Protection Act of 1990, he has the right to consult with an attorney before
signing this Agreement, he has 21 days to consider the Agreement before signing
it and he may revoke the Agreement within seven (7) calendar days after signing
it. Employee further understands that the Agreement will not become effective or
enforceable until the seven day revocation period has expired.
18. Employee promises and agrees that in consideration of a payment of
one thousand dollars ($1,000) to be made within ten business days subsequent to
his Resignation Date, in addition to the benefits set forth in Paragraph 3 and
4, Employee will execute a release of all claims relating to his employment
during the period from the execution of this Agreement to his Resignation Date.
A copy of such release is attached as Appendix C to this Agreement.
19. This Agreement, consisting of _______ pages containing _______
paragraphs and three Appendices constitutes the entire agreement between the
Company and Employee with respect to the subject matter hereof and shall not be
amended, modified, or amplified without specific written provision to that
effect, signed by both parties. No oral statement of any person whosoever shall,
in any manner or degree, modify or otherwise affect the terms and provisions of
this Agreement. Accordingly, this Agreement supersedes and completely replaces
any prior oral or written communication on this subject.
By signing this Agreement, Employee states that;
a) He has read it and has had sufficient time to consider its
terms;
b) He understands it and knows that he is giving up important
rights;
c) He agrees with everything in it;
d) He is aware of his right to consult an attorney before signing
it;
and has been so advised
e) He has signed it knowingly and voluntarily.
Witnesses:
___________________________ ___________________________ ________________
Employee Date
___________________________ ___________________________ ________________
For the Company Date
THIS IS A LEGAL AGREEMENT, RELEASE
AND COVENANT NOT TO SUE
READ CAREFULLY BEFORE SIGNING
<PAGE>
Appendix A
Item Treatment
a) Base Salary Employee receives base salary through
Resignation Date.
b) Employee Benefits and Senior Employee will be covered under general
Management Benefits (except employee benefit plans and Senior
as otherwise noted below) Management benefit and perquisite
plans/programs and practices through
Resignation Date.
c) Medical/Dental/Vision(After Company paid Medical/Dental/Vision will
Resignation Date) continue through the Resignation Date.
Under COBRA (Consolidated Omnibus Budget
Reconciliation Act of 1985), coverage
can be continued at Employee's expense
for lesser of 18 months or until Employee
becomes eligible for coverage under
another employer's plan.
d) AT&T Senior Management Coverage will cease on Resignation Date.
Individual Life Insurance Employee may assume policy if he so
Program (AT&T SMILIP) elects by paying 100% of premium.
(After Resignation Date) Company premium contributions to policy
cease on Resignation Date and Company
will withdraw all prior premium
contributions.
e) Supplemental Variable Universal Employee, via insurance carrier, will be
Life Insurance given the option to continue coverage on
an individual basis.
<PAGE>
Appendix B
AT&T
Non-Competition
Guideline
Summary
<PAGE>
Introduction
In order to protect the interests of the Company, its shareholders, its
employees and its customers, AT&T requires that an employee who is eligible to
receive benefits under various Senior Management incentive and compensation
plans forfeit those benefits if he or she competes with the Company after
termination of employment. The standard used to determine "competing" and an
explanation of the administrative process used to evaluate activity are
described in full in the AT&T Non-Competition Guideline, which has been approved
by the AT&T Board of Directors.
This brochure summarizes the Guideline and is intended as a reference guide
only. A copy of the complete Guideline may be obtained by requesting a copy from
the Director, Executive Human Resources, AT&T Corporate Headquarters.
General Information
Responsibility for interpreting, administering and implementing the provisions
of the Guideline rests with the AT&T Management Committee, which was established
and authorized by the Board to resolve all questions and handle all matters in
connection with competition and forfeiture of benefits. At least three, but no
more than five, Senior Officers serve on the Committee.
The Committee may make minor changes in the Guideline and to those incentive and
compensation plans which are subject to the Guideline's procedures. Changes may
be made without notice whenever the Committee considers the changes necessary to
fairly and consistently administer the Guideline and to protect the Company's
interests. The Committee's decisions about forfeiture of benefits and what is
competitive activity are final.
No act of the Company, the Committee or any employee acting in connection with
the Guideline and its provisions is in any way intended to interfere with any
individual's right to consider, accept, continue or terminate employment to
engage in any activity or to establish any kind of business or ownership
interest with any enterprise.
Forfeitable Benefits
Under the terms of the following plans, the benefits they pay are forfeitable
(or immediately payable): AT&T Senior Management Short Term Incentive Plan, AT&T
Senior Management Long Term Incentive Plan, AT&T 1984 Stock Option Plan, AT&T
Non-Qualified Pension Plan, AT&T Senior Management Life Insurance Program, AT&T
Senior Management Long Term Disability and Survivor Protection Plan, AT&T Senior
Management Individual Life Insurance Program, AT&T Incentive Award Deferral
Plan, AT&T Deferred Compensation Plan for Non-Employee Directors, A&T Senior
Management Financial Counseling Program, and the AT&T Mid-Career Pension Plan.
The Board or Committee may make other plans subject to this Guideline.
. the contemplated relationship, including (as applicable) the proposed
position, title, responsibilities and the nature and extent of the
ownership interest;
. the nature of the business, including, for example, all products and/or
services currently being or expected to be designed, developed,
manufactured, produced, offered for sale or sold by the business; and
. the most recently available financial information on the business
<PAGE>
The Company has the right to initiate an evaluation of an individual's activity.
An evaluation will be instituted when it is requested by or on behalf of the
head of any of the Company's lines of business or a member of the Board or the
Committee. The Director, Executive Human Resources, will notify the individual
in writing that an evaluation has been initiated and of the opportunity to
submit within a stated period of time information for the evaluators' and the
Committee's consideration. An individual whose activity is being evaluated is
strongly encouraged to provide the Committee with a written submittal such as
that described above.
An individual's contemplated or actual activity will be separately evaluated by
. the head and an attorney serving as counsel to the head of each of the
Company's lines of business responsible for the design, development,
manufacture, production, offer for sale or sale of the product or service
with which the activity is suspected to be in competition;
. the head of each entity responsible for paying benefits under any of the
Plans listed above, or a delegate;
. A Corporate Vice President-Law of the Company; and
. any other individuals whose evaluations the Committee designates as
appropriate.
Individuals who, for personal or professional reasons, have a conflict of
interest which they feel would prevent their fair and objective evaluation will
not participate but will delegate their responsibility to another in their line
of business or organization. Evaluations will be based on the individual's
submittal, the financial state of the line of business, the competitive
marketplace, the impact of the individual's leaving on his or her line of
business, the extent to which activity is adverse to the Company's interests and
all other relevant facts and circumstances. After evaluating the activity, each
person doing an evaluation will make to the Committee a recommendation of
appropriate action, identifying, if there are any, those facts or circumstances
not readily apparent form the submittal or not generally known but upon which
facts or circumstances the recommendation was based.
Reevaluation
Even though activity has been previously evaluated and regardless of a prior
determination, the Company reserves the right without prior notice to reevaluate
activity if the Committee believes it is warranted. In case of a reevaluation,
the individual will be advised by the Director, Executive Human Resources, that
a reevaluation has been instituted and that he or she has the opportunity to
make a submittal such as that described above.
Subsequent
Competitive Activity
If an individual establishes a relationship with a business which is not at that
time a competitor of the Company, but AT&T later engages in a line of business
which is competitive with any such product and/or service of the business, no
question of forfeiture arises. However, the Company may require forfeiture if
the person knew (or had reason to know) at the time the relationship was
established that AT&T intended to design, develop, manufacture, produce, offer
for sale or sell a competitive product or service.
<PAGE>
The Company may also invoke forfeiture if, within a reasonable time-normally
three years- after the individual engages in an activity, it becomes adverse to
AT&T's interests or competitive with AT&T. In such case, if the person advises
the Director, Executive Human Resources, that the activity may have become
competitive, he or she will have the opportunity to withdraw as described above,
without forfeiture. If the Company is not advised, or if the withdrawal is not
accomplished within the stated time, then all benefits paid after the point when
the activity became competitive are forfeitable.
Consent to Compete
In very extraordinary circumstances and despite the fact that an individual's
competitive activity would be grounds for requiring forfeiture of benefits, the
Company may consent to the activity if the Committee determines that the
situation is only technically competitive and the facts are overwhelmingly
compelling that relief is warranted. In such a case, the Director, Executive
Human Resources, will provide a letter advising the individual of the Company's
decision. However, the Company does not waive by such consent the right to
withdraw the consent after it is issued, without prior notice, and to invoke the
non-competition clauses if, within a reasonable time-normally three
years-thereafter, the facts and circumstances change and it becomes in the
Company's best interest to require forfeiture.
Affected Individuals
An individual whether a present or former employee, is subject to the Guideline
and to having activity evaluated if he or she has received, is receiving or is
entitled to receive benefits according to any of the Plans listed above.
What is
Competitive Activity
An individual's activity is competitive activity and his or her benefits are
forfeitable if that individual either (A) engages in activity in conflict with
or adverse to the interests of the Company or (B) establishes a relationship
with a competitor of the Company.
"Establishing a relationship" includes founding, organizing, establishing,
becoming associated with, becoming employed by, rendering services to,
consulting or acting as consultant to, being a partner in or owning a
substantial interest in as shareholder or otherwise (such as, for example, an
interest subject to the reporting requirements of Section 13(d) of the
Securities Exchange Act of 1934).
A "competitor of the Company" is a business, entity or enterprise which either
(A) designs, develops, manufactures, produces, offers for sale or sells a
product or service which can be used as a substitute for, performs substantially
the same function as, is a practical alternative for or is generally intended to
satisfy the same customer or client needs for any product or service designed,
developed, manufactured, produced, offered for sale or sold by the Company or
(B) is a business which the Committee, based upon review of the individual facts
and circumstances and in its discretion and judgment, determines, in order to
protect the best interests of the Company, to be a competitor within the spirit
and intent of the Guideline and the non-competition clauses of various Plans.
The Evaluation Process
Anyone who is considering engaging in an activity which a reasonable person
might consider competitive activity as described above should notify the
Director, Executive Human Resources, and request that the Company evaluate the
activity to determine whether it is competitive.
<PAGE>
To insure that the Company's evaluation is fairly based on all relevant facts
and circumstances, an individual who requests a determination should provide the
Company in writing with all information he or she believes to be relevant to the
inquiry as well as a full explanation of the contemplated activity which
describes
Determination
Final determination of whether an individual's activity is or is not competitive
activity will be made by the Committee and the Committee alone. The
determination will be based on the recommendations as described above, the best
interests of the Company and on all other facts and circumstances the Committee
deems pertinent.
After the Committee's determination, the Director, Executive Human Resources,
will notify the individual of the decision in writing.
If the Committee's determination is that activity is not competitive activity ,
the individual may receive a letter advising of that determination. In such
case, the Committee reserves the right to seek, at whatever intervals it deems
appropriate, written assurance from the individual that the facts and
circumstances on which the evaluations and the determination were based have not
changed.
An individual who has not yet engaged in activity which would be considered
competitive activity will have the opportunity to provide the Company within a
reasonable period of time written assurance that he or she has not and will not
engage in such activity. If the Company receives such assurance no forfeiture
will result. If the individual fails to provide such assurance or if he or she
is already engaged in competitive activity and does not withdraw from it, then
the Director, Executive Human Resources, will coordinate termination of all
benefits with the Payroll, Benefit and all other affected organizations. The
Committee or its delegate may also take legal steps to recover any benefits
already paid.
Opportunity
to Withdraw
After activity has been evaluated and recommendations submitted as described
above, the Committee may determine that there are unusual or special
circumstances which are persuasive that withdrawal or denial of benefits is not
appropriate. In that case, the Committee may, in its discretion and judgment,
withhold termination or denial of benefits and offer the individual the
opportunity to withdraw from the competitive activity. An individual who
receives such an offer will have a reasonable period of time from the date of
the offer to accept it and to provide the Committee assurance in writing that
the withdrawal has been accomplished, or the offer will lapse and a notice to
terminate benefits will be issued.
This guideline is published by the Executive Human Resources group of AT&T
Corporate Headquarters. Questions and requests for additional copies may be
directed to Director, Executive Human Resources, AT&T Corporate Headquarters,
295 North Maple Avenue, Room 7244M3, Basking Ridge, New Jersey 07920.
April 1997
AT&T Corp.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Millions)
(Unaudited)
For the Year Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Earnings Before Income Taxes $7,193 $8,810 $4,978 $7,020 $6,210
Less Interest Capitalized
during the Period 254 193 107 39 61
Add Equity Investment Losses,
Net of Distributions of Less
than 50% Owned Affiliates 144 155 205 91 59
Add Fixed Charges 720 775 699 764 1,008
Total Earnings $7,803 $9,547 $5,775 $7,836 $7,216
Fixed Charges
Total Interest Expense
Including Capitalized
Interest $ 446 $ 536 $ 481 $ 531 $ 761
Interest Portion of
Rental Expense 274 239 218 233 247
Total Fixed Charges $ 720 $ 775 $ 699 $ 764 $1,008
Ratio of Earnings to
Fixed Charges 10.8 12.3 8.3 10.3 7.2
MANAGEMENT'S DISCUSSION AND ANALYSIS
January 1, 1997, marked a beginning for AT&T. The challenge of completing the
"trivestiture" was behind us and we entered the new year as a new company -- one
better focused and prepared to face the increasingly competitive and dynamic
telecommunications industry. As our experience in 1997 proved, however, the most
challenging period in this company's history did not end with trivestiture.
Rather, we had just begun the work needed to position ourselves strategically
and financially in order to grow profitably in the years to come.
Change and complexity characterized the industry in 1997. New services
continued to emerge -- services like voice over the Internet and Internet
Protocol(IP) networks. Digital technology continued to revolutionize the
wireless communications business. Demand for data transmission services such as
frame relay multiplied, and corporations demanded help managing their ever more
complex, more global telecommunications needs. The maze of regulatory issues
impacting our business grew more and more intricate. Even the very structure of
the industry changed as companies from all parts of the industry looked for
partners to help them become providers of complete offerings of
telecommunications services.
As if all this wasn't challenging enough in 1997, competition intensified in
our long-distance and wireless businesses where we faced some of the stiffest
competitive conditions around. Aggressive industry pricing practices put
pressure on our margins in long-distance services for businesses. The
competition used price and innumerable other tactics to attack our residential
base and new competitors entered wireless markets all over the country with
aggressive offers.
Our mission for 1997 was to take the critical actions needed to prepare AT&T
for the future. Our ultimate ability to deliver shareowner value depends on the
strategic position and the financial strength and flexibility that we create for
ourselves today. But we also understand the need to balance concern for the
future with our investors' expectations for solid financial performance in the
present.
So in 1997, we did invest for the future. We invested in our local service
initiative which reduced earnings before interest and taxes (EBIT), including
other income, and earnings before interest, taxes, depreciation and amortization
(EBITDA), including other income, by over $900 million each and reduced earnings
per share by about $0.37. We did not get the return we wanted on this
investment, so we made the important economic decision to discontinue our
efforts to sell local service to residential customers on a total services
resale basis. We remain committed to providing local service to our residential
customers, but only when an economically viable means of doing so can be
developed. On the business side, we accelerated our local entry in January 1998
when we executed a merger agreement with Teleport Communications Group, Inc.
(TCG), the largest competitive local exchange carrier. TCG brings to AT&T local
facilities in 66 of the top U.S. markets, along with the management expertise we
need to win in the business local market. The TCG deal, valued at about $11
billion, is expected to generate over $1 billion in synergies in 1999, growing
to $2.2 - $2.5 billion in 2002. Under the agreement each share of TCG will be
exchanged for .943 of an AT&T share. The merger, which remains subject to
regulatory approval and certain other conditions, is expected to close in the
second half of 1998.
<PAGE>
We also continued to develop businesses that are important to our long-term
success. These businesses include international markets (excluding bilateral
traffic), AT&T Solutions -- our outsourcing, consulting and networking
integration professional services business; AT&T WorldNet -- our Internet access
service for homes and businesses, and wireless service in new 1.9 GHz markets.
We invested heavily in these businesses in 1997; they further reduced AT&T's
EBIT by over $1.5 billion, EBITDA by more than $1.2 billion and earnings per
share by about $0.58 for the year.
A chart appears containing the following information: AT&T Two-year EPS* Trend
+: Core EPS in dollars #: Total EPS in dollars @: Initiatives EPS in dollars
Dollars 1.20
+
+
+
+
# +
+ +
#
#
#
0.80 +
#
#
#
#
0.40
0
@
@ @
@
@ @
@
@
(0.40)
1Q96 2Q96 3Q96 4Q96 1Q97 2Q97 3Q97 4Q97
Year Core Inits Total
1996 4.04 (0.59) 3.45
1997 3.69 (0.95) 2.74
*All earnings per share information in this discussion is presented on a diluted
basis, meaning that the share balance used in the calculation includes shares
outstanding plus shares that may be issued as a result of the exercise of
options.
<PAGE>
We continued to invest in our core long-distance business as well. The AT&T
network handled a record volume of traffic in 1997, including a new one-day
record of 319 million calls on the Monday after Thanksgiving. Approximately
99.96% of these calls were completed on the first try. In order to maintain this
level of capacity and reliability, as well as respond to new demands, we
invested the majority of our capital spending in 1997 in the long-distance
network, deploying Synchronous Optical Network (SONET) technology rings across
the country and increasing the capacity of our data networks.
A chart appears containing the following information:
Number of Calls on the Network
#: Number of calls on the Network.
80 Billion
#
70
#
#
60
50
40
30
20
10
0
1995 1996 1997
All this investment, plus the effects of competition on our core long-distance
and wireless businesses, put a strain on our financial performance. As a result,
our 1997 earnings were down from the prior year, as explained below in the
discussion of our financial results for the year. But again, we recognize the
need to balance investment with current earnings and to have maximum financial
flexibility in this growing industry. Therefore, we moved aggressively to shore
up our financial position and stabilize our earnings. We continued to divest
assets and businesses not critical to our long-term strategy. We completed the
sales of AT&T Tridom, AT&T Skynet, our submarine systems business and our
investment in DirecTV. We reached agreements to sell UCS, AT&T Solutions
Customer Care, and our holdings of LIN Television Corporation and WOOD-TV. We
also reduced our strategic investment in SmarTone Communications. All told, we
expect these transactions to generate about $6.7 billion in cash for AT&T
(pretax). As a result, our already solid balance sheet will become even
stronger.
<PAGE>
In order to deliver on the earnings expectations of our investors and to
position ourselves for the future, we attacked our cost structure aggressively
in 1997 and intend to do a lot more in 1998 and beyond. As a result of our cost
reduction efforts, our selling, general and administrative (SG&A) expenses
declined in the fourth quarter of 1997. Our earnings, after hitting the
low-water mark in the second quarter, showed sequential improvement in the third
and fourth quarters. EBITDA also trended upward in the second half, as the chart
below shows. Further, we expect to reduce SG&A by $1.6 billion in 1998 and our
goal is to achieve a level of SG&A expenses equal to 22% of revenues by the end
of 1999.
On January 26, 1998, we announced a voluntary retirement incentive program to
be offered to managers during the second quarter of 1998. The expected
acceptance rate of 10,000 to 11,000 employees for the voluntary retirement
incentive offer may impact the utilization of the remaining 1995 restructuring
reserve balance. Another 5,000 to 7,000 employees will leave through a
combination of managed attrition and previously announced workforce reductions.
A chart appears containing the following information: AT&T Two-year EBITDA Trend
+: Core EBITDA in dollars #: Total EBITDA in dollars @: Initiatives EBITDA in
dollars AT&T Two-year EBITDA Trend Dollars in Millions
4,000
+
3,500
+
+
+
+
+
#
#
+
#
#
+
3,000
#
#
#
2,500
#
2,000
1,500
1,000
500
0
@
@
@
@
(500)
@
@
@
@
(1,000)
1Q96 2Q96 3Q96 4Q96 1Q97 2Q97 3Q97 4Q97
<PAGE>
Shareowners recognized our efforts in 1997. AT&T was the top performing stock
in the Dow Jones Industrial Average (DJIA) for the six months ending December
31, 1997, and had the seventh-highest appreciation among the Dow stocks for the
full year. Our stock generated a total return, including dividends, of over 53%
in 1997. We hope to continue to produce a high return in 1998 and beyond by
delivering earnings growth.
A chart appears containing the following information:
@: AT&T performance vs DJIA in 1997
#: The DJIA performance in 1997
155%
145%
@
135%
125% # @
# # # # #
115% #
# # @
105% # #
@# # @
95%
@ @ @
85%
@ @ @ @ @
75%
65%
12/ 1/ 2/ 3/ 4/ 5/ 6/ 7/ 8/ 9/ 10/ 11/ 12/
31/ 31/ 28/ 31/ 30/ 30/ 30/ 31/ 29/ 30/ 31/ 28/ 31/
96 97 97 97 97 97 97 97 97 97 97 97 97
OPERATING RESULTS
Our income from continuing operations decreased $1,101 million, or 19.8%, in
1997 and increased $506 million, or 10.0%, in 1996. Lower earnings from the core
business and increased dilution from investment in initiatives contributed
almost equally to the decline in earnings in 1997. Core earnings were lower due
primarily to higher depreciation and amortization expenses driven by higher
levels of capital investment. In 1997 we invested $7.2 billion in capital, the
majority of which was directed toward increasing the capacity and technology of
our long-distance and wireless networks, including the installation of SONET
facilities. We expect to complete our SONET program in 1998 with a total of 52
rings providing coast-to-coast connectivity. Our local service efforts and our
expansion into new wireless markets were the primary drivers of the increase in
dilution from initiatives in 1997.
In 1995 our core business recorded pretax charges of $3,023 million of
restructuring and other charges. The charges covered consolidating and
reorganizing numerous corporate and business units over several years. The total
pretax charge was recorded as $844 million in network and other communications
services expenses, $934 million in depreciation and amortization expenses, and
$1,245 million in selling, general and administrative expenses. The tax benefit
associated with the charges was $991 million. The total impact on income from
continuing operations was $2,032 million, or $1.28 per share. The impact on
income from discontinued operations was $3,321 million, or $2.08 per share. The
impact on net income was $5,353 million, or $3.36 per share. Discussions
presented here exclude the impact of these charges unless noted.
<PAGE>
Dollars in Millions
For the Years Ended December 31 1997 1996 1995*
Income from Continuing Operations $4,472 $5,573 $5,067
Income from Discontinued Operations 100 173 425
Gain on Sale of Discontinued
Operations 66 162 -
Net Income $4,638 $5,908 $5,492
Earnings Per Share - Diluted:
Income from Continuing Operations $ 2.74 $ 3.45 $ 3.19
Income from Discontinued Operations 0.06 0.11 0.26
Gain on Sale of Discontinued
Operations 0.04 0.10 -
Net Income $ 2.84 $ 3.66 $ 3.45
Earnings Per Share - Diluted:
Core $ 3.69 $ 4.04 $ 3.40
Initiatives (0.95) (0.59) (0.21)
Total Continuing Operations $ 2.74 $ 3.45 $ 3.19
*Excludes restructuring and other charges
Income related to discontinued operations, including gains on disposals, was
$166 million in 1997 and $335 million in 1996. As of December 31, 1997, UCS is
the only business remaining in discontinued operations. We completed the sale of
our submarine systems business in the third quarter of 1997, and in 1996 we
successfully divested Lucent, NCR, AT&T Capital and other businesses.
REVENUES
We reported our 1997 revenues in five categories: business and consumer
long-distance services, wireless services, local and other initiatives, and
other and eliminations. Total revenues grew $773 million, or 1.5%, in 1997 and
$2,101 million, or 4.3%, in 1996.
Dollars in Millions
For the Years Ended December 31 1997 1996 1995
Business long-distance services $22,212 $21,591 $20,496
Consumer long-distance services 23,962 24,650 24,299
Wireless services 4,337 3,931 3,368
Local and other initiatives 2,226 1,569 1,393
Other and eliminations (1,418) (1,195) (1,111)
Total revenues $51,319 $50,546 $48,445
A pie chart appears containing the following information:
AT&T 1997 External Revenue by Category
As percentage of total revenue
47% Consumer long-distance services
41% Business long-distance services
8% Wireless services
4% Local and other initiatives
<PAGE>
Business long-distance services revenue, made up primarily of revenue from voice
and data services, and related products sales, increased $621 million, or 2.9%,
in 1997 and $1,095 million, or 5.4%, in 1996. Adjusted for the sales of AT&T
Skynet and AT&T Tridom, business revenue grew 3.5% in 1997. Strong growth in
revenue from data services -- frame relay and other emerging services as well as
private line -- drove the increase in business revenue. Revenue growth from
voice services was hampered by pricing pressure brought on by a number of
factors. Many voice service contracts were renegotiated during the year,
encouraged by uncertainty surrounding the possibility of detariffing.
Competitive pressure caused many of these contracts to be renegotiated at lower
rates. Also, reductions in access costs were passed to customers in the form of
lower rates, further pressuring revenue growth. Revenue growth in 1996 was
fueled by both strong growth in business inbound (toll-free 800 and 888
services) and data services.
Calling volume, or billed minutes, in business long-distance services grew in
the mid-teens in both 1997 and 1996, both led by strong volume growth in inbound
services as well as growth in outbound services and government markets. Despite
very competitive conditions, we held our market position in business services
with such major contract wins as American Express, Prudential, CVS, American
Home Products and the State of Florida. Again, lower price levels on voice
contracts substantially offset the growth in calling volume though the pricing
environment began to show signs of stabilization in the fourth quarter of 1997.
Consumer long-distance services revenue declined $688 million, or 2.8%, in
1997 and increased $351 million, or 1.4%, in 1996. However, our 1997 revenue
growth was impacted by a number of strategic choices intended to improve
profitability. For instance, we accelerated the use of free minutes as a
customer incentive in 1997, increasingly using them in place of checks. Since
free minutes are presented as contra-revenue on the income statement while
checks are classified as expense, our move toward free minutes served to reduce
revenue growth. This shift, plus the effects of flowing savings from access
reform through to customers resulting in lower prices, accounted for 2
percentage points of the 2.8% decline in revenue. The remaining decline was
primarily due to another move designed to improve long-term profitability -- the
migration of customers to more favorable optional calling plans. This is a key
element in our strategy to retain our most profitable customers. Partially
offsetting the declines was growth in intraLATA, or local-toll services.
Presubscription processes allowing customers to choose AT&T as their preferred
local-toll carrier helped revenue from these services grow substantially in
1997. In 1996 the increase in consumer revenue was driven by price increases
instituted throughout the year.
Another element in our strategy to attract and retain the most profitable
residential customers and to improve our bottom line was to refine our marketing
efforts in the second half of the year so that the customer base we targeted for
acquisition would not include customers who are not profitable to us. While not
having a material impact on consumer revenue or volume for the full year 1997,
this strategic shift may cause further pressure on these measures in the future.
Consumer calling volume increased by a low-single-digit percentage in 1997
compared with a decrease of a similar magnitude in 1996. The increase was due to
strong growth in intraLATA volume, again as a result of capturing the
opportunity offered by local-toll presubscription, while in 1996 declines in
domestic volumes were partially offset by growth in international volumes.
Total long-distance services revenues -- the sum of the business and consumer
categories -- was $46,174 million in 1997, essentially flat compared with
<PAGE>
$46,241 million in 1996. Volume increased 8.7% for the year. In 1996
long-distance revenues increased $1,446 million, or 3.2%, on a volume increase
of 5.9%. The gap between volume and revenue growth widened to 8.8% in 1997 due
to the revenue factors mentioned above, including the flow-through of access
charge reductions, and also due to the growth in lower-priced services such as
intraLATA. The 1996 gap reflected the impact of promotional discounts, increased
movement of customers to optimal calling plans and increased discounts given to
large accounts. In addition, international volumes increased in 1996 while
international revenue remained relatively flat.
Wireless services revenue, which includes wireless voice and data, messaging,
air-to-ground services and product sales, increased $406 million, or 10.3%, in
1997. Revenue from AT&T's new 1.9 GHz markets is included in this figure,
although its impact on the annual growth rate was minimal. Adjusted for the
impact of wireless properties disposed of in December 1996, the 1997 revenue
growth rate would have been 12.9%. The revenue growth was driven by consolidated
subscriber growth of 15.7% (18.3% adjusted) in 1997. In 1996 wireless revenue
increased $563 million, or 16.7%, on a 31.7% increase in subscribers. The slower
rates of growth in 1997 reflect the increased competition that characterized the
wireless industry in 1997. Competition was particularly fierce in the
southwestern and western areas of the U.S. where the introductory offers of new
market entrants were often met with equally competitive offers from incumbent
cellular competitors. The lower growth rates also reflect the fact that while
new competitors have had a significant impact in many of our cellular (850 MHz)
markets, we are just beginning to penetrate new markets with AT&T Digital PCS
service on the 1.9 GHz spectrum. Finally, similar to our consumer strategy,
toward the end of 1997 we began focusing our efforts on targeting high-value
wireless customers and reducing sales to lower-end subscribers. While this
strategic move impacted both revenue and subscriber growth rates in 1997, and
will continue to impact these growth rates in 1998, it is designed to improve
the profitability of the wireless business.
MAP OF THE UNITED STATES DISPLAYING AT&T WIRELESS SERVICES LICENSES FOOTPRINT BY
CELLULAR MARKET, PCS MARKET AND PARTNERSHIP MARKET
This strategic shift, if successful, will help support our average revenue per
user (ARPU) over time. In 1997 the impact of industry-wide competitive pricing
pressure, along with increased "convenience" usage of wireless phones, overcame
any benefit from our high-value strategy. ARPU in our existing cellular markets
fell to $54 per month from approximately $60 in 1996 and $69 in 1995.
Wireless customers, or subscribers, in markets where AT&T owns a majority
interest (consolidated markets), stood at 6.0 million at December 31, 1997. This
included over sixty thousand subscribers in our new 1.9 GHz markets. Cellular
subscribers at December 31, 1996, and 1995 were 5.2 million and 3.9 million,
respectively. Cellular subscribers in markets in which we have or share a
controlling interest were 8.2 million at December 31, 1997, up 14.7% from 7.1
million at December 31, 1996. Cellular customers on this basis were 5.5 million
at December 31, 1995.
Revenue for local and other initiatives increased $657 million, or 42.0%, in
1997 and $176 million, or 12.6%, in 1996. The 1997 increase resulted primarily
from increases in outsourcing revenue at AT&T Solutions, as well as revenue from
international markets, AT&T WorldNet and local service. Outsourcing revenue and
revenue from AT&T WorldNet drove the increase in 1996, partially offset by a
decline in revenue from international markets.
<PAGE>
Other and eliminations revenue primarily reflects the elimination of revenues
for services sold between categories (e.g., sales of business long-distance
services to other AT&T units).
OPERATING EXPENSES
For the year, operating expenses totaled $44,351 million, an increase of 6.1%
from $41,783 million in 1996. In 1996 expenses increased 3.8% from $40,238
million.
Dollars in Millions
For the Years Ended December 31 1997 1996 1995
Access and other interconnection $16,306 $16,332 $17,618
Access and other interconnection expenses are the charges that we pay to connect
calls on the facilities of local exchange carriers and other domestic service
providers, and fees that we pay foreign telephone companies (settlements) to
connect calls made to and from foreign countries on our behalf. These charges
are designed to reimburse these carriers for the common and dedicated facilities
and switching equipment used to connect our network with theirs. These costs
remained essentially flat in 1997 as lower per-minute access costs were offset
by solid volume growth and a beneficial second quarter 1996 accounting
adjustment of previously estimated accruals to reflect actual billing. The lower
per-minute access costs are primarily the result of declines in international
settlement rates and access charge reform mandated by the Federal Communications
Commission (FCC) effective for the second half of 1997. Interstate and
intrastate tariff reductions, changes in traffic mix and network planning also
contributed to the lower per-minute access costs.
In 1996 access costs declined $1,286 million, or 7.3%, again due to lower
per-minute access costs. This resulted from changes in the price-setting
methodology approved by the FCC effective in the second half of 1995, and also
from improvements in our infrastructure and reduced international settlements
payments. The beneficial accounting adjustment mentioned above also contributed
to the reduction.
Access and other interconnection expenses were 31.8% of revenues in 1997,
32.3% in 1996 and 36.4% in 1995. We expect this percentage to continue to
decline over time as we realize synergies from our pending merger with TCG.
Dollars in Millions
For the Years Ended December 31 1997 1996 1995*
Network and other
communications services $9,316 $7,918 $6,913
*Excludes restructuring and other charges of $844
Network and other communications services expenses include the costs of
operating and maintaining our network, operator services, nonincome taxes, the
provision for uncollectible receivables and compensation to payphone operators.
More than half of the $1,398 million, or 17.6%, increase in 1997 was due to
higher costs for initiatives, particularly AT&T Solutions, AT&T WorldNet and
local service. The remaining increase was primarily driven by FCC-mandated
compensation to payphone operators and higher expenses for operating and
maintaining our network. Expenses for operating and maintaining our network
increased due to higher costs for purchases from Lucent at retail and otherwise
remained essentially unchanged despite increased calling volumes and the
increased complexity of our service offerings.
<PAGE>
Growth in payphone compensation expense decelerated in the fourth quarter when
the FCC agreed to a reduction in the per-call rate from $0.350 to $0.284. As a
result of this action, AT&T was able to reverse some of the expense previously
accrued in 1997. We are currently asking for further relief from this expense as
we believe that the $0.284 per call rate remains above the actual cost to
payphone operators of providing services.
Network and other communications services expenses increased $1,005 million,
or 14.5%, in 1996. The increase was due to increased costs from our expansion
into new initiatives, enhancements made in customer care facilities and a higher
provision for uncollectibles.
Dollars in Millions
For the Years Ended December 31 1997 1996 1995*
Depreciation and amortization $3,827 $2,740 $2,586
*Excludes restructuring and other charges of $934
Depreciation and amortization expenses increased $1,087 million, or 39.6%, in
1997. The increase was driven by higher levels of capital expenditures which
totaled $3.0 billion in the fourth quarter of 1996 and $7.2 billion in 1997. In
addition to higher volumes of purchases, the impact of purchasing assets at
retail from Lucent also contributed to the higher level of capital spending. The
1997 expenditures were primarily for our long-distance and wireless networks,
including the deployment of SONET. We also invested substantial capital in
building our capability for local and WorldNet services. These capital
investments were required to provide for growth in calling volumes, to increase
capability, to introduce new technology, to enhance reliability, to expand our
wireless footprint and to establish a local presence. We expect depreciation and
amortization expenses to increase further in 1998 as we continue to expand and
enhance our network.
Depreciation and amortization increased $154 million, or 6.0%, in 1996. The
increase was primarily the result of investment in the network partially offset
by the impact of asset write-downs at the end of 1995.
Dollars in Millions
For the Years Ended December 31 1997 1996 1995*
Selling, general and administrative $14,902 $14,793 $13,121
*Excludes restructuring and other charges of $1,245
Selling, general and administrative expenses increased $109 million, or 0.7%, in
1997. SG&A expenses were 29.0% of revenues in 1997, 29.3% in 1996 and 27.1% in
1995. While investment in initiatives and spending on transitory projects, such
as preparation of our systems for the year 2000 ($113 million), put upward
pressure on SG&A expenses in 1997, core SG&A spending declined for the year as a
result of our efforts to achieve a competitive cost structure. The decline in
core SG&A expenses came primarily from lower advertising expenses across the
company, lower acquisition costs in consumer markets -- primarily a reduction in
the use of checks to acquire customers, and lower marketing and sales expenses
in business markets. As the chart shows, our year-over-year growth in SG&A
declined each quarter in 1997.
<PAGE>
A chart appears containing the following information:
SG&A Expenses Year-over-Year Growth
#: SG&A Expenses Year-over-Year Growth Rate Percentages
7.00%
#
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
#
0.00%
(1.00%) #
(2.00%)
#
(3.00%)
1Q97 2Q97 3Q97 4Q97
Partially offsetting our savings were higher retention and acquisition costs in
wireless markets. AT&T Wireless Services invested heavily in migrating customers
to digital service in 1997, which lowers costs over time. These migration costs
plus the costs of servicing a growing customer base caused the increase in
overall customer costs in wireless. However, cost per customer acquisition in
cellular markets was 6.1% lower in 1997 than in 1996 as a result of our focus on
less expensive distribution channels.
Selling, general and administrative expenses increased $1,672 million, or
12.7%, in 1996 due to expenditures for new initiatives, higher marketing and
sales expenses, and enhancements to customer care facilities. Our initiatives
represented about 30% of our increase in 1996.
We have established processes for evaluating and managing the risks and costs
associated with preparing our systems, global networks and applications for the
year 2000. We expect to incur internal staff costs as well as consulting and
other expenses related to the conversion and testing of our systems, global
networks and applications. We expect the cost of this project to be
<PAGE>
approximately $350 million in 1998. Slightly more than half of these costs
represent internal information technology resources that have been redeployed
from other projects and are expected to return to these projects upon
completion. We plan on having substantially all modifications completed by the
end of 1998, leaving a full year for testing. We are still assessing the impact
to us, if any, in 1999.
Also included in SG&A expenses were $829 million, $822 million and $732
million of research and development expenses in 1997, 1996 and 1995,
respectively. Research and development expenditures are mainly for work on
advanced communications services and projects aimed at IP services. These
expenses included $6 million of restructuring and other charges in 1995.
Dollars in Millions
For the Years Ended December 31 1997 1996 1995
Other income - net $416 $390 $284
Other income - net in 1997 included the gain on the sale of AT&T Skynet ($97
million), gains and losses on sales of cellular investments, increases in the
value of corporate-owned life insurance policies on officers, net equity
earnings from investments and other miscellaneous transactions, none of which
are individually significant.
In 1996 other income - net included sales and exchanges of cellular
properties, increases in the value of corporate-owned life insurance policies on
officers, net equity earnings from investments and other miscellaneous
transactions. In addition, other income for 1996 included a loss on our
investment in Novell, Inc.
Dollars in Millions
EBIT
For the Years Ended December 31 1997 1996 1995
Total AT&T* $7,384 $9,153 $8,491
Wireless services $271 $600 $406
*Excludes restructuring and other charges of $3,023 in 1995
EBIT decreased $1,769 million, or 19.3%, in 1997 primarily as a result of
increases in network and other communications services expenses and depreciation
and amortization expenses partially offset by increased revenues. As discussed
above, the higher depreciation expense relates primarily to our core business,
while investment in initiatives drove the increased network and other
communications services expenses. The $662 million, or 7.8%, increase in 1996
was primarily due to an increase in revenues and a decrease in access and other
interconnection expenses partially offset by increases in both SG&A expenses and
network and other communications services expenses.
Wireless services EBIT in 1997 contained a $160 million charge to exit the
two-way messaging business as well as increased dilution from wireless
initiatives. EBIT for wireless services for 1996 contained a gain on the
exchange of several wireless properties.
Dollars in Millions
For the Years Ended December 31 1997 1996 1995
Interest expense $191 $343 $490
Interest expense decreased $152 million, or 44.1%, in 1997 due to lower levels
of average debt and a higher proportion of capitalized interest. Average debt
was higher in 1996 due to the additional debt associated with Lucent. We
capitalized a greater proportion of our interest expense in 1997 primarily due
to higher qualifying assets for our local initiative.
<PAGE>
Interest expense decreased $147 million, or 30.1%, in 1996 compared with 1995
due to lower levels of average debt, which were primarily attributable to the
assignment of debt to Lucent and the application of the proceeds from the sale
of AT&T Capital.
Dollars in Millions
For the Years Ended December 31 1997 1996 1995*
Provision for income taxes $2,721 $3,237 $2,934
*Excludes restructuring and other charges of $991
The effective income tax rate is the provision for income taxes as a percentage
of income from continuing operations before income taxes. The effective income
tax rate was 37.8% in 1997 and 36.7% in both 1996 and 1995. The effective tax
rate in 1997 was impacted by investment dispositions announced in 1997. The 1996
effective income tax rate was reduced by tax benefits associated with various
legal entity restructurings while the 1995 rate was favorably impacted by lower
state tax rates and higher research credits. The 1995 effective tax rate
including restructuring and other charges was 39.0%.
GROWTH INITIATIVES
We have undertaken a number of initiatives in order to ensure that we have a
complete portfolio of services that customers demand. While these initiatives
currently have a dilutive impact on our earnings, they are expected to
contribute significantly to our future earnings and revenue growth. The
following are summaries of these initiatives and their impacts on our earnings
for the last three years. Data on initiatives include costs and expenses on an
incremental basis and require certain estimates and allocations that management
believes provide a reasonable basis on which to present such information.
Accordingly, all data presented represent approximate amounts.
PHOTOGRAPH OF AN AT&T WIRELESS PHONE
Dollars in Millions
Local Services Initiative
For the Years Ended December 31 1997 1996 1995
EBIT $(987) $(467) $(155)
EBITDA $(916) $(457) $(155)
Capital Expenditures $ 853 $ 775 $ 353
We continue to work to provide local service to business and residential
customers across the country. In 1997 we introduced AT&T Digital Link local
service for medium- and large-sized businesses. At the end of 1997 AT&T Digital
Link service was available in 49 states for outbound local calling. Inbound
capability, however, was and remains delayed by the lack of local number
portability and other factors. Our pending merger with TCG is an aggressive move
to expand our reach and propel our entry into the market for business local
service and dedicated access.
In residential markets at the end of 1997 we offered resold local service in
seven states. However, in spite of strong demand, in the fourth quarter we
stopped actively marketing resold local service to residential and small
business customers in most of these areas because of the limitations on the
local exchange carriers' ability to handle anticipated demand and because the
discounts we receive from the local exchange carriers on the sale of these
services are insufficient to make resale a viable long-term method of offering
service. The economic conditions of the total services resale approach simply do
not allow us to provide local service profitably. Nevertheless, despite the
difficulty of the regulatory environment, local service is a key growth
opportunity and we will continue to work to develop alternative methods of local
entry.
<PAGE>
Dollars in Millions
Wireless Initiatives
For the Years Ended December 31 1997 1996 1995
EBIT $(432) $ (95) $ -
EBITDA $(310) $ (76) $ -
Capital Expenditures $ 823 $ 659 $ -
Our wireless initiatives include wireless service in new markets, wireless data
services and international expansion. Our primary wireless initiative is to
provide services in new markets on the 1.9 GHz spectrum purchased in the FCC's
"A and B Block" auction in 1996. During 1997 we activated nine systems:
Phoenix/Tucson in the second quarter; Atlanta and Chicago in the third quarter,
and Philadelphia, Washington D.C./Baltimore, Cleveland, Charlotte, St. Louis and
Detroit in the fourth quarter. In addition, we activated our system in Boston in
January 1998. These markets extend the availability of AT&T Digital PCS, which
has already been introduced in AT&T's 850 MHz markets, and extends into Canada
through our partnership with Cantel. Also, in order to extend the reach of
AT&T's digital wireless services, we have announced a number of partnerships
with other wireless carriers. Through February 1998 we had announced agreements
with Triton PCS, Telecorp, and Cincinnati Bell, as well as an interoperability
agreement with Dobson Communications. These agreements will allow us to achieve
a build-out of certain license areas with minimal capital investment.
The increased EBIT dilution from wireless initiatives in 1997 primarily
relates to a $160 million charge to exit the two-way messaging business, as well
as expenses related to the activation of the new 1.9 GHz markets.
Dollars in Millions
Other Initiatives
For the Years Ended December 31 1997 1996 1995
EBIT $(1,097) $(975) $(392)
EBITDA $ (917) $(888) $(283)
Capital Expenditures $ 308 $ 245 $ 159
PHOTOGRAPH OF INSIDE AN AT&T SOLUTIONS FACILITY
Other initiatives include AT&T Solutions, AT&T WorldNet and other online
services, and international markets (excluding bilateral traffic). AT&T
Solutions continued to grow and made progress in 1997 toward achieving
profitability. We expect AT&T Solutions to turn profitable in 1998. In 1997 AT&T
Solutions won contracts with such companies as 1-800-FLOWERS, Bear Stearns,
Hallmark, Royal Bank of Canada, Chung Hwa Telecommunications, PT Telkom, Norwest
Bank, Best Buy and United Airlines. EBIT dilution from AT&T Solutions decreased
53% in 1997 and increased 4% in 1996.
IMAGE OF THE AT&T WORLDNET HOMEPAGE
In 1997 we continued to develop our presence in the Internet access and
electronic commerce businesses through our online services such as AT&T WorldNet
and electronic commerce businesses. AT&T WorldNet signed up its one-millionth
customer in the fourth quarter of 1997 and finished the year with 1.01 million
Internet access customers. This represents an increase of 443,000 subscribers
for the year. As AT&T WorldNet's initial promotional activity began to expire in
1997, subscriber growth slowed as many customers who were receiving the free
promotion deactivated service. We continue to explore ways of growing the
Internet access business and realizing synergies between it and other AT&T
businesses. For example, in January 1998 we announced a long-distance offer
targeting Internet access customers. Beginning in March 1998 AT&T WorldNet
customers can sign up for long-distance services via AT&T's Web site and receive
a rate of nine cents per minute.
<PAGE>
Globally, we focused our strategy on serving multinational corporations and
global travelers and expanding our North American franchise in Canada and
Mexico. Alestra, our Mexican joint venture with Grupo Alfa and VISA-Bancomer,
had over one million lines presubscribed in 1997, leading all of the other
carriers competing against the former monopoly carrier, TelMex. However, equity
losses from Alestra exceeded our expectations in 1997. In 1997 we also announced
a proposed alliance with Telecom Italia that we believe will enhance our ability
to serve multinational customers in Europe and Latin America. Telecom Italia
will join the AT&T-Unisource joint venture in Europe. In addition, we plan to
form a joint venture with Telecom Italia to serve customers in Latin America.
CASH FLOWS
Dollars in Millions
EBITDA
For the Years Ended December 31 1997 1996 1995
Total AT&T* $11,277 $11,955 $11,127
Wireless services $1,237 $1,332 $971
*Excludes restructuring and other charges of $2,089 in 1995
EBITDA is a measure of our ability to generate cash flow and should be
considered in addition to, but not as a substitute for, other measures of
financial performance reported in accordance with generally accepted accounting
principles. The decrease of $678 million, or 5.7%, in 1997 was due primarily to
an increase in network and other communications services expenses partially
offset by increased revenues. The 1996 increase of $828 million, or 7.4%, was
primarily due to an increase in revenues and a decrease in access and other
interconnection expenses partially offset by increases in both SG&A expenses and
network and other communications services expenses.
Wireless services EBITDA in 1997 contained an $80 million charge to exit the
two-way messaging business and also reflected increased dilution from
initiatives. EBITDA for wireless services for 1996 contained a gain on the
exchange of several wireless properties.
All cash flow discussions pertain to cash flows from continuing operations.
Dollars in Millions
For the Years Ended December 31 1997 1996 1995
Cash flows from operating activities $8,437 $7,875 $8,198
Cash flow from operations increased $562 million, or 7.1%, in 1997 and decreased
$323 million, or 3.9%, in 1996. A number of factors drove the increase in 1997
including the collection of employee-benefit-related receivables from Lucent in
1997 and improved customer cash collections across the company. In addition,
1996 cash flow from operations included a $500 million prepayment to Lucent.
The decrease in 1996 related mainly to required cash payments for
restructuring and other charges amounting to $471 million.
Dollars in Millions
For the Years Ended December 31 1997 1996 1995
Cash flows used in
investing activities $(6,407) $ (975) $(8,163)
<PAGE>
A chart appears containing the following information:
1997 Capital Expenditures by Business
#: Business Long-distance
@: Consumer Long-distance
^: Traditional Wireless
&: Wireless Initiatives
+: Local Service
>: Other Initiatives
dollars in billions
4
3.5 #
3
2.5
2
1.5
1
+
&
@ ^
.5
>
0
Business Consumer Traditional Wireless Local Other
Long- Long- Wireless Initiatives Service Initiatives
distance distance
<PAGE>
PHOTOGRAPH OF AT&T'S WORLDWIDE NETWORK OPERATIONS CENTER
Included in 1997 investing activities were net capital expenditures, the net
funding requirements for UCS, acquisitions of licenses and proceeds received
from divestments. While we have agreed to sell UCS, we continue to fund its
operations. Our assets, therefore, include short- and long-term notes receivable
from UCS, and our debt includes external debt used to fund UCS. In accordance
with the purchase agreement, at the time of sale in 1998 we will receive cash
from Citibank for the notes receivable from UCS. Cash used in investing
activities increased significantly in 1997 compared with 1996 primarily as a
result of the lower level of credit card receivables securitized in 1997 by UCS
($1 billion) versus receivables securitized in 1996 ($3 billion). Due to the
significant cash generated from the 1996 securitizations, UCS lowered its debt
requirements and subsequently repaid $3,360 million of its notes payable to us.
In 1997, with reduced securitizations and a growing portfolio, UCS increased its
notes payable to us.
PHOTOGRAPH OF AN AT&T UNIVERSAL CARD SERVICES CREDIT CARD
Capital expenditures, acquisitions of investments, licenses and businesses
amounted to $7,648 million in 1997, $7,183 million in 1996 and $9,888 million in
1995. This resulted in net cash outlays for these categories in 1997, 1996 and
1995 of $7,578 million, $6,741 million and $9,981 million, respectively.
We expect our 1998 capital expenditures to be about $7 billion; in addition,
TCG anticipates 1998 capital expenditures of $1 billion. These expenditures
include the completion of our three-year program of SONET deployment as well as
additional capital to meet our customers' needs for new technology and increased
capacity in long-distance, wireless, WorldNet and local services.
Dollars in Millions
For the Years Ended December 31 1997 1996 1995
Cash flows from
financing activities $(1,801) $(5,380) $1,457
In 1997 we raised all necessary external financing through issuances of
commercial paper. We expect to be able to arrange any necessary future financing
using issuances of commercial paper, long-term debt and equity, with the timing
of issue, principal amount and form depending on our needs and the prevailing
market and economic conditions. We do not anticipate requiring additional
external financing in 1998 to fund capital expenditures and dividend payments.
During 1997 we retired long-term debt of $662 million and increased short-term
borrowings by $1,114 million. The increase in short-term debt was primarily due
to increased funding requirements of UCS.
In 1996 we retired long-term debt of $1,236 million and decreased short-term
debt by $5,301 million. The changes in debt reflected the use of alternative
sources of funding, such as securitization, as well as Lucent's use of its own
external financing in 1996. Additionally, the cash collection of the $2.0
billion in accounts receivable retained by AT&T continuing operations as part of
the restructuring plan and the proceeds of $1.8 billion from the sale of AT&T
Capital were used to pay down our debt. During 1995 we retired $2,137 million of
long-term debt, but borrowed an additional $2,392 million of long-term debt and
$1,976 million of short-term debt.
In 1997 we obtained substantially all of the stock for our shareowner and
employee benefit stock-ownership plans in the open market rather than issuing
<PAGE>
new shares. This required us to use the cash received from shareowners and
employees to purchase the shares, resulting in a cash payment of $163 million.
In 1996 and 1995 the stock used in our shareowner and employee benefit
stock-ownership plans was issued from unissued or treasury shares. Accordingly,
during those years we kept the more than $1.2 billion of cash received from
shareowners and employees for the issuances of shares. We paid dividends of
$2,142 million in 1997, $2,122 million in 1996 and $2,088 million in 1995. As we
issue shares in 1998, as in connection with the TCG merger and a proposed
cross-shareholding arrangement with Telecom Italia, dividend payments will
increase, assuming that the company's dividend policy remains the same. To
support potential future needs, our Board of Directors has proposed an increase
in the number of authorized shares from 2 billion to 6 billion.
RISK MANAGEMENT
We are exposed to market risk from changes in interest and foreign exchange
rates. On a limited basis we use certain derivative financial instruments
including interest rate swaps, options, forwards and other derivative contracts
to manage these risks. We do not use financial instruments for trading or
speculative purposes. All financial instruments are used in accordance with
board-approved policies.
We use interest rate swaps to manage the impact of interest rate changes on
earnings and cash flows and also to lower our overall borrowing costs. We
monitor our interest rate risk on the basis of changes in fair value. Assuming a
10% downward shift in interest rates at December 31, 1997, the potential loss in
the net change in the fair value of interest rate swaps and the underlying
hedged debt would have been $3 million. Assuming a 10% downward shift in
interest rates at December 31, 1997, the potential loss in the net change in
fair value of unhedged debt would have been $311 million.
We use forward and option contracts to reduce our exposure to the risk of
adverse changes in currency exchange rates. We are subject to foreign exchange
risk related to reimbursements to foreign telephone companies for their portion
of the revenues billed by AT&T for calls placed in the U.S. to a foreign
country. In addition, we are also subject to foreign exchange risk related to
other foreign-currency-denominated transactions. As of December 31, 1997, there
was a net unrealized loss on forward contracts of $30 million, calculated based
on the difference between the contract rate and the rate available to terminate
the contracts. We monitor our foreign exchange rate risk on the basis of changes
in fair value. Additional potential losses in the net fair value of these
contracts, assuming a 10% appreciation in the U.S. dollar at December 31, 1997,
would have been $6 million. Because these contacts are entered into for hedging
purposes, we believe that these losses would be largely offset by gains on the
underlying firmly committed or anticipated transactions.
The estimated potential losses, as discussed above, assume the occurrence of
certain adverse market conditions. They do not consider the potential effect of
favorable changes in market factors and do not represent projected losses in
fair value that we expect to incur. Future impacts would be based on actual
developments in global financial markets. Our management does not foresee any
significant changes in the strategies used to manage interest rate risk or
foreign currency rate risk in the near future.
FINANCIAL CONDITION
Dollars in Millions
At December 31 1997 1996
Total assets $58,635 $55,382
Total assets from continuing operations $57,534 $53,872
<PAGE>
Total assets from continuing operations increased $3,662 million, or 6.8%, in
1997 primarily due to increases in property, plant and equipment and long-term
receivables, partially offset by decreases in other receivables and accounts
receivable. The increase in property, plant and equipment resulted from
investment in the network, while both the increase in long-term receivables and
the decrease in other receivables are related to notes receivable from UCS. As a
result of UCS becoming a discontinued operation, our balance sheet for
continuing operations now reflects the receivable from UCS that is expected to
be paid by Citibank as well as the external debt associated with procuring debt
on behalf of UCS. In total, the receivable from UCS increased $441 million. The
decrease in accounts receivable was primarily a result of our lower
fourth-quarter consumer revenue.
Dollars in Millions
At December 31 1997 1996
Total liabilities $35,988 $35,087
Total liabilities increased $901 million, or 2.6%, in 1997 primarily as a result
of increases in both deferred income taxes and total outstanding debt. The
increase in deferred income taxes was mainly a result of the difference in book
and tax basis for our property, plant and equipment, while debt increased due to
increased funding requirements for UCS.
Dollars in Millions
At December 31 1997 1996
Total shareowners' equity $22,647 $20,295
Shareowners' equity increased $2,352 million, or 11.6%, in 1997. The increase
was driven by net income, partially offset by 1997 dividends.
At December 31 1997 1996
Debt ratio 32.3% 33.7%
Our debt ratio declined slightly in 1997 due to the increase in shareowners'
equity as discussed above. In 1998 we expect our debt ratio to decrease further
as we utilize expected cash proceeds from our pending asset dispositions to
retire a certain amount of outstanding debt.
<PAGE>
A chart appears containing the following information:
AT&T Capitalization
#: Debt in dollars
@: Equity in dollars
+: Debt Ratio
dollars in billions percent
$25 Billion 60%
@
# +
@ 50%
20
@
40%
15 +
# +
# 30%
10
20%
5
10%
0 0%
1995 1996 1997
Debt Equity Debt Ratio
1995 20,709 17,274 54.5%
1996 10,332 20,295 33.7%
1997 10,824 22,647 32.3%
<PAGE>
LEGISLATIVE AND REGULATORY DEVELOPMENTS
The Telecommunications Act of 1996 was designed to foster local exchange
competition by establishing a regulatory framework to govern new competitive
entry in local and long-distance telecommunications services. The
Telecommunications Act also permits Regional Bell Operating Companies (RBOCs) to
provide interexchange services originating in any state in its region after
demonstrating to the FCC that such provision is in the public interest and
satisfying the conditions for developing local competition established by the
Telecommunications Act.
A number of court decisions have severely restricted implementation of the
Telecommunications Act and delayed local service competition. In July 1997 the
United States Court of Appeals for the Eighth Circuit vacated the pricing rules
that the FCC had adopted to implement the sections of the local competition
provisions of the Telecommunications Act applicable to interconnection with
local exchange carrier (LEC) networks and the purchase of unbundled network
elements and wholesale services from LECs. In October 1997 the Eighth Circuit
vacated an FCC Rule that had prohibited incumbent LECs from separating network
elements that are combined in the LECs' network, except at the request of the
competitor purchasing the elements. These decisions increased the difficulty and
costs of providing competitive local service through resale or the use of
unbundled network elements purchased from the incumbent LECs.
On January 26, 1998, the United States Supreme Court agreed to review the
aforementioned decisions of the Eighth Circuit Court of Appeals. Under the
normal procedures of the Court, arguments are expected to be heard in October
1998 and a decision is expected sometime in the first half of 1999.
On December 31, 1997, the U.S. District Court for the Northern District of
Texas issued a memorandum opinion and order holding that the Telecommunications
Act's restrictions on the provision of in-region, interLATA service by the RBOCs
are unconstitutional. AT&T and other carriers (collectively, "Intervenors") have
filed an appeal with the United States Court of Appeals for the Fifth Circuit,
and the FCC is expected to do the same. On February 11, 1998, the District Court
suspended the effectiveness of its December 31 memorandum opinion and order
pending appeal. If the memorandum opinion and order is permitted to take effect,
the Telecommunications Act's restrictions on the provisions of in-region,
interLATA services will no longer apply to the plaintiffs in the case, SBC
Communications, Inc., US West, Inc. and Bell Atlantic Corporation.
COMPETITION
AT&T currently faces significant competition and expects that the level of
competition will continue to increase. The Telecommunications Act permits RBOCs
to provide interLATA interexchange services after demonstrating to the FCC that
such provision is in the public interest and satisfying the conditions for
developing local competition established by the Telecommunications Act. Three
RBOCs have petitioned the FCC for permission to provide interLATA interexchange
services in one or more states within their home market; to date the FCC has not
granted any such petition. To the extent that the RBOCs obtain in-region
interLATA authority before the Telecommunications Act's checklist of conditions
have been fully or satisfactorily implemented and adequate facilities-based
local exchange competition exists, there is a substantial risk that AT&T and
other interexchange service providers would be at a disadvantage to the RBOCs in
providing both local service and combined service packages. Because it is widely
anticipated that substantial numbers of long-distance customers will seek to
purchase local, interexchange and other services from a single carrier as part
of a combined or full service package, any competitive disadvantage, inability
to profitably provide local service at competitive rates, or delays or
<PAGE>
limitations in providing local service or combined service packages is likely to
adversely affect AT&T's future revenues and earnings. In addition, the
simultaneous entrance of numerous new competitors for interexchange and combined
service packages is likely to adversely affect AT&T's long-distance revenues and
could adversely affect earnings.
RECENT PRONOUNCEMENTS
Effective with the first quarter 1998 reporting we will adopt Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes the standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains and losses)
as part of a full set of financial statements. This statement requires that all
elements of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Since this
standard applies only to the presentation of comprehensive income, it will not
have any impact on AT&T's results of operations, financial position or cash
flows.
Beginning with the 1998 annual report we will also adopt SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes the standards for the manner in which public enterprises are
required to report financial and descriptive information about their operating
segments. The standard defines operating segments as components of an enterprise
for which separate financial information is available and evaluated regularly as
a means for assessing segment performance and allocating resources to segments.
A measure of profit or loss, total assets and other related information are
required to be disclosed for each operating segment. In addition, this standard
requires the annual disclosure of: information concerning revenues derived from
the enterprise's products or services; countries in which it earns revenues or
holds assets, and major customers.
FORWARD LOOKING STATEMENTS
Except for the historical statements and discussions contained herein,
statements contained in this report constitute "forward looking statements"
within the meaning of Section 27A of the Securities Exchange Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These forward looking
statements rely on a number of assumptions concerning future events, and are
subject to a number of uncertainties and other factors, many of which are
outside our control, that could cause actual results to differ materially from
such statements.
Readers are cautioned not to put undue reliance on such forward looking
statements. These factors and uncertainties include the adoption of balanced and
effective rules and regulations by the state public regulatory agencies, our
ability to achieve a significant market penetration in new markets and the
related costs thereof, and competitive pressures. Shareowners may view our
reports filed with the Securities and Exchange Commission for a more detailed
description of the uncertainties and other factors that could cause actual
results to differ materially from such forward looking statements. We disclaim
any intention or obligation to update or revise forward looking statements,
whether as a result of new information, future events or otherwise.
<PAGE>
<TABLE>
SEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(UNAUDITED)
AT&T Corp. and Subsidiaries
Dollars in millions (except per share amounts)
<CAPTION>
1997 1996 1995* 1994 1993* 1992 1991*
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues $51,319 $50,546 $48,445 $46,000 $43,780 $42,960 $41,842
Operating income 6,968 8,763 5,184 7,409 6,577 6,246 2,681
Income from continuing operations
before cumulative effects of
accounting changes 4,472 5,573 3,035 4,260 3,786 3,233 1,199
Income before cumulative
effects of accounting changes 4,638 5,908 139 4,710 3,702 3,442 171
Net income(loss) 4,638 5,908 139 4,710 (5,906) 3,442 171
Earnings per common share-basic:
Income from continuing
operations before cumulative
effects of accounting changes 2.75 3.46 1.92 2.74 2.46 2.14 0.82
Income before cumulative
effects of accounting changes 2.85 3.67 0.09 3.03 2.41 2.28 0.12
Net income(loss) 2.85 3.67 0.09 3.03 (3.84) 2.28 0.12
Earnings per common share-diluted:
Income from continuing
operations before cumulative
effects of accounting changes 2.74 3.45 1.91 2.72 2.45 2.13 0.81
Income before cumulative
effects of accounting changes 2.84 3.66 0.09 3.01 2.39 2.27 0.12
Net income(loss) 2.84 3.66 0.09 3.01 (3.82) 2.27 0.12
Dividends declared per
common share 1.32 1.32 1.32 1.32 1.32 1.32 1.32
</TABLE>
<PAGE>
<TABLE>
SEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(UNAUDITED)
AT&T Corp. and Subsidiaries
Dollars in millions (except per share amounts)
<CAPTION>
1997 1996 1995* 1994 1993* 1992 1991*
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS AND CAPITAL
Property, plant and
equipment-net $22,710 $19,736 $16,021 $14,377 $13,653 $13,590 $13,058
Total assets-
continuing operations 57,534 53,872 53,726 47,439 41,353 40,124 37,172
Total assets 58,635 55,382 62,228 57,330 50,023 50,521 48,695
Long-term debt 6,826 7,883 8,545 8,938 10,287 12,210 12,167
Total debt 10,824 10,332 20,709 18,492 18,185 17,120 16,756
Shareowners' equity 22,647 20,295 17,274 17,921 13,374 20,313 17,973
Gross capital expenditures 7,213 6,776 4,504 3,361 2,537 2,293 2,424
Employees-continuing
operations 127,800 126,600 124,600 115,300 118,100 118,200 115,300
OTHER INFORMATION
Operating income as a
percentage of revenues 13.6% 17.3% 10.7% 16.1% 15.0% 14.5% 6.4%
Income from continuing
operations as a percentage
of revenues 8.7% 11.0% 6.3% 9.3% 8.6% 7.5% 2.9%
Return on average common
equity 21.5% 28.0% 0.7% 29.5% (47.1)% 17.6% 0.9%
Data at year-end:
Stock price per share** $61.31 $41.31 $44.40 $34.46 $36.00 $34.97 $26.83
Book value per
common share $13.94 $12.50 $10.82 $11.42 $8.65 $13.31 $12.05
Debt ratio 32.3% 33.7% 54.5% 50.8% 57.6% 45.7% 48.2%
<FN>
* 1995 continuing operations data reflect $3.0 billion of pretax business
restructuring and other charges.
1993 net income reflects a $9.6 billion net charge for three accounting
changes.
1991 continuing operations data reflect $3.5 billion of pretax business
restructuring and other charges.
</FN>
<FN>
** Stock prices for 1991-1996 have been restated to reflect the spin-offs of
Lucent and NCR.
</FN>
</TABLE>
<PAGE>
REPORT OF MANAGEMENT
Management is responsible for the preparation, integrity and
objectivity of the consolidated financial statements and all other financial
information included in this report. Management is also responsible for
maintaining a system of internal controls as a fundamental requirement for the
operational and financial integrity of results.
The financial statements, which reflect the consolidated accounts of AT&T
Corp. and subsidiaries (AT&T) and other financial information shown, were
prepared in conformity with generally accepted accounting principles. Estimates
included in the financial statements were based on judgments of qualified
personnel.
To maintain its system of internal controls, management carefully selects key
personnel and establishes the organizational structure to provide an appropriate
division of responsibility. We believe it is essential to conduct business
affairs in accordance with the highest ethical standards as set forth in the
AT&T Code of Conduct. These guidelines and other informational programs are
designed and used to ensure that policies, standards and managerial authorities
are understood throughout the organization. Our internal auditors monitor
compliance with the system of internal controls by means of an annual plan of
internal audits. On an ongoing basis, the system of internal controls is
reviewed, evaluated and revised as necessary in light of the results of constant
management oversight, internal and independent audits, changes in AT&T's
business and other conditions.
Management believes that the system of internal controls, taken as a whole,
provides reasonable assurance that (1) financial records are adequate and can be
relied upon to permit the preparation of financial statements in conformity with
generally accepted accounting principles and (2) access to assets occurs only in
accordance with management's authorizations.
The Audit Committee of the Board of Directors, which is composed of directors
who are not employees, meets periodically with management, the internal auditors
and the independent accountants to review the manner in which these groups of
individuals are performing their responsibilities and to carry out the Audit
Committee's oversight role with respect to auditing, internal controls and
financial reporting matters. Periodically, both the internal auditors and the
independent accountants meet privately with the Audit Committee. These
accountants also have access to the Audit Committee and its individual members
at any time.
The consolidated financial statements in this annual report have been audited
by Coopers & Lybrand L.L.P., Independent Accountants. Their audits were
conducted in accordance with generally accepted auditing standards and include
an assessment of the internal control structure and selective tests of
transactions. Their report follows.
Daniel E. Somers C. Michael Armstrong
Senior Executive Vice President, Chairman of the Board,
Chief Financial Officer Chief Executive Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareowners of AT&T Corp.:
We have audited the consolidated balance sheets of AT&T Corp. and subsidiaries
(AT&T) at December 31, 1997 and 1996, and the related consolidated statements
of income, changes in shareowners' equity and cash flows for the years ended
December 31, 1997, 1996 and 1995. These financial statements are the
responsibility of AT&T's management. Our responsibility is to express an opinion
<PAGE>
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of AT&T at December
31, 1997 and 1996, and the consolidated results of their operations and their
cash flows for the years ended December 31, 1997, 1996 and 1995, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York
January 26, 1998
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AT&T CORP. AND SUBSIDIARIES
For the Years Ended December 31
Dollars in millions (except per share amounts) 1997 1996 1995
Revenues................................... $51,319 $50,546 $48,445
Operating Expenses
Access and other interconnection........... 16,306 16,332 17,618
Network and other communications services.. 9,316 7,918 7,757
Depreciation and amortization.............. 3,827 2,740 3,520
Selling, general and administrative........ 14,902 14,793 14,366
Total operating expenses................... 44,351 41,783 43,261
Operating income........................... 6,968 8,763 5,184
Other income-net........................... 416 390 284
Interest expense........................... 191 343 490
Income from continuing operations before
income taxes............................. 7,193 8,810 4,978
Provision for income taxes................. 2,721 3,237 1,943
Income from continuing operations.......... 4,472 5,573 3,035
Discontinued Operations
Income(loss) from discontinued operations
(net of taxes of $50 in 1997, $(353)
in 1996 and $(1,147) in 1995)............ 100 173 (2,896)
Gain on sale of discontinued operations
(net of taxes of $43 in 1997 and
$138 in 1996)............................ 66 162 -
Net income ................................ $ 4,638 $ 5,908 $ 139
Weighted-average common shares and
potential common shares (millions)*...... 1,630 1,616 1,592
Per Common Share-Basic:
Income from continuing operations.......... $ 2.75 $ 3.46 $ 1.92
Income(loss) from discontinued operations.. 0.06 0.11 (1.83)
Gain on sale of discontinued operations.... 0.04 0.10 -
Net income................................. $ 2.85 $ 3.67 $ 0.09
Per Common Share-Diluted:
Income from continuing operations.......... $ 2.74 $ 3.45 $ 1.91
Income(loss) from discontinued operations.. 0.06 0.11 (1.82)
Gain on sale of discontinued operations.... 0.04 0.10 -
Net income................................. $ 2.84 $ 3.66 $ 0.09
* Amounts represent the weighted-average shares assuming dilution from the
potential exercise of outstanding stock options. Amounts are reduced by 5
million, 6 million and 8 million shares for 1997, 1996 and 1995, respectively,
assuming no dilution.
The notes on pages 46 through 71 are an integral part of the consolidated
financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS AT&T CORP. AND SUBSIDIARIES
At December 31
Dollars in millions 1997 1996
ASSETS
Cash and cash equivalents $ 145 $ -
Receivables, less allowances of $977 and $942
Accounts receivable 8,573 8,969
Other receivables 5,684 6,140
Deferred income taxes 1,252 1,266
Other current assets 525 698
TOTAL CURRENT ASSETS 16,179 17,073
Property, plant and equipment-net 22,710 19,736
Licensing costs, net of accumulated
amortization of $1,076 and $913 8,329 8,071
Investments 3,857 3,875
Long-term receivables 1,794 872
Prepaid pension costs 2,156 1,933
Other assets 2,509 2,312
Net assets of discontinued operations 1,101 1,510
TOTAL ASSETS $58,635 $55,382
LIABILITIES
Accounts payable $ 6,243 $ 6,157
Payroll and benefit-related liabilities 2,348 2,614
Debt maturing within one year 3,998 2,449
Dividends payable 538 536
Other current liabilities 3,815 4,395
TOTAL CURRENT LIABILITIES 16,942 16,151
Long-term debt 6,826 7,883
Long-term benefit-related liabilities 3,142 3,037
Deferred income taxes 5,711 4,827
Other long-term liabilities and
deferred credits 3,367 3,189
TOTAL LIABILITIES 35,988 35,087
SHAREOWNERS' EQUITY
Common shares, par value $1 per share 1,624 1,623
Authorized shares: 2,000,000,000
Outstanding shares: 1,624,213,505 at December 31, 1997;
1,623,487,646 at December 31, 1996
Additional paid-in capital 15,751 15,697
Guaranteed ESOP obligation (70) (96)
Foreign currency translation adjustments (28) (7)
Retained earnings 5,370 3,078
TOTAL SHAREOWNERS' EQUITY 22,647 20,295
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $58,635 $55,382
The notes on pages 46 through 71 are an integral part of the consolidated
financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
AT&T CORP. AND SUBSIDIARIES
For the Years Ended December 31
Dollars in millions 1997 1996 1995
Common Shares
Balance at beginning of year $ 1,623 $ 1,596 $ 1,569
Shares issued, net:
Under employee plans 1 19 13
Under shareowner plans - 8 13
Other - - 1
Balance at end of year 1,624 1,623 1,596
Additional Paid-In Capital
Balance at beginning of year 15,697 16,614 15,825
Shares issued (acquired), net:
Under employee plans (24) 975 598
Under shareowner plans 9 434 687
Other 69 - 31
Dividends declared - - (527)
Spin-offs of Lucent and NCR - (2,326) -
Balance at end of year 15,751 15,697 16,614
Guaranteed ESOP Obligation
Balance at beginning of year (96) (254) (305)
Amortization 26 52 51
Assumption by Lucent - 106 -
Balance at end of year (70) (96) (254)
Foreign Currency Translation Adjustments
Balance at beginning of year (7) 5 145
Translation adjustments (21) (33) (140)
Spin-offs of Lucent and NCR - 21 -
Balance at end of year (28) (7) 5
Retained Earnings (Deficit)
Balance at beginning of year 3,078 (687) 687
Net income 4,638 5,908 139
Dividends declared (2,145) (2,132) (1,570)
Treasury shares issued at less than cost (187) - -
Other changes (14) (11) 57
Balance at end of year 5,370 3,078 (687)
Total Shareowners' Equity $22,647 $20,295 $17,274
In March 1990 we issued 13.4 million new shares of common stock in connection
with the establishment of an ESOP feature for the nonmanagement savings plan.
The shares are being allocated to plan participants over ten years commencing in
July 1990 as contributions are made to the plan.
We have 100 million authorized shares of preferred stock at $1 par value. No
preferred stock is currently issued or outstanding.
The notes on pages 46 through 71 are an integral part of the consolidated
financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS AT&T CORP. AND SUBSIDIARIES
For the Years Ended December 31
Dollars in millions 1997 1996 1995
OPERATING ACTIVITIES
Net income $ 4,638 $ 5,908 $ 139
Add:(Income)loss from discontinued operations (100) (173) 2,896
Gain on sale of discontinued operations (66) (162) -
Income from continuing operations 4,472 5,573 3,035
Adjustments to reconcile net income to net
cash provided by operating activities of
continuing operations:
Restructuring and other charges - - 3,023
Depreciation and amortization 3,827 2,740 2,586
Provision for uncollectibles 1,957 1,938 1,613
Increase in accounts receivable (1,431) (2,165) (2,220)
Increase in accounts payable 16 513 872
Net increase in other operating
assets and liabilities (787) (1,079) (87)
Other adjustments for noncash items-net 383 355 (624)
NET CASH PROVIDED BY OPERATING ACTIVITIES
OF CONTINUING OPERATIONS 8,437 7,875 8,198
INVESTING ACTIVITIES
Capital expenditures (7,143) (6,334) (4,597)
Proceeds from sale or disposal of property,
plant and equipment 169 145 204
(Increase)decrease in finance assets (465) 3,499 1,845
Acquisitions of licenses (435) (267) (1,978)
Net decrease(increase) in investments 109 (140) 9
Dispositions(acquisitions), net of
cash acquired 1,513 2,145 (3,406)
Other investing activities-net (155) (23) (240)
NET CASH USED IN INVESTING ACTIVITIES OF
CONTINUING OPERATIONS (6,407) (975) (8,163)
FINANCING ACTIVITIES
Proceeds from long-term debt issuances - - 2,392
Retirements of long-term debt (662) (1,236) (2,137)
(Acquisition) issuance of common shares (163) 1,293 1,214
Dividends paid (2,142) (2,122) (2,088)
Increase(decrease) in short-term
borrowings-net 1,114 (5,301) 1,976
Other financing activities-net 52 1,986 100
NET CASH (USED IN)PROVIDED BY FINANCING
ACTIVITIES OF CONTINUING OPERATIONS (1,801) (5,380) 1,457
Net cash used in discontinued operations (84) (1,595) (1,544)
Net increase(decrease) in cash and cash
equivalents 145 (75) (52)
Cash and cash equivalents at beginning
of year - 75 127
Cash and cash equivalents at end of year $ 145 $ - $ 75
The notes on pages 46 through 71 are an integral part of the consolidated
financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AT&T CORP. AND SUBSIDIARIES (AT&T)
(Dollars in millions unless otherwise noted, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include all majority-owned subsidiaries.
Investments in which we exercise significant influence but which we do not
control (generally a 20% - 50% ownership interest) are accounted for under the
equity method of accounting. This represents the majority of our investments.
Generally, investments in which we have less than a 20% ownership interest are
accounted for under the cost method of accounting.
CURRENCY TRANSLATION
For operations outside of the U.S. that prepare financial statements in
currencies other than the U.S. dollar, we translate income statement amounts at
average exchange rates for the year and we translate assets and liabilities at
year-end exchange rates. We present these translation adjustments as a separate
component of shareowners' equity.
REVENUE RECOGNITION
We recognize wireline and wireless services revenue based upon minutes of
traffic processed and contracted fees. Generally, we recognize products and
other services revenue in accordance with contract terms.
ADVERTISING AND PROMOTIONAL COSTS
We expense costs of advertising and promotions, including checks used to acquire
customers, as incurred. Advertising and promotional expenses were $1,985, $2,526
and $2,148 in 1997, 1996 and 1995, respectively.
INVESTMENT TAX CREDITS
We amortize investment tax credits as a reduction to the provision for income
taxes over the useful lives of the property that produced the credits.
EARNINGS PER SHARE
We calculate earnings per share in accordance with Statement of Financial
Accounting Standard (SFAS) No. 128, "Earnings Per Share." We use the
weighted-average number of common shares outstanding during each period to
compute basic earnings per common share. Diluted earnings per share is computed
using the weighted-average number of common shares and dilutive potential common
shares outstanding. Dilutive potential common shares are additional common
shares assumed to be exercised.
CASH EQUIVALENTS
We consider all highly liquid investments with original maturities of generally
three months or less to be cash equivalents.
PROPERTY, PLANT AND EQUIPMENT
We state property, plant and equipment at cost, unless impaired, and determine
depreciation based upon the assets' estimated useful lives using either the
group or unit method. The group method is used for most depreciable assets. When
we sell or retire assets that were depreciated using the group method, we deduct
the cost from property, plant and equipment and accumulated depreciation. The
unit method is used primarily for large computer systems and support assets.
When we sell assets that were depreciated using the unit method, we include the
related gains or losses in operating results.
<PAGE>
We use accelerated depreciation methods primarily for digital equipment used
in the telecommunications network, except for switching equipment placed in
service before 1989 and certain high technology computer processing equipment.
All other plant and equipment, including capitalized software, is depreciated on
a straight-line basis.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and carrying value of the asset.
LICENSING COSTS
Licensing costs are costs incurred to develop or acquire cellular, personal
communications services (PCS) and messaging licenses. Generally, amortization
begins with the commencement of service to customers and is computed using the
straight-line method over a period of 40 years.
GOODWILL
Goodwill is the excess of the purchase price over the fair value of net assets
acquired in business combinations accounted for as purchases. We amortize
goodwill on a straight-line basis over the periods benefited ranging from five
to 40 years. Goodwill is reviewed for impairment annually or whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected future undiscounted cash flows is less
than the carrying amount, a loss is recognized for the difference between the
fair value and carrying value of the asset.
DERIVATIVE FINANCIAL INSTRUMENTS
We use various financial instruments, including derivative financial
instruments, for purposes other than trading. We do not use derivative financial
instruments for speculative purposes. Derivatives, used as part of our risk
management strategy, must be designated at inception as a hedge and measured for
effectiveness both at inception and on an ongoing basis. Gains and losses
related to qualifying hedges of foreign currency firm commitments are deferred
in other assets or liabilities and recognized as part of the underlying
transactions as they occur. All other foreign exchange contracts are marked to
market on a current basis and the respective gains or losses are recognized in
other income-net. Interest rate differentials associated with interest rate
swaps used to hedge AT&T's debt obligations are recorded as an adjustment to
interest payable or receivable with the offset to interest expense over the life
of the swaps. If we terminate an interest rate swap agreement, the gain or loss
is recorded as an adjustment to the basis of the underlying asset or liability
and amortized over the remaining life. Cash flows from financial instruments are
classified in the Consolidated Statements of Cash Flows under the same
categories as the cash flows from the related assets, liabilities or anticipated
transactions.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
revenues and expenses during the period reported. Actual results could differ
from those estimates. Estimates are used when accounting for certain items such
as long-term contracts, allowance for doubtful accounts, depreciation and
amortization, employee benefit plans, taxes, restructuring reserves and
contingencies.
<PAGE>
CONCENTRATIONS
As of December 31, 1997, we do not have any significant concentration of
business transacted with a particular customer, supplier or lender that could,
if suddenly eliminated, severely impact our operations. We also do not have a
concentration of available sources of labor, services, or licenses or other
rights that could, if suddenly eliminated, severely impact our operations.
RECLASSIFICATIONS
We reclassified certain amounts for previous years to conform with the 1997
presentation.
2. DISCONTINUED OPERATIONS
On September 20, 1995, AT&T announced a plan, subject to certain conditions, to
separate into three independent, publicly held, global companies: communications
services (AT&T), communications systems and technologies (Lucent Technologies
Inc., "Lucent") and transaction-intensive computing (NCR Corporation, "NCR"). In
April 1996 Lucent sold 112 million shares of common stock in an initial public
offering (IPO), representing 17.6% of the Lucent common stock outstanding.
Because of AT&T's plan to spin off its remaining 82.4% interest in Lucent, the
sale of the Lucent stock was recorded as an equity transaction, resulting in an
increase in AT&T's additional paid-in capital at the time of the IPO. In
addition, in connection with the restructuring, Lucent assumed $3.7 billion of
AT&T debt in 1996. On September 30, 1996, AT&T distributed to AT&T shareowners
of record as of September 17, 1996, the remaining Lucent common stock held by
AT&T. The shares were distributed on the basis of .324084 of a share of Lucent
for each AT&T share outstanding.
On October 1, 1996, AT&T sold its remaining interest in AT&T Capital for
approximately $1.8 billion, resulting in a gain of $162, or $.10 per share,
after taxes.
On December 31, 1996, AT&T also distributed all of the outstanding common
stock of NCR to AT&T shareowners of record as of December 13, 1996. The shares
were distributed on the basis of .0625 of a share of NCR for each AT&T share
outstanding on the record date. As a result of the Lucent and NCR distributions,
AT&T's shareowners' equity was reduced by $2.2 billion. The distributions of the
Lucent and NCR common stock to AT&T shareowners were noncash transactions
totaling $4.8 billion which did not affect AT&T's results of operations.
On July 1, 1997, AT&T sold its submarine systems business (SSI) to Tyco
International Ltd. for approximately $850, resulting in an after-tax gain of
$66, or $.04 per share.
On October 20, 1997, AT&T announced its plans to sell AT&T Universal Card
Services, Inc. (UCS). On December 17, 1997, AT&T entered into an agreement with
Citicorp to sell UCS for approximately $3.5 billion. In addition, the two
companies signed a 10-year co-branding and joint-marketing agreement. The sale
is subject to regulatory approval and is expected to be completed by the second
quarter of 1998.
The consolidated financial statements of AT&T have been restated to reflect
the dispositions of Lucent, NCR, AT&T Capital, SSI and other businesses as well
as the pending sale of UCS as discontinued operations. Accordingly, the
revenues, costs and expenses, assets and liabilities, and cash flows of these
discontinued operations have been excluded from the respective captions in the
<PAGE>
Consolidated Statements of Income, Consolidated Balance Sheets and Consolidated
Statements of Cash Flows, and have been reported through the dates of
disposition as "Income(loss) from discontinued operations," net of applicable
income taxes; as "Net assets of discontinued operations," and as "Net cash used
in discontinued operations" for all periods presented.
In 1997 we adopted SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." Among other provisions,
this standard requires that in connection with the transfer of financial assets,
liabilities incurred should be measured at fair value and retained interests
should be recorded as a portion of the original carrying amount of the
transferred financial assets. This standard applies only to UCS and resulted in
a substantial benefit to income from discontinued operations for the year.
Summarized financial information for the discontinued operations is as follows:
1997 1996 1995
Revenues $1,942 $23,979 $31,164
Income(loss) before
income taxes 150 (180) (4,043)
Net income(loss) 100 173 (2,896)
Current assets 7,734 7,590
Total assets 7,808 7,979
Current liabilities* 5,602 6,190
Total liabilities* 6,707 6,469
Net assets of discontinued
operations $1,101 $ 1,510
*Current liabilities include $5,224 and $5,706 of debt maturing within one year
and total liabilities include an additional $1,093 and $170 of long-term debt at
December 31, 1997, and December 31, 1996, respectively, all of which are payable
to AT&T.
The income(loss) before income taxes includes allocated interest expense of
$45 and $134 in 1996 and 1995, respectively. Interest expense was allocated to
discontinued operations based on a ratio of net assets of discontinued
operations to total AT&T consolidated assets. No interest expense was allocated
to discontinued operations in 1997 due to the immateriality of the amounts;
however, UCS recorded direct interest expense of $297, $383 and $626 in 1997,
1996 and 1995, respectively, primarily related to the amounts payable to AT&T.
3. NEW ACCOUNTING PRONOUNCEMENTS
Effective with the first quarter 1998 we will adopt SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes the standards for reporting and
displaying comprehensive income and its components (revenues, expenses, gains
and losses) as part of a full set of financial statements. This statement
requires that all elements of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Since this standard applies only to the presentation of
comprehensive income, it will not have any impact on AT&T's results of
operations, financial position or cash flows.
Beginning with the 1998 annual report we will also adopt SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes the standards for the manner in which public enterprises are
required to report financial and descriptive information about their operating
segments. This standard defines operating segments as components of an
<PAGE>
enterprise for which separate financial information is available and evaluated
regularly as a means for assessing segment performance and allocating resources
to segments. A measure of profit or loss, total assets and other related
information are required to be disclosed for each operating segment. In
addition, this standard requires the annual disclosure of: information
concerning revenues derived from the enterprise's products or services;
countries in which it earns revenue or holds assets, and major customers.
4. LIN BROADCASTING
In 1995 we acquired the remaining 48% of LIN Broadcasting Corporation (LIN) for
approximately $3.3 billion. The purchase price was allocated to the fair value
of assets acquired of $4.0 billion and the fair value of liabilities assumed of
$.7 billion.
On August 12, 1997, AT&T entered into an agreement to sell its 45% common
share interest in LIN Television Corporation, a subsidiary of LIN, for
approximately $641 to Hicks, Muse, Tate and Furst Incorporated ("Hicks Muse").
Subsequently, in response to a competitive offer, Hicks Muse increased their bid
to $742. The sale is subject to various conditions, including approval by the
Federal Communications Commission. If approved, the sale is expected to close in
early 1998. In a separate agreement, AT&T agreed to sell WOOD-TV, its television
station in Grand Rapids, Michigan, for approximately $123, subject to certain
adjustments, upon the completion of the sale of its interest in LIN.
5. SUPPLEMENTARY FINANCIAL INFORMATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
For the Years Ended December 31 1997 1996 1995
INCLUDED IN DEPRECIATION AND AMORTIZATION
Amortization of licensing costs $163 $170 $133
Amortization of goodwill 51 52 74
INCLUDED IN SELLING, GENERAL AND ADMINISTRATIVE
Research and development expenses $829 $822 $732
OTHER INCOME-NET
Interest income $ 28 $ 18 $ 38
Minority interests in earnings
of subsidiaries (12) (15) (17)
Net equity earnings from investments 35 67 103
Officers' life insurance 68 74 73
Sale/exchange of cellular investments 75 158 64
Gain on sale of Skynet 97 - -
Miscellaneous-net 125 88 23
Total other income-net $416 $390 $284
DEDUCTED FROM INTEREST EXPENSE
Capitalized interest $254 $193 $107
<PAGE>
SUPPLEMENTARY BALANCE SHEET INFORMATION
At December 31 1997 1996
PROPERTY, PLANT AND EQUIPMENT
Machinery, electronic and other equipment $ 37,433 $ 32,761
Buildings and improvements 6,744 6,251
Land and improvements 386 373
Total property, plant and equipment 44,563 39,385
Accumulated depreciation (21,853) (19,649)
Property, plant and equipment-net $ 22,710 $ 19,736
OTHER ASSETS
Unamortized goodwill $ 1,277 $ 1,325
Deferred charges 724 477
Other 508 510
Total other assets $ 2,509 $ 2,312
SUPPLEMENTARY CASH FLOW INFORMATION
For the Years Ended December 31 1997 1996 1995
Interest payments net of
amounts capitalized $ 207 $ 364 $ 436
Income tax payments 2,414 2,136 2,016
6. BUSINESS RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of 1995 we recorded a pretax charge of $3,023 to cover
restructuring costs of $2,301 and asset impairments and other charges of $722.
This charge included plans to exit certain proprietary network and messaging
services; restructure customer service organizations; consolidate call servicing
centers; exit certain satellite services; reorganize corporate support functions
such as information systems, human resources and financial operations, and
restructure certain international operations.
As part of our plan to sell certain businesses and to restructure our
operations, restructuring liabilities of $1,712 were recorded for employee
separation costs, costs associated with early termination of building leases and
other items. In addition, asset impairments of $567 (which directly reduced the
carrying value of the related asset balances) and $22 of benefit plan losses
were recorded.
The 1995 restructure charge of $2,301 included separation costs for nearly
17,000 employees, which included approximately 12,000 management and 5,000
occupational employees. As of December 31, 1997, approximately 6,800 management
employees and 2,300 occupational employees have been separated. Of the 6,800
management separations, approximately 4,300 accepted voluntary severance
packages.
During 1996 and 1997 we completed the restructuring of our proprietary network
and messaging services business, closed several call servicing centers,
consolidated customer care centers, sold certain international operations and
reorganized certain corporate support functions. The implementation of certain
restructuring activities are occurring at a slower pace than planned. There have
been delays in exiting certain businesses and reorganizing corporate support
functions, in part to ensure customer satisfaction during this transition
period. However, certain facility costs have payment terms extending beyond
1998. We believe that the balance is adequate to complete these plans.
<PAGE>
On January 26, 1998, we announced a voluntary retirement incentive program to
be offered to managers during the second quarter of 1998. The expected
acceptance rate of 10,000 to 11,000 employees for the voluntary retirement
incentive offer may impact the utilization of the remaining 1995 restructuring
reserve balance. Another 5,000 to 7,000 employees will leave through a
combination of managed attrition and previously announced workforce reductions.
The following table displays a rollforward of the liabilities for business
restructuring from December 31, 1995, to December 31, 1997:
1996
----------------------------
Dec. 31, Dec. 31,
1995 Amounts 1996
Type of Cost Balance Additions Utilized Balance
Employee
separations $ 925 $ - $(319) $ 606
Facility closings 761 - (233) 528
Other 406 - (152) 254
Total $2,092 $ - $(704) $1,388
- ---------------------------------------------------------------------------
1997
----------------------------
Dec. 31, Dec. 31,
1996 Amounts 1997
Type of Cost Balance Additions Utilized Balance
Employee
separations $ 606 $ - $(193) $413
Facility closings 528 - (94) 434
Other 254 - (194) 60
Total $1,388 $ - $(481) $907
- ---------------------------------------------------------------------------
1997 utilization includes $100 reversal of pre-1995 reserves. 1996 utilization
includes $112 of net transfers to Lucent and NCR.
The balance at December 31, 1997, includes $180 of pre-1995 charges primarily
related to excess space in various leased facilities and is expected to be fully
utilized over the remaining terms of the leases.
The 1995 charge of $722 for asset impairments and other charges included $668
for writing down certain impaired assets, including the write-down in the value
of some unnecessary network facilities, the write-down of non-strategic wireless
assets and the reduction in value of some investments. There were no assets to
be disposed of or sold included in these write-downs. The charge also included
$54 of other items, none of which individually exceed 1% of the total charge.
The total pretax charge of $3,023 for 1995 was recorded as $844 in network and
other communications services expenses; $934 in depreciation and amortization
expenses, and $1,245 in selling, general and administrative expenses. If viewed
by type of cost, the combined charges reflect $950 for employee separations and
other related items; $1,235 for asset write-downs; $497 for closing, selling and
consolidating facilities; and $341 for other items. The total charge reduced
income from continuing operations by $2,032, or diluted earnings per share by
$1.28 in 1995.
<PAGE>
In addition, charges of $1,172 (net of taxes) in the third quarter of 1995 and
$2,149 (net of taxes) in the fourth quarter of 1995 are reflected in the loss
from discontinued operations. These charges reduced income from discontinued
operations by a total of $3,321, or diluted earnings per share by $2.08 in 1995.
7. INCOME TAXES
The following table shows the principal reasons for the difference between the
effective income tax rate and the United States federal statutory income tax
rate:
For the Years Ended December 31 1997 1996 1995
U.S. federal statutory income tax rate 35% 35% 35%
Federal income tax at statutory rate $2,517 $3,084 $1,743
Amortization of investment tax credits (14) (21) (35)
State and local income taxes, net of
federal income tax effect 182 272 179
Amortization of intangibles 20 13 62
Foreign rate differential 117 131 (11)
Taxes on repatriated and accumulated
foreign income, net of tax credits (32) 19 17
Legal entity restructuring - (195) -
Research credits (63) (13) (24)
Other differences-net (6) (53) 12
Provision for income taxes $2,721 $3,237 $1,943
Effective income tax rate 37.8% 36.7% 39.0%
The U.S. and foreign components of income before income taxes and the
provision for income taxes are presented in this table:
For the Years Ended December 31 1997 1996 1995
INCOME BEFORE INCOME TAXES
United States $7,311 $9,013 $5,465
Foreign (118) (203) (487)
Total $7,193 $8,810 $4,978
PROVISION FOR INCOME TAXES
CURRENT
Federal $1,561 $2,291 $1,922
State and local 192 397 383
Foreign 49 25 1
$1,802 $2,713 $2,306
DEFERRED
Federal $ 851 $ 511 $ (221)
State and local 89 23 (108)
Foreign (5) 11 1
$ 935 $ 545 $ (328)
Deferred investment tax credits (16) (21) (35)
Provision for income taxes $2,721 $3,237 $1,943
Deferred income tax liabilities are taxes we expect to pay in future periods.
Similarly, deferred income tax assets are recorded for expected reductions in
taxes payable in future periods. Deferred income taxes arise because of
differences in the book and tax bases of certain assets and liabilities.
<PAGE>
Deferred income tax liabilities and assets consist of the following:
At December 31 1997 1996
LONG-TERM DEFERRED INCOME TAX LIABILITIES
Property, plant and equipment $6,204 $5,302
Investments 319 96
Other 1,185 1,403
Total long-term deferred income tax liabilities $7,708 $6,801
LONG-TERM DEFERRED INCOME TAX ASSETS
Business restructuring $ 162 $ 195
Net operating loss/credit carryforwards 273 220
Employee pensions and other benefits-net 1,026 1,298
Reserves and allowances 93 120
Other 654 305
Valuation allowance (211) (164)
Total net long-term deferred income tax assets $1,997 $1,974
Net long-term deferred income tax liabilities $5,711 $4,827
CURRENT DEFERRED INCOME TAX LIABILITIES
Total current deferred income tax liabilities $ 175 $ 117
CURRENT DEFERRED INCOME TAX ASSETS
Business restructuring $ 225 $ 249
Net operating loss/credit carryforwards 5 3
Employee pensions and other benefits 304 523
Reserves and allowances 629 594
Other 264 14
Total net current deferred income tax assets $1,427 $1,383
Net current deferred income tax assets $1,252 $1,266
At December 31, 1997, we had net operating loss carryforwards (tax-effected)
for federal and state income tax purposes of $32 and $76, respectively, expiring
through 2012. We also had foreign net operating loss carryforwards
(tax-effected) of $140, of which $130 has no expiration date, with the balance
expiring by the year 2002 as well as federal tax credit carryforwards of $30
which are not subject to expiration. We recorded a valuation allowance to
reflect the estimated amount of deferred tax assets which, more likely than not,
will not be realized.
8. POSTRETIREMENT BENEFITS
Our benefit plans for retirees include health care benefits, life
insurance coverage and telephone concessions. Postretirement contributions to
trust funds are determined using the attained-age-normal cost method for health
care benefits and the aggregate cost method for life insurance plans.
Immediately following the spin-off of Lucent on September 30, 1996, Lucent
established separate postretirement benefit plans, and a share of the
postretirement benefit obligations and postretirement benefit assets held in
trust were transferred from AT&T to Lucent based on methods and assumptions that
were agreed to by both companies. Adjustments to the estimated assets and
postretirement benefit obligations that were transferred to Lucent were not
material in 1997. Subsequent adjustments, if any, are also expected to be
immaterial.
<PAGE>
This table shows the components of the net postretirement benefit cost:
For the Years Ended December 31 1997 1996 1995
Service cost-benefits earned during the period $ 56 $ 53 $ 40
Interest cost on accumulated postretirement
benefit obligation 278 263 258
Expected return on plan assets* (120) (99) (78)
Amortization of unrecognized prior service costs 39 39 23
Amortization of net loss(gain) - 3 (3)
Net postretirement benefit cost $ 253 $259 $240
* The actual return on plan assets was $358 in 1997, $313 in 1996 and $256 in
1995. The expected long-term rate of return on plan assets was 9.0% in 1997,
1996 and 1995.
Prior service costs are amortized primarily on a straight-line basis over the
average remaining service period of active employees. We had approximately
40,400, 37,900 and 34,500 retirees as of December 31, 1997, 1996, and 1995,
respectively.
Our plan assets consist primarily of listed stocks, corporate and
governmental debt, cash and cash equivalents, and life insurance contracts. The
following table shows the funded status of our postretirement benefit plans
reconciled with the amounts recognized in the Consolidated Balance Sheets:
At December 31 1997 1996
Accumulated postretirement benefit obligation:
Retirees $2,655 $2,244
Fully eligible active plan participants 651 453
Other active plan participants 1,050 1,042
Total accumulated postretirement benefit obligation 4,356 3,739
Plan assets at fair value 1,969 1,566
Unfunded postretirement obligation 2,387 2,173
Less:
Unrecognized prior service costs 166 206
Unrecognized net gain (227) (510)
Accrued postretirement benefit obligation $2,448 $2,477
We made these assumptions in valuing our postretirement benefit obligation at
December 31:
1997 1996
Weighted-average discount rate 7.0% 7.5%
Assumed rate of increase in the per
capita cost of covered health care benefits 5.3% 5.6%
We assumed that the growth in the per capita cost of covered health
care benefits (the health care cost trend rate) would gradually decline after
1997 to 4.8% by the year 2008 and then remain level. This assumption greatly
affects the amounts reported. To illustrate, increasing the assumed trend rate
by 1% in each year would raise our accumulated postretirement benefit obligation
at December 31, 1997, by $218 and our 1997 postretirement benefit costs by $18.
9. EMPLOYEE BENEFIT PLANS
PENSION PLANS
We sponsor noncontributory defined benefit plans covering the majority of our
employees. Benefits for management employees are principally based on
career-average pay. Benefits for occupational employees are not directly related
<PAGE>
to pay. Pension contributions are principally determined using the aggregate
cost method and are primarily made to trust funds held for the sole benefit of
plan participants.
Immediately following the spin-off of Lucent on September 30, 1996, Lucent
established separate defined benefit plans, and a share of the pension
obligations and pension assets held in trust were transferred from AT&T to
Lucent based on methods and assumptions that were agreed to by both companies.
Adjustments to the estimated asset and pension obligation amounts that were
transferred to Lucent were not material in 1997. Subsequent adjustments, if any,
are also expected to be immaterial.
We compute pension cost using the projected unit credit method and assumed a
long-term rate of return on plan assets of 9.0% in 1997, 1996 and 1995.
Pension cost includes the following components:
For the Years Ended December 31 1997 1996 1995
Service cost-benefits earned during
the period $ 305 $ 295 $ 200
Interest cost on projected benefit
obligation 946 861 747
Amortization of unrecognized prior
service costs 114 99 90
Credit for expected return on plan
assets* (1,371) (1,195) (1,043)
Amortization of transition asset (181) (183) (193)
Charges for special pension benefits 5 - 58
Net pension credit $ (182) $ (123) $ (141)
*The actual return on plan assets was $3,464 in 1997, $2,981 in 1996 and $1,044
in 1995.
The net pension credit in 1995 includes a one-time charge of $58 for early
retirement options and curtailments.
This table shows the funded status of the defined benefit plans:
At December 31 1997 1996
Actuarial present value of accumulated
benefit obligation, including vested benefits
of $13,123 and $10,083 $14,150 $11,520
Plan assets at fair value $20,513 $17,680
Less: Actuarial present value of projected
benefit obligation 14,481 12,380
Excess of assets over projected benefit obligation 6,032 5,300
Unrecognized prior service costs 904 766
Unrecognized transition asset (708) (889)
Unrecognized net gain (4,130) (3,303)
Net minimum liability of nonqualified plans (103) (51)
Prepaid pension costs $ 1,995 $ 1,823
<PAGE>
We used these rates and assumptions to calculate the projected benefit
obligation:
At December 31 1997 1996
Weighted-average discount rate 7.0% 7.5%
Rate of increase in future
compensation levels 4.5% 5.0%
The prepaid pension costs shown above are net of pension liabilities for plans
where accumulated plan benefits exceed assets. Such liabilities, that are not
material, are included in other liabilities in the Consolidated Balance Sheets.
We are amortizing over 15.9 years the unrecognized transition asset related to
our 1986 adoption of SFAS No. 87, "Employers' Accounting for Pensions." We
amortize prior service costs primarily on a straight-line basis over the average
remaining service period of active employees. Our plan assets consist primarily
of listed stocks (including $75 and $56 of AT&T common stock at December 31,
1997, and 1996, respectively), corporate and governmental debt, real estate
investments and cash and cash equivalents.
SAVINGS PLANS
We sponsor savings plans for the majority of our employees. The plans allow
employees to contribute a portion of their pretax and/or after-tax income in
accordance with specified guidelines. We match a percentage of the employee
contributions up to certain limits. Our contributions amounted to $197 in 1997,
$178 in 1996 and $156 in 1995.
10. STOCK-BASED COMPENSATION PLANS
Under the 1997 Long-Term Incentive Program, which was effective June 1, 1997, we
grant stock options, performance shares, restricted stock and other awards.
There are 100 million shares of common stock available for grant with a maximum
of 15 million common shares that may be used for awards other than stock
options. The exercise price of any stock option is equal to the stock price when
the option is granted. Generally, the options vest over three years and are
exercisable up to ten years from the date of grant. Under the 1987 Long-Term
Incentive Program, which expired in April 1997, we granted the same awards, and
on January 1 of each year 0.6% of the outstanding shares of our common stock
became available for grant.
Under the 1997 Long-Term Incentive Program, performance share units are
awarded to key employees in the form of either common stock or cash at the end
of a three-year period based on AT&T's total shareholder return as measured
against a peer group of industry competitors. Under the 1987 Long- Term
Incentive Program, performance share units with the same terms were also awarded
to key employees based on AT&T's return-to-equity performance compared with a
target.
On August 1, 1997, substantially all of our employees were granted a stock
option award to purchase 100 shares representing a total of 12.5 million shares
of our common stock. The options vest after three years and are exercisable up
to ten years from the grant date.
Under the AT&T 1996 Employee Stock Purchase Plan (Plan), which was effective
July 1, 1996, we are authorized to issue up to 50 million shares of common stock
to our eligible employees. Under the terms of the Plan, employees may have up to
10% of their earnings withheld to purchase AT&T's common stock. The purchase
<PAGE>
price of the stock on the date of exercise is 85% of the average high and low
sale prices of shares on the New York Stock Exchange for that day. Under the
Plan, we sold approximately 3 million shares to employees in both 1997 and 1996.
We apply Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations in accounting for our plans.
Accordingly, no compensation expense has been recognized for our stock-based
compensation plans other than for our performance-based and restricted stock
awards, SARs, and prior to July 1, 1996, for the stock purchase plan for former
McCaw Cellular Communications, Inc. employees. Compensation costs charged
against income were $94 and $40 in 1997 and 1996, respectively.
A summary of option transactions is shown below:
Weighted- Weighted-
Average Average
Exercise Exercise
Shares in Thousands 1997 Price 1996 Price 1995
Outstanding at January 1 46,910 $33.89 47,689 $43.21 40,285
Lucent and NCR
spin-off adjustments - - 22,678 - -
Options granted 36,485 $38.81 9,132 $45.53 13,276
Options and SARs
exercised (10,832) $24.89 (10,708) $19.16 (8,181)
Average exercise price $29.39
Options assumed in
purchase of LIN - - - - 3,382
Options canceled or
forfeited:
Lucent and NCR
spin-offs - - (16,179) $37.25 -
Other employee plans (4,058) $40.47 (5,702) $37.12 (1,073)
At December 31:
Options outstanding 68,505 $37.50 46,910 $33.89 47,689
Average exercise price $43.21
Options exercisable 22,981 $33.26 28,034 $28.81 28,775
Shares available
for grant 85,859 - 19,693 - 17,524
Effective on the dates of spin-off of Lucent and NCR, AT&T stock options held
by Lucent and NCR employees were canceled. For the holders of unexercised AT&T
stock options, the number of options was adjusted and all exercise prices were
decreased immediately following each spin-off date to preserve the economic
values of the options that existed prior to those dates.
During 1997 402,057 SARs were exercised and no SARs were granted. At December
31, 1997, 341,783 SARs remained unexercised, all of which were exercisable.
AT&T has adopted the disclosure-only provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation." If AT&T had elected to recognize compensation
costs based on the fair value at the date of grant for awards in 1997, 1996 and
1995, consistent with the provisions of SFAS No. 123, AT&T's net income and
earnings per common share would have been reduced to the following pro forma
amounts:
<PAGE>
For the Years Ended December 31 1997 1996 1995
Income from continuing operations $4,384 $5,502 $ 3,022
Income(loss) from discontinued operations 99 146 (2,902)
Gain on sale of discontinued operations 66 162 -
Net income $4,549 $5,810 $ 120
Earnings per common share-basic:
Continuing operations $ 2.70 $ 3.42 $ 1.91
Discontinued operations 0.06 0.09 (1.83)
Gain on sale of discontinued operations 0.04 0.10 -
Net income $ 2.80 $ 3.61 $ 0.08
Earnings per common share-diluted:
Continuing operations $ 2.69 $ 3.41 $ 1.90
Discontinued operations 0.06 0.09 (1.82)
Gain on sale of discontinued operations 0.04 0.10 -
Net income $ 2.79 $ 3.60 $ 0.08
Without the effect of pro forma costs related to the conversion of options in
the Lucent and NCR spin-offs, pro forma income from continuing operations was
$5,532, or $3.42 per diluted common share in 1996.
The pro forma effect on net income for 1997, 1996 and 1995 may not be
representative of the pro forma effect on net income of future years because the
SFAS No. 123 method of accounting for pro forma compensation expense has not
been applied to options granted prior to January 1, 1995.
The weighted-average fair values at date of grant for options granted during
1997, 1996 and 1995 were $9.09, $13.12 and $14.02, respectively, and were
estimated using the Black-Scholes option-pricing model. The risk-free interest
rates applied for 1997, 1996 and 1995 were 6.16%, 6.11% and 6.44%, respectively.
The following assumptions were applied for periods before the Lucent spin-off,
subsequent to the Lucent spin-off through December 31, 1996, and for 1997,
respectively: (i) expected dividend yields of 2.4%, 2.8% and 2.2%, (ii) expected
volatility rates of 19.0%, 21.0% and 21.8%, and (iii) expected lives of 5.0, 4.5
and 4.5 years.
The following table summarizes information about stock options outstanding at
December 31, 1997:
Options Outstanding Options Exercisable
Weighted-
Number Average Weighted- Number Weighted-
Range of Outstanding at Remaining Average Exercisable at Average
Exercise Dec. 31, 1997 Contractual Exercise Dec. 31, 1997 Exercise
Prices (in thousands) Life Price (in thousands) Price
$ 1.11 - $15.76 318 1.9 $13.64 318 $13.64
15.83 - 27.12 6,611 3.5 24.40 6,611 24.40
27.16 - 34.95 7,890 6.4 34.16 5,088 24.50
35.20 - 36.74 6,207 5.7 35.61 4,495 35.54
36.75 12,501 9.4 36.75 - 36.75
36.76 - 39.30 4,229 6.0 37.41 3,304 37.20
39.31 17,810 9.0 39.31 22 39.31
39.32 - 47.37 11,813 7.6 45.15 3,143 45.19
48.28 - 60.00 1,126 9.9 54.58 - -
68,505 7.5 $37.50 22,981 $33.26
<PAGE>
11. DEBT OBLIGATIONS
DEBT MATURING WITHIN ONE YEAR
At December 31 1997 1996
Commercial paper $3,113 $1,950
Currently maturing long-term debt 874 463
Other 11 36
Total debt maturing within one year $3,998 $2,449
Weighted-average interest rate of
short-term debt 5.8% 5.5%
A consortium of lenders provides revolving credit facilities of $5.0 billion
to AT&T. These credit facilities are intended for general corporate purposes,
which include support for AT&T's commercial paper, and were unused at December
31, 1997.
LONG-TERM OBLIGATIONS
At December 31 1997 1996
Interest Rates (a) Maturities
DEBENTURES
4 3/8% to 4 3/4% 1998-1999 $ 500 $ 500
5 1/8% to 6% 2000-2001 500 500
8 1/8% to 8 5/8% 2002-2031 1,996 1,996
NOTES
5 9/38% to 7 3/4% 1998-2025 4,000 4,341
8% to 8 17/20% 1998-2025 579 786
9 3/5% to 12 7/8% 1998-2004 30 60
Variable rate 1998-2054 67 115
Total debentures and notes 7,672 8,298
Other 83 112
Less: Unamortized discount-net 55 64
Total long-term obligations 7,700 8,346
Less: Currently maturing long-term debt 874 463
Net long-term obligations $6,826 $7,883
(a) Note that the actual interest paid on our debt obligations may have differed
from the stated amount due to our entering into interest rate swap contracts to
manage our exposure to interest rate risk and our strategy to reduce finance
costs.
This table shows the maturities at December 31, 1997, of the $7,700 in total
long-term obligations:
1998 1999 2000 2001 2002 Later Years
$874 $1,063 $658 $657 $504 $3,944
12. FINANCIAL INSTRUMENTS
In the normal course of business we use various financial instruments, including
derivative financial instruments, for purposes other than trading. We do not use
derivative financial instruments for speculative purposes. These instruments
include letters of credit, guarantees of debt, interest rate swap agreements and
foreign currency exchange contracts. Interest rate swap agreements and foreign
currency exchange contracts are used to mitigate interest rate and foreign
currency exposures. Collateral is generally not required for these types of
instruments.
<PAGE>
By their nature all such instruments involve risk, including the credit risk
of nonperformance by counterparties, and our maximum potential loss may exceed
the amount recognized in our balance sheet. However, at December 31, 1997, and
1996, in management's opinion there was no significant risk of loss in the event
of nonperformance of the counterparties to these financial instruments. We
control our exposure to credit risk through credit approvals, credit limits and
monitoring procedures. We do not have any significant exposure to any individual
customer or counterparty, nor do we have any major concentration of credit risk
related to any financial instruments.
LETTERS OF CREDIT
Letters of credit are purchased guarantees that ensure our performance or
payment to third parties in accordance with specified terms and conditions and
do not create any additional risk to AT&T.
GUARANTEES OF DEBT
From time to time we guarantee the debt of our subsidiaries and certain
unconsolidated joint ventures. Additionally, in connection with restructurings
of AT&T in 1996, we issued guarantees for certain debt obligations of AT&T
Capital and NCR. At December 31, 1997, and 1996, respectively, the amount of
guaranteed debt associated with AT&T Capital and NCR was $120 and $230.
INTEREST RATE SWAP AGREEMENTS
We enter into interest rate swaps to manage our exposure to changes in interest
rates and to lower our overall costs of financing. We enter into swap agreements
to manage the fixed/floating mix of our debt portfolio in order to reduce
aggregate risk to interest rate movements. Interest rate swaps also allow us to
raise funds at floating rates and effectively swap them into fixed rates that
are lower than those available to us if fixed-rate borrowings were made
directly. These agreements involve the exchange of floating-rate for fixed-rate
payments or fixed-rate for floating-rate payments without the exchange of the
underlying principal amount. Fixed interest rate payments at December 31, 1997,
are at rates ranging from 6.96% to 7.75%. Floating-rate payments are based on
rates tied to LIBOR.
The following table indicates the types of swaps in use at December 31, 1997,
and 1996, and their weighted-average interest rates. Average variable rates are
those in effect at the reporting date and may change significantly over the
lives of the contracts.
1997 1996
Fixed to variable swaps-notional amount $422 $632
Average receive rate 7.54% 7.55%
Average pay rate 5.67% 5.32%
Variable to fixed swaps-notional amount $249 $351
Average receive rate 5.70% 5.77%
Average pay rate 7.42% 5.71%
The weighted-average remaining terms of the swap contracts are 3 years for
1997 and 5 years for 1996.
FOREIGN EXCHANGE
We enter into foreign currency exchange contracts, including forward
and option contracts, to manage our exposure to changes in currency exchange
rates, principally French francs, Deutsche marks, British pounds sterling and
Japanese yen. The use of these derivative financial instruments allows us to
reduce our exposure to the risk of adverse changes in exchange rates on the
eventual reimbursement to foreign telephone companies for their portion of the
revenues billed by AT&T for calls placed in the U.S. to a foreign country and
other foreign currency payables and receivables. These transactions are
generally expected to occur in less than one year.
<PAGE>
FAIR VALUES OF FINANCIAL INSTRUMENTS INCLUDING DERIVATIVE FINANCIAL INSTRUMENTS
The following table summarizes the notional amounts of material financial
instruments. The notional amounts represent agreed-upon amounts on which
calculations of dollars to be exchanged are based. They do not represent amounts
exchanged by the parties and, therefore, are not a measure of our exposure. Our
exposure is limited to the fair value of the contracts with a positive fair
value plus interest receivable, if any, at the reporting date.
DERIVATIVES AND OFF BALANCE SHEET INSTRUMENTS
1997 1996
Contract/ Contract/
Notional Notional
Amount Amount
Interest rate swap agreements $671 $983
Foreign exchange:
Forward contracts 426 646
Option contracts 2 65
Letters of credit 63 264
Guarantees of debt 242 328
The tables below show the valuation methods and the carrying amounts and
estimated fair values of material financial instruments.
FINANCIAL INSTRUMENT VALUATION METHOD
Debt excluding capital leases Market quotes or based on rates
available to us for debt with
similar terms and maturities
Letters of credit Fees paid to obtain the
obligations
Guarantees of debt There are no quoted market prices
for similar agreements available
Interest rate swap agreements Market quotes obtained from dealers
Foreign exchange contracts Market quotes
For debt excluding capital leases, the carrying amounts and fair values were
$10,810 and $11,112, respectively, for 1997; and $10,319 and $10,609,
respectively, for 1996.
DERIVATIVES AND OFF BALANCE SHEET INSTRUMENTS
1997
Carrying Fair
Amount Value
Asset Liab. Asset Liab.
Interest rate swap agreements $3 $10 $5 $31
Foreign exchange
forward contracts - 21 3 33
1996
Carrying Fair
Amount Value
Asset Liab. Asset Liab.
Interest rate swap agreements $5 $ 8 $47 $12
Foreign exchange
forward contracts 6 15 7 35
<PAGE>
13. COMMITMENTS AND CONTINGENCIES
In the normal course of business we are subject to proceedings, lawsuits and
other claims, including proceedings under laws and regulations related to
environmental and other matters. Such matters are subject to many uncertainties
and outcomes are not predictable with assurance. Consequently, we are unable to
ascertain the ultimate aggregate amount of monetary liability or financial
impact with respect to these matters at December 31, 1997. These matters could
affect the operating results of any one quarter when resolved in future periods.
However, we believe that after final disposition any monetary liability or
financial impact to us beyond that provided for at year-end would not be
material to our annual consolidated financial statements. We lease land,
buildings and equipment through contracts that expire in various years through
2032. Our rental expense under operating leases was $822 in 1997, $718 in 1996
and $653 in 1995. The following table shows our future minimum lease payments
due under noncancelable operating leases at December 31, 1997. Such payments
total $3,384. The total of minimum rentals to be received in the future under
noncancelable subleases as of December 31, 1997, was $275.
1998 1999 2000 2001 2002 Later Years
$652 $528 $444 $334 $249 $1,177
14. QUARTERLY INFORMATION (UNAUDITED)
1997 First Second Third Fourth
Revenues $12,662 $12,825 $13,004 $12,828
Operating income 1,639 1,511 1,775 2,043
Income from continuing operations 1,088 928 1,133 1,323
Income from discontinued
operations 38 31 20 11
Gain on sale of discontinued
operation - - 66 -
Net income 1,126 959 1,219 1,334
Income per common share-basic:
Continuing operations .67 .57 .70 .81
Discontinued operations .02 .02 .01 .01
Gain on sale of discontinued
operation - - .04 -
Net income .69 .59 .75 .82
Income per common share-diluted:
Continuing operations .67 .57 .69 .81
Discontinued operations .02 .02 .02 -
Gain on sale of discontinued
operation - - .04 -
Net income .69 .59 .75 .81
Dividends declared .33 .33 .33 .33
Stock price*:
High $41 7/8 $38 1/4 $45 15/16 $63 15/16
Low 34 3/8 30 3/4 34 1/4 43 3/16
Quarter-end close 34 7/8 35 1/16 44 1/4 61 5/16
* Stock prices obtained from the Composite Tape
<PAGE>
1996 First Second Third Fourth
Revenues $12,378 $12,459 $12,837 $12,872
Operating income 2,369 2,273 2,211 1,910
Income from continuing
operations 1,439 1,509 1,380 1,245
Income(loss) from discontinued
operations (77) (18) 52 216
Gain on sale of
discontinued operation - - - 162
Net income 1,362 1,491 1,432 1,623
Income(loss) per common share-basic:
Continuing operations .90 .94 .85 .77
Discontinued operations (.05) (.01) .04 .13
Gain on sale of
discontinued operation - - - .10
Net income .85 .93 .89 1.00
Income(loss) per common share-diluted:
Continuing operations .90 .93 .85 .77
Discontinued operations (.05) (.01) .04 .13
Gain on sale of discontinued
operation - - - .10
Net income .85 .92 .89 1.00
Dividends declared .33 .33 .33 .33
Stock price*:
High $68 7/8 $64 7/8 $62 3/8 $44 1/2
Low 60 1/8 58 49 1/4 33 1/4
Quarter-end close 61 1/8 62 52 1/4 43 3/8
* Stock prices obtained from the Composite Tape
Stock prices on or before September 30, 1996, have not been restated to
reflect the Lucent spin-off. Stock prices on or before December 31, 1996, have
not been restated to reflect the NCR spin-off.
15. SUBSEQUENT EVENT
On January 8, 1998, AT&T signed a definitive merger agreement with Teleport
Communications Group Inc. (TCG) for an all-stock transaction valued at
approximately $11.3 billion. Under the agreement each TCG share will be
exchanged for .943 of an AT&T share. The merger is subject to regulatory
approvals and certain other conditions as well as the receipt of opinions that
the merger will be tax-free to TCG shareowners. The transaction is expected to
close in the second half of 1998.
List of Subsidiaries of AT&T Corp.
As of 3/26/98
Jurisdiction of Incorporation
Alascom,Inc...........................................Alaska
Actuarial Sciences Associates,Inc.....................Delaware
AT&T Canada Long Distance Services Company............Canada
AT&T Communications, Inc..............................Delaware
AT&T Communications of California, Inc................California
AT&T Communications of Delaware, Inc..................Delaware
AT&T Communications of Hawaii, Inc....................Hawaii
AT&T Communications of Illinois, Inc..................Illinois
AT&T Communications of Indiana, Inc...................Indiana
AT&T Communications of Maryland, Inc..................Maryland
AT&T Communications of Michigan, Inc..................Michigan
AT&T Communications of the Midwest, Inc...............Iowa
AT&T Communications of the Mountain States, Inc.......Colorado
AT&T Communications of Nevada, Inc....................Nevada
AT&T Communications of New England, Inc...............New York
AT&T Communications of New Hampshire, Inc.............New Hampshire
AT&T Communications of New Jersey, Inc................New Jersey
AT&T Communications of New York, Inc..................New York
AT&T Communications of Ohio, Inc......................Ohio
AT&T Communications of the Pacific Northwest, Inc.....Washington
AT&T Communications of Pennsylvania, Inc..............Pennsylvania
AT&T Communications of the South Central States,Inc...Delaware
AT&T Communications of the Southern States, Inc.......New York
AT&T Communications of the Southwest, Inc.............Delaware
AT&T Communications of Virginia, Inc..................Virginia
AT&T Communications of Washington D.C., Inc...........New York
AT&T Communications of West Virginia, Inc.............West Virginia
AT&T Communications of Wisconsin, Inc.................Wisconsin
AT&T Communications Services International Inc........Delaware
AT&T Communications (UK) LTD..........................United Kingdom
AT&T Global Communications Services Inc...............Delaware
AT&T Istel............................................United Kingdom
AT&T Solutions Inc....................................Delaware
AT&T of Puerto Rico, Inc..............................New York
AT&T Universal Card Services Corporation..............Delaware
AT&T Wireless Services, Inc...........................Delaware
LIN Broadcasting Corporation..........................Delaware
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of AT&T Corp. ("AT&T" or the "Company") on Form S-3 for the Shareowner Dividend
Reinvestment and Stock Purchase Plan (Registration No. 333-00573), Form S-8 for
the AT&T Long Term Savings and Security Plan (Registration Nos. 33-34265 and
33-47257), Form S-8 for the AT&T Long Term Savings Plan for Management Employees
(Registration Nos. 33-34264, 33-29256 and 33-21937), Form S-8 for the AT&T
Retirement Savings and Profit Sharing Plan (Registration No. 33-39708), Form S-8
for Shares Issuable Under the Stock Option Plan of the AT&T 1987 Long Term
Incentive Program (Registration Nos. 33-56643, 33-49465, 33-20276 and 33-47251),
Form S-8 for the AT&T of Puerto Rico, Inc. Long Term Savings Plan for Management
Employees (Registration No. 33-50819), Form S-8 for the AT&T of Puerto Rico,
Inc. Long Term Savings and Security Plan (Registration No. 33-50817), and
Post-Effective Amendment No. 1 on Form S-8 to Form S-8 Registration Statement
(Registration No. 33-54797) for the AT&T 1996 Employee Stock Purchase Plan, Form
S-8 for the AT&T Shares for Growth Program (Registration Nos. 33-49089 and
33-47255), Form S-8 for the AT&T 1997 Long Term Incentive Program (Registration
No. 33-28665), Form S-3 for the AT&T $2,600,000,000 Notes and Warrants to
Purchase Notes (Registration No. 33-49589), Form S-3 for the AT&T $3,000,000,000
Notes and Warrants to Purchase Notes (Registration No. 33-59495), Form S-4 for
the AT&T 5,000,000 Common Shares (Registration No. 33-57745), and in
Post-Effective Amendment Nos. 1, 2 and 3 on Form S-8 to Form S-4 Registration
Statement (Registration No. 33-42150) for the NCR Corporation 1989 Stock
Compensation Plan (Registration No. 33-42150-01), the NCR Corporation 1984 Stock
Option Plan (Registration No. 33-42150-02) and the NCR Corporation 1976 Stock
Option Plan (Registration No. 33-42150-03), respectively, and the Post-Effective
Amendment Nos. 1, 2, 3 and 5 on Form S-8 to Form S-4 Registration Statement
(Registration No. 33-52119) for the McCaw Cellular Communications, Inc. 1983
Non-Qualified Stock Option Plan (Registration No. 33-52119-01), the McCaw
Cellular Communications, Inc. 1987 Stock Option Plan (Registration No.
33-52119-02), the McCaw Cellular Communications, Inc. Equity Purchase Plan
(Registration No. 33-52119-03) and the McCaw Cellular Communications, Inc.
Employee Stock Purchase Plan (Registration No. 33-52119-05), respectively, and
Post-Effective Amendment No. 1 on Form S-8 to Form S-4 Registration Statement
(Registration No. 33-45302) for the Teradata Corporation 1987 Incentive and
Other Stock Option Plan (Registration No. 33-45302-01), Form S-8 for the AT&T
Amended and Restated 1969 Stock Option Plan for LIN Broadcasting Corp.
(Registration No. 33-63195) of our reports dated January 26, 1998, on our audits
of the consolidated financial statements and consolidated financial statement
schedule of the Company and its subsidiaries at December 31, 1997 and 1996, and
for the years ended December 31, 1997, 1996 and 1995.
COOPERS & LYBRAND L.L.P.
1301 Avenue of the Americas
New York, New York
March 25, 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as
the "Company"), proposes to file with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as amended, an
annual report on Form 10-K; and
WHEREAS, the undersigned is both a director and an officer of the
Company, as indicated below his signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints D. E.
SOMERS, M. B. TART and M. J. WASSER and each of them, as attorney for him and in
his name, place and stead, and in his capacity as both a director and an officer
of the Company, to execute and file such annual report, and thereafter to
execute and file any amendments or amendments thereto, hereby giving and
granting to said attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever requisite and necessary to be
done in and about the premises, as fully, to all intents and purposes, as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do, or cause to be
done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 12th day of March 1998.
/s/ C. Michael Armstrong
-----------------------------------
By: C. Michael Armstrong
Chairman of the Board and Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as
the "Company"), proposes to file with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as amended, an
annual report on Form 10-K; and
WHEREAS, the undersigned is both a director and an officer of the
Company, as indicated below his signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints D. E.
SOMERS, M. B. TART and M. J. WASSER and each of them, as attorneys for him and
in his name, place and stead, and in his capacity as an officer of the Company,
to execute and file such annual report, and thereafter to execute and file any
amendments or amendments thereto, hereby giving and granting to said attorneys,
and each of them, full power and authority to do and perform each and every act
and thing whatsoever requisite and necessary to be done in and about the
premises, as fully, to all intents and purposes, as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do, or cause to be done, by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 16th day of March, 1998.
/s/ J. D. Zeglis
-----------------------------------
By: J. D. Zeglis
President and Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as
the "Company"), proposes to file with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as amended, an
annual report on Form 10-K; and
WHEREAS, the undersigned is an officer of the Company, as indicated
below his signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints M. B.
TART and M. J. WASSER and each of them, as attorneys for him and in his name,
place and stead, and in his capacity as an officer of the Company, to execute
and file such annual report, and thereafter to execute and file any amendments
or amendments thereto, hereby giving and granting to said attorneys, and each of
them, full power and authority to do and perform each and every act and thing
whatsoever requisite and necessary to be done in and about the premises, as
fully, to all intents and purposes, as he might or could do if personally
present at the doing thereof, hereby ratifying and confirming all that said
attorneys may or shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 12th day of March, 1998.
/s/ D. E. Somers
-----------------------------------
By: D. E. Somers
Senior Executive Vice President
and Chief Financial Officer
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as
the "Company"), proposes to file with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as amended, an
annual report on Form 10-K; and
WHEREAS, the undersigned is an officer of the Company, as indicated
below her signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints
D. E. SOMERS and M. J. WASSER, and each of them, as attorneys for her and in her
name, place and stead, and in her capacity as an officer of the Company, to
execute and file such annual report, and thereafter to execute and file any
amendments or amendments thereto, hereby giving and granting to said attorneys,
and each of them, full power and authority to do and perform each and every
act and thing whatsoever requisite and necessary to be done in and about the
premises, as fully, to all intents and purposes, as she might or could do
if personally present at the doing thereof, hereby ratifying and confirming
all that said attorneys may or shall lawfully do, or cause to be done, by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 13th day of March, 1998.
/s/ M. B. Tart
-----------------------------------
By: M. B. Tart
Vice President and Controller
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as
the "Company"), proposes to file with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as amended, an
annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company:
NOW, THEREFORE, the undersigned hereby constitutes and appoints D. E.
SOMERS, M. B. TART and M. J. WASSER and each of them, as attorneys for him or
her and in his or her name, place and stead, and in his or her capacity as a
director of the Company, to execute and file such annual report, and thereafter
to execute and file any amendments or amendments thereto, hereby giving and
granting to said attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever requisite and necessary to be
done in and about the premises, as fully, to all intents and purposes, as he or
she might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 17th day of March, 1998.
/s/ Kenneth T. Derr
-----------------------------------
By: Kenneth T. Derr
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as
the "Company"), proposes to file with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as amended, an
annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company:
NOW, THEREFORE, the undersigned hereby constitutes and appoints D. E.
SOMERS, M. B. TART and M. J. WASSER and each of them, as attorneys for him or
her and in his or her name, place and stead, and in his or her capacity as a
director of the Company, to execute and file such annual report, and thereafter
to execute and file any amendments or amendments thereto, hereby giving and
granting to said attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever requisite and necessary to be
done in and about the premises, as fully, to all intents and purposes, as he or
she might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 18th day of March, 1998.
/s/ M. Kathryn Eickhoff
-----------------------------------
By: M. Kathryn Eickhoff
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as
the "Company"), proposes to file with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as amended, an
annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company:
NOW, THEREFORE, the undersigned hereby constitutes and appoints D. E.
SOMERS, M. B. TART and M. J. WASSER and each of them, as attorneys for him or
her and in his or her name, place and stead, and in his or her capacity as a
director of the Company, to execute and file such annual report, and thereafter
to execute and file any amendments or amendments thereto, hereby giving and
granting to said attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever requisite and necessary to be
done in and about the premises, as fully, to all intents and purposes, as he or
she might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 13th day of March, 1998.
/s/ Walter Y. Elisha
-----------------------------------
By: Walter Y. Elisha
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as
the "Company"), proposes to file with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as amended, an
annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company:
NOW, THEREFORE, the undersigned hereby constitutes and appoints D. E.
SOMERS, M. B. TART and M. J. WASSER and each of them, as attorneys for him or
her and in his or her name, place and stead, and in his or her capacity as a
director of the Company, to execute and file such annual report, and thereafter
to execute and file any amendments or amendments thereto, hereby giving and
granting to said attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever requisite and necessary to be
done in and about the premises, as fully, to all intents and purposes, as he or
she might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 14th day of March, 1998.
/s/ George M. C. Fisher
-----------------------------------
By: George M. C. Fisher
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as
the "Company"), proposes to file with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as amended, an
annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company:
NOW, THEREFORE, the undersigned hereby constitutes and appoints
D. E. SOMERS, M. B. TART and M. J. WASSER and each of them, as attorneys for him
or her and in his or her name, place and stead, and in his or her capacity as a
director of the Company, to execute and file such annual report, and thereafter
to execute and file any amendments or amendments thereto, hereby giving and
granting to said attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever requisite and necessary to be
done in and about the premises, as fully, to all intents and purposes, as he or
she might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 26th day of March, 1998.
/s/ Donald V. Fites
-----------------------------------
By: Donald V. Fites
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as
the "Company"), proposes to file with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as amended, an
annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company:
NOW, THEREFORE, the undersigned hereby constitutes and appoints D. E.
SOMERS, M. B. TART and M. J. WASSER and each of them, as attorneys for him or
her and in his or her name, place and stead, and in his or her capacity as a
director of the Company, to execute and file such annual report, and thereafter
to execute and file any amendments or amendments thereto, hereby giving and
granting to said attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever requisite and necessary to be
done in and about the premises, as fully, to all intents and purposes, as he or
she might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 16th day of March, 1998.
/s/ Ralph S. Larsen
-----------------------------------
By: Ralph S. Larsen
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as
the "Company"), proposes to file with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as amended, an
annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company:
NOW, THEREFORE, the undersigned hereby constitutes and appoints D. E.
SOMERS, M. B. TART and M. J. WASSER and each of them, as attorneys for him or
her and in his or her name, place and stead, and in his or her capacity as a
director of the Company, to execute and file such annual report, and thereafter
to execute and file any amendments or amendments thereto, hereby giving and
granting to said attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever requisite and necessary to be
done in and about the premises, as fully, to all intents and purposes, as he or
she might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 18th day of March, 1998.
/s/ Donald F. McHenry
-----------------------------------
By: Donald F. McHenry
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as
the "Company"), proposes to file with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as amended, an
annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company:
NOW, THEREFORE, the undersigned hereby constitutes and appoints D. E.
SOMERS, M. B. TART and M. J. WASSER and each of them, as attorneys for him or
her and in his or her name, place and stead, and in his or her capacity as a
director of the Company, to execute and file such annual report, and thereafter
to execute and file any amendments or amendments thereto, hereby giving and
granting to said attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever requisite and necessary to be
done in and about the premises, as fully, to all intents and purposes, as he or
she might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 18th day of March, 1998.
/s/ Michael I. Sovern
-----------------------------------
By: Michael I. Sovern
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as
the "Company"), proposes to file with the Securities and Exchange Commission,
under the provisions of the Securities Exchange Act of 1934, as amended, an
annual report on Form 10-K; and
WHEREAS, the undersigned is a director of the Company:
NOW, THEREFORE, the undersigned hereby constitutes and appoints D. E.
SOMERS, M. B. TART and M. J. WASSER and each of them, as attorneys for him or
her and in his or her name, place and stead, and in his or her capacity as a
director of the Company, to execute and file such annual report, and thereafter
to execute and file any amendments or amendments thereto, hereby giving and
granting to said attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever requisite and necessary to be
done in and about the premises, as fully, to all intents and purposes, as he or
she might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 16th day of March, 1998.
/s/ Thomas H. Wyman
-----------------------------------
By: Thomas H. Wyman
Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited balance sheet of AT&T Corp. at December 31, 1995 and the unaudited
consolidated statement of income for the twelve-month period ended December 31,
1995 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 75
<SECURITIES> 0
<RECEIVABLES> 9,137
<ALLOWANCES> 797
<INVENTORY> 0
<CURRENT-ASSETS> 20,510
<PP&E> 33,574
<DEPRECIATION> 17,553
<TOTAL-ASSETS> 62,228
<CURRENT-LIABILITIES> 24,413
<BONDS> 8,545
0
0
<COMMON> 1,596
<OTHER-SE> 15,678
<TOTAL-LIABILITY-AND-EQUITY> 62,228
<SALES> 0
<TOTAL-REVENUES> 48,445
<CGS> 0
<TOTAL-COSTS> 43,261
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,613
<INTEREST-EXPENSE> 490
<INCOME-PRETAX> 4,978
<INCOME-TAX> 1,943
<INCOME-CONTINUING> 3,035
<DISCONTINUED> (2,896)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 139
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited balance sheet of AT&T Corp. at March 31, 1996 and the unaudited
consolidated statement of income for the three-month period ended March 31, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 158
<SECURITIES> 0
<RECEIVABLES> 10,006
<ALLOWANCES> 798
<INVENTORY> 0
<CURRENT-ASSETS> 19,934
<PP&E> 33,765
<DEPRECIATION> 17,805
<TOTAL-ASSETS> 60,057
<CURRENT-LIABILITIES> 21,381
<BONDS> 8,486
0
0
<COMMON> 1,606
<OTHER-SE> 17,051
<TOTAL-LIABILITY-AND-EQUITY> 60,057
<SALES> 0
<TOTAL-REVENUES> 12,378
<CGS> 0
<TOTAL-COSTS> 10,009
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 369
<INTEREST-EXPENSE> 125
<INCOME-PRETAX> 2,328
<INCOME-TAX> 909
<INCOME-CONTINUING> 1,439
<DISCONTINUED> (77)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,362
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.85
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited balance sheet of AT&T Corp. at June 30, 1996 and the unaudited
consolidated statement of income for the six-month period ended June 30, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 9,442
<ALLOWANCES> 820
<INVENTORY> 0
<CURRENT-ASSETS> 17,796
<PP&E> 34,814
<DEPRECIATION> 18,207
<TOTAL-ASSETS> 57,869
<CURRENT-LIABILITIES> 16,133
<BONDS> 8,033
0
0
<COMMON> 1,610
<OTHER-SE> 20,822
<TOTAL-LIABILITY-AND-EQUITY> 57,869
<SALES> 0
<TOTAL-REVENUES> 24,837
<CGS> 0
<TOTAL-COSTS> 20,195
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 790
<INTEREST-EXPENSE> 225
<INCOME-PRETAX> 4,625
<INCOME-TAX> 1,677
<INCOME-CONTINUING> 2,948
<DISCONTINUED> (95)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,853
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 1.77
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited balance sheet of AT&T Corp. at September 30, 1996 and the unaudited
consolidated statement of income for the nine-month period ended September 30,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 362
<SECURITIES> 0
<RECEIVABLES> 10,092
<ALLOWANCES> 823
<INVENTORY> 0
<CURRENT-ASSETS> 17,709
<PP&E> 36,129
<DEPRECIATION> 18,462
<TOTAL-ASSETS> 56,303
<CURRENT-LIABILITIES> 16,068
<BONDS> 7,851
0
0
<COMMON> 1,619
<OTHER-SE> 19,434
<TOTAL-LIABILITY-AND-EQUITY> 56,303
<SALES> 0
<TOTAL-REVENUES> 37,674
<CGS> 0
<TOTAL-COSTS> 30,821
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,254
<INTEREST-EXPENSE> 300
<INCOME-PRETAX> 6,843
<INCOME-TAX> 2,515
<INCOME-CONTINUING> 4,328
<DISCONTINUED> (43)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,285
<EPS-PRIMARY> 2.67
<EPS-DILUTED> 2.66
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited balance sheet of AT&T Corp. at December 31, 1996 and the unaudited
consolidated statement of income for the twelve-month period ended December 31,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 9,911
<ALLOWANCES> 942
<INVENTORY> 0
<CURRENT-ASSETS> 17,073
<PP&E> 39,385
<DEPRECIATION> 19,649
<TOTAL-ASSETS> 55,382
<CURRENT-LIABILITIES> 16,151
<BONDS> 7,883
0
0
<COMMON> 1,623
<OTHER-SE> 18,672
<TOTAL-LIABILITY-AND-EQUITY> 55,382
<SALES> 0
<TOTAL-REVENUES> 50,546
<CGS> 0
<TOTAL-COSTS> 41,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,938
<INTEREST-EXPENSE> 343
<INCOME-PRETAX> 8,810
<INCOME-TAX> 3,237
<INCOME-CONTINUING> 5,573
<DISCONTINUED> 335
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,908
<EPS-PRIMARY> 3.67
<EPS-DILUTED> 3.66
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
audited balance sheet of AT&T at March 31, 1997, and the audited consolidated
statement of income for the three-month period ended March 31, 1997, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Mar-31-1997
<CASH> 198
<SECURITIES> 0
<RECEIVABLES> 9,687
<ALLOWANCES> 999
<INVENTORY> 0
<CURRENT-ASSETS> 15,724
<PP&E> 39,457
<DEPRECIATION> 20,151
<TOTAL-ASSETS> 54,461
<CURRENT-LIABILITIES> 14,464
<BONDS> 7,867
0
0
<COMMON> 1,624
<OTHER-SE> 19,242
<TOTAL-LIABILITY-AND-EQUITY> 54,461
<SALES> 0
<TOTAL-REVENUES> 12,662
<CGS> 0
<TOTAL-COSTS> 11,023
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 549
<INTEREST-EXPENSE> 52
<INCOME-PRETAX> 1,755
<INCOME-TAX> 667
<INCOME-CONTINUING> 1,088
<DISCONTINUED> 38
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,126
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
audited balance sheet of AT&T at June 30, 1997, and the audited consolidated
statement of income for the six-month period ended June 30, 1997, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Jun-30-1997
<CASH> 22
<SECURITIES> 0
<RECEIVABLES> 9,593
<ALLOWANCES> 987
<INVENTORY> 0
<CURRENT-ASSETS> 15,056
<PP&E> 40,683
<DEPRECIATION> 20,755
<TOTAL-ASSETS> 54,946
<CURRENT-LIABILITIES> 15,047
<BONDS> 7,216
0
0
<COMMON> 1,625
<OTHER-SE> 19,683
<TOTAL-LIABILITY-AND-EQUITY> 54,946
<SALES> 0
<TOTAL-REVENUES> 25,487
<CGS> 0
<TOTAL-COSTS> 22,337
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,032
<INTEREST-EXPENSE> 108
<INCOME-PRETAX> 3,266
<INCOME-TAX> 1,250
<INCOME-CONTINUING> 2,016
<DISCONTINUED> 69
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,085
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
audited balance sheet of AT&T at September 30, 1997, and the audited
consolidated statement of income for the nine-month period ended September 30,
1997, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Sep-30-1997
<CASH> 186
<SECURITIES> 0
<RECEIVABLES> 9,927
<ALLOWANCES> 1,046
<INVENTORY> 0
<CURRENT-ASSETS> 15,632
<PP&E> 42,387
<DEPRECIATION> 21,423
<TOTAL-ASSETS> 56,449
<CURRENT-LIABILITIES> 15,957
<BONDS> 7,054
0
0
<COMMON> 1,625
<OTHER-SE> 20,360
<TOTAL-LIABILITY-AND-EQUITY> 56,449
<SALES> 0
<TOTAL-REVENUES> 38,491
<CGS> 0
<TOTAL-COSTS> 33,566
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,501
<INTEREST-EXPENSE> 152
<INCOME-PRETAX> 5,124
<INCOME-TAX> 1,975
<INCOME-CONTINUING> 3,149
<DISCONTINUED> 155
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,304
<EPS-PRIMARY> 2.03
<EPS-DILUTED> 2.03
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
audited balance sheet of AT&T at December 31, 1997, and the audited consolidated
statement of income for the twelve-month period ended December 31, 1997, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Dec-31-1997
<CASH> 145
<SECURITIES> 0
<RECEIVABLES> 9,550
<ALLOWANCES> 977
<INVENTORY> 0
<CURRENT-ASSETS> 16,179
<PP&E> 44,563
<DEPRECIATION> 21,853
<TOTAL-ASSETS> 58,635
<CURRENT-LIABILITIES> 16,942
<BONDS> 6,826
0
0
<COMMON> 1,624
<OTHER-SE> 21,023
<TOTAL-LIABILITY-AND-EQUITY> 58,635
<SALES> 0
<TOTAL-REVENUES> 51,319
<CGS> 0
<TOTAL-COSTS> 44,351
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,957
<INTEREST-EXPENSE> 191
<INCOME-PRETAX> 7,193
<INCOME-TAX> 2,721
<INCOME-CONTINUING> 4,472
<DISCONTINUED> 166
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,638
<EPS-PRIMARY> 2.85
<EPS-DILUTED> 2.84
</TABLE>
