SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
AT&T Corp.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(I)(ii), 14-a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(5) Total fee paid:
- -------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- -------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- -------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- -------------------------------------------------------------------------------
(3) Filing Party:
- -------------------------------------------------------------------------------
(4) Date Filed:
- -------------------------------------------------------------------------------
<PAGE>
[AT&T Logo]
- --------------------------------------------------------------------------------
1998
Notice of
Annual Meeting
and
Proxy Statement
- --------------------------------------------------------------------------------
Wednesday, May 20, 1998
at 9:30 a.m. local time
Meadowlands Exposition Center
355 Plaza Drive
Secaucus, New Jersey
<PAGE>
NOTICE OF MEETING
The 113th Annual Meeting of Shareholders of AT&T Corp. (the "Company") will
be held at the Meadowlands Exposition Center, 355 Plaza Drive, Secaucus, New
Jersey, on Wednesday, May 20, 1998, at 9:30 a.m. local time, for the following
purposes:
[bullet] To elect Directors for the ensuing year (page 7);
[bullet] To ratify the appointment of auditors to examine the Company's
accounts for the year 1998 (page 13);
[bullet] To approve an increase in the number of authorized common shares
(page 14);
[bullet] To act upon such other matters, including shareholder proposals
(page 16), as may properly come before the meeting.
Holders of common shares of record at the close of business on March 26,
1998, will be entitled to vote with respect to this solicitation.
Marilyn J. Wasser
Vice President - Law and Secretary
March 26, 1998
<PAGE>
[AT&T Logo]
32 Avenue of the Americas
New York, NY 10013-2412
C. Michael Armstrong
Chairman of the Board
March 26, 1998
Dear Shareholder:
It is a pleasure to invite you to our Company's 1998 Annual Meeting of
Shareholders in Secaucus, New Jersey, on Wednesday, May 20, beginning at 9:30
a.m. local time, at the Meadowlands Exposition Center. This will be AT&T's 113th
Annual Meeting of Shareholders, and I am pleased and excited to be a part of it.
If you plan to join us at the meeting, an admission ticket will be required and
is attached to the proxy card. For your convenience, a map of the area and
directions to the Center are printed on the back of the proxy card.
Whether you own a few or many shares of stock and whether or not you plan
to attend, it is important that your shares be voted on matters that come before
the meeting. This year, registered shareholders can vote their shares by using a
toll-free telephone number or via the Internet. Instructions for using these
convenient new services are provided on the proxy card. Of course, you may still
vote your shares by marking your votes on the proxy card, signing and dating it,
and mailing it in the envelope provided. If you sign and return your proxy card
without specifying your choices, it will be understood that you wish to have
your shares voted in accordance with the Directors' recommendations.
I look forward to seeing you on May 20.
Sincerely,
/s/ Mike Armstrong
--------------
<PAGE>
AT&T Corp.
Executive Offices
32 Avenue of the Americas
New York, NY 10013-2412
PROXY STATEMENT
This proxy statement and the accompanying proxy/voting instruction card
(proxy card) are being mailed beginning March 26, 1998 to holders of common
shares in connection with the solicitation of proxies by the Board of Directors
for the 1998 Annual Meeting of Shareholders in Secaucus, New Jersey. Proxies are
solicited to give all shareholders of record at the close of business on March
26, 1998 an opportunity to vote on matters that come before the meeting. This
procedure is necessary because shareholders live in all states and abroad and
most will not be able to attend. Shares can be voted only if the shareholder is
present in person or is represented by proxy.
This year, registered shareholders can simplify their voting and save the
Company expense by calling 1-800-273-1174 or voting via the Internet at
http://att.proxyvoting.com. Telephone and Internet voting information is
provided on the proxy card. A Control Number, located above the shareholder's
name and address on the lower left of the proxy card, is designed to verify
shareholders' identity and allow them to vote their shares and confirm that
their voting instructions have been properly recorded.
If your shares are held in the name of a bank or broker, follow the voting
instructions on the form you receive. The availability of telephone and Internet
voting will depend on their voting processes.
If you do not choose to vote by telephone or Internet, you may still return
your proxy card, properly signed, and the shares represented will be voted in
accordance with your directions. You can specify your choices by marking the
appropriate boxes on the proxy card. If your proxy card is signed and returned
without
1
<PAGE>
specifying choices, the shares will be voted as recommended by the Directors.
Abstentions marked on the proxy card are voted neither "for" nor "against," but
are counted in the determination of a quorum. If you do vote by telephone or
Internet, it is not necessary to return your proxy card.
If you wish to give your proxy to someone other than the Proxy Committee,
all three names appearing on the proxy card must be crossed out and the name of
another person or persons (not more than three) inserted. The signed card must
be presented at the meeting by the person or persons representing you. You may
revoke your proxy at any time before it is voted at the meeting by executing a
later-voted proxy by telephone or Internet or mail, by voting by ballot at the
meeting, or by filing an instrument of revocation with the inspectors of
election in care of the Vice President - Law and Secretary of the Company.
Your vote is important. Accordingly, you are urged to vote by telephone,
Internet, or by signing and returning the accompanying proxy card whether or not
you plan to attend the meeting. If you do attend, you may vote by ballot at the
meeting, thereby canceling any proxy previously given.
As a matter of policy, proxies, ballots, and voting tabulations that
identify individual shareholders are kept private by the Company. Such documents
are available for examination only by the inspectors of election and certain
personnel associated with processing proxy cards and tabulating the vote. The
vote of any shareholder is not disclosed except as may be necessary to meet
legal requirements.
Voting Shares Held in Dividend Reinvestment
and Savings Plans
If a shareholder is a participant in the AT&T Shareowner Dividend
Reinvestment and Stock Purchase Plan ("DRISPP") or the AT&T Employee Stock
Purchase Plan ("ESPP"), the proxy card will represent the number of full shares
in the DRISPP and the ESPP accounts on the record date, as well as shares
registered in the participant's name. If an employee shareholder is a
participant in the AT&T Employee Stock Ownership Plan, AT&T Long Term Savings
2
<PAGE>
Plan for Management Employees, AT&T Long Term Savings and Security Plan, AT&T
Retirement Savings and Profit Sharing Plan, AT&T of Puerto Rico, Inc. Long Term
Savings Plan for Management Employees, or AT&T of Puerto Rico, Inc. Long Term
Savings and Security Plan, the proxy card will also serve as a voting
instruction for the trustees of those plans where all accounts are registered in
the same name. If proxy cards representing shares in the above-named plans are
not returned, those shares will not be voted except for shares in the employer
shares fund in the AT&T Long Term Savings and Security Plan which will be voted
by the trustee of the Plan.
Annual Meeting Admission
If you are a registered shareholder and plan to attend the meeting in
person, please detach and retain the admission ticket and map which are attached
to your proxy card. If you choose to vote by mail and will attend the meeting,
please be sure to mark the "Annual Meeting" box when you return the proxy card.
A beneficial owner who plans to attend the meeting may obtain an admission
ticket in advance by sending a written request, with proof of ownership, such as
a bank or brokerage firm account statement, to: Manager - Proxy, AT&T Corp., 295
North Maple Avenue, Room 1216L2, Basking Ridge, New Jersey 07920-1002.
Admittance to the annual meeting will be based upon availability of seating.
Shareholders who do not present admission tickets at the meeting will be
admitted upon verification of ownership at the admissions counter.
The Meadowlands Exposition Center is fully accessible to disabled persons,
and sign interpretation and wireless headsets will be available for our
hearing-impaired shareholders.
Highlights of the meeting will be included in a midyear report to
shareholders. Information on obtaining a full transcript of the meeting will
also be included in the midyear report.
Securities and Exchange Commission ("SEC") rules require that an annual
report precede or be included with proxy materials.
3
<PAGE>
Shareholders with multiple accounts may be receiving more than one annual report
which is costly to AT&T and may be inconvenient to these shareholders. Such
shareholders who vote by mail may authorize AT&T to discontinue mailing extra
annual reports for selected accounts by marking the "Annual Report" box on the
proxy card. If you vote by telephone or Internet, you will also have the
opportunity to indicate that you wish to discontinue receiving extra annual
reports. At least one account must continue to receive an annual report.
Eliminating these duplicate mailings will not affect receipt of future proxy
statements and proxy cards. To resume the mailing of an annual report to an
account, please call the AT&T shareowner services number, 1-800-348-8288.
Comments from shareholders about the proxy material or about other aspects
of the business are welcome. Space is provided on the back of the proxy card and
on an Internet screen for this purpose. Although such comments will not be
answered on an individual basis, they are analyzed and used to determine what
additional information should be furnished in various Company publications.
On January 1, 1998, there were 1,624,213,505 shares of AT&T Common Stock
outstanding. Each common share is entitled to one vote on each matter properly
brought before the meeting.
Electronic Delivery of Proxy Materials and Annual Report
This year, for the first time, AT&T's Notice of Annual Meeting and Proxy
Statement and the annual report are available on the AT&T Investor Relations
Home Page on the Internet at http://www.att.com/ir. Beginning in 1999, AT&T's
registered shareholders can receive their proxy statement, annual report, and
proxy card via the Internet instead of by mail. If you vote this year's proxy
via the Internet, you will be asked to complete an Electronic Proxy Consent form
that enrolls you in this new paperless process.
BOARD OF DIRECTORS
The Board of Directors has the responsibility for establishing broad
corporate policies and for overseeing the overall performance of the Company.
However, in accordance with corporate legal
4
<PAGE>
principles, it is not involved in day-to-day operating details. Members of the
Board are kept informed of the Company's business by participating in Board and
committee meetings, by reviewing analyses and reports sent to them each month,
and through discussions with the Chairman and other officers.
The Board held 17 meetings in 1997 and the committees held 25 meetings. The
average attendance in the aggregate of the total number of meetings of the Board
and the total number of committee meetings was 97%.
COMMITTEES OF THE BOARD
The Board has established a number of committees, including the Audit
Committee, the Compensation and Employee Benefits Committee, and the Directors
and Public Policy Committee, each of which is briefly described below. Other
committees of the Board are: the Executive Committee, the Finance Committee, and
the Proxy Committee (which votes the shares represented by proxies at the annual
meeting of shareholders).
The Audit Committee meets with management to consider the adequacy of the
internal controls and the objectivity of financial reporting. The committee also
meets with the independent auditors and with appropriate Company financial
personnel and internal auditors concerning these matters. The committee
recommends to the Board the appointment of the independent auditors, subject to
ratification by the shareholders at the annual meeting. Both the internal
auditors and the independent auditors periodically meet alone with the committee
and always have unrestricted access to the committee. The committee, which
consists of five non-employee Directors, met five times in 1997.
The Compensation and Employee Benefits Committee administers management
incentive compensation plans, including stock option plans, and it keeps
informed and advises the Board as to employee benefit plans. The committee
establishes the compensation structure for senior managers of the Company and
makes recommendations to the Board with respect to compensation of the officers
as listed on page 32. The committee, which consists of five non-employee
Directors, met nine times in 1997.
5
<PAGE>
The Directors and Public Policy Committee advises and makes recommendations
to the Board on all matters concerning directorship and corporate governance
practices, including the compensation of Directors and the selection of
candidates as nominees for election as Directors, and it provides guidance with
respect to matters of public policy. The committee, which consists of four
non-employee Directors and one employee Director, met four times in 1997. The
committee recommended this year's Director candidates at the January 1998 Board
Meeting.
In recommending Board candidates, this committee seeks individuals of
proven judgment and competence who are outstanding in their respective fields.
It considers such factors as anticipated participation in Board activities,
education, geographic location, and special talents or personal attributes.
Shareholders who wish to suggest qualified candidates should write to: Vice
President - Law and Secretary, AT&T Corp., 32 Avenue of the Americas, New York,
New York 10013-2412, stating in detail the qualifications of such persons for
consideration by the committee.
COMPENSATION OF DIRECTORS
In 1997, Directors who were not employees received an annual cash retainer
of $45,000. Directors who were not employees were also entitled in 1997 to stock
units in the amount of $45,000, which were deferred automatically and credited
to a portion of a deferred compensation account, pursuant to the Company's
Deferred Compensation Plan for Non-Employee Directors. The chairpersons of the
Audit Committee, Compensation and Employee Benefits Committee, and Finance
Committee each received an additional annual retainer of $7,500. The chairperson
of the Directors and Public Policy Committee received an additional annual
retainer of $5,000. No fees are paid for attendance at regularly scheduled Board
and Committee meetings. Directors received a fee of $1,500 for each special
Board or committee meeting attended.
Directors may elect to defer the receipt of all or part of their cash
retainer and other compensation into the AT&T shares portion or the cash portion
of the deferred compensation account (the cash portion). The AT&T shares portion
(the value of which is measured
6
<PAGE>
from time to time by the value of Company common shares) is credited on each
dividend payment date for AT&T common shares with a number of deferred shares of
common stock equivalent in market value to the amount of the quarterly dividend
on the shares then credited in the accounts. The cash portion of the deferred
compensation account earns interest, compounded quarterly, at an annual rate
equal to the average interest rate for ten-year United States Treasury Notes for
the previous quarter plus 5%.
Effective December 31, 1996, the Company terminated its Pension Plan for
Non-Employee Directors for current and future Directors. For then active
Directors, the Company has purchased a deferred annuity to pay the equivalent of
the annual pension benefit that would have been payable at their retirement
under the terminated plan. Such benefit is payable either as a lump sum or over
a 5 or 10-year period. The Company also provides non-employee Directors with
travel accident insurance when on Company business. A non-employee Director may
purchase life insurance sponsored by the Company. The Company will share the
premium expense with the Director; however, all the Company contributions will
be returned to the Company at the earlier of (a) the Director's death or (b) the
later of age 70 or 15 years from the policy's inception. This benefit will
continue after the non-employee Director's retirement from the Board.
Effective December 1997, the Board adopted share ownership targets equal to
five times the total value of the annual cash retainer and annual stock unit
amounts. Directors generally will have five years to attain the ownership goal.
Directors who are also employees of the Company receive no compensation for
serving as Directors.
ELECTION OF DIRECTORS (Item 1 on Proxy Card)
The Proxy Committee intends to vote for the election of the eleven nominees
listed on the following pages unless otherwise instructed by the shareholders on
the proxy card or by telephone or Internet voting. These nominees have been
selected by the Board on the recommendation of the Directors and Public Policy
Committee. If you do not wish your shares to be voted for particular
7
<PAGE>
nominees, please identify the exceptions in the designated space provided on the
proxy card or, if you are voting by telephone or Internet, follow the system
instructions. Directors will be elected by a plurality of the votes cast. Any
shares not voted (by abstention, broker non-vote, or otherwise) have no impact
on the vote.
If at the time of the meeting one or more of the nominees have become
unavailable to serve, shares represented by proxies will be voted for the
remaining nominees and for any substitute nominee or nominees designated by the
Directors and Public Policy Committee or, if none, the size of the Board will be
reduced. The Directors and Public Policy Committee knows of no reason why any of
the nominees will be unavailable or unable to serve.
Directors elected at the meeting will hold office until the next annual
meeting or until their successors have been elected and qualified. For each
nominee there follows a brief listing of principal occupation for at least the
past five years, other major affiliations, and age as of January 1, 1998.
NOMINEES FOR ELECTION AS DIRECTORS
[Picture of C. Michael Armstrong]
C. Michael Armstrong, Chairman and Chief Executive Officer of AT&T since
November 1997. Chairman and Chief Executive Officer of Hughes Electronics
(1992-1997). Chairman of the President's Export Council. Member of the Council
on Foreign Relations, the National Security Telecommunications Advisory
Committee, and the Defense Policy Advisory Committee on Trade. Director of
Travelers Corporation and member of the supervisory board of the
Thyssen-Bornemisza Group. Director of AT&T since 1997; Chairman of the Executive
Committee and the Proxy Committee. Age 59.
[Picture of Kenneth T. Derr]
Kenneth T. Derr, Chairman and Chief Executive Officer of Chevron Corporation
(international oil company) since 1989. Director of Chevron Corporation;
Citicorp; and Potlatch Corporation. Director of AT&T since 1995; member of the
Audit Committee and the Compensation and Employee Benefits Committee. Age 61.
8
<PAGE>
[Picture of M. Kathryn Eickhoff]
M. Kathryn Eickhoff, President of Eickhoff Economics Inc. (economic consultants)
since 1987. Associate Director for Economic Policy, U.S. Office of Management
and Budget (1985-1987). Director of Fleet Bank, NA; Pharmacia & Upjohn, Inc.;
and Tenneco Inc. Director of AT&T since 1987; member of the Audit Committee and
the Finance Committee. Age 58.
[Picture of Walter Y. Elisha]
Walter Y. Elisha, Chairman since 1983 and Chief Executive Officer (1981-1997) of
Springs Industries, Inc. (textile manufacturing). Member of President's Advisory
Committee for Trade Policy and Negotiations. Director of Springs Industries,
Inc.; Cummins Engine Company, Inc.; and Carolina Power & Light Company. Director
of AT&T since 1987; Chairman of the Directors and Public Policy Committee and
member of the Finance Committee. Age 65.
[Picture of George M. C. Fisher]
George M. C. Fisher, Chairman and Chief Executive Officer since 1996 and
Chairman, President, and Chief Executive Officer (1993-1996) of Eastman Kodak
Company (imaging company). Chairman and Chief Executive Officer of Motorola,
Inc. (1990-1993). Chairman of the Board of Directors of the University of
Illinois Foundation and Vice Chairman of The Business Council. Chairman of the
U.S.-China Business Council. Chairman of U.S. Council on Competitiveness
(1991-1993). Elected to American Academy of Arts and Sciences and the National
Academy of Engineers. Member of President's Advisory Committee for Trade Policy
and Negotiations. Director of Eastman Kodak Company and General Motors
Corporation. Director of AT&T since 1997; member of the Compensation and
Employee Benefits Committee and the Finance Committee. Age 57.
9
<PAGE>
[Picture of Donald V. Fites]
Donald V. Fites, Chairman and Chief Executive Officer since 1990 and President
and Chief Operating Officer (1989-1990) of Caterpillar, Inc. (equipment
manufacturer). Chairman of The Business Roundtable. Past Chairman of the
U.S.-Japan Business Council. Member of the Business Council, the President's
Advisory Committee for Trade Policy and Negotiations, the National Foreign Trade
Council, and the Equipment Manufacturers' Institute. Director of Mobil
Corporation and Georgia-Pacific Corporation. Director of AT&T since 1997; member
of the Directors and Public Policy Committee and the Finance Committee. Age 63.
[Picture of Ralph S. Larsen]
Ralph S. Larsen, Chairman and Chief Executive Officer of Johnson & Johnson
(pharmaceutical, medical, and consumer products) since 1989. Director of Johnson
& Johnson; New York Stock Exchange, Inc.; and Xerox Corporation. Director of
AT&T since 1995; Chairman of the Finance Committee and member of the Audit
Committee. Age 59.
[Picture of Donald F. McHenry]
Donald F. McHenry, President of IRC Group (international relations consultants)
since 1981; University Research Professor of Diplomacy and International
Relations, Georgetown University, since 1981. Director of Bank of Boston Corp.
and its subsidiary, First National Bank of Boston; Coca-Cola Co.; International
Paper Co.; and SmithKline Beecham Corp. Director of AT&T since 1986; member of
the Audit Committee, the Compensation and Employee Benefits Committee, the
Directors and Public Policy Committee, and the Executive Committee. Age 61.
10
<PAGE>
[Picture of Michael I. Sovern]
Michael I. Sovern, President Emeritus and Chancellor Kent Professor of Law at
Columbia University; President (1980-1993). President of Shubert Foundation.
Director of Sequa Corp. and Warner-Lambert Company. Director of AT&T since 1984;
Chairman of the Audit Committee and member of the Compensation and Employee
Benefits Committee, the Executive Committee, and the Proxy Committee. Age 66.
[Picture of Thomas H. Wyman]
Thomas H. Wyman, Senior Advisor of SBC Warburg Inc., Chairman of S.G. Warburg &
Co. Inc. (1992-1996), and Vice Chairman of S.G. Warburg Group plc (1993-1995)
(investment banking). Chairman of UB Investments US Inc. (1989-1996) (food
products). Chairman and Chief Executive Officer of CBS Inc. (1983-1986). William
H. Donaldson Faculty Fellow, Yale School of Management (1987-1989). Director of
General Motors Corporation; Hughes Electronics Corp.; and Zeneca Group plc
(U.K.). Director of AT&T since 1981; Chairman of the Compensation and Employee
Benefits Committee and member of the Directors and Public Policy Committee, the
Executive Committee, and the Proxy Committee. Age 68.
[Picture of John D. Zeglis]
John D. Zeglis, President since November 1997, Vice Chairman (June-November
1997), General Counsel and Senior Executive Vice President (1996-1997), Senior
Vice President and General Counsel (1986-1996) of AT&T. Director of Helmerich
and Payne Corporation and Illinova Corporation. Director of AT&T since 1997;
member of the Directors and Public Policy Committee. Age 50.
11
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND DIRECTORS
The following table sets forth information concerning the beneficial
ownership of AT&T Common Stock as of January 1, 1998 for (a) each current
Director elected to the Board in 1997 and each of the nominees for Director; (b)
each of the officers named in the Summary Compensation Table herein ("Named
Officers") not listed as a Director; and (c) Directors and executive officers as
a group. Except as otherwise noted, the nominee or family members had sole
voting and investment power with respect to such securities.
<TABLE>
<CAPTION>
Number of Shares
----------------------------------------------
Beneficially Deferral
Name Owned (1) Plans (2) Total
- ------------------------------- ------------------ ----------- -----------
(a)
<S> <C> <C> <C>
Robert E. Allen ............... 861,390(3) 128,509 989,899
C. Michael Armstrong .......... 105,330 0 105,330
Kenneth T. Derr ............... 1,000 2,386 3,386
M. Kathryn Eickhoff ........... 3,000 1,903 4,903
Walter Y. Elisha .............. 9,843 17,038 26,881
George M. C. Fisher ........... 10,088 2,027 12,115
Donald V. Fites ............... 3,000 571 3,571
Ralph S. Larsen ............... 1,000 4,681 5,681
Donald F. McHenry ............. 3,183 4,818 8,001
Michael I. Sovern ............. 1,200 2,865 4,065
Thomas H. Wyman ............... 1,000 6,983 7,983
John D. Zeglis ................ 256,663(4) 38,899 295,562
(b)
Frank Ianna ................... 41,216(5) 0 41,216
Gail J. McGovern .............. 50,404(6) 0 50,404
John C. Petrillo .............. 129,857(7) 0 129,857
John R. Walter ................ 328,558(8) 0 328,558
(c)
Directors and Executive
Officers as a Group ......... 2,790,648(9) 224,316 3,014,964
</TABLE>
Footnotes
1. No individual Director or nominee for Director or named officer beneficially
owns 1% or more of AT&T's outstanding common shares, nor do the Directors and
executive officers as a group.
2. Share units held in deferred compensation accounts.
12
<PAGE>
3. Includes beneficial ownership of 749,080 shares which may be acquired within
60 days pursuant to stock options awarded under employee incentive
compensation plans.
4. Includes beneficial ownership of 251,234 shares which may be acquired within
60 days pursuant to stock options awarded under employee incentive
compensation plans.
5. Includes beneficial ownership of 40,850 shares which may be acquired within
60 days pursuant to stock options awarded under employee incentive
compensation plans.
6. Includes beneficial ownership of 50,098 shares which may be acquired within
60 days pursuant to stock options awarded under employee incentive
compensation plans.
7. Includes beneficial ownership of 128,399 shares which may be acquired within
60 days pursuant to stock options awarded under employee incentive
compensation plans.
8. Includes beneficial ownership of 328,558 shares which may be acquired within
60 days pursuant to stock options awarded under employee incentive
compensation plans.
9. Includes beneficial ownership of 2,447,582 shares which may be acquired
within 60 days pursuant to stock options awarded under employee incentive
compensation plans.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
The Company notes that two officers filed untimely reports on transactions
in, or holdings of, AT&T Common Stock during, or with respect to, 1997 as
follows: Daniel R. Hesse, one report regarding one transaction and Gail J.
McGovern, one report regarding one transaction.
RATIFICATION OF APPOINTMENT OF AUDITORS
(Item 2 on Proxy Card)
Subject to shareholder ratification, the Board of Directors, upon
recommendation of the Audit Committee, has reappointed the firm of Coopers &
Lybrand L.L.P. ("Coopers & Lybrand") as the independent auditors to examine the
Company's financial statements for the year 1998. Coopers & Lybrand has audited
the Company's books for many years. Your Directors recommend that shareholders
vote FOR such ratification. Ratification of the
13
<PAGE>
appointment of auditors requires a majority of the votes cast. Any shares not
voted (by abstention, broker non-vote, or otherwise) have no impact on the vote.
If the shareholders do not ratify this appointment, other independent auditors
will be considered by the Board upon recommendation of the Audit Committee.
Representatives of Coopers & Lybrand are expected to attend the annual
meeting and will have the opportunity to make a statement if they desire and to
respond to appropriate questions.
For the year 1997, Coopers & Lybrand also examined the financial statements
of the Company's subsidiaries and provided other audit services to the Company
and subsidiaries in connection with SEC filings, review of financial statements,
and audits of pension plans.
---------------------------------------
DIRECTORS' PROPOSAL TO APPROVE AN INCREASE IN THE NUMBER OF AUTHORIZED COMMON
SHARES (Item 3 on Proxy Card)
The Board of Directors recommends an amendment of the Company's Restated
Certificate of Incorporation to increase the number of authorized shares of
common stock from 2,000,000,000 to 6,000,000,000 having a par value of $1 per
share ("Common Stock"). On January 1, 1998, 1,624,213,505 shares of Common Stock
were issued and outstanding.
The Company will use most of the remaining authorized but unissued shares
of Common Stock for previously announced transactions or plans. At this time,
the Company has no present plans, understandings, or agreements for the issuance
or use of the proposed additional shares of Common Stock. Nevertheless, the
Board of Directors believes that the proposed increase is desirable so that, as
the need may arise, the Company will have more financial flexibility and be able
to issue shares of Common Stock, without the expense and delay of a special
shareholders' meeting, in connection with future opportunities for expanding the
business through investments or acquisitions, possible stock splits or stock
dividends, equity financings, management incentive and employee benefit
14
<PAGE>
plans, and sales to employee savings plans and the dividend reinvestment and
stock purchase plan, and for other purposes.
Authorized but unissued shares of the Company's Common Stock may be issued
at such times, for such purposes and for such consideration as the Board of
Directors may determine to be appropriate without further authority from the
Company's shareholders, except as otherwise required by applicable corporate law
or stock exchange policies.
The proposed amendment would not affect the authorized Preferred Stock. The
Company's 100,000,000 authorized but unissued Preferred Stock having a par value
of $1 per share may be issued with such rights, preferences, and limitations as
the Board of Directors may determine from time to time. No shares of Preferred
Stock are issued and outstanding.
Although the Board of Directors has no present intention of doing so, the
Company's authorized but unissued Common Stock and Preferred Stock could be
issued in one or more transactions which would make more difficult or costly,
and less likely, a takeover of the Company. Issuing additional shares of stock
would also have the effect of diluting the stock ownership of persons seeking to
obtain control of the Company. Moreover, certain companies have issued rights to
purchase their common stock, with such rights having terms designed to encourage
in certain potential acquisitions negotiation with the company's board of
directors. The authorized but unissued shares of Common Stock and Preferred
Stock would be available for use in connection with the issuance of such rights.
The proposed amendment to the Company's Restated Certificate of Incorporation
makes no change in authorized Preferred Stock and is not being recommended in
response to any specific effort of which the Company is aware to obtain control
of the Company, nor is the Board of Directors currently proposing to
shareholders any anti-takeover measures.
The adoption of the proposed amendment of the Restated Certificate of
Incorporation to increase the number of authorized shares of Common Stock from
2,000,000,000 shares to 6,000,000,000 shares will require the affirmative vote
of the holders of a majority of the outstanding shares of Common Stock. Any
15
<PAGE>
shares not voted (whether by abstention, broker non-vote, or otherwise) have the
effect of a negative vote. Your Directors recommend a vote FOR the adoption of
the proposed amendment of the Company's Restated Certificate of Incorporation.
---------------------------------------
SHAREHOLDER PROPOSALS
AT&T receives many suggestions from shareholders, some as formal
shareholder proposals. All are given careful consideration. After discussion
with Company representatives and clarification of the Company's position, many
proposals are withdrawn.
Proponents of four shareholder proposals have stated that they intend to
present the following proposals at the annual meeting. Information on the
shareholdings of the proponents is available by writing to: Manager - Proxy,
AT&T Corp., 295 North Maple Avenue, Room 1216L2, Basking Ridge, New Jersey
07920-1002. The proposals and supporting statements are quoted below. The Board
has concluded it cannot support these proposals for the reasons given.
Shareholder Proposal (Item 4 on Proxy Card)
John D. Borsos, Box 750, Matawan, NJ 07747, has submitted the following
proposal:
"RESOLVED: That in order to give shareholders the information they need to vote
on propositions and directors intelligently, that the Company provide a
summary of each director's record on important matters. This would apply to
the propositions on the current proxy statement, and also to important votes
or decisions that were made since the last meeting, and that the shareholders
have a right to know about. This might include election of top officials,
executive compensation, bonus awards, stock option grants, acquisitions and
divestitures, etc. Any information that is proprietary, or disclosure of which
would put the company at a competitive disadvantage, would be omitted. A
possible method would be to list the topics and indicate a director's record
or
16
<PAGE>
intended stand on each item. Possible headings are "FOR", "UNDECIDED", and
"AGAINST"."
Supporting Statement:
"The Company, with a reputation for quality products and services, should set an
example of progressive management by making directors and officials amenable
for their actions to both the shareholders and top officials, not just the
latter.
"Shareholders should be able to influence some decisions before they are made,
the course of action in regard to excesses, and the retention, transfer,
demotion, or removal of people with poor records as to decisions, votes,
actions, policies, and appointments that were not in the best interests of the
company.
"At present the shareholders do not know a single thing about any director's
stand or past record on any matter. Furthermore, all votes on all directors
have always been "FOR", since the only other choice, "WITHHOLD", amounts to
not voting. This puts selection and control of directors entirely in the hands
of top management, leaving shareholders with no means to influence any
decision, appointment, or policy.
"If you agree, please vote "FOR" this resolution."
---------------------------------------
Your Directors recommend a vote against the above proposal. AT&T believes
that the additional individualized information required by this proposal would
be of little value to the vast majority of AT&T shareholders who expect the
Board to act in the best interests of the Company and its shareholders. Nominees
for election as Directors are selected by the full Board on the recommendation
of the Directors and Public Policy Committee, a majority of whose members are
independent non-employee Directors. As described on page 6, the committee
considers a variety of qualitative factors in selecting individuals of proven
judgment and competence who are outstanding in their field.
A summary of each Director's record could not effectively communicate or
convey the many factors that go into a Director's
17
<PAGE>
decisions on the varied and complex matters coming before the Board. Many of the
substantive matters, such as reviewing and monitoring corporate financial
performance and approving critical strategic business plans and objectives, are
developed through an extensive analysis and review process which requires
substantial dialogue among Board members to reach a consensus. During these
discussions, major refinements and improvements to proposed actions are made
based upon the Directors' diverse experiences and perspectives. This consensus
approach facilitates an effective working relationship with management which is
unlikely to be fostered through a more adversarial, political process of the
type suggested by this proposal. In addition, a summary of each Director's
record would provide highly redundant information; namely, that a majority of
the Directors supported the actions of the Company. Such a summary would
substantially expand the size of the proxy statement and, as a result, be costly
and burdensome to provide. Therefore, your Directors recommend that shareholders
vote AGAINST this proposal.
---------------------------------------
Shareholder Proposal (Item 5 on Proxy Card)
Mrs. Evelyn Y. Davis, Watergate Office Building, 2600 Virginia Ave., N.W., Suite
215, Washington, DC 20037, has submitted the following proposal:
"RESOLVED: That the stockholders recommend that the Board of Directors take the
necessary steps to change the Annual Meeting date to the third Wednesday of
April, a date which A.T.T. had for several decades.
"REASONS: Recently the Annual Meeting was held on a date where other major
corporations met. Until a few years ago, the Company has met on a date where
more independent non-employee shareholders could meet."
"The many problems the Company faces makes maximum attendance by outside
independent stockholders especially desirable."
"If you AGREE, please mark your proxy FOR this resolution."
---------------------------------------
18
<PAGE>
Your Directors recommend a vote against the above proposal. Two years ago,
the Board initiated a process to review the timing of the annual meeting. After
analysis, it was determined that a May, rather than April, meeting facilitated
both the conduct of Board matters and the careful preparation of materials for
shareholders. For example, preparatory work for an April meeting had to be
conducted under a very short and tight schedule for the compilation of the
necessary year-end financials and other information needed for the printing of
the Annual Report and Proxy Statement. A May meeting avoided this costly,
compressed printing and distribution schedule for the Annual Report and Proxy
Statement.
The attendance level in 1997 at the first May meeting was the highest since
1989 and a May meeting appears to be convenient for many shareholders. It also
allowed AT&T to change the meeting to a location close to a large concentration
of AT&T shareholders at a cost-effective, easily accessible facility. Therefore,
your Directors recommend that shareholders vote AGAINST this proposal.
---------------------------------------
Shareholder Proposal (Item 6 on Proxy Card)
Mark Seidenberg, P.O. Box 6102, Woodland Hills, CA 91365, has submitted the
following proposal:
"Be it resolved that the stockowners recommend that the board amend the current
policy on confidential stockowner voting:
1. to include all votes whatsoever, and
2. to be in a form that would require a majority vote of the stockowners to
amend.
Supporting Statement:
"The purpose of confidential voting is to assure that nobody within the company
has knowledge of how or whether any particular stockowner has voted. This is
particularly important to avoid any undue pressure on controversial votes.
Employees, agents, suppliers, banks, and others who are also stockowners may
feel
19
<PAGE>
compromised if they knew that the board and management knew how they have
voted.
"Confidentiality becomes particularly important whenever there are proposals for
mergers, buyouts, takeovers, and so on, which may result in a change of
management. In these days of megamergers, it's not inconceivable that AT&T may
too become involved.
"AT&T has a voidable confidential voting policy. This means that it can be
undone by the board at any time for any future vote. I think this should
change, so that it is an airtight policy.
"If the board opposes this resolution, you need to ask yourself why it should be
able to look over your shoulder at how you vote your shares at some future
contest. At crucial moments for your best financial interests, you should be
able to make up your own mind without any hesitation.
"Vote yes. It's your turn to assert your independence."
---------------------------------------
Your Directors recommend a vote against the above proposal. AT&T recognizes
the importance of confidential voting to its shareholders and has a
long-standing policy of confidential voting that applies to all matters brought
to a vote by the shareholders. Proxies, ballots, and voting tabulations that
identify specific shareholders are kept private by AT&T. Such documents are
available for examination only by the inspectors of election and by certain
personnel associated with processing proxy cards and tabulating the vote. The
vote of any shareholder is not disclosed except as necessary to meet legal
requirements, and AT&T's Directors and management cannot access individual
shareholder ballots. AT&T's policy on confidential voting is detailed on page 2
of this proxy statement.
AT&T's policy on confidential voting has been in effect without
interruption since its adoption in 1986. This proposal relies on the supposition
that the confidential voting policy, which the Board has no intention of
changing, might be revoked capriciously by the Board
20
<PAGE>
in circumstances that are not in the best interest of the Company's
shareholders. We believe that the vast majority of shareholders recognize that
this proposal is unrelated to any present or proposed course of action by the
Board and is entirely unnecessary.
We fully intend to continue the Company's policy of confidential voting.
Therefore, your Directors recommend that shareholders vote AGAINST this
proposal.
---------------------------------------
Shareholder Proposal (Item 7 on Proxy Card)
Bartlett C. Naylor, 1255 N. Buchanan, Arlington, VA 22205, has submitted the
following proposal:
"Proposal: Shareholders urge that the board of directors adopt a policy that no
future employment contracts (or amendments to existing contracts) will be
entered into which provide for severance compensation or benefits amounting to
more than $3 million, without specific shareholder approval in advance.
Supporting Statement:
"Recent outcry against excessive executive compensation has included criticism
of companies which have awarded overly-generous severance packages. When
Disney awarded Michael Ovitz $70 million in cash and options as severance for
16 months' service, for example, shareholders expressed outrage.
"At AT&T, the severance package for John Walter, who was hired in November 1996
and left in July 1997, was estimated at $26 million. Directors said that
Walter lacked the "intellectual leadership" needed for that job, but as Time
reports, "AT&T's board and brass are the ones whose intellectual wattage seems
to be dimming. The company's stock price has been listless all year despite
the bull market, as AT&T has stumbled from one misadventure to another."
21
<PAGE>
"Granting shareholders the right to vote on severance packages beyond a certain
threshold may help to restore shareholder confidence in AT&T's board of
directors, and may reign in the directors from awarding excessive severance
packages.
"For all of these reasons we urge you to vote FOR this proposal."
---------------------------------------
Your Directors recommend a vote against the above proposal. To attract and
retain talented key executives, it is important that AT&T have the flexibility
to design and execute employment agreements, including severance provisions,
which address the unique circumstances of each situation.
Because companies are providing key executives with significant incentives
to remain in their employ, AT&T must be able to offer its own executives
competitive employment packages and provide incentives to executives to move
from companies where they are highly valued and compensated.
Any competitive employment package must include a severance provision. The
amount provided under this severance provision is based on market data and
consideration of what the executive would forfeit by leaving his or her current
employer. To limit what AT&T may offer as a severance payment would inhibit our
ability to develop and negotiate agreements that address the competitive market,
the Company's needs, and the individual nature of each situation. Therefore,
your Directors recommend that shareholders vote AGAINST this proposal.
---------------------------------------
Approval of the preceding shareholder proposals would require a majority of
the votes cast. Any shares not voted (whether by abstention, broker non-vote, or
otherwise) have no impact on the vote.
ADVANCE NOTICE PROCEDURES
Under the Company's By-Laws, no business may be brought before an annual
meeting except as specified in the notice of the meeting (which includes
shareholder proposals that the Company is required to set forth in its proxy
statement under SEC Rule 14a-8)
22
<PAGE>
or as otherwise brought before the meeting by or at the direction of the Board
or by a shareholder entitled to vote who has delivered notice to the Company
(containing certain information specified in the By-Laws) not less than 90 nor
more than 120 days prior to the first anniversary of the preceding year's annual
meeting. These requirements are separate and apart from and in addition to the
SEC's requirements that a shareholder must meet to have a shareholder proposal
included in the Company's proxy statement under SEC Rule 14a-8.
A copy of the full text of the By-Law provisions discussed above may be
obtained by writing to AT&T's Office of the Corporate Secretary.
SUBMISSION OF SHAREHOLDER PROPOSALS
Proposals intended for inclusion in next year's proxy statement should be
sent to: Vice President - Law and Secretary, AT&T Corp., 32 Avenue of the
Americas, New York, New York 10013-2412, and must be received by November 26,
1998.
OTHER MATTERS TO COME BEFORE THE MEETING
In addition to the matters described above, there will be an address by the
Chairman of the Board and a general discussion period during which shareholders
will have an opportunity to ask questions about the business.
In the event that any matter not described herein may properly come before
the meeting, or any adjournment thereof, the Proxy Committee will vote the
shares represented by it in accordance with its best judgment. At the time this
proxy statement went to press, the Company knew of no other matters which might
be presented for shareholder action at the meeting.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Employee Benefits Committee ("Committee") is composed
of five independent non-employee Directors. The Committee is responsible for
setting and administering
23
<PAGE>
executive officer salaries and the annual bonus and long-term incentive plans
that govern the compensation paid to all senior managers of the Company, except
that the Board (other than Directors who are employees) is responsible for
setting and administering salaries and the annual bonus of the officers named in
the Summary Compensation Table ("Named Officers") based upon recommendations of
the Committee.
Compensation Philosophy
The Company's programs are designed to provide executives with a
competitive earnings opportunity, with earnings linked to the short-term and
long-term performance of the Company and the sustained performance of the
individual. The Committee has developed executive compensation principles to
provide guidance in the design and operation of the senior management
compensation plans and in the review of executive performance.
Competitiveness: Total compensation for senior managers is targeted to
produce pay consistent with the Company's performance compared against a
group of direct competitors.
Performance Contingency: The design of the total compensation package
reflects a bias toward variable pay that matches pay to the achievement of
short-term and long-term performance objectives. For the Named Officers,
the variable pay ranges from 70%-80% of total target pay.
Accountability to Stakeholders: Performance measures used in the Company's
incentive programs support value creation for AT&T's three key
stakeholders: shareholders, customers, and employees. In addition,
beginning in 1998, all officers of the Company are expected to hold AT&T
Stock valued at from one-to-five times their base salary.
Balance Between Short-Term and Long-Term Performance: The compensation
structure for senior managers emphasizes long-term performance results over
short-term results at a ratio of approximately 2:1. Beginning in 1998, this
ratio will increase to 3:1.
24
<PAGE>
Tax Effectiveness: Elements of compensation under the annual bonus and
long-term incentive plans qualify for exemption from the annual limit on
tax deductibility under Section 162(m) of the Internal Revenue Code. In
addition, the Company has a salary and incentive award deferral plan that
permits compensation deferred under the plan to be exempt from the limit on
tax deductibility.
The Company's executive compensation program consists of three key
elements: (1) base salary; (2) short-term incentive, i.e., annual bonus; and (3)
long-term incentives, i.e., performance shares, stock options, and restricted
stock. The policies and the basis for determining executive compensation and
specifically that of the former Chairman of the Board and CEO, Mr. Allen, are
described below:
(1) Base Salary
The Committee determines the salary ranges for each of the executive
officer positions based upon the scope, level, and strategic impact of the
position, and on the pay levels of similarly positioned executive officers in
comparable companies. Market data are provided through surveys conducted by
external compensation consultants and presented to the Committee annually as
part of the determination of the succeeding year's executive compensation
structure. Annual salary adjustments recognize sustained individual performance
by the executive with overall salary increase funding levels sensitive to both
market movement and Company performance.
Consistent with aligning compensation with shareholder interests and cost
control, no salary increases will be made to executive officers or other senior
managers of the Company in 1998.
The Committee presents the salary recommendations for the Named Officers to
the Board for approval. These salary recommendations are based on the
executive's contribution to the Company, experience and expertise, and relative
position against competitive market rates. There are no individual performance
matrices or pre-established weightings given to each factor.
25
<PAGE>
(2) Annual Incentives
The annual bonus for the Chairman and for the other Named Officers is (i)
0.4% of the Company's net cash provided by operating activities for the annual
performance period, divided by the total number of Named Officers with respect
to such period or (ii) a lesser amount based on factors including the Company's
performance relative to pre-set financial, employee, customer, and individual
performance targets applicable to bonuses to other executive officers.
The annual bonus for other executive officers is based on the Company's
financial and key nonfinancial results as measured against pre-set targets for
(i) Earnings Per Share; (ii) Expense-to-Revenue ratio; (iii) Customer Value
Added ("CVA"), which measures the relative value that customers perceive when
our services are compared with those of our competitors; and (iv) People Value
Added ("PVA"), which measures employee views regarding leadership and
contributions to the diversity of the Company. Targets for these measures were
reviewed and approved by the Committee.
(3) Long-Term Incentives: Performance Shares, Stock Options, and Restricted
Stock
Long-term incentives provide a mechanism for aligning the economic
interests of executive officers with those of shareholders. Grants of stock
options and performance shares are made annually under AT&T Long Term Incentive
Programs. The size of these annual grants is based on competitive market grant
levels for similar positions. Grants of restricted stock or restricted stock
units are made only on a selective basis for purposes of retention or reward for
outstanding performance.
Performance Shares: Performance shares, which are awards of units
equivalent in value to shares of AT&T Common Stock, are awarded annually in
numbers based on surveys of competitive market grant levels for similar
positions. Prior to 1997, payout of 0% to 150% of such performance shares was
made in the form of cash and/or shares of AT&T Common Stock (with a required
minimum of 50% in shares) at the end of a three-year performance period based on
the Company's return to equity ("RTE") performance compared
26
<PAGE>
with a target. However, if an executive's annual compensation is subject to the
limit on tax deductibility, under Section 162(m) of the Internal Revenue Code,
in the last year of a performance period, then the executive receives an "other
stock unit award" payout in lieu of the performance share payout. The value of
the payout to each such executive for the performance period is (i) 0.13% of the
Company's net cash provided by operating activities for each year in the
performance period, divided by the total number of executives receiving such
payouts, or (ii) a lesser amount, based on factors that include targets for the
Company's RTE established for performance shares for the three-year performance
period.
To address the transition period associated with the Company's restructure
and the difficulty of setting long-term financial targets while the restructure
was in progress, the Committee deemed the performance criteria for the 1994-1996
and the 1995-1997 performance cycles to have been met at the target level. The
opportunity to earn a payout above 100% was eliminated, and all other terms and
conditions of the award continue to apply. For the same reason, grants for
the 1996-1998 cycle were issued in the form of three-year stock units. For Named
Officers, the net cash provided by the operating activities formula and the
Committee's authority to exercise negative discretion will continue to apply in
determining the actual payout for the 1994-1996, 1995-1997, and 1996-1998
cycles. In 1997, the Company reinstituted a performance share program tied to
three-year relative total shareholder return ("TSR") as measured against a peer
group of competitors. TSR equals the sum of the appreciation in the price of
AT&T Common Stock and dividends paid over the period.
Stock Options: Stock options are granted annually to executive officers
based on surveys of competitive grant levels for similar positions. Like
performance shares, the magnitude of such awards is determined annually by the
Committee. Stock options are granted with an exercise price equal to or greater
than the fair market value of AT&T Common Stock on the day of grant and become
exercisable after the expiration of a period of time, typically between one and
six years, and continue to be exercisable until ten years from the date granted.
Such stock options provide incentive for the
27
<PAGE>
creation of shareholder value over the long term since the full benefit of the
compensation package cannot be realized unless an appreciation in the price of
AT&T Common Stock occurs over a specified number of years.
Restricted Stock: Restricted stock and restricted stock unit awards are
granted occasionally to executive officers under AT&T Long Term Incentive
Programs primarily for purposes of retention. Restricted stock is subject to
forfeiture and may not be disposed of by the recipient until certain
restrictions established by the Committee lapse. Recipients of restricted stock
are not required to provide consideration other than the rendering of services
or the payment of any minimum amount required by law. With the exception of Mr.
Armstrong, who received grants of restricted stock and restricted stock units in
connection with his hire, no Named Officers were granted restricted stock or
restricted stock units in 1997.
CEO Compensation
During 1997, the Company's most highly compensated officer was Robert E.
Allen, former Chairman of the Board and CEO. Mr. Allen's 1997 performance was
reviewed by the Committee and discussed with the non-employee directors and Mr.
Allen. The Committee's recommendations to the Board concerning the annual
component (base salary and annual bonus) of Mr. Allen's compensation and their
approval of his long-term component (performance shares and stock options) were
based on the considerations discussed below.
Base Salary: Mr. Allen's salary was reviewed in comparison with the
salaries of CEOs of other Fortune 20 companies, industry competitors, and
selected other large industrial companies during the Company's annual
compensation survey and review process. The Committee considered these external
survey data and Mr. Allen's contributions to the business in awarding him a 3%
salary increase in March 1997.
28
<PAGE>
Annual Bonus: After determining the maximum award payable to Mr. Allen
based on the Company's net cash provided by operating activities, the Committee
exercised its discretion in determining the actual bonus payable based on
achievement of pre-set performance targets related to 1) Earnings Per Share and
2) Expense-to-Revenue ratio, as well as performance against targets for PVA and
CVA. The pre-set financial targets were exceeded, while performance on PVA and
CVA came in below target.
Recognizing that Mr. Allen served as CEO for less than the full year, the
Company elected to award Mr. Allen a bonus significantly below his target award
and less than his bonus award for the previous year. Mr. Allen's bonus award was
$1,100,000.
Long-Term Incentives: In addition, in January 1997 Mr. Allen received an
option on 270,000 shares, and in February his 1994-1996 stock unit grant paid
out at the target level.
The Compensation and Employee
Benefits Committee
Thomas H. Wyman, Chairman
Kenneth T. Derr
George M. C. Fisher
Donald F. McHenry
Michael I. Sovern
29
<PAGE>
FIVE-YEAR PERFORMANCE COMPARISON
The graph below provides an indicator of cumulative total shareholder returns
for the Company as compared with the S&P 500 Stock Index, New Peer Group(1), and
Old Peer Group(2). Due to the recent sale of Universal Card Services, the
Company has created a New Peer Group that excludes financial services. The
performance of the Old Peer Group is displayed here for comparative purposes as
required by SEC Reg. S-K Item 402(I)(4), and will not be provided in the future.
S&P New Peer Old Peer
AT&T 500 Group Group
---- --- -------- --------
1992 100 100 100 100
1993 105 110 122 122
1994 103 112 110 110
1995 136 153 155 156
1996 131 189 167 170
1997 201 251 228 232
- -x- AT&T -[box]- S&P 500 -[triangle]- New Peer Group -[bullet]- Old Peer Group
30
<PAGE>
Explanation
The graph assumes $100 invested on December 31, 1992 in AT&T Common Stock, the
S&P 500 Index, New Peer Group common stock, and Old Peer Group common stock with
the reinvestment of all dividends, including the Company's distribution to
shareholders of Lucent common stock on September 30, 1996 and NCR common stock
on December 31, 1996(3). For the purpose of this chart, the Lucent and NCR
distributions are treated as nontaxable cash dividends that would have been
converted to additional AT&T shares at the close of business for Lucent on
September 30, 1996 and at the close of business for NCR on December 31, 1996.
Footnotes
1. The New Peer Group is composed of the largest companies worldwide that
compete against the Company in its industry segment of telecommunications
services. The returns of each company have been weighted according to their
respective stock market capitalization for purposes of arriving at a peer
group average. The New Peer Group is comprised of the 1997 S&P Telephone
Index (Alltel Corporation; Ameritech Corporation; Bell Atlantic Corp.;
BellSouth Corporation; Frontier Corporation; GTE Corporation; SBC
Communications Inc.; and U.S. West Communications Group); British Telecom
plc; Cable & Wireless plc; MCI Communications Corporation; Sprint
Corporation; and WorldCom, Inc.
2. The Old Peer Group comprises the same companies as in the New Peer Group plus
the MBNA Corp.
3. Data Source: S&P Compustat
31
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation(2)
------------------------------------
Other
Annual
Compen-
Named Officers and sation(3)
Principal Position (1) Year Salary ($) Bonus ($) ($)
- ------------------------------- ------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
C. Michael Armstrong 1997 291,667 0 0
Chairman of the Board and 1996 0 0 0
CEO 1995 0 0 0
Robert E. Allen 1997 1,222,000 1,100,000 952,944
former Chairman of the 1996 1,186,333 1,250,000 785,521
Board & CEO 1995 1,153,000 1,524,400 581,079
John D. Zeglis 1997 659,000 950,000 468,852
President 1996 538,500 544,000 328,595
1995 481,000 379,700 226,425
John C. Petrillo 1997 430,833 477,300 112,079
Executive Vice President - 1996 400,834 349,800 77,034
Corporate Strategy & New 1995 349,333 468,700 39,723
Business Development
Gail J. McGovern 1997 404,167 492,200 71,660
Executive Vice President - 1996 333,883 321,300 42,285
Consumer Markets Division 1995 250,000 274,700 16,720
Frank Ianna 1997 411,667 472,200 70,155
Executive Vice President - 1996 318,816 225,700 49,155
Network & Computing Services 1995 283,334 254,200 21,772
John R. Walter (9) 1997 528,125 633,750 436,038
former President & 1996 182,812 250,800 0
Chief Operating Officer 1995 0 0 0
</TABLE>
<TABLE>
<CAPTION>
Long-Term Compensation(2)
--------------------------------------------
Awards (4) Payouts
------------------------------- ------------
Restricted Number All Other
Stock of LTIP Compen-
Named Officers and Award(s) (5) Options/ Payouts(7) sation(8)
Principal Position (1) Year ($) SARs (6) ($) ($)
- ------------------------------- ------ ------------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
C. Michael Armstrong 1997 14,927,568(a) 750,000 0 8,539
Chairman of the Board and 1996 0 0 0 0
CEO 1995 0 0 0 0
Robert E. Allen 1997 0 300,000 1,182,475 88,601
former Chairman of the 1996 0 0 2,177,408 89,954
Board & CEO 1995 0 1,219,659 1,855,396 102,989
John D. Zeglis 1997 0 136,000 320,409 41,260
President 1996 1,975,000(b) 0 373,825 42,094
1995 1,333,500(c) 390,121 341,248 43,702
John C. Petrillo 1997 0 78,000 248,410 898,777
Executive Vice President - 1996 0 0 289,813 27,449
Corporate Strategy & New 1995 761,600(c) 103,224 108,450 27,159
Business Development
Gail J. McGovern 1997 0 78,000 121,657 847,702
Executive Vice President - 1996 0 0 98,520 22,048
Consumer Markets Division 1995 736,000(c) 86,908 83,344 24,167
Frank Ianna 1997 0 78,000 121,657 847,376
Executive Vice President - 1996 0 0 118,840 25,133
Network & Computing Services 1995 736,000(c) 86,908 108,450 25,190
John R. Walter (9) 1997 0 270,000 0 3,665,703
former President & 1996 3,825,000(b) 450,610 0 12,040,178
Chief Operating Officer 1995 0 0 0 0
</TABLE>
32
<PAGE>
Footnotes
1. Includes Chairman of the Board and Chief Executive Officer at year end, the
former Chairman of the Board and Chief Executive Officer, and the four other
most highly compensated individuals who were executive officers of AT&T at
the end of 1997, as measured by salary and bonus. Also includes the former
President and Chief Operating Officer of the Company who ceased to be an
executive officer of AT&T on July 16, 1997.
2. Compensation deferred at the election of named officers is included in the
category (e.g., bonus, LTIP payouts) and year it would have otherwise been
reported had it not been deferred.
3. Includes (a) payments of above-market interest on deferred compensation, (b)
dividend equivalents paid with respect to long-term incentive compensation
paid during the year, and (c) tax payment reimbursements. In 1997, for Mr.
Walter, also includes $65,204 for the purchase, installation, and maintenance
of security systems and business telephone systems for his residence.
4. All awards granted in 1995 and 1996 were granted with respect to AT&T Common
Stock and then subsequently adjusted, depending on the grant date, for the
impact of the spin-off of Lucent, NCR, or both to AT&T shareholders of common
stock. In the case of restricted stock unit awards, the amounts shown
represent the dollar value on the date originally granted. The amounts shown
for stock options represent the number of shares of common stock resulting
from the spin-off adjustments. These antidilution adjustments were intended
to preserve the economic value of the options at the time of the spin-offs.
In the case of the Lucent spin-off, the adjustment was calculated by
multiplying the number of shares of AT&T Common Stock under the original
award by a factor of 1.34777, and dividing the original exercise price by the
same factor. A similar calculation was made at the time of the NCR spin-off,
using a factor of 1.06026. For Messrs. Allen and Zeglis, a portion of the
1995 stock option grant was converted into a combination of adjusted AT&T
options and SARs exercisable with respect to shares of Lucent and NCR common
stock. This balancing of risk and opportunity among the three companies
mirrored the impact that the restructuring had on the Company's shareholders.
It was accorded to the named executive officers cited above by virtue of
their membership on the Transition Steering Committee whose charter was to
ensure the creation of three healthy independent companies as a result of the
restructuring.
5. (a) On October 17, 1997, the Committee granted Mr. Armstrong an award of
105,330 restricted shares and 224,561 restricted stock units to replace
grants from Hughes Electronics Corporation ("Hughes") which were forfeited
upon his termination from Hughes. The value of these awards as of the
original grant date is reflected in the table. The vesting schedule for these
grants mirrors that applicable to the original grants from Hughes. 10,945 of
the restricted shares vest May 1, 1998; 8,282 vest October 17, 1998; 19,072
vest January 1, 1999; 10,944 vest May 1, 1999; 8,282 vest October 17, 1999;
18,294 vest January 1, 2000; and 10,943 vest May 1, 2000. The remaining
restricted shares and all the restricted stock units vest October 17, 2000 or
later. Dividends on the restricted shares and dividend equivalents on the
restricted units are paid to Mr. Armstrong in cash.
(b) On October 16, 1996, an award of 50,000 (53,013 after adjustment for the
spin-off of NCR) restricted stock units was granted to Mr. Zeglis to
acknowledge his contribution to the restructuring and transition of AT&T and
to incent his continued employment with the Company. The value at the date of
grant of these restricted stock units is reflected in the table. 50% of the
units vest two years from the date of grant and the remaining 50% of the
units vest four years from the date of grant. The grant carries stringent
penalties for competition and other specified adverse activities. Dividends
on such units are paid in cash to Mr. Zeglis.
33
<PAGE>
On October 23, 1996, an award of 75,000 (79,519 after adjustment for the
spin-off of NCR) restricted stock units was granted to Mr. Walter in
connection with his hire by AT&T. Dividend equivalents on these restricted
stock units were paid in cash to Mr. Walter. In accordance with Mr. Walter's
employment agreement, these units vested on his termination date of July 16,
1997.
(c) On September 25, 1995, the Committee granted awards of restricted stock
units to Messrs. Zeglis, Petrillo, and Ianna and Ms. McGovern as part of a
special equity incentive retention program. The original and adjusted awards
for the named executives were 21,000 (30,007), 11,900 (17,004), 11,500
(16,432) and 11,500 (16,432) units, respectively. The value of such awards as
of the original grant date is reflected in the table. These grants vest four
years after the date of grant and carry stringent penalties for competition
and other activities adverse to the Company. Dividend equivalents on such
units are paid in cash to holders thereof.
The aggregate number (and value) for each of the Named Officers at 12/31/97
for outstanding restricted stock and restricted stock unit awards was: Mr.
Armstrong 329,891 ($20,205,824); Mr. Zeglis 83,020 ($5,084,975); Mr. Petrillo
17,004 ($1,041,495); Ms. McGovern 16,432 ($1,006,460); and Mr. Ianna 16,432
($1,006,460).
6. For 1995, figures include the regular annual grant of options as well as a
special grant made in connection with the Company's restructuring. The
special grant becomes exercisable four years from the date of grant as long
as the recipient is still in the employ of the Company and, for
three-quarters of the grant, only to the extent that price targets of
$48.9857, $53.1845 and $57.7332, respectively, have been met. If such price
targets are not met, this portion of the grant becomes exercisable six years
from the date of grant. Consistent with past practice for retiring senior
officers, the provision in Mr. Allen's grant that would have caused the
cancellation of the grant upon his termination of employment on February 28,
1998 has been removed by the Committee. No option grants were made to Messrs.
Allen, Zeglis, Petrillo, or Ianna or Ms. McGovern in 1996.
7. Includes distribution in 1997 to Messrs. Allen and Zeglis of performance
shares whose three-year performance period ended December 31, 1996. For
Messrs. Petrillo and Ianna and Ms. McGovern, includes distribution in 1997 of
stock units whose three-year performance criteria, in recognition of the
Company's restructuring and the difficulty of setting long-term financial
targets while the restructure was in progress, was deemed to have been met at
the target level.
8. In 1997, includes (a) Company contributions to savings plans (Mr. Armstrong
$0, Mr. Allen $6,000, Mr. Zeglis $6,000, Mr. Petrillo $6,000, Ms. McGovern
$6,000, Mr. Ianna $6,000, and Mr. Walter $0); (b) dollar value of the benefit
of premiums paid for split-dollar life insurance policies (unrelated to term
insurance coverage) projected on an actuarial basis (Mr. Armstrong $8,539,
Mr. Allen $41,281, Mr. Zeglis $19,950, Mr. Petrillo $12,927, Ms. McGovern
$14,750, Mr. Ianna $6,772, and Mr. Walter $65,803); and (c) payments equal to
lost Company savings match caused by IRS limitations (Mr. Armstrong, $0, Mr.
Allen $41,320, Mr. Zeglis $15,310, Mr. Petrillo $9,850, Ms. McGovern $6,952,
Mr. Ianna $6,604, and Mr. Walter $0). In addition, for Messrs. Petrillo and
Ianna and Ms. McGovern, includes deposits into an individual non-qualified
supplemental retirement deferral account in the amount of $870,000, $828,000
and $820,000, respectively. For Mr. Walter, includes $3,217,500 severance
payable over a twelve-month period, $24,000 for a temporary secretary for Mr.
Walter for a period of 120 days from his termination date, $50,000
reimbursement of financial counseling fees for the year ending July 16, 1998,
and a $302,400 relocation allowance, all in accordance with the terms of his
employment contract and separation agreement. In 1996, for Mr. Walter,
includes a $5,000,000 cash hiring bonus and a $7,000,000 contribution to an
individual non-qualified deferred account.
9. Mr. Walter was hired by the Company and became an executive officer of the
Company in October 1996. He resigned from the Company July 16, 1997. The
compensation disclosed for 1996 and 1997 relates only to partial years.
34
<PAGE>
AGGREGATED OPTION/STOCK APPRECIATION RIGHTS
("SAR") EXERCISES IN 1997 AND YEAR-END VALUES(1)
<TABLE>
<CAPTION>
Number of $ Value of
Unexercised In-the-Money
Options/SARs Options/SARs
at Year End (4) at Year End (4)
------------------- ----------------
Number of
Shares Acquired $ Value Exercisable/ Exercisable/
Name (2) on Exercise (3) Realized (3) Unexercisable Unexercisable
- ------------------------------ ----------------- -------------- ------------------- ----------------
<S> <C> <C> <C> <C>
C. Michael Armstrong ......... 0 0 0 0
750,000 12,539,025
Robert E. Allen .............. 109,010 3,640,489 913,482 29,287,506
1,421,046 25,827,391
John D. Zeglis ............... 0 0 308,627 9,364,883
504,205 9,382,569
John C. Petrillo ............. 0 0 93,569 2,400,463
174,283 3,454,741
Gail J. McGovern ............. 8,387 116,069 19,850 500,901
156,412 3,069,776
Frank Ianna .................. 0 0 19,269 488,842
156,412 3,120,151
John R. Walter ............... 0 0 238,558 5,990,192
482,052 11,248,811
</TABLE>
Footnotes
1. As explained in Footnote 4 to the Summary Compensation Table, a portion of
the outstanding stock options for Messrs. Allen and Zeglis were converted, in
connection with the Company's restructuring, into a combination of adjusted
AT&T options and SARs exercisable with respect to Lucent and/or NCR shares.
Consistent with accounting principles governing such conversions, the
adjusted options and SARs retain the same term and vesting provisions as the
original options.
2. Includes Chairman of the Board and Chief Executive Officer at year end, the
former Chairman of the Board and Chief Executive Officer, and the four other
most highly compensated individuals who were executive officers of AT&T at
the end of 1997, as measured by salary and bonus. Also includes the former
President and Chief Operating Officer of the Company who ceased to be an
executive officer of AT&T on July 16, 1997.
3. For Mr. Allen, also includes the exercises of 39,592 Lucent SARs and 5,612
NCR SARs.
4. For Messrs. Allen and Zeglis, includes adjusted AT&T options and Lucent and
NCR SARs.
35
<PAGE>
LONG-TERM INCENTIVE PLANS-AWARDS IN 1997
<TABLE>
<CAPTION>
Estimated Future Payouts
Performance Under Non-Stock Price-Based Plans
Number of Period Until ---------------------------------
Performance Maturation Threshold Target Maximum
Name (1) Shares or Payout (#) (#)(2) (#)
- ------------------------------ ------------- ------------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
C. Michael Armstrong ......... 0 1997-1999 0 0 0
Robert E. Allen .............. 50,000 1997-1999 12,500 50,000 100,000
John D. Zeglis ............... 18,500 1997-1999 4,625 18,500 37,000
John C. Petrillo ............. 10,400 1997-1999 2,600 10,400 20,800
Gail J. McGovern ............. 10,400 1997-1999 2,600 10,400 20,800
Frank Ianna .................. 10,400 1997-1999 2,600 10,400 20,800
John R. Walter ............... 35,000 1997-1999 8,750 35,000 70,000
</TABLE>
Footnotes
1. Includes Chairman of the Board and Chief Executive Officer at year end, the
former Chairman of the Board and Chief Executive Officer, and the four other
most highly compensated individuals who were executive officers of AT&T at
the end of 1997, as measured by salary and bonus. Also includes the former
President and Chief Operating Officer of the Company who ceased to be an
executive officer of AT&T on July 16, 1997.
2. In January 1997, the Performance Share Awards listed in the table were
awarded. If they remain named officers at the end of 1999, the value of the
payout to Messrs. Zeglis, Petrillo, and Ianna and Ms. McGovern shall be (i)
0.13% of the Company's net cash provided by operating activities for each
year in the performance period, divided by the total number of named officers
receiving payouts for the period ending in 1999, or (ii) a lesser amount,
based on factors, such as targets for the Company's earnings, return to
equity, cash flow, and total shareholder return for the period. For Messrs.
Allen and Walter, the value of the payout shall be determined by the total
shareholder return of the Company's stock over the period versus that of a
comparison group of peer companies.
36
<PAGE>
OPTION/SAR GRANTS IN 1997
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------------
Number of Grant
Securities % of Total Date
Underlying Options/SARs Exercise or Present
Options/SARs Granted to Base Price Expiration Value(3)
Name(1) Granted(2) Employees ($/Sh) Date ($)
- ------------------------------ -------------- -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
C. Michael Armstrong ......... 750,000 2.06 44.5313 10/17/07 8,962,500
Robert E. Allen .............. 300,000 0.82 39.3125 1/31/07 3,288,000
John D. Zeglis ............... 116,000} 39.3125 1/31/07 1,271,360
20,000} 0.37 33.3125 4/15/07 190,400
John C. Petrillo ............. 78,000 0.21 39.3125 1/31/07 854,880
Gail J. McGovern ............. 78,000 0.21 39.3125 1/31/07 854,880
Frank Ianna .................. 52,000} 39.3125 1/31/07 569,920
26,000} 0.21 37.3750 6/18/07 265,720
John R. Walter ............... 270,000 0.74 39.3125 1/31/07 2,959,200
</TABLE>
Footnotes
1. Includes Chairman of the Board and Chief Executive Officer at year end, the
former Chairman of the Board and Chief Executive Officer, and the four other
most highly compensated individuals who were executive officers of AT&T at
the end of 1997, as measured by salary and bonus. Also includes the former
President and Chief Operating Officer of the Company who ceased to be an
executive officer of AT&T on July 16, 1997.
2. With the exception of the grant to Mr. Armstrong in connection with his hire,
options become exercisable to the extent of one-third of the grant on the
first, second, and third anniversaries of the grant date, respectively. Mr.
Armstrong's grant becomes exercisable to the extent of one-third of the grant
on the third, fourth, and fifth anniversaries of the grant date,
respectively.
3. The Black-Scholes option pricing model was chosen to estimate the grant date
present value of the options set forth in this table, using a weighted
average of assumption values for the grants shown in the table. The Company's
use of this model should not be construed as an endorsement of its accuracy
at valuing options. All stock option valuation models, including the
Black-Scholes model, require a prediction about the future movement of the
stock price. The following assumptions were made for purposes of calculating
the Grant Date Present Value: an option term of 7 years, weighted average
volatility of 21.9%, weighted average dividend yield of 2.56%, and weighted
average interest rate of 6.21%. The real value of the options in this table
depends upon the actual performance of the Company's stock during the
applicable period.
37
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
AT&T entered into an employment agreement with Mr. Armstrong dated October
17, 1997. The agreement provided for an initial base salary of $1,400,000 per
year. It also provided for a guaranteed annual incentive award for the 1998
performance year of no less than 100% of his then base salary, and for 1998 and
1999 performance shares/stock units granted under the AT&T 1997 Long Term
Incentive Program ("1997 LTIP") with a guaranteed grant value equivalent to no
less than 100% of his base salary at the time of grant. Mr. Armstrong will be
eligible for annual stock option awards commencing in 1998 in accordance with
the Committee-approved compensation structure for such years.
To address certain forfeitures experienced when Mr. Armstrong left his
previous employer, the Company will pay a premium of $2,050,000 to purchase a
split-dollar survivorship insurance policy insuring Mr. Armstrong and his
spouse. Such policy will, 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 will be payable
to Mr. Armstrong's beneficiaries or to a trust which may be established to own
Mr. Armstrong's interest in such policy. The balance of the proceeds will be
paid to the Company, and, from its share of the death benefit, the Company will
pay a Company-paid death benefit to Mr. Armstrong's beneficiaries equal to the
death benefit received by the Company minus the Company-paid premium. 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 and
additional premium payments, if any, that Mr. Armstrong may become eligible for
under any similar program adopted by the Company for its senior executives and
in which Mr. Armstrong elects to participate.
In accordance with his employment agreement, Mr. Armstrong was also granted
AT&T Restricted Stock, AT&T Restricted Stock
38
<PAGE>
Units, and AT&T Stock Options under the 1997 LTIP to replace the value of
similar grants from his prior employer that were forfeited.
Details of these grants follow:
1. He was granted 105,330 shares of AT&T Restricted Stock which will vest as
follows: 10,945 shares on May 1, 1998; 8,282 shares on October 17, 1998;
19,072 shares on January 1, 1999; 10,944 shares on May 1, 1999; 8,282 shares
on October 17, 1999; 18,294 shares on January 1, 2000; 8,282 shares on
October 17, 2000; 10,943 shares on May 1, 2000; 2,005 shares on May 1, 2001;
and 8,281 shares on October 17, 2001.
2. Mr. Armstrong was also granted 224,561 AT&T Restricted Stock Units which vest
on October 1, 2003, assuming continued employment, with a guarantee that, in
the event the fair market value of the AT&T shares furnished to Mr. Armstrong
on October 1, 2003 is less than $10,000,000, such shortfall will be made up
in cash by the Company. In the event of (a) a Change in Control (as defined)
on or before April 1, 2002 and a subsequent (within 3 years)
Company-initiated termination for other than "cause" (as defined) or
Constructive Termination Without Cause (as defined) or (b) Mr. Armstrong's
death, special vesting rules apply.
3. Mr. Armstrong was granted an option to purchase, within ten years, 750,000
shares of AT&T Common Stock with a purchase price of $44.5313. Such option
will vest as to one-third of the shares on October 17, 2000, one-third on
October 17, 2001, and one-third on October 17, 2002 based on continued
employment.
As part of his employment agreement, the Company entered into a
supplemental pension arrangement with Mr. Armstrong. Pursuant to such
arrangement, Mr. Armstrong will be entitled to a benefit of 50% of Final Average
Compensation (as defined in the employment agreement) commencing at his
retirement at or after age 65. This benefit will vest 20% per year on each of
the first five anniversaries of his hire, and will be payable in
actuarially-reduced amounts for retirement and commencement prior to age 65.
Pension benefits payable under this arrangement will be paid out of the
39
<PAGE>
Company's operating income and will be offset by (1) all amounts actually
received by Mr. Armstrong under any other Company qualified or non-qualified
retirement plan or arrangement and (2) the greater of (a) $655,642 and (b) the
actual pension benefits to be paid to Mr. Armstrong with respect to that year by
his prior employers under their qualified and non-qualified defined benefit
plans. In addition, Mr. Armstrong will be entitled to certain other post-
retirement benefits that are generally made available from time to time to
retired executive officers and service-pension-eligible senior managers.
AT&T entered into an employment agreement with Mr. Walter dated October 23,
1996. The agreement provided for an initial base salary of $975,000 per year; a
guaranteed annual incentive award of $1,170,000 for 1997 and guaranteed annual
incentives of 120% of base salary for 1998 and 1999; and 1996 awards under the
AT&T 1987 Long Term Incentive Program of 34,175 performance shares/stock units
and an option to purchase, within ten years, 112,500 shares of AT&T Common
Stock.
The agreement with Mr. Walter also guaranteed stock option grants in 1997,
1998, and 1999 of no less than 200,000 options per year and annual performance
shares/stock units grants during years 1997, 1998, and 1999 each with an average
value of no less than $1,350,000 per year.
The agreement also provided for an award to Mr. Walter of 34,175
performance shares/stock units that were payable in the first quarter of 1998; a
$5,000,000 cash bonus; an option to purchase 112,500 shares of AT&T Common
Stock; an award of 75,000 AT&T restricted stock units; and "premium" stock
option awards with respect to 200,000 shares of AT&T Common Stock.
Under the terms of Mr. Walter's employment agreement, on October 23, 1996,
a deferred account was established with an initial balance of $7,000,000 with
interest to be credited quarterly at a rate equal to one quarter of 120% of the
Applicable Annual Federal Mid-Term Rate in effect for the last month of such
quarter. The deferred account vests as follows: (1) after five years of
employment or, (2) after the fifth anniversary of the agreement in the event of
40
<PAGE>
Company-initiated termination for other than "cause" (as defined) or
employee-initiated termination for "good reason" (as defined) prior to five
years of Company employment, or (3) following death or Long Term Disability if
prior to five years of employment.
As part of his employment agreement, the Company also entered into a
supplemental pension arrangement with Mr. Walter. Pursuant to such arrangement,
if employment is terminated on or after the date on which he attains age 55 for
any reason other than Company-initiated termination for "cause" (as defined),
Mr. Walter will be entitled to immediate pension benefits based on the higher of
(1) a pension determined by his actual net credited service and calculated under
the then-existing Company-qualified and non-qualified pension formulas, but
without reference to age and service eligibility requirements, or (2) a fixed
minimum monthly pension schedule which ranges from $69,444 for termination at
age 55 or earlier to $125,000 for termination at age 65. Pension benefits
payable under this arrangement will be paid out of the Company's operating
income, and will be offset by all amounts actually received by Mr. Walter under
any other Company-qualified or non-qualified retirement plan or arrangement and
by the amount of any pension payable by his former employer. In addition, Mr.
Walter will be entitled to certain other post-retirement benefits that are
generally made available from time to time to retired executive officers and
service-pension-eligible senior managers.
In connection with his departure from AT&T, Mr. Walter's Employment
Agreement provided for certain entitlements. Pursuant to Mr. Walter's Employment
Agreement, all stock units, restricted stock units, and stock options granted on
October 23, 1996 (other than premium options granted on such date) vested upon
his termination from AT&T. Subject to the terms and conditions of the Employment
Agreement and the relevant award and plan, the 1996-98 and 1995-97 stock units
pay out following the end of the applicable performance cycle, and such stock
options are exercisable for the full term thereof. The premium options, in
accordance with the terms and conditions of the Employment Agreement and the
relevant award and plan, continue to vest as if Mr. Walter were employed and,
once vested, are exercisable for the
41
<PAGE>
term thereof. At his termination of employment, Mr. Walter's 1997-99 performance
shares granted on January 1, 1997 and the 1997 stock options granted on January
31, 1997 continue to vest as if he were employed, with such performance shares
paying out following the end of the applicable performance cycle and, once
vested, such options being exercisable for the term thereof.
Also in accordance with the provisions of Mr. Walter's Employment Agreement
as they relate to his termination of employment, Mr. Walter is provided the
following: 12 monthly payments each equal to one-twelfth of $3,217,500; a 1997
target annual incentive prorated for partial service in 1997; distribution of
his Deferred Account after the fifth anniversary of his Employment Agreement;
and payment of his special supplemental pension determined as if his age at
termination were 55 with such pension commencing at his actual attainment of age
55. Entitlement to certain post-termination ancillary benefits includes
continuation of two times base salary Senior Management Basic Life Insurance,
one and one-half times salary Senior Management Individual Life Insurance, one
times salary plus annual incentive death benefit , and entitlement to certain
other post-retirement benefits that are generally made available from time to
time to retired executive officers and service-pension-eligible senior managers.
In addition, the Company provided for payment for a temporary secretary for Mr.
Walter for a period of 120 days from his termination date, will reimburse Mr.
Walter for financial counseling fees during the one year period ending July 15,
1998 up to a maximum amount of $50,000, and will provide relocation assistance
specified in his Employment Agreement in connection with purchase of his New
Jersey home.
In 1997, the Company adopted the Special Executive Severance Plan
("Severance Plan") for members of the Operations Team and certain other members
of the Senior Management Team (a total of 10 executives). Under the Severance
Plan, if covered executives (i) are terminated by the Company for other than
"cause" (as defined in the Severance Plan) or (ii) self-initiate termination for
"good reason" (as defined in the Severance Plan), they will be provided a
severance payment equivalent to two times the sum of
42
<PAGE>
base salary plus target annual incentive in effect at termination. The severance
amount payable may be deferred for up to 5 years with 5 annual payments and will
be credited with interest based on the interest rate formula in effect for the
Senior Management Incentive Award Deferral Plan on the Severance Plan effective
date. In addition, covered executives who terminate under the terms of the
Severance Plan will be entitled to certain other post-termination benefits that
are generally made available from time to time to retired executive officers and
service-pension-eligible senior managers.
PENSION PLANS
The Company maintains the AT&T Management Pension Plan, a non-contributory
pension plan which covers all management employees, including the Named Officers
listed in the Summary Compensation Table. The normal retirement age under this
plan is 65; however, retirement before age 65 can be elected under certain
conditions.
The AT&T Management Pension Plan was amended in 1997 to update the adjusted
career average pay formula for computing pensions. Effective August 1, 1997, the
adjusted career average pay formula is 1.6% of the average annual pay for the
three years ending December 31, 1996 times the lesser of (a) 105% of the number
of years of service prior to January 1, 1997 or (b) the number of years of
service prior to January 1, 1997 plus one. Only the basic salary is taken into
account in the formula used to compute pension amounts for the Named Officers
and other senior managers under the adjusted career average pay formula. No
service or compensation after December 31, 1996 is used in calculating an
employee's normal retirement benefit under the adjusted career average pay
formula.
Effective January 1, 1998, the AT&T Management Pension Plan was further
amended to convert the plan to a cash balance design. Under the new design, a
hypothetical cash balance account is established for each participant for
record-keeping purposes. Each year a participant's cash balance account is
credited with (a) a pay credit based on the participant's age and eligible pay
for that year and (b) an interest credit based on the participant's account
balance
43
<PAGE>
as of the end of the prior year. Effective January 1, 1998, an eligible
participant's cash balance account received an initial credit based on a
conversion benefit equal to the participant's normal retirement benefit under
the adjusted career average pay formula described above multiplied by a
conversion factor based on the participant's age as of December 31, 1996. The
initial pay credit was made as of January 1, 1998 based on the participant's
eligible pay for 1997, and the initial interest credit was made as of January 1,
1998 based on the conversion benefit. Only basic salary is considered eligible
pay under the cash balance design for the Named Officers and other senior
managers. Interest credits are calculated at the effective annual rate of 7% for
calendar years 1997, 1998, and 1999. For subsequent calendar years, interest
credits are based on the effective annual rate of 4%. Under the cash balance
design, a participant's benefit is determined by projecting interest credits to
his or her cash balance account to age 65, converting the projected cash balance
account to an annuity, and reducing that annuity for early commencement. A
participant's benefit under the Plan after conversion to the cash balance design
will be no less than the benefit calculated under the career average pay formula
as adjusted in 1997.
Federal laws place limitations on pensions that may be paid from the
pension trust related to the AT&T Management Pension Plan. Pension amounts based
on the AT&T Management Pension Plan formula which exceed the applicable
limitations will be paid as an operating expense.
The Company also maintains the AT&T Non-Qualified Pension Plan. Under the
plan, annual pensions for Messrs. Allen, Armstrong, Zeglis, Petrillo, Ianna, and
Walter and Ms. McGovern and other senior managers are computed based on actual
annual bonus awards under the Company's Short Term Incentive Plan. Pension
benefits under this plan will commence at the same time as benefits under the
AT&T Management Pension Plan. The annual pension amounts payable under this plan
are equal to no less than the greater of the amounts computed under the Basic or
Alternate Formulas which were amended in 1997 and are described on the following
page:
44
<PAGE>
Basic Formula
For the three-year period ending December 31, 1996, 1.6% of the average of
the actual annual bonus awards times the lesser of (a) 105% of the number of
years of service prior to January 1, 1997 or (b) the number of years of service
prior to January 1, 1997 plus one.
Alternate Formula
The excess of (a) 1.7% of the adjusted career average pay over (b) 0.8% of
the covered compensation base times the lesser of (i) 105% of the number of
years of service prior to January 1, 1997 or (ii) the number of years of service
prior to January 1, 1997 plus one, minus the benefit calculated under the AT&T
Management Pension Plan formula (without regard to limitations imposed by the
Internal Revenue Code). For purposes of this formula, adjusted career average
pay is the average annual compensation for the three-year period ending December
31, 1996 without regard to the limitations imposed by the Internal Revenue Code.
The covered compensation base used in this formula is the average of the maximum
wage amount on which an employee was liable for Social Security Tax for each
year beginning with 1961 and ending with 1996. In 1996, the covered compensation
base was $27,600.
No service or compensation after December 31, 1996 is used to calculate an
employee's normal retirement benefit under the Basic or Alternate Formulas.
Effective January 1, 1998, the AT&T Non-Qualified Pension Plan was further
amended to convert the plan to a cash balance design. Under the new design, a
hypothetical cash balance account is established for each participant for
record-keeping purposes. Each year, a participant's cash balance account is
credited with (a) an award credit based on the participant's age and short-term
award paid in that year and (b) an interest credit based on the participant's
account balance as of the end of the prior year. Effective January 1, 1998, an
eligible participant's cash balance account received an initial credit based on
a conversion benefit equal to the participant's normal retirement benefit under
the Basic Formula described above multiplied by a conversion factor based on the
45
<PAGE>
participant's age as of December 31, 1996. The initial award credit was made as
of January 1, 1998 based on the participant's short-term award paid in 1997, and
the initial interest credit was made as of January 1, 1998 based on the
conversion benefit. Interest credits are calculated at the effective annual rate
of 7% for calendar years 1997, 1998, and 1999. For subsequent calendar years,
interest credits are based on the effective annual rate of 4%. Under the cash
balance design, a participant's benefit is determined by projecting interest
credits to his or her cash balance account to age 65, converting the projected
cash balance account to an annuity, and reducing that annuity for early
commencement in the same manner as under the AT&T Management Pension Plan.
Senior Managers, including Messrs. Armstrong, Zeglis, and Walter, and
certain other management employees who are hired at age 35 or over, are covered
by a supplemental AT&T Mid-Career Pension Plan. For specified managers retiring
with at least five years in level, the plan provides additional pension credits
equal to the difference between age 35 and their maximum possible years of
service attainable at age 65, but not to exceed actual net credited service, at
approximately one-half the rate in the AT&T Management Pension Plan. The AT&T
Mid-Career Pension Plan was amended in 1997 to provide that an eligible
employee's pension credits shall be computed as if the employee had terminated
employment as of December 31, 1996. In addition, the AT&T Mid-Career Pension
Plan was amended to provide that liability with respect to senior managers
actively employed on January 1, 1998 be transferred to the AT&T Non-Qualified
Pension Plan and converted to cash balance as described above.
Pension amounts under either the AT&T Management Pension Plan formula, the
AT&T Non-Qualified Pension Plan, or the AT&T Mid-Career Pension Plan are not
subject to reductions for Social Security Benefits or other offset amounts. If
Messrs. Armstrong, Zeglis, Petrillo, Ianna, and Ms. McGovern continue in the
positions as previously stated and retire at the normal retirement age of 65,
the estimated annual pension amount payable under the AT&T Management Pension
Plan formula and the AT&T Non-Qualified Pension Plan would be $399,300,
$1,154,500, $932,300, $780,900, and $903,200, respectively. Mr. Allen's actual
annual benefit at
46
<PAGE>
retirement from the AT&T Management Pension Plan and the AT&T Non-Qualified
Pension Plan is $1,940,400. Amounts shown are straight life annuity amounts not
reduced by a joint and survivorship provision that is available to these
officers.
In 1997, the Company began purchasing annuity contracts to satisfy its
unfunded obligations to retired senior managers under the AT&T Non-Qualified
Pension Plan. In the event the Company purchases an annuity contract for any of
the Named Officers, the pension payments for such officer will vary from that
set forth above. In such instance there would be a tax gross-up payment to the
officer, and annuity benefits paid by the annuity provider will be reduced to
offset the tax gross-up payment. The after-tax pension benefit will be the same
as the after-tax benefit the participant would otherwise have received under the
AT&T Non-Qualified Pension Plan. Receipt of the annuity is contingent on the
signing of a two-year non-competition agreement which, should competitive
activity occur within the two-year period, gives the Company the right to seek
injunctive relief and to recapture any amounts already paid out under the
annuity contract.
In 1997, the Company entered into a supplemental pension arrangement with
Mr. Zeglis. Pursuant to Mr. Zeglis's arrangement, if employment is terminated
for any reason other than (i) Company-initiated termination for "cause" (as
defined in the arrangement) or (ii) self-initiated termination prior to age 52
for other than "good reason" (as defined in the arrangement), he will be
entitled to the supplemental pension. Under the supplemental pension
arrangement, Mr. Zeglis is entitled to pension benefits determined under the
then-existing Company-qualified and non-qualified pension formulas, using
January 1, 1973 as a date of hire, and subject to a minimum amount. Pension
benefits payable under this arrangement will be paid out of the Company's
operating income and will be offset by all amounts actually received by Mr.
Zeglis under any then-existing Company-qualified and/or non-qualified retirement
plans. In addition, Mr. Zeglis will be entitled to certain other post-retirement
benefits that are generally made available from time to time to retired
executive officers and service-pension-eligible senior managers. Pursuant to the
supplemental pension arrangement for Mr. Zeglis, if he continues in the position
previously stated and retires at the normal retirement age of 65, the estimated
annual supplemental pension amount, in addition to the
47
<PAGE>
pension payable under the AT&T Management Pension Plan and AT&T Non-Qualified
Pension Plan described above, would be $139,500.
In 1997, the Company also entered into a special individual non-qualified
supplemental retirement arrangement with five executive officers including
Messrs. Petrillo and Ianna and Ms. McGovern. Under this Agreement, on November
1, 1997, a deferred account ("Deferred Account") was credited with an initial
balance of two times base pay. The Company will 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.
Pursuant to the arrangement, if (i) employment is terminated by the Company for
any reason other than "cause" prior to the vesting date or (ii) employee
self-initiates termination prior to the vesting date for "good reason" (as
defined in the arrangement), he or she will be entitled to the Deferred Account.
The vesting dates for the officers named above are Mr. Petrillo, the sixth
anniversary of the "effective date" (as defined in the arrangement); Ms.
McGovern, the seventh anniversary of the "effective date"; and Mr. Ianna, the
sixth anniversary of the "effective date". The Deferred Account will be
maintained as a bookkeeping account on the records of the Company and the named
officers have no present ownership right or interest in the Deferred Account or
in any assets of the Company with respect thereto.
As part of their employment agreements as described above, the Company
entered into supplemental pension arrangements with Mr. Armstrong and Mr.
Walter. Pursuant to Mr. Armstrong's arrangement, if he continues in his position
as previously stated and retires at the normal retirement age of 65, the
estimated pension amount payable under the agreement, which supplements the
annual pension amount payable under the AT&T Management Pension Plan and the
AT&T Non-Qualified Pension Plan, would be $573,800.
Upon Mr. Walter's termination of employment on July 16, 1997, he was not
eligible for a benefit payable under the AT&T Management Pension Plan or the
AT&T Non-Qualified Pension Plan described above. However, pursuant to his
arrangement, he became eligible for an annual pension benefit of $833,328 per
year beginning at his attainment of age 55, reduced by the pension payable by
his former employer.
48
<PAGE>
OTHER INFORMATION
A Directors' and Officers' Liability policy was placed, effective July 1,
1997, with Lloyds of London and other carriers. The policy insures AT&T for
certain obligations incurred in the indemnification of its Directors and
Officers under New York law or under contract, and insures Directors and
Officers when such indemnification is not provided by AT&T. The policy premium
from July 1, 1997 through July 1, 1998 is $773,000.
The cost of soliciting proxies in the accompanying form will be borne by
the Company. In addition to solicitations by mail, a number of regular employees
of the Company and of its subsidiaries may solicit proxies in person or by
telephone. The Company also has retained Morrow & Co. to aid in the solicitation
of proxies, at an estimated cost of $23,000 plus reimbursement of reasonable
out-of-pocket expenses.
The above notice and proxy statement are sent by order of the Board of
Directors.
Marilyn J. Wasser
Vice President - Law and
Secretary
Dated: March 26, 1998
49
<PAGE>
[AT&T Logo]
32 Avenue of the Americas
New York, NY 10013-2412
[Recycle Logo]
Recycled
Paper ATT-PS-98
<PAGE>
[X] Please mark votes as in this example.
Directors recommend a vote "FOR" items 1, 2, and 3 and "AGAINST" items 4, 5, 6,
and 7.
WITHHOLD
FOR ALL FROM ALL
nominees nominees
1. Election of
Directors
(page 7) [ ] [ ]
FOR ALL EXCEPT the following nominee(s):
________________________________________
FOR AGAINST ABSTAIN
2. Ratification
of Auditors
(page 13) [ ] [ ] [ ]
3. Increase Number
of Authorized
Common Shares
(page 14) [ ] [ ] [ ]
4. Director's Voting
Record (page 16) [ ] [ ] [ ]
5. Annual Meeting Date
(page 18) [ ] [ ] [ ]
6. Change Confidential
Voting Policy
(page 19) [ ] [ ] [ ]
7. Severance
Compensation
(page 21) [ ] [ ] [ ]
ANNUAL MEETING
Mark here if you plan to attend the
annual meeting. [ ]
ANNUAL REPORT
For multiple accounts only, mark here
to discontinue extra annual
report (page 3). [ ]
SPECIAL ATTENTION
Mark here if you have noted
comments on the reverse. [ ]
Signature(s):
____________________________________________________
Date 1998
__________________,
Please sign this proxy as name(s) appear above and return it promptly whether or
not you plan to attend the meeting. If signing for a corporation or partnership
or as agent, attorney or fiduciary, indicate the capacity in which you are
signing. If you do attend the meeting and decide to vote by ballot, such vote
will supersede this proxy.
<PAGE>
[AT&T LOGO]
PROXY
AT&T Corp.
32 Avenue of the Americas, New York, NY 10013-2412
This proxy is solicited on behalf of
the Board of Directors for the Annual Meeting on May 20, 1998
The undersigned hereby appoints C.M. Armstrong, M.I. Sovern, and T.H. Wyman and
each of them, proxies, with the powers the undersigned would possess if
personally present, and with full power of substitution, to vote all common
shares of the undersigned in AT&T Corp. at the annual meeting of shareholders to
be held at the Meadowlands Exposition Center in Secaucus, New Jersey, at 9:30
a.m. on May 20, 1998, and at any adjournment thereof, upon all subjects that may
properly come before the meeting, including the matters described in the proxy
statement furnished with the proxy card, subject to any directions indicated on
the other side of the proxy card. If no directions are given, the proxies will
vote for the election of all listed nominees and in accord with the Directors'
recommendations on the other subjects listed on the other side of the proxy
card. In the event that any other matter may properly come before the meeting,
or any adjournment thereof, the Proxy Committee is authorized, at their
discretion, to vote the matter.
This card also provides voting instructions for shares held in the dividend
reinvestment plan and, if registrations are identical, shares held in the
various employee stock purchase and savings plans as described in the proxy
statement. Your vote for the election of Directors may be indicated on the other
side. Nominees are: C.M. Armstrong, K.T. Derr, M.K. Eickhoff, W.Y. Elisha,
G.M.C. Fisher, D.V. Fites, R.S. Larsen, D.F. McHenry, M.I. Sovern, T.H. Wyman,
and J.D. Zeglis. Please sign on the other side and return promptly to AT&T, c/o
Proxy Services, P.O. Box 9390, Boston, MA 02205-9968. If you do not sign and
return a proxy card, vote by telephone or Internet, or attend the meeting and
vote by ballot, your shares cannot be voted.
Comments:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
If you have written in the above space, please mark the "Special Attention" box
on the other side of this card. Comments will be reviewed but not responded to
on an individual basis. Instead, they will be addressed through various Company
publications.
