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)
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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.
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(4) Date Filed:
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[globe logo] AT&T
----------------------------------------
1999
Notice of
Annual Meeting
and
Proxy Statement
----------------------------------------
Wednesday, May 19, 1999
at 9:30 a.m. local time
George R. Brown Convention Center
1001 Avenida de las Americas
Houston, Texas 77010
<PAGE>
NOTICE OF MEETING
The 114th Annual Meeting of Shareholders of AT&T Corp. (the "Company")
will be held at the George R. Brown Convention Center, 1001 Avenida de las
Americas, Houston, Texas, on Wednesday, May 19, 1999, at 9:30 a.m. local time,
for the following purposes:
o To elect Directors for the ensuing year (page 8);
o To ratify the appointment of auditors to examine the Company's accounts
for the year 1999 (page 17);
o To approve an Amendment to the AT&T 1997 Long Term Incentive Program
(page 18); and
o To act upon such other matters, including shareholder proposals (page
29), as may properly come before the meeting.
Holders of voting shares at the close of business on March 25, 1999 will
be entitled to vote with respect to this solicitation.
Marilyn J. Wasser
Vice President - Law and Secretary
March 25, 1999
<PAGE>
[globe logo] AT&T
32 Avenue of the Americas
New York, NY 10013-2412
C. Michael Armstrong
Chairman of the Board
March 25, 1999
Dear Shareholder:
It is a pleasure to invite you to our Company's 1999 Annual Meeting of
Shareholders in Houston, Texas on Wednesday, May 19, beginning at 9:30 a.m.
local time, at the George R. Brown Convention Center. This will be AT&T's 114th
Annual Meeting of Shareholders. 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. Registered shareholders can vote their shares by using a
toll-free telephone number or via the Internet. Instructions for using these
convenient 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 19 in Houston.
Sincerely,
/s/ C. Michael 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) were mailed beginning March 25, 1999 to holders of voting shares
in connection with the solicitation of proxies by the Board of Directors for
the 1999 Annual Meeting of Shareholders in Houston, Texas. Proxies are
solicited to give all shareholders of record at the close of business on March
25, 1999 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.
Registered shareholders (those who hold shares directly or through Company
plans rather than a bank or broker) 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/. If you hold your shares through a bank or broker,
you will receive separate instructions. Telephone and Internet voting
information is provided on the proxy card. A Control Number is designed to
verify shareholders' identities and allow them to vote their shares and confirm
that their voting instructions have been properly recorded. It is located above
the shareholder's name and address on the lower left of the proxy card or in an
e-mail notification for those shareholders who consented to receive their
annual meeting proxy materials electronically.
Proxy Materials and Annual Report
AT&T's Notice of Annual Meeting and Proxy Statement and the annual report
are available on the AT&T Investor Relations Home Page
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on the Internet at http://www.att.com/ir/. AT&T's shareholders can access the
proxy statement and annual report via the Internet. If you vote this year's
proxy via the Internet, you may complete an Electronic Proxy Consent form to
enroll in our paperless process for future meetings.
If you do not choose to vote by telephone or the 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 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 the 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, the 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.
If your shares are held in the name of a bank or broker, follow the voting
instructions on the form you receive. Although most banks and brokers now offer
telephone and Internet voting, availability and specific processes will depend
on their voting arrangements.
Your vote is important. Accordingly, you are urged to vote by telephone,
the 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.
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Confidential Voting
For many years, AT&T has had a confidential voting policy. In response to
1998 shareholder interest, the Company has formalized its policy by amending
its by-laws so that all proxies and other voting materials, including telephone
and Internet voting, are kept confidential and are not disclosed to the Company
or its officers and Directors, subject to standard exceptions. Such documents
are available for examination only by the inspectors of election and certain
personnel associated with processing proxy cards and tabulating the vote. This
new by-law provision cannot be amended, rescinded, or waived except by a
shareholder vote. Two independent inspectors of election have been appointed
and they are officers of The Corporation Trust Company.
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
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
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ticket and map which are attached to your proxy card or, if you received your
proxy materials via the Internet, please call the AT&T shareowner services
number, 1-800-348-8288, to request an admission ticket and map. If you will
attend the meeting, please be sure to respond to the "Annual Meeting" question
when you vote. 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 George R. Brown Convention 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. 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 the 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.
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Comments from shareholders about the proxy material or about other aspects
of the business are welcomed. Space is provided on the back of the proxy card
and on the 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 communications.
On January 1, 1999, there were 1,753,610,193 shares of AT&T Common Stock
outstanding. The Company estimates that when the exchange of shares resulting
from its acquisition of Tele-Communications, Inc. ("TCI"), which closed on
March 9, 1999, is completed, there will be approximately 2,098,000,000 shares
of AT&T Common Stock, approximately 536,000,000 shares of Liberty Media Group
Class A Common Stock, and approximately 55,000,000 shares of Liberty Media
Group Class B Common Stock outstanding. Each share of AT&T Common Stock and
each share of Liberty Media Group Class B Common Stock is entitled to one vote
and each share of Liberty Media Group Class A Common Stock is entitled to
one-tenth of a vote on each matter properly brought before the meeting. AT&T
has declared a 3-for-2 stock split effective April 15, 1999 for AT&T Common
Stock. All share numbers for AT&T Common Stock in this proxy statement do not
reflect the stock split.
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 principles, the Board of Directors
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 of Directors held 16 meetings and the committees held 18
meetings in 1998. The average attendance in the aggregate of the total number
of meetings of the Board and the total number of committee meetings was 96%.
Sanford I. Weill is Chairman and Co-Chief Executive Officer of Citigroup
Inc. In 1998, Salomon Smith Barney Holdings Inc., a
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subsidiary of Citigroup Inc., rendered services to the Company and continues to
provide services in 1999 for which it received customary compensation.
Citigroup Inc. has adopted a policy that excludes all securities income from
AT&T in the determination of Mr. Weill's compensation.
COMMITTEES OF THE BOARD
The Board has established a number of committees, including the Audit
Committee, the Compensation and Employee Benefits Committee, and the Governance
and Nominating Committee, each of which is briefly described below. Other
committees of the Board include: 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 six non-employee Directors, met four times in 1998.
The Compensation and Employee Benefits Committee administers management
incentive compensation plans, including stock option plans, and keeps informed
and advises the Board regarding 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 44. The committee, which consists of five non-employee
Directors, met seven times in 1998.
The Governance and Nominating Committee, reconstituted from the Directors
and Public Policy Committee during the second half of 1998, advises and makes
recommendations to the Board on all matters concerning directorship and
corporate governance
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practices, including 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 1998. The committee
recommended this year's Director candidates at the January 1999 Board Meeting.
In recommending AT&T Board candidates, this committee seeks individuals of
proven judgment and competence who are outstanding in their respective fields.
The Committee considers such factors as experience, education, employment
history, special talents or personal attributes, anticipated participation in
AT&T Board activities, geographic location, and diversity factors. 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.
AT&T has formed a new Board committee named the Capital Stock Committee
comprised of Dr. John C. Malone, Donald V. Fites, and Michael I. Sovern to
oversee the interaction between Liberty Media Group and the other assets and
businesses of AT&T.
COMPENSATION OF DIRECTORS
In 1998, Directors who were not employees received an annual cash retainer
of $45,000 and stock units with a then-current market value 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 Governance and
Nominating 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 AT&T
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shares portion (the value of which is measured from time to time by the market
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. The Pension Plan now covers only those non-employee
Directors who retired prior to December 31, 1996. Benefits accrued for
then-active Directors were valued and converted into a deferred annuity. 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. Although Directors generally have five years to attain the ownership
goal, nine of the non-employee Directors have already met their target.
Directors who are employees of the Company receive no compensation for serving
as Directors, but also have ownership targets.
ELECTION OF DIRECTORS (Item 1 on Proxy Card)
The Proxy Committee intends to vote for the election of the thirteen
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
Governance and Nominating Committee. If you do not wish your shares to be voted
for particular
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nominees, please identify the exceptions in the designated space provided on
the proxy card or, if you are voting by telephone or the 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
Governance and Nominating Committee or, if none, the size of the Board will be
reduced. The Governance and Nominating 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 March 25, 1999.
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. Chairman of FCC
Network Reliability and Interoperability Council. Member of the Council on
Foreign Relations, the National Security Telecommunications Advisory Committee,
and the Defense Policy Advisory Committee on Trade. Director of Citigroup, Inc.
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 60.
[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;
Citigroup, Inc.; and Potlatch Corporation. Director of AT&T since 1995; member
of the Audit Committee and the Compensation and Employee Benefits Committee.
Age 62.
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[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 59.
[Picture of Walter Y. Elisha]
Walter Y. Elisha, Retired Chairman and Chief Executive Officer
of Springs Industries (textile manufacturing). Chairman (1983-1998) and Chief
Executive Officer (1981-1997). Member of President's Advisory Committee for
Trade Policy and Negotiations. Director of Cummins Engine Company, Inc. and
Carolina Power & Light Company. Director of AT&T since 1987; Chairman of the
Governance and Nominating Committee and member of the Finance Committee. Age
66.
[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. Member of The Business Roundtable and 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 58.
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[Picture of Donald V. Fites]
Donald V. Fites, Retired Chairman and Chief Executive Officer
(1990-1999), President and Chief Operating Officer (1989-1990) of Caterpillar
Inc. (manufacturer of construction and mining equipment, diesel and natural gas
engines, and industrial gas turbines). Past Chairman of The Business
Roundtable, the U.S.-Japan Business Council, the National Foreign Trade
Council, and the Equipment Manufacturers' Institute. Director of the National
Association of Manufacturers; Member of the Business Council, and former Member
of the President's Advisory Committee for Trade Policy and Negotiations.
Director of Caterpillar Inc., Mobil Corporation, Georgia-Pacific Corporation,
and Wolverine World Wide, Inc. Director of AT&T since 1997; Chairman of the
Capital Stock Committee, member of the Governance and Nominating Committee and
the Finance Committee. Age 65.
[Picture of Ralph S. Larsen]
Ralph S. Larsen, Chairman and Chief Executive Officer of Johnson & Johnson
(pharmaceutical, medical, and consumer products) since 1989. Chairman of The
Business Council and Member of the Policy Committee of The Business Roundtable.
Director of Johnson & Johnson and Xerox Corporation. Director of AT&T since
1995; Chairman of the Finance Committee and member of the Audit Committee. Age
60.
[Picture of John C. Malone]
John C. Malone, Chairman of Liberty Media Group since 1999.
Former Chairman (1996-1999), Chief Executive Officer (1994-1999), and President
(1994-1997) of Tele-Communications, Inc. Chief Executive Officer (1992-1994)
and President (1973-1994) of TCI Communications Inc. Director of Liberty Media
Group, The Bank of New York, At Home, TCI Satellite Entertainment, Inc.,
Cablevision Systems Corporation, and Lenfest Communications, Inc. Director of
AT&T since March 1999. Member of the Governance and Nominating Committee and
the Capital Stock Committee. Age 58.
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[Picture of Donald F. McHenry]
Donald F. McHenry, President of IRC Group LLC (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 plc (U.K.). Director of AT&T
since 1986; member of the Audit Committee, the Compensation and Employee
Benefits Committee, the Governance and Nominating Committee, and the Executive
Committee. Age 62.
[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. Chairman of the Japan
Society. Chairman of the American Academy in Rome. Director of AT&T since 1984;
Chairman of the Audit Committee and member of the Compensation and Employee
Benefits Committee, the Executive Committee, the Proxy Committee, and the
Capital Stock Committee. Age 67.
[Picture of Sanford I. Weill]
Sanford I. Weill, Chairman and Co-Chief Executive Officer of Citigroup Inc.
since October 1998; Chairman and Chief Executive Officer of Travelers Group and
its predecessor, Commercial Credit Company (1986-1998). President of American
Express Company (1983-1985) and Chairman and Chief Executive Officer of the
Fireman's Fund Insurance Company subsidiary (1984-1985). Chairman of the Board
of Trustees of Carnegie Hall; Chairman of the Board of Overseers for Cornell
University's Joan and Sanford I. Weill Medical College and Graduate School of
Medical Sciences; and Founder and Chairman of the National Academy Foundation.
Vice Chairman of The Business Council. Director of E. I. du Pont de Nemours and
Company; New York Presbyterian Hospital; and Memorial Sloan-Kettering Cancer
Center. Director of AT&T since 1998; member of the Audit Committee and the
Finance Committee. Age 66.
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[Picture of Thomas H. Wyman]
Thomas H. Wyman, Senior Advisor of SBC Warburg Inc. (1996-1997), 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). Lead Director of Delphi Automotive Systems, Inc. and Director of
Zeneca Group plc (U.K.). Past Director of General Motors Corporation (1985-1998)
and Hughes Electronics Corp. (1992-1998). Director of AT&T since 1981; Chairman
of the Compensation and Employee Benefits Committee and member of the
Governance and Nominating Committee, the Executive Committee, and the Proxy
Committee. Age 69.
[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, Sara Lee Corporation, and Illinova Corporation. Director
of AT&T since 1997; member of the Governance and Nominating Committee. Age 51.
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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, 1999 for (a) each current
Director elected to the Board in 1998 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>
C. Michael Armstrong ......... 186,103(3) 5,263 191,366
Kenneth T. Derr .............. 3,000 3,174 6,174
M. Kathryn Eickoff ........... 3,000 2,686 5,686
Walter Y. Elisha ............. 10,925 18,984 29,909
George M.C. Fisher ........... 10,088 3,705 13,793
Donald V. Fites .............. 3,000 2,168 5,168
Ralph S. Larsen .............. 1,000 6,490 7,490
John C. Malone ............... 0(4) 0 0
Donald F. McHenry ............ 3,115 5,652 8,767
Michael I. Sovern ............ 1,200 3,662 4,862
Sanford I. Weill ............. 15,000 382 15,382
Thomas H. Wyman .............. 1,000 7,916 8,916
John D. Zeglis ............... 336,996(5) 71,138 408,134
</TABLE>
<TABLE>
<CAPTION>
Beneficially Deferral
Name Owned Plans Total
- ------------------------------- ------------------ --------- ------------
(b)
<S> <C> <C> <C>
Daniel E. Somers .............. 51,186(6) 8,842 60,028
John C. Petrillo .............. 188,057(7) 3,790 191,847
Frank Ianna ................... 84,548(8) 1,844 86,392
(c)
Directors and Executive
Officers as a Group ......... 1,872,818(9) 157,818 2,030,636
</TABLE>
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Footnotes
1. As of January 1, 1999, no individual Director or nominee for Director or
named officer beneficially owned 1% or more of AT&T's outstanding common
shares, nor did the Directors and executive officers as a group.
2. Share units held in deferred compensation accounts.
3. Includes beneficial ownership of 100,000 shares which may be acquired within
60 days pursuant to stock options awarded under employee incentive
compensation plans.
4. As of March 17, 1999, the date of Dr. Malone's election to the Board of
Directors, Dr. Malone held beneficial ownership, direct and indirect, of
23,659,141 shares of AT&T Common Stock; 1,790,807 shares of Liberty Media
Group Class A Common Stock; and 50,504,008 shares of Liberty Media Group
Class B Common Stock (which share totals include shares that may be acquired
upon the exercise of stock options granted in tandem with stock appreciation
rights, a portion of which is not currently exercisable and includes shares
that are owned by others but which Dr. Malone has the right to vote). For
more information relating to Dr. Malone's stock ownership, see "Certain
Relationships and Related Transactions" (page 62).
5. Includes beneficial ownership of 331,567 shares which may be acquired within
60 days pursuant to stock options awarded under employee incentive
compensation plans.
6. Includes beneficial ownership of 50,666 shares which may be acquired within
60 days pursuant to stock options awarded under employee incentive
compensation plans.
7. Includes beneficial ownership of 182,449 shares which may be acquired within
60 days pursuant to stock options awarded under employee incentive
compensation plans.
8. Includes beneficial ownership of 84,182 shares which may be acquired within
60 days pursuant to stock options awarded under employee incentive
compensation plans.
9. Includes beneficial ownership of 1,667,924 shares which may be acquired
within 60 days pursuant to stock options awarded under employee incentive
compensation plans.
15
<PAGE>
OWNERSHIP OF VOTING SECURITIES IN EXCESS OF FIVE PERCENT BY A BENEFICIAL OWNER
As of December 31, 1998, the only entity known to the Company to be a
beneficial owner of more than 5% of the issued and outstanding shares of AT&T
Common Stock was:
<TABLE>
<CAPTION>
Name and Address Total
of Number of Shares % of
Beneficial Owner Beneficially Owned Class
- ------------------------ ---------------------- ----------
<S> <C> <C>
FMR Corp. 94,700,030(1) 5.242
82 Devonshire Street
Boston, MA 02109
</TABLE>
Footnote
1. This information is based on a Schedule 13G, dated February 1, 1999, filed
jointly by FMR Corp. ("FMR"), Edward C. Johnson 3d, and Abigail P. Johnson
reporting beneficial ownership as of December 31, 1998. Fidelity Management
& Research Company, a wholly-owned subsidiary of FMR, is the beneficial
owner of 83,906,175 shares of AT&T Common Stock, as investment advisor to
various investment companies ("Funds") and sub-advisor to Fidelity American
Special Situations Trust ("FASST"), the investment advisor of which is a
subsidiary of Fidelity International Limited ("FIL"). Edward C. Johnson 3d,
FMR, and the Funds each has sole power to dispose of, and the Funds have
sole power to vote, the 83,879,175 shares owned by the funds. FIL is the
beneficial owner of 1,467,337 shares of AT&T Common Stock, which includes
the 27,000 shares owned by FASST. FIL has sole power to dispose of these
shares, sole power to vote 1,301,437 of these shares, and no power to vote
165,900 of these shares. FMR and FASST also have sole power to dispose of
and to vote the 27,000 shares owned by FASST. As investment manager of
institutional accounts, Fidelity Management Trust Company, a wholly-owned
subsidiary of FMR, is the beneficial owner of 9,353,518 shares of AT&T
Common Stock. Edward C. Johnson 3d and FMR each has sole power to dispose of
these shares, sole power to vote 7,340,342 of these shares, and no power to
vote 2,013,176 of these shares. Edward C. Johnson 3d, Abigail P. Johnson,
and other members of the Johnson family group may be deemed to form a
controlling group with respect to FMR.
16
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Directors and executive officers, and persons who own more than 10
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission and the New York Stock Exchange, initial
reports of ownership and reports of changes in beneficial ownership of common
stock of the Company.
To the Company's knowledge, based upon the reports filed and written
representations that no other reports were required, during the fiscal year
ended December 31, 1998, its Directors and executive officers complied with all
applicable Section 16(a) filing requirements.
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
PricewaterhouseCoopers LLP ("PwC") as the independent auditors to examine the
Company's financial statements for the year 1999. PwC has audited the Company's
books for many years. Your Directors recommend that shareholders vote FOR such
ratification. Ratification of the 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 PwC 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 1998, PwC 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.
17
<PAGE>
DIRECTORS' PROPOSAL TO APPROVE AMENDMENTS TO THE AT&T 1997 LONG TERM INCENTIVE
PROGRAM
(Item 3 on Proxy Card)
In January 1999, the Board of Directors approved, subject to shareholder
approval, amendments to the AT&T 1997 Long Term Incentive Program (the "Plan").
The most important change effected by these amendments is to increase the
number of shares authorized under the Plan. The Plan is not expiring by its
term but requires amendments that address the following corporate developments:
o A significant increase in the eligible grant population for stock
options resulting from the completed mergers with Teleport
Communications Group Inc. and Tele-Communications, Inc., the proposed
acquisition of Vanguard Cellular Systems, and the agreement to acquire
the IBM Global Network Services business.
o Continued growth in the use of stock-based compensation by the Company's
competitors for talent.
o The expanded use of stock options deeper in the AT&T organization.
The amendments also extend the Plan's term by two years and increase the number
of shares which may be used for awards other than stock options. In approving
the proposed amendments, your Directors reviewed competitive market data,
compiled by independent compensation consultants, regarding competitors'
(traditional and new) annual share usage and unused share availability as a
percentage of outstanding shares. These data support the proposed share
authorization.
If the amendments are not approved by shareholders, awards would continue
to be granted pursuant to the Plan until May 31, 2002; however, the Company
would have insufficient shares remaining under the Plan to address the
corporate developments outlined above.
As of December 31, 1998, approximately 61,225,000 shares of AT&T Common
Stock remained available under the Plan out of a total of 100,000,000 shares
authorized to be issued under the Plan.
18
<PAGE>
From January 1, 1999 to February 28, 1999, the Company issued under the Plan
net additional grants of (i) 23,284,286 stock options, (ii) 596,933 performance
shares, and (iii) 320,472 restricted stock units. Of these additional
issuances, the Named Officers received (i) 1,534,000 stock options, (ii)
103,600 performance shares, and (iii) 192,800 restricted stock units. As of
February 28, 1999, approximately 37,000,000 shares of AT&T Common Stock remain
available under the Plan, including up to 11,400,000 shares that may be used
for awards other than stock options and/or stock appreciation rights ("SARs")
(such as restricted stock, performance shares, and other stock unit awards).
Long-term incentive awards are outstanding under plans previously approved
by shareholders, including awards under plans of companies acquired by AT&T
which were assumed by AT&T (collectively the "Prior Plans"). Long-term
incentive awards are no longer being made under the Prior Plans. Awards
currently outstanding under the Prior Plans and the Plan would not be affected
by the proposed amendments to the Plan.
Description of Amendments to the 1997 Plan
The types of awards available under the amended Plan are the same types of
awards as are now available under the 1997 Plan. The proposed amendments to the
Plan are to:
1. Extend the term of the Plan from May 31, 2002 to May 31, 2004.
2. Beginning in 2000, and subject to adjustments permitted in the Plan,
annually increase the shares available for awards by one and
three-fourths percent (1.75%) of the total shares of AT&T Common Stock
outstanding on the first day of each calendar year during the
remaining term of the Plan. At January 1, 1999, this percentage
equaled 30,688,178 shares. All shares available in any year which are
not awarded under the Plan shall be available for award in subsequent
years.
3. Subject to adjustments permitted in the Plan, increase the maximum
number of shares that may be used for awards
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<PAGE>
other than stock options and/or SARs by 10 million shares to 25
million shares, and increase the maximum number of shares which may be
used for restricted stock awards with a restricted period of less than
three years from 5 million shares to 8 million shares.
4. Limit the term of all options and SARs to ten years from the date the
option or SAR is granted, not just incentive stock options. This
amendment reflects current practice, and no options have been granted
under the Plan with terms in excess of ten years from date of grant.
AT&T has not granted any SARs under the Plan. Incentive plans of
companies acquired by AT&T have included grants of SARs.
5. Subject to adjustments permitted in the Plan, change the limit on the
options and/or SARs that may be granted to any individual from two
million shares in any three calendar year period to two million shares
in any calendar year period beginning with 1999.
6. In addition to the current prohibition in the Plan that the Committee
may not amend the terms of any option or SAR to reduce the option
price, the Committee shall be prohibited, without first securing the
approval of shareholders, from canceling any outstanding option and
granting a new option with a lower option price such that the effect
would be the same as reducing the option price.
Plan Benefits
Because the Plan is discretionary and may be based on Company financial
performance, it is not possible to determine or to estimate the benefits or
amounts that will be received in the future by individual employees or groups
of employees under the Plan.
Types of Awards
The Plan would permit the granting of any or all of the following types of
awards: (1) stock options, including incentive stock options ("ISOs") intended
to qualify for special tax treatment under Section 422 of the Internal Revenue
Code ("Code"), (2) SARs, in tandem with
20
<PAGE>
stock options or free-standing, (3) restricted stock, (4) performance shares
and performance units conditioned upon meeting performance criteria, and (5)
other awards of stock or awards valued in whole or in part by reference to, or
otherwise based on, stock or other property of the Company ("other stock unit
awards"). In connection with any award or any deferred award, payments may also
be made representing dividends or their equivalent.
Administration and Eligibility
The Plan shall be administered by the Compensation and Employee Benefits
Committee of the Board ("Committee"), each of the members of which is a
"non-Employee Director" as defined in the Securities Exchange Act of 1934
("Exchange Act"), and an "outside director" as defined in the Code. The
Committee has the authority to select employees to whom awards are granted, to
determine the types of awards and the number of shares covered, and to set the
terms, conditions, and provisions of such awards and to cancel or suspend
awards. The Committee shall be authorized to interpret the Plan and to
establish, amend, and rescind any rules and regulations relating to the Plan,
to determine the terms and provisions of any agreements entered into under the
Plan, and to make all other determinations which may be necessary or advisable
for the administration of the Plan. Prospectively, all employees of the Company
and its subsidiaries and other affiliates are eligible to be participants
except employees of Liberty Media Group.
Shares Subject to Plan
Subject to adjustment as described below, shares remaining from the 100
million shares of AT&T Common Stock authorized in 1997 plus, beginning in 2000,
one and three-fourths percent (1.75%) of the shares of AT&T Common Stock
outstanding on the first day of each calendar year shall be available for
awards granted under the Plan during the term of the Plan. All shares available
in any year that are not awarded under the Plan shall be available for awards
in subsequent years. No more than 25 million shares may be used for awards
other than options and/or SARs.
If another company is acquired by the Company, or combines with the
Company, any of the Company's shares covered by or
21
<PAGE>
issued as a result of the assumption or substitution of outstanding grants of
the acquired company would not be deemed issued under the Plan and would not be
subtracted from the shares available for grant under the Plan. If any shares
subject to any award under the Plan or under the Prior Plans are forfeited, or
such award is settled for cash, or expires, or is otherwise terminated without
issuance of shares, the shares subject to such award shall again be available
for grant pursuant to the Plan. The number of shares available for awards under
the Plan shall also be increased by the number of shares withheld by or
tendered to the Company in connection with the payment of the exercise price of
an option or other award under the Plan or the satisfaction of tax withholding
obligations. The shares of stock deliverable under the Plan may consist in
whole or in part of authorized and unissued shares, treasury shares, or shares
purchased in the open market, or otherwise.
Stock Options
The price per share of stock purchasable under any stock option will be
determined by the Committee, but shall not be less than 100% of the fair market
value of the stock on the date of the grant of such option. The term of each
option shall be fixed by the Committee. Options shall be exercisable at such
time or times as determined by the Committee, but no option shall be
exercisable after the expiration of ten years from the date the option is
granted.
Stock Appreciation Rights
An SAR may be granted free-standing or in tandem with new options or after
the grant of a related option that is not an ISO. Upon exercise of an SAR, the
holder thereof is entitled to receive the excess of the fair market value of
the shares for which the right is exercised (calculated as of the exercise date
or, if the Committee shall so determine in the case of any SAR not related to
an ISO, as of any time during a specified period before the exercise date) over
the grant price of the SAR. The grant price and other terms of the SAR shall be
determined by the Committee, but no SAR shall be exercisable after the
expiration of ten years from the date the SAR or a related option is granted.
Payment by the Company upon such
22
<PAGE>
exercise will be in cash, stock, other property or any combination thereof, as
the Committee shall determine. Unless otherwise determined by the Committee,
any related option shall no longer be exercisable to the extent the SAR has
been exercised and the exercise of an option shall cancel the related SAR to
the extent of such exercise.
Restricted Stock
Restricted stock 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. The participants shall
have, with respect to restricted stock, all of the rights of a stockholder of
the Company, including the right to vote the shares, and the right to receive
any cash dividends, unless the Committee shall determine otherwise. Upon
termination of employment during the restriction period, all restricted stock
shall be forfeited, subject to such exceptions, if any, as are authorized by
the Committee.
A minimum three (3) year restriction period shall apply to restricted
stock awards under the Plan that are not subject to performance conditions
restricting transfer, except that a restriction period of less than three (3)
years may apply to such awards for up to eight (8) million shares.
Performance Awards
From time to time, the Committee may set a period during which performance
criteria determined by the Committee are measured for the purpose of
determining the extent to which a performance award has been earned.
Performance awards may be in the form of performance shares, which are units
valued by reference to shares of stock, or performance units, which are units
valued by reference to cash or property other than stock. Performance awards
may be paid in cash, stock, other property, or a combination thereof.
Recipients of performance awards are not required to provide consideration
other than the rendering of services or the payment of any minimum amount
required by law.
23
<PAGE>
Other Stock Unit Awards
The Committee shall also be authorized to grant to participants, either
alone or in addition to other awards granted under the Plan, awards of stock
and other awards that are valued in whole or in part by reference to, or are
otherwise based on, common stock or other property ("other stock unit awards").
Other stock unit awards may be paid in common stock of the Company, cash, or
any other form of property as the Committee shall determine.
The Committee shall determine the employees to whom other stock unit
awards are to be made, the times at which such awards are to be made, the
number of shares to be granted pursuant to such awards, and all other
conditions of such awards. For any such award or shares subject to any such
award, the transferability of which is conditional only on the passage of time,
such restriction period shall be a minimum of three (3) years.
Nonassignability of Awards
Unless the Committee determines otherwise at the time of an award or
thereafter, no award granted under the Plan shall be assigned, transferred,
pledged, or otherwise encumbered by a participant, otherwise than by will, by
designation of a beneficiary after death, or by the laws of descent and
distribution, and each award shall be exercisable, during the participant's
lifetime, only by the participants or, if permissible under applicable law, by
the participants guardian or legal representative.
Adjustments
In the event of any change affecting the shares of common stock by reason
of any stock dividend or split, recapitalization, reorganization, merger,
consolidation, spin-off, combination, or exchange of shares or other corporate
change, or any distributions to common shareholders other than cash dividends,
the Committee shall make such substitution or adjustment in the aggregate
number or class of shares which may be distributed under the Plan (including
the substitution of similar options to purchase the shares of, or other awards
denominated in the shares of, another company) and in the number, class, and
option price or other price of shares subject to
24
<PAGE>
the outstanding awards granted under the Plan as it deems to be appropriate to
maintain the purpose of the original grant.
The Committee shall be authorized to make adjustments in performance award
criteria or in the terms and conditions of other awards in recognition of
unusual or non-recurring events affecting the Company or its financial
statements or changes in applicable laws, regulations, or accounting
principles. The Committee may correct any defect, supply any omission, or
reconcile any inconsistency in the Plan or any award in the manner and to the
extent it shall deem desirable to carry it into effect.
Amendment and Termination
The Board may assume responsibilities otherwise assigned to the Committee
and may amend, alter, or discontinue the Plan or any portion thereof at any
time, provided that no such action shall impair the rights of a participant
without the participant's consent and provided that no amendment shall be made
without shareholder approval either to increase the number of shares available
under the Plan or if such approval is necessary to qualify for or to comply
with any tax or regulatory requirement. The Committee may amend the terms of
any award theretofore granted, prospectively or retroactively, but no such
amendment shall impair the rights of any participant without his or her
consent. However, the Committee may not amend the terms of any option to reduce
the option price. Neither may the Committee, without the approval of
shareholders, cancel any option and grant a new option with a lower option
price such that the effect would be the same as reducing the option price.
Code Section 162(m) Performance-Based Compensation
If the Committee determines at the time restricted stock, a performance
award, or other stock unit award is granted to a participant who is, or is
likely to be, as of the end of the tax year in which the Company would claim a
tax deduction in connection with such award, a "covered employee" under Code
Section 162(m), then the Committee may provide as to such award that the
lapsing of restrictions thereon and the distribution of cash, shares, or other
property pursuant thereto, as applicable, shall be subject to the
25
<PAGE>
achievement of one or more objective performance goals established by the
Committee, which shall be based on the achievement of specified levels of one
or any combination of the following; net cash provided by operating activities,
earnings per share from continuing operations, operating income, revenues,
gross margin, return on operating assets, return on equity, economic value
added, stock price appreciation, total shareholder return, or cost control, of
the Company or the affiliate or division of the Company for or within which the
participant is primarily employed. Such performance goals also may be based
upon the achievement of specified levels of Company performance (or performance
of the applicable affiliate or division of the Company) under one or more of
the measures described above relative to the performance of other corporations.
Such performance goals shall be set by the Committee within the time period
prescribed by, and shall otherwise comply with the requirements of, Section
162(m) of the Code, or any successor provision thereto, and the regulations
thereunder.
The Plan provides that, subject to any adjustments described above, no
participant may be granted options and/or SARs with respect to more than two
million shares in any calendar year period, and that the maximum dollar value
payable with respect to performance awards or other stock unit awards and
granted to any participant in any one calendar year is $10,000,000.
Change in Control
To maintain all of the participants' rights in the event of Change in
Control of the Company (as described below), unless the Committee determines
otherwise at the time of grant with respect to a particular award:
(i) any options and SARs outstanding as of the date such Change in
Control is determined to have occurred, and which are not then
exercisable and vested, shall become fully exercisable and vested to
the full extent of the original grant;
(ii) the restrictions and deferral limitations applicable to any
restricted stock shall lapse, and such restricted stock shall become
free of all restrictions and limitations and become
26
<PAGE>
fully vested and transferable to the full extent of the original
grant;
(iii) all performance awards shall be considered to be earned and payable
in full, and any deferral or other restriction shall lapse and such
performance awards shall be immediately settled or distributed; and
(iv) the restrictions and deferral limitations and other conditions
applicable to any other stock awards or any other awards shall
lapse, and such other stock unit awards or such other awards shall
become free of all restrictions, limitations, or conditions and
become fully vested and transferable to the full extent of the
original grant.
Change in Control of the Company shall mean the happening of any of the
following events:
(i) an acquisition by any individual, entity, or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (A) the then
outstanding shares of common stock of the Company or (B) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of Directors; excluding,
however, certain acquisitions by or from the Company or by Company
employee benefit plans or certain shareholder-approved merger or sale
transactions involving the Company;
(ii) a change in the composition of the Board such that the individuals
who, as of the effective date of the Plan, constitute the Board,
cease for any reason to constitute at least a majority of the Board,
unless such change is approved by certain members of the current
Board;
(iii) with certain exceptions, the approval by the shareholders of the
Company of a merger, reorganization or consolidation, or sale or
other disposition of all or substantially all of the assets of the
Company or, if consummation of such corporate transaction is
subject, at
27
<PAGE>
the time of such approval by shareholders, to the consent of any
government or governmental agency, the obtaining of such consent; or
(iv) the approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
Tax Aspects of the Plan
The Company believes that under present law, the following are the federal
tax consequences generally arising with respect to awards granted under the
Plan. The grant of an option or SAR will create no tax consequences for an
employee or the Company. The employee will have no taxable income upon
exercising an ISO (except that the alternative minimum tax may apply), and the
Company will receive no deduction when an ISO is exercised. Upon exercising an
SAR or an option other than an ISO, the employee must recognize ordinary income
equal to the difference between the exercise price and the fair market value of
the stock on the date of exercise; the Company will be entitled to a deduction
for the same amount. The treatment to an employee of a disposition of shares
acquired through the exercise of an option depends on how long the shares have
been held and if such shares were acquired by exercising an ISO or by
exercising an option other than an ISO. Generally, there will be no tax
consequence to the Company in connection with a disposition of shares acquired
under an option except that the Company may be entitled to a deduction in the
case of a disposition of shares acquired under an ISO before the applicable ISO
holding periods have been satisfied.
With respect to other awards granted under the Plan that are settled
either in cash or in stock or other property that is either transferable or not
subject to substantial risk of forfeiture, the participant must recognize
ordinary income equal to the cash or the fair market value of shares or other
property received; the Company will be entitled to a deduction for the same
amount. With respect to awards that are settled in stock or other property that
is restricted as to transferability and subject to substantial risk of
forfeiture, the
28
<PAGE>
participant must recognize ordinary income equal to the fair market value of
the shares or other property received at the first time the shares or other
property become transferable or not subject to substantial risk of forfeiture,
whichever occurs earlier; the Company will be entitled to a deduction for the
same amount.
Adoption of this proposal requires an affirmative vote by a majority of
the votes cast. Your Directors recommend a vote FOR approval of amendments to
the AT&T 1997 Long Term Incentive Program.
To obtain a full text copy of the Plan, with the proposed amendments,
please call the AT&T shareholder services number, 1-800-348-8288.
SHAREHOLDER PROPOSALS
AT&T receives many suggestions from shareholders, some as formal
shareholder proposals. All are given careful consideration and adopted, if
appropriate. After discussion with Company representatives and clarification of
the Company's position, many proposals are withdrawn.
Proponents of two 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)
Mrs. Evelyn Y. Davis, Watergate Office Building, 2600 Virginia Ave., N.W.,
Suite 215, Washington, DC 20037, has resubmitted the following proposal:
29
<PAGE>
"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."
"REASONS: Recently the Annual Meetings were 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. In fact, it was one
of the MOST crowded dates of the year."
"The many problems the Company faces makes maximum attendance by outside
independent stockholders especially desirable."
"Last year the owners of 37,356,348 shares, representing approximately 3.4% of
shares voting, voted FOR this proposal."
"If you AGREE, please mark your proxy FOR this resolution."
---------------------------------------
Your Directors recommend a vote against the above proposal. Last year,
this proposal was defeated by more than 96% of the shares voted.
In 1996, the Board examined the scheduling of the annual meeting. After
weighing a number of factors, it was determined that a May rather than an April
meeting better facilitated the preparation and production of a variety of
shareholder materials. For instance, the work of gathering year-end business
information, reviewing financial data, and preparing the proxy statement and
annual report (to be printed in February) for an April meeting had to be
conducted under a costly, inflexible, and resource-intensive schedule. These
scheduling issues all would reoccur if the meeting were held in April and, in
fact, be worsened by the addition of Liberty Media Group to AT&T. The separate
financial structure of Liberty Media Group and its year-end financial
information collection process requires more time than AT&T's historic
businesses to gather financial data. By adopting the May time frame, we have
substantially reduced, and will continue to reduce, the production and
operations burden and expense associated with the preparation, printing, and
delivery of
30
<PAGE>
proxy materials to over 3.3 million AT&T shareholders. In addition, a May
meeting date appears to be convenient for and well received by shareholders.
Therefore, your Directors recommend that shareholders vote AGAINST this
proposal.
---------------------------------------
Shareholder Proposal (Item 5 on Proxy Card)
Ms. Judith M. Barnet, 3074 Main Street, P.O. Office Box 276, Barnstable, MA
02630, has submitted the following proposal:
"WHEREAS, in 1997 top US CEOs earned on average 326 times the average factory
workers' pay, a dramatic rise from the 42 times reported in 1980 (Business
Week Survey of Executive Compensation);
"WHEREAS, though US multinational corporations increasingly see themselves as
global companies, taking advantage of global labor markets, they continue to
pay their executives at levels far surpassing levels common in Europe, Asia
and Latin America;
"WHEREAS, following criticism for excessive executive compensation increases in
the face of 40,000 layoffs of AT&T workers, our company's new leaders froze
the salary and bonuses of hundreds of senior managers after announcing
18,000 additional layoffs in January, 1998. With this decision our company
demonstrated an understanding that the burdens of cost-cutting should be
shared at all levels of the firm;
"WHEREAS, we believe that strong and vibrant organizations are built when both
the fruits of success as well as the need to sacrifice are shared equitably
among all those in the enterprise;
"WHEREAS, growing research on effective organizations stresses the importance
of empowering front-line workers, a goal undermined by compensation policies
that reward top executives at the expense of workers closest to the
customers and production;
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<PAGE>
"WHEREAS, business leaders and thinkers ranging from J.P. Morgan to Peter
Drucker have argued against wide pay gaps within enterprises and called for
limits on executive pay based on multiples of worker compensation;
"THEREFORE, BE IT RESOLVED, that shareholders urge the Board of Directors to
act to prevent excessive executive compensation and to assure that
executives' financial interests do not run counter to the interests of the
Corporation's primary assets, its employees. In order to reach this end,
shareholders request that the Board:
1) Establish a cap on CEO compensation expressed as a multiple of the pay of
the lowest paid worker at AT&T;
2) Prepare a report for shareholders disclosing the multiple used in the cap
and explaining the factors used in determining the appropriate cap.
"SUPPORTING STATEMENT: We believe that AT&T's new leadership recognizes the
importance of all employees participating in both the success and the
sacrifice that comes from sharing a common enterprise. Soaring executive
compensation costs are of growing concern to many investors. We believe AT&T
would be well served by addressing this issue in a way that
institutionalizes a link between the compensation of leaders and those whom
they lead. In asking AT&T to establish a cap on executive compensation, we
have not sought to impose our own arbitrary cap on executive pay. Instead,
we have asked our company to wrestle with the wide wage gap that exists
between corporate executives and other employees. By imposing the financial
discipline of a pay cap, we hope our company can help reverse a long
standing trend that is neither good for business nor society. Please vote
YES."
---------------------------------------
Your Directors recommend a vote against the above proposal. Setting the
compensation and incentives for the Chief Executive Officer is a key
responsibility of the Board of Directors. As discussed in the report of the
Compensation and Employee Benefits Committee of the Board on pages 35 to 41,
your Directors consider
32
<PAGE>
a number of factors in establishing those incentives and compensation. These
include pay levels of similarly positioned executives in comparable companies,
the executive's experience and expertise, and the Company's performance
measured against financial, employee, customer, and individual performance
targets. The Board needs to retain the discretion to set and adjust the
compensation of the Chief Executive Officer in the future based upon all
relevant factors, without the restraint of the predetermined cap called for in
this proposal.
The Committee is committed to compensating all of its employees fairly. As
acknowledged by the sponsor of this proposal, the Company has demonstrated a
commitment to share the burdens of cost-cutting at all levels of the firm. In
addition, AT&T provides significant opportunities for its employees to share in
the success of the firm such as (1) all employees participate in an annual
bonus program linked to the Company's financial results; (2) on August 1, 1997,
all employees received an option to purchase 100 shares of AT&T Common Stock;
and (3) all employees are eligible to participate in the Company's stock
purchase plan, as legally permitted, which allows employees to acquire AT&T
shares at a 15% discount from the market price. In addition, approximately 13%
of employees received a grant of stock options as part of their annual
compensation program in 1998.
Based on their consideration of the above factors, your Directors believe
that executive compensation levels should not be pre-set by unalterable
formulas or ceilings, but rather based on the competitive dynamics of the
marketplace. In the past two years, there has been a significant increase in
shareholder value facilitated in part by the acquisition of new executive
talent. It would not be in the shareholders' best interest to uniquely
constrain the Company's ability to acquire and retain executive talent when
other firms competing for executive talent do not adhere to such constraints.
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.
33
<PAGE>
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) 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 or 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 25,
1999.
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 that might
be presented for shareholder action at the meeting.
34
<PAGE>
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 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 Named Officers in the Summary Compensation Table 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 and selected major corporations of comparable
size and scope of operations.
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 portion of the pay program ranges from 80-85% of total target
pay.
Accountability to Stakeholders: Performance measures used in the
Company's incentive programs support value creation for our three key
stakeholders: shareholders, customers, and employees. In addition,
beginning in 1998, all senior managers of the Company are expected to hold
AT&T stock valued at from one-to-five times their base salary.
35
<PAGE>
Balance Between Short-Term and Long-Term Performance: The compensation
structure for senior managers emphasizes long-term performance results
over short-term results at an average ratio of 3 to 1.
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 incentives, 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 Chairman of the Board and CEO, Mr.
Armstrong, 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.
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.
36
<PAGE>
Consistent with aligning compensation with shareholder interests and cost
control, no salary increases were made for executive officers or other senior
managers of the Company in 1998.
(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 non-financial results as measured against pre-set targets for
(i) Earnings Per Share ("EPS"); (ii) Revenue Growth; (iii) reduction in Sales,
General & Administrative ("SG&A") expense; (iv) Customer Value Added, which
measures the relative value that customers perceive when our services are
compared with those of our competitors; and (v) People Value Added, 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 the AT&T 1997 Long Term
Incentive Program. The size of these annual grants is based on competitive
market grant levels for similar positions. The size of previous grants and the
number of shares held by an executive generally are not considered in
determining annual award levels. Grants of restricted stock or restricted stock
units are made only on a selective and infrequent 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
37
<PAGE>
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 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
restructuring, and the difficulty of setting long-term financial targets while
the restructuring was in progress, the Committee deemed the performance
criteria for the 1995-1997 performance cycle 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 continued to apply. For the same
reason, grants for the1996-1998 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 continued to apply in determining the actual payout for the
1995-1997 and 1996-1998 cycles. In 1997, the Company re-instituted a
performance share program tied to three-year relative total shareholder return
("TSR") as measured against a peer group of industry competitors. TSR equals
the sum of the appreciation in the price of AT&T Common Stock plus 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
38
<PAGE>
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 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 the AT&T 1997 Long Term
Incentive Program, 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. No Named Officers were
granted restricted stock or stock units in 1998.
CEO Compensation
During 1998, the Company's most highly compensated officer was C. Michael
Armstrong, Chairman and Chief Executive Officer. Mr. Armstrong's 1998
performance was reviewed by the Committee and discussed with the non-employee
Directors. The Committee's recommendations to the Board concerning the annual
component (base salary and annual bonus) of Mr. Armstrong's compensation and
the Board's approval of the annual component and his long-term component
(performance shares and stock options) were based on the considerations
discussed below.
Base Salary: Mr. Armstrong's 1998 base salary was established at the time
of his hire based on competitive market rates for a chief executive with his
experience and record of accomplishment. As specified in Mr. Armstrong's
employment agreement, the Committee will review Mr. Armstrong's salary annually
in comparison with the salaries of CEOs of other Fortune 20 companies, industry
competitors, and selected other large industrial companies during its annual
compensation survey and review process.
39
<PAGE>
Annual Bonus: After determining the maximum award payable to Mr. Armstrong
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, 2)
revenue growth, and 3) reduction in SG&A, as well as performance goals for
Customer Value Added and People Value Added.
Under Mr. Armstrong's leadership, 1998 was a year in which the Company
improved financial performance while also moving to position AT&T in critical
markets for the future. The Company met or exceeded its financial targets,
including a 46% increase in EPS, revenue growth of 3.2% over 1997, and a $1.6
billion reduction in SG&A expense. AT&T also achieved significant improvement
in employee survey results, but did not meet its targets for Customer Value
Added.
In addition to its strong financial showing, the Company initiated a
number of important strategic actions in 1998:
o Acquired Teleport Communications Group Inc. in July, 1998, which gives
AT&T entry into the business of providing local communications services
to corporate customers.
o In March 1999, merged with Tele-Communications, Inc. ("TCI"), the second
largest cable company in the United States, the cable plant of which
offers AT&T an attractive foundation for a significant residential
local access strategy.
o Announced a proposed joint venture with British Telecommunications
P.L.C., which will serve the communications needs of multinational
companies and the international calling needs of individuals and
businesses.
o Announced a proposed $1.5 billion acquisition of Vanguard Cellular
Systems which will extend the Company's wireless footprint in the
eastern United States.
o Agreed to acquire the IBM Global Network Services business for $5
billion, which significantly strengthens the Company's abilities to
serve global clients.
40
<PAGE>
The impact to shareholders of improving financial performance and
strategic positioning is seen in the increase in AT&T's market value during Mr.
Armstrong's tenure. Since October 1,1997 through December 1, 1998, AT&T has
provided a total shareholder return of 68.9% and the Company's market value has
increased by over $58 billion. In consideration of these accomplishments, the
Committee awarded Mr. Armstrong a bonus for 1998 performance of $1,900,150.
Long-Term Incentives: In January 1998, the Committee granted Mr. Armstrong
an option on 300,000 shares, which becomes exercisable in 1999, 2000, and 2001.
It also granted him 25,000 performance shares which will be paid out at the end
of three years if the Company's total shareholder return is competitive with
its peer group. In order for these options to reach the value indicated in the
Option/SAR Grants in 1998 table on page 49, the Company's stock price would
produce a corresponding aggregate pre-tax gain of more than $31 billion for the
Company's shareholders.
The Compensation and Employee
Benefits Committee
Thomas H. Wyman, Chairman
Kenneth T. Derr
George M.C. Fisher
Donald F. McHenry
Michael I. Sovern
41
<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 and a Peer Group(1).
[Tabular representation of line chart]
42
<PAGE>
<TABLE>
<CAPTION>
Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
AT&T Corp. 100 98 129 124 190 240
S&P 500 100 101 139 171 228 293
Peer Group 100 92 129 139 189 299
</TABLE>
Explanation
The graph assumes $100 invested on December 31, 1993 in AT&T Common Stock, the
S&P 500 Index, and Peer Group common stock with the reinvestment of all
dividends, including the Company's distribution to shareholders of Lucent common
stock on September 30, 1996 and NCR common stock on December 31, 1996(2). For
the purpose of this chart, the Lucent and NCR distributions are treated as
nontaxable cash dividends that would have been converted to additional AT&T
shares at the close of business for Lucent on September 30, 1996 and at the
close of business for NCR on December 31, 1996.
Footnotes
1. The Peer Group is composed of the largest companies worldwide that compete
against the Company in its industry segment of telecommunications services.
The returns of each company have been weighted according to their respective
stock market capitalization for purposes of arriving at a peer group
average. The Peer Group is the 1998 S&P Telephone Index (Alltel Corporation;
Ameritech Corporation; Bell Atlantic Corp.; BellSouth Corporation; Frontier
Corporation; GTE Corporation; SBC Communications Inc.; and U.S. West
Communications Group); British Telecom plc; Cable & Wireless plc;
MCI/WorldCom, Inc.; and Sprint Corporation. (In 1998, MCI Communications
Corporation and WorldCom, Inc., members of last year's Peer Group, merged to
form MCI/WorldCom, Inc. which is included in this year's Peer Group.)
2. Data Source: S&P Compustat
43
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation(2) Long-Term Compensation(2)
------------------------------------ --------------------------------------------
Awards (4) Payouts
------------------------------ ------------
Other
Annual Restricted Number All Other
Compen- Stock of LTIP Compen-
Named Officers and sation(3) Award(s) (5) Options/ Payouts(6) sation(7)
Principal Position (1) Year Salary ($) Bonus ($) ($) ($) SARs ($) ($)
- ----------------------------- ------ ------------ ----------- ----------- ------------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C. Michael Armstrong 1998 1,400,000 1,900,150 507,338 0 300,000 0 2,490,806
Chairman of the Board and 1997 291,667 0 0 14,927,568(a) 750,000 0 8,539
CEO 1996 0 0 0 0 0 0 0
John D. Zeglis 1998 700,000 950,100 563,906 0 105,000 605,782 47,601
President 1997 659,000 950,000 468,852 0 136,000 320,409 41,260
1996 538,500 544,000 328,595 1,975,000(b) 0 373,825 42,094
Daniel E. Somers 1998 500,000 542,900 71,202 0 66,000 730,148 65,681
Senior Executive Vice 1997 270,833 350,000 0 452,813(c) 136,000 0 73,241
President & CFO 1996 0 0 0 0 0 0 0
John C. Petrillo 1998 435,000 519,000 149,024 0 52,000 469,186 30,112
Executive Vice President- 1997 430,833 477,300 112,079 0 78,000 248,410 898,777
Corporate Strategy & New 1996 400,834 349,800 77,034 0 0 289,813 27,449
Business Development
Frank Ianna 1998 414,000 540,000 105,121 0 52,000 228,206 24,788
President- 1997 411,667 472,200 70,155 0 78,000 121,657 847,376
AT&T Network Services 1996 318,816 225,700 49,155 0 0 118,840 25,133
---- --------- --------- ------- ----------- ------- ------- ---------
</TABLE>
44
<PAGE>
Footnotes
1. Includes 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 1998, as measured by salary and bonus.
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 addition, for
Mr. Armstrong, includes $32,785 for personal use of corporate aircraft and
$14,790 for personal use of a Company-provided leased automobile.
4. All awards granted in 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.
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 vested May 1, 1998; 8,282 vested October
17, 1998. Of the remaining 86,103 shares, 19,072 shares vested 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 vested October 16, 1998 and the remaining 50% of the units vest October
16, 2000. The grant carries stringent penalties for competition and other
specified adverse activities. Dividends on such units are paid in cash to
Mr. Zeglis.
45
<PAGE>
(c) On October 15, 1997, an award of 10,000 restricted stock units was
granted to Mr. Somers. The value at the date of grant of these restricted
stock units is reflected in the table. The grant vests on October 15, 2001
assuming continued employment and carries stringent penalties for competition
and other specified adverse activities. Dividends on the units are paid in
cash to Mr. Somers.
The aggregate number (and value) for each of the Named Officers at 12/31/98
for outstanding restricted stock and restricted stock unit awards was: Mr.
Armstrong 310,664 ($23,377,466); Mr. Zeglis 56,514 ($4,252,679); Mr. Somers
10,000 ($752,500); Mr. Petrillo 17,004 ($1,279,551); and Mr. Ianna 16,432
($1,236,508).
6. Includes distributions in 1997 and 1998 to Mr. Zeglis of performance shares
as to which three-year performance periods ended December 31, 1996 and
December 31, 1997, respectively. Includes distributions in 1997 to Messrs.
Petrillo and Ianna, and in 1998 to Messrs. Somers, Petrillo, and Ianna of
stock units as to which three-year performance criteria, in recognition of
the Company's restructuring and the difficulty of setting long-term
financial targets while the restructuring was in progress, was deemed to
have been met at the target level.
7. In 1998, includes (a) Company contributions to savings plans (Mr. Armstrong
$0, Mr. Zeglis $6,400, Mr. Somers, $0, Mr. Petrillo $6,400, and Mr. Ianna
$6,400); (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 $197,092, Mr. Zeglis $21,722, Mr. Somers
$65,681, Mr. Petrillo $12,962, and Mr. Ianna $8,597); and (c) payments
equal to lost Company savings match caused by IRS limitations (Mr.
Armstrong $0, Mr. Zeglis $19,479, Mr. Somers $0, Mr. Petrillo $10,750, and
Mr. Ianna $9,792). In addition, for Mr. Armstrong, includes $2,293,714
Company-paid premium to purchase a split-dollar survivorship insurance
policy insuring Mr. Armstrong and his spouse, as specified in his
employment agreement described on page 50. Interest was accrued on the
$2,050,000 base amount from Mr. Armstrong's hire date of October 17, 1997
through November 6, 1998, the date of the premium payment, at the interest
rate in effect for the Senior Management Incentive Award Deferral Plan in
1998.
In 1997, for Messrs. Petrillo and Ianna, includes deposits into an
individual non-qualified supplemental retirement deferral account in the
amount of $870,000 and $828,000, respectively.
46
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/STOCK APPRECIATION RIGHTS
("SAR") EXERCISES IN 1998 AND YEAR-END VALUES
Number of $ Value of
Unexercised In-the-Money
Options/SARs Options/SARs
at Year End (3) at Year End (3)
------------------- ----------------
Number of
Shares Acquired $ Value Exercisable/ Exercisable/
Name (1) on Exercise (2) Realized (2) Unexercisable Unexercisable
- ------------------------------ ----------------- -------------- ------------------- ----------------
<S> <C> <C> <C> <C>
C. Michael Armstrong ......... 0 0 0 $ 0
1,050,000 $26,667,135
John D. Zeglis (4) ........... 136,402 $7,015,203 321,792 $14,140,372
553,370 $15,636,007
Daniel E. Somers ............. 0 0 28,666 $ 1,123,349
173,334 $ 4,543,395
John C. Petrillo ............. 0 0 139,116 $ 5,371,924
180,736 $ 4,862,081
Frank Ianna .................. 0 0 49,516 $ 1,880,949
178,165 $ 4,816,450
</TABLE>
Footnotes
1. Includes 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 1998, as measured by salary and bonus.
2. For Mr. Zeglis, includes the value of exercises of 136,402 Lucent SARs.
3. For Mr. Zeglis, includes adjusted AT&T options and Lucent and NCR SARs.
4. A portion of the outstanding stock options for Mr. Zeglis was 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. This balancing of risk and opportunity among the three
companies mirrored the impact that the restructuring had on the Company's
shareholders. The conversion was awarded to Mr. Zeglis by virtue of his
membership on the Transition Steering Committee, the charter of which was
to ensure the creation of three healthy independent companies as a result
of the restructuring. Consistent with accounting principles governing such
conversions, the adjusted options and SARs retain the same term and vesting
provisions as the original options.
47
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLANS-AWARDS IN 1998
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 ......... 25,000 1998-2000 6,250 25,000 50,000
John D. Zeglis ............... 21,100 1998-2000 5,275 21,100 42,200
Daniel E. Somers ............. 12,900 1998-2000 3,225 12,900 25,800
John C. Petrillo ............. 9,400 1998-2000 2,350 9,400 18,800
Frank Ianna .................. 9,400 1998-2000 2,350 9,400 18,800
</TABLE>
Footnotes
1. Includes 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 1998, as measured by salary and bonus.
2. In January 1998, the Performance Share Awards listed in the table were
awarded. If they remain Named Officers at the end of 2000, the value of
the payout to Messrs. Armstrong, Zeglis, Somers, Petrillo, and Ianna 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 2000, 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.
48
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN 1998
Individual Grants
---------------------------------------------------------------------
Number of % of Total Grant
Securities Options/SARs Date
Underlying Granted to Exercise or Present
Options/SARs Employees Base Price Expiration Value(3)
Name(1) Granted(2) in Fiscal Year ($/Sh) Date ($)
- ------------------------------ -------------- ---------------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
C. Michael Armstrong ......... 300,000 0.98% 63.1563 01/30/08 5,355,000
John D. Zeglis ............... 105,000 0.34% 63.1563 01/30/08 1,874,250
Daniel E. Somers ............. 66,000 0.21% 63.1563 01/30/08 1,178,100
John C. Petrillo ............. 52,000 0.17% 63.1563 01/30/08 928,200
Frank Ianna .................. 52,000 0.17% 63.1563 01/30/08 928,200
</TABLE>
Footnotes
1. Includes 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 1998, as measured by salary and bonus.
2. Options become exercisable to the extent of one-third of the grant on the
first, second, and third 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. 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,
volatility of 23.00%, dividend yield at 2.20%, and interest rate of 5.57%.
The real value of the options in this table depends upon the actual
performance of the Company's stock during the applicable period.
49
<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"), a guaranteed grant value equivalent to no less
than 100% of his base salary at the time of grant. Mr. Armstrong was 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 paid 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 shall 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 Units and AT&T Stock
Options under the 1997 LTIP to replace similar
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<PAGE>
grants forfeited from his prior employer and to provide strong incentives to
create shareholder value for AT&T shareowners.
Details of these grants follow:
1. He was granted 105,330 shares of AT&T Restricted Stock, of which 19,227
shares vested in 1998. The remaining 86,103 shares vest as follows:
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 receive an annual benefit (as defined in the
employment agreement) commencing at his retirement at or after age 65. Such
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
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<PAGE>
prior to age 65. Pension benefits payable under this arrangement will be paid
out of the 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 or (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.
Mr. Armstrong's agreement provides for certain entitlements in the event
of his termination from AT&T under specified circumstances. Pursuant to his
agreement, in the event of Mr. Armstrong's death, his beneficiaries or estate
will be entitled to his base salary through the end of his month of death, his
target annual incentive award for the year of death, a lump sum payout at
target for each open long-term incentive program performance cycle and payment
of survivor benefits under his supplemental pension arrangement which vests
100% at his death. All outstanding unvested stock options will vest and
together with already vested options will be exercisable for the remainder of
the original term of each grant; restrictions on the restricted stock granted
as part of his agreement will lapse; restricted stock units granted in his
agreement will be payable in accordance with the schedule established in his
Restricted Stock Unit Award Agreement (20% to 100% of units granted will be
payable, depending on the date of death) in the event of his death prior to the
vesting of such restricted stock units on October 1, 2003.
Mr. Armstrong's agreement also provides that in the event his employment
is terminated as a result of disability (as defined), he shall be entitled to
receive disability benefits in accordance with the long-term disability program
then in effect for Senior Managers. In addition, base salary, annual incentive,
stock options, restricted stock, and restricted stock units shall be treated in
the same manner as described above in the case of death. Treatment of long-term
incentives will be as described above in the case of death, provided,
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<PAGE>
however, payment will be in accordance with the terms of the plan instead of a
lump sum. Pension benefits under his supplemental pension arrangement will vest
and will be offset by any Company-provided disability benefits.
In the event of a termination for "cause" (as defined) or in the event of
a voluntary resignation, other than a termination due to death or disability or
a Constructive Termination (as defined) without "cause" or retirement on
October 31, 2003, Mr. Armstrong will forfeit all restricted stock and
restricted stock units as to which restrictions have not lapsed, long-term
incentives with respect to uncompleted performance cycles, outstanding stock
options which are not exercisable, and any pension benefit not yet vested under
his Supplemental Pension Arrangement. He will receive base salary through his
date of termination, and vested stock options shall remain exercisable for 90
days after termination or until the originally scheduled expiration date, if
earlier.
In the event of a Company-initiated termination for other than "cause" or
in the event of a Constructive Termination without "cause," neither of which
follow within three years of a Change in Control (as defined), Mr. Armstrong
will be provided the following: base salary through the date of termination, a
prorated annual incentive award at target for the year of termination, a
24-month continuation of monthly base salary, or at his option, the lump-sum
present value of such payments (using the short-term Treasury bill rate for the
month of termination); two times the target annual incentive award for the year
of termination payable over 24 months, or at his option, the lump-sum present
value of such payments (using the short-term Treasury bill rate for the month
of termination); and payout at target for each open long-term incentive program
performance cycle in accordance with the plan or in a lump sum as described
above. In addition, all outstanding unvested stock options will vest and
together with already vested options will be exercisable for the remainder of
the original term of each grant; restrictions on the restricted stock granted
as part of his agreement will lapse; and his supplemental pension benefit shall
fully vest. For a period of 24 months following his termination, or, if
earlier, until he receives equivalent coverage and benefits from another
employer,
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<PAGE>
Mr. Armstrong will be entitled to continued participation in AT&T's benefit
plans and programs.
In the event of Mr. Armstrong's retirement as of October 31, 2003, he will
be entitled to payment of his supplemental pension and will be treated in
accordance with the plans, programs, and practices applicable to retired Senior
Managers.
Mr. Armstrong's agreement provides that in the event of a Change in
Control, all amounts and benefits to which he is entitled but are not yet
vested (except with respect to his restricted stock unit grant which is
governed by the terms of the grant agreement) shall become fully vested. In
addition, in the event of a Company-initiated termination or a Constructive
Termination without "cause" following a Change in Control, he shall be entitled
to the benefits described above in connection with a Company-initiated
termination without "cause" or a Constructive Termination without "cause" not
associated with a Change in Control provided, however: (1) the number of months
associated with salary, annual incentive, and benefits continuation shall be 48
months, and such amounts will be payable as a lump sum as soon as practicable
after his termination and (2) restricted stock units granted in his agreement
will be payable in accordance with the schedule established in his Restricted
Stock Unit Award Agreement (25% to 100% of units granted will be payable,
depending on date of termination). In the event the payments in this paragraph
are determined to constitute a payment under Section 280G(b)(2) of the Internal
Revenue Code and such payment is subject to an excise tax under Section 4999 of
the Code, the Company will provide Mr. Armstrong with a tax gross-up payment to
negate the excise tax.
In the event of any termination described above, Mr. Armstrong or his
estate shall also be entitled to the unpaid balance of any incentive awards for
completed performance periods, any expense reimbursements due him, and other
benefits in accordance with applicable plans and programs.
AT&T entered into an employment agreement with Mr. Somers dated as of
April 1997. The agreement provided for an initial base
54
<PAGE>
salary of $500,000. It also provided for a guaranteed annual incentive award
for 1997 performance of no less than 80% of his then base salary prorated for
his partial service in 1997. Mr. Somers was also provided 11,600 Performance
Shares covering the 1997-1999 performance period and an option to purchase,
within ten years, up to 86,000 shares of AT&T Common Stock with a purchase
price of $36.0625. These options vest one-third each on June 1, 1998, 1999, and
2000, based on continued employment.
To address certain forfeitures experienced when Mr. Somers left his
previous employer and to incent him to join the Company, the agreement provided
for (i) a payment of $238,000 to replace a forfeited bonus from his prior
employer; (ii) a payment of $337,000 to replace forfeited spread on stock
options of his prior employer; (iii) a signing bonus of $200,000; and (iv) two
awards each consisting of 11,600 Performance Shares/Stock Units for the
1995-1997 and 1996-1998 performance periods, respectively.
As part of his employment agreement, the Company entered into an
arrangement with Mr. Somers which will provide him with certain benefits in the
event that he terminates his employment after ten years of employment for any
reason other than death or Company-initiated termination for "cause." Pursuant
to such arrangement, he will be entitled to a death benefit of two and one-half
times base salary under the Company's life insurance program for Senior
Managers and for Company-sponsored medical coverage.
In the event Mr. Somers is terminated by the Company, at any time for any
reason other than "cause" or "long-term disability" (as both terms are defined
in the agreement) or in the event of self-initiated termination by Mr. Somers
for "good reason" (as defined in the agreement) following a Change in Control,
Mr. Somers will be provided the following: immediate vesting and continuation
of all Stock Options granted under the agreement as if he were eligible for
Company post-retirement benefits, and continuation of vesting and/ or
exercisability of all long-term incentive awards granted in 1998 and later
years under the terms and conditions applicable to Senior Managers terminating
employment with eligibility for post-retirement benefits.
55
<PAGE>
In the event Mr. Somers is terminated by the Company at any time within
five years of his date of hire for any reason other than "cause" or "long-term
disability" or in the event of self-initiated termination by Mr. Somers for
"good reason" following a Change in Control, Mr. Somers will be provided the
following: a severance benefit, payable over twelve months, equivalent to the
greater of $900,000 or 100% of the sum of his annual base salary plus target
annual incentive awards in effect at termination; a prorated target annual
incentive for his year of termination and continuation of all Performance
Shares/Stock Units granted under the agreement under the terms and conditions
applicable to Senior Managers terminating employment with eligibility for
post-retirement benefits.
In 1997, the Company adopted the Special Executive Severance Plan
("Severance Plan") for members of the Operations Team as constituted at that
time and certain members of the Senior Management Team (a total of 10
executives, 7 of whom remain with the Company). 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 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 thereafter 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.
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<PAGE>
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 was 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 was
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 was 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 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
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<PAGE>
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. Armstrong, Zeglis, Somers, Petrillo, and
Ianna 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 Formula or
Alternate Formula which were amended in 1997 and are described below.
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
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<PAGE>
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 Formula or Alternate
Formula.
Effective January 1, 1998, the AT&T Non-Qualified Pension Plan was further
amended to convert the plan to a cash balance pension 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 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 Mr. Zeglis, 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 qualified managers retiring with at least five
years at a senior level, the plan provides additional credits at approximately
one-half the
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<PAGE>
rate in the AT&T Management Pension Plan. The number of credits is equal to the
lesser of (1) actual years of net credited service at retirement, or (2) the
employee's age at the time of hire minus 30. 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 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, Somers, Petrillo, and Ianna 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 $447,500, $1,167,600,
$553,000, $930,600, and $780,600, respectively. Amounts shown are straight life
annuity amounts not reduced by a joint and survivorship provision which 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,
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<PAGE>
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 pension payable under the AT&T Management Pension Plan and AT&T
Non-Qualified Pension Plan described above, would be $137,000.
In 1997, the Company also entered into a special individual non-qualified
supplemental retirement arrangement with three executive officers including
Messrs. Ianna and Petrillo. Under this agreement, on November 1, 1997 a
deferred account (hereinafter "Deferred Account") was credited with an initial
balance of two times base pay. The Company shall credit interest to the
Deferred Account as of the end of each calendar quarter at a rate equal to
one-quarter of the average 30-Year Treasury Bond Rate in effect for the last
previous quarter. 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 will be entitled to the Deferred
Account. The vesting date for the officers named above is the sixth anniversary
of the "effective date" (as defined in the arrangement). 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
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or interest in the Deferred Account, or in any assets of the Company with
respect thereto.
As part of his employment agreement as described above, the Company
entered into a supplemental pension arrangement with Mr. Armstrong in 1997.
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 $704,400.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Malone Transactions
On February 9, 1998, in connection with a settlement with the estate of
Bob Magness (the "Magness Settlement"), TCI entered into a call agreement (the
"Malone Call Agreement") with Dr. John C. Malone and Dr. Malone's wife
(together with Dr. Malone, the "Malones"), under which the Malones granted to
TCI the right to acquire any shares of TCI's common stock which are entitled to
cast more than one vote per share (the "High-Voting Shares") owned by the
Malones, which as of December 31, 1998 consisted of an aggregate of
approximately 69 million High-Voting Shares, upon Dr. Malone's death or upon a
contemplated sale of the High-Voting Shares (other than a minimal amount) to
third persons. In either such event, TCI had the right to acquire such shares
at a maximum price equal to the then relevant market price of shares of
"low-voting" Series A common stock plus a 10 percent premium. The Malones also
agreed that if TCI were ever to be sold to another entity, then the maximum
premium that the Malones would receive on their High-Voting Shares would be no
greater than a 10 percent premium over the price paid for the relevant shares
of Series A common stock. In connection with the merger of TCI and a subsidiary
of AT&T (the "Merger"), the TCI Group Series B Stock was converted into AT&T
Common Stock at a ten percent premium to the exchange ratio applicable to the
TCI Series A Stock. TCI paid $150 million to the Malones in consideration of
them entering into the Malone Call Agreement. Additionally, on February 9,
1998, the Magness family
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<PAGE>
entered into a Shareholders' Agreement (the "Shareholders' Agreement") with the
Malones and TCI.
In connection with the Merger, Liberty Media Group ("Liberty") became
entitled to exercise TCI's rights under each Call Agreement and the
Shareholders' Agreement with respect to the Liberty Media Group Class B Common
Stock acquired by the Malones and the Magness family as a result of the Merger.
Prior to the Merger, Dr. Malone acquired from certain subsidiaries of TCI
for $17 million, working cattle ranches located in Wyoming which were owned by
Silver Spur Land and Cattle Co. and Bob Magness, Inc. The purchase
consideration paid by Dr. Malone was in the form of a 12-month note in the
amount of $17 million having an interest rate of 7%. Such note is payable at
any time without penalty and is personally guaranteed by Dr. Malone. In
connection with the Merger, Dr. Malone's employment agreement with TCI was
transferred to Liberty and Liberty assumed TCI's obligations thereunder.
Transactions in Connection with the Merger
Management Matters: Following the Merger, Dr. Malone became Chairman of
Liberty. Pursuant to an agreement between AT&T and TCI, Dr. Malone was
appointed to the AT&T Board of Directors effective March 17, 1999. AT&T also
has agreed that, for a period of three years, it will nominate Dr. Malone for
reelection to the Board of Directors.
Stock Ownership: In the Merger, holders of Liberty Group Series A Stock
and TCI Ventures Group Series A Stock, respectively, received shares of Liberty
Media Group Class A Common Stock that entitle such holders to cast 1/10 vote
per share. In the Merger, holders of Liberty Group Series B Stock and TCI
Ventures Group Series B Stock, respectively, received shares of Liberty Media
Group Class B Common Stock that entitle such holders to cast one vote per
share. The distinction between the shares of Liberty Media Group Class A Common
Stock and Liberty Media Group Class B Common Stock maintains the 10-to-1 voting
ratio between the holders of Liberty Group Series B Stock and TCI Ventures
Group Series B
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Stock on the one hand and the holders of Liberty Group Series A Stock and TCI
Ventures Group Series A Stock on the other hand. As of December 31, 1998, the
Malones beneficially owned 34,775,586 shares of Liberty Group Series B Stock
and TCI Ventures Group Series B Stock, or approximately 45.2% of such shares
outstanding as of such date. Dr. Malone also held options to acquire an
additional 1,125,000 shares of Liberty Group Series A Stock, 1,200,000 shares
of TCI Ventures Group Series A Stock, and 2,800,000 shares of TCI Ventures
Group Series B Stock. Pursuant to the terms of the Shareholders' Agreement, Dr.
Malone has the power to vote all shares of Liberty Media Group Class B Common
Stock held by the Magness family. Dr. Malone also has the power to vote all
shares of Liberty Media Group Class B Common Stock held by Leo Hindery or Mr.
Hindery's daughter's trust. As a result, immediately following the Merger and
assuming the exercise of his options to purchase shares of Liberty Group Stock
and TCI Ventures Group Stock, Dr. Malone will have the power to vote securities
having approximately 46.1% of the voting power with respect to any matters upon
which the holders of Liberty Media Group Common Stock will vote as a separate
class.
TCI Holdings, Inc.: Dr. Malone owns, as trustee for his children, 68
shares of the 12% Series C Cumulative Compounding Preferred Stock of TCI
Holdings, Inc., a subsidiary of TCI. In connection with the Merger, AT&T
agreed, and the terms of such preferred stock provide, that for a period of 15
years following the effective time of the Merger, the preferred stock may not
be redeemed or modified.
64
<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, 1998 through July 1, 1999 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 $30,000 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 25, 1999
65
<PAGE>
[globe logo] AT&T
32 Avenue of the Americas
New York, NY 10013-2412
[logo] Recycled
Paper
ATT-PS-99
<PAGE>
Annual Meeting Agenda
[AT&T Logo]
8:30 a.m. Doors Open
9:30 Introduction and Welcome, Chairman's Remarks, Election of
Directors, Ratification of Auditors, Directors' Proposal, and
Shareholder Proposals
Voting and General Discussion
Adjournment
Hearing-amplification equipment and sign interpretation will be available.
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DIRECTIONS TO THE GEORGE R. BROWN CONVENTION CENTER
1001 Avenida de las Americas Houston, Texas 77010 Tel: 800-427-4697
From North of Downtown Houston via Interstate 45 South and US 59 South
I-45 South to the McKinney exit. McKinney turns into Walker. Right on Walker to
Avenida de las Americas.
US 59 South to the McGowen/Tuam exit. Right on McGowen. Right on Chenevert.
Chenevert turns into Avenida de las Americas.
From South of Downtown Houston via Interstate 45 North, US 288 North, and US 59
North
I-45 North to the Pease/Downtown exit. Right on Chartres, left on Dallas, and
right on to Avenida de las Americas. US-288 North to US 59 North to the
Gray/Pierce exit. The Gray/Pierce exit turns into Chartres. Continue on Chartres
to Dallas. Left on Dallas and right on to Avenida de las Americas.
US 59 North to the Gray/Pierce exit. The Gray/Pierce exit turns into Chartres.
Continue on Chartres to Dallas. Left on Dallas and right on to Avenida de las
Americas.
From East of Downtown Houston via Interstate 10 West
I-10 West to US 59 South to the McGowen/Tuam exit. Right on McGowen. Right on
Chenevert. Chenevert turns into Avenida de las Americas.
From West of Downtown Houston via Interstate 10 East and US 290 East
I-10 East to the Downtown/Smith exit. Continue on Smith. Left on Dallas to
Avenida de las Americas. US 290 East to 610 South to I-10 East. I-10 East to the
Downtown/Smith exit. Continue on Smith. Left on Dallas. Dallas to Avenida de las
Americas.
[Graphic of Map showing location of George R. Brown Convention Center]
PARKING is on-site at the George R. Brown Convention Center. As you approach the
convention center, look for the electronic marquees which will have directions
to the Shareholders Meeting. The meeting will be in Exhibit Hall D on the North
Side of the Building. Enter Lobby A and proceed to the 3rd level. Additional
electronic marquees and signage will direct you.
P
R
O
X
Y
[AT&T logo]
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 19, 1999
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 shares of
the undersigned in AT&T Corp. at the annual meeting of shareholders to be held
at the George R. Brown Convention Center in Houston, Texas, at 9:30 a.m. on May
19, 1999, 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, J.C. Malone, D.F. McHenry, M.I. Sovern,
S.I. Weill, T.H. Wyman, and J.D. Zeglis. Please sign on the other side and
return promptly to AT&T Corp., 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 annual 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.
<PAGE>
[AT&T logo]
AT&T Corp.
c/o Proxy Services
P.O. Box 9398
Boston, MA 02205
114th Annual Meeting of Shareholders
Wednesday, May 19, 1999
9:30 a.m. local time
George R. Brown Convention Center
1001 Avenida de las Americas
Houston, Texas 77010
Tel: 800-427-4697
(Map on reverse)
1999 ANNUAL MEETING
ADMISSION TICKET
Please present this ticket for admittance of shareholder(s) named above.
Admittance will be based upon availability of seating.
VOTE BY TELEPHONE OR INTERNET
Your telephone or Internet vote authorizes the Proxy Committee to vote your
shares in the same manner as if you marked, signed, and returned your proxy
card. For telephone or Internet voting, you will need to enter the 9-digit
Control Number located in the lower left of this form.
VOTE BY PHONE: CALL TOLL-FREE ON A TOUCH-TONE TELEPHONE 1-800-273-1174
ANYTIME.
Option A: To vote as the Board of Directors recommends on ALL items,
press 1.
Option B: If you choose to vote on each item separately, press 0. You
will hear these instructions:
Item 1: To vote FOR ALL nominees, press 1; to WITHHOLD FROM ALL
nominees, press 9.
To WITHHOLD FOR AN INDIVIDUAL nominee, press 0 and listen to
the instructions.
Nominees: (01) C.M. Armstrong, (02) K.T. Derr, (03) M.K. Eickhoff,
(04) W.Y. Elisha, (05) G.M.C. Fisher, (06) D.V. Fites,
(07) R.S. Larsen, (08) J.C. Malone, (09) D.F. McHenry,
(10) M.I. Sovern, (11) S.I. Weill, (12) T.H. Wyman, and
(13) J.D. Zeglis.
Item 2: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
The instructions are the same for all remaining items to be
voted.
When asked, you must confirm your vote by pressing 1.
VOTE BY INTERNET: THE WEB ADDRESS IS http://att.proxyvoting.com/
THANK YOU FOR VOTING. Do not return your proxy card if you are voting
by telephone or Internet.
- --------------------------------------------------------------------------------
DETACH CARD IF MAILING
| | Please mark
| X | votes as in
| | this example.
Directors recommend a vote "FOR" items 1, 2, and 3 and "AGAINST" items 4 and 5.
WITHHOLD
FOR ALL FROM ALL
nominees nominees
1. Election of
Directors [ ] [ ]
FOR ALL EXCEPT the following nominee(s):
-------------------------------------------
FOR AGAINST ABSTAIN
2. Ratification
of Auditors [ ] [ ] [ ]
3. Amend 1997
Long Term
Incentive
Program [ ] [ ] [ ]
FOR AGAINST ABSTAIN
4. Annual Meeting
Date [ ] [ ] [ ]
5. CEO
Compensation [ ] [ ] [ ]
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. [ ]
SPECIAL ATTENTION
Mark here if you have noted
comments on the reverse. [ ]
Signature(s):____________________________________ Date ___________ , 1999
Please sign this proxy as name(s) appears above and return it promptly whether
or not you plan to attend the annual 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 annual meeting and decide to vote by
ballot, such vote will supersede this proxy.
