EXHIBIT 10
EXECUTED COPY
May 10, 2002
Xxxxxxx X. Xxxxx
c/o AT&T Corp.
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxx Xxxxx, XX 00000
Dear Xxxxx:
As we've discussed, this letter (the "Addendum") modifies and supplements,
and shall be a part of, the terms of the Employment Agreement by and between you
and AT&T Corp. ("AT&T" or the "Company") dated December 8, 1999, as supplemented
and modified heretofore (including, without limitation, by the deferral letters
of January 26, 2001 and January 16, 2002 and the resolutions (the "Resolutions")
of the board of directors of the Company, effective October 23, 2000, regarding
treatment upon a change in control) (the "Agreement"), in light of the proposed
AT&T Broadband Spin-off and its subsequent merger with Comcast Corporation (the
"Transaction"). As modified herein, the Agreement remains in full force and
effect. Unless otherwise noted, any capitalized terms used but not defined
herein shall have the meanings ascribed to them in the Agreement (including the
attachments thereto). "Termination" means a termination that is treated as a
Pre-Closing Termination or Post-Closing Termination, as applicable, as such
terms are defined herein.
Effective March 1, 2002 (the "Effective Date"), your base salary will be
increased to $900,000 (Nine Hundred Thousand Dollars), your 2002 target annual
bonus will be $1,125,000, and the target value of your 2002-2004 Long term
Incentive Plan award will be $10,000,000.
1. EQUITY INTERESTS
In the event of your Termination, the following treatment shall
apply to you:
STOCK OPTIONS
All options to purchase shares of Company stock ("Stock Options") that
remain unvested as of the date of the Termination will vest immediately on
such date. Both these Stock Options and Stock Options that have already
vested as of that date will remain exercisable until the expiration of
their original term. In the event that you have unexercised Stock Options
as of the Distribution Date (as such term is defined in the Employee
Benefits Agreement by and between the Company and AT&T Broadband Corp.
("AT&T Broadband"), dated December 19, 2001 (the "EBA")), the remaining
Stock Options shall be adjusted as provided in the EBA.
RESTRICTED STOCK/RESTRICTED STOCK UNITS
Any outstanding unvested Restricted Stock or Restricted Stock Units will
vest upon your Termination date. If your Termination is after the record
date but before the Distribution Date, the AT&T Common Stock you receive
upon the vesting of your Restricted Stock or Restricted Stock Units will
be treated in the same manner as that of similarly situated senior
officers. Any outstanding Restricted Stock or Restricted Stock Units you
hold as of the Distribution Date will be treated as provided in the EBA.
PERFORMANCE SHARES
PRE-2002 PERFORMANCE SHARES
Outstanding Performance Shares as of the date of your Termination
will be retained and distributed at the end of each 3-year cycle or
earlier based on the criteria and the timing established for each
outstanding cycle for payouts to active similarly situated senior
officers. Dividend equivalents will continue to be paid until all
units are paid out. Stock units resulting from the AT&T Wireless
split-off (which have no performance criteria) will be retained and
distributed at the end of each 3-year cycle valued on the share
price of AT&T Wireless. Any outstanding Performance Shares you hold
as of the Distribution Date will be adjusted as provided in the EBA.
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2002 PERFORMANCE SHARES
All 2002-2004 Performance Shares will be prorated as of the date of
your Termination (determined by dividing the number of months worked
in the performance cycle by 36) and, based on the performance
achieved within the cycle as of the end of that Termination year
under the same terms that apply to other similarly situated
executives, paid at the earliest time that such prorated Performance
Share payments are made to other similarly situated executives. Any
outstanding pro-rated Performance Shares you hold as of the
Distribution Date will be adjusted as provided in the EBA.
2. PRE-CLOSING TERMINATION
In the event that your employment with the Company terminates on or
after December 31, 2002 (x) other than for Cause, and other than by reason
of death or Long Term Disability (as such terms are used in the
Agreement), but (y) prior to the occurrence of any event that would cause
the termination to be treated as a Post-Closing Termination (as defined
below) (a "Pre-Closing Termination"), you will be eligible to receive the
following, as well as the treatment provided for in Section 1, in
connection with such Pre-Closing Termination:
ANNUAL BONUS
You will be eligible to receive your 2002 annual bonus pursuant to the
terms of the Annual Bonus Plan, notwithstanding the fact you may not be on
the Company's payroll when the bonus is payable. Payment will be made at
the time it would have been paid had you remained employed by the Company.
Such annual bonus shall be no less than the Funded Amount. The "Funded
Amount" is defined for purposes of the Addendum as the product of your
target annual bonus and the funding percentage established in accordance
with the funding criteria for 2002 annual bonuses under the Annual Bonus
Plan, for similarly situated senior officers.
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SPECIAL SUPPLEMENTAL PENSION
You will be eligible to receive the Special Supplemental Pension
commencing at age 57 in accordance with the terms and conditions set forth
in Attachment B to the Agreement. In addition, it is agreed and understood
that in calculating the Special Supplemental Pension, compensation paid in
2001 includes the 2000 guaranteed annual bonus amount of $750,000, and
compensation paid in 2000 includes the 1999 guaranteed annual bonus amount
of $650,000. An example of the method of calculation has been separately
provided to you.
SPECIAL MEDICAL
Following the applicable period of COBRA coverage (during which period the
Company will pay the portion of the premium above the amount paid by you
for active medical coverage), you and your eligible dependents will be
eligible for coverage under the AT&T Separation Medical Plan offered by
the Company to certain former senior managers. You will be responsible for
the same portion (30% currently and subject to change) of the annual
premium for this medical coverage applicable to similarly situated former
senior managers. Continuation of coverage under the AT&T Separation
Medical Plan after your death is available to your spouse provided that
she pays 100% of the annual premium for this coverage.
LIFE INSURANCE
If you have not yet attained your normal termination date (as defined in
AT&T Senior Management Universal Life Insurance Plan (the "SMULIP")) under
the SMULIP at your Termination date, you shall continue to participate in
the SMULIP until you attain your "normal termination date" under the terms
of the SMULIP as such terms exist on your Termination date.
After your Termination, AT&T shall timely pay the premiums determined to
be due under the applicable life insurance policy (and any tax adjustment
payments, determined in accordance with the terms of the SMULIP as they
exist on your Termination date to provide a frozen SMULIP coverage amount
(assuming annual base pay is fixed at your final rate of pay as of the
Termination date)). In
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the event of a Change in Control (as defined by the AT&T Board of
Directors in October 2000), you will be treated, at your discretion, in
the same manner as either (x) similarly situated active SMULIP
participants or (y) similarly situated retirees, in each case as of the
Change in Control.
FINANCIAL COUNSELING
You shall be eligible to receive financial counseling ("Financial
Counseling") from a Company-approved financial counselor for two years
following your Termination. The Company shall pay the costs of any such
counseling, or, if the Company elects not to pay such costs directly,
shall pay you an amount that is sufficient, after taxes, to cover such
costs.
OUTPLACEMENT
You shall be eligible to receive the services of a Company-paid and
Company-approved outplacement or career transition consultant in
accordance with AT&T's then current practices for similarly situated
senior officers in effect as of your termination date; provided, however,
that an election to use such services must be made within one year
subsequent to your Termination date. The Company shall pay the costs of
any such counseling, or, if the Company elects not to pay such costs
directly, shall pay you an amount that is sufficient, after taxes, to
cover such costs.
EXCISE TAX GROSS-UP
In the event that you become entitled to payments and/or benefits provided
by the Addendum or any other amounts in the "nature of compensation"
(whether pursuant to the terms of the Addendum or pursuant to any other
plan, arrangement or agreement with the Company, with any person whose
actions result in a change of ownership or effective control covered by
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the
"Code"), or with any person affiliated with the Company or such person,
but excluding any payments or benefits provided to you pursuant to an
agreement entered into by and between you and another person, after the
date hereof), in connection with a change in ownership or effective
control of the Company (collectively the
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"Company Payments"), and if (x) in the opinion of the Company's
independent accounting firm responsible for auditing the Company's
financial statements (the "Opinion"), such Company Payments will be
subject to the excise tax imposed by Section 4999 of the Code (or any
similar tax that may hereafter be imposed by any taxing authority) (any
such excise tax, the "Excise Tax"), (y) you incur an initial or additional
Excise Tax as a result of the Internal Revenue Service or any other taxing
authority taking a position that is inconsistent with the Opinion, and/or
(z) you incur any interest or penalties as a result of the Internal
Revenue Service or any other taxing authority taking a position that is
inconsistent with the Opinion or as a result of the untimely receipt by
you of the Opinion (but excluding any interest or penalties that arise
solely as a result of a late filing of your tax return by you following
your timely receipt of the Opinion) (the Excise Tax, together with any
such interest or penalties, collectively the "Full Excise Tax"), then the
Company shall pay you an additional amount (the "Gross-up Payment"), such
that the net amount retained by you, after deduction of the Full Excise
Tax on the Company Payments and any U.S. federal, state, and local income
tax and payroll tax upon the Gross-up Payment provided for by this
paragraph, but before deduction for any U.S. federal, state, and local
income tax and payroll tax on the Company Payments, shall be equal to the
Company Payments.
3. POST-CLOSING TERMINATION
A "Post-Closing Termination" means (x) the termination of your
employment by the Company without Cause at any time, (y) the termination
of your employment by you for Good Reason at any time, or (z) the
termination of your employment for any other reason (excluding a
termination for Cause or by reason of death or Long Term Disability) on or
after the earliest to occur of: (i) Xxxxx 0, 0000, (xx) the Distribution
Date, and (iii) the date on which the Transaction is terminated. Upon a
Post-Closing Termination, you will be eligible to receive the terms and
conditions set forth above for a Pre-Closing Termination with the
following modifications:
ANNUAL BONUS
If your Post-Closing Termination occurs prior to December 31, 2002, the
annual bonus at not less than the Funded Amount will be prorated based on
your service
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with the Company during 2002.
STOCK OPTIONS
The Stock Options issued to you in 1999 will be cancelled upon your
Post-Closing Termination date.
SPECIAL SUPPLEMENTAL PENSION
The Special Supplemental Pension, as set forth in Attachment B to the
Agreement and above, will be modified to commence at the later of your
Termination date and age 50 (instead of at age 57). The Single Life Annual
Supplemental pension, the first installment of which shall be payable at
the later of your Termination date and age 50 will be 40% of your Final
Average Pay as defined in Attachment B of the Agreement, less offsets also
described in Attachment B.
In the event such Post-Closing Termination occurs prior to your attainment
of three years of AT&T service (measured from January 1, 2000), the
averaging period used in the calculation will be the number of months of
your employment on or after January 1, 2000 and your Final Average Pay
will be the sum of (x) 12 times the number obtained by dividing the
aggregate Base Salary for such period by the number of months in such
period; provided, however, that a month shall not be considered to be in
such period, and no Base Salary shall be attributable to such month for
purposes of this calculation, if your employment terminates before the
15th of such month, and a full month's Base Salary shall be included in
the calculation for any month included in your employment period by virtue
of your having terminated employment on or after the 15th of such month,
and (y) the average of the 3 Annual Bonuses paid during such period. In
the event you die after such termination but prior to attaining age 50,
the rules in Section 5 below regarding a termination as a result of death
shall apply for the Special Supplemental Pension, unless you had elected a
permitted form of benefit with a larger survivor benefit, in which case
such alternative form shall apply as if you had commenced benefits upon
your 50th birthday and died immediately thereafter. All other terms and
conditions of the Special Supplemental Pension will remain the same.
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In the event such Post-Closing Termination occurs in 2003, your Final
Average Pay will be the average of the total compensation (the sum of Base
Salary and Annual Bonus) paid to you by the Company during the 3 calendar
years (of the calendar years 2000, 2001, 2002 and 2003) resulting in the
highest average total compensation.
GOOD REASON OR WITHOUT CAUSE TERMINATION
The definition of Good Reason is hereby amended to provide that references
to title, duties, status, authority and responsibilities shall apply to
the position of Vice Chairman of the Board and the duties, status,
authority and responsibilities of such position.
If your Post-Closing Termination is the result of an employment
termination by the Company without Cause or by you for Good Reason, you
will continue to receive Base Salary and benefits through the first event
that otherwise would permit a Post-Closing Termination (such event, the
"First Post-Closing Date"), and all measurements hereunder shall reflect
employment through the First Post-Closing Date.
4. SPECIAL DEFERRAL ACCOUNT
As further consideration for your entering into the Addendum, in
addition to your existing deferral agreements, the Company shall establish
a Special 2002 Individual Deferral Account (the "Deferral Account") in
your name. The maintenance, vesting, forfeiture and distribution of the
Deferral Account shall be in accordance with the terms and conditions set
forth below.
As of the Effective Date, the Company shall credit the Deferral
Account with an initial balance equal to $3,000,000 (Three Million
Dollars). Commencing as of the Effective Date, the Company shall credit
interest to the Deferral Account, compounded as of the end of each
calendar quarter (with the first such calendar quarter concluding March
31, 2002), at the rate of the sum of (x) one-quarter (1/4) of the average
rate applicable to the 10-year United States Treasury Note for the prior
calendar quarter, plus (y) 0.50%.
The Deferral Account will be maintained as a bookkeeping account on
the
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records of the Company and you will have no present ownership right or
interest in the Deferral Account, nor in any assets of the Company with
respect thereto. You shall not have any right to receive any payment with
respect to the Deferral Account, except as expressly provided below. The
Deferral Account may not be assigned, pledged or otherwise alienated by
you and any attempt to do so, and any garnishment, execution or levy of
any kind with respect to the Deferral Account, will not be recognized.
If a Pre-Closing Termination occurs, two-thirds of the Deferral
Account (including accrued interest as of the end of the calendar quarter
in which the employment termination occurs) shall vest on the date of the
Pre-Closing Termination, and the remaining one-third (together with
accrued interest) of the Deferral Account shall be cancelled on the date
of the Pre-Closing Termination.
If a Post-Closing Termination occurs, the entire Deferral Account
(including accrued interest as of the end of the calendar quarter in which
the employment termination occurs) shall vest upon the Post-Closing
Termination.
You will be responsible for your portion of the FICA and Medicare
taxes due with respect to the amount of your Deferral Account that vests
on the vesting date. The Deferral Account amount credited as payable to
you shall be paid in a single lump sum payment as soon as administratively
feasible in the calendar quarter immediately following a Pre-Closing
Termination or Post-Closing Termination.
5. TERMINATION BY REASON OF DEATH OR LONG TERM DISABILITY
In the event your employment terminates due to death or Long Term
Disability at any time, benefits shall be paid to you (or in the case of
death, to your designated beneficiary or, if none, your estate) under the
Agreement, with the following modifications:
DEFERRAL ACCOUNT
In the event of your employment termination by reason of death or Long
Term Disability, the then balance in the Deferral Account (including
accrued interest as of the end of the calendar quarter in which your
employment termination occurs)
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will vest and be payable to you (or in the case of death, to your
designated beneficiary or, if none, your estate) in a lump sum as soon as
is administratively feasible in the calendar quarter following such
termination.
SPECIAL SUPPLEMENTAL PENSION
In the event of your employment termination by reason of Long Term
Disability, the Special Supplemental Pension will be calculated using 40%
of your Final Average Pay (as clarified in Section 2 above with respect to
guaranteed annual bonus amounts), less offsets described in Attachment B
of the Agreement. In the event of your employment termination by Long Term
Disability, your Special Supplemental Pension shall commence upon the
later to occur of (x) your 50th birthday and (y) such termination,
notwithstanding anything to the contrary in Attachment B of the Agreement.
In the event of your death, your surviving spouse shall receive a 50%
joint and survivor annuity under the Special Supplemental Pension,
calculated using 40% of your Final Average Pay (as clarified in Section 2
above with respect to guaranteed annual bonus amounts), less offsets
described in Attachment B of the Agreement. In the event of your death,
payments to your surviving spouse under the Special Supplemental Pension
shall commence upon your death (unless you die before age 50, in which
case such payments shall commence on the date you would have reached age
50), notwithstanding anything to the contrary in Attachment B of the
Agreement.
FINANCIAL COUNSELING
In the event of your employment termination by reason of death or Long
Term Disability, you (or in the case of death, your surviving spouse)
shall receive the Financial Counseling benefit set forth in Section 2
above.
EXCISE TAX GROSS-UP
In the event of your employment termination by reason of death or Long
Term Disability, the Gross-Up Payment protection set forth in Section 2
above shall apply to you (or in the case of your death, your estate).
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SPECIAL MEDICAL
In the event of your employment termination by reason of Long Term
Disability, during any period in which your medical expenses (and those of
your eligible dependents) are not covered by an AT&T program for persons
with long-term disability, you and your eligible dependents will be
eligible for coverage under the AT&T Separation Medical Plan offered by
the Company to certain former senior managers. You will be responsible for
the same portion (30% currently, but subject to change) of the annual
premium for this medical coverage applicable to similarly situated former
senior managers. Continuation of coverage under the AT&T Separation
Medical Plan after your death is available to your spouse provided that
she pays 100% of the annual premium for this coverage.
LIFE INSURANCE
In the event your employment terminates by reason of Long Term Disability,
the terms of the SMULIP shall govern.
6. CONTINUING EMPLOYMENT
In the event that your employment continues beyond the First
Post-Closing Date, the terms and conditions of a Post-Closing Termination
will apply at your subsequent employment termination for any reason
(excluding Cause, death, or Long Term Disability), whether such
termination is initiated by the Company or by you; provided, however, that
the Deferral Account will continue to accrue interest until the end of the
calendar quarter in which such employment termination occurs.
7. BROADBAND TRANSFER
Notwithstanding anything in the Addendum to the contrary, in the
event that you transfer to AT&T Broadband as a Broadband Transferee (as
that term is defined in the EBA) on the Distribution Date, the Addendum
shall be of no force or effect except that the full amount of the Deferral
Account, including accrued interest through the end of the calendar
quarter prior to the calendar quarter in which the Deferral Account is
paid out to you, shall vest upon your transfer and be payable to you in a
lump sum in the quarter following your transfer. You will
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be responsible for your portion of the FICA and Medicare taxes due with
respect to the amount of your Deferral Account that has accrued and vested
on the vesting date. As a Broadband Transferee you will be treated in
accordance with the terms and conditions applicable to other executives
who are Broadband Transferees (to the extent that such treatment is
consistent with the Agreement, which (as modified by the Addendum with
respect to the Deferral Account) shall remain in full force and effect).
In the event you terminate employment with the Company with
entitlement to benefits under the Addendum, and within 12 months of your
termination become employed by AT&T Comcast, all future payments under the
Special Supplemental Pension will be cancelled, and all other benefits set
forth hereunder will continue.
8. EXCLUSIVITY
Except as otherwise specifically provided herein, the payments and
benefits provided hereunder in connection with a Termination are in lieu
of any and all of the payments or benefits that might otherwise be payable
to you as a result of the termination of your employment for any reason
(including, without limitation, voluntary resignation, termination for
Good Reason, and termination without Cause), including the severance
provisions set forth in the Agreement, the Senior Officer Severance Plan,
and/or the benefits provided under the Resolutions. Notwithstanding the
foregoing, this provision shall not preclude your receipt of (a) any
benefits that accrue to you solely by reason of your status as an employee
of the Company (including, without limitation, the AT&T Management Pension
Plan), and (b) any benefits and protections with respect to (i) liability
as a director or officer, (ii) indemnification, (iii) existing deferred
arrangements, and (iv) provisions of the Agreement not specifically
related to employment termination (e.g., the Guidelines modification and
dispute resolution).
9. EQUITY GRANTS
During and after the term of your employment, to the extent that
grants, substitutions, or other adjustments are made with respect to
existing equity-
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based awards of similar-level active or former senior officers of the
Company, you shall receive the same treatment as such other senior
officers to the extent that such treatment is more favorable to you than
that set forth in the Addendum.
10. NONCOMPETITION COVENANT
Following the earlier to occur of the Transaction and your
Termination, the Guidelines (and any other non-competition clause)
applicable to you pursuant to, and as modified by, the Agreement and the
EBA, shall be further modified so that (a) only activities that compete
with, or are adverse to, AT&T, as it then exists, shall be taken into
consideration for purposes of the forfeiture of equity interests in, or
payments from, AT&T, and Section 4, Subpart 2 of the Guidelines shall
apply (with respect to such activities) only to Sprint Corporation,
WorldCom, Inc., and any of the regional Xxxx operating companies
(including Qwest Communications International Inc.), and (b) only
activities that compete with, or are adverse to, AT&T Broadband (and its
successors), as it then exists, shall be taken into consideration for
purposes of the forfeiture of equity interests in, or payments from, AT&T
Broadband (and its successors), and Section 4, Subpart 2 of the Guidelines
shall apply (with respect to such activities) only to AOL Time Warner
Inc., EchoStar Communications Corporation and the DirecTV unit of Xxxxxx
Electronics Corporation.
11. BENEFITS PROTECTION TRUST
In the event of a Potential Change in Control or a Change in Control
(as such terms are defined in the AT&T Corp. Benefits Protection Trust
(the "Trust")), the Special Supplemental Pension and all other deferred
amounts payable to you under the Addendum shall be covered by the Trust,
and the Trust shall be funded with respect to such amounts in the same
manner and at the same time as the Trust is required to be funded for the
AT&T Senior Management Incentive Deferral Plan.
12. ADVISORY FEES
The Company shall pay all legal and financial counseling fees
incurred by you in connection with entering into the Addendum, and to the
extent the Company's payment of these fees is treated as taxable income to
you, the
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amounts so treated shall be "grossed up" by the Company to the extent
necessary to place you in the same after-tax position you would have
occupied had such treatment not occurred.
13. MISCELLANEOUS
In the event that any active or former executive of the Company
receives from the Company (but not from another employer and not in
connection with such executive's hiring by the Company): (a) additional
security, (b) annuitization (except with respect to retired senior
managers who participate in the AT&T Non-Qualified Pension Plan and meet
the currently disclosed eligibility requirements for the annuity contract
program described in the proxy statement filed with the Securities and
Exchange Commission on March 29, 2001 with respect to the annual meeting
of May 23, 2001), (c) lump sum treatment, or (d) some other treatment that
is favorable to such executive regarding security, timing, or amount of
payments, in each case with respect to any supplemental non-qualified
pension benefit or other non-qualified benefit of a defined benefit
nature, you will be treated, in your discretion, in a manner that is no
less favorable to you with respect to your Special Supplemental Pension
and other supplemental retirement plans.
14. NOTICE OF EMPLOYMENT TERMINATION
In the event that you wish to terminate your employment with the
Company, your employment termination date shall be the date on which you
give to the Company, in accordance with the procedures set forth in the
following sentence, a notice of employment termination (the "Notice"), or
upon such later date as you may specify in the Notice. The Notice shall be
in writing and shall be deemed given at the time it is (x) sent by hand,
(y) sent by overnight mail, or (z) transmitted via facsimile, in each case
addressed as follows:
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To the Company: C. Xxxxxxx Xxxxxxxxx
Chairman of the Board and Chief Executive Officer
AT&T Corp.
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxx Xxxxx, XX 00000
With a copy to: Xxxxxxx X. Xxxxxx, Esq.
Corporate Secretary
AT&T Corp.
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxx Xxxxx, XX 00000
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Please acknowledge your agreement to the foregoing by executing a
copy of this letter and returning it to me.
Sincerely yours,
----------------------------
Xxxxxx Xxxxxxxx-Xxxx
Executive Vice President,
Human Resources
Agreed:
-----------------------
Xxxxxxx X. Xxxxx
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