Employee Benefits Agreement

EMPLOYEE BENEFITS AGREEMENT


BY AND BETWEEN


AT&T CORP.


AND


AT&T BROADBAND CORP.


DATED AS OF
DECEMBER 19, 2001
TABLE OF CONTENTS


ARTICLE I DEFINITIONS................................................... 1
1.1 Affiliate..................................................... 1
1.2 Agreement..................................................... 1
1.3 Ancillary Agreements.......................................... 1
1.4 Approved Leave of Absence..................................... 1
1.5 AT&T.......................................................... 1
1.6 AT&T Broadband Common Stock................................... 1
1.7 AT&T Closing Stock Value...................................... 1
1.8 AT&T Common Stock............................................. 2
1.9 AT&T Deferral Plan............................................ 2
1.10 AT&T Deferral Plan Participant................................ 2
1.11 AT&T Directors' Deferral Plan................................. 2
1.12 AT&T Employee................................................. 2
1.13 AT&T Entity................................................... 2
1.14 AT&T Executive................................................ 2
1.15 AT&T Executive Benefit Plans.................................. 2
1.16 AT&T Force Management Program................................. 2
1.17 AT&T Labor Agreement.......................................... 2
1.18 AT&T Long Term Incentive Plan................................. 3
1.19 AT&T Opening Stock Value...................................... 3
1.20 AT&T Participant.............................................. 3
1.21 AT&T Pension Plans............................................ 3
1.22 AT&T Post-Retirement Welfare Benefits Plan.................... 3
1.23 AT&T Savings Plans............................................ 3
1.24 AT&T Toll Discount Program.................................... 4
1.25 AT&TMPP....................................................... 4
1.26 AT&TPP........................................................ 4
1.27 Auditing Party................................................ 4
1.28 Award......................................................... 4
1.29 Benefit Plan.................................................. 4
1.30 Broadband Adjustment Plan..................................... 4
1.31 Broadband Common Stock Value.................................. 4
1.32 Broadband Employee............................................ 5
1.33 Broadband Entities............................................ 5
1.34 Broadband Long Term Savings Plans............................. 5
1.35 Broadband Participant......................................... 5
1.36 Broadband Pension Plans....................................... 6
1.37 Broadband Severance Plan...................................... 6
1.38 Broadband Transferees......................................... 6
1.39 Close of the Distribution Date................................ 6
1.40 COBRA......................................................... 6
1.41 Code.......................................................... 6
1.42 Communications Services Entities.............................. 6
1.43 Distribution.................................................. 6


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1.44 Distribution Date............................................. 6
1.45 Distribution Ratio............................................ 6
1.46 Distribution Year............................................. 6
1.47 EBLIP......................................................... 7
1.48 ERISA......................................................... 7
1.49 Former Employee............................................... 7
1.50 Health and Welfare Plans...................................... 7
1.51 HIPAA......................................................... 7
1.52 Immediately after the Distribution Date....................... 7
1.53 Individual Agreement.......................................... 7
1.54 Individual Deferral Agreement................................. 8
1.55 Intrinsic Value............................................... 8
1.56 Merger Agreement.............................................. 8
1.57 Liabilities................................................... 8
1.58 Nasdaq........................................................ 8
1.59 Non-parties................................................... 8
1.60 NYSE.......................................................... 8
1.61 Option........................................................ 8
1.62 Participating Company......................................... 8
1.63 Person........................................................ 9
1.64 Senior Manager................................................ 9
1.65 Separation and Distribution Agreement......................... 9
1.66 Separation Transactions....................................... 9
1.67 SMULIP........................................................ 9
1.68 Subsidiaries.................................................. 9
1.69 SVULIP........................................................ 9
1.70 Tax Sharing Agreement......................................... 9
1.71 Transition Period............................................. 9
1.72 U.S........................................................... 9


ARTICLE II GENERAL PRINCIPLES............................................ 9
2.1 Employment of Broadband Transferees........................... 9
2.2 Employment of Broadband Employees............................. 9
2.3 Employment of Broadband Transferees on Leave Status........... 10
2.4 Assumption and Retention of Liabilities; Related Assets....... 10
2.5 Broadband Participation in AT&T Benefit Plans................. 11
2.6 AT&T Participation in Broadband Benefit Plans................. 11
2.7 Terms of Participation by Broadband Transferees in Broadband
Benefit Plans ................................................ 11
2.8 Service Recognition........................................... 12
2.9 Approval by AT&T as Sole Shareholder.......................... 12
2.10 AT&T Labor Agreements......................................... 12
2.11 Change in Control Benefits.................................... 13


ARTICLE III DEFINED CONTRIBUTION AND DEFINED BENEFIT PLANS................ 13
3.1 Savings Plans................................................. 13
(a) Broadband Long Term Savings Plan Trust.................. 13


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(b) AT&T Savings Plans and Trust............................ 14
(c) Assumption of Liabilities and Transfer of Accounts...... 14
(d) Vesting................................................. 14
(e) Exchange of Data; Account Transfer...................... 14
(f) "Lost" Company Match.................................... 15
3.2 AT&T Pension Plans............................................ 15
(a) Retention of AT&T Pension Plans......................... 15
(b) Vesting................................................. 15
(c) Commencement of Pension................................. 15
(d) Bridging................................................ 16
(e) Conversions to Cash Balance............................. 16
3.3 Broadband Pension Plans....................................... 16
(a) Assumption of Broadband Pension Plans................... 16
(b) Vesting................................................. 16
(c) Bridging................................................ 16
(d) Commencement of Pension................................. 17


ARTICLE IV HEALTH AND WELFARE PLANS...................................... 17
4.1 Assumption of Health and Welfare Plan Liabilities............. 17
(a) General................................................. 17
(b) Certain Specific Claims................................. 17
4.2 Health and Welfare Plan Transitional Coverage Rules........... 18
(a) General................................................. 18
(b) Broadband Transferees and Broadband Benefit Plans....... 18
(c) AT&T Employees and AT&T Benefit Plans; Broadband
Employees and Broadband Benefit Plans .................. 19
4.3 HCRA/CECRA Post-Distribution Transitional Rules............... 19
(a) AT&T Health Care Reimbursement Account Plan;
Broadband Transferees .................................. 19
(b) AT&T Child/Elder Care Reimbursement Account Plan;
Broadband Transferees .................................. 19
4.4 Workers' Compensation Liabilities............................. 20
4.5 Payroll Taxes and Reporting of Compensation................... 20
4.6 AT&T Post-Retirement Welfare Benefits Plan.................... 21
(a) Retention of AT&T Post-Retirement Welfare Benefits Plan. 21
(b) Assumption of Broadband Post-Retirement Medical Plans... 21
(c) Eligibility of Broadband Employees; Rule of 65.......... 21
4.7 COBRA and HIPAA Compliance.................................... 22
4.8 Long-Term Care; Direct Pay Arrangements....................... 22
4.9 Severance Benefits............................................ 22


ARTICLE V EXECUTIVE BENEFITS AND OTHER BENEFITS......................... 23
5.1 Individual Agreements - Assumption of Liabilities
and Consents ................................................. 23
5.2 AT&T Short Term Incentive Plan and AT&T Bonus Plan Award...... 24
5.3 AT&T Long Term Incentive Plans................................ 24
(a) AT&T Options Held by Current Employees.................. 25


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(b) AT&T Options Held by Former Employees................... 25
(c) Miscellaneous Option Terms.............................. 26
(d) Vesting and Exercisability of Options................... 28
(e) Restricted Shares....................................... 29
(f) Restricted Stock Units.................................. 30
(g) Performance Shares...................................... 31
(h) Partial Interests in Shares or Stock Units.............. 33
(i) Incentive Stock Options; Foreign Grants/Awards.......... 33
(j) Individual Enforcement.................................. 33
5.4 AT&T Employee Stock Purchase Plan............................. 33
5.5 Savings Clause................................................ 34
5.6 Registration Requirements..................................... 34
5.7 Non-Competition Guidelines.................................... 34
(a) AT&T Non-Competition Guideline.......................... 34
(b) Broadband Non-Competition Guideline..................... 35
(c) Confidentiality and Proprietary Information............. 36
5.8 Deferral Plans and Individual Deferral Agreements............. 36
5.9 AT&T Non-Qualified Pension Plans and Arrangements............. 36
5.10 Broadband Non-Qualified Pension Plans and Arrangements........ 37
5.11 Life Insurance Programs....................................... 37
(a) AT&T Senior Management Universal Life Insurance
Program................................................. 37
(b) AT&T Executive Basic Life Insurance Program............. 37
(c) AT&T Estate Enhancement Program......................... 38
(d) AT&T Supplemental Variable Universal Life
Insurance Program ...................................... 38
5.12 Financial Counseling.......................................... 38
5.13 Toll Discount Program......................................... 39
5.14 Relocation Plan............................................... 39
5.15 Senior Manager Car Allowance.................................. 39
5.16 Taxable Fringe Benefits....................................... 39
5.17 Separation Plans.............................................. 40


ARTICLE VI GENERAL AND ADMINISTRATIVE.................................... 40
6.1 Payment of Liabilities........................................ 40
6.2 Sharing of Participant Information............................ 40
6.3 Best Efforts/Cooperation...................................... 41
6.4 Non-Termination of Employment; No Third-Party Beneficiaries... 41
6.5 Audit Rights With Respect to Information Provided............. 42
6.6 Fiduciary Matters............................................. 42
6.7 Collective Bargaining......................................... 43
6.8 Consent of Third Parties...................................... 43


ARTICLE VII MISCELLANEOUS................................................. 43
7.1 Effect If Distribution Does Not Occur......................... 43
7.2 Relationship of Parties....................................... 43
7.3 Affiliates.................................................... 43


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7.4 Notices....................................................... 43
7.5 Incorporation of Separation and Distribution Agreement
Provisions ................................................... 44
7.6 Governing Law................................................. 45
7.7 References.................................................... 45


SIGNATURES OF THE PARTIES


SCHEDULE 1.17 AT&T Labor Agreements


SCHEDULE 1.29 Broadband Benefit Plans


SCHEDULE 1.38 List of Broadband Transferees


SCHEDULE 4.9 Severance Multiples


SCHEDULE 5.1(b) Broadband Individual Agreements


SCHEDULE 5.10 Broadband Non-Qualified Pension Arrangements


EXHIBIT 5.7(a) Broadband People Movement Guidelines


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EMPLOYEE BENEFITS AGREEMENT


This EMPLOYEE BENEFITS AGREEMENT, dated as of December 19, 2001, is by and between AT&T Corp., a New York corporation ("AT&T"), and AT&T Broadband Corp., a Delaware corporation ("AT&T Broadband"). Capitalized terms used herein (other than the formal names of AT&T Benefit Plans and Broadband Benefit Plans and related trusts of AT&T and AT&T Broadband) and not otherwise defined shall have the respective meanings assigned to them in Article I or assigned to them in the Separation and Distribution Agreement (as defined below), as applicable. WHEREAS, the Board of Directors of AT&T has determined that it is in the best interests of AT&T and its shareholders to separate AT&T Broadband from AT&T's existing businesses and provide for it to be an independent business;


WHEREAS, in furtherance of the foregoing, AT&T and AT&T Broadband have entered into a Separation and Distribution Agreement, dated as of even date herewith (the "Separation and Distribution Agreement"), and other specific agreements that will govern certain matters relating to the Separation Transactions and the relationship of AT&T, AT&T Broadband and their respective Subsidiaries following the Distribution Date; and


WHEREAS, pursuant to the Separation and Distribution Agreement, AT&T and AT&T Broadband have agreed to enter into this Agreement allocating assets, Liabilities and responsibilities with respect to certain employee compensation and benefit plans and programs between and among them. NOW, THEREFORE, the parties, intending to be legally bound, agree as follows:


DEFINITIONS


For purposes of this Agreement, the following terms shall have the following meanings:


Affiliate has the meaning given that term in the Separation and Distribution Agreement.


Agreement means this Employee Benefits Agreement, including all the Schedules hereto.


Ancillary Agreements has the meaning given that term in the Separation and Distribution Agreement.


Approved Leave of Absence means an absence from active service (i) due to an individual's inability to perform his or her regular job duties by reason of illness or injury and resulting in eligibility to receive benefits pursuant to the terms of the AT&T Short Term Disability Plan, or (ii) pursuant to an approved leave policy with a guaranteed right of reinstatement.


AT&T is defined in the preamble to this Agreement.


AT&T Broadband Common Stock means the AT&T Broadband Common Stock as defined in the Separation and Distribution Agreement.


AT&T Closing Stock Value means the closing per-share price of the AT&T Common Stock trading "regular way with due bills" as listed on the NYSE as of 4:00 P.M., Eastern Standard Time or Eastern Daylight Time (whichever shall then be in effect) on the Distribution Date; provided, however, that if the Distribution occurs at a time when the NYSE is open for trading, AT&T Closing Stock Value shall mean the price at which AT&T Common Stock trading "regular way with due bills" last trades immediately before the Distribution; provided further, that if the Distribution occurs prior to the first trade of AT&T Common Stock on the Distribution Date, the AT&T Closing Stock Value shall mean the price at which AT&T Common Stock trading "regular way with due bills" last trades on the trading day immediately preceding the Distribution Date.


AT&T Common Stock has the meaning set forth in the Separation and Distribution Agreement.


AT&T Deferral Plan means the AT&T Senior Management Incentive Award Deferral Plan in effect as of the time relevant to the applicable provision of this Agreement.


AT&T Deferral Plan Participant means any individual who has an account balance in the AT&T Deferral Plan as of the Distribution Date.


AT&T Directors' Deferral Plan means the AT&T Deferred Compensation Plan for Non-Employee Directors, as amended from time to time.


AT&T Employee means any individual who, immediately prior to the Close of the Distribution Date, is (a) either actively employed by, or then on Approved Leave of Absence from, any AT&T Entity, other than a Broadband Entity or (b) designated by mutual written agreement of AT&T and AT&T Broadband as an AT&T Employee.


AT&T Entity means AT&T, a Broadband Entity or a Communications Services Entity.


AT&T Executive means an AT&T Employee (other than a Broadband Entity), at salary grade level "E" or above (or comparable positions), who immediately before the Close of the Distribution Date is eligible to participate in or receive a benefit under any AT&T Executive Benefit Plan.


AT&T Executive Benefit Plans means the executive benefit and nonqualified plans, programs, and arrangements (exclusive of Individual Agreements) established, sponsored, maintained, or agreed upon, by any AT&T Entity (other than a Broadband Entity) for the benefit of employees and former employees of any AT&T Entity (other than a Broadband Entity) before the Close of the Distribution Date.


AT&T Force Management Program means the AT&T Separation Plan, the AT&T Senior Management Separation Plan, the AT&T Special Executive Separation Plan and the AT&T Senior Officer Separation Plan in effect as of the time relevant to the applicable provision of this Agreement.


AT&T Labor Agreement shall mean each labor agreement and collective bargaining agreement, other than any such agreement to which any


-2- Broadband Entity is a party. The AT&T Labor Agreements are listed on Schedule 0.


AT&T Long Term Incentive Plan means any of the AT&T 1987 Long Term Incentive Program, the AT&T 1997 Long Term Incentive Program and such other stock-based incentive plans assumed by AT&T by reason of merger, acquisition or otherwise, including incentive plans of Lin Broadcasting Corporation, McCaw Cellular Communications, Inc., Teleport Communications Group, Inc., ACC Corp., U S WEST, Inc., U S WEST Media Group, Inc., MediaOne Group Inc. and Tele-Communications Inc. and any other incentive plan identified in writing by AT&T before the Close of the Distribution Date, all as in effect as of the time relevant to the applicable provisions of this Agreement.


AT&T Opening Stock Value means the opening per-share price of AT&T Common Stock as listed on the NYSE as of the opening of trading on the first trading day following the Distribution Date; provided, however, that if the Distribution occurs at a time when the NYSE is open for trading, AT&T Opening Stock Value shall mean the price at which AT&T Common Stock trades as of the moment immediately after the Distribution; and provided further, that if the Distribution occurs prior to opening of trading on the NYSE on the Distribution Date, the AT&T Opening Stock Value shall mean the price at which AT&T Common Stock first trades on the Distribution Date.


AT&T Participant means any individual other than a Broadband Participant who holds an award under any AT&T Long Term Incentive Plan.


AT&T Pension Plans means the AT&TMPP, the AT&TPP, the AT&T Excess Benefit and Compensation Plan, and the AT&T Non-Qualified Pension Plan in effect as of the time relevant to the applicable provision of this Agreement.


AT&T Post-Retirement Welfare Benefits Plan means the Health and Welfare Plan of AT&T providing medical expense benefits for retirees, dental expense benefits for retirees, life insurance benefits for retirees (provided, that in the case of the life insurance plans, the applicable AT&T Employee, Broadband Employee or Broadband Transferee was enrolled for coverage as an active employee under the corresponding active-employee life insurance plans at the time of his or her termination of employment) and the AT&T Toll Discount Program. For purposes of this Agreement, the EBLIP, the SMULIP, the SVULIP, the AT&T Corp. Estate Enhancement Program (including the AT&T Corp. Alternative Death Benefit Program and the AT&T Corp. Special Death Benefit Program) and any other plans, programs or arrangements not expressly identified in this Section 1.23 shall not be considered part of the AT&T Post-Retirement Welfare Benefits Plan.


AT&T Savings Plans means the AT&T defined contribution plans, in effect as of the time relevant to the applicable provision of this Agreement,


-3- sponsored by AT&T or by any AT&T Entity, other than the Broadband Long Term Savings Plan.


AT&T Toll Discount Program means the AT&T Senior Manager Telephone Discount Program and the AT&T Toll Discount Program in effect as of the time relevant to the applicable provisions of this Agreement.


AT&TMPP means the AT&T Management Pension Plan in effect as of the time relevant to the applicable provision of this Agreement.


AT&TPP means the AT&T Pension Plan in effect as of the time relevant to the applicable provision of this Agreement.


Auditing Party is defined in Section 6.4(a).


Award, when immediately preceded by "AT&T," means an award under the AT&T Long Term Incentive Plan. When immediately preceded by "Broadband," Award means an award under the Broadband Adjustment Plan.


Benefit Plan shall mean, with respect to an entity or any of its Subsidiaries, (a) each "employee welfare benefit plan" (as defined in Section 3(1) of ERISA) and all other employee benefits arrangements, policies or payroll practices (including, without limitation, severance pay, sick leave, vacation pay, salary continuation, disability, retirement, deferred compensation, bonus, stock purchase, stock option or other equity-based compensation, hospitalization, medical insurance or life insurance) sponsored or maintained by such entity or by any of its Subsidiaries (or to which such entity or any of its Subsidiaries contributes or is required to contribute) and (b) all "employee pension benefit plans" (as defined in Section 3(2) of ERISA), occupational pension plan or arrangement or other pension arrangements sponsored, maintained or contributed to by such entity or any of its Subsidiaries (or to which such entity or any of its Subsidiaries contributes or is required to contribute). When immediately preceded by "AT&T," Benefit Plan means any Benefit Plan sponsored, maintained or contributed to by AT&T or a Communications Services Entity. When immediately preceded by "Broadband," Benefit Plan means any Benefit Plan sponsored, maintained or contributed to by Broadband or any Broadband Entity. The Broadband Benefit Plans are listed in Schedule 0 hereto.


Broadband Adjustment Plan means the long term incentive plan or program to be established by AT&T Broadband, effective immediately prior to the Distribution Date, in connection with the treatment of Awards as ...