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EXHIBIT 10-3
[GTE LETTERHEAD]
January 20, 1998
Dear Xxxx,
I am pleased to offer you an employment agreement (the "Agreement") with
GTE Service Corporation ("GTE") which will provide for employment stability for
you and long-term wealth-creation opportunity for you and your family. In
return, GTE can expect your continued leadership for the foreseeable future as
well as your value-added advice and counsel on the broad array of issues and
challenges facing GTE today and in the future.
GENERAL -- Under this Agreement, you will continue as a Senior Executive of
GTE at a grade level no less than level 25 or its equivalent. During the term of
this Agreement, you will continue to receive the same benefits as other GTE
executives at your grade level (except for ISEP or separation or severance
benefits) as well as any benefit to which you are entitled under your Executive
Severance Agreement ("ESA"), which this Agreement supplements. In addition, the
terms of your employment will be governed by the following:
TERM -- The term of this Agreement will be from December 1, 1997, through
November 30, 2002. We expect that, in light of changes in the industry and the
importance of dealing with Congress and federal regulators, you will spend up to
one-half of your time in Washington, D.C., during the term of this Agreement.
BASE SALARY -- During the term of this Agreement, your annual base salary
will be not less than $465,000 per year.
EIP AND LTIP -- During the term of this Agreement, on an annual basis, GTE
will provide you the opportunity to earn an annual bonus, in accordance with the
terms and conditions of the Executive Incentive Plan ("EIP") and an annual
long-term incentive award in accordance with the terms and conditions of the
Long-Term Incentive Plan ("LTIP"), in each case at a level commensurate with the
opportunity offered to other GTE executives at your salary level. In addition,
on an annual basis, GTE will provide you a stock option grant, in accordance
with the terms and conditions of the LTIP, at a level commensurate with the
opportunity offered to other GTE executives at your grade level.
ONE-TIME OPTION GRANT -- On December 5, 1997, the Executive Compensation
and Organizational Structure Committee approved the grant to you of an option to
purchase 228,000 shares of GTE Corporation common stock at market value on the
date of grant, subject to the terms of the option award agreement (which will in
no way alter your rights and benefits under this Agreement) and conditional upon
your signing this Agreement. The option vests at the rate of one-third per year
of employment (with such period beginning on December 5, 1997), so that it will
be fully vested if you remain employed by GTE until December 4, 2000.
ONE-TIME RESTRICTED STOCK UNIT ("RSU") -- On December 5, 1997, the
Executive Compensation and Organizational Structure Committee approved the grant
to you of restricted GTE Corporation stock units priced at date of issuance to
be equal in value to $1,880,000 and conditional upon your signing this
Agreement. These units have a 5-year vesting schedule and vest 10% per year for
each of the first 4 years of employment
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(with such period beginning on December 5, 1997) and then 60% on December 4,
2002, subject to the terms of the RSU award agreement. The RSUs will be credited
with dividend equivalents. As the RSUs vest, you will be eligible to receive
both the units and the dividends or, subject to applicable deferral regulations,
you may elect to defer the dividends and vested units. Vested RSU's will not be
forfeited. Details will be provided in your RSU award agreement (which will in
no way alter your rights and benefits under this Agreement).
LOAN -- You may borrow up to $300,000 from GTE, at a market interest rate
determined by GTE, for a term of up to 5 years; provided that you must repay any
unpaid balance of the loan principal and interest no later than November 30,
2002. The interest rate will be equal to the rate required to avoid creating any
imputed income to you under the Internal Revenue Code. If, in accordance with
the RSU Agreement, you elect to receive any cash payments with respect to the
RSUs on or before November 30, 2002, you may elect to have all or part of such
cash payments (net of any applicable tax withholding) applied against any unpaid
balance of the loan principal and interest.
RETIREMENT --
ADDITIONAL PENSION AND BENEFIT CREDIT -- If you remain employed by GTE
until November 30, 2002:
(i) You will be credited with an extra year of service for each year
for which you actually worked for GTE (including service for GTE before the
date of this Agreement) through November 30, 2002, for purposes of
determining your pension benefits, and you will be deemed to have satisfied
the Rule of 76 for purposes of determining your right to pension,
post-retirement medical, and Executive Retirement Life Insurance Plan
("ERLIP") benefits; and
(ii) Your pension benefits will not be less than those determined in
accordance with paragraph (i), above, and the provisions of GTE's pension
plan as in effect on the date of this Agreement. Your service after
November 30, 2002, however, will be credited in accordance with the
applicable plan provisions and will not be affected by the preceding
provisions of this Section.
If your employment terminates before November 30, 2002, by reason of
involuntary separation by GTE (other than for Cause (as defined below)),
separation for Good Reason (as defined below), or a Qualifying Termination
following a Change in Control (as those terms are defined in your ESA), you will
be entitled to the benefits provided by the preceding provisions of this Section
as though your employment continued until November 30, 2002; provided that your
service credit will be equal to the greater of (a) the service credit to which
you are entitled under the preceding provisions of this Section, or (b) the sum
of (1) the service credit to which you are entitled under the preceding
provisions of this Section as applied solely to your service up to the date your
employment terminates (that is, an extra year of service for each year of your
actual service) and (2) the additional service credit to which you are entitled
under your ESA.
If your employment terminates before November 30, 2002, by reason of your
death, disability, as defined by GTE's long-term disability plan as in effect on
the date of this Agreement ("Disability"), entry into service with the federal
government or, as approved by the Board of Directors of GTE Corporation (the
"Board"), entry into service with an educational organization, you will be
credited with an extra year of service for each year for which you actually
worked for GTE (including service for GTE before the date of this Agreement)
through November 30, 2002, for purposes of determining your pension benefits,
but you will not be entitled to any other benefits under the preceding
provisions of this Section (such as being deemed to have satisfied the Rule of
76); provided that if you are Disabled, you will be eligible to receive any
additional GTE benefits that you may be entitled to receive under GTE's benefit
plans by reason of your Disability.
If your employment terminates before November 30, 2002, by reason of
involuntary termination for Cause (as defined below) or by reason of your
voluntary termination of employment without Good Reason (other than to accept a
position with the federal government or, as approved by the Board, a position
with an
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educational organization), you will not be entitled to any benefits under the
preceding provisions of this Section.
The benefits prescribed by the preceding provisions of this Retirement
Section will be paid out of GTE's funded plans, out of GTE's general assets, or
both, at GTE's discretion. If you are not deemed to satisfy the Rule of 76, the
pension benefits provided pursuant to the preceding provisions of this Section
will be subject to actuarial reduction in accordance with the applicable
provisions of GTE's pension plans. In any event, such pension benefits will be
offset by the actuarial equivalent of any pension benefits to which you are
otherwise entitled under GTE's pension plans.
TERMINATION PROVISIONS --
- CHANGE IN CONTROL -- Subject to Board approval, your ESA will be amended
to provide for a full gross-up payment to cover any excise taxes you may
owe if your employment is terminated after a Change in Control (as
defined in your ESA). Upon the occurrence of a Change in Control, your
RSUs and stock options will immediately vest. In addition, if you incur a
Qualifying Termination (as defined in your ESA) following a Change in
Control, your benefits under this Agreement will be as follows:
(A) LUMP-SUM CASH PAYMENT -- You will receive a lump-sum cash payment
equal to the greater of (i) the Severance Payment to which you are entitled
under your ESA or (ii) a cash payment equal to the sum of (w) your salary
for the remaining term of this Agreement, (x) your EIP awards for the
remaining term of this Agreement, (y) your LTIP performance-bonus awards
for the remaining term of this Agreement, and (z) an amount to be paid in
lieu of any stock options that otherwise would be granted to you during the
remaining term of this Agreement. For purposes of the preceding sentence,
your salary for the remaining term of this Agreement will be deemed equal
to the greater of your salary immediately before the Change in Control or
your salary immediately before your Qualifying Termination; each EIP award
for the remaining term of this Agreement will be deemed to be equal to the
average dollar amount of the 3 most recent annual bonus awards you earned
before the Change in Control; each LTIP award for the remaining term of
this Agreement will be deemed to be equal to the average dollar amount of
the performance-bonus awards you earned for the 3 most recent full award
cycles ending before the Change in Control; and the amount referred to in
clause (z), above, will be determined by the Table attached hereto and
incorporated herein by reference.
(B) INSURANCE -- You will be entitled to receive continued medical and
life insurance coverage in accordance with your ESA for the period
prescribed by your ESA or, if longer, until November 30, 2002 at which time
you will receive the post retirement medical and ERLIP benefits referred to
in the Retirement Section.
(C) FINANCIAL COUNSELING AND OUTPLACEMENT SERVICES -- You will receive
financial counseling and outplacement services in accordance with your ESA.
(D) SERVICE CREDIT -- You will be deemed to have satisfied the Rule of
76, and you will receive service credit in accordance with the Section
captioned "Additional Pension and Benefit Credit," above.
If the provisions of this Section apply, you will not be entitled to
payments or benefits under the following Sections that address termination
of employment under other circumstances.
- VOLUNTARY TERMINATION BY YOU -- You may terminate your employment under
this Agreement without Good Reason at any time by giving the Chief
Executive Officer of GTE Corporation ("CEO") written notice of intent to
terminate, delivered at least 30 calendar days prior to the effective
date of such termination (such period not to include vacation). The
termination will automatically become effective upon the expiration of
the 30-day notice period. Upon the effective date of such termination,
your base salary and any other GTE benefits will cease to accrue, you
will forfeit all unvested stock
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options and unvested restricted stock units, and GTE will have no further
obligations under this Agreement.
- GOVERNMENT OR EDUCATIONAL SERVICE -- If you terminate employment with GTE
to enter service with the federal government or, as approved by the
Board, to work for an educational organization, your base salary and any
other GTE benefits will cease to accrue, one-half of your then unvested
equity-based awards (such as stock options, RSUs, and performance-bonus
awards) will immediately vest, and you will receive a lump-sum payment
equal to one-half of the sum of (a) your then current annual base pay for
the remaining term of this Agreement plus (b) your Projected EIP Amount.
Your Projected EIP Amount will be equal to the sum of your projected
annual bonus award for each year during the term of this Agreement for
which your annual bonus has not been determined at the time your
employment terminates. The projected annual bonus payment for each such
year will be equal to the average dollar amount of your 3 most recent
annual bonus awards at the time your employment terminates. The value of
your then-outstanding and future performance-bonus awards (that is, the
cash awards under LTIP) will be converted to a cash value equal to the
sum of (x) 100% of the target award for each award cycle that commenced
before your employment terminated multiplied by the percentage of that
award cycle that has elapsed at the time your employment terminates plus
(y) 50% of the target award for each award cycle that has commenced (or
is scheduled to commence) before December 1, 2002, multiplied by the
percentage of that award cycle that is scheduled to occur after your
employment terminates and before December 1, 2002; provided that, for
purposes of this sentence, any target award that has not been established
at the time your employment terminates will be deemed to be equal to the
average dollar value of the performance-bonus awards you earned for the 3
most recent full award cycles under LTIP ending before your employment
terminates. The amount determined pursuant to the preceding sentence will
be paid to you in an immediate lump sum in lieu of your then-outstanding
and future performance-bonus awards. You will have a period of at least
90 days from the date your employment terminated within which to exercise
any then outstanding and vested stock options. This paragraph will not
apply if you are entitled, by reason of the termination of your
employment, to greater benefits under other provisions of this Agreement
or by the terms of any plan or award agreement. If there are any legal
restrictions or limitations on the amount of the lump-sum payment that
GTE can make to you under these circumstances, GTE will pay you the
lesser of (I) the amount that it is legally permitted to pay under such
restrictions or (II) the amount that is otherwise payable hereunder.
- TERMINATION DUE TO DEATH OR DISABILITY -- If you die or become Disabled
during the term of this Agreement, your base salary and any other GTE
benefits will cease to accrue, and GTE will pay you or your beneficiary,
as appropriate, all benefits to which you or your beneficiary has a right
pursuant to GTE's compensation and benefit plans.
- INVOLUNTARY TERMINATION BY GTE -- GTE may terminate your employment under
this Agreement at any time, for any reason. However, in the event that
GTE terminates your employment for any reason other than death,
Disability, or for Cause, such termination shall be deemed an Involuntary
Termination by GTE. In the event of such an Involuntary Termination, you
will be entitled to continue to receive all payments, benefits and grants
due you hereunder (including any compensation and benefits to which you
are entitled under the second, fourth and fifth paragraphs of this
Agreement, but excluding all perquisites, e.g. credit cards, first class
air travel and car service (which will cease)) for the remaining term of
this Agreement as and when such payments, benefits and grants would have
been provided if your employment under this Agreement had not been
terminated; provided further that if you are involuntary terminated on or
after December 1, 2001 and before November 30, 2002 you will receive a
continuation of all payments, benefits, and grants for the remaining term
of this Agreement in accordance with the preceding provisions of this
paragraph and a continuation of your base salary (with no other payments,
benefits, or grants) from the expiration of the term of this
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Agreement until the first anniversary of the date your employment
terminates. In lieu of any stock options that otherwise would have been
granted to you after your termination of employment, GTE will grant you
phantom stock options (that is, stock appreciation rights payable in
cash) with respect to the same number of shares that would have been
covered by the options that otherwise would have been granted to you.
Such phantom stock options will be subject to the terms and conditions
that apply to annual stock options then being granted to other GTE
executives at your salary level under LTIP, except that (a) the phantom
stock options will vest on November 30, 2002, and (b) you will have a
period of at least 90 days to exercise the phantom stock options
following November 30, 2002.
Notwithstanding the foregoing, the value of your then-outstanding and
future performance-bonus awards (that is, the cash awards under LTIP) will
be determined to be equal to 100% of the target award for each award cycle
multiplied by the percentage of that award cycle that occurs before
December 1, 2002; provided that, for purposes of this sentence, any target
award that has not yet been established at the time your employment
terminates will be deemed to be equal to the target award established at
the time of payment for each award cycle for other GTE executives at your
salary level (as your salary level was established immediately before your
employment terminated). The amounts determined pursuant to the preceding
sentence will be paid to you in accordance with the provisions of LTIP that
apply from time to time to other GTE executives at your salary level.
Notwithstanding the foregoing provisions of this paragraph, all cash
compensation (i.e., base salary and annual and long term cash bonus awards)
to which you are entitled under this Agreement following the termination of
your employment will be reduced by any cash compensation (i.e., base salary
and annual and long term cash bonus awards) that you earn for the same
period of time as a result of your subsequent employment (disregarding for
this purpose any pension benefits to which you are entitled under this
Agreement or to which you become entitled as a result of any subsequent
employment and disregarding further any investment income or income
attributable to your self employment).
For as long as GTE has obligations to you under this Involuntary
Termination Section, you will keep GTE informed regarding the terms and
condition of any subsequent employment and the corresponding compensation
and benefits earned from such employment, and you will provide or cause to
provide to GTE, in writing, correct, complete, and timely information
concerning the same.
- TERMINATION FOR GOOD REASON -- You may terminate your employment under
this Agreement for Good Reason by giving the CEO 30 calendar days'
written notice of such intent to terminate which sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for such
termination. Good Reason means the occurrence of any one or more of the
following without your written consent:
(a) A material reduction in your total compensation,
(b) A material diminution of your duties as they existed on the date
of this Agreement, or
(c) A material breach by GTE of any provision, including the third
paragraph, of this Agreement.
Notwithstanding the foregoing, GTE will have 15 calendar days from its
receipt of such notice to cure the action specified. In the event of a
cure by GTE within the 15-day period, the action in question will not
constitute Good Reason.
Except as provided in the preceding paragraph, upon the lapse of the 30
calendar days' notice period, the Good Reason termination will take
effect, and your obligation to serve GTE, and GTE's obligation to employ
you, under the terms of this Agreement, will terminate simultaneously,
and you will receive benefits (and have obligations) equal to those that
you would have received if your employment had been terminated
involuntarily by GTE without Cause.
If you do not fulfill the notice and explanation requirements imposed by
this Section, the resulting termination of employment will be deemed a
voluntary termination (without Good Reason).
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- TERMINATION FOR CAUSE -- Nothing in this Agreement prevents GTE from
terminating your employment under this Agreement for "Cause."
In the event of your termination for Cause, GTE will pay you your full
accrued base salary and accrued vacation time through the date of your
termination, and GTE will have no further obligations under this Agreement.
"Cause" will be determined by the Board in the exercise of good faith and
reasonable judgment, and means:
(a) Your conviction, by a court of competent jurisdiction, of a
felony;
(b) Your material breach of the applicable code of professional
responsibility;
(c) Your commission of an act of fraud upon, or an act of material
dishonesty toward, GTE or an affiliate thereof; or
(d) Any willful or reckless failure by you to observe or perform your
material duties to GTE, other than by reason of your death or Disability.
COVENANTS -- In consideration for the benefits described above, you agree
that you will not, without the prior written consent of GTE, directly or
indirectly:
(A) DISCLOSURE OF INFORMATION -- During the term of this Agreement and
forever thereafter, except as required by law, use, attempt to use,
disclose, or otherwise make known to any person or entity (other than the
Board or otherwise in the course of the business of GTE Corporation and its
affiliates):
(i) Any knowledge or information, including without limitation,
lists of customers or suppliers, trade secrets, know-how, inventions,
products, discoveries, processes, and formulae, as well as any data and
records pertaining thereto, that you may acquire in the course of your
employment; or
(ii) Any knowledge or information of a confidential nature
(including all unpublished matters) relating to, without limitation, the
business, properties, accounting, books and records, trade secrets, or
memoranda of GTE Corporation or its affiliates.
(B) EMPLOYMENT -- During the term of this Agreement and for a period
of 12 consecutive months immediately thereafter employ or retain or arrange
to have any other person, firm, or other entity employ or retain or
otherwise participate in the employment or retention of any person who is
an employee of GTE Corporation or its affiliates.
The obligations imposed on you by this Section are in addition to, and not
in lieu of, any and all other policies and/or agreements of GTE regarding the
foregoing covenants.
This Section will continue to apply after the term of this Agreement ends.
Your violation of any provision of this Section will result in your immediate
forfeiture of all rights under this Agreement. GTE also may obtain injunctive
relief and any other remedy available under law for such violation.
MISCELLANEOUS --
COMPARABLE TREATMENT -- During the term of this Agreement, while employed
by GTE, you will be eligible to receive benefits under any existing or future
GTE fringe benefit program on the same basis as the benefits provided to any
other GTE executive at your grade level.
NONDUPLICATION OF BENEFITS/NO SEVERANCE -- The payment of any benefits
hereunder, unless otherwise specifically stated herein, will be in lieu of any
other ISEP or separation or severance benefits and will fulfill all GTE
obligations under associated plans and programs.
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OTHER GTE PLANS -- Except to the extent otherwise explicitly provided by
this Agreement, any awards made to you under any GTE compensation or benefit
plan or program will be governed by the terms of that plan or program and any
applicable award agreement thereunder. Notwithstanding the foregoing, you will
not be entitled to participate in any GTE compensation or benefit plan that is
established after your employment with GTE terminates, and, except as
specifically provided in this Agreement, you will not be entitled to any
additional grants or awards under any GTE compensation or benefit plan after
your employment with GTE terminates.
TAXES -- GTE may withhold from any benefits payable under this Agreement
all taxes that GTE reasonably determines to be required pursuant to any law,
regulation, or ruling. However, it is your obligation to pay all required taxes
on any amounts provided under this Agreement, regardless of whether withholding
is required.
CONFIDENTIALITY -- Except to the extent otherwise required by law, you will
keep the terms of this Agreement confidential.
GOVERNING LAW -- To the extent not preempted by federal law, the provisions
of this Agreement will be construed and enforced in accordance with the laws of
the State of New York, determined without regard to its choice-of-law rules.
Xxxx, I believe this generous offer provides you and your family with
financial security as our industry and GTE evolve. We recognize the requirements
that have been and will be placed on you are significant. It is my hope that
this compensation arrangement provides you with a level of comfort to allow you
to continue to perform your responsibilities in an exemplary manner. Please
indicate your acceptance by signing below.
Sincerely yours,
[XXX SIGNATURE]
cc: X. X. Xxx
X. X. XxxXxxxxx
I agree to the terms described above.
[XXXX SIGNATURE]
Xxxxxxx X. Xxxx
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ATTACHMENT TO AGREEMENT
BETWEEN GTE SERVICE CORPORATION AND XXXXXXX X. XXXX
DATED JANUARY 19, 1998
The amount to be paid, in accordance with paragraph (a)(ii)(z) of the
Change in Control section of the Termination Provisions of the Agreement, in
lieu of any stock options that otherwise would be granted will be determined by
applying the following Table:
THE AMOUNT PAYABLE UNDER PARAGRAPH (A)(II)(Z) IS THE
FOLLOWING PERCENTAGE OF THE GREATER OF (1) YOUR BASE SALARY IN
IF YOUR QUALIFYING TERMINATION OCCURS DURING THE PERIOD EFFECT IMMEDIATELY BEFORE THE CHANGE IN CONTROL OR (2) YOUR
DESIGNATED BELOW (DEFINED BY ANNUAL GRANTS OF STOCK OPTIONS BASE SALARY IN EFFECT IMMEDIATELY BEFORE THE QUALIFYING
UNDER THE LTIP) TERMINATION
----------------------------------------------------------- --------------------------------------------------------------
Before the 1999 annual grant........................ 368%
After the 1999 annual grant and before the 2000 annual
grant............................................. 251%
After the 2000 annual grant and before the 2001 annual
grant............................................. 148%
After the 2001 annual grant and before the 2002 annual
grant............................................. 62%
After the 2002 annual grant......................... 0%
Notwithstanding the foregoing, GTE has the right, after each annual grant
of stock options under LTIP, to change the percentages in the foregoing Table to
reflect the actual number of shares covered by the annual grant made to you,
such grant to be for the same number of shares as granted to other executives at
your grade level; provided that no such change may be made after a Change in
Control occurs.
