UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 21, 2007
Embarq Corporation
(Exact name of Registrant as specified in its charter)
| Delaware | 001-32732 | 20-2923630 | ||
| (State of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
| 5454 W. 110 th Street Overland Park, Kansas | 66211 | |
| (Address of principal executive offices) | (Zip Code) |
(913) 323-4637
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 5.02 | Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers; Compensatory Arrangements of Certain Officers |
2006 Compensation
2006 Short-Term Incentive Plan
On February 21, 2007, the Compensation Committee (the “Committee”) of the Board of Directors of Embarq Corporation (the “Company”) reviewed and approved the payment of cash under the Company’s 2006 Short-Term Incentive (“STI”) program for Gene M. Betts, Chief Financial Officer, Thomas A. Gerke, General Counsel and External Affairs, and Harrison S. Campbell, President-Consumer Markets. Additionally, the Committee approved the STI cash payment for Michael B. Fuller, the Company’s former Chief Operating Officer, whose employment with the Company ended on January 12, 2007. The STI cash payment for Daniel R. Hesse, the Company’s Chairman, Chief Executive Officer and President, was approved by the Committee on February 22, 2007, following input from the Board of Directors. Messrs. Hesse, Betts, Campbell, Gerke and Fuller have been identified by the Company as named executive officers for the year ended December 31, 2006.
The 2006 STI program provided for a payment of incentive compensation to executive officers and eligible employees based on our achievement in 2006 of performance objectives relating to telecommunications revenue and to operating income before depreciation and amortization (“OIBDA”), both adjusted for certain items, and customer satisfaction improvement. Each performance objective had a threshold, target and maximum level of payment opportunity at 0%, 100% and 200% of the individual’s target opportunity.
The Committee determined that the achievement of the performance objectives under the STI Plan resulted in a payout percentage of 112.9% of the STI target opportunity for each named executive officer, which resulted in cash payments as follows: Mr. Hesse, $1,271,349; Mr. Betts, $335,879; Mr. Campbell, $314,382; Mr. Gerke, $365,910; and Mr. Fuller, $674,962.
2006 Long-Term Incentive Plan
On February 21, 2007 (and with respect to Mr. Hesse’s award, on February 22, 2007, following input from the Board of Directors), the Committee met and approved the performance adjustment for the restricted stock units (“RSUs”) originally granted on July 28, 2006, as part of the Company’s 2006 Long-Term Incentive (“LTI”) program. The awards provided that the initial number of RSUs granted could be increased to up to 200% or decreased to 0% of the initial grant based upon our achievement of performance objectives relating to telecommunications revenue and OIBDA, both as adjusted for certain items, for the second half of the 2006 calendar year. The Committee determined that the achievement of the performance metrics under the LTI Plan resulted in a performance adjustment percentage of 107.5%. Based on the performance adjustment, each named executive officer received the following additional RSUs: Mr. Hesse, 9,765; Mr. Betts, 1,482; Mr. Campbell, 1,470, Mr. Gerke, 2,232 and Mr. Fuller, 4,185. These additional RSUs are subject to the same vesting and other terms and conditions as the initial RSUs.
2007 Compensation
On February 21 and 22, 2007, following a review of individual performance and a relevant market analysis, the Committee approved the Company’s 2007 executive compensation program,
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including individual base salaries, STI and LTI opportunities for each of our named executive officers. The Committee established 2007 annual base salary levels for the named executive officers on February 21, 2007 (and with respect to Mr. Hesse, on February 22, 2007, following input from the Board of Directors) as follows: Mr. Hesse, $1,000,000; Mr. Betts, $450,500; Mr. Campbell, $409,734; and Mr. Gerke, $474,575.
2007 Short-Term Incentive Program
On February 21, 2007, the Committee established the performance objectives, target opportunities and other terms of our 2007 STI program for the named executive officers and other eligible employees of the Company, except for Mr. Hesse whose 2007 STI performance objectives and target opportunity were established by the Committee on February 22, 2007, following input from the Board of Directors. The 2007 STI program provides for a payment of incentive compensation based on the weighted achievement of performance objectives during 2007 relating to telecommunications segment services revenue (40% weighting) and operating cash flow (40% weighting), both as adjusted for certain items, and customer satisfaction improvement (20% weighting). Each performance objective has a threshold, target and maximum level of payment opportunity at 0%, 100% and 200% of an individual’s target opportunity. The individual STI target opportunity for each of our named executive officers is as follows: Mr. Hesse, $1,200,000; Mr. Betts, $315,350; Mr. Campbell, $286,814 and Mr. Gerke, $332,203.
2007 Long-Term Incentive Plan
The Committee met on February 22, 2007 (the “Grant Date”), and approved the grant of the Company’s 2007 LTI annual equity awards to the named executive officers and certain other employees of the Company (the “LTI Awards”). The LTI Awards consist of options to purchase shares of the Company’s common stock and performance-based RSUs. The LTI Awards are subject to the terms of the Embarq Corporation 2006 Equity Incentive Plan, as amended and restated, a copy of which is filed as Exhibit 10.1 to the Form 8-K filed on December 13, 2006 and is incorporated herein by reference (the “Plan”), and the form of 2007 Award Agreement, or form of 2007 Award Agreement for Daniel R. Hesse, as applicable, forms of which are filed as Exhibits 10.1 and 10.2 to this report and are incorporated herein by reference (collectively, the “Award Agreements”).
The following description of the Awards is qualified in its entirety by reference to the full text of the Plan and the Award Agreements.
Option Awards
The exercise price for the option portion of the Awards is equal to the closing price of the Company’s common stock on the Grant Date. The number and class of shares subject to each option is subject to adjustment for certain capital events involving the common stock.
The options vest during the next three years, with 34% vesting on February 22, 2008, and 33% vesting on each of February 22, 2009, and February 22, 2010. The options will expire on February 22, 2017. In general, options will also vest upon an option holder’s death, disability, or, if the options have been outstanding for at least one year from the Grant Date, upon normal retirement as set forth in the applicable Award Agreement. In addition, if the options have been outstanding for at least one year from the Grant Date and the option holder was continuously employed up to the date of a change in control, unvested options will vest upon the option holder’s involuntary termination of employment without cause within 12 months following the “change in control,” as defined in the Plan. Otherwise, unvested options will
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expire as of the option holder’s Termination Date as defined in the Plan. Certain employees, including certain executive officers, of Embarq have employment agreements under which the vesting of unvested options following a change in control would accelerate if the employee resigns for “Good Reason,” as defined under the employment agreement, and the employee has held the options for more than one year from the Grant Date and has been continuously employed up to the date of the change in control.
Vested options remain exercisable for a specified period following termination of an option holder’s employment as set forth in the applicable Award Agreement. Generally, an option holder will have one year to exercise options following death, five years to exercise options following disability or retirement, and 90 days to exercise options following resignation or involuntary termination without cause.
Performance-Based RSU Awards
An RSU entitles the holder to receive from the Company, at the Company’s discretion, either one share of Embarq common stock at a particular date in the future or an amount of cash equal to the market value of one share of Embarq common stock on that future date. The number and class of shares required to be delivered under each RSU is subject to adjustment for certain capital events involving the common stock.
The RSUs will be settled in equal installments with 50% settled on February 21, 2009 and the remainder settled on February 21, 2010. The RSUs include a performance adjustment feature which could result in the initial number of RSUs granted being increased up to 200% or decreased to 0% of the initial grant based upon the weighted achievement of performance objectives related to the Company’s return on invested capital (50% weighting), as adjusted for certain items, and total shareholder return relative to the S&P 500 Index (50% weighting). The RSUs that settle on the first settlement date will be adjusted based on the Company’s achievement of the performance objectives measured at December 31, 2008. The RSUs that settle on the second settlement date will be adjusted based on the Company’s achievement of the performance objectives measured at December 31, 2009. In addition, each RSU gives the holder the right to receive dividend equivalents equal in value to dividends paid on Embarq common stock. The dividend equivalents will accrue and will be first paid on the adjusted number of RSUs at the time of each performance adjustment and thereafter at the time that dividends are paid on Embarq common stock for as long as the individual holds the RSUs.
In general, unsettled RSUs will be settled upon an RSU holder’s death, disability or retirement, as set forth in the Award Agreement. In addition, unsettled RSUs will be settled if the RSUs have been outstanding for at least one year, the holder was continuously employed up to the date of a change in control, and the holder’s involuntary termination of employment occurs within 12 months following the change in control. Otherwise, unsettled RSUs will be forfeited and cancelled as of the RSU holder’s Termination Date. Certain employees, including certain executive officers, of Embarq have employment agreements under which the settlement of unsettled RSUs following a change in control would accelerate if the employee resigns for “Good Reason,” as defined under the employment or severance agreement, and the employee has held the RSUs for more than one year from the Grant Date and has been continuously employed up to the date of the change in control.
The number of options and RSUs granted to the Company’s named executive officers in connection with the 2007 LTI program is set forth in the table below:
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|
Name |
Options |
Performance-Based RSUs |
||
|
Daniel R. Hesse |
157,800 | 96,436 | ||
|
Gene M. Betts |
28,179 | 17,221 | ||
|
Harrison S. Campbell |
24,797 | 15,154 | ||
|
Thomas A. Gerke |
36,069 | 22,043 |
Option Award for Daniel R. Hesse
On February 22, 2007, the Committee, following input from the Board of Directors, approved a special long-term retention grant of 157,800 options to purchase shares of the Company’s common stock (“Retention Award”) to Daniel R. Hesse, our Chairman, Chief Executive Officer and President. These stock options will vest 100% on February 22, 2011, and are otherwise subject to the same terms and conditions as the options granted as part of the 2007 LTI program. This description of the Retention Award is qualified in its entirety by reference to the full text of the Plan and the form of 2007 Award Agreement for Daniel R. Hesse, which is filed as Exhibit 10.2 to this report and is incorporated herein by reference.
| Item 9.01. | Financial Statements and Exhibits. |
(d) Exhibits
| Exhibit No. |
Exhibit Description |
|
| 10.1 | Form of 2007 Award Agreement | |
| 10.2 | Form of 2007 Award Agreement for Daniel R. Hesse | |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
| Embarq Corporation | ||||
| Date: February 26, 2007 | By: |
/s/ Claudia S. Toussaint
|
||
| Claudia S. Toussaint | ||||
| Vice President and Corporate Secretary | ||||
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EXHIBIT INDEX
| Exhibit No. |
Description |
|
| 10.1 | Form of 2007 Award Agreement | |
| 10.2 | Form of 2007 Award Agreement for Daniel R. Hesse | |
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Exhibit 10.1
EMBARQ CORPORATION 2006 EQUITY INCENTIVE PLAN
FORM OF AWARD AGREEMENT
| To: | _____________________ (“ You ” or the “ Participant ”) | |
| From: | Embarq Corporation (the “ Company ”) | |
| Date: | ___, 2007 | |
NOTICE OF GRANT
Subject to the Embarq Corporation 2006 Equity Incentive Plan (the “ Plan ”) and this Award Agreement, including Attachment A (the “ Award Agreement ”), the Company is granting to you an award of Restricted Stock Units (“ RSUs ”) and Stock Options (“ Options ”) under the Plan (this “ Award ”). The number of RSUs, the number of Shares subject to Options, the Grant Date, and the settlement/vesting dates for such RSUs and Options, respectively, are as follows:
| G RANT OF RSU S | ||||
| Grant Date: | February 22, 2007 | |||
| Total Number of RSUs: | 1 | |||
| Settlement Dates: | Date: | % of RSUs Settled: | ||
| First Settlement Date: | February 22, 2009 | 50% | ||
| Second Settlement Date: | February 22, 2010 | 50% | ||
| G RANT OF S TOCK O PTIONS | ||||
| Grant Date: | February 22, 2007 | |||
| Strike Price: | _____________________ | |||
| Total Number of Shares Subject to Options: | _____________________ | |||
| Vesting Dates: | Date: | Vested %: | ||
| February 22, 2008 | 34% | |||
| February 22, 2009 | 33% | |||
| February 22, 2010 | 33% | |||
Because this Award is subject to the Plan and this Award Agreement, you should carefully read the Plan and this Award Agreement, including Attachment A, to fully understand the terms of this Award. You may view a copy of the Plan on the Company’s intranet at or you may obtain a copy of the Plan by requesting it from the Company. Capitalized terms used in this Award Agreement without definition have the meanings that they have in the Plan. You acknowledge that the Plan’s Plan Information Statement dated has been made available to you on-line at . The terms of the Plan are incorporated by reference. In the event of any inconsistency between this Award Agreement and the Plan, the Plan governs.
|
1 |
Subject to adjustment as provided in Attachment A. |
General Terms
This Award Agreement is governed by the laws of the State of Delaware without giving effect to the principles of the conflict of laws to the contrary. This Award Agreement may be modified only by written instrument signed by you and the Company; provided that this Award Agreement is subject to the power of the Board to amend the Plan as provided in the Plan. Neither this Award Agreement, nor the Award, may be transferred, sold, assigned, pledged or otherwise alienated or hypothecated by you in any way other than by will, or by the laws of descent and distribution. By accepting this Award, you acknowledge the authority and discretion of the Board and the Committee with respect to this Award and agree to be bound by the terms and conditions of the Plan. Except as specifically provided in this Award Agreement, this Award Agreement binds and will inure to the benefit of the heirs, legal representatives, successors and assigns of the Company and you. To properly accept this Award Agreement, you must enter your Smith Barney trading PIN and click the “Accept” button on the previous screen.
| EMBARQ CORPORATION | ||
| By: | ||
|
Name: Claudia S. Toussaint Title: Corporate Secretary |
||
(Attachment A)
SPECIFIC TERMS OF RSU AWARD
Section 1. Performance Adjustment and Dividend Equivalents.
Subject to the discretion of the Committee, the number of RSUs granted under this Award may be adjusted by multiplying that number of RSUs set forth opposite the heading “Total Number of RSUs” on page 1 of this Award Agreement by a payout percentage (from 0% to 200%) based on the Company’s achievement of performance metrics relating to relative Total Shareholder Return and Return on Invested Capital during the 2007-2009 performance measurement period (the “Performance Adjustment”). The Performance Adjustment that will apply to the portion of the RSUs that settle on the First Settlement Date will be based on results of the performance metrics at the end of 2008. The Performance Adjustment that will apply to the portion of the RSUs that settle on the Second Settlement Date will be based on results of the performance metrics at the end of 2009. Each Performance Adjustment will be made as soon as practicable after the end of the 2008 and 2009 performance measurement periods.
If the Company pays cash dividends on shares of its common stock while you hold the RSUs, you will be entitled to a dividend equivalent payment equal to the per share cash dividend paid on shares of the Company’s common stock multiplied by the number of Shares underlying your RSUs. This dividend equivalent will be paid to you as soon as practicable after each Performance Adjustment date or Settlement Date, as applicable. This dividend equivalent will be calculated by first adjusting your RSUs to reflect any Performance Adjustment and then applying the per share cash dividend rate for each dividend paid on shares of the Company’s common stock while you held the RSUs (assuming you had been granted the RSUs by the applicable record date for a particular dividend), as adjusted by the Performance Adjustment. After the Performance Adjustment is made, if cash dividends are paid on the underlying Shares, you will receive dividend equivalents for your RSUs held on the dividend record date as soon as practicable after the cash dividends are paid. If non-cash dividends are paid on the underlying Shares and you hold RSUs on the dividend record date, the vesting and delivery date of the non-cash dividend will be the same as the Settlement Date of the RSUs to which the underlying Shares are attributable.
Section 2. Settlement of RSU Award.
Except as provided below, the Settlement Date for all or a portion of your RSU Award will be the date on which that portion of your Award is settled as indicated in the Settlement Dates section on page 1 of this Agreement. This RSU Award may be settled by delivering to you or your Beneficiary, as applicable and in the sole discretion of the Company, either (i) an amount of cash equal to the Fair Market Value of a Share as of the Settlement Date, multiplied by the number of Shares underlying the RSUs held by you (or a specified portion of your RSUs in the event of any partial settlement), or (ii) a number of Shares equal to the whole number of Shares underlying the RSUs then held by you (or a specified portion of your RSUs in the event of any partial settlement). Any remaining fractional Shares underlying your RSUs remaining on the Settlement Date will be distributed to you in cash in an amount equal to the Fair Market Value of a Share as of the Settlement Date, multiplied by the remaining underlying fractional shares. If the Settlement Date is a Saturday, Sunday or any other day which is a holiday of the United States Federal Government (a “Non-Business Day”), then the unsettled RSUs will be settled on the first day that is not a Non-Business Day (a “Business Day”) before the Settlement Date.
Section 3. Effect of Termination of Employment.
If you cease to be an employee of the Company for any reason, the effect of you ceasing to be an employee on all or any RSUs which have not otherwise been settled is as provided below.
| (a) | Death or Disability . If you cease to be an employee on account of your death or Disability, all RSUs will be settled as of the date of your death or Disability. |
| (b) | Resignation or Involuntary Termination . Except as provided below in Sections 3(c) and (d), if you cease to be an employee on account of your voluntary resignation or your employment being involuntarily terminated by the Company, whether or not constituting a Termination for Cause, all RSUs will be cancelled as of your Termination Date and you will no longer have any rights or be eligible to receive any benefits with respect to such cancelled RSUs. |
| (c) | Retirement. If you cease to be an employee by reason of your Retirement (as defined below in paragraph 7(d)(iii)), to the extent your Termination Date is at least one year after the Grant Date and to the extent your RSUs have not otherwise been settled or cancelled on your Termination Date, a pro rata portion of your RSUs – based on the number of months between the Grant Date and your Termination Date and the total number of months in the relevant performance measurement period (i.e., 24 or 36)—will be settled as of your Termination Date. |
| (d) | Change in Control. If (1) a Change in Control occurs before the Settlement Date for all of your RSUs, (2) except as may otherwise be provided in your employment agreement (if any), your employment is terminated by the Company in a Termination without Cause within one year after the Change in Control, (3) you have held the RSUs for more than one year from the Grant Date, and (4) you have been actively and continuously employed from the Grant Date to the date of the Change in Control, then all of your RSUs which have not otherwise been settled will be settled as of your Termination Date. |
Nothing in this Section 3 restricts or otherwise interferes with the Company’s discretion with respect to the termination of your employment with the Company.
SPECIFIC TERMS OF OPTIONS AWARD
Section 4. Nonqualified Stock Options .
The Options are not intended to qualify as “incentive stock options” within the meaning of Section 422 of the Code, and shall not be so construed.
Section 5. Exercise of Options.
Except as provided below, your Options will vest on the Vesting Dates shown opposite the heading “Vesting Dates” on page 1 of this Award Agreement provided you have been actively and continuously employed from the Grant Date to the Vesting Date. To the extent vested, you may exercise your Options under this Award in whole or in part at the time or times as permitted by the Plan and this Award Agreement if the Options have not otherwise expired, been forfeited or terminated. At the time of exercise, you may pay the exercise price in the form or forms, including payment by delivery of cash, Shares or other consideration (including, where permitted by law and the Committee, Awards) having a Fair Market Value on the Exercise Date equal to the total exercise price, or by any combination of cash, Shares and other consideration as the Committee may permit.
Section 6. Expiration of Options .
Unless terminated earlier in accordance with the terms of this Award Agreement or the Plan, the Options granted herein will expire at 3:00 P.M., U.S. Central Time, on the tenth (10th) Anniversary of the Grant Date (the “Expiration Date”). If the Expiration Date is a Non-Business Day, then the Options granted herein will expire, unless earlier terminated in accordance with the terms of this Award Agreement or the Plan, at 3:00 P.M., U.S. Central Time, on the first Business Day before the Expiration Date.
Section 7. Effect of Termination of Employment.
If you cease to be an employee of the Company for any reason, the effect of you ceasing to be an employee on all or any Option portion of this Award is as provided below. Notwithstanding anything below to the contrary, in no event may the Options be exercised after the Expiration Date.
| (a) | For Cause . If your employment is terminated by the Company in a Termination for Cause, all Options granted pursuant to this Award Agreement will immediately be forfeited as of that termination. |
| (b) | Death . |
| (i) | Acceleration of Vesting . If you cease to be an employee on account of your death, all of the Options, to the extent they have not otherwise expired, been forfeited or terminated, will become fully exercisable upon your death. |
(ii) Period of Time to Exercise . If you cease to be an employee on account of your death, all of your Options may be exercised by your designated beneficiary at any time before 3:00 P.M., U.S. Central Time, on the 365 th calendar day following the date of your death. If such 365 th day is a Non-Business Day, then the Options will remain exercisable until the first Business Day immediately following the 365 th day.
| (c) | Disability. |
| (i) | Acceleration of Vesting . If you cease to be an employee on account of your Disability, all of the Options, to the extent they have not otherwise expired, been forfeited or terminated, will become fully exercisable upon your Disability. |
(ii) Period of Time to Exercise . If you cease to be an employee on account of your Disability, all of your Options may be exercised by you at any time before 3:00 P.M., U.S. Central Time on the fifth anniversary of the date of your Separation from Service on account of Disability. If the date of such fifth anniversary is a Non-Business Day, then the Options will remain exercisable until the first Business Day immediately following the fifth anniversary.
| (d) | Retirement Other Than Normal Retirement. |
| (i) | No Acceleration of Vesting . If you cease to be an employee by reason of your Retirement (as defined below in paragraph (iii)), only those Options which were exercisable on your Termination Date may be exercised. |
(ii) Period of Time to Exercise . If you cease to be an employee by reason of your Retirement, all of your vested Options may be exercised by you at any time before 3:00 P.M., U.S. Central Time on the fifth anniversary of your Termination Date. If the date of such fifth anniversary is a Non-Business Day, then the Options will remain exercisable until the first Business Day immediately following the fifth anniversary.
(iii) Definition of Retirement . Your Retirement means your termination of employment if you are entitled to receive payment of pension benefits in accordance with the Company’s defined benefit pension plan immediately after your Termination Date.
| (e) | Normal Retirement. |
| (i) | Acceleration of Vesting . If you cease to be an employee by reason of your Normal Retirement (as defined below in paragraph (iii)), all of your Options, to the extent your Termination Date is at least one year after the Grant Date, and to the extent they have not otherwise expired, been forfeited or terminated, will become fully exercisable upon your Termination Date. |
(ii) Period of Time to Exercise . If you cease to be an employee by reason of your Normal Retirement, all of your Options may be exercised by you at any time before 3:00 P.M., U.S. Central Time on the fifth anniversary of your Termination Date. If the date of such fifth anniversary is not a Business Day, then the Options will remain exercisable until the first Business Day immediately following the fifth anniversary.
(iii) Definition of Normal Retirement . Your Normal Retirement means your “Retirement” (as defined above in Section (d)(iii)) at or later than an age qualifying as “normal retirement” under the Company’s defined benefit pension plan, whether or not you are a participant in that plan.
| (f) | Resignation or Involuntary Termination . |
| (i) | No Acceleration of Vesting . If you cease to be an employee on account of your voluntary resignation or your employment being involuntarily terminated by the Company other than for a reason constituting Termination for Cause, only those Options which were vested and exercisable as of your Termination Date may be exercised. |
(ii) Period of Time to Exercise . If you cease to be an employee on account of your voluntary resignation or your employment being involuntarily terminated by the Company other than for a reason constituting Termination for Cause, those Options which were vested and exercisable as of your Termination Date may be exercised at any time before 3:00 P.M., U.S. Central Time, on the 90 th calendar day following your Termination Date. If such 90 th day is a Non-Business Day, then the Options will remain exercisable until the first Business Day immediately following the 90 th day. All Options which were not otherwise vested and exercisable as of your Termination Date will be forfeited.
| (g) | Change in Control . |
| (i) | Acceleration of Vesting . If (1) a Change in Control occurs before the Vesting Date for all of your Options, (2) except as may otherwise be provided in your employment agreement (if any), your employment is terminated by the Company other than in a Termination for Cause within one year after the Change in Control, (3) you have held the Options for more than one year from the Grant Date, and (4) you have been actively and continuously employed from the Grant Date to the date of the Change in Control, then all of the Options, to the extent they have not otherwise expired, been forfeited or terminated, will become fully exercisable upon the date of your Separation from Service. |
(ii) Period of Time to Exercise . The period of time to exercise your Options following your Termination Date subsequent to a Change in Control will be determined based on the reason for your Separation from Service and governed by Sections 7(a)-(f) above.
Nothing in this Section 7 restricts or otherwise interferes with the Company’s discretion with respect to the termination of your employment with the Company.
Exhibit 10.2
EMBARQ CORPORATION 2006 EQUITY INCENTIVE PLAN
AWARD AGREEMENT
| To: | Daniel R. Hesse (“ You ” or the “ Participant ”) |
| From: | Embarq Corporation (the “ Company ”) |
| Date: | , |
Notice of Grant
Subject to the Embarq Corporation 2006 Equity Incentive Plan (the “ Plan ”) and this Award Agreement, including Attachment A (the “ Award Agreement ”), the Company is granting to you an award of Restricted Stock Units (“ RSUs ”) and Stock Options (“ Options ”) under the Plan (this “ Award ”). The number of RSUs, the number of Shares subject to Options, the Grant Date, and the settlement/vesting dates for such RSUs and Options, respectively, are as follows:
G RANT OF RSU S
|
Grant Date: |
February 22, 2007 | |||
|
Total Number of RSUs: |
96,436 1 | |||
|
Settlement Dates: |
Date: | % of RSUs Settled: | ||
|
First Settlement Date: |
February 22, 2009 | 50% | ||
|
Second Settlement Date: |
February 22, 2010 | 50% | ||
G RANT OF S TOCK O PTIONS
2007 A NNUAL G RANT
|
Grant Date: |
February 22, 2007 | |||
|
Strike Price: |
$56.43 | |||
|
Total Number of Shares Subject to Options: |
157,800 | |||
|
Vesting Dates: |
Date: | Vested %: | ||
| February 22, 2008 | 34% | |||
| February 22, 2009 | 33% | |||
| February 22, 2010 | 33% | |||
L ONG -T ERM R ETENTION O PTION A WARD
|
Grant Date: |
February 22, 2007 | |||
|
Strike Price: |
$56.43 | |||
|
Total Number of Shares Subject to Options: |
157,800 | |||
|
Vesting Dates: |
Date: | Vested %: | ||
| February 22, 2011 | 100% | |||
| 1 | Subject to adjustment as provided in Attachment A. |
Because this Award is subject to the Plan and this Award Agreement, you should carefully read the Plan and this Award Agreement, including Attachment A, to fully understand the terms of this Award. You may view a copy of the Plan on the Company’s intranet at or you may obtain a copy of the Plan by requesting it from the Company. Capitalized terms used in this Award Agreement without definition have the meanings that they have in the Plan. You acknowledge that the Plan’s Plan Information Statement dated has been made available to you on-line at . The terms of the Plan are incorporated by reference. In the event of any inconsistency between this Award Agreement and the Plan, the Plan governs.
General Terms
This Award Agreement is governed by the laws of the State of Delaware without giving effect to the principles of the conflict of laws to the contrary. This Award Agreement may be modified only by written instrument signed by you and the Company; provided that this Award Agreement is subject to the power of the Board to amend the Plan as provided in the Plan. Neither this Award Agreement, nor the Award, may be transferred, sold, assigned, pledged or otherwise alienated or hypothecated by you in any way other than by will, or by the laws of descent and distribution. By accepting this Award, you acknowledge the authority and discretion of the Board and the Committee with respect to this Award and agree to be bound by the terms and conditions of the Plan. Except as specifically provided in this Award Agreement, this Award Agreement binds and will inure to the benefit of the heirs, legal representatives, successors and assigns of the Company and you. To properly accept this Award Agreement, you must enter your Smith Barney trading PIN and click the “Accept” button on the previous screen.
The Company and the Participant hereby acknowledge and confirm that the Long-Term Retention Option Award shown on Page 1 of this Agreement is not a “compensation plan” within the meaning of subsection (vi) of the “Good Reason” definition in Participant’s employment agreement.
| EMBARQ CORPORATION | ||||
| By: | ||||
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Name: Claudia S. Toussaint Title: Corporate Secretary |
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(Attachment A)
SPECIFIC TERMS OF RSU AWARD
Section 1. Performance Adjustment and Dividend Equivalents.
Subject to the discretion of the Committee, the number of RSUs granted under this Award may be adjusted by multiplying that number of RSUs set forth opposite the heading “Total Number of RSUs” on page 1 of this Award Agreement by a payout percentage (from 0% to 200%) based on the Company’s achievement of performance metrics relating to relative Total Shareholder Return and Return on Invested Capital during the 2007-2009 performance measurement period (the “Performance Adjustment”). The Performance Adjustment that will apply to the portion of the RSUs that settle on the First Settlement Date will be based on results of the performance metrics at the end of 2008. The Performance Adjustment that will apply to the portion of the RSUs that settle on the Second Settlement Date will be based on results of the performance metrics at the end of 2009. Each Performance Adjustment will be made as soon as practicable after the end of the 2008 and 2009 performance measurement periods.
If the Company pays cash dividends on shares of its common stock while you hold the RSUs, you will be entitled to a dividend equivalent payment equal to the per share cash dividend paid on shares of the Company’s common stock multiplied by the number of Shares underlying your RSUs. This dividend equivalent will be paid to you as soon as practicable after each Performance Adjustment date or Settlement Date, as applicable. This dividend equivalent will be calculated by first adjusting your RSUs to reflect any Performance Adjustment and then applying the per share cash dividend rate for each dividend paid on shares of the Company’s common stock while you held the RSUs (assuming you had been granted the RSUs by the applicable record date for a particular dividend), as adjusted by the Performance Adjustment. After the Performance Adjustment is made, if cash dividends are paid on the underlying Shares, you will receive dividend equivalents for your RSUs held on the dividend record date as soon as practicable after the cash dividends are paid. If non-cash dividends are paid on the underlying Shares and you hold RSUs on the dividend record date, the vesting and delivery date of the non-cash dividend will be the same as the Settlement Date of the RSUs to which the underlying Shares are attributable.
Section 2. Settlement of RSU Award.
Except as provided below, the Settlement Date for all or a portion of your RSU Award will be the date on which that portion of your Award is settled as indicated in the Settlement Dates section on page 1 of this Agreement. This RSU Award may be settled by delivering to you or your Beneficiary, as applicable and in the sole discretion of the Company, either (i) an amount of cash equal to the Fair Market Value of a Share as of the Settlement Date, multiplied by the number of Shares underlying the RSUs held by you (or a specified portion of your RSUs in the event of any partial settlement), or (ii) a number of Shares equal to the whole number of Shares underlying the RSUs then held by you (or a specified portion of your RSUs in the event of any partial settlement). Any remaining fractional Shares underlying your RSUs remaining on the Settlement Date will be distributed to you in cash in an amount equal to the Fair Market Value of a Share as of the Settlement Date, multiplied by the remaining underlying fractional shares. If the Settlement Date is a Saturday, Sunday or any other day which is a holiday of the United States Federal Government (a “Non-Business Day”), then the unsettled RSUs will be settled on the first day that is not a Non-Business Day (a “Business Day”) before the Settlement Date.
Section 3. Effect of Termination of Employment.
If you cease to be an employee of the Company for any reason, the effect of you ceasing to be an employee on all or any RSUs which have not otherwise been settled is as provided below.
| (a) | Death or Disability . If you cease to be an employee on account of your death or Disability, all RSUs will be settled as of the date of your death or Disability. |
| (b) | Resignation or Involuntary Termination . Except as provided below in Sections 3(c) and (d), if you cease to be an employee on account of your voluntary resignation or your employment being involuntarily terminated by the Company, whether or not constituting a Termination for Cause, all RSUs will be cancelled as of your Termination Date and you will no longer have any rights or be eligible to receive any benefits with respect to such cancelled RSUs. |
| (c) | Retirement. If you cease to be an employee by reason of your Retirement (as defined below in paragraph 7(d)(iii)), to the extent your Termination Date is at least one year after the Grant Date and to the extent your RSUs have not otherwise been settled or cancelled on your Termination Date, a pro rata portion of your RSUs – based on the number of months between the Grant Date and your Termination Date and the total number of months in the relevant performance measurement period (i.e., 24 or 36)—will be settled as of your Termination Date. |
| (d) | Change in Control. If (1) a Change in Control occurs before the Settlement Date for all of your RSUs, (2) except as may otherwise be provided in your employment agreement (if any), your employment is terminated by the Company in a Termination without Cause within one year after the Change in Control, (3) you have held the RSUs for more than one year from the Grant Date, and (4) you have been actively and continuously employed from the Grant Date to the date of the Change in Control, then all of your RSUs which have not otherwise been settled will be settled as of your Termination Date. |
Nothing in this Section 3 restricts or otherwise interferes with the Company’s discretion with respect to the termination of your employment with the Company.
SPECIFIC TERMS OF OPTIONS AWARD
Section 4. Nonqualified Stock Options .
The Options are not intended to qualify as “incentive stock options” within the meaning of Section 422 of the Code, and shall not be so construed.
Section 5. Exercise of Options.
Except as provided below, your Options will vest on the Vesting Dates shown opposite the heading “Vesting Dates” on page 1 of this Award Agreement provided you have been actively and continuously employed from the Grant Date to the Vesting Date. To the extent vested, you may exercise your Options under this Award in whole or in part at the time or times as permitted by the Plan and this Award Agreement if the Options have not otherwise expired, been forfeited or terminated. At the time of exercise, you may pay the exercise price in the form or forms, including payment by delivery of cash, Shares or other consideration (including, where permitted by law and the Committee, Awards) having a Fair Market Value on the Exercise Date equal to the total exercise price, or by any combination of cash, Shares and other consideration as the Committee may permit.
Section 6. Expiration of Options .
Unless terminated earlier in accordance with the terms of this Award Agreement or the Plan, the Options granted herein will expire at 3:00 P.M., U.S. Central Time, on the tenth (10th) Anniversary of the Grant Date (the “Expiration Date”). If the Expiration Date is a Non-Business Day, then the Options granted herein will expire, unless earlier terminated in accordance with the terms of this Award Agreement or the Plan, at 3:00 P.M., U.S. Central Time, on the first Business Day before the Expiration Date.
Section 7. Effect of Termination of Employment.
If you cease to be an employee of the Company for any reason, the effect of you ceasing to be an employee on all or any Option portion of this Award is as provided below. Notwithstanding anything below to the contrary, in no event may the Options be exercised after the Expiration Date.
| (a) | For Cause . If your employment is terminated by the Company in a Termination for Cause, all Options granted pursuant to this Award Agreement will immediately be forfeited as of that termination. |
| (b) | Death . |
| (i) | Acceleration of Vesting . If you cease to be an employee on account of your death, all of the Options, to the extent they have not otherwise expired, been forfeited or terminated, will become fully exercisable upon your death. |
(ii) Period of Time to Exercise . If you cease to be an employee on account of your death, all of your Options may be exercised by your designated beneficiary at any time before 3:00 P.M., U.S. Central Time, on the 365 th calendar day following the date of your death. If such 365 th day is a Non-Business Day, then the Options will remain exercisable until the first Business Day immediately following the 365 th day.
| (c) | Disability. |
| (i) | Acceleration of Vesting . If you cease to be an employee on account of your Disability, all of the Options, to the extent they have not otherwise expired, been forfeited or terminated, will become fully exercisable upon your Disability. |
(ii) Period of Time to Exercise . If you cease to be an employee on account of your Disability, all of your Options may be exercised by you at any time before 3:00 P.M., U.S. Central Time on the fifth anniversary of the date of your Separation from Service on account of Disability. If the date of such fifth anniversary is a Non-Business Day, then the Options will remain exercisable until the first Business Day immediately following the fifth anniversary.
| (d) | Retirement Other Than Normal Retirement. |
| (i) | No Acceleration of Vesting . If you cease to be an employee by reason of your Retirement (as defined below in paragraph (iii)), only those Options which were exercisable on your Termination Date may be exercised. |
(ii) Period of Time to Exercise . If you cease to be an employee by reason of your Retirement, all of your vested Options may be exercised by you at any time before 3:00 P.M., U.S. Central Time on the fifth anniversary of your Termination Date. If the date of such fifth anniversary is a Non-Business Day, then the Options will remain exercisable until the first Business Day immediately following the fifth anniversary.
(iii) Definition of Retirement . Your Retirement means your termination of employment if you are entitled to receive payment of pension benefits in accordance with the Company’s defined benefit pension plan immediately after your Termination Date.
| (e) | Normal Retirement. |
| (i) | Acceleration of Vesting . If you cease to be an employee by reason of your Normal Retirement (as defined below in paragraph (iii)), all of your Options, to the extent your Termination Date is at least one year after the Grant Date, and to the extent they have not otherwise expired, been forfeited or terminated, will become fully exercisable upon your Termination Date. |
(ii) Period of Time to Exercise . If you cease to be an employee by reason of your Normal Retirement, all of your Options may be exercised by you at any time before 3:00 P.M., U.S. Central Time on the fifth anniversary of your Termination Date. If the date of such fifth anniversary is not a Business Day, then the Options will remain exercisable until the first Business Day immediately following the fifth anniversary.
(iii) Definition of Normal Retirement . Your Normal Retirement means your “Retirement” (as defined above in Section (d)(iii)) at or later than an age qualifying as “normal retirement” under the Company’s defined benefit pension plan, whether or not you are a participant in that plan.
| (f) | Resignation or Involuntary Termination . |
| (i) | No Acceleration of Vesting . If you cease to be an employee on account of your voluntary resignation or your employment being involuntarily terminated by the Company other than for a reason constituting Termination for Cause, only those Options which were vested and exercisable as of your Termination Date may be exercised. |
(ii) Period of Time to Exercise . If you cease to be an employee on account of your voluntary resignation or your employment being involuntarily terminated by the Company other than for a reason constituting Termination for Cause, those Options which were vested and exercisable as of your Termination Date may be exercised at any time before 3:00 P.M., U.S. Central Time, on the 90 th calendar day following your Termination Date. If such 90 th day is a Non-Business Day, then the Options will remain exercisable until the first Business Day immediately following the 90 th day. All Options which were not otherwise vested and exercisable as of your Termination Date will be forfeited.
| (g) | Change in Control . |
| (i) | Acceleration of Vesting . If (1) a Change in Control occurs before the Vesting Date for all of your Options, (2) except as may otherwise be provided in your employment agreement (if any), your employment is terminated by the Company other than in a Termination for Cause within one year after the Change in Control, (3) you have held the Options for more than one year from the Grant Date, and (4) you have been actively and continuously employed from the Grant Date to the date of the Change in Control, then all of the Options, to the extent they have not otherwise expired, been forfeited or terminated, will become fully exercisable upon the date of your Separation from Service. |
(ii) Period of Time to Exercise . The period of time to exercise your Options following your Termination Date subsequent to a Change in Control will be determined based on the reason for your Separation from Service and governed by Sections 7(a)-(f) above.
Nothing in this Section 7 restricts or otherwise interferes with the Company’s discretion with respect to the termination of your employment with the Company.