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 27, 2008

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. 110th 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

Appointment of President, Chief Executive Officer and Board Member

On March 3, 2008, Embarq Corporation (“Embarq”) announced that Thomas A. Gerke, 51, was appointed Chief Executive Officer and elected to the Board of Directors of Embarq effective immediately. Mr. Gerke was also appointed to the office of President. The press release is filed as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference.

From December 18, 2007 until March 2, 2008, Mr. Gerke served as Interim President and Chief Executive Officer of Embarq. From May 2006 to December 17, 2007, Mr. Gerke served as Embarq’s General Counsel – Law and External Affairs and from January 2007 to December 2007, he had additional responsibility for Embarq’s Wholesale Markets business unit. From August 2005 to May 2006, he served as General Counsel – Law and External Affairs of Sprint Nextel Corporation’s local telecommunications division. From May 2003 to August 2005, he served as Executive Vice President – General Counsel and External Affairs of Sprint Corporation (“Sprint”). Before that, he served as Vice President – Global Markets Group –Business Development of Sprint since June 2002.

Effective March 3, 2008, Embarq entered into a new employment agreement with Mr. Gerke (the “Agreement”). The Agreement supercedes Mr. Gerke’s prior employment agreement and can be terminated by either Embarq or Mr. Gerke upon 90 days prior written notice to the other party.

The Agreement provides for the following annual compensation: (i) base salary of $900,000; (ii) participation in Embarq’s Short-Term Incentive (“STI”) program, with a targeted opportunity equal to 100% of his annual base salary; and (iii) participation in Embarq’s Long-Term Incentive (“LTI”) program, with a targeted opportunity for 2008 of $2.7 million.

Under the Agreement, if Mr. Gerke’s employment is terminated by Embarq without cause or by Mr. Gerke for good reason, other than in the 2-year period following a change in control of Embarq, Mr. Gerke is entitled to the following: (i) continuation of his annual base salary for 18 months; (ii) a pro rata payment of any amounts he would have earned otherwise under the then applicable STI program with respect to the portion of the fiscal year through the date of termination of employment; (iii) payment, at the later of the time when payouts would be made to other participants for the next applicable performance period under the then applicable STI program or at the end of the severance period, of an amount equal to 1.5 times 80% of his targeted opportunity under such program; (iv) continued participation in certain benefit plans, and (v) continued vesting of any equity awards for 18 months following termination of employment.

If Mr. Gerke’s employment is terminated by Embarq without cause or by Mr. Gerke for good reason within the 2-year period following a change in control of Embarq, Mr. Gerke is entitled to similar benefits to those set forth above, except that salary continuation would be for a period of 24 months, the applicable STI payment would equal 2 times an amount equal to 80% of his targeted opportunity under the applicable program and would be payable as set forth above, and any equity awards that are unvested at the end of the 24-month severance period would vest at such time.

Mr. Gerke is subject to restrictive covenants during and following his employment, including non-competition and non-solicitation covenants which are applicable for 18 months following termination of employment other than in connection with a change in control and 24 months following termination of employment in connection with a change in control. Mr. Gerke would forfeit his right to severance benefits if he were to breach any of these covenants. Change in control, cause, good reason, competitor and other applicable terms are defined in the Agreement.

 

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The Agreement is filed as Exhibit 10.1 to this Form 8-K and is incorporated herein by reference.

2007 Compensation

2007 Short-Term Incentive Program

On February 27, 2008, the Compensation Committee (the “Committee”) of the Board of Directors of Embarq reviewed and approved the payment of cash under Embarq’s 2007 STI program for Gene M. Betts, Chief Financial Officer, Harrison S. Campbell, President-Consumer Markets, Thomas J. McEvoy, President – Business Markets, E.J. Holland, Jr. Senior Vice President – Human Resources and Communications and William A. Blessing, the former Senior Vice President – Corporate Strategy and Development. On February 28, 2008, the Committee reviewed and approved the payment of cash under Embarq’s 2007 STI program for Thomas A. Gerke, President and Chief Executive Officer. Messrs. Gerke, Betts, Campbell, McEvoy, Holland and Blessing have been identified by Embarq as named executive officers for the year ended December 31, 2007.

The Committee determined that the achievement of the performance objectives under the STI program resulted in a payout percentage of 153.2% of the STI target opportunity for each named executive officer, which resulted in cash payments as follows: Mr. Gerke, $508,935; Mr. Betts, $483,116; Mr. Campbell, $439,399; Mr. McEvoy, $439,399; Mr. Holland, $ 264,795, and Mr. Blessing, $288,762.

2008 Compensation

On February 27, 2008, the Committee established 2008 annual base salary levels for our current named executive officers (excluding Mr. Gerke whose 2008 base salary is discussed above), as follows: Mr. Betts, $550,000; Mr. Campbell, $418,000; Mr. McEvoy $418,000; and Mr. Holland, $291,000.

2008 Short-Term Incentive Program

On February 27, 2008, the Committee established the performance objectives and other terms of our 2008 STI program for the named executive officers and other eligible employees. The 2008 STI program provides for a payment of incentive compensation based on the weighted achievement of performance objectives during 2008 relating to telecommunications segment services revenue (30% weighting) and operating cash flow (50% 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 25%, 100% and 200% of an individual’s target opportunity. No payment will be made with respect to performance below the threshold level. On February 27, 2008, the Committee established an individual STI target opportunity for each of our current named executive officers (excluding Mr. Gerke whose 2008 STI opportunity is discussed above) as follows: Mr. Betts, $440,000; Mr. Campbell, $293,000, Mr. McEvoy, $293,000; and Mr. Holland, $175,000.

 

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2008 Long-Term Incentive Program

On March 2, 2008, the Committee approved the grant of annual equity awards to the named executive officers and certain other Embarq employees as part of Embarq’s 2008 Long-Term Incentive program (the “LTI Awards”). The LTI Awards consist of options to purchase shares of Embarq’s common stock and performance-based restricted stock units (“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”), the form of 2008 Restricted Stock Unit Award Agreement and the form of Stock Option Award Agreement, which are filed as Exhibits 10.2 and 10.3 to this report and are incorporated herein by reference (collectively, the “Award Agreements”).

The following description of the LTI 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 Embarq common stock on March 3, 2008. The number and class of shares subject to each option are subject to adjustment for certain capital events involving the common stock.

The options vest during the next 3 years, with 34% vesting on March 2, 2009, and 33% vesting on each of March 2, 2010, and March 2, 2011. The options will expire on March 2, 2018. The applicable Award Agreement provides that options will also vest upon an option holder’s death, disability, or upon normal retirement, or after the option holder’s involuntary termination of employment without cause within 12 months following a change in control. Otherwise, unvested options will expire as of the option holder’s Termination Date as defined in the Award Agreement.

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, at Embarq’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 vest on March 2, 2011, subject to the performance adjustment. The RSUs include a performance adjustment feature based upon the weighted achievement of performance objectives related to Embarq’s Economic Value Added (50% weighting), as adjusted for certain items, and total shareholder return relative to the S&P 500 Index (50% weighting) measured over the period from

 

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January 1, 2008, through December 31, 2010. The performance objectives have threshold, target and maximum levels of payment opportunity represented by a percentage of an individual’s target opportunity as follows: 25%, 100% and 200% for Economic Value Added; 20%, 100% and 200% for total shareholder return. Actual performance as of the end of the performance period will result in the initial number of RSUs being increased up to 200% or decreased to 0% of the initial grant. 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 following the performance adjustment.

The applicable Award Agreement generally provides that unvested RSUs will vest upon an RSU holder’s death, disability or retirement or after the holder’s involuntary termination of employment within 12 months following a change in control. Otherwise, unvested RSUs will be forfeited and cancelled as of the RSU holder’s Termination Date.

The number of options and RSUs granted to the current named executive officers in connection with the 2008 LTI Plan is set forth in the table below:

 

Name

   Options    Performance-Based RSUs

Thomas A. Gerke

   95,338    45,080

Gene M. Betts

   63,559    30,053

Harrison S. Campbell

   38,841    18,365

Thomas J. McEvoy

   38,841    18,365

E.J. Holland, Jr.

   16,596    7,847

 

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Item 9.01. Financial Statements and Exhibits.

 

(d) Exhibits

 

Exhibit No.

  

Exhibit Description

10.1    Employment Agreement dated as of March 3, 2008 between Thomas A. Gerke and Embarq Corporation
10.2    Form of 2008 Restricted Stock Unit Award Agreement
10.3    Form of Stock Option Award Agreement
99.1    Press Release dated March 3, 2008

 

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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.

 

Date: March 4, 2008     Embarq Corporation
      By:  

/s/ Claudia S. Toussaint

       

Claudia S. Toussaint

General Counsel and Corporate Secretary

 

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EXHIBIT INDEX

 

Exhibit No.

  

Exhibit Description

10.1    Employment Agreement dated as of March 3, 2008 between Thomas A. Gerke and Embarq Corporation
10.2    Form of 2008 Restricted Stock Unit Award Agreement
10.3    Form of Stock Option Award Agreement
99.1    Press Release dated March 3, 2008

 

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Exhibit 10.1

Execution Copy

Employment Agreement

THIS EMPLOYMENT AGREEMENT (this “ Agreement ”) is dated as of March 3, 2008 (the “ Effective Date ”), by and between Embarq Corporation, a Delaware corporation (the “ Company ”), and THOMAS A. GERKE (“ Executive ”).

Recitals

 

1. Executive has been, and now is, serving as Interim Chief Executive Officer.

 

2. The Company desires to secure the continued long-term employment of Executive as the Chief Executive Officer.

Now, THEREFORE, in consideration of the promises and mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which consideration is mutually acknowledged by the parties, the parties hereby agree as follows:

 

1. Employment and Termination

 

1.01 Conditions of Employment

Subject to the terms of this Agreement, the Company hereby agrees to employ Executive as its Chief Executive Officer, with such authority, power, responsibilities, and duties customarily exercised by a person holding such positions in a company of the size and nature of the Company and with reporting responsibility directly and exclusively to the Board.

 

1.02 Performance of Duties

Executive shall, during his employment with the Company, owe an undivided duty of loyalty to the Company and agrees to use his best efforts to promote and develop the business of the Company. Executive agrees that, during his employment with the Company, he must devote his full business time, energies, and talents to serving as the Chief Executive Officer of the Company and that he shall perform his duties faithfully and efficiently subject to the directions of the Board. Notwithstanding the foregoing, Executive may, subject in all cases to the Company’s Principles of Business Conduct (or any successor code of conduct) (i) serve as a director, trustee, or officer or otherwise participate in not-for-profit educational, welfare, social, religious, and civic organizations; (ii) serve as a director of any for-profit business listed on Exhibit A hereto or, with the prior consent of the Board, serve as a director of any for-profit business that is not a Competitor; and (iii) acquire passive investment interests in one or more entities, to the extent that the other activities do not inhibit or interfere with the performance of Executive’s duties under this Agreement, or to the knowledge of Executive conflict in any material way with the business or policies of the Company. Executive acknowledges that he is subject to the terms of the Company’s Compensation Recoupment Policy as set forth in the Company’s Corporate Governance Guidelines.

 

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1.03 Term of Employment

The term of Executive’s employment under this Agreement (the “Employment Term ) will begin on the Effective Date and ends on the date specified in a notice from one party to the other given at least ninety (90) days in advance of the proposed termination date by either party.

 

1.04 Procedures for Termination

 

(a) General Procedures

Except as set forth below, any purported termination of this Agreement or of Executive’s employment by the Company or by Executive during the Employment Term, other than by Executive’s death, shall be communicated by a written notice of termination to the other party hereto delivered in accordance with Section 13 below and the notice period described in Section 1.03 above, indicating the specific termination provision in this Agreement relied upon and setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated. Any such termination will be effective on the Termination Date.

 

(b) Cause Termination

The Company may not terminate Executive’s employment for Cause during the Employment Term until it delivers to Executive a written notice stating that Executive is guilty of conduct constituting Cause by reference to one or more clauses of Section 6.05 and specifying the particulars thereof in reasonable detail.

 

(c) CIC Good Reason Termination

Executive may terminate his employment for CIC Good Reason during the Employment Term only within the CIC Protected Period following written notice and an opportunity for the Company to cure; provided, however, that Executive may not give notice of termination for CIC Good Reason during any Period in which Executive is unable to substantially perform his duties with the Company due to physical or mental illness. In order to effect a termination for CIC Good Reason, Executive must, within 60 days following the event or circumstance giving rise to Executive’s claim, deliver a written notice to the Company that sets forth the specific event or circumstance giving rise to CIC Good Reason by reference to one or more clauses of the definition of CIC Good Reason set forth in Section 6.08 of this Agreement. If, within 30 days following notice from Executive, the Company corrects, in all material respects, the events or circumstances giving rise to Executive’s claim for CIC Good Reason, Executive shall not be entitled to terminate his employment for CIC Good Reason by reason of such event or circumstance.

 

(d) Non-CIC Good Reason Termination

Executive may terminate his employment for Non-CIC Good Reason any time during the Employment Term following written notice and an opportunity for the Company to cure. In order to effect a termination for Non-CIC Good Reason, Executive must deliver a

 

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written notice to the Company within 60 days following the event or circumstance giving rise to Executive’s claim of Non-CIC Good Reason. The notice must set forth the specific event or circumstance giving rise to Non-CIC Good Reason by reference to one or more clauses of the definition of Non-CIC Good Reason set forth in Section 6.20 of this Agreement. If, within 30 days following notice from Executive, the Company corrects, in all material respects, the events or circumstances giving rise to Executive’s claim for Non-CIC Good Reason, Executive shall not be entitled to terminate his employment for Non-CIC Good Reason by reason of such event or circumstance.

 

(e) Payment of Compensation Earned Through Termination Date

Upon a termination of Executive’s employment hereunder for any reason, Executive or, in the event of his death, Executive’s estate, in addition to any other payments or benefits to which Executive may be entitled hereunder, is entitled to

 

  (i) payment of any unpaid amount of Executive’s Base Salary prorated through the Termination Date,

 

  (ii) any payment under the Incentive Plan for Performance Periods ending before the Termination Date, unless eliminated or reduced, and then only to the extent that such payments are eliminated or reduced, for all Senior Officers continuing employment with the Company, and

 

  (iii) any vacation pay for vacation accrued by Executive in the calendar year of termination but not taken at the Termination Date.

Except as otherwise provided herein, the Company must pay any other employee benefits to which Executive is entitled by reason of his employment to Executive or his estate at the time or times required by the terms of the applicable Company plan or policy.

 

(f) Effect of Termination on Other Positions

If, on the Termination Date, Executive (i) is a member of the Board or any board of directors of one of the Company’s subsidiaries, (ii) serves on the board of directors of any other corporation by nomination, appointment, or designation by the Company or any of its subsidiaries, or (iii) holds any other position with the Company or any of its subsidiaries, Executive shall, unless otherwise agreed to by the Company, be deemed to have resigned from all such positions as of the Termination Date. Executive agrees to execute such documents and take such other actions as the Company may request to reflect such resignations.

 

(g) Condition to Certain Payments

Payments under Section 4 are conditioned on Executive’s compliance with the requirements of Section 4.03(b).

 

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(h) Exit Interview

At the Company’s request, Executive shall participate in an exit interview prior to Executive’s last day worked as an employee of the Company to provide for the orderly transition of his duties, to arrange for the return of the Company’s property, to discuss his intended new employment, and to discuss and complete such other matters as may be necessary to ensure full compliance with this Agreement.

 

2. Compensation

Subject to the terms of this Agreement, during the Employment Term, while Executive is employed by the Company, the Company will compensate him for his services as follows:

 

2.01 Base Salary

Executive shall receive an annual base salary in an amount not less than $900,000, payable in monthly or more frequent installments in accordance with the Company’s payroll policies and practices (such annual base salary as adjusted pursuant to this Section 2.01 shall hereinafter be referred to as the “ Base Salary ”). Executive’s Base Salary shall be reviewed, and may be increased but not decreased below the rate in effect on the Effective Date (other than across-the-board reductions similarly affecting all Senior Officers), by the Board in a manner that is fair and pursuant to its normal performance review policies for Senior Officers.

 

2.02 Incentive Payments

Executive will continue to participate in the Incentive Plan, subject to its terms and conditions as they may from time to time be established, amended, interpreted, or terminated in accordance with the Company’s plans or policies governing such benefits to the Company’s Senior Officers generally. Executive’s Targeted Compensation under the Incentive Plan shall be equal to 100% of Base Salary, and may be increased but not decreased below his Targeted Compensation (other than across-the-board reductions similarly affecting all Senior Officers), by the Board in a manner that is fair and pursuant to its normal performance review policies for Senior Officers.

 

2.03 Equity Incentive Plan Payments

Executive will continue to participate in the Company’s Long-Term Incentive Plan (the “ LTI Plan ”), subject to its terms and conditions as they may from time to time be established, amended, interpreted, or terminated in accordance with the Company’s plans or policies governing the Company’s Senior Officers generally. Executive’s 2008 target opportunity under the LTI Plan shall be equal to $2.7 million (awarded and valued in a manner that is consistent with the Company’s 2007 grant practices). Executive shall remain eligible to continue to receive annual awards under the LTI Plan, or successor program for the payment of long-term equity incentive compensation, by the Board in a manner that is fair and consistent with its normal grant policies for Senior Officers.

 

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2.04 Employee Benefits

The Company will provide Executive with the employee benefits (including, without limitation, life, disability, medical and dental insurance coverage, participation in the Company’s savings and pension plans, and other benefits and perquisites generally provided to Senior Officers) that are no less favorable in the aggregate to Executive than those provided to him as of the Effective Date, subject to amendment, modification, interpretation by the Company, or termination in accordance with the Company’s plans or policies governing such benefits to Senior Officers generally. As provided in Section 15 below, all payments to be made under this Section will be made in a manner that comports with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

 

2.05 Expense Reimbursement

The Company will reimburse Executive for reasonable out-of-pocket expenses incurred and accounted for in accordance with the policies and procedures of the Company for Senior Officers generally, as they may from time to time be established, interpreted, amended, or terminated.

 

3. Executive Covenants

 

3.01 Principles of Business Conduct

Executive shall adhere in all respects to the Company’s Principles of Business Conduct (or any successor code of conduct) as they may from time to time be established, interpreted, amended, or terminated.

 

3.02 Proprietary Information

Executive acknowledges that during the course of his employment he has learned or will learn or develop Proprietary Information. Executive further acknowledges that unauthorized disclosure or use of such Proprietary Information, other than in discharge of Executive’s duties, will cause the Company irreparable harm. Except in the course of his employment with the Company under this Agreement, in the pursuit of the business of the Company, or as otherwise required in employment with the Company, Executive shall not, during the course of his employment or at any time following termination of his employment, directly or indirectly, disclose, publish, communicate, or use on his behalf or another’s behalf, any Proprietary Information. If during or after his employment Executive has any questions about whether particular information is Proprietary Information he shall consult with the Company’s General Counsel or other representative designated by the Company.

Executive also agrees to promptly disclose to the Company any information, ideas, or inventions made or conceived by him that result from or are suggested by services performed by him for the Company under this Agreement, and to assign to the Company all rights pertaining to such information, ideas, or inventions. Knowledge or information of any kind disclosed by Executive to the Company shall be deemed to have been disclosed without obligation on the part of the Company to hold the same in confidence, and the Company shall have the full right to use and disclose such knowledge and information without compensation to Executive beyond that specifically provided in this Agreement.

 

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3.03 Non-Competition

During Executive’s employment with the Company and during the Non-Compete Period, Executive shall not engage in Competitive Employment, whether paid or unpaid and whether as a consultant, employee, or otherwise. Executive agrees that because of the scope of the Company’s business, breach of this Agreement by accepting Competitive Employment would irreparably injure the Company and that, therefore, a limited geographic restriction is neither feasible nor appropriate to protect the Company’s interests.

 

3.04 Inducement of Employees, Customers and Others

During Executive’s employment with the Company and during the Non-Compete Period, Executive shall not directly or indirectly solicit, induce, or encourage any employee, consultant, agent, or customer of the Company, or vendor or other parties doing business with the Company, to terminate their employment, agency, or other relationship with the Company or to render services for or transfer business to any Competitor, and Executive shall not initiate discussion with any such person for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity on behalf of the Competitor.

 

3.05 No Adverse Actions

During the Non-Compete Period, Executive shall not, without the prior written consent of the Company, in any manner, solicit, request, advise, or assist any other person to (a) undertake any action that would be reasonably likely to, or is intended to, result in a Change in Control, or (b) seek to control in any material manner the Board.

 

3.06 Return of Property

Executive shall, upon his Termination Date, return to the Company all property of the Company in his possession, including all notes, reports, sketches, plans, published memoranda, or other documents, whether in hard copy or in electronic form, created, developed, generated, received, or held by Executive during his employment, concerning or related to the Company’s business, whether containing or relating to Proprietary Information or not. Executive shall not remove, by e-mail, by removal of computer discs or hard drives, or by other means, any of the above property containing Proprietary Information, or reproductions or copies thereof, or any apparatus from the Company’s premises without the Company’s written consent.

 

3.07 Mutual Non-disparagement

Executive agrees to refrain from making any statements about the Company or its officers or directors that would disparage, or reflect unfavorably upon the image or reputation of the Company or any such officer or director. The Company agrees to use reasonable efforts to prevent its directors and officers from making any statements about Executive that would disparage, or reflect unfavorably upon the image or reputation of, Executive.

 

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3.08 Assistance with Claims

Executive agrees that, consistent with Executive’s business and personal affairs, during and after his employment by the Company, he will assist the Company in the defense of any claims or potential claims that may be made or threatened to be made against it in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative (“ Proceeding ”) and will assist the Company in the prosecution of any claims that may be made by the Company in any Proceeding, to the extent that such claims may relate to Executive’s services provided under this Agreement; provided, however, in no event shall the term “assist” in the previous sentence be interpreted as requiring Executive to render legal services of any nature to or on behalf of the Company in connection with any such defense or prosecution after Executive’s employment by the Company.

Executive agrees, unless precluded by law, to promptly inform the Company if Executive is asked to participate (or otherwise become involved) in any Proceeding involving such claims or potential claims.

Executive also agrees, unless precluded by law, to promptly inform the Company if Executive is asked to assist in any investigation (whether governmental or private) of the Company (or its actions), regardless of whether a lawsuit has then been filed against the Company with respect to such investigation. The Company agrees to reimburse Executive for all of Executive’s reasonable out-of-pocket expenses associated with such assistance, including travel expenses and any attorneys’ fees and shall pay a reasonable per diem fee (equal to 1/250th of his Base Salary rate at his Termination Date) for Executive’s services.

 

3.09 Key Man Life Insurance

The Company may, at its discretion, purchase for its own benefit and at its own expense, key man life insurance on the life of Executive. Neither Executive nor Executive’s spouse or dependents shall have any right, title, or interest in or to such insurance or the proceeds thereof. Executive agrees to cooperate with the life insurance company and the Company in the insurance underwriting process, including submitting to a physical examination and other tests necessary to secure coverage, and signing all appropriate applications and written forms as may be required by the insurance company.

 

4. Payments On Certain Terminations

 

4.01 Payments on Certain Terminations Not in Connection with Change in Control

If, during the Employment Term but not within a CIC Protected Period, (a) the Company terminates Executive’s employment with the Company for any reason other than (x) Cause or (y) Executive’s Total Disability or (b) Executive terminates his employment with the Company for Non-CIC Good Reason, then Executive shall, subject to the other applicable provisions of this Section 4, be entitled to the following payments and benefits (the “ Non-CIC Benefits ”) in lieu of any other payments or benefits available under Section 4.02 below or under any and all Company separation plans or policies:

 

  (i) The Company will pay Executive his Base Salary, in equal installments in arrears and on the same schedule as paid before his Termination Date, for a period (the “ Non-CIC Severance Period ”) commencing on the Termination Date and ending on the date 18 months after the Termination Date, at the rate in effect on his Termination Date.

 

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  (ii) The Company will pay Executive, at the time and in the amounts set forth immediately below, Executive’s (x) incentive amount earned under the Incentive Plan for that portion of the Termination Performance Period ending on Executive’s Termination Date and (y) the incentive amount under the Incentive Plan for the Non-CIC Severance Period. Such amounts shall be calculated and paid as follows:

 

  (A) For the Termination Performance Period, the Company will pay Executive, at the time when payouts are made for that Performance Period, but no later than March 15 of the following year, an amount equal to the Non-CIC Termination Period Incentive Payout.

 

  (B) The Company will pay Executive, at the later of (x) the time when payouts are made for the next Performance Period, but no later than March 15 of the year following that Performance Period, or (y) the end of the Non-CIC Severance Period, an amount equal to 1.5 times the Capped Incentive Payout.

This Section 4.01(ii) assumes that Performance Periods under the Incentive Plan are 12 months in length. To the extent that Performance Periods are greater or lesser than 12 months, the above payout schedule shall be appropriately adjusted by the Company, either by increasing or decreasing the number of Performance Periods in which severance payouts shall be made, such that (i) the final payment made to Executive under this Section 4.01(ii) shall be made at the time payouts are made for the Performance Period in which the Non-CIC Severance Period ends, and (ii) Executive shall receive no less than nor no greater than the amount, using concepts and formulas consistent with those provided in this Section 4.01(ii), that would have accrued and been payable to Executive under the Incentive Plan for the Non-CIC Severance Period had the Performance Periods remained 12 months in length.

 

  (iii) During the Non-CIC Severance Period, the Company will provide any employee benefit (including, but not limited to, executive medical, dental and life coverage, qualified or nonqualified retirement benefits, and other benefits generally provided to Senior Officers other than country club membership dues and accrual of vacation) that Executive was receiving or was entitled to receive as of the Termination Date in accordance with the terms of the relevant Company plan or policy, except that long term-disability and short-term disability benefits shall cease on Executive’s last day worked as an employee of the Company, but if Executive becomes employed full-time during the Non-CIC Severance Period, Executive’s entitlement to continued participation in any medical, dental or other group health plan sponsored by the Company shall immediately cease, except that Executive shall retain any rights to continue coverage under the COBRA continuation provisions of such Company’s group health care plans by paying the applicable premium therefor.

 

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  (iv) During the Non-CIC Severance Period, the Company will pay for outplacement counseling by a firm selected by the Company to continue until the earlier of such time as Executive becomes re-employed or the end of the Non-CIC Severance Period.

 

  (v) Except as provided in a grant or award agreement made prior to the date of this Agreement, and unless the Board, or its Compensation Committee adopts a more favorable policy for Senior Officers generally, the end of the Non-CIC Severance Period will be treated as Executive’s termination date for purposes of the Company’s stock option, restricted stock and restricted stock unit and other equity programs.

In all events, Executive’s right to receive the Non-CIC Benefits shall cease immediately if Executive is re-employed by the Company or an affiliate of the Company or if Executive breaches the Restrictive Covenants. In all cases, the Company’s rights under Section 5 shall continue.

 

4.02 Payments on Certain Terminations in Connection with a Change in Control

If, during the Employment Term and within a CIC Protected Period, (a) the Company terminates Executive’s employment with the Company for any reason other than (x) Cause or (y) Executive’s Total Disability, or (b) Executive terminates his employment with the Company for CIC Good Reason, then Executive shall, subject to the other applicable provisions of this Section 4, be entitled to the following payments and benefits (the “CIC Benefits”) in lieu of any other payments or benefits available under Section 4.01 above or under any and all Company separation plans or policies:

 

  (i) In lieu of any further salary payments to Executive for periods after the Termination Date, the Company will pay Executive an aggregate amount equal to two times Executive’s Base Salary (without regard to any deferred amounts); provided, however, to the extent that Executive terminates his employment because of CIC Good Reason and a reduction in Executive’s Base Salary has occurred which constitutes CIC Good Reason under Section 6.08(ii) of this Agreement, Executive’s Base Salary for the purpose of this Section 4.02(i) shall be Executive’s Base Salary immediately prior to such Base Salary reduction. The payment made pursuant to this Section 4.02(i) shall be paid to Executive in equal installments in arrears and on the same schedule as Executive’s Base Salary was being paid to Executive before the Termination Date for a period (the “ CIC Severance Period ”) beginning on the Termination Date and ending the date 24 months after the Termination Date.

 

  (ii)

In lieu of any payments under, and notwithstanding any provisions of the Incentive Plan, the Company will pay Executive, at the time and in the amounts set forth immediately below, Executive’s (x) incentive amount earned under the

 

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Incentive Plan for that portion of the Termination Performance Period ending on Executive’s Termination Date and (y) the incentive amount equal to the amount Executive could have received under the Incentive Plan for the CIC Severance Period. Such amounts shall be calculated and paid as follows:

 

  (A) For the Termination Performance Period, the Company will pay Executive, at the time when payouts are made for that Performance Period, but no later than March 15 of the following year, an amount equal to the CIC Termination Period Incentive Payout.

 

  (B) The Company will pay Executive, at (x) the time when payouts are made for that Performance Period, but no later than March 15 of the year following that Performance Period, or (y) the end of the CIC Severance Period, an amount equal to 2 times the Capped Incentive Payout.

Notwithstanding the above and for the purpose of determining the payout amounts under Sections 4.02(ii)(B), to the extent that Executive terminates his employment because of CIC Good Reason and a reduction in Executive’s Targeted Compensation has occurred which constitutes CIC Good Reason under Section 6.08(vi) of this Agreement, Executive’s Targeted Compensation for purposes of Sections 4.02(ii)(B) shall be Executive’s Targeted Compensation immediately prior to such Targeted Compensation reduction.

This Section 4.02(ii) assumes that Performance Periods under the Incentive Plan are 12 months in length. To the extent that Performance Periods are greater or lesser than 12 months, the above payout schedule shall be appropriately adjusted by the Company, either by increasing or decreasing the number of Performance Periods in which severance payouts shall be made, such that (i) the final payment made to Executive under this Section 4.02(ii) shall be made at the time payouts are made for the Performance Period in which the CIC Severance Period ends, and (ii) Executive shall receive no less than nor no greater than the amount, using concepts and formulas consistent with those provided in this Section 4.02(ii), that would have accrued and been payable to Executive under the Incentive Plan for the CIC Severance Period had the Performance Periods remained 12 months in length.

 

  (iii)

During the CIC Severance Period, the Company will, in such manner as is selected by the Company in its sole discretion, provide, arrange to provide, or reimburse Executive for any employee benefit (including, but not limited to, executive medical, dental and life coverage, qualified or nonqualified retirement benefits, and other benefits generally provided to Senior Officers other than country club membership dues and accrual of vacation) that Executive was receiving or was entitled to receive as of the Termination Date in accordance with the terms of the relevant Company plan or policy, except that long-term disability and short-term disability benefits shall cease on Executive’s last day worked as an employee of the Company, but if Executive becomes employed full-time during the CIC Severance Period, Executive’s entitlement to continued participation in

 

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any medical, dental or other group health plan sponsored by the Company shall immediately cease, except that Executive shall retain any rights to continue coverage under the COBRA continuation provisions of the Company’s group health care plans by paying the applicable premium therefor. As provided in Section 15 below, all payments to be made under this Section will be made in a manner that comports with the requirements of Section 409A of the Code.

 

  (iv) During the CIC Severance Period, the Company will pay for outplacement counseling by a firm selected by the Company to continue until the earlier of such time as Executive becomes re-employed or the end of the CIC Severance Period. As provided in Section 15 below, all payments to be made under this Section will be made in a manner that comports with the requirements of Section 409A of the Code.

 

  (v) Except as provided in a grant or award agreement made prior to the date of this Agreement and unless the Board, or its Compensation Committee adopts a more favorable policy for Senior Officers generally, the end of the CIC Severance Period will be treated as Executive’s termination date for purposes of the Company’s stock option, restricted stock and restricted stock unit and other equity programs but any such stock option, restricted stock, restricted stock unit or other equity not otherwise vested at the end of the CIC Severance Period will immediately vest on that date.

In all events, Executive’s right to receive the CIC Benefits shall cease immediately if Executive is re-employed by the Company or an affiliate of the Company or if Executive breaches any of the Restrictive Covenants. In all cases, the Company’s rights under Section 5 shall continue.

 

4.03 280G Provision

(a) Notwithstanding anything set forth in this Agreement to the contrary, if any payment or benefit, including the payments under Section 4.02, Executive would receive from the Company by reason of a Change in Control or otherwise (“ Payment “) would (i) constitute a “parachute payment” within the meaning of section 280G of the Code and (ii) but for this sentence, be subject to the excise tax imposed by section 4999 of the Code (the “ Excise Tax “), then such Payment shall be reduced to the Reduced Amount. The “ Reduced Amount “ shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in Executive’s receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits (or a cancellation of the acceleration of vesting of stock options or equity awards) constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, such reduction and/or cancellation of acceleration shall occur in the order that provides the maximum economic benefit to Executive. In the event that acceleration of vesting of a stock option or equity award is to be reduced, such acceleration of vesting also shall be canceled in the order that provides the maximum economic benefit to Executive.

 

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(b) The Company shall appoint a nationally recognized accounting firm with appropriate subject matter expertise to make the determinations required under this Section.

(c) The Company shall bear all expenses with respect to the making of the determinations by such accounting firm required to be made under this Section. The accounting firm engaged to make the determinations under this Section shall provide its calculations, together with detailed supporting documentation, to the Company and Executive as soon as practicable after the date on which Executive’s right to a Payment is triggered (if requested at that time by the Company or Executive) or such other time as requested by the Company or Executive. If the accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish the Company with an opinion reasonably acceptable to Executive that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made under this Section shall be final, binding, and conclusive upon the Company and Executive.

 

4.04 Other Provisions Regarding Payments and Benefits

 

(a) No Mitigation; No Offset

In the event of any termination of employment resulting in payments under this Section 4, Executive need not seek other employment and, except as expressly provided herein, there shall be no offset against amounts due to Executive under this Agreement on account of any remuneration attributable to any subsequent employment that he may obtain.

 

(b) Settlement and Release

The payments and benefits provided for hereunder shall be in full settlement and satisfaction of all of Executive’s claims and demands relating to or arising out of Executive’s employment with the Company or the termination thereof; provided, however, such settlement and release does not apply to (i) any rights or benefits as set forth in this Agreement and (ii) any rights to indemnification to which Executive is entitled under the Company’s Certificate of Incorporation, Bylaws, Delaware common or statutory law, or any other applicable indemnification agreements entered into between Executive and the Company. The Company’s obligation to provide payments and benefits under this Agreement is expressly made subject to and conditioned upon (i) Executive’s execution, within forty-five (45) days after the Termination Date, of a release of such claims and demands in such form as the Company may reasonably determine and (ii) Executive’s non-revocation of such release in accordance with the terms thereof.

 

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(c) Nature of Payments

Any amounts due under this Section 4 are in the nature of severance payments considered to be reasonable by the parties and are not in the nature of a penalty.

 

(d) Benefit Plans

If, for any period during which Executive is entitled to continued benefits under this Section 4, the Company reasonably determines that Executive cannot participate in any benefit plan because he is not actively performing services for the Company, then, in lieu of providing benefits under any such plan, the Company shall provide comparable benefits (after taking into account incremental payroll and income tax consequences thereof to Executive and Executive’s dependents as the case may be) to Executive and, if applicable, Executive’s dependents through other arrangements.

 

(e) Other Severance Arrangements

Except as may be otherwise specifically provided in an amendment of this Section 4.03(e) adopted in accordance with this Agreement, Executive’s rights under Section 4 shall be in lieu of any benefits that may be otherwise payable to or on behalf of Executive pursuant to the terms of any other Company separation plans or policies or any other similar arrangement of the Company providing benefits upon termination of employment.

 

(f) Time of Payments

If the amount of any payment provided for in Section 4.01 or 4.02 cannot reasonably be calculated on or before the date on which such payment is due, the Company shall pay to Executive on such date an estimate, as calculated in good faith by the Company, of the minimum amount of such payment and shall pay the remainder of such payments when reasonably calculable.

 

5. Enforcement and Equitable Remedies

Executive consents to jurisdiction and venue in the state and federal courts in and for Johnson County, Kansas, for all disputes arising under this Agreement; provided, however, that the Company may seek injunctive relief in any court of competent jurisdiction to enjoin any violation of Sections 3.02 through 3.07 (the “ Restrictive Covenants ”). Executive acknowledges that the Company would be irreparably injured by a violation of the Restrictive Covenants, and he agrees that the Company, in addition to any other remedies available to it for any breach or threatened breach, shall be entitled to a preliminary or permanent injunction, temporary restraining order, or other equitable relief, restraining Executive from any actual or threatened breach of the Restrictive Covenants. If a bond is required to be posted in order for the Company to secure an injunction or other equitable remedy, the parties agree that the bond need not be more than a nominal sum. THE COMPANY AND EXECUTIVE VOLUNTARILY WAIVE ANY RIGHT TO TRIAL BY JURY AND CONSENT TO A BENCH TRIAL OF ALL DISPUTES ARISING UNDER THIS AGREEMENT.

If Executive materially breaches any of the Restrictive Covenants or if, as part of the Company’s efforts to enforce the Restrictive Covenants in this Agreement, any of those provisions are held to be unenforceable against Executive, Executive shall return any compensation or benefits paid

 

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pursuant to Section 4. This remedy is a return of consideration and shall be in addition to any other remedies. During Executive’s employment with the Company, the Committee shall determine whether Executive has materially breached the Restrictive Covenants, and the Committee’s determination shall be final.

 

6. Definitions

As used in this Agreement, the following terms shall have the meanings set forth below.

 

6.01 Affiliate

“Affiliate” means, with respect to any person, a person, other than a Subsidiary of such person, (i) controlling, controlled by, or under common control with such person and (ii) any other person with whom such person reports consolidated financial information for financial reporting purposes. “Control” for this purpose means direct or indirect possession by one person of voting or management rights of at least 20% with respect to another person.

 

6.02 Base Salary

“Base Salary” shall have the meaning as defined in Section 2.01 of this Agreement.

 

6.03 Board

“Board” shall mean the Board of Directors of the Company.

 

6.04 Capped Incentive Payout

“Capped Incentive Payout” means the product of 80% and Executive’s Targeted Compensation.

 

6.05 Cause

Termination by the Company of Executive’s employment for “Cause” means termination upon

 

  (i) the willful and continued failure by Executive to substantially perform his duties with the Company (other than any such failure resulting from Executive’s incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to Executive by the Company, which demand specifically identifies the manner in which the Company believes that Executive has not substantially performed his duties, or

 

  (ii) the willful engaging by Executive in conduct that is a violation of the Company’s Principles of Business Conduct (or any successor code of conduct), or

 

  (iii) the willful act, or failure to act, by Executive that is injurious to the Company, or

 

  (iv) the willful violation by Executive of any of the Restrictive Covenants.

 

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For purposes of this definition, no act, or failure to act, on Executive’s part shall be deemed “willful” (x) unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive’s action or omission was in the best interest of the Company, or (y) unless done, or omitted to be done, by Executive with reckless disregard for Executive’s duties. Failure to meet performance expectations, unless willful, continuing, and substantial, shall not be considered “Cause.”

 

6.06 Change in Control

“Change in Control” means the occurrence of any of the following events:

 

  (i) the acquisition, directly or indirectly, by any “person” or “group” (as those terms are defined in Sections 3(a)(9), 13(d), and 14(d) of the Securities Exchange Act of 1934 (the “ Exchange Act ”) and the rules thereunder, including, without limitation, Rule 13d-5(b)) of “beneficial ownership” (as determined pursuant to Rule 13d-3 under the Exchange Act) of securities entitled to vote generally in the election of directors (“voting securities”) of the Company that represent 30% or more of the combined voting power of the Company’s then outstanding voting securities, other than

 

  (A) an acquisition by a trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by Sprint or any person controlled by the Company or by any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company, or

 

  (B) an acquisition of voting securities by the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the stock of the Company, or

 

  (C) an acquisition of voting securities pursuant to a transaction described in clause (iii) below that would not be a Change in Control under clause (iii);

 

  (ii) a change in the composition of the Board that causes less than a majority of the directors of the Company to be directors that meet one or more of the following descriptions:

 

  (A) a director who has been a director of the Company for a continuous period of at least 24 months, or

 

  (B)

a director whose election or nomination as director was approved by a vote of at least two-thirds of the then directors described in clauses (ii)(A), (B), or (C) by prior nomination or election, but excluding, for the purpose of this subclause (B), any director whose initial assumption of office occurred as a result of an actual or threatened (y) election contest with

 

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respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person or group other than the Board or (z) tender offer, merger, sale of substantially all of the Company’s assets, consolidation, reorganization, or business combination that would be a Change in Control under clause (iii) on consummation thereof, or

 

  (C) who were serving on the Board as a result of the consummation of a transaction described in clause (iii) that would not be a Change in Control under clause (iii);

 

  (iii) the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets or (z) the acquisition of assets or stock of another entity, in each case, other than in a transaction

 

  (A) that results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “ Successor Entity ”)) directly or indirectly, at least 50% of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

 

  (B) after which more than 50% of the members of the board of directors of the Successor Entity were members of the Board at the time of the Board’s approval of the agreement providing for the transaction or other action of the Board approving the transaction (or whose election or nomination was approved by a vote of at least two-thirds of the members who were members of the Board at that time), and

 

  (C) after which no person or group beneficially owns voting securities representing 30% or more of the combined voting power of the Successor Entity; provided, however, no person or group shall be treated for purposes of this clause (C) as beneficially owning 30% or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or

 

  (iv) a liquidation or dissolution of the Company.

 

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6.07 CIC Benefits

“CIC Benefits” shall have the meaning as defined in Section 4.02 of this Agreement.

 

6.08 CIC Good Reason

“CIC Good Reason” means the occurrence, within a CIC Protected Period, of any one or more of the following events or circumstances without Executive’s prior written consent unless one or more of the events or circumstances are corrected, in all material respects, in accordance with Section 1.04(c) of this Agreement:

 

  (i) a substantial adverse alteration in the nature or status of Executive’s duties from those in effect immediately before the Change in Control, Executive’s removal from the position of Chief Executive Officer or from membership on the Board;

 

  (ii) a reduction by the Company in Executive’s Base Salary as in effect on the Effective Date or as the same may be increased from time to time, except for across-the-board salary reductions similarly affecting all officers of the Company and all officers of any person in control of the Company;

 

  (iii) the failure by the Company, without Executive’s consent, to pay to Executive any portion of Executive’s current compensation within seven days of the date it is due, except pursuant to an across-the-board compensation deferral similarly affecting all officers of the Company and all officers of any person in control of the Company;

 

  (iv) (A) the relocation of the Company’s principal executive offices to a location outside the metropolitan area in which such offices are located immediately before the Change in Control; or (B) the Company’s requiring Executive to be based anywhere other than the Company’s principal executive offices except for required travel on the Company’s business to an extent substantially consistent with Executive’s present business travel obligations; or (C) the Company’s requiring Executive to travel to an extent substantially inconsistent with Executive’s business travel obligations as in effect immediately before the Change in Control;

 

  (v) a substantial and involuntary adverse alteration in the physical conditions under or in which Executive is expected to perform Executive’s duties, other than an alteration similarly affecting all officers of the Company and all officers of any person in control of the Company;

 

  (vi)

the Company’s failure to continue in effect any compensation plan in which Executive participated immediately before the Change in Control and that is material to Executive’s total compensation, including but not limited to the Incentive Plan or any substitute plans adopted before the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to the plan, or the Company’s failure to continue Executive’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of

 

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benefits provided and the level of Executive’s participation relative to other Senior Officers, as existed at the time of the Change in Control;

 

  (vii) the Company’s failure to continue to provide Executive with benefits substantially similar in the aggregate to those he enjoyed under any of the Company’s benefit plans in which Executive was participating at the time of the Change in Control; the taking of any action by the Company that would directly or indirectly materially reduce any of such benefits or deprive Executive of any material fringe benefit enjoyed by Executive at the time of the Change in Control; or the failure by the Company to provide Executive with the number of paid vacation days to which Executive is entitled on the basis of years of service with the Company in accordance with the Company’s normal vacation policy in effect at the time of the Change in Control; unless, in any of the foregoing events, an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such benefits;

 

  (viii) the Company’s failure to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 7 hereof; or

 

  (ix) the Company’s attempt to terminate Executive’s employment without complying with the procedures set forth in Section 1.04; any such attempt shall not be effective.

Where the word “Company” is used in this Section 6.08, it shall be construed to include successor or ultimate parent entities, as the context requires.

 

6.09 CIC Protected Period

“CIC Protected Period” means a period commencing on the date of a Change in Control and ending on the two year anniversary of the date of the Change in Control.

 

6.10 CIC Severance Period

“CIC Severance Period” shall have the meaning as defined in Section 4.02(i) of this Agreement.

 

6.11 CIC Termination Period Incentive Payout

“CIC Termination Period Incentive Payout” means an amount equal to the actual amount that would have been earned under the Incentive Plan for the portion of the Termination Performance Period through the Termination Date.

 

6.12 Committee

“Committee” means the Compensation Committee of the Board or any successor committee primarily responsible for executive compensation.

 

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6.13 Competitive Employment

“Competitive Employment” means the performance of duties or responsibilities, or the supervision of individuals performing such duties or responsibilities, for a Competitor

 

  (i)  (A) that are of a similar nature or employ similar professional or technical skills (for example, executive, managerial, marketing, engineering, legal, etc.) to those employed by Executive in his performance of services for the Company at any time during the two years before the Termination Date, and

 

        (B) that relate to products or services that are competitive with any of the Company’s products or services with respect to which Executive performed services for the Company at any time during the two years before the Termination Date,

 

  (ii) in the performance of which, Proprietary Information to which Executive had access at any time during the two-year period before the Termination Date could be of substantial economic value to the Competitor.

 

6.14 Competitor

Because of the highly competitive, evolving nature of the Company’s industry, the identities of companies in competition with the Company are likely to change over time. The following tests, while not exclusive indications of what employment may be competitive, are designed to assist the parties and any court in evaluating whether particular employment is prohibited under this Agreement.

“Competitor” means any one or more of the following

 

  (i) any person doing business in the United States or any of its Divisions employing Executive if the person or its Division receives at least 15% of its gross operating revenues from providing communications services of any type (for example, voice, data, including Internet, and video), employing any transmission medium (for example, wireline, wireless, or any other technology), over any distance (for example, local, long-distance, and distance insensitive services), using any protocol (for example, circuit-switched, or packet-based, such as Internet Protocol), or services or capabilities ancillary to such communications services (for example, network security services);

 

  (ii) any person doing business in the United States or any of its Divisions employing Executive if the person or its Division receives at least 15% of its gross operating revenue from a line of business in which the Company receives at least 3% of its gross operating revenues;

 

  (iii)

any person doing business in the United States, or any of its Divisions employing Executive, operating for less than 5 years a line of business from which the Company derives at least 3% of its gross operating revenues, notwithstanding

 

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such person’s or Division’s lack of substantial revenues in such line of business; or

 

  (iv) any person doing business in the United States, or any of its Divisions employing Executive, if the person or its Division receives at least 15% of its gross operating revenue from a line of business in which the Company has operated for less than 5 years, notwithstanding the Company’s lack of substantial revenues in such line of business.

For purposes of the foregoing, gross operating revenues of the Company and such other person shall be those of the Company or such person, together with their Consolidated Affiliates, but those of any Division employing or proposing to employ Executive shall be on a stand-alone basis, all measured by the most recent available financial information of both the Company and such other person or Division at the time Executive accepts, or proposes to accept, employment with or to otherwise perform services for such person. If financial information is not publicly available or is inadequate for purposes of applying this definition, the burden shall be on Executive to demonstrate that such person is not a Competitor.

 

6.15 Consolidated Affiliate

“Consolidated Affiliate” means, with respect to any person, all Affiliates and Subsidiaries of such person, if any, with whom the financial statements of such person are required, under generally accepted accounting principles, to be reported on a consolidated basis.

 

6.16 Division

“Division” means any distinct group or unit organized as a segment or portion of a person that is devoted to the production, provision, or management of a common product or service or group of related products or services, regardless of whether the group is organized as a legally distinct entity.

 

6.17 Employment Term

“Employment Term” shall have the meaning as defined in Section 1.03 of this Agreement.

 

6.18 Incentive Plan

“Incentive Plan” means the Company’s Short Term Incentive program, together with other incentive compensation plans specifically approved for this purpose by the Committee.

 

6.19 Non-CIC Benefits

“Non-CIC Benefits” shall have the meaning as defined in Section 4.01 of this Agreement.

 

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6.20 Non-CIC Good Reason

“Non-CIC Good Reason” means the occurrence of any one or more of the following events or circumstances without Executive’s prior written consent unless one or more of the events or circumstances are corrected, in all material respects, in accordance with Section 1.04(d) of this Agreement:

 

  (i) Executive’s removal from the position of Chief Executive Officer or from membership on the Board;

 

  (ii) a reduction within any 24-month period (other than an across-the-board reduction similarly affecting all Senior Officers) of Executive’s Targeted Total Compensation to an amount that is less than 90% of Executive’s highest Targeted Total Compensation during the 24-month period; or

 

  (iii) the Company’s requiring that Executive be based anywhere other than the Kansas City metropolitan area.

 

6.21 Non-CIC Severance Period

“Non-CIC Severance Period” shall have the meaning as defined in Section 4.01(i) of this Agreement.

 

6.22 Non-CIC Termination Period Incentive Payout

“Non-CIC Termination Period Incentive Payout” means an amount equal to the actual amount that would have been earned under the Incentive Plan for the portion of the Termination Performance Period through the Termination Date.

 

6.23 Non-Compete Period

“Non-Compete Period” means the 18-month period (24-month period if the Termination Date occurs within a CIC Protected Period) beginning on the Termination Date. If Executive breaches or violates any of the covenants or provisions of this Agreement, the running of the Non-Compete Period shall be extended for an additional period equal to the period the breach or violation continues.

 

6.24 Performance Measure

“Performance Measure” means, with respect to any Performance Period, a measure, expressed as a percentage, of the extent to which the performance goals were achieved, as determined by the Committee, during the Performance Period.

 

6.25 Performance Period

“Performance Period” means a period of time under the Incentive Plan for which the Committee establishes performance goals for the Company’s business units and authorizes payment of incentive compensation based on a measure of the extent to which those goals were achieved during the period.

 

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6.26 Proceeding

“Proceeding” shall have the meaning as defined in Section 3.08 of this Agreement.

 

6.27 Proprietary Information

“Proprietary Information” means trade secrets (such as customer information, technical and non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, or process) and other confidential and proprietary information concerning the products, processes, or services of the Company or the Company’s affiliates, including but not limited to: computer programs, unpatented or unpatentable inventions, discoveries or improvements; marketing, manufacturing, organizational, or research and development results and plans; business and strategic plans; sales forecasts and plans; personnel information, including the identity of other employees of the Company, their responsibilities, competence, abilities, and compensation; pricing and financial information; current and prospective customer lists and information on customers or their employees; information concerning purchases of major equipment or property; and information about potential mergers, acquisitions or other transactions which information: (i) has not been made known generally to the public, and (ii) is useful or of value to the current or anticipated business, or research or development activities of the Company or of any customer or supplier of the Company, or (iii) has been identified to Executive as confidential by the Company, either orally or in writing.

 

6.28 Restrictive Covenants

“Restrictive Covenants” means those covenants applicable to Executive set forth in Section 3.02 through 3.07 of this Agreement.

 

6.29 Senior Officer

“Senior Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (or any successor statute or statutes thereto), and the rules and regulations promulgated thereunder.

 

6.30 Subsidiary

“Subsidiary” means, with respect to any person (the “ Controlling Person ”), all other persons (the “Controlled Persons”) in whom the Controlling Person, alone or in combination with one or more of its Subsidiaries, owns or controls more than 50% of the management or voting rights, together with all Subsidiaries of such Controlled Persons.

 

6.31 Targeted Compensation

“Targeted Compensation” means the amount established by the Committee that would be the payout under the Incentive Plan, if the Performance Measure for the Performance Period were 100%.

 

22


6.32 Targeted Total Compensation

“Targeted Total Compensation” means, as of any time, the sum of Executive’s (1) Base Salary, (2) Targeted Compensation, and (3) targeted value of his annual stock option award, annual restricted stock or restricted stock unit award (ignoring the value of the options, restricted stock or restricted stock units granted before the Effective Date) as adopted by the Committee.

 

6.33 Termination Date

“Termination Date” means (i) in the case of a termination of Executive’s employment by reason of Executive’s death, Executive’s date of death, and (ii) in all other cases, the date of any notice of termination or the date, if any, on which the notice declares itself to be effective (but in no event other than in accordance with the notice provisions of Section 1.04).

 

6.34 Termination Performance Period

“Termination Performance Period” means the Performance Period in which Executive’s Termination Date occurs.

 

6.35 Total Disability

“Total Disability” shall have the same meaning as in the Company’s Long-Term Disability Plan, as amended from time to time or any successor plan.

 

7. Assignability, Binding Nature

This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, heirs (in the case of Executive), and assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that they may be assigned or transferred to any subsidiary of the Company or pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, but only if the assignee or transferee becomes the successor to all or substantially all of the assets of the Company and assumes the liabilities, obligations, and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further agrees that, in the event of a sale of assets or liquidation as described in the preceding sentence, it will take whatever action it legally can in order to cause the assignee or transferee to expressly assume the liabilities, obligations, and duties of the Company hereunder.

No rights or obligations of Executive under this Agreement may be assigned or transferred by Executive other than his rights to compensation and benefits, which may be transferred only in connection with Executive’s estate planning objectives or by will or operation of law. If Executive should die or become disabled while any amount is owed but unpaid to Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid to Executive’s legal guardian or to his devisee, legatee or other designee, as the case may be, or if there is no such designee, to Executive’s estate.

 

23


8. Amendment

This Agreement may be amended, modified, or canceled only by mutual agreement of the parties in writing.

 

9. Applicable Law

The provisions of this Agreement shall be construed in accordance with the internal laws of the State of Kansas, without regard to the conflict of law provisions of any state.

 

10. Tax Withholding

All payments made pursuant to this Agreement shall be subject to applicable federal, state and local income and other withholding taxes, and to other applicable withholdings or deductions elected by Executive or otherwise required by law or judicial process.

 

11. Severability

The parties intend the various provisions of this Agreement to be severable and to constitute independent and distinct binding obligations. If any provision of this Agreement is determined to be invalid, illegal, or incapable of being enforced, in whole or in part, it shall not affect or impair the validity of any other provision or part of this Agreement, and the provision or part shall be deemed modified to the minimum extent required to permit enforcement. Upon such a determination that any term or other provision is invalid, illegal, or incapable of being enforced, the court or arbitrator, as applicable, shall have the authority to so modify the provision or term. If the provision or term is not modified by the court or arbitrator, the parties must negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the provisions of this Agreement are preserved to the greatest extent possible.

 

12. Waiver of Breach.

No waiver by any party hereto of a breach of any provision of this Agreement by any other party, or of compliance with any condition or provision of this Agreement to be performed by such other party, will operate or be construed as a waiver of any subsequent breach by the other party of any similar or dissimilar provisions and conditions at the same or any prior or subsequent time. The failure of either party to take any action by reason of such breach will not deprive the party of the right to take action at any time while the breach continues.

 

13. Notices

Notices and all other communications provided for in this Agreement shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, or prepaid overnight courier to the parties at the addresses set forth below or at such other addresses as shall be specified by the parties by like notice:

 

24


If to Executive:    If to the Company:

Thomas A. Gerke

at the latest address furnished by

Executive to the Company for

purposes of general communications

  

Embarq Corporation

Attn: General Counsel

5454 W. 110th Street

Overland Park, KS 66211

with a copy to:    with copy to:

Shearman & Sterling LLP

Attn: Doreen E. Lilienfeld

599 Lexington Avenue

New York, New York 10022

  

Morgan, Lewis & Bockius LLP

Attn: Marlee Myers

One Oxford Centre

Pittsburgh, PA 15219

or to the latest address furnished by Executive to the Company for purposes of general communications.

Each party, by written notice furnished to the other party, may modify the applicable delivery address, but any notice of change of address shall be effective only upon receipt. Such notices, demands, claims and other communications shall be deemed given in the case of delivery by overnight service with guaranteed next day delivery, the next day or the day designated for delivery; or in the case of certified or registered U.S. mail, five days after deposit in the U.S. mail, but in no event will any such communications be deemed to be given later than the date they are actually received.

 

14. Survivorship

Upon the expiration or other termination of this Agreement, the respective rights and obligations of the parties shall survive the expiration or other termination to the extent necessary to carry out the intentions of the parties under this Agreement. In particular, without limiting the generality of the preceding sentence, any obligation of the Company to make payments or provide services under Section 4 shall continue beyond the end of the Employment Term and the obligations and covenants of Executive set forth in Section 3, and the rights and remedies of the Company with respect thereto, shall continue beyond the Employment Term to the extent contemplated therein.

 

15. Compliance with Section 409A of the Code

The Agreement is intended to comply with the requirements of Section 409A of the Code or an exemption, and shall in all respects be administered in accordance with Section 409A. Notwithstanding anything in the Agreement to the contrary, distributions upon termination of employment may only be made under the Agreement upon a “separation from service” as determined under Section 409A. Each payment under this Agreement shall be treated as a separate payment for purposes of Section 409A. In no event may Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement. All reimbursements, club memberships, financial planning expenses, legal fees, outplacement benefits and other payments shall be made on or before the last day of the calendar year

 

25


following the calendar year in which the relevant expense is incurred or payment becomes due, and otherwise in accordance with the requirements of Section 409A of the Code. The amount of expenses eligible for reimbursement or other payments becoming due during a calendar year may not affect the expenses eligible for reimbursement or other payments due in any other calendar year.

Notwithstanding anything in this Agreement to the contrary, if at the time of Executive’s termination of employment with the Company, the Executive is a “specified employee” (as defined in Section 409A of the Code) and it is necessary to postpone the commencement of any payments under this Agreement in order to prevent taxation under Section 409A, then the Company shall postpone commencement of such payments hereunder (without any reduction in such payments ultimately paid or provided to Executive) until the first payroll date that occurs after the date that is six (6) months following Executive’s “separation from service” with the Company (within the meaning of such term under Section 409A). If any payments are postponed, the postponed amounts will be paid in a lump sum to Executive on the first payroll date that occurs after the date that is six (6) months following Executive’s “separation from service” with the Company. If Executive dies during the postponement period prior to the payment of the postponed amount, the amounts withheld on account of Section 409A shall be paid to the personal representative of Executive’s estate within sixty (60) days after the date of Executive’s death.

 

16. Legal Fees

The Company shall promptly pay the reasonable legal fees of Executive actually incurred in connection with the review and negotiation of this Agreement, upon submission of written documentation thereof; provided , however , that in no event shall the amount payable by the Company hereunder exceed $20,000.00.

 

17. Entire Agreement

Except as otherwise noted herein, this Agreement constitutes the entire agreement between the parties concerning the subject matter specifically addressed herein and, except for the terms and provisions of any other employee benefit or other compensation plans (or any agreements or awards thereunder) referred to herein or contemplated hereby, this Agreement supersedes all prior and contemporaneous agreements between the parties relating to the subject matter specifically addressed herein.

 

18. Headings

The headings in this Agreement are for convenience of reference only and will not affect the construction of any of its provisions.

 

19. Counterparts

This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.

[The remainder of this page has intentionally been left blank.]

 

26


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date set forth above.

 

EMBARQ CORPORATION
By:  

/s/ E.J. Holland, Jr.

Name:   E.J. Holland, Jr.
Title:   Senior Vice President – Human Resources and Communications
 

/s/ Thomas A. Gerke

  Thomas A. Gerke, “Executive”

 

27


Exhibit A

Boards of Directors of For-Profit Businesses

NONE

 

28

Exhibit 10.2

EMBARQ CORPORATION 2006 EQUITY INCENTIVE PLAN

FORM OF RESTRICTED STOCK UNIT AWARD AGREEMENT

 

To:                                              (“you” or the “Participant”)
From:    Embarq Corporation (the “ Company ”)
Date:                 , 200   

Notice of Grant

Subject to the Embarq Corporation 2006 Equity Incentive Plan (the “ Plan ”) and this Restricted Stock Unit Award Agreement, including Attachment A (the “ Award Agreement ”), the Company is granting to you an award of Restricted Stock Units (“ RSUs ”) under the Plan (this “ Award ”). The RSUs are subject to performance adjustment based on the achievement of the Company’s performance goals and will become payable upon your continued employment, as described in Attachment A. The Grant Date, the total number of RSUs, and the Settlement Date for such RSUs, respectively, are as follows:

G RANT OF RSU S

 

Grant Date:                 ,              
Total Number of RSUs:   

                                          1

  
   Date:    % of RSUs Settled:
Settlement Date:                 ,                         100%

Because this Award is subject to the Plan and this Award Agreement, you should carefully read the Plan and this Award Agreement to fully understand the terms of this Award. You may view a copy of the Plan on the Company’s intranet at EQIP Home/ Employee Resource Center  /  Pay  /  Compensation Programs  /  Stock-Based Compensation / 2006 Equity Incentive Plan – Plan Document 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 or the glossary of terms provided in Attachment A, as applicable. You acknowledge that the Plan Information Statement for the 2006 Equity Incentive Plan dated May 2007 has been made available to you on-line at the location above. 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

 

 

1

Subject to adjustment as provided in Attachment A.


and agree to be bound by the terms and conditions of the Plan. In particular, you acknowledge the authority and discretion of the Board to recover all or any portion of this Award or any compensation paid in connection with this Award in the event of your knowing or intentionally fraudulent illegal conduct that impacts a relevant financial result or operating metric, in accordance with the Compensation Recoupment Policy set forth in the Company’s Corporate Governance Guidelines. 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.

 

EMBARQ CORPORATION
By:  

/s/ Claudia S. Toussaint

Name:   Claudia S. Toussaint
Title:   General Counsel and Corporate Secretary

 

2


(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 payable under this Award shall be determined 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 Economic Value Added during the              -              performance measurement period (the “Performance Adjustment”). The Performance Adjustment will be based on results of the performance metrics at the end of              and will be made as soon as practicable after the end of the performance measurement period.

If the Company pays cash dividends on Shares while you hold the RSUs, you will be entitled to a dividend equivalent payment equal to the per share cash dividend paid on Shares multiplied by the number of Shares underlying your RSUs. This dividend equivalent will be paid to you as soon as practicable after the 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 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 within 30 days 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 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)

Retirement. If you cease to be an Employee by reason of your Retirement, 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 completed months


 

between the Grant Date and the date on which your active employment with the Company is severed and the total number of months in the performance measurement period—will be settled on the Settlement Date, subject to the Performance Adjustment.

 

  (c) Voluntary Resignation, Involuntary Termination or Termination for Cause . Except as provided in Sections 3(b) and (d), if you cease to be an Employee on account of your Voluntary Resignation, Involuntary Termination or 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.

 

  (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 in an Involuntary 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.

GLOSSARY OF TERMS

Cause ” means, unless otherwise provided in the Participant’s employment agreement (if any), the Participant’s (i) willful and continued failure to substantially perform his or her duties, (ii) willfully engaging in conduct that is a serious violation of the Employer’s Principles of Business Conduct, (iii) willfully engaging in conduct that is demonstrably and materially injurious to the Employer or (iv) willful violation of any of the restrictive covenants found in the Embarq Corporation Executive Severance Plan.

Employer ” means the Company or any Affiliate.

Involuntary Termination ” means a termination of the Participant’s employment, initiated by the Employer for any reason other than Cause, Disability or death; or a Good Reason Resignation or refusal to accept a Non-Comparable Position, as those terms are defined in the Embarq Corporation Executive Severance Plan.

Retirement ” means termination of a Participant’s employment if a Participant is entitled to receive payment of pension benefits in accordance with the Company’s defined benefit pension plan immediately after the Participant’s Termination Date.

Termination Date ” means, except as otherwise provided in a Participant’s employment agreement (if any), the later of the date on which the Participant’s active employment with the Employer is severed for any reason, and the date the Participant ceases to receive severance benefits under any applicable plan for the payment of severance benefits by the Employer.

Voluntary Resignation ” means any termination of employment that is not initiated by the Employer, other than Retirement, Disability or death.

 

2

Exhibit 10.3

EMBARQ CORPORATION 2006 EQUITY INCENTIVE PLAN

FORM OF STOCK OPTION AWARD AGREEMENT

 

To:                                              (“you” or the “Participant”)
From:    Embarq Corporation (the “ Company ”)
Date:                 , 200   

Notice of Grant

Subject to the Embarq Corporation 2006 Equity Incentive Plan (the “ Plan ”) and this Stock Option Award Agreement, including Attachment A (the “ Award Agreement ”), the Company is granting to you an award of Stock Options (the “ Options ”) under the Plan (this “ Award ”). The Grant Date, the exercise price, the number of Shares subject to the Options, and the vesting dates for such Options, respectively, are as follows:

G RANT OF S TOCK O PTIONS

 

Grant Date:                ,              
Exercise Price:                                               
Total Number of Shares Subject to the Options:                                               
Vesting Dates:   Date:    Vested %:
               ,                 34%
               ,                 33%
               ,                 33%

Because this Award is subject to the Plan and this Award Agreement, you should carefully read the Plan and this Award Agreement to fully understand the terms of this Award. You may view a copy of the Plan on the Company’s intranet at EQIP Home/ Employee Resource Center  /  Pay  /  Compensation Programs  /  Stock-Based Compensation / 2006 Equity Incentive Plan – Plan Document 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 or the glossary of terms provided in Attachment A, as applicable. You acknowledge that the Plan Information Statement for the 2006 Equity Incentive Plan dated May 2007 has been made available to you on-line at the location above. 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. In particular, you acknowledge the authority and discretion of the Board to recover all or any portion of this Award or any compensation


paid in connection with this Award in the event of your knowing or intentionally fraudulent illegal conduct that impacts a relevant financial result or operating metric, in accordance with the Compensation Recoupment Policy set forth in the Company’s Corporate Governance Guidelines. 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.

 

EMBARQ CORPORATION
By:  

/s/ Claudia S. Toussaint

Name:   Claudia S. Toussaint
Title:   General Counsel and Corporate Secretary

 

2


(Attachment A)

SPECIFIC TERMS OF OPTIONS AWARD

 

Section 1. 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 2. Exercise of the Options.

Except as provided below, the 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 with the Employer from the Grant Date to the Vesting Date. To the extent vested, you may exercise the 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 3. Expiration of the 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 day before the tenth (10th) Anniversary of the Grant Date (the “Expiration Date”). If the Expiration 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 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 day that is not a Non-Business Day (a “Business Day”) before the Expiration Date.

 

Section 4. 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 portion of the 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 for Cause, all the Options granted pursuant to this Award Agreement will immediately be forfeited as of the Termination Date.

 

  (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 the 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 the 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.

 

  (d) Retirement Other Than Normal Retirement.

 

  (i) No Acceleration of Vesting . If you cease to be an Employee by reason of your Retirement other than Normal Retirement, 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 other than Normal Retirement, all of the 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. All the Options which were not otherwise vested and exercisable as of your Termination Date will be forfeited.

 

  (e) Normal Retirement.

 

  (i) Acceleration of Vesting . If you cease to be an Employee by reason of your Normal Retirement, all of the 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 the Options described in Section 4(e)(i) above 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.

 

  (f) Voluntary Resignation or Involuntary Termination .

 

  (i) No Acceleration of Vesting . If you cease to be an Employee on account of your Voluntary Resignation or an Involuntary Termination, 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 an Involuntary Termination by the Company, 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,

 

2


 

then the Options will remain exercisable until the first Business Day immediately following the 90 th day. All the 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 the Options, (2) except as may otherwise be provided in your employment agreement (if any), your employment is terminated in an Involuntary Termination other than 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 your Termination Date.

 

  (ii) Period of Time to Exercise . The period of time to exercise the Options following your Termination Date subsequent to a Change in Control will be determined based on the reason for your termination of employment and governed by Sections 4(a)-(f) above.

Nothing in this Section 4 restricts or otherwise interferes with the Company’s discretion with respect to the termination of your employment with the Company.

GLOSSARY OF TERMS

Cause ” means, unless otherwise provided in the Participant’s employment agreement (if any), the Participant’s (i) willful and continued failure to substantially perform his or her duties, (ii) willfully engaging in conduct that is a serious violation of the Employer’s Principles of Business Conduct, (iii) willfully engaging in conduct that is demonstrably and materially injurious to the Employer or (iv) willful violation of any of the restrictive covenants found in the Embarq Corporation Executive Severance Plan.

Employer ” means the Company or any Affiliate.

Involuntary Termination ” means a termination of the Participant’s employment, initiated by the Employer for any reason other than Cause, Disability or death; or a Good Reason Resignation or refusal to accept a Non-Comparable Position, as those terms are defined in the Embarq Corporation Executive Severance Plan.

Normal Retirement ” means a Participant’s Retirement at or later than an age qualifying as “normal retirement” under the Company’s defined benefit pension plan, whether or not the Participant is a participant in that plan.

Retirement ” means termination of a Participant’s employment if a Participant is entitled to receive payment of pension benefits in accordance with the Company’s defined benefit pension plan immediately after the Participant’s Termination Date.

Termination Date ” means, except as otherwise provided in a Participant’s employment agreement (if any), the later of the date on which the Participant’s active employment with the Employer is severed for any reason, and the date the Participant ceases to receive severance benefits under any applicable plan for the payment of severance benefits by the Employer.

Voluntary Resignation ” means any termination of employment that is not initiated by the Employer other than Retirement, Disability or death.

 

3

Exhibit 99.1

 

LOGO   LOGO
    Embarq Corporation
   

 

5454 West 110 th Street

    Overland Park, KS 66211                    

NEWS RELEASE

    embarq.com

 

 

Media Contacts:

Jennifer Love 913-226-3544

Jennifer.a.love@embarq.com

Debra Peterson 913-323-4881

debra.d.peterson@embarq.com

EMBARQ BOARD OF DIRECTORS NAMES TOM GERKE AS CEO

OVERLAND PARK, Kan., March 3, 2008 – The Embarq Corporation (EQ) Board of Directors has named Tom A. Gerke, 51, a senior telecommunications executive, as chief executive officer of the company, effective immediately. Gerke has been interim CEO since Dec. 18, 2007.

“The EMBARQ Board of Directors conducted a thorough and comprehensive search. There were several strong external candidates and Tom Gerke was always a principal candidate for the position,” said Bill Owens, EMBARQ’s chairman of the board. “We were especially impressed with Tom’s vision, leadership and professionalism. With his depth and knowledge of the telecommunications industry and his understanding of EMBARQ as a company, he has earned the total confidence of the board. Tom emerged as our clear choice.”

In his career as an executive in the telecommunications industry, Gerke gained broad experience spanning general management, business development and strategic alliances, in addition to his responsibilities for the legal, regulatory and external affairs functions. Gerke has spent 13 years of his 22-year professional career in the telecommunications industry. In January 2007, he assumed responsibility for EMBARQ’s Wholesale Markets business unit, while continuing to lead the company’s legal, regulatory and external affairs functions. Before joining EMBARQ, in connection with its spin-off from Sprint Nextel, he held a variety of leadership roles at Sprint Nextel, including executive vice president and general counsel. Gerke holds a Master’s of Business Administration degree from Rockhurst University in Kansas City and a law degree from the University of Missouri in Kansas City. He serves on the

 

Embarq Corporation (NYSE: EQ) Page 1 of 2


Board of Trustees of Rockhurst University and as a Commissioner on the Local Investment Commission (LINC) of Kansas City.

“EMBARQ has demonstrated it can provide strong results and enhanced customer satisfaction in a highly competitive marketplace,” said Tom Gerke, chief executive officer. “Together with the senior leadership team, we are well-poised to execute strategic plans that will continue the company’s momentum. I believe that our strong focus on operational excellence, coupled with our attention to customer service and innovation in all we do, will help us to continue our leadership position.”

Gerke also has joined the EMBARQ Board of Directors.

About EMBARQ

Embarq Corporation (NYSE: EQ), headquartered in Overland Park, Kansas, offers a complete suite of communications services. The company has approximately 18,000 employees and operates in 18 states. EMBARQ is included in the S&P 500.

For consumers, EMBARQ offers an innovative portfolio of services that includes reliable local and long distance home phone service, high-speed Internet, wireless, and satellite TV from DISH Network ® — all on one monthly bill.

For businesses, EMBARQ has a comprehensive range of flexible and integrated services designed to help businesses of all sizes be more productive and communicate with their customers. This service portfolio includes local voice and data services, long distance, Business Class High Speed Internet, wireless, satellite TV from DIRECTV ® , enhanced data network services, voice and data communication equipment and managed network services.

For more information, visit embarq.com.

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