AT&T INC.
 
                              2006 INCENTIVE PLAN
 
 
Article 1  Establishment and Purpose.
 
        1.1 Establishment of the Plan. AT&T Inc., a Delaware corporation (the
    "Company" or "AT&T"), hereby establishes an incentive compensation plan
    (the "Plan"), as set forth in this document.
 
        1.2 Purpose of the Plan. The purpose of the Plan is to promote the
    success and enhance the value of the Company by linking the personal
    interests of Participants to those of the Company's shareowners, and by
    providing Participants with an incentive for outstanding performance.
 
        1.3 Effective Date of the Plan. The Plan shall become effective on
    May 1, 2006, provided that the stockholders of the Company have approved
    the Plan prior to that time.
 
Article 2  Definitions.  Whenever used in the Plan, the following terms shall
have the meanings set forth below and, when the meaning is intended, the
initial letter of the word is capitalized:
 
    (a) "Award" means, individually or collectively, a grant or award under
this Plan of Stock Options, Restricted Stock (including unrestricted Stock),
Restricted Stock Units, Performance Units, or Performance Shares.
 
    (b) "Award Agreement" means an agreement which may be entered into by each
Participant and the Company, setting forth the terms and provisions applicable
to Awards granted to Participants under this Plan.
 
    (c) "Board" or "Board of Directors" means the AT&T Board of Directors.
 
    (d) "Cause" shall mean willful and gross misconduct on the part of an
Employee that is materially and demonstrably detrimental to the Company or any
Subsidiary as determined by the Company in its sole discretion.
 
    (e) "Change in Control" shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or a corporation owned directly or
indirectly by the shareowners of the Company in substantially the same
proportions as their ownership of stock of the Company, is or becomes the
 
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"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing twenty percent (20%) or
more of the total voting power represented by the Company's then outstanding
voting securities, or (ii) during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new Director whose election by the Board of
Directors or nomination for election by the Company's shareowners was approved
by a vote of at least two-thirds (2/3) of the Directors then still in office
who either were Directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the consummation of a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the shareowners
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially
all the Company's assets.
 
    (f) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
 
    (g) "Committee" means the committee or committees of the Board of Directors
given authority to administer the Plan as provided in Article 3.
 
    (h) "Director" means any individual who is a member of the AT&T Board of
Directors.
 
    (i) "Disability" shall mean absence of an Employee from work under the
relevant Company or Subsidiary long term disability plan.
 
    (j) "Employee" means any employee of the Company or of one of the Company's
Subsidiaries. "Employment" means the employment of an Employee by the Company
or one of its Subsidiaries. Directors who are not otherwise employed by the
Company shall not be considered Employees under this Plan.
 
    (k) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor Act thereto.
 
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    (l) "Exercise Price" means the price at which a Share may be purchased by a
Participant pursuant to an Option, as determined by the Committee.
 
    (m) "Fair Market Value" shall mean the closing price on the New York Stock
Exchange ("NYSE") for a Share on the relevant date, or if such date was not a
trading day, the next preceding trading date, all as determined by the Company.
A trading day is any day that the Shares are traded on the NYSE. In lieu of the
foregoing, the Committee may, from time to time, select any other index or
measurement to determine the Fair Market Value of Shares under the Plan,
including but not limited to an average determined over a period of trading
days.
 
    (n) "Insider" shall mean an Employee who is, on the relevant date, an
officer, director, or ten percent (10%) beneficial owner of the Company, as
those terms are defined under Section 16 of the Exchange Act.
 
    (o) "Option" means an option to purchase Shares from AT&T.
 
    (p) "Participant" means an Employee or former Employee who holds an
outstanding Award granted under the Plan.
 
    (q) "Performance Unit" and "Performance Share" shall each mean an Award
granted to an Employee pursuant to Article 8 herein.
 
    (r) "Plan" means this 2006 Incentive Plan. The Plan may also be referred to
as the "AT&T 2006 Incentive Plan" or as the "AT&T Inc. 2006 Incentive Plan."
 
    (s) "Retirement" or to "Retire" shall mean the Participant's Termination of
Employment for any reason other than death, Disability or for Cause, on or
after the earlier of the following dates, or as otherwise provided by the
Committee: (1) for Officer Level Employees (Participants deemed officer level
Employees for compensation purposes as indicated on the records of AT&T), the
date the Participant is at least age 55 and has five (5) years of net credited
service); or (2) the date the Participant has attained one of the following
combinations of age and service, except as otherwise indicated below:
 
<TABLE>
                        <S>                  <C>
                        Net Credited Service Age
                        -------------------- ---
                        10 years or more     65 or older
                        20 years or more     55 or older
                        25 years or more     50 or older
                        30 years or more     Any age
</TABLE>
 
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<PAGE>
 
    For purposes of this Plan only, Net Credited Service shall be calculated in
the same manner as "Pension Eligibility Service" under the AT&T Pension Benefit
Plan--Nonbargained Program ("Pension Plan"), as that may be amended from time
to time, except that service with an Employer shall be counted as though the
Employer were a "Participating Company" under the Pension Plan and the Employee
was a participant in the Pension Plan.
 
    (t) "Rotational Work Assignment Company" ("RWAC") shall mean any entity
with which AT&T Inc. or any of its Subsidiaries may enter into an agreement to
provide an employee for a rotational work assignment.
 
    (u) "Shares" or "Stock" means the shares of common stock of the Company.
 
    (v) "Subsidiary" shall mean any corporation, partnership, venture or other
entity in which AT&T holds, directly or indirectly, a fifty percent (50%) or
greater ownership interest. The Committee may, at its sole discretion,
designate, on such terms and conditions as the Committee shall determine, any
other corporation, partnership, limited liability company, venture other entity
a Subsidiary for purposes of this Plan. Unless otherwise provided by the
Committee, Cingular and its direct or indirect majority-owned subsidiaries
shall each be deemed a Subsidiary so long as AT&T holds a direct or indirect
twenty five percent (25%) or greater ownership interest in Cingular Wireless
LLC or its successor.
 
    (w) "Termination of Employment" or a similar reference shall mean the event
where the Employee is no longer an Employee of the Company or of any
Subsidiary, including but not limited to where the employing company ceases to
be a Subsidiary.
 
Article 3  Administration.
 
3.1  The Committee.  Administration of the Plan shall be as follows:
 
    (a) With respect to Insiders, the Plan and Awards hereunder shall be
administered by the Human Resources Committee of the Board or such other
committee as may be appointed by the Board for this purpose (each of the Human
Resources Committee and such other committee is the "Disinterested Committee"),
where each Director on such Disinterested Committee is a "Non-Employee
Director", as that term is used in Rule 16b-3 under the Exchange Act (or any
successor designation for determining the committee that may administer plans,
transactions or awards exempt under Section 16(b) of the Exchange Act), as that
rule may be modified from time to time.
 
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<PAGE>
 
    (b) With respect to persons who are not Insiders, the Plan and Awards
hereunder shall be administered by each of the Disinterested Committee and such
other committee, if any, to which the Board may delegate such authority (such
other Committee shall be the "Non-Insider Committee"), and each such Committee
shall have full authority to administer the Plan and all Awards hereunder,
except as otherwise provided herein or by the Board. The Disinterested
Committee may, from time to time, limit the authority of the Non-Insider
Committee in any way. Any Committee may be replaced by the Board at any time.
 
    (c) Except as otherwise indicated from the context, references to the
"Committee" in this Plan shall be to either of the Disinterested Committee or
the Non-Insider Committee.
 
3.2  Authority of the Committee.  The Committee shall have complete control
over the administration of the Plan and shall have the authority in its sole
discretion to (a) exercise all of the powers granted to it under the Plan,
(b) construe, interpret and implement the Plan, grant terms and grant notices,
and all Award Agreements, (c) prescribe, amend and rescind rules and
regulations relating to the Plan, including rules governing its own operations,
(d) make all determinations necessary or advisable in administering the Plan,
(e) correct any defect, supply any omission and reconcile any inconsistency in
the Plan, (f) amend the Plan to reflect changes in applicable law (whether or
not the rights of the holder of any Award are adversely affected, unless
otherwise provided by the Committee), (g) grant Awards and determine who shall
receive Awards, when such Awards shall be granted and the terms and conditions
of such Awards, including, but not limited to, conditioning the exercise,
vesting, payout or other term of condition of an Award on the achievement of
Performance Goals (defined below), (h) unless otherwise provided by the
Committee, amend any outstanding Award in any respect, not materially adverse
to the Participant, including, without limitation, to (1) accelerate the time
or times at which the Award becomes vested, unrestricted or may be exercised
(and, in connection with such acceleration, the Committee may provide that any
Shares acquired pursuant to such Award shall be Restricted Shares, which are
subject to vesting, transfer, forfeiture or repayment provisions similar to
those in the Participant's underlying Award), (2) accelerate the time or times
at which shares of Common Stock are delivered under the Award (and, without
limitation on the Committee's rights, in connection with such acceleration, the
Committee may provide that any shares of Common Stock delivered pursuant to
such Award shall be Restricted Shares, which are subject to vesting, transfer,
forfeiture or repayment provisions similar to those in the
 
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<PAGE>
 
Grantee's underlying Award), or (3) waive or amend any goals, restrictions or
conditions applicable such Award, or impose new goals, restrictions and
(i) determine at any time whether, to what extent and under what circumstances
and method or methods (1) Awards may be (A) settled in cash, shares of Stock,
other securities, other Awards or other property (in which event, the Committee
may specify what other effects such settlement will have on the Participant's
Award), (B) exercised or (C) canceled, forfeited or suspended, (2) Shares,
other securities, cash, other Awards or other property and other amounts
payable with respect to an Award may be deferred either automatically or at the
election of the Participant or of the Committee, or (3) Awards may be settled
by the Company or any of its Subsidiaries or any of its or their designees.
 
No Award may be made under the Plan more than ten years after its effective
date.
 
References to determinations or other actions by AT&T or the Company, herein,
shall mean actions authorized by the Committee, the Chairman of the Board of
AT&T, the Senior Executive Vice President of AT&T in charge of Human Resources
or their respective successors or duly authorized delegates, in each case in
the discretion of such person, provided, however, only the Disinterested
Committee may take action with respect to Insiders with regard to granting or
determining the terms of Awards or other matters that would require the
Disinterested Committee to act in order to comply with Rule 16b-3 promulgated
under the Exchange Act.
 
All determinations and decisions made by AT&T pursuant to the provisions of the
Plan and all related orders or resolutions of the Board shall be final,
conclusive, and binding on all persons, including but not limited to the
Company, its stockholders, Employees, Participants, and their estates and
beneficiaries.
 
Article 4  Shares Subject to the Plan.
 
4.1  Number of Shares.  Subject to adjustment as provided in Section 4.3
herein, the number of Shares available for issuance under the Plan shall not
exceed 90 million Shares. The Shares granted under this Plan may be either
authorized but unissued or reacquired Shares. The Disinterested Committee shall
have full discretion to determine the manner in which Shares available for
grant are counted in this Plan.
 
4.2  Share Accounting.  Without limiting the discretion of the Committee under
this section, unless otherwise provided by the Disinterested
 
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<PAGE>
 
Committee, the following rules will apply for purposes of the determination of
the number of Shares available for grant under the Plan or compliance with the
foregoing limits:
 
    (a) If an outstanding Award for any reason expires or is terminated or
canceled without having been exercised or settled in full, or if Shares
acquired pursuant to an Award subject to forfeiture or repurchase are forfeited
or repurchased by the Company for an amount not greater than the Participant's
original purchase price, the Shares allocable to the terminated portion of such
Award or such forfeited or repurchased Shares shall again be available for
issuance under the Plan.
 
    (b) Shares shall not be deemed to have been issued pursuant to the Plan
with respect to any portion of an Award that is settled in cash, other than an
Option.
 
    (c) Shares withheld or reacquired by the Company in satisfaction of tax
withholding obligations under a Restricted Stock Award shall not again be
available for issuance under the Plan; however Shares withheld for tax
withholding from other awards shall be available for issuance again.
 
    (d) If the exercise price of an Option is paid by tender to the Company, or
attestation to the ownership, of Shares owned by the Participant, or an Option
is settled without the payment of the exercise price, the number of shares
available for issuance under the Plan shall be reduced by the gross number of
shares for which the Option is exercised.
 
4.3  Adjustments in Authorized Plan Shares.  In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation, Stock
dividend, split-up, Share combination, or other change in the corporate
structure of the Company affecting the Shares, an adjustment shall be made in
the number and class of Shares which may be delivered under the Plan (including
but not limited to individual limits), and in the number and class of and/or
price of Shares subject to outstanding Awards granted under the Plan, and/or
the number of outstanding Options, Shares of Restricted Stock, and Performance
Shares (and Performance Units and other Awards whose value is based on a number
of Shares) constituting outstanding Awards, as may be determined to be
appropriate and equitable by the Disinterested Committee, in its sole
discretion, to prevent dilution or enlargement of rights.
 
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<PAGE>
 
Article 5  Eligibility and Participation.
 
5.1  Eligibility.  All management Employees are eligible to receive Awards
under this Plan.
 
5.2  Actual Participation.  Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees, those to
whom Awards shall be granted and shall determine the nature and amount of each
Award. No Employee is entitled to receive an Award unless selected by the
Committee.
 
Article 6  Stock Options.
 
6.1  Grant of Options.  Subject to the terms and provisions of the Plan,
Options may be granted to eligible Employees at any time and from time to time,
and under such terms and conditions, as shall be determined by the Committee.
In addition, the Committee may, from time to time, provide for the payment of
dividend equivalents on Options, prospectively and/or retroactively, on such
terms and conditions as the Committee may require. The Committee shall have
discretion in determining the number of Shares subject to Options granted to
each Employee; provided, however, that no single Employee may receive Options
under this Plan for more than one percent (1%) of the Shares approved for
issuance under this Plan during any calendar year. The Committee may not grant
Incentive Stock Options, as described in Section 422 of the Code, under this
Plan.
 
6.2  Form of Issuance.  Each Option grant may be issued in the form of an Award
Agreement and/or may be recorded on the books and records of the Company for
the account of the Participant. If an Option is not issued in the form of an
Award Agreement, then the Option shall be deemed granted as determined by the
Committee. The terms and conditions of an Option shall be set forth in the
Award Agreement, in the notice of the issuance of the grant, or in such other
documents as the Committee shall determine. Such terms and conditions shall
include the Exercise Price, the duration of the Option, the number of Shares to
which an Option pertains (unless otherwise provided by the Committee, each
Option may be exercised to purchase one Share), and such other provisions as
the Committee shall determine.
 
6.3  Exercise Price.  Unless a greater Exercise Price is determined by the
Committee, the Exercise Price for each Option Awarded under this Plan shall be
equal to one hundred percent (100%) of the Fair Market Value of a Share on the
date the Option is granted.
 
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<PAGE>
 
6.4  Duration of Options.  Each Option shall expire at such time as the
Committee shall determine at the time of grant (which duration may be extended
by the Committee); provided, however, that no Option shall be exercisable later
than the tenth (10th) anniversary date of its grant. In the event the Committee
does not specify the expiration date of an Option, then such Option will expire
on the tenth (10th) anniversary date of its grant, except as otherwise provided
herein.
 
6.5  Vesting of Options.  Options shall vest at such times and under such terms
and conditions as determined by the Committee; provided, however, unless
another vesting period is provided by the Committee at or before the grant of
an Option, one-third of the Options will vest on each of the first three
anniversaries of the grant; if one Option remains after equally dividing the
grant by three, it will vest on the first anniversary of the grant, if two
Options remain, then one will vest on each of the first two anniversaries. The
Committee shall have the right to accelerate the vesting of any Option;
however, the Chairman of the Board or the Senior Executive Vice President-Human
Resources, or their respective successors, or such other persons designated by
the Committee, shall have the authority to accelerate the vesting of Options
for any Participant who is not an Insider.
 
6.6  Exercise of Options.  Options granted under the Plan shall be exercisable
at such times and be subject to such restrictions and conditions as the
Committee shall in each instance approve, which need not be the same for each
grant or for each Participant. Exercises of Options may be effect only on days
and during the hours that the New York Stock Exchange is open for regular
trading. The Company may change or limit the times or days Options may be
exercised. If an Option expires on a day or at a time when exercises are not
permitted, then the Options may be exercised no later than the immediately
preceding date and time that the Options were exercisable.
 
Options shall be exercised by providing notice to the designated agent selected
by the Company (if no such agent has been designated, then to the Company), in
the manner and form determined by the Company, which notice shall be
irrevocable, setting forth the exact number of Shares with respect to which the
Option is being exercised and including with such notice payment of the
Exercise Price. When Options have been transferred, the Company or its
designated agent may require appropriate documentation that the person or
persons exercising the Option, if other than the Participant, has the right to
exercise the Option. No Option may be exercised with respect to a fraction of a
Share.
 
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<PAGE>
 
6.7  Payment.  Unless otherwise determined by the Committee, the Exercise Price
shall be paid in full at the time of exercise. No Shares shall be issued or
transferred until full payment has been received.
 
Payment may be made:
 
    (a) in cash, or
 
    (b) unless otherwise provided by the Committee at any time, and subject to
such additional terms and conditions and/or modifications as the Committee or
the Company may impose from time to time, and further subject to suspension or
termination of this provision by the Committee or Company at any time, by:
 
        (i) delivery of Shares owned by the Participant in partial (if in
    partial payment, then together with cash) or full payment; provided,
    however, as a condition to paying any part of the Exercise Price in Shares,
    at the time of exercise of the Option, the Participant must establish to
    the satisfaction of the Company that the Stock tendered to the Company has
    been held by the Participant for a minimum of six (6) months preceding the
    tender; or
 
        (ii) if the Company has designated a stockbroker to act as the
    Company's agent to process Option exercises, issuance of an exercise notice
    together with instructions to such stockbroker irrevocably instructing the
    stockbroker: (A) to immediately sell (which shall include an exercise
    notice that becomes effective upon execution of a sale order) a sufficient
    portion of the Shares to be received from the Option exercise to pay the
    Exercise Price of the Options being exercised and the required tax
    withholding, and (B) to deliver on the settlement date the portion of the
    proceeds of the sale equal to the Exercise Price and tax withholding to the
    Company. In the event the stockbroker sells any Shares on behalf of a
    Participant, the stockbroker shall be acting solely as the agent of the
    Participant, and the Company disclaims any responsibility for the actions
    of the stockbroker in making any such sales. No Shares shall be issued
    until the settlement date and until the proceeds (equal to the Option Price
    and tax withholding) are paid to the Company.
 
If payment is made by the delivery of Shares, the value of the Shares delivered
shall be equal to the then most recent Fair Market Value of the Shares
established before the exercise of the Option.
 
Restricted Stock may not be used to pay the Exercise Price.
 
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<PAGE>
 
6.8  Termination of Employment.  Unless otherwise provided by the Committee,
the following limitations on exercise of Options shall apply upon Termination
of Employment:
 
    (a) Termination by Death or Disability. In the event of the Participant's
Termination of Employment by reason of death or Disability, all outstanding
Options granted to that Participant shall immediately vest as of the date of
Termination of Employment and may be exercised, if at all, no more than three
(3) years from the date of the Termination of Employment, unless the Options,
by their terms, expire earlier. However, in the event the Participant was
eligible to Retire at the time of Termination of Employment, notwithstanding
the foregoing, the Options may be exercised, if at all, no more than five
(5) years from the date of the Termination of Employment, unless the Options,
by their terms, expire earlier.
 
    (b) Termination for Cause. In the event of the Participant's Termination of
Employment by the Company for Cause, all outstanding Options held by the
Participant shall immediately be forfeited to the Company and no additional
exercise period shall be allowed, regardless of the vested status of the
Options.
 
    (c) Retirement or Other Termination of Employment. In the event of the
Participant's Termination of Employment for any reason other than the reasons
set forth in (a) or (b), above:
 
        (i) If upon the Participant's Termination of Employment, the
    Participant is eligible to Retire (and if the Participant is an officer
    level employee for compensation purposes as determined by AT&T, the
    employee must also be age 55 or older at Termination of Employment), then
    all outstanding unvested Options granted to that Participant shall
    immediately vest as of the date of the Participant's Termination of
    Employment;
 
        (ii) All outstanding Options which are vested as of the effective date
    of Termination of Employment may be exercised, if at all, no more than five
    (5) years from the date of Termination of Employment if the Participant is
    eligible to Retire, or three (3) months from the date of the Termination of
    Employment if the Participant is not eligible to Retire, as the case may
    be, unless in either case the Options, by their terms, expire earlier; and
 
        (iii) In the event of the death of the Participant after Termination of
    Employment, this paragraph (c) shall still apply and not paragraph (a),
    above.
 
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<PAGE>
 
    (d) Options not Vested at Termination. Except as provided in paragraphs
(a) and (c)(i), above, all Options held by the Participant which are not vested
on or before the effective date of Termination of Employment shall immediately
be forfeited to the Company (and the Shares subject to such forfeited Options
shall once again become available for issuance under the Plan).
 
    (e) Notwithstanding the foregoing, the Committee may, in its sole
discretion, establish different, or waive, terms and conditions pertaining to
the effect of Termination of Employment on Options, whether or not the Options
are outstanding, but no such modification shall shorten the terms of Options
issued prior to such modification or otherwise be materially adverse to the
Participant.
 
6.9  Employee Transfers.  For purposes of the Plan, transfer of employment of a
Participant between the Company and any one of its Subsidiaries (or between
Subsidiaries) or between the Company or a Subsidiary and a RWAC, to the extent
the period of employment at a RWAC is equal to or less than five (5) years,
shall not be deemed a Termination of Employment. Provided, however, for
purposes of this Article 6, termination of employment with a RWAC without a
concurrent transfer to the Company or any of its Subsidiaries shall be deemed a
Termination of Employment as that term is used herein. Similarly, termination
of an entity's status as a Subsidiary or as a RWAC shall be deemed a
Termination of Employment of any Participants employed by such Subsidiary or
RWAC.
 
6.10  Restrictions on Exercise and Transfer of Options.  Unless otherwise
provided by the Committee:
 
    (a) During the Participant's lifetime, the Participant's Options shall be
exercisable only by the Participant or by the Participant's guardian or legal
representative. After the death of the Participant, except as otherwise
provided by AT&T's Rules for Employee Beneficiary Designations, an Option shall
only be exercised by the holder thereof (including, but not limited to, an
executor or administrator of a decedent's estate) or his or her guardian or
legal representative.
 
    (b) No Option shall be transferable except: (i) in the case of the
Participant, only upon the Participant's death and in accordance with the AT&T
Rules for Employee Beneficiary Designations; and (ii) in the case of any holder
after the Participant's death, only by will or by the laws of descent and
distribution.
 
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<PAGE>
 
6.11  Competition and Solicitation.  In the event a Participant directly or
indirectly, engages in competitive activity, or has become associated with,
employed by, controls, or renders service to any business that is engaged in
competitive activity, with (i) the Company, (ii) any Subsidiary, or (iii) any
business in which any of the foregoing have a substantial interest, or if the
Participant attempts, directly or indirectly, to induce any employee of the
Company or a Subsidiary to be employed or perform services elsewhere without
the permission of the Company, then the Company may (i) cancel any Option
granted to such Participant, whether or not vested, in whole or in part; and/or
(ii) rescind any exercise of the Participant's Options that occurred on or
after that date six months prior to engaging in such activity, in which case
the Participant shall pay the Company the gain realized or received upon such
exercise of Options. "Has become associated with" shall include, among other
things, beneficial ownership of 1/10 of 1% or more of a business engaged in
competitive activity. The determination of whether a Participant has engaged in
any such activity and whether to cancel Options and/or rescind the exercise of
Options shall be made by AT&T, and in each case such determination shall be
final, conclusive and binding on all persons.
 
Article 7  Restricted Stock.
 
7.1  Grant of Restricted Stock.  Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to eligible Employees in such amounts and upon such terms and
conditions as the Committee shall determine. In addition to any other terms and
conditions imposed by the Committee, vesting of Restricted Stock may be
conditioned upon the achievement of Performance Goals in the same manner as
provided in Section 8.4, herein, with respect to Performance Shares. No
Employee may be awarded, in any calendar year, a number of Shares in the form
of Restricted Stock (or Restricted Stock Units) exceeding one percent (1%) of
the Shares approved for issuance under this Plan.
 
7.2  Restricted Stock Agreement.  The Committee may require, as a condition to
receiving a Restricted Stock Award, that the Participant enter into a
Restricted Stock Award Agreement, setting forth the terms and conditions of the
Award. In lieu of a Restricted Stock Award Agreement, the Committee may provide
the terms and conditions of an Award in a notice to the Participant of the
Award, on the Stock certificate representing the Restricted Stock, in the
resolution approving the Award, or in such other manner as it deems appropriate.
 
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<PAGE>
 
7.3  Transferability.  Except as otherwise provided in this Article 7, and
subject to any additional terms in the grant thereof, Shares of Restricted
Stock granted herein may not be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated until fully vested.
 
7.4  Restrictions.  The Restricted Stock shall be subject to such vesting
terms, including the achievement of Performance Goals (as described in
Section 8.4), as may be determined by the Committee. Unless otherwise provided
by the Committee, to the extent Restricted Stock is subject to any condition to
vesting, if such condition or conditions are not satisfied by the time the
period for achieving such condition has expired, such Restricted Stock shall be
forfeited. The Committee may impose such other conditions and/or restrictions
on any Shares of Restricted Stock granted pursuant to the Plan as it may deem
advisable including but not limited to a requirement that Participants pay a
stipulated purchase price for each Share of Restricted Stock and/or
restrictions under applicable Federal or state securities laws; and may legend
the certificates representing Restricted Stock to give appropriate notice of
such restrictions. The Committee may also grant Restricted Stock without any
terms or conditions in the form of vested Stock Awards.
 
The Company shall also have the right to retain the certificates representing
Shares of Restricted Stock in the Company's possession until such time as the
Shares are fully vested and all conditions and/or restrictions applicable to
such Shares have been satisfied.
 
7.5  Removal of Restrictions.  Except as otherwise provided in this Article 7
or otherwise provided in the grant thereof, Shares of Restricted Stock covered
by each Restricted Stock grant made under the Plan shall become freely
transferable by the Participant after completion of all conditions to vesting,
if any. However, the Committee, in its sole discretion, shall have the right to
immediately vest the shares and waive all or part of the restrictions and
conditions with regard to all or part of the Shares held by any Participant at
any time.
 
7.6  Voting Rights, Dividends and Other Distributions.  Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
and shall receive all regular cash dividends paid with respect to such Shares.
Except as provided in the following sentence, in the sole discretion of the
Committee, other cash dividends and other distributions paid to Participants
with respect to Shares of Restricted Stock may be subject to the same
restrictions and conditions as the Shares of Restricted
 
                                     A-14
 
<PAGE>
 
Stock with respect to which they were paid. If any such dividends or
distributions are paid in Shares, the Shares shall be subject to the same
restrictions and conditions as the Shares of Restricted Stock with respect to
which they were paid.
 
7.7  Termination of Employment Due to Death or Disability.  In the event of the
Participant's Termination of Employment by reason of death or Disability, all
restrictions imposed on outstanding Shares of Restricted Stock held by the
Participant shall immediately lapse and the Restricted Stock shall immediately
become fully vested as of the date of Termination of Employment.
 
7.8  Termination of Employment for Other Reasons.  Unless otherwise provided by
the Committee, in the event of the Participant's Termination of Employment for
any reason other than those specifically set forth in Section 7.7 herein, all
Shares of Restricted Stock held by the Participant which are not vested as of
the effective date of Termination of Employment immediately shall be forfeited
and returned to the Company.
 
7.9  Employee Transfers.  For purposes of the Plan, transfer of employment of a
Participant between the Company and any one of its Subsidiaries (or between
Subsidiaries) or between the Company or a Subsidiary and a RWAC, to the extent
the period of employment at a RWAC is equal to or less than five (5) years,
shall not be deemed a Termination of Employment. Provided, however, for
purposes of this Article, termination of employment with a RWAC without a
concurrent transfer to the Company or any of its Subsidiaries shall be deemed a
Termination of Employment as that term is used herein. Similarly, termination
of an entity's status as a Subsidiary or as a RWAC shall be deemed a
Termination of Employment of any Participants employed by such Subsidiary or
RWAC.
 
7.10  Restricted Stock Units.  In lieu of or in addition to Restricted Stock,
the Committee may grant Restricted Stock Units ("Units") under such terms and
conditions as shall be determined by the Committee. Units shall otherwise be
subject to the same terms and conditions under this Plan as Restricted Stock
(including but not limited to Change in Control provisions), except that upon
vesting, the Participant holding such Units shall receive Shares (or cash equal
to the Fair Market Value of the number of Shares) equal to the number of such
Units. Units shall have no voting rights, and Units shall not receive
dividends, but shall, unless otherwise provided by the Committee, receive
dividend equivalents at the time and at the same rate per Unit as dividends are
paid per Share with the same record and pay dates.
 
                                     A-15
 
<PAGE>
 
Article 8  Performance Units and Performance Shares.
 
8.1  Grants of Performance Units and Performance Shares.  Subject to the terms
of the Plan, Performance Shares and Performance Units may be granted to
eligible Employees at any time and from time to time, as determined by the
Committee. The Committee shall have complete discretion in determining the
number of Performance Units and/or Performance Shares Awarded to each
Participant and the terms and conditions of each such Award.
 
8.2  Value of Performance Shares and Units.
 
    (a) A Performance Share is equivalent in value to a Share. In any calendar
year, no individual may be awarded Performance Shares having a potential payout
of Performance Shares exceeding one percent (1%) of the Shares approved for
issuance under this Plan.
 
    (b) A Performance Unit shall be equal in value to a fixed dollar amount
determined by the Committee. In any calendar year, no individual may be Awarded
Performance Units having a potential payout equivalent exceeding the Fair
Market Value, as of the date of granting the Award, of one percent (1%) of the
Shares approved for issuance under this Plan. The number of Shares equivalent
to the potential payout of a Performance Unit shall be determined by dividing
the maximum cash payout of the Award by the Fair Market Value per Share on the
effective date of the grant. The Committee may denominate a Performance Unit
Award in dollars instead of Performance Units. A Performance Unit Award may be
referred to as a "Key Executive Officer Short Term Award."
 
8.3  Performance Period.  The Performance Period for Performance Shares and
Performance Units is the period over which the Performance Goals are measured.
The Performance Period is set by the Committee for each Award; however, in no
event shall an Award have a Performance Period of less than one year.
 
8.4  Performance Goals.  For each Award of Performance Shares or Performance
Units, the Committee shall establish (and may establish for other Awards)
performance objectives ("Performance Goals") for the Company, its Subsidiaries,
and/or divisions of any of foregoing, using the Performance Criteria and other
factors set forth in (a) and (b), below. It may also use other criteria or
factors in establishing Performance Goals in addition to or in lieu of the
foregoing. A Performance Goal may be stated as an absolute value or as a value
determined relative to an index, budget, prior
 
                                     A-16
 
<PAGE>
 
period, similar measures of a peer group of other companies or other standard
selected by the Committee. Performance Goals shall include payout tables,
formulas or other standards to be used in determining the extent to which the
Performance Goals are met, and, if met, the number of Performance Shares and/or
Performance Units which would be converted into Stock and/or cash (or the rate
of such conversion) and distributed to Participants in accordance with
Section 8.6. Unless previously canceled or reduced, Performance Shares and
Performance Units which may not be converted because of failure in whole or in
part to satisfy the relevant Performance Goals or for any other reason shall be
canceled at the time they would otherwise be distributable. When the Committee
desires an Award of Performance Shares, Performance Units, Restricted Stock or
Restricted Stock Units to qualify under Section 162(m) of the Code, as amended,
the Committee shall establish the Performance Goals for the respective Award
prior to or within 90 days of the beginning of the Performance Period relating
to such Performance Goal, and not later than after 25% of such period has
elapsed. For all other Awards, the Performance Goals must be established before
the end of the respective Performance Period.
 
    (a) The Performance Criteria which the Committee is authorized to use, in
its sole discretion, are any of the following criteria or any combination
thereof, including but not limited to the offset against each other of any
combination of the following criteria:
 
        (1) Financial performance of the Company (on a consolidated basis), of
    one or more of its Subsidiaries, and/or a division of any of the foregoing.
    Such financial performance may be based on net income, Value Added
    (after-tax cash operating profit less depreciation and less a capital
    charge), EBITDA (earnings before interest, taxes, depreciation and
    amortization), revenues, sales, expenses, costs, gross margin, operating
    margin, profit margin, pre-tax profit, market share, volumes of a
    particular product or service or category thereof, including but not
    limited to the product's life cycle (for example, products introduced in
    the last 2 years), number of customers or subscribers, number of items in
    service, including but not limited to every category of access or other
    telecommunication or television lines, return on net assets, return on
    assets, return on capital, return on invested capital, cash flow, free cash
    flow, operating cash flow, operating revenues, operating expenses, and/or
    operating income.
 
        (2) Service performance of the Company (on a consolidated basis), of
    one or more of its Subsidiaries, and/or of a division of any of the
    foregoing. Such service performance may be based upon measured
 
                                     A-17
 
<PAGE>
 
    customer perceptions of service quality. Employee satisfaction, employee
    retention, product development, completion of a joint venture or other
    corporate transaction, completion of an identified special project, and
    effectiveness of management.
 
        (3) The Company's Stock price, return on stockholders' equity, total
    stockholder return (Stock price appreciation plus dividends, assuming the
    reinvestment of dividends), and/or earnings per Share.
 
        (4) Impacts of acquisitions, dispositions, or restructurings, on any of
    the foregoing.
 
    (b) Except to the extent otherwise provided by the Committee in full or in
part, if any of the following events occur during a Performance Period and
would directly affect the determination of whether or the extent to which
Performance Goals are met, the effects of such events shall be disregarded in
any such computation: changes in accounting principles; extraordinary items;
changes in tax laws affecting net income and/or Value Added; natural disasters,
including but not limited to floods, hurricanes, and earthquakes; and
intentionally inflicted damage to property which directly or indirectly damages
the property of the Company or its Subsidiaries. No such adjustment shall be
made to the extent such adjustment would cause the Award to fail to satisfy the
performance based exemption of Section 162(m) of the Code.
 
8.5  Dividend Equivalents on Performance Shares.  Unless reduced or eliminated
by the Committee, a cash payment in an amount equal to the dividend payable on
one Share will be made to each Participant for each Performance Share held by a
Participant on the record date for the dividend.
 
8.6  Form and Timing of Payment of Performance Units and Performance
Shares.  As soon as practicable after the applicable Performance Period has
ended and all other conditions (other than Committee actions) to conversion and
distribution of a Performance Share and/or Performance Unit Award have been
satisfied (or, if applicable, at such other time determined by the Committee at
or before the establishment of the Performance Goal), the Committee shall
determine whether and the extent to which the Performance Goals were met for
the applicable Performance Units and Performance Shares. If Performance Goals
have been met, then the number of Performance Units and Performance Shares to
be converted into Stock and/or cash and distributed to the Participants shall
be determined in accordance with the Performance Goals for such Awards, subject
to any limits imposed by the Committee. Unless the Participant has
 
                                     A-18
 
<PAGE>
 
elected to defer all or part of his Performance Units or Performance Shares as
provided in Article 10, herein, payment of Performance Units and Performance
Shares shall be made in a single lump sum, as soon as reasonably
administratively possible following the determination of the number of Shares
or amount of cash to which the Participant is entitled. Performance Units will
be distributed to Participants in the form of cash. Performance Shares will be
distributed to Participants in the form of 50% Stock and 50% Cash, or at the
Participant's election, 100% Stock or 100% Cash. In the event the Participant
is no longer an Employee at the time of the distribution, then the distribution
shall be 100% in cash, provided the Participant may elect to take 50% or 100%
in Stock. At any time prior to the distribution of the Performance Shares
and/or Performance Units (or if distribution has been deferred, then prior to
the time the Awards would have been distributed), unless otherwise provided by
the Committee or prohibited by this Plan (such as in the case of a Change in
Control), the Committee shall have the authority to reduce or eliminate the
number of Performance Units or Performance Shares to be converted and
distributed, or to cancel any part or all of a grant or award of Performance
Units or Performance Shares, or to mandate the form in which the Award shall be
paid (i.e., in cash, in Stock or both, in any proportions determined by the
Committee).
 
Unless otherwise provided by the Committee, any election to take a greater
amount of cash or Stock with respect to Performance Shares must be made in the
calendar year prior to the calendar year in which the Performance Shares are
distributed (or if distribution has been deferred, then in the year prior to
the year the Performance Shares would have been distributed absent such
deferral).
 
For the purpose of converting Performance Shares into cash and distributing the
same to the holders thereof (or for determining the amount of cash to be
deferred), the value of a Performance Share shall be the Fair Market Value of a
Share on the date the Committee authorizes the payout of Awards. Performance
Shares to be distributed in the form of Stock will be converted at the rate of
one (1) Share per Performance Share.
 
8.7  Termination of Employment Due to Death or Disability.  In the event of the
Participant's Termination of Employment by reason of death or Disability, the
Participant shall receive a lump sum payout of all outstanding Performance
Units and Performance Shares calculated as if all unfinished Performance
Periods had ended with 100% of the Performance Goals achieved, payable in the
year following the date of Termination of Employment.
 
                                     A-19
 
<PAGE>
 
8.8  Termination of Employment for Other Reasons.  Unless the Committee
determines otherwise, in the event of the Participant's Termination of
Employment for other than a reason set forth in Section 8.7 (and other than for
Cause), if the Participant is not Retirement eligible at Termination of
Employment, then upon Termination, the number of the Participant's Performance
Units and/or Performance Shares shall be reduced at the time of the Termination
of Employment so that the Participant may receive no more than a prorated
payout of all Performance Units and Performance Shares granted, based on the
number of months the Participant worked at least one day during the respective
Performance Period divided by the number of months in the Performance Period.
 
8.9  Termination of Employment for Cause.  In the event of the Termination of
Employment of a Participant by the Company for Cause, all Performance Units and
Performance Shares shall be forfeited by the Participant to the Company.
 
8.10  Nontransferability.  Performance Units and Performance Shares may not be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than in accordance with the AT&T Rules for Employee Beneficiary
Designations.
 
Article 9  Beneficiary Designation.  In the event of the death of a
Participant, distributions or Awards under this Plan, other than Restricted
Stock, shall pass in accordance with the AT&T Rules for Employee Beneficiary
Designations, as the same may be amended from time to time. Beneficiary
Designations of a Participant received by AT&T prior to November 16, 2001, that
were applicable to awards under the 1996 Stock and Incentive Plan will also
apply to awards under this Plan unless and until the Participant provides to
the contrary in accordance with the procedures set forth in such Rules.
 
Article 10  Deferrals.  Unless otherwise provided by the Committee, a
Participant may, as permitted by the Company, defer all or part of Awards made
under this Plan in accordance with and subject to the terms of such plans so
long as such deferral is determined by the Company to be consistent in all
respects with Section 409A of the Code.
 
Article 11  Employee Matters.
 
11.1  Employment Not Guaranteed.  Nothing in the Plan shall interfere with or
limit in any way the right of the Company or any Subsidiary to
 
                                     A-20
 
<PAGE>
 
terminate any Participant's Employment at any time, nor confer upon any
Participant any right to continue in the employ of the Company or one of its
Subsidiaries.
 
11.2  Participation.  No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected
to receive a future Award.
 
Article 12  Change in Control.
 
Unless the Committee provides otherwise prior to the grant of an Award, upon
the occurrence of a Change in Control, the following shall apply to such Award:
 
    (a) Any and all Options granted hereunder to a Participant immediately
shall become vested and exercisable upon the Termination of Employment of the
Participant by the Company or by the Participant for "Good Reason";
 
    (b) Any Restriction Periods and all restrictions imposed on Restricted
Stock shall lapse and they shall immediately become fully vested upon the
Termination of Employment of the Participant by the Company or by the
Participant for "Good Reason";
 
    (c) Unless otherwise determined by the Committee, the payout of Performance
Units and Performance Shares shall be determined exclusively by the attainment
of the Performance Goals established by the Committee, which may not be
modified after the Change in Control, and AT&T shall not have the right to
reduce the Awards for any other reason;
 
    (d) For purposes of this Plan, "Good Reason" means in connection with a
termination of employment by a Participant within two (2) years following a
Change in Control, (a) an adverse alteration in the Participant's position or
in the nature or status of the Participant's responsibilities from those in
effect immediately prior to the Change in Control, or (b) any reduction in the
Participant's base salary rate or target annual bonus, in each case as in
effect immediately prior to the Change in Control, or (c) the relocation of the
Participant's principal place of employment to a location that is more than
fifty (50) miles from the location where the Participant was principally
employed at the time of the Change in Control (except for required travel on
the Company's business to an extent substantially consistent with the
Participant's customary business travel obligations in the ordinary course of
business prior to the Change in Control).
 
                                     A-21
 
<PAGE>
 
Article 13  Amendment, Modification, and Termination.
 
13.1  Amendment, Modification, and Termination.  The Board or the Disinterested
Committee may at any time and from time to time, alter or amend the Plan or any
Award in whole or in part or suspend or terminate the Plan in whole or in part.
 
13.2  Awards Previously Granted.  No termination, amendment, or modification of
the Plan or any Award shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant holding such Award; provided, however, that any such modification
made for the purpose of complying with Section 409A of the Code may be made by
the Company without the consent of any Participant
 
13.3  Delay in Payment.  To the extent required in order to avoid the
imposition of any interest and/or additional tax under Section 409A(a)(1)(B) of
the Code, any payments or deliveries due as a result of a Termination of
Employment may be delayed for six months if a Participant is deemed to be a
"specified employee" as defined in Section 409A(a)(2)(i)(B) of the Code.
 
Article 14  Withholding.
 
14.1  Tax Withholding.  Unless otherwise provided by the Committee, the Company
shall deduct or withhold an amount sufficient to satisfy Federal, state, and
local taxes (including but not limited to the Participant's employment tax
obligations) required by law to be withheld with respect to any taxable event
arising or as a result of this Plan ("Withholding Taxes").
 
14.2  Share Withholding.  Unless otherwise provided by the Committee, upon the
exercise of Options, the lapse of restrictions on Restricted Stock, the
distribution of Performance Shares in the form of Stock, or any other taxable
event hereunder involving the transfer of Stock to a Participant, the Company
shall withhold Stock equal in value, using the Fair Market Value on the date
determined by the Company to be used to value the Stock for tax purposes, to
the Withholding Taxes applicable to such transaction.
 
Any fractional Share of Stock payable to a Participant shall be withheld as
additional Federal withholding, or, at the option of the Company, paid in cash
to the Participant.
 
Unless otherwise determined by the Committee, when the method of payment for
the Exercise Price is from the sale by a stockbroker pursuant to
 
                                     A-22
 
<PAGE>
 
Section 6.7(b)(ii), herein, of the Stock acquired through the Option exercise,
then the tax withholding shall be satisfied out of the proceeds. For
administrative purposes in determining the amount of taxes due, the sale price
of such Stock shall be deemed to be the Fair Market Value of the Stock.
 
If permitted by the Committee, prior to the end of any Performance Period a
Participant may elect to have a greater amount of Stock withheld from the
distribution of Performance Shares to pay withholding taxes; provided, however,
the Committee may prohibit or limit any individual election or all such
elections at any time.
 
Article 15   Successors.
 
All obligations of the Company under the Plan, with respect to Awards granted
hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the
business and/or assets of the Company.
 
Article 16  Legal Construction.
 
16.1  Gender and Number.  Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
 
16.2  Severability.  In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
 
16.3  Requirements of Law.  The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required.
 
16.4  Errors.  At any time AT&T may correct any error made under the Plan
without prejudice to AT&T. Such corrections may include, among other things,
changing or revoking an issuance of an Award.
 
16.5  Elections and Notices.  Notwithstanding anything to the contrary
contained in this Plan, all elections and notices of every kind shall be made
on forms prepared by AT&T or the General Counsel, Secretary or Assistant
 
                                     A-23
 
<PAGE>
 
Secretary, or their respective delegates or shall be made in such other manner
as permitted or required by AT&T or the General Counsel, Secretary or Assistant
Secretary, or their respective delegates, including but not limited to
elections or notices through electronic means, over the Internet or otherwise.
An election shall be deemed made when received by AT&T (or its designated
agent, but only in cases where the designated agent has been appointed for the
purpose of receiving such election), which may waive any defects in form. AT&T
may limit the time an election may be made in advance of any deadline.
 
Where any notice or filing required or permitted to be given to AT&T under the
Plan, it shall be delivered to the principal office of AT&T, directed to the
attention of the Senior Executive Vice President-Human Resources of AT&T or his
or her successor. Such notice shall be deemed given on the date of delivery.
 
Notice to the Participant shall be deemed given when mailed (or sent by
telecopy) to the Participant's work or home address as shown on the records of
AT&T or, at the option of AT&T, to the Participant's e-mail address as shown on
the records of AT&T. It is the Participant's responsibility to ensure that the
Participant's addresses are kept up to date on the records of AT&T. In the case
of notices affecting multiple Participants, the notices may be given by general
distribution at the Participants' work locations.
 
16.6  Governing Law.  To the extent not preempted by Federal law, the Plan, and
all awards and agreements hereunder, and any and all disputes in connection
therewith, shall be governed by and construed in accordance with the
substantive laws of the State of Texas, without regard to conflict or choice of
law principles which might otherwise refer the construction, interpretation or
enforceability of this Plan to the substantive law of another jurisdiction.
 
16.7  Venue.  Because awards under the Plan are granted in Texas, records
relating to the Plan and awards thereunder are located in Texas, and the Plan
and awards thereunder are administered in Texas, the Company and the
Participant to whom an award under this Plan is granted, for themselves and
their successors and assigns, irrevocably submit to the exclusive and sole
jurisdiction and venue of the state or federal courts of Texas with respect to
any and all disputes arising out of or relating to this Plan, the subject
matter of this Plan or any awards under this Plan, including but not limited to
any disputes arising out of or relating to the interpretation and
enforceability of any awards or the terms and conditions of this Plan. To
 
                                     A-24
 
<PAGE>
 
achieve certainty regarding the appropriate forum in which to prosecute and
defend actions arising out of or relating to this Plan, and to ensure
consistency in application and interpretation of the Governing Law to the Plan,
the parties agree that (a) sole and exclusive appropriate venue for any such
action shall be an appropriate federal or state court in Bexar County, Texas,
and no other, (b) all claims with respect to any such action shall be heard and
determined exclusively in such Texas court, and no other, (c) such Texas court
shall have sole and exclusive jurisdiction over the person of such parties and
over the subject matter of any dispute relating hereto and (d) that the parties
waive any and all objections and defenses to bringing any such action before
such Texas court, including but not limited to those relating to lack of
personal jurisdiction, improper venue or forum non conveniens.