<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 1, 1996
REGISTRATION NO. 333-00703
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
LUCENT TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3661 22-3408857
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
600 MOUNTAIN AVENUE
MURRAY HILL, NJ 07974
(908) 582-8500
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
RICHARD J. RAWSON
SENIOR VICE PRESIDENT & GENERAL COUNSEL
600 MOUNTAIN AVENUE
MURRAY HILL, NJ 07974
(908) 582-8500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
<TABLE>
<S> <C>
STEVEN A. ROSENBLUM CHARLES S. WHITMAN III
WACHTELL, LIPTON, ROSEN & KATZ DAVIS POLK & WARDWELL
51 WEST 52ND STREET 450 LEXINGTON AVENUE
NEW YORK, NY 10019 NEW YORK, NY 10020
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
LUCENT TECHNOLOGIES INC.
CROSS-REFERENCE SHEET PURSUANT TO REGULATION S-K, ITEM 501(B)
<TABLE>
<CAPTION>
ITEM LOCATION
NO. IN PROSPECTUS
- ------ ------------------------------------------
<C> <S> <C>
I. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page
II. Inside Front and Outside Back Cover
Pages of Prospectus....................... Inside Front Cover Page; Table of Contents
III. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges........ Prospectus Summary; Risk Factors;
The Company
IV. Use of Proceeds........................... Use of Proceeds
V. Determination of Offering Price........... Underwriting
VI. Dilution.................................. Not Applicable
VII. Selling Security Holders.................. Not Applicable
VIII. Plan of Distribution...................... Outside Front Cover Page; Underwriting
IX. Description of Securities to be
Registered................................ Outside Front Cover Page; Description of
Capital Stock
X. Interests of Named Experts and Counsel.... Not Applicable
XI. Information with respect to the
Registrant................................ Outside Front Cover Page; Prospectus
Summary; Risk Factors; The Company; Use of
Proceeds; Dividend Policy; Certain
Transactions in Connection with the
Offerings; Capitalization; Selected
Financial Data; Pro Forma Condensed
Financial Statements; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Arrangements Between
the Company and AT&T; Principal
Stockholder; Description of Capital Stock;
Shares Eligible for Future Sale; Financial
Statements
XII. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
</TABLE>
<PAGE> 3
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with a United States and Canadian offering (the "U.S.
Prospectus") and one to be used in connection with a concurrent offering outside
the United States and Canada (the "International Prospectus"). The prospectuses
are identical in all respects except for the front cover page and the inside
front cover page. In addition, the International Prospectus contains a section
entitled "Certain United States Tax Consequences to Non-United States Holders."
Pages included in the International Prospectus and not in the U.S. Prospectus
are marked "Alternate Page for International Prospectus."
<PAGE> 4
PROSPECTUS (Subject to Completion)
Issued April 1, 1996
111,000,000 Shares
LUCENT TECHNOLOGIES LOGO
COMMON STOCK
------------------------
OF THE 111,000,000 SHARES OF COMMON STOCK BEING OFFERED, 97,000,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 14,000,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. ALL OF THE
SHARES OF COMMON STOCK ARE BEING OFFERED BY LUCENT TECHNOLOGIES INC.,
WHICH IS CURRENTLY A WHOLLY OWNED SUBSIDIARY OF AT&T CORP. EACH
SHARE WILL HAVE ATTACHED ONE PREFERRED SHARE PURCHASE RIGHT WHICH
WILL INITIALLY TRADE TOGETHER WITH THE SHARE. PRIOR TO THE
OFFERINGS, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK.
IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING
PRICE WILL BE BETWEEN $22 AND $25 PER SHARE. SEE
"UNDERWRITING" FOR A DISCUSSION OF THE FACTORS CONSIDERED
IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
AFTER THE OFFERINGS, AT&T WILL OWN APPROXIMATELY 82.5% (80.4% IF THE U.S.
UNDERWRITERS EXERCISE THEIR OVERALLOTMENT OPTION IN FULL) OF THE COMMON STOCK.
AT&T HAS ANNOUNCED ITS INTENTION, SUBJECT TO SATISFACTION OF CERTAIN
CONDITIONS, TO DIVEST ITS OWNERSHIP INTEREST IN THE COMPANY BY DECEMBER
31, 1996 BY MEANS OF A TAX-FREE DISTRIBUTION TO ITS SHAREHOLDERS. SEE
"ARRANGEMENTS BETWEEN THE COMPANY AND AT&T."
------------------------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING, SUBJECT TO OFFICIAL NOTICE OF
ISSUANCE, ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "LU."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR INFORMATION CONCERNING
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
--------------------------------------------------------------------------
PRICE $ A SHARE
----------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) THE COMPANY(2)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per Share..................... $ $ $
Total(3)...................... $ $ $
</TABLE>
- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company estimated at
$12,000,000.
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
16,650,000 additional shares of Common Stock at the Price to Public less
Underwriting Discounts and Commissions for the purpose of covering
overallotments, if any. If the U.S. Underwriters exercise such option in
full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that
delivery of the shares will be made on or about , 1996 at the office
of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor
in immediately available funds.
------------------------
Joint Global Coordinators
MORGAN STANLEY & CO. GOLDMAN, SACHS & CO.
Incorporated
------------------------
MORGAN STANLEY & CO. GOLDMAN, SACHS & CO.
Incorporated
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
CS FIRST BOSTON
J.P. MORGAN & CO.
PAINEWEBBER INCORPORATED
, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
<PAGE> 5
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL , 1996 (25 DAYS AFTER COMMENCEMENT OF THE OFFERINGS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
For investors outside the United States: No action has been or will be
taken in any jurisdiction by the Company or by any Underwriter that would permit
a public offering of the Common Stock or possession or distribution of this
Prospectus in any jurisdiction where action for that purpose is required, other
than in the United States. Persons into whose possession this Prospectus comes
are required by the Company and the Underwriters to inform themselves about and
to observe any restrictions as to the offering of the Common Stock and the
distribution of this Prospectus.
In this Prospectus references to "dollars" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 9
The Company........................... 16
Use of Proceeds....................... 18
Dividend Policy....................... 18
Certain Transactions in Connection
with the Offerings.................. 19
Capitalization........................ 21
Selected Financial Data............... 22
Pro Forma Condensed Financial
Statements.......................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
<CAPTION>
PAGE
-----
<S> <C>
Business.............................. 38
Management............................ 54
Arrangements Between the Company and
AT&T................................ 73
Principal Stockholder................. 88
Description of Capital Stock.......... 89
Shares Eligible for Future Sale....... 95
Underwriting.......................... 97
Legal Matters......................... 100
Experts............................... 100
Available Information................. 100
Index to Financial Statements......... F-1
</TABLE>
------------------------
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH
PERSONS PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR
OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO
EXEMPTIONS FROM RULE 10B-6, 10B-7 AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF
1934.
------------------------
This Prospectus contains trademarks, service marks or registered marks of
the Company, AT&T Corp. ("AT&T"), their respective subsidiaries, and other
companies, as indicated.
2
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information set forth elsewhere in this
Prospectus. As used herein, references to the "Company" include the historical
operating results and activities of, and assets and liabilities assigned to, the
businesses and operations which comprise the Company as of the date hereof.
Unless otherwise indicated, all data in this Prospectus (i) are based on the
assumption that the U.S. Underwriters do not exercise their overallotment option
and (ii) give effect to a stock split or other issuance of shares which will
result in AT&T owning 524,624,894 shares of Common Stock prior to the closing of
the Offerings.
------------------------
THE COMPANY
Lucent Technologies Inc. (the "Company") is one of the world's leading
designers, developers and manufacturers of telecommunications systems, software
and products. The Company is a global market leader in the sale of public
telecommunications systems, and is a supplier of systems or software to 23 of
the world's 25 largest network operators. The Company is also a global market
leader in the sale of business communications systems and in the sale of
microelectronic components for communications applications to manufacturers of
communications systems and computers. Further, the Company is the largest
supplier in the United States of telecommunications products for consumers. In
addition, the Company has provided engineering, installation, maintenance or
operations support services to over 250 network operators in 75 countries, over
1.4 million business locations in the United States, and approximately 100,000
business locations in over 90 other countries. The Company's research and
development activities are conducted through Bell Laboratories ("Bell Labs"),
which consists of approximately three-quarters of the total resources of AT&T's
former Bell Laboratories division, one of the world's foremost industrial
research and development organizations.
The Company's revenues of $21,413 million for the year ended December 31,
1995, were generated from the sale of systems for network operators (54% of
total revenues), business communications systems (24%), microelectronic products
(9%), consumer products (8%), and other systems and products, including
integrated systems for the United States government (5%). In 1995, approximately
77% of the Company's revenue was generated from sales in the United States and
approximately 23% internationally (including exports). For the year ended
December 31, 1995, the Company recorded a net loss of $867 million, including
restructuring and other charges of $2,801 million before taxes (or $1,847
million after taxes.)
Systems for Network Operators. The Company's systems and software enable
network operators to provide wireline and wireless local, long distance and
international voice, data and video communications services. The Company's
switching, transmission and cable systems are packaged and customized with
application software, operations support systems and associated professional
services, and range in size from small rural telephone systems to some of the
world's largest wireline and wireless networks. The Company's network operator
customers include local, long distance and international telecommunications
companies and cable television companies. The Company has a wireline local
access installed base (the number of access lines serviced by switches
manufactured by the Company) of approximately 110 million lines, representing
approximately 58% of the United States and 13% of the worldwide installed base.
The Company's wireless systems are in operation in nine of the top ten United
States Metropolitan Statistical Areas ("MSAs").
Business Communications Systems. The Company's business systems are
primarily customer premises-based telecommunications systems which are used in
networks that enable businesses to communicate within and between locations. The
Company has the largest installed base in the United States of private branch
exchanges ("PBXs"), key systems, structured cabling systems and voice processing
systems. In addition, the Company's direct sales, installation and maintenance
force works with business customers to integrate the Company's hardware and
software into customized applications such as call centers, which support such
customer services as banking by telephone and airline reservations.
Microelectronics. The Company's microelectronic components include
high-performance integrated circuits ("ICs"), electronic power systems and
optoelectronic components for communications applications. These microelectronic
products are important components of many of the Company's own systems and
products. The Company also supplies these components to other manufacturers of
communications systems and computers. The Company is a market leader in several
IC product areas critical to communications
3
<PAGE> 7
applications, including digital signal processors ("DSPs") for digital cellular
telephones and standard-cell application specific integrated circuits ("ASICs").
The Company's DSPs were included in more than half of the world's digital
cellular telephones shipped in the year ended December 31, 1995.
Consumer Products. The Company offers a wide range of corded, cordless and
cellular telephones, telephone answering systems and related accessories in the
United States for consumers and small businesses. In 1995, the Company sold 31%
of the corded telephones, 28% of the cordless telephones and 35% of the
telephone answering systems sold in the United States, approximately double the
market share of any single competitor in each of these categories.
INDUSTRY OVERVIEW
The global telecommunications networking industry includes systems,
software and products used for voice, data and video communications. This
industry has undergone significant transformation and growth since the
mid-1980's as a result of changes in domestic and international public policy,
technological innovations and economic factors. The Company believes that these
forces will intensify, and that the number of customers and the complexity of
the networks they demand will increase. In addition, the Company believes that
these networks will increasingly become multifunctional in nature, supporting
simultaneous wireline or wireless access to any combination of voice, data and
video communications services, thus reducing the operating costs associated with
separate networks. The Company further believes that the traditionally distinct
technology platforms supporting voice and data will converge, as will those
platforms for the traditionally separate wireline and wireless networks. In the
Company's view, significant industry growth areas will include wireless access,
multifunctional systems and networking software. The Company further believes
that the principal building blocks of the industry are and will continue to be
software, microelectronics and product innovation in advanced digital switching
and transmission platforms, supported by a competency in and a knowledge of
telecommunications networking.
STRATEGY
The Company believes that the global public policy, technological and
economic forces transforming the telecommunications industry are creating
opportunities for the Company to capitalize on its competency in and knowledge
of networking, software and microelectronics. The Company intends to utilize the
research and development capabilities of Bell Labs, its broad and well
established product lines and its strong global customer relationships with
leading network operators and major businesses to remain a leader in
telecommunications networking and to capitalize on the growing convergence of
voice and data and of wireline and wireless networks. Further, the Company is
increasing its focus on customers in the United States and internationally who
consider AT&T as a competitor or potential competitor and therefore have been
reluctant to rely on AT&T as a strategic supplier. The Company believes that
growth opportunities will be available in both developed and developing
countries, and that a significant portion of its growth will derive from the
sale of telecommunications networking systems outside the United States. The
Company intends to focus its efforts globally on wireless networks,
multifunctional systems and networking software.
Wireless Networks. The Company's strategy is to provide network operators
and businesses with complete, flexible wireless networks which will complement
or, in the case of systems for network operators, compete over time with
wireline networks. The Company's sales of wireless infrastructure systems have
grown as a percent of total revenues from 6.1% in 1993 to 10.3% in 1995. The
Company's wireless infrastructure systems for mobile and fixed access are
designed to support leading air interface standards around the world. The
Company believes that its recent advances and innovations in microelectronics
and software will produce further enhancements to its wireless communications
systems.
Multifunctional Systems. The Company's strategy is to provide network
operators and businesses with flexible integrated multifunctional systems that
will enable them to enhance their networks to support simultaneously wireline or
wireless access to any combination of voice, data and video communications. The
4
<PAGE> 8
Company intends to continue to utilize its expertise in digital switching,
digital transmission, optical technologies and telecommunications networking
software to provide these systems.
Networking Software. The Company's strategy is to use its software
expertise to enable network operators and businesses to continue to offer their
customers new and differentiating services. Further, the Company intends to
continue to offer telecommunications networking software that simplifies the
operation of networks and automates labor intensive network management and
provisioning tasks to reduce operating expenses and improve network efficiency.
The Company is pursuing these objectives through its research and development
activities at Bell Labs, where, in 1995, approximately two-thirds of the
technical staff were engaged in software-related activities.
The Company intends to pursue the above strategies globally through a
strong management emphasis on the rapid commercialization of customer-focused
technological innovations. The Company believes that, as an independent entity,
it will have a greater ability to pursue these strategies by defining its own
priorities and maintaining a focus on its customers. In response to its
establishment as a stand-alone entity, the Company has undertaken a
comprehensive review of all of its operations, including its organizational
structure, products and markets, with a view toward maximizing its return on
investments. In connection with this review, the Company adopted a strategic
reorganization plan and recorded pre-tax restructuring charges of $2,613
million, and other charges for asset impairments and other items of $188
million, in the fourth quarter of 1995. See "The Company -- Strategic
Reorganization" and "Business -- Strategy."
SEPARATION FROM AT&T
The Company is currently a wholly owned subsidiary of AT&T. On September
20, 1995, AT&T announced its intention to create a separate company composed of
the AT&T businesses and operations that now comprise the Company, and the
associated assets and liabilities of such businesses and operations (the
"Separation"). AT&T also announced its intention to distribute to its
shareholders by December 31, 1996, subject to certain conditions, all of its
interest in the Company following the Offerings (the "Distribution"). See "The
Company -- Conditions to the Distribution." After the completion of the
Offerings and prior to the Distribution, AT&T will own approximately 82.5% of
the outstanding shares of common stock, par value $.01 per share (the "Common
Stock"), of the Company (80.4% if the U.S. Underwriters exercise their
overallotment option in full). The Company, AT&T and, in certain cases, NCR
Corporation ("NCR"), a wholly owned subsidiary of AT&T, have entered into or
will, on or prior to the consummation of the Offerings (the "Closing Date"),
enter into certain agreements providing for the Separation and governing various
interim and ongoing relationships between and among the three companies,
including an agreement between the Company and AT&T providing for the purchase
of products, licensed materials and services from the Company. See "Arrangements
Between the Company and AT&T."
5
<PAGE> 9
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock Offered
U.S. Offering......................... 97,000,000 shares
International Offering................ 14,000,000 shares
Total Offerings.................... 111,000,000 shares(1)(3)
Common Stock to be outstanding
immediately after the Offerings....... 635,624,894 shares(1)(2)
Common Stock to be held by AT&T
immediately after the Offerings....... 524,624,894 shares(1)(3)
Use of Proceeds......................... The net proceeds to the Company from the Offerings
are estimated to be approximately $2,500 million
($2,875 million if the U.S. Underwriters exercise
their overallotment option in full) (assuming an
initial public offering price of $23.50 per share,
the mid-point of the range set forth on the cover
page of this Prospectus, after deducting estimated
underwriting discounts and commissions and
estimated offering expenses). Such net proceeds
will be used to repay approximately $2,500 million
of the $3,000 million of indebtedness expected to
be outstanding under the Working Capital Facility
(as defined herein) and any excess over $2,500
million will be used for general corporate
purposes. See "Use of Proceeds."
Dividend Policy......................... It is anticipated that, subject to the Company's
financial results and declaration by the Company's
Board of Directors (the "Company Board"), the
Company initially will pay a quarterly dividend of
$.075 per share of Common Stock, beginning with a
dividend payable in the third quarter of 1996 in
respect of the operations of the Company in the
second quarter of 1996. If the Company does not
have sufficient earnings and profits for federal
income tax purposes prior to the Distribution,
dividends paid on the Common Stock prior to the
Distribution would be treated for federal income
tax purposes as non-taxable return of capital to
the extent of the holder's basis in the Common
Stock and as a capital gain to the extent of any
excess over such basis. See "Dividend Policy."
NYSE Symbol............................. LU
Rights.................................. One Right (as defined herein) will be attached to
each share of Common Stock sold in the Offerings.
See "Description of Capital Stock -- Antitakeover
Effects of Certain Provisions of the Certificate
and By-Laws."
</TABLE>
- ---------------
(1) Does not include up to 16,650,000 shares of Common Stock which the U.S.
Underwriters have the option to purchase solely to cover overallotments. If
the U.S. Underwriters exercise their overallotment option in full,
652,274,894 shares of Common Stock will be outstanding after the Offerings.
(2) Does not include shares of Common Stock that will be issuable upon exercise
of employee stock options, (not all of which will be immediately
exercisable) and other Common Stock-based employee benefit awards that will
be issued at the time of the Distribution under the Company's 1996 Long Term
Incentive Plan (the "1996 LTIP") in substitution for AT&T Stock Awards (as
defined herein). See "Management -- Executive Compensation" and
"Arrangements Between the Company and AT&T -- Employee Benefits Agreement."
(3) The Company currently has 1,000 shares of Common Stock outstanding, all of
which are held by AT&T. The Company will effect a stock split or other
issuance of shares which will result in AT&T owning 524,624,894 shares of
Common Stock immediately prior to the Closing Date.
6
<PAGE> 10
SUMMARY FINANCIAL DATA
The following table presents summary selected historical financial data of
the Company. The information set forth below should be read in conjunction with
"Pro Forma Condensed Financial Statements," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the historical
financial statements and notes thereto included elsewhere in this Prospectus.
The consolidated statement of operations data set forth below for each of the
three years ended December 31, 1995 and the consolidated balance sheet data at
December 31, 1995 and 1994 are derived from, and are qualified by reference to,
the audited consolidated financial statements included elsewhere in this
Prospectus, and should be read in conjunction with those financial statements
and the notes thereto. The consolidated balance sheet data at December 31, 1993
are derived from the audited consolidated balance sheet of the Company at
December 31, 1993, which is not included in this Prospectus. The consolidated
statement of operations data for each of the two years ended December 31, 1992
and the consolidated balance sheet data at December 31, 1992 and 1991 are
derived from unaudited consolidated financial statements not included in this
Prospectus.
The historical financial information may not be indicative of the Company's
future performance and does not necessarily reflect what the financial position
and results of operations of the Company would have been had the Company
operated as a separate, stand-alone entity during the periods covered. Per share
data for net income and dividends have not been presented because the Company's
business was operated through divisions of AT&T for the periods presented. See
"Risk Factors -- Limited Relevance of Historical Financial Information."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues.................................. $ 21,413 $ 19,765 $ 17,734 $ 17,312 $ 16,312
Costs(1).................................. 12,945 11,337 10,088 10,383 9,385
Gross margin........................... 8,468 8,428 7,646 6,929 6,927
Operating expenses
Selling, general and administrative
expenses(1)(2)....................... 7,083 5,360 5,016 4,814 6,241
Research and development expenses(1)... 2,385 2,097 1,961 1,711 1,996
Operating income (loss)................... (1,000) 971 669 404 (1,310)
Income (loss) before income taxes and
cumulative effects of accounting
changes................................ (1,138) 784 619 278 (1,522)
Income (loss) before cumulative effects of
accounting changes..................... (867) 482 430 179 (971)
Cumulative effects of accounting
changes................................ -- -- (4,208) -- --
Net income (loss)(1)...................... (867) 482 (3,778) 179 (971)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets.............................. $ 19,722 $ 17,340 $ 17,109 $ 14,466 $ 14,840
Total debt................................ 4,014 3,164 3,195 3,942 4,871
Stockholder's equity...................... 1,434 2,476 2,580 3,098 3,827
</TABLE>
- ---------------
(1) 1995 includes pre-tax restructuring and other charges of $2,801 ($1,847
after taxes) recorded as $892 of costs, $1,645 of selling, general and
administrative expenses and $264 of research and development expenses. (See
Note 5 of Notes to Consolidated Financial Statements.)
(2) 1991 includes pre-tax restructuring and other charges of $1,006 ($612 after
taxes).
7
<PAGE> 11
SUMMARY PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statement data for
the Company as of and for the year ended December 31, 1995 give effect to (i)
the Offerings, assuming an initial public offering price of $23.50 per share
(the mid-point of the range set forth on the cover page of this Prospectus),
(ii) the retention by AT&T of accounts receivable having a face amount estimated
for pro forma purposes at approximately $2,000 million, (iii) borrowings by the
Company under the Working Capital Facility estimated for pro forma purposes at
$3,000 million and the repayment of approximately $2,500 million thereof with
proceeds from the Offerings, and (iv) the prepayment by AT&T of $500 million to
be applied to accounts receivable from AT&T that are due and payable on or after
January 1, 1997 for the purchase of products, licensed materials and services
from the Company (such retention of accounts receivable, borrowings and
repayment under the Working Capital Facility and prepayment are referred to
herein as the "Related Transactions"). See "Certain Transactions in Connection
with the Offerings" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview." The unaudited pro forma
adjustments were prepared assuming that the Offerings and the Related
Transactions had occurred on December 31, 1995 for balance sheet data and
January 1, 1995 for statement of operations data.
The unaudited pro forma financial data presented below do not purport to
represent what the financial position actually would have been had the Offerings
and the Related Transactions occurred on the date referred to above or to
project the Company's financial position for any future date. The unaudited pro
forma data and adjustments should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements of the Company and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
--------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
BALANCE SHEET DATA
Total assets................................................ $ 19,722 $ 1,500 $21,222
Working capital............................................. (384) 500 116
Total debt.................................................. 4,014 500 4,514
Stockholders' equity........................................ 1,434 500 1,934
STATEMENT OF OPERATIONS DATA
Revenues.................................................... $ 21,413 $ -- $21,413
Net loss.................................................... (867) (18) (885)
Pro forma net loss per share................................ (1.65) (1.39)
</TABLE>
8
<PAGE> 12
RISK FACTORS
Purchasers of shares of Common Stock should carefully consider and evaluate
all of the information set forth in this Prospectus, including the risk factors
listed below. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business" and "Arrangements Between the Company and
AT&T" for a description of other factors generally affecting the Company's
business.
RISK OF NONCOMPLETION OF THE DISTRIBUTION
AT&T has announced that, subject to certain conditions, AT&T intends to
distribute to its shareholders by December 31, 1996 all of the Common Stock
owned by AT&T following the Offerings. See "The Company -- Conditions to the
Distribution" and "Arrangements Between the Company and AT&T -- Separation and
Distribution Agreement." No assurance can be given that such conditions will be
satisfied or waived, or that the Distribution will occur. As described herein,
one of AT&T's principal reasons for deciding to effect the Distribution was to
eliminate what AT&T perceived as a growing adverse impact on the Company's
relationship with its customers and potential customers as a result of the
Company's affiliation with AT&T. Although AT&T expects to effect the
Distribution, it is likely that the failure of the Distribution to occur in the
time frame contemplated or at all would materially adversely affect the Company.
See "The Company -- Background of the Separation and Distribution."
CONTROL BY AT&T PENDING THE DISTRIBUTION; ONGOING RELATIONSHIP WITH AT&T
Prior to the Distribution, AT&T will control the Company and will continue
to be able to elect the entire Company Board and to determine the outcome of
corporate actions requiring stockholder approval. After the completion of the
Offerings and prior to the Distribution, AT&T will own approximately 82.5% of
the outstanding shares of Common Stock (80.4% if the U.S. Underwriters exercise
their overallotment option in full). See "Principal Stockholder."
The Company currently has, and after the Offerings and the Distribution
will continue to have, a variety of contractual relationships with AT&T and its
affiliates, including a multi-year purchase agreement, under which AT&T will
remain one of the Company's largest customers. There can be no assurance that
existing and potential customers will not be deterred by the existence of these
relationships or by the historical ties between the Company and AT&T. See
"Arrangements Between the Company and AT&T."
POSSIBILITY OF SUBSTANTIAL SALES OF COMMON STOCK
The planned Distribution would involve the distribution of an aggregate of
524,624,894 shares of Common Stock to the shareholders of AT&T by December 31,
1996. Substantially all of such shares would be eligible for immediate resale in
the public market. The Company is unable to predict whether substantial amounts
of Common Stock will be sold in the open market in anticipation of, or
following, the Distribution. Any sales of substantial amounts of Common Stock in
the public market, or the perception that such sales might occur, whether as a
result of the Distribution or otherwise, could materially adversely affect the
market price of the Common Stock. See "Shares Eligible for Future Sale."
COMPETITION
The Company currently faces significant competition in its markets and
expects that the level of price and product competition will increase. In
addition, as a result of both the trend toward global expansion by foreign and
domestic competitors and technological and public policy changes, the Company
anticipates that new and different competitors will enter its markets. These
competitors may include entrants from the telecommunications, software and data
networking industries. Existing competitors have, and new competitors may have,
strong financial capability, technological expertise and well-recognized brand
names. Depending on the continuing pace of global expansion by domestic and
foreign competitors, the nature of their product offerings and prices, and the
extent to which they benefit from foreign market subsidies, as well as the new
types of product offerings from companies in other industries and the timing and
circumstances of the entry of these competitors into the Company's markets, the
Company's future revenues and net income could be materially adversely affected.
See "Business."
9
<PAGE> 13
In addition, the Regional Bell Operating Companies (the "RBOCs")
historically have been prohibited from manufacturing telecommunications
equipment by the terms of the Modification of Final Judgment (the "MFJ") entered
into in connection with the divestiture of the RBOCs by AT&T in 1984. The RBOCs
are major customers of the Company. The recently enacted Telecommunications Act
of 1996 (the "Telecommunications Act") contains provisions that permit the
RBOCs, subject to satisfying certain conditions designed to facilitate local
exchange competition, to manufacture telecommunications equipment. In light of
these provisions, it is possible that one or more RBOCs may decide to
manufacture telecommunications equipment, to design and provide
telecommunications software, or to form alliances with other manufacturers. Any
of these developments could result in increased competition for the Company and
reduce the RBOCs' purchases from the Company.
DEPENDENCE ON NEW PRODUCT DEVELOPMENT
The markets for the Company's principal products are characterized by
rapidly changing technology, evolving industry standards, frequent new product
introductions and evolving methods of building and operating telecommunications
systems for network operators and business customers. The Company's operating
results will depend to a significant extent on its ability to continue to
introduce new systems, software and services successfully on a timely basis and
to reduce costs of existing systems, software and services. The success of these
and other new offerings is dependent on several factors, including proper
identification of customer needs, cost, timely completion and introduction,
differentiation from offerings of the Company's competitors and market
acceptance. There can be no assurance that the Company will successfully
identify new product or service opportunities and develop and bring new systems,
software and services to market in a timely manner, or that products or
technologies developed by others will not render the Company's offerings
obsolete or noncompetitive. Any such development could have a material adverse
effect on the Company's future competitive position and results of operations.
In addition, new technological innovations generally require a substantial
investment before any assurance is available as to their commercial viability,
including, in some cases, certification by international and domestic
standards-setting bodies. See "Business." There can be no assurance that any of
the technologies in which the Company is focusing its research and development
investments will achieve broad acceptance in the marketplace, and the lack of
such market acceptance could have a material adverse effect on the Company's
future competitive position and results of operations.
In addition, there can be no assurance that the Company will be able to
attract and retain the highly skilled technical personnel necessary to enable
the Company to develop new products, systems and software successfully.
POTENTIAL ENVIRONMENTAL LIABILITIES
The Company's current and historical manufacturing and research operations
are subject to a wide range of environmental protection laws in the United
States and other countries. In the United States, these laws often require
parties to fund remedial action regardless of fault. The Company has remedial
and investigatory activities, including assessment and cleanup work, underway at
46 current and former manufacturing, laboratory and recycling facilities to
comply, or to determine compliance, with applicable environmental protection
laws. AT&T and its subsidiaries have been listed as potentially responsible
parties ("PRPs") at numerous "Superfund" sites pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") or
comparable state statutes, either by a government agency (which may have either
sought information concerning AT&T's connection to the site, or may have sought
from AT&T participation in site cleanup work or contribution toward the cost of
site cleanup), or by a private party seeking contribution to site cleanup costs.
Under the terms of the Separation and Distribution Agreement (as defined
herein), the Company will assume or indemnify AT&T for all liabilities primarily
relating to, arising out of or resulting from (i) the operation of the Company
Business (as defined herein) as conducted at any time prior to, on or after the
Closing Date or (ii) any Company Assets (as defined herein), including, without
limitation, those associated with these sites. It is often difficult to estimate
the future impact of environmental matters, including potential liabilities. The
Company records an environmental reserve when it is probable that a liability
has been incurred and the amount of the liability is reasonably estimable. This
practice is followed
10
<PAGE> 14
whether the claims are asserted or unasserted. Management expects that the
amounts reserved for will be paid out over the period of remediation for the
applicable site which ranges from 5 to 30 years. Reserves for estimated losses
from environmental remediation are, depending on the site, based primarily upon
internal or third party environmental studies, and estimates as to the number,
participation level and financial viability of any other PRPs, the extent of the
contamination and the nature of required remedial actions. Accruals are adjusted
as further information develops or circumstances change. The amounts provided
for in the Company's consolidated financial statements in respect of
environmental reserves are the gross undiscounted amount of such reserves,
without deductions for insurance or third party indemnity claims. In those cases
where insurance carriers or third party indemnitors have agreed to pay any
amounts and management believes that collectibility of such amounts is probable,
the amounts are reflected as receivables in the financial statements. Although
the Company believes that its reserves are adequate, there can be no assurance
that the amount of capital expenditures and other expenses which will be
required to complete remedial actions and to comply with applicable
environmental laws will not exceed the amounts reflected in the Company's
reserves or will not have a material adverse effect on the financial condition
of the Company or on the Company's results of operations or cash flows. Any
amounts of environmental costs that may be incurred in excess of those provided
for at December 31, 1995 cannot be determined.
RISK OF INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS
The Company relies on patent, trademark, trade secret and copyright laws
both to protect its proprietary technology and to protect the Company against
claims from others. The Company believes that it has direct intellectual
property rights or rights under cross-licensing arrangements covering
substantially all of its material technologies and has not received notice of
any claims against it which it believes are valid. Given the technological
complexity of the Company's systems and products, however, there can be no
assurance that claims of infringement will not be asserted against the Company
or against the Company's customers in connection with their use of the Company's
systems and products, nor can there be any assurance as to the outcome of any
such claims. The Company is being assigned ownership of the substantial majority
of the current AT&T patents. Pursuant to the patent license agreement to be
entered into among the Company, AT&T and NCR, the Company has been given rights,
subject to specified limitations, to pass through to its customers certain
rights under the approximately 400 patents retained by AT&T. There can be no
assurance that the Company's customers and potential customers will be satisfied
with the pass-through rights available to them under the patents retained by
AT&T or with any indemnification commitments the Company may be willing to
provide in connection therewith. See "Arrangements Between the Company and
AT&T -- Patent Licenses and Related Matters" and "-- Technology Licenses and
Related Matters."
RELIANCE ON MAJOR CUSTOMERS
Historically, the Company has relied on a limited number of customers for a
substantial portion of its total revenues. In terms of total revenues, the
Company's largest customer has been AT&T, although other large customers may
purchase more of any particular system or product line. The contribution of AT&T
to the Company's total revenues and percentage of total revenues for the years
ended December 31, 1995, 1994 and 1993 was $2,119 million (9.9%), $2,137 million
(10.8%) and $1,967 million (11.1%), respectively. Except as set forth in the
General Purchase Agreement and the Supplemental Agreements (each as defined
herein) entered into between the Company and AT&T, following the Offerings AT&T
is not obligated to make any minimum level of future purchases from the Company
or to provide the Company with binding forecasts of product purchases for any
future period. Pursuant to the General Purchase Agreement, AT&T and its
designated affiliates have committed to purchase an aggregate of at least $3,000
million of products, licensed materials and services from the Company during the
three-year period ending December 31, 1998. If AT&T does not meet this purchase
commitment by December 31, 1998, AT&T will be required thereafter to pay
interest based on the shortfall until the $3,000 million purchase commitment is
met. See "Arrangements Between the Company and AT&T -- Purchase Agreements."
In addition, sales to approximately ten network operators (including AT&T),
some of which may vary from year to year, constituted approximately 38%, 41% and
42% of total revenues in the years ended December 31, 1995, 1994 and 1993,
respectively. The Company has diversified its customer base in the past
11
<PAGE> 15
several years and expects this trend to continue. Nevertheless, the Company
expects that a significant portion of its future revenues will continue to be
generated by a limited number of customers. See "Business." The loss of any of
these customers or any substantial reduction in orders by any of these customers
could materially adversely affect the Company's operating results. The United
States government is, in the aggregate, also a large customer of the Company.
Given the current pressures on the government to reduce its overall level of
spending, there can be no assurance that government purchases from the Company
will not decrease in the future.
MULTI-YEAR CONTRACTS
The Company has several significant contracts for the sale of
infrastructure systems to network operators which extend over a multi-year
period. In certain cases, these contracts relate to new technologies which may
not have been deployed previously on a large scale commercial basis, and there
can be no assurance that these contracts can be completed on a timely basis, in
accordance with the customer's technical specifications or without significant
cost overruns. Certain of the Company's multi-year contracts also contain
demanding installation and maintenance requirements, in addition to other
performance criteria relating to timing, unit cost requirements and compliance
with government regulations, which, if not satisfied, could subject the Company
to substantial penalties, damages or non-payment, or could result in contract
termination. There can be no assurance of the Company's ability to satisfy these
requirements completely, without losses. In addition, specific terms of such
contracts may cause revenues under these agreements to fluctuate. The Company
expects that multi-year contracts it may enter into in the future may give rise
to similar uncertainties.
One of the Company's multi-year contracts is with Pacific Bell for the
provision of a broadband network based on hybrid fiber-coaxial cable technology.
Implementation difficulties and cost overruns have arisen under this contract,
which may result in claims being made by the parties under the contract. The
Company and Pacific Bell are conducting negotiations in an effort to resolve
outstanding issues and potential claims. The Company's historical financial
statements reflect a reserve relating to this contract. Based on the future
negotiations with Pacific Bell, the Company will continue to assess the adequacy
of this reserve.
SEASONALITY; ANTICIPATED LOSS FOR FIRST HALF OF 1996
The Company's business is highly seasonal, with revenue and net income
concentrated in the fourth quarter of the year. Consequently, during the three
quarters ending in March, June and September, the Company historically has not
been as profitable as in the quarter ending in December, and the Company
traditionally incurs losses in the first quarter. Such seasonality also causes
the Company's cash flow requirements to vary greatly from quarter to quarter.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Variability in the Company's Business."
In the first quarter of 1996, the Company expects to incur a net loss
before cumulative effects of accounting changes, net of taxes in the range of
$100 million to $140 million as compared to a net loss of $22 million in the
first quarter of 1995. For the second quarter of 1996, the Company expects that
it may earn substantially less than the $159 million earned in the second
quarter of 1995, resulting in a loss for the first half of 1996. There are
several factors influencing the significantly lower operating results
anticipated for the first half of 1996: (i) one-time expenses associated with
the Company's transition to operation as an independent publicly held company,
including replication and modification of information, payroll and financial
systems, and development of corporate identity programs; (ii) increased selling,
general and administrative expenses associated with plans that pre-date the
Company's restructuring decisions; (iii) the planned increase in expenditure by
the Company for research and development; and (iv) one-time costs associated
with the integration of the businesses purchased from Philips Electronics NV
("Philips") in February 1996. The impact on selling, general and administrative
expenses of the actions taken in connection with the Company's strategic
reorganization is not expected to be realized until the second quarter of 1996
and subsequent periods.
ABSENCE OF HISTORY AS A STAND-ALONE COMPANY
The Company has never operated as a stand-alone company. After the
Offerings and prior to the Distribution, the Company will continue to be a
subsidiary of AT&T, but will operate as a stand-alone
12
<PAGE> 16
company, and AT&T will have no obligation to provide assistance to the Company
or any of its subsidiaries except as described in "Arrangements Between the
Company and AT&T."
In anticipation of being established as a stand-alone entity, the Company
has reviewed its business and operations and is implementing certain
organizational changes. See "The Company -- Strategic Reorganization." The
Company believes that these changes, when implemented, will have a positive
impact. However, there can be no assurance that this positive impact will be
realized or that these changes will not have an adverse impact on the Company's
future revenues and net income.
LIMITED RELEVANCE OF HISTORICAL FINANCIAL INFORMATION
The financial information included herein may not necessarily reflect the
results of operations, financial position and cash flows of the Company in the
future or what the results of operations, financial position and cash flows
would have been had the Company been a separate, stand-alone entity during the
periods presented. The financial information included herein does not reflect
many significant changes that will occur in the funding and operations of the
Company as a result of the Separation and the Offerings. In addition, the
consolidated financial statements of the Company include certain assets,
liabilities, revenues and expenses which were not historically recorded at the
level of, but are associated with, the businesses transferred to the Company.
See "Certain Transactions in Connection with the Offerings," "Pro Forma
Condensed Financial Statements," including the discussion of the assumptions
reflected therein, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."
CHANGE OF COMPANY BRAND NAME
In connection with the Separation, the Company will, rapidly in the case of
some products and over specified periods of time in the case of other products,
change the trademarks and trade names under which it conducts its business. The
Company believes that its sale of business communications systems to small
businesses and sales of consumer products have benefitted from the use of the
"AT&T" brand name. The impact of the change in trademarks and trade names and
other changes (including, without limitation, restrictions on the use of the
"AT&T" brand name and related trade dress) on the Company's business and
operations cannot be fully predicted. See "Arrangements Between the Company and
AT&T -- Brand License and Related Matters."
FUTURE CAPITAL REQUIREMENTS; ABSENCE OF AT&T FUNDING
The Company's working capital requirements and cash flow provided by
operating activities can vary greatly from quarter to quarter, depending on the
volume of production, the timing of deliveries, the build-up of inventories, and
the payment terms offered to customers. In the past, the Company's working
capital needs have been satisfied pursuant to AT&T's corporate-wide cash
management policies. However, AT&T is no longer providing funds to finance the
Company's operations.
The Company believes that the proceeds of the Offerings, along with the
Working Capital Facility, cash flow from operations and long- and short-term
debt financings, will be sufficient to satisfy its future working capital,
capital expenditure, research and development and debt service requirements,
including debt service requirements on the Commercial Paper Program (as defined
herein). On February 26, 1996, the Company filed a shelf registration statement
on Form S-3 (Registration No. 333-01223) (as it may be amended, the "Shelf
Registration Statement") to register the offering from time to time of up to
$3,500 million of long-term debt. Although the Company believes that it will be
able to access the capital markets on terms and in amounts that will be
satisfactory to it, there can be no assurance that the Company will be
successful in this regard. The historical financial statements of the Company
reflect a blend of AT&T's short-term and long-term weighted average interest
rates. The Company expects that it will incur long-term debt as well as short-
term debt, and that it may not be able to obtain financing with interest rates
as favorable as those historically enjoyed by AT&T, with the result that its
cost of capital will be higher than that reflected in the Company's historical
financial statements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition, Liquidity and
Capital Resources."
Network operators, domestically and internationally, increasingly have
required their suppliers to arrange or provide long-term financing for them as a
condition to obtaining or bidding on infrastructure projects. These
13
<PAGE> 17
projects may require financing in amounts ranging from modest sums to over a
billion dollars. In this regard, in February 1996, the Company entered into an
agreement with MajorCo L.P., an affiliate of Sprint Spectrum LP ("SSLP"), to
supply and install approximately 60% of SSLP's market areas over a five-year
period. This agreement is conditioned, among other things, upon the Company
providing (or guaranteeing) long-term financing to SSLP for its purchase of
equipment and services from the Company. The Company has entered into
discussions with SSLP with respect to such financing and has proposed providing
(or guaranteeing) $1,000 million of long-term financing for SSLP's purchases
from the Company. These discussions are ongoing. The ability of the Company to
arrange or provide financing for network operators generally, without AT&T's
support, will depend on a number of factors, including the Company's capital
structure and level of available credit. There can be no assurance that the
Company will be able to continue to arrange or provide such financing following
the Offerings on terms and conditions, and in amounts, that will be satisfactory
to such network operators. Any such inability of the Company to arrange or
provide financing in accordance with its past practices could have a material
adverse effect on the Company's financial condition and results of operations.
RISK OF INTERNATIONAL GROWTH AND FOREIGN EXCHANGE
The Company intends to continue to pursue growth opportunities in
international markets. In many international markets, long-standing
relationships between potential customers of the Company and their local
providers, and protective regulations, including local content requirements and
type approvals, create barriers to entry. In addition, pursuit of such
international growth opportunities may require significant investments for an
extended period before returns on such investments, if any, are realized. Such
projects and investments could be adversely affected by reversals or delays in
the opening of foreign markets to new competitors, exchange controls, currency
fluctuations, investment policies, repatriation of cash, nationalization, social
and political risks, taxation, and other factors, depending on the country in
which such opportunity arises. In addition, the laws and policies of the United
States affecting foreign trade, investment and taxation could also adversely
affect such projects and investments. There can be no assurance that the Company
will be able to overcome these barriers.
A significant change in the value of the dollar against the currency of one
or more countries where the Company recognizes substantial revenue or earnings
may materially adversely affect the Company's results. The Company attempts to
mitigate any such effects through the use of foreign currency contracts,
although there can be no assurances that such attempts will be successful.
CERTAIN ANTITAKEOVER EFFECTS
The Restated Certificate of Incorporation of the Company (the
"Certificate") and the By-Laws of the Company (the "By-Laws"), the Rights, and
applicable provisions of the Delaware General Corporation Law (the "DGCL"),
contain several provisions that may make more difficult the acquisition of
control of the Company without the approval of the Company Board. Certain
provisions of the Certificate and the By-Laws, among other things, (i) classify
the Company Board into three classes, each of which (after an initial transition
period) will serve for staggered three-year periods; (ii) provide that a
director of the Company may be removed by the stockholders only for cause; (iii)
provide that only the Company Board or the Chairman of the Board of the Company
may call special meetings of the stockholders; (iv) provide that the
stockholders may take action only at a meeting of the stockholders; (v) provide
that stockholders must comply with certain advance notice procedures in order to
nominate candidates for election to the Company Board or to place stockholders'
proposals on the agenda for consideration at meetings of the stockholders; and
(vi) provide that the stockholders may amend or repeal any of the foregoing
provisions of the Certificate or the By-Laws only by a vote of 80% of the stock
entitled to vote generally in the election of directors (the "Voting Stock").
The Rights would cause substantial dilution to a person or group that attempts
to acquire the Company on terms not approved in advance by the Company Board.
With certain exceptions, Section 203 of the DGCL ("Section 203") imposes certain
restrictions on mergers and other business combinations between the Company and
any holder of 15% or more of the Common Stock. Some of the provisions described
above do not apply to, or otherwise contain exceptions for, AT&T as long as AT&T
beneficially owns a majority of the
14
<PAGE> 18
Common Stock. See "Description of Capital Stock -- Antitakeover Effects of
Certain Provisions of the Certificate and By-Laws" and " -- Delaware Business
Combination Statute."
ABSENCE OF A PUBLIC MARKET FOR THE COMMON STOCK
Prior to the Offerings, there has been no public market for the Common
Stock. Although the Common Stock has been approved for listing, subject to
official notice of issuance, on The New York Stock Exchange, Inc. (the "NYSE"),
there can be no assurance that an active public market for the Common Stock will
develop or that the price at which the Common Stock will trade will not be lower
than the initial public offering price. The initial public offering price will
be determined through negotiations between the Company and the Underwriters. See
"Underwriting."
15
<PAGE> 19
THE COMPANY
The Company is one of the world's leading designers, developers and
manufacturers of telecommunications systems, software and products. The Company
is a global market leader in the sale of public telecommunications systems, and
is a supplier of systems or software to 23 of the world's 25 largest network
operators. The Company is also a global market leader in the sale of business
communications systems and in the sale of microelectronic components for
communications applications to manufacturers of communications systems and
computers. Further, the Company is the largest supplier in the United States of
telecommunications products for consumers. In addition, the Company has provided
engineering, installation, maintenance or operations support services to over
250 network operators in 75 countries, over 1.4 million business locations in
the United States and approximately 100,000 business locations in over 90 other
countries. The Company's research and development activities are conducted
through Bell Labs, which consists of approximately three-quarters of the total
resources of AT&T's former Bell Laboratories division, one of the world's
foremost industrial research and development organizations.
The Company's revenues of $21,413 million for the year ended December 31,
1995 were generated from the sale of systems for network operators (54% of total
revenues), business communications systems (24%), microelectronic products (9%),
consumer products (8%) and other systems and products, including integrated
systems for the United States government (5%). In 1995, approximately 77% of the
Company's revenue was generated from sales in the United States and
approximately 23% internationally (including exports). For the year ended
December 31, 1995, the Company recorded a net loss of $867 million, including
restructuring and other charges of $2,801 million before taxes (or $1,847
million after taxes).
The Company was incorporated in Delaware in November 1995. The Company has
its principal executive offices at 600 Mountain Avenue, Murray Hill, New Jersey
07974. Its telephone number at such offices is (908) 582-8500. The Company is
currently a wholly owned subsidiary of AT&T. Prior to February 1, 1996, AT&T
conducted the Company's businesses through various divisions and subsidiaries.
For the year ended December 31, 1995, the Company's revenues excluding sales to
AT&T were $19,294 million, which accounted for 24.2% of AT&T's total external
revenues.
BACKGROUND OF THE SEPARATION AND DISTRIBUTION
Historically, AT&T has viewed its strategy of vertical integration,
combining communications equipment, communications services and other
businesses, as a source of strength in addressing the challenges and
opportunities presented by the environment in which it has done business.
However, changes in customer needs and demands, public policy and technology are
creating a new industry structure in which, increasingly, the advantages of this
vertical integration strategy are outweighed by its costs and disadvantages. As
a result of the industry restructuring over the past decade, new actual and
potential competitors of AT&T have been created by the growth of companies
formerly affiliated with AT&T and by the expansion of other domestic and
international companies, both geographically and in terms of scope of services
provided. These changes have resulted in a situation in which many of the actual
and potential customers of the Company are or will be competitors of AT&T's
communications services business. As a result, the obstacles currently faced by
the Company in marketing its products to competitors and potential competitors
of AT&T's communications services business have become severe and are expected
to continue to intensify. For these reasons, AT&T has announced that, subject to
certain conditions, AT&T intends to distribute to its shareholders by December
31, 1996 all of the Common Stock owned by AT&T after the Offerings. See "Risk
Factors -- Risk of Noncompletion of the Distribution."
After the completion of the Offerings and prior to the Distribution, AT&T
will own approximately 82.5% of the outstanding shares of Common Stock (80.4% if
the U.S. Underwriters exercise their overallotment option in full). The Company
and AT&T have entered into certain agreements providing for the Separation and
the provision by AT&T of certain interim services to the Company. See
"Arrangements Between the Company and AT&T."
CONDITIONS TO THE DISTRIBUTION
The Distribution is subject to the satisfaction, or waiver by the Board of
Directors of AT&T (the "AT&T Board"), in its sole discretion, of the following
conditions: (i) a private letter ruling from the Internal Revenue
16
<PAGE> 20
Service (the "IRS") shall have been obtained, and shall continue in effect, to
the effect that, among other things, the Distribution will qualify as a tax-free
distribution for federal income tax purposes under Section 355 of the Internal
Revenue Code of 1986, as amended (the "Code"), and the transfer to the Company
of assets and the assumption by the Company of liabilities in connection with
the Separation will not result in recognition of any gain or loss for federal
income tax purposes to AT&T, the Company or AT&T's or the Company's
shareholders, and such ruling shall be in form and substance satisfactory to
AT&T, in its sole discretion; (ii) any material Governmental Approvals and
Consents (as such terms are defined in the Separation and Distribution
Agreement) necessary to consummate the Distribution shall have been obtained and
shall be in full force and effect; (iii) no order, injunction or decree issued
by any court or agency of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Distribution shall be in effect,
and no other event outside the control of AT&T shall have occurred or failed to
occur that prevents the consummation of the Distribution; and (iv) no other
events or developments shall have occurred subsequent to the Closing Date that,
in the judgment of the AT&T Board, would result in the Distribution having a
material adverse effect on AT&T or on the shareholders of AT&T. On March 21,
1996, the Company received a private letter ruling from the IRS to the effect
described in clause (i) above. The AT&T Board will have the sole discretion to
determine the date of consummation of the Distribution (the "Distribution Date")
at any time after the Closing Date and on or prior to December 31, 1996. AT&T
has agreed to consummate the Distribution no later than December 31, 1996,
subject to the satisfaction, or waiver by the AT&T Board, in its sole
discretion, of the conditions set forth above. In the event that any such
condition shall not have been satisfied or waived on or before December 31,
1996, AT&T has agreed to consummate the Distribution as promptly as practicable
following the satisfaction or waiver of all such conditions. AT&T may terminate
the obligation to consummate the Distribution if the Distribution has not
occurred by December 31, 1997. In addition, with the consent of the Company and
AT&T, the Separation and Distribution Agreement may be amended or terminated at
any time prior to the Distribution Date. See "Risk Factors -- Risk of
Noncompletion of the Distribution" and "Arrangements Between the Company and
AT&T -- Separation and Distribution Agreement."
STRATEGIC REORGANIZATION
The Company historically has operated as part of AT&T. The Separation will
establish the Company as a stand-alone entity with objectives separate from
those of AT&T. The Company intends to focus its resources and management
emphasis on the technologies and markets it views as critical to its long-term
success as a stand-alone entity. The Company therefore has undertaken a
comprehensive review of all of its operations, including its organizational
structure, products and markets, with a view toward maximizing its return on
investments. In connection with this review, the Company adopted a strategic
reorganization plan and recorded a pre-tax restructuring charge of $2,613
million in the fourth quarter of 1995. In addition, in the fourth quarter of
1995, the Company recorded a charge of $188 million for asset impairments and
other items.
As part of these efforts, and as announced January 2, 1996, the Company
will eliminate approximately 22,000 positions, of which approximately 11,000 are
management positions and 11,000 occupational positions. Approximately 1,000
additional management employees are employed by businesses that the Company has
announced plans to sell. As of December 31, 1995, approximately 4,100 management
employees have accepted a voluntary severance package, the majority of whom will
leave the Company in early 1996. The Company expects approximately 70% of all
separations to be completed by the end of 1996 and the majority of the remaining
separations to be completed during 1997. These reductions are the result of the
Company's decisions to form a single corporate structure that eliminated
duplicative management and streamlined administrative functions, and to
outsource certain corporate functions.
The Company's reorganization efforts also include a plan to close all of
the Company's 338 retail stores (the "Phone Center Stores"), most of which are
expected to be closed by May 1996. In addition, the Company plans to consolidate
certain international facilities and functions for international customers that
previously were performed in the United States. In conjunction with these work
force reduction and consolidation efforts, the Company intends to reduce its
leased space from approximately 19 million square feet to approximately 14
million square feet and to reduce its owned space from approximately 37 million
square feet to approximately 28 million square feet.
17
<PAGE> 21
As part of the redefinition of its objectives, the Company intends to focus
its investments on its core technologies, primarily through expanded and
targeted research and development efforts. Consequently, the Company has decided
to sell and exit tangential product lines and markets, including the
manufacturing of certain data communications equipment, backplanes and printed
circuit boards. In 1995, revenues associated with operations that the Company
has exited or expects to exit in connection with these reorganization efforts
accounted for approximately 4.6% of the Company's total revenues. Where
appropriate, the Company will pursue core technologies through strategic
acquisitions, partnerships or joint ventures. For example, on February 7, 1996,
the Company completed the acquisition of several manufacturing and other
operations of certain subsidiaries of Philips, primarily in France and Germany
(the "Philips Businesses"), for approximately $260 million in cash, plus the
assumption of certain liabilities relating to those operations. The acquired
operations relate to synchronous digital hierarchy ("SDH") technology, global
systems for mobile communications ("GSM") technology, and Philips' fixed
wireless system technology, which is based on the DECT (digital enhanced
cordless telephone) standard. This acquisition is designed to permit the Company
to expand its global line of systems which support non-United States standards
for mobile and fixed wireless access and digital optical transport.
Finally, in addition to seeking to control expenses, the Company is
instituting processes designed to reduce the costs and time required to develop
and bring to market new systems, software and products. The Company intends to
create product realization centers at which it will locate Bell Labs developers
with product managers and manufacturing teams. The Company's development efforts
will be oriented toward scaleable and reusable software and microelectronic
technologies that it intends to incorporate into products addressing multiple
marketplaces.
USE OF PROCEEDS
The net proceeds to the Company from the Offerings are estimated to be
approximately $2,500 million ($2,875 million if the U.S. Underwriters exercise
their overallotment option in full) after deducting estimated underwriting
discounts and commissions and offering expenses, assuming an initial public
offering price of $23.50 per share, the mid-point of the range set forth on the
cover page of this Prospectus. Such proceeds will be used to repay approximately
$2,500 million of indebtedness outstanding under the Working Capital Facility
and any excess over this amount will be used for general corporate purposes. As
of March 20, 1996, the Company had borrowed $1,956 million under the Working
Capital Facility, all of which was used for general working capital purposes.
Such borrowings bear interest at a variable rate (approximately 5.48% per annum
at March 20, 1996). However, the Company anticipates borrowing up to $3,000
million prior to the closing of the Offerings. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial
Condition, Liquidity and Capital Resources."
DIVIDEND POLICY
It is anticipated that, following the Offerings, the Company initially will
declare and pay cash dividends at the quarterly rate of $.075 per share of
Common Stock, beginning with a dividend payable in the third quarter of 1996 in
respect of the operations of the Company in the second quarter of 1996. The
declaration of dividends by the Company and the amount thereof will, however, be
in the discretion of the Company Board and will depend upon the Company's
results of operations, financial condition, cash requirements, future prospects
and other factors deemed relevant by the Company Board.
There is no assurance that the Company will have earnings and profits for
federal income tax purposes until the Distribution. To the extent the Company
does not have sufficient earnings and profits, dividends paid on the Common
Stock prior to the Distribution would be treated for federal income tax purposes
as a non-taxable return of capital to the extent of the holder's basis in the
Common Stock and as a capital gain to the extent of any excess over such basis.
Dividends paid to corporate holders that are treated as return of capital or
capital gains would not qualify for the intercorporate dividends-received
deduction. See "Risk Factors -- Risk of Noncompletion of the Distribution."
18
<PAGE> 22
CERTAIN TRANSACTIONS IN CONNECTION WITH THE OFFERINGS
The Company is currently a wholly owned subsidiary of AT&T. Prior to
February 1, 1996, AT&T conducted the Company's businesses through various
divisions and subsidiaries. Beginning February 1, 1996, AT&T began effectuating
the Separation by transferring to the Company the assets and liabilities related
to such businesses, except that AT&T is retaining accounts receivable having a
face amount estimated for pro forma purposes at approximately $2,000 million.
The Company believes that the Separation will be substantially completed,
including the transfer of substantially all of such assets and liabilities, by
the Closing Date. Certain international assets relating primarily to the
communications services business of AT&T or to the computer business of NCR
which are not material to the Company in the aggregate may be held by the
Company or its subsidiaries at the Closing Date pending receipt of consents or
approvals or satisfaction of other applicable foreign requirements necessary for
the transfer of such assets to AT&T or NCR. In addition, certain international
assets relating primarily to the business of the Company which are not material
to the Company in the aggregate may be held by AT&T or its subsidiaries at the
Closing Date pending receipt of consents or approvals or satisfaction of other
applicable foreign requirements necessary for the transfer of such assets to the
Company. The Company's financial statements assume the consummation of all such
transactions. In addition, employee benefits assets will be held by AT&T or
employee benefit trusts subject to agreements to transfer these assets to the
Company or trusts established by the Company following the Distribution. See
"Arrangements Between the Company and AT&T -- Separation and Distribution
Agreement" and "-- Employee Benefits Agreement."
The Separation and the transactions being undertaken in connection
therewith, including the Offerings and the Distribution, are being effected
pursuant to a Separation and Distribution Agreement, dated as of February 1,
1996, by and among the Company, AT&T and NCR (the "Separation and Distribution
Agreement"). AT&T has announced that, subject to certain conditions, AT&T
intends to distribute to its shareholders by December 31, 1996 all of the Common
Stock of the Company owned by AT&T following the Offerings. See "Arrangements
Between the Company and AT&T -- Separation and Distribution Agreement."
In addition, as contemplated by the Separation and Distribution Agreement,
the Company, AT&T and, in certain cases, NCR have entered into or will, on or
prior to the Closing Date, enter into certain ancillary agreements which govern
various interim and ongoing relationships between and among the three companies
(the "Ancillary Agreements"). The Ancillary Agreements include agreements with
respect to employee benefit arrangements, intellectual property arrangements,
the provision of interim services, tax sharing and various commercial
arrangements, including the sale of equipment by the Company to AT&T. Pursuant
to the General Purchase Agreement, AT&T and its designated affiliates have
committed to purchase an aggregate of at least $3,000 million of products,
licensed materials and services from the Company during the three-year period
ending December 31, 1998. If AT&T does not meet this purchase commitment by
December 31, 1998, AT&T will be required thereafter to pay interest based on the
shortfall until the $3,000 million purchase commitment is met. AT&T has also
agreed to prepay $500 million to the Company, on or prior to the Closing Date,
to be applied to accounts receivable from AT&T that are due and payable on or
after January 1, 1997 for the purchase of products, licensed materials and
services from the Company. See "Arrangements Between the Company and AT&T."
As reflected in the audited consolidated balance sheets for the Company at
December 31, 1995 and 1994, the Company has had limited direct third-party
indebtedness and historically has relied on internally generated funds and funds
provided by AT&T to finance its operations. However, AT&T is no longer providing
funds to finance the Company's operations. The Company has entered into a
Competitive Advance and Revolving Credit Facility Agreement, dated as of March
4, 1996, with Chemical Bank, as Agent (the "Working Capital Facility"), pursuant
to which the Company may borrow up to $4,000 million, subject to the terms and
conditions thereof. For a summary of certain provisions of the Working Capital
Facility, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition, Liquidity and Capital Resources."
The Company expects to repay approximately $2,500 million of the amounts drawn
under the Working Capital Facility with the proceeds of the Offerings.
19
<PAGE> 23
In addition, AT&T has commenced issuance of up to $4,000 million of
short-term debt under a commercial paper facility (the "Commercial Paper
Program") which will be assumed by the Company, subject to certain conditions,
at the Closing Date. The Commercial Paper Program will be comprised of short-
term borrowings in the commercial paper market at market interest rates. It is
contemplated that AT&T will retain as of the Closing Date the proceeds of all
borrowings under the Commercial Paper Program and that AT&T will be released
from all of its obligations thereunder, with the result that the Company will
become the obligor thereunder. The Commercial Paper Program will be supported by
a back-up credit facility with third-party financial institutions initially
entered into by AT&T but which will be assumed by the Company, subject to
certain conditions, at the Closing Date. Neither AT&T nor the Company expects to
make any borrowings under the back-up credit facility. The Company expects that,
over time, the Company may refinance all or part of the Commercial Paper Program
from the proceeds of short- or long-term borrowings. In this regard, the Company
has filed the Shelf Registration Statement to register the offering from time to
time of up to $3,500 million of long-term debt. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview" and
"-- Financial Condition, Liquidity and Capital Resources."
The assumption by the Company of the Commercial Paper Program and the
retention by AT&T of accounts receivable are part of the establishment of the
initial capitalization of the Company. The factors considered in determining the
amount of this capitalization include the Company's prospective financing
requirements, the Company's working capital expenditure requirements, the
Company's desired credit rating, the Company's pro forma debt to capital ratio,
and the Company's need to procure bid and performance bonds, to arrange or
provide customer financing, to engage in hedging transactions and to attain
required self-insurance levels. In reviewing these factors, the capitalizations
and credit ratings of comparable companies in the Company's industry were also
considered. The Commercial Paper Program was developed to permit the assumption
by the Company of part of AT&T's debt in light of the fact that AT&T's
preexisting debt was not assumable by the Company. The retention of accounts
receivable by AT&T was designed to permit AT&T to retain approximately $2,000
million of cash equivalents as part of balancing the capitalizations of the two
companies.
The Company believes that the proceeds of the Offerings, as well as the
Working Capital Facility, cash flow from operations and short- and long-term
debt financings, will be sufficient to satisfy its future working capital,
capital expenditure, research and development and debt service requirements,
including debt service requirements on the Commercial Paper Program. The Company
also believes that it will be able to procure bid and performance bonds, to
arrange or provide customer financing as necessary, and to engage in hedging
transactions, on commercially acceptable terms. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial
Condition, Liquidity and Capital Resources" and "Risk Factors -- Future Capital
Requirements; Absence of AT&T Funding."
20
<PAGE> 24
CAPITALIZATION
Set forth below is the historical capitalization of the Company at December
31, 1995 and on a pro forma basis to give effect to the Offerings (assuming an
initial public offering price of $23.50 per share, the mid-point of the range
set forth on the cover page of this Prospectus) and the Related Transactions.
The unaudited pro forma balance sheet set forth below should be read in
conjunction with the unaudited pro forma condensed financial statements of the
Company and the historical financial statements of the Company appearing
elsewhere in this Prospectus. For an explanation of the adjustments made in
order to derive the unaudited pro forma information below, see "Certain
Transactions in Connection with the Offerings" and "Pro Forma Condensed
Financial Statements."
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
---------------------------
PRO FORMA
HISTORICAL (UNAUDITED)
----------- ---------
(IN MILLIONS)
<S> <C> <C>
SHORT-TERM DEBT:
Debt maturing within one year................................... $ 49 $ 49
Debt sharing amount in anticipation of assumption of the
Commercial Paper Program..................................... 3,842 --
Commercial Paper Program........................................ -- 3,842
Working Capital Facility........................................ -- 500
-------- ------- -
Total short-term debt................................... $ 3,891 $ 4,391
======== ========
LONG-TERM DEBT.................................................... $ 123 $ 123
STOCKHOLDERS' EQUITY:
Common stock.................................................... -- 6
Preferred stock (authorized but unissued)....................... -- --
Additional paid-in capital...................................... 1,406 1,900
Foreign currency translation.................................... 28 28
-------- ------- -
Total stockholders' equity.............................. 1,434 1,934
-------- ------- -
TOTAL CAPITALIZATION.............................................. $ 1,557 $ 2,057
======== ========
</TABLE>
21
<PAGE> 25
SELECTED FINANCIAL DATA
The following table presents selected historical financial data of the
Company. The information set forth below should be read in conjunction with "Pro
Forma Condensed Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical financial
statements and notes thereto included elsewhere in this Prospectus. The
consolidated statement of operations data set forth below for each of the three
years ended December 31, 1995 and the consolidated balance sheet data at
December 31, 1995 and 1994 are derived from, and are qualified by reference to,
the audited consolidated financial statements included elsewhere in this
Prospectus, and should be read in conjunction with those financial statements
and the notes thereto. The consolidated balance sheet data at December 31, 1993
are derived from the audited consolidated balance sheet of the Company at
December 31, 1993, which is not included in this Prospectus. The consolidated
statement of operations data for each of the two years ended December 31, 1992
and the consolidated balance sheet data at December 31, 1992 and 1991 are
derived from unaudited consolidated financial statements not included in this
Prospectus.
The historical financial information may not be indicative of the Company's
future performance and does not necessarily reflect what the financial position
and results of operations of the Company would have been had the Company
operated as a separate, stand-alone entity during the periods covered. Per share
data for net income and dividends have not been presented because the Company's
businesses were operated through various divisions and subsidiaries of AT&T for
the periods presented. See "Risk Factors -- Limited Relevance of Historical
Financial Information."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- ----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues................................ $ 21,413 $ 19,765 $ 17,734 $ 17,312 $ 16,312
Costs(1)................................ 12,945 11,337 10,088 10,383 9,385
Gross margin......................... 8,468 8,428 7,646 6,929 6,927
Operating expenses
Selling, general and administrative
expenses(1)(2)..................... 7,083 5,360 5,016 4,814 6,241
Research and development
expenses(1)........................ 2,385 2,097 1,961 1,711 1,996
Operating income (loss)................. (1,000) 971 669 404 (1,310)
Income (loss) before income taxes and
cumulative effects of accounting
changes.............................. (1,138) 784 619 278 (1,522)
Income (loss) before cumulative effects
of accounting changes................ (867) 482 430 179 (971)
Cumulative effects of accounting
changes.............................. -- -- (4,208) -- --
Net income (loss)(1).................... (867) 482 (3,778) 179 (971)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- ----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets............................ $ 19,722 $ 17,340 $ 17,109 $ 14,466 $ 14,840
Total debt.............................. 4,014 3,164 3,195 3,942 4,871
Stockholder's equity.................... 1,434 2,476 2,580 3,098 3,827
</TABLE>
- ---------------
(1) 1995 includes pre-tax restructuring and other charges of $2,801 ($1,847
after taxes) recorded as $892 of costs, $1,645 of selling, general and
administrative expenses and $264 of research and development expenses. (See
Note 5 of Notes to Consolidated Financial Statements).
(2) 1991 includes pre-tax restructuring and other charges of $1,006 ($612 after
taxes).
22
<PAGE> 26
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma condensed financial statements set forth below have
been prepared assuming that the Offerings and the Related Transactions occurred
on December 31, 1995 for pro forma condensed balance sheet purposes and January
1, 1995 for pro forma condensed statement of operations purposes. THE UNAUDITED
PRO FORMA BALANCE SHEET PRESENTED BELOW DOES NOT PURPORT TO REPRESENT WHAT THE
COMPANY'S FINANCIAL POSITION ACTUALLY WOULD HAVE BEEN HAD THE OFFERINGS AND THE
RELATED TRANSACTIONS OCCURRED ON THE DATE INDICATED OR TO PROJECT THE COMPANY'S
FINANCIAL POSITION FOR ANY FUTURE DATE. THE UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995, SET FORTH BELOW,
DOES NOT PURPORT TO REPRESENT WHAT THE COMPANY'S OPERATIONS ACTUALLY WOULD HAVE
BEEN HAD THE OFFERINGS AND THE RELATED TRANSACTIONS OCCURRED ON THE DATE
INDICATED OR TO PROJECT THE COMPANY'S OPERATING RESULTS FOR ANY FUTURE PERIOD.
The unaudited pro forma adjustments are based upon available information and
certain assumptions that the Company believes are reasonable. The unaudited pro
forma balance sheet should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and the
historical financial statements of the Company and the notes thereto appearing
elsewhere in this Prospectus.
PRO FORMA CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
----------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.................................. $ 448 $ 3,500(2)(5) $ 3,948
Accounts receivable -- net................................. 5,354 (2,000)(3) 3,354
Inventories................................................ 3,222 3,222
Deferred income taxes -- net............................... 1,482 1,482
Other current assets....................................... 173 173
---------- ----------- ---------
Total current assets.................................. 10,679 1,500 12,179
Property, plant and equipment -- net....................... 4,338 4,338
Prepaid pension costs...................................... 2,522 2,522
Deferred income taxes -- net............................... 872 872
Capitalized software....................................... 387 387
Other assets............................................... 924 924
---------- ----------- ---------
Total assets.......................................... $ 19,722 $ 1,500 $21,222
======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable........................................... $ 1,229 $ $ 1,229
Payroll and benefit-related liabilities.................... 3,026 3,026
Postretirement and postemployment benefit liabilities...... 227 227
Debt sharing amount in anticipation of assumption of the
Commercial Paper Program................................. 3,842 (3,842)(4) --
Commercial Paper Program................................... 3,842(4) 3,842
Working Capital Facility................................... 500(1)(5) 500
Debt maturing within one year.............................. 49 49
Other current liabilities.................................. 2,690 500(2) 3,190
---------- ---------
Total current liabilities................................ 11,063 12,063
Postretirement and postemployment benefit liabilities...... 5,569 5,569
Long-term debt............................................. 123 123
Other liabilities.......................................... 1,533 1,533
---------- ----------- ---------
Total liabilities........................................ 18,288 1,000 19,288
Stockholders' equity
Common Stock............................................. -- 6(1) 6
Preferred stock (authorized but unissued)................ -- -- --
Additional paid-in capital............................... 1,406 494(1)(3) 1,900
Foreign currency translation............................. 28 28
---------- ----------- ---------
Total stockholders' equity................................. 1,434 500 1,934
---------- ----------- ---------
Total liabilities and stockholders' equity....... $ 19,722 $ 1,500 $21,222
======= ========= ========
</TABLE>
- ---------------
(1) Reflects the sale of 111,000,000 shares in the Offerings assuming a purchase
price of $23.50 per share (the mid-point of the range set forth on the cover
page of this Prospectus). As set forth under "Use of
23
<PAGE> 27
Proceeds," the Company expects to use the proceeds of the Offerings to repay
approximately $2,500 of the $3,000 of indebtedness expected to be
outstanding under the Working Capital Facility as of the Closing Date and
any excess over $2,500 for general corporate purposes. Also reflects the
stock split or other issuance resulting in the ownership by AT&T of
524,624,894 shares of Common Stock.
(2) Gives effect to the prepayment by AT&T of $500 to be applied to accounts
receivable from AT&T that are due and payable on or after January 1, 1997
for the purchase of products, licensed materials and services from the
Company.
(3) Reflects the retention by AT&T of customer accounts receivable having a face
amount estimated for pro forma purposes at approximately $2,000.
(4) As described in Note 7 of Notes to Consolidated Financial Statements,
amounts shown as outstanding under the Debt Sharing Agreement at December
31, 1995 will be replaced with Commercial Paper issued by AT&T and assumed
by the Company on the Closing Date.
(5) The Company has entered into a $4,000 Working Capital Facility to fund
working capital subsequent to February 1, 1996. The Company expects to
borrow $3,000 under the Working Capital Facility prior to the Offerings. For
purposes of the Pro Forma Condensed Balance Sheet, the Company has assumed
that $2,500 of the $3,000 will be repaid from the proceeds of the Offerings.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
----------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues................................................... $ 21,413 $21,413
Costs...................................................... 12,945 12,943
Gross margin............................................. 8,468 8,468
Operating expenses
Selling, general and administrative expenses............. 7,083 7,083
Research and development expenses........................ 2,385 2,385
Operating income (loss).................................... (1,000) (1,000)
Other income -- net........................................ 164 164
Interest expense........................................... 302 29(1) 331
Income (loss) before income taxes and cumulative effects of
accounting changes....................................... (1,138) (29) (1,167)
Cumulative effects of accounting changes................... -- --
Net income (loss).......................................... (867) (18) (885)
Loss per share
(Historical -- based on 524,624,894 shares
outstanding).......................................... (1.65)
(Pro forma -- based on 635,624,894 shares outstanding)... (1.39)(2)
</TABLE>
- ---------------
(1) As discussed in Note 5 to the Pro Forma Condensed Balance Sheet, the Company
has entered into a $4,000 Working Capital Facility to fund working capital
subsequent to February 1, 1996. For purposes of the Pro Forma Condensed
Statement of Operations, the Company has assumed the Offerings and
borrowings occurred on January 1, 1995, resulting in net borrowings of $500.
The interest rate on the borrowings is assumed to be 5.75% per annum, based
on federal funds rates plus twenty-five basis points, resulting in annual
interest expense of $29. A change in the assumed interest rate of 1/8% per
annum would increase or decrease interest expense by $.625.
(2) Reflects the sale of an additional 111,000,000 shares of Common Stock in the
Offerings. Does not include up to 16,650,000 shares of Common Stock which
the U.S. Underwriters have the option to purchase solely to cover
overallotments. If the U.S. Underwriters exercise their overallotment option
in full, the pro forma net loss per share for 1995 would be $1.36.
24
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is currently a wholly owned subsidiary of AT&T. Prior to
February 1, 1996, AT&T conducted the Company's businesses through various
divisions and subsidiaries. Beginning February 1, 1996, AT&T began effectuating
the Separation by transferring to the Company the assets and liabilities related
to such businesses, except that AT&T is retaining accounts receivable having a
face amount estimated for pro forma purposes at approximately $2,000 million.
The Company believes that the Separation will be substantially completed,
including the transfer of substantially all of such assets and liabilities, by
the Closing Date. Certain international assets relating primarily to the
communications services business of AT&T or to the computer business of NCR
which are not material to the Company in the aggregate may be held by the
Company or its subsidiaries at the Closing Date pending receipt of consents or
approvals or satisfaction of other applicable foreign requirements necessary for
the transfer of such assets to AT&T or NCR. In addition, certain international
assets relating primarily to the business of the Company which are not material
to the Company in the aggregate may be held by AT&T or its subsidiaries at the
Closing Date pending receipt of consents or approvals or satisfaction of other
applicable foreign requirements necessary for the transfer of such assets to the
Company. The Company's financial statements assume the consummation of all such
transactions. In addition, employee benefits assets will be held by AT&T or
employee benefit trusts subject to agreements to transfer these assets to the
Company or trusts established by the Company following the Distribution. See
"Arrangements Between the Company and AT&T -- Separation and Distribution
Agreement" and "-- Employee Benefits Agreement."
The Separation and the transactions being undertaken in connection
therewith, including the Offerings and the Distribution, are being effected
pursuant to the Separation and Distribution Agreement. AT&T has announced that,
subject to certain conditions, AT&T intends to distribute to its shareholders by
December 31, 1996 all of the Common Stock of the Company owned by AT&T following
the Offerings. See "Arrangements Between the Company and AT&T -- Separation and
Distribution Agreement."
After the completion of the Offerings and prior to the Distribution, AT&T
will own approximately 82.5% of the outstanding shares of Common Stock (80.4% if
the U.S. Underwriters exercise their overallotment option in full). The Company
and AT&T and, in certain cases, NCR have entered into or will, on or prior to
the Closing Date, enter into certain agreements providing for the Separation and
governing various interim and ongoing relationships between and among the three
companies, including an agreement between the Company and AT&T providing for the
purchase of products, licensed materials and services from the Company. See
"Arrangements Between the Company and AT&T."
The consolidated financial statements of the Company, which are discussed
below, reflect the results of operations, financial position and cash flows of
the businesses transferred to the Company from AT&T in the Separation. As a
result, the consolidated financial statements of the Company have been carved
out from the financial statements of AT&T using the historical results of
operations and historical basis of the assets and liabilities of such
businesses. Additionally, the consolidated financial statements of the Company
include certain assets, liabilities, revenues and expenses which were not
historically recorded at the level of, but are primarily associated with, such
businesses. Management believes the assumptions underlying the Company's
financial statements to be reasonable.
The financial information included herein, however, may not necessarily
reflect the results of operations, financial position and cash flows of the
Company in the future or what the results of operations, financial position and
cash flows would have been had the Company been a separate, stand-alone entity
during the periods presented. This is due to the historical operation of the
Company as part of the larger AT&T enterprise. The financial information
included herein does not reflect the many significant changes that will occur in
the funding and operations of the Company as a result of the Separation and the
Offerings.
As set forth in the financial information included herein, interest expense
reflects interest associated with the aggregate borrowings for each period
presented primarily using a blend of AT&T's short-term and long-term weighted
average interest rates. The average borrowings assumed to be outstanding for
1995, 1994, and
25
<PAGE> 29
1993 were $3,589 million, $3,179 million and $3,568 million, respectively. The
associated average interest rates were 7.3%, 7.4% and 6.3% per annum,
respectively. In the future, the Company may not be able to obtain financing
with interest rates as favorable as those enjoyed by AT&T with the result that
the Company's cost of capital will be higher than that reflected in its
historical financial statements. General corporate overhead related to AT&T's
corporate headquarters and common support divisions has been allocated to the
Company based on the ratio of the Company's external costs and expenses to
AT&T's external costs and expenses. This allocation of AT&T's general corporate
overhead expense may not reflect the Company's actual general corporate overhead
expense as a separate entity. Also, certain expenses incurred by the Company
were for services received from AT&T under direct contracting arrangements.
Although management believes the allocations and the charges for such services
to be reasonable, the costs of these services charged to the Company are not
necessarily indicative of the costs that would have been incurred if the Company
had been an independent entity and had otherwise contracted for or managed these
functions. Subsequent to the Separation, the Company will manage these functions
using its own resources or contract with third parties to perform these services
and, in addition, will be responsible for the costs and expenses associated with
the management of a public corporation. In addition, income taxes were
calculated as if the Company filed separate tax returns. However, AT&T was
managing its tax position for the benefit of its entire portfolio of businesses,
and its tax strategies are not necessarily reflective of the tax strategies that
the Company would have followed or will follow as a stand-alone entity.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the period reported. Actual results
could differ from those estimates. In addition, there are certain risks and
uncertainties inherent in operating the business, including the matters
discussed below under "-- Variability in the Company's Business" and
"-- Environmental." Other areas where estimates and judgments are required are
discussed in the Notes to Consolidated Financial Statements included elsewhere
in this Prospectus.
Prior to the Separation, the businesses transferred to the Company were
funded through AT&T and the Company had limited indebtedness to third parties.
The Company plans to assume, as of the Closing Date, approximately $4,000
million of direct short-term debt under the Commercial Paper Program. To the
extent that the aggregate amount of indebtedness of the Company shown in the
consolidated financial statements exceeds the direct third-party indebtedness of
the businesses transferred to the Company, such amount is reflected in the
consolidated financial statements as debt and shown as "Debt sharing amount in
anticipation of assumption of the Commercial Paper Program." This debt is
classified as short-term debt, consistent with the expectation that the Company
will assume, at the Closing Date, the commercial paper issued under the
Commercial Paper Program.
STRATEGIC REORGANIZATION
The Company historically has operated as part of AT&T. The Separation will
establish the Company as a stand-alone entity with objectives separate from
those of AT&T. The Company intends to focus its resources on the technologies
and markets it views as critical to its long-term success as a stand-alone
entity. The Company therefore has undertaken a comprehensive review of all of
its operations, including its organizational structure, products and markets,
with a view toward maximizing its return on investments. In connection with this
review, the Company adopted a strategic reorganization plan and recorded a
pre-tax restructuring charge of $2,613 million in the fourth quarter of 1995, in
addition to charges of $188 million for asset impairments and other items.
The total restructuring and other charges of $2,801 million ($1,847 million
after taxes) for 1995 was recorded as $892 million of costs, $1,645 million of
selling, general and administrative expenses, and $264 million of research and
development expenses. The charges included $1,509 million for employee
separation and other related items, $627 million for asset write-downs, $202
million for closing, selling and consolidating facilities and $463 million for
other items. Of the total charges, $1,788 million will result in future cash
payments and $1,013 million of the charges related to noncash items.
26
<PAGE> 30
As part of these efforts, and as announced January 2, 1996, the Company
will eliminate approximately 22,000 positions, of which approximately 11,000 are
management positions and 11,000 are occupational positions. Approximately 1,000
additional management employees are employed by operations that the Company has
announced plans to sell. As of December 31, 1995, approximately 4,100 management
employees have accepted a voluntary severance package, the majority of whom will
leave the Company in early 1996. The Company expects approximately 70% of all
separations to be completed by the end of 1996 and the majority of the remaining
separations to be completed during 1997. These reductions are the result of the
Company's decisions to form a single corporate structure that eliminates
duplicative management and streamlines administrative functions, and to
outsource certain corporate functions.
The Company's reorganization efforts also include a plan to close all of
the Company's 338 Phone Center Stores, most of which are expected to be closed
by May 1996, and to distribute its consumer products only through national,
regional and catalog retailers and network operators. In addition, the Company
plans to consolidate certain international facilities.
As part of the redefinition of its objectives, the Company intends to focus
its investments on its core technologies, primarily through expanded and
targeted research and development efforts. Consequently, the Company has decided
to sell and exit tangential product lines and markets, including its Paradyne
subsidiary which manufactures certain data communications equipment, and its
microelectronics interconnect products business which manufactures backplanes
and printed circuit boards. In 1995, revenues associated with operations that
the Company has exited or expects to exit in connection with these
reorganization efforts accounted for approximately 4.6% of the Company's total
revenues. When appropriate, the Company will pursue core technologies through
strategic acquisitions, partnerships or joint ventures. For example, the Company
recently acquired certain telecommunications assets of the Philips Businesses to
expand its global line of systems which support non-United States standards for
mobile and fixed wireless access and digital optical transport.
The restructuring charges also included costs associated with early
termination of building leases, the closing, sale or consolidation of certain
owned facilities and asset write-downs as part of the plan to sell certain
businesses and to restructure certain operations.
VARIABILITY IN THE COMPANY'S BUSINESS
There are a number of factors that contribute to variability in the
Company's business. This variability can produce wide fluctuations in revenues
and earnings quarter to quarter, and in some cases year to year. Variability is
not a new trend and the Company expects it to continue, and possibly intensify.
Notwithstanding this variability, the Company has increased both revenues and
earnings (absent restructuring and other charges). The factors contributing to
variability include seasonality, multi-year contracts and associated revenue
recognition.
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<PAGE> 31
Seasonality
The following table sets forth the unaudited total revenues, gross margin
and net income of the Company on a quarterly basis for each of the two years
ended December 31, 1995:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
------ ------ ------ ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
1995
Total revenues.................... $4,159 $5,083 $4,744 $ 7,427 $21,413
Gross margin...................... 1,850 2,251 2,042 2,325(1) 8,468(1)
Net income (loss)................. (22) 159 13 (1,017)(2) (867)(2)
1994
Total revenues.................... 4,052 4,665 4,776 6,272 19,765
Gross margin...................... 1,740 2,028 2,006 2,654 8,428
Net income (loss)................. (43) 78 44 403 482
</TABLE>
- ---------------
(1) Includes restructuring charges of $892 of costs.
(2) Includes restructuring and other charges of $2,801 ($1,847 after taxes).
Like most telecommunications systems manufacturers, the Company's sales are
highly seasonal. Most of the Company's large customers delay a large and growing
percentage of their capital expenditures until the fourth quarter due to
cautious capital spending against budgets, while still seeking year-end tax
benefits. A focus on project completion by year-end also supports this buying
behavior. The Company has responded to this customer capital spending trend in
various ways that assure product availability and the necessary sales focus
during a critical quarterly period. Further, the Company has placed an increased
focus on the completion of software releases by mid-year to allow for commercial
availability and delivery in the fourth quarter. These software releases require
significant research and development expenditures early in the year, with
minimal offsetting revenues, but are key contributors to the Company's profits
during the fourth quarter. The Company's promotional and sales incentive
programs also tend to focus on the fourth quarter to sustain marketing support
during this period. Additionally, sales of consumer products in the retail
markets are generally stronger in the fourth quarter, corresponding to holiday
buying. In contrast, adverse weather conditions and incomplete customer budget
plans, as well as the impact of customer vacation schedules on deployment and
purchasing plans, tend particularly to depress Company revenues during the first
and third quarters, respectively.
As a result of growing competitive pressures among network operators (which
have led to an increasing emphasis on return on investment and the budgeting
process), along with the increasing prominence of software as a percentage of
the Company's revenues, the trend toward seasonality has been increasing over
the past three years.
Due to the foregoing factors, the Company's revenues and net income are
strongest in the fourth quarter of each year, representing 34.7% and 31.7% of
consolidated revenues and 84.7% (before restructuring and other charges) and
83.6% of net income in 1995 and 1994, respectively. Software sales were higher
in the fourth quarter of 1995 than those in the comparable quarter in 1994.
Consequently, the Company's results of operations for the first three quarters
of each year have in the aggregate been significantly less profitable than the
fourth quarter and the Company has frequently experienced net losses in the
first quarter. For a discussion of the expected significantly lower operating
results for the first and second quarters of 1996 as compared to the
corresponding 1995 periods, see "Risk Factors -- Seasonality; Anticipated Loss
for First Half of 1996."
Multi-Year Contracts and Associated Revenue Recognition
In recent years, the purchasing behavior of the Company's large customers
has increasingly been characterized by the use of fewer, larger contracts. This
trend is expected to intensify, and contributes to the variability of the
Company's results. Such larger purchase contracts typically involve longer
negotiating cycles, require the dedication of substantial amounts of working
capital and other Company resources, and in general
28
<PAGE> 32
require investments which may substantially precede recognition of associated
revenues. Moreover, in return for larger, longer-term purchase commitments,
customers often demand more stringent acceptance criteria, which can also cause
revenue recognition delays. Certain multi-year contracts may relate to new
technologies which may not have been previously deployed on a large-scale
commercial basis. The Company may incur significant initial cost overruns and
losses on such contracts which would be recognized in the quarter in which they
became ascertainable. Further profit estimates on such contracts are revised
periodically over the lives of the contracts, and such revisions can have a
significant impact on reported earnings in any one quarter.
The Company has managed this particular aspect of variability by
significantly reducing its product development, manufacturing and system
deployment intervals. The Company has also invested in project management tools
and disciplines to enhance its ability to execute successfully. Additionally,
the Company has worked to deploy its resources against the highest-value
projects. In part to manage the fluctuations produced by this buying behavior,
the Company has diversified its customer base, both in the United States and
internationally, and has developed relationships with other sets of customers
(including, for example, competitive access providers ("CAPs"), cable television
network operators and computer manufacturers).
Revenue recognition for work on multi-year contracts is based upon the
specific terms and conditions of each contract. These terms and conditions may
vary markedly depending upon the nature of the technology being purchased and
the development cycles of such technology, the specific requirements of the
customer, delivery, deployment schedules and acceptance criteria. Therefore, the
amount of purchases actually contracted for or deployed in a period may differ
substantially from the revenues realized for the same period.
One of the Company's multi-year contracts is with Pacific Bell for the
provision of a broadband network based on hybrid fiber-coaxial cable technology.
Implementation difficulties and cost overruns have arisen under this contract,
which may result in claims being made by the parties under the contract. The
Company and Pacific Bell are conducting negotiations in an effort to resolve
outstanding issues and potential claims. The Company's historical financial
statements reflect a reserve relating to this contract. Based on the future
negotiations with Pacific Bell, the Company will continue to assess the adequacy
of this reserve.
GENERAL
The following table sets forth the Company's revenues by product line, and
the approximate percentage of total revenues represented thereby, for each of
the three years ended December 31, 1995:
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
Systems for Network Operators.......... $11,459 54% $10,841 55% $ 9,367 53%
Business Communications Systems........ 5,144 24 4,557 23 3,982 22
Microelectronic Products............... 1,864 9 1,461 7 1,323 8
Consumer Products...................... 1,787 8 1,924 10 1,816 10
Other Systems and Products............. 1,159 5 982 5 1,246 7
------- --- ------- --- ------- ---
Total............................... $21,413 100% $19,765 100% $17,734 100%
======= === ======= === ======= ===
</TABLE>
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<PAGE> 33
The following table sets forth a summary of costs and expenses as a
percentage of revenues for each of the three years ended December 31, 1995, and
for the year ended December 31, 1995 as adjusted to exclude the restructuring
and other charges:
<TABLE>
<CAPTION>
1995 1994 1993
1995 ----- ----- -----
-------------
(AS ADJUSTED)
<S> <C> <C> <C> <C>
Revenues............................................... 100.0% 100.0% 100.0% 100.0%
Costs.................................................. 56.3 60.5 57.4 56.9
------- ---- ------ ----
Gross margin......................................... 43.7 39.5 42.6 43.1
Operating expenses
Selling, general and administrative
expenses.......................................... 25.4 33.1 27.1 28.3
Research and development expenses.................... 9.9 11.1 10.6 11.0
------- ---- ------- ----
Operating income (loss)................................ 8.4% (4.7%) 4.9% 3.8%
======= ==== ======= ====
</TABLE>
1995 VERSUS 1994
Revenues grew in the Company's three largest product lines in 1995 compared
with 1994, causing total revenues to increase $1,648 million or 8.3%. Growth in
revenues from customers outside the United States (international and export)
provided 74.5% of the increase in revenues. International revenues (which
include export revenues) represented 23.3% of total revenues in 1995 compared to
19.1% of total revenues in 1994.
Revenues from systems for network operators were $11,459 million, an
increase of $618 million or 5.7% in 1995 compared with 1994. Sales of wireless
infrastructure to network operators accounted for approximately 15% of total
sales to network operators. Sales in the United States were essentially flat,
which the Company attributes to delays in spending by network operators and
their growing reluctance to purchase from a potential competitor. However,
domestic sales of wireless infrastructure increased approximately 19%. Revenues
from systems for network operators outside the United States increased
approximately 28% in 1995 compared with 1994. These increases were due primarily
to increases in sales of wireless infrastructure of approximately 14%, to
increases in sales of switching and transmission systems, including software, of
approximately 22%, and to revenues under a $4,000 million multi-year contract
awarded in 1994 to design and build a fully digital telecommunications network
in Saudi Arabia.
Revenues from business communications systems of $5,144 million increased
$587 million or 12.9% in 1995 compared with 1994, primarily due to strong United
States and international product sales growth. Service revenues increased due to
growth in maintenance contracts and higher installation revenues associated with
the increased sales. United States revenues grew approximately 10%, primarily
due to increased sales of DEFINITY(R) products, including upgrades, and sales of
INTUITY(TM) voice messaging products. This increase was offset in part by the
continuing decline in the rental base of approximately $84 million, reflecting
the Company's emphasis on the sale rather than rental of its products.
International revenues grew approximately 36%, primarily due to sales of the
Company's SYSTIMAX(R) structured cabling systems and higher sales through
international distributors.
Sales of microelectronic products of $1,864 million increased $403 million
or 27.6% in 1995 compared with 1994, due to higher sales of ICs both inside and
outside the United States. Most of this growth derived from sales to customers
outside the United States. Included in microelectronic products are $50 million
in sales of the Company's interconnect products business which the Company plans
to sell.
Revenues from consumer product sales (including $425 million in sales
through the Phone Center Stores, which the Company plans to close) were $1,787
million, a decline of $137 million or 7.1% in 1995 compared with 1994. The
decrease in 1995 revenues was primarily due to the expected continuing decline
in the customer base for rental revenues for telephones and declines in product
sales related to discontinued product lines, partially offset by strong consumer
demand for cordless telephones.
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<PAGE> 34
Revenues from sales of other systems and products of $1,159 million in 1995
increased $177 million or 18.0% compared with 1994, due to higher royalties.
Sales of other systems and products include $388 million in revenues from the
Company's Paradyne subsidiary, which the Company plans to sell.
Costs of $12,945 million increased $1,608 million or 14.2% in 1995 compared
with 1994. Excluding the restructuring and other charges of $892 million, costs
grew $716 million or 6.3%, reflecting the higher volume of sales and services.
Gross margin decreased to 39.5% in 1995 from 42.6% in 1994, due to restructuring
and other charges. Excluding these charges, gross margin increased to 43.7% in
1995 from 1994, due to increased sales of higher margin software products to
network operators, offset in part by the erosion of high margin rental revenues.
Research and development expenses of $2,385 million increased $288 million
or 13.7% in 1995 compared with 1994. This increase was due to restructuring
charges of $264 million (which were principally related to the reduction in
administrative support functions at Bell Labs and disposal of research and
development assets related to changing technologies), as well as development
work associated with software, wireless access and type approval and
certification of products for local markets. Research and development expenses
represented 11.1% of revenues in 1995 compared with 10.6% of revenues in 1994.
Excluding the charges, research and development expenses represented 9.9% of
revenues in 1995. Consistent with the Company's strategy, the Company expects
that research and development expenses, as an absolute amount and as a
percentage of revenues, will increase in 1996.
Selling, general and administrative expenses of $7,083 million increased
$1,723 million or 32.1% in 1995 compared with 1994. This increase was due to
$1,645 million in restructuring and other charges and increased spending on
sales and sales support efforts, including expenses relating to growth in
international revenues. Selling, general and administrative expenses were 33.1%
of revenues in 1995, an increase from 27.1% of revenues in 1994, reflecting the
restructuring charges (which were principally related to the reduction in
personnel in administrative and corporate support functions and at Phone Center
Stores). Excluding the charges, selling general and administrative expenses were
25.4% of revenues in 1995, reflecting cost containment efforts.
Interest expense in 1995 was $302 million, an increase of $32 million or
12% compared with 1994. The increase was due to higher average debt levels in
1995 compared with 1994. The average borrowings assumed to be outstanding in
1995 increased to approximately $3,589 million from approximately $3,179 million
in 1994. The associated average interest rates were 7.3% per annum in 1995
compared with 7.4% per annum in 1994.
Other income -- net increased $81 million to $164 million in 1995 compared
with 1994, primarily due to gains on investments in 1995.
The effective income tax rate of 23.8% in 1995 decreased from 38.5% in
1994, primarily due to the nondeductibility of certain of the 1995 restructuring
and other charges, which resulted in a net loss for 1995.
For 1995, the Company had a net loss of $867 million, reflecting $2,801
million ($1,847 million after taxes) of restructuring and other charges.
Excluding the charges, net income was $980 million, an increase of $498 million
compared to 1994.
1994 VERSUS 1993
Revenues grew in each of the Company's four main product lines in 1994
compared with 1993, causing revenue to increase $2,031 million or 11.5%. Growth
in revenues from customers outside of the United States provided 38.4% of the
increase. International revenues represented 19.1% of total revenues in 1994
compared with 16.9% in 1993.
Revenues from systems for network operators rose $1,474 million or 15.7% to
$10,841 million in 1994 compared with 1993. Approximately 16% of the revenue
growth was the result of AG Communications Systems Corporation being accounted
for on a consolidated basis after the Company increased its ownership to 80%
from 49%. Sales of wireless infrastructure to network operators accounted for
approximately 14% of
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<PAGE> 35
total sales to network operators. Sales in the United States increased
approximately 15%. The increases also resulted from an increase in wireless
sales of approximately 55%, and an increase in sales of switching and
transmission systems, including software, of approximately 13%. Revenues from
systems for network operators outside the United States increased approximately
19%. These increases were due primarily to increases in wireless sales of
approximately 49% and to increases in sales of switching and transmission
systems, including software, of approximately 7%.
Revenues from business communications systems were $4,557 million, an
increase of $575 million or 14.4% in 1994 compared with 1993 due to strong
United States and international product sales growth. Service revenues increased
due to growth in maintenance contracts and higher installation revenues
associated with the increased sales. Partially offsetting these increases was
the erosion of the rental base of approximately $96 million which continued to
drive rental revenues down. United States revenues grew approximately 10%
primarily due to increased sales of DEFINITY products, including upgrades to
accommodate expansion in the number of area codes, sales of INTUITY
CONVERSANT(R) voice processing products and sales of INTUITY AUDIX(R) voice
messaging products. International revenues grew approximately 53% primarily due
to the implementation of the Company's global growth strategy which included
acquisitions in Europe.
Revenues from microelectronic products of $1,461 million increased $138
million or 10.4% in 1994 compared with 1993 due to higher sales of ICs and
electronic power systems to customers outside of the United States.
Revenues from consumer products were $1,924 million, an increase of $108
million or 5.9% in 1994 compared with 1993. The increase in 1994 sales was due
primarily to strong consumer sales of cellular and cordless phones, partially
offset by the continuing decline in rental revenues for telephones.
Revenues from sales of other systems and products were $982 million in
1994, a decrease of $264 million or 21.2% compared with 1993. The decrease
results from a decline in sales of special design products for the United States
government due to reductions in defense spending.
Costs of $11,337 million increased $1,249 million, or 12.4% in 1994
compared with 1993. The increase is due to the higher volume of sales and
services. The gross margin percentage declined to 42.6% in 1994 from 43.1% in
1993. Increases in gross margins for most major product lines were more than
offset by a lower gross margin for consumer products due to the erosion of the
rental base.
Research and development expenses of $2,097 million increased $136 million
or 6.9% in 1994 compared with 1993, as a result of work related to wireless
system technology and type approval and certification of products for local
standards. Research and development expenses represented 10.6% of 1994 revenues,
as compared with 11.0% of revenues in 1993.
Selling, general and administrative expenses of $5,360 million increased
$344 million, or 6.9% in 1994 compared with 1993. The increase was largely due
to increased spending on sales and sales support efforts, as well as for
expenses related to global growth. Selling, general and administrative expenses
as a percentage of revenues decreased to 27.1% in 1994 from 28.3% in 1993,
reflecting cost containment efforts.
Other income -- net in 1994 was $83 million compared to $193 million in
1993. The decrease of $110 million in 1994 compared with 1993 relates primarily
to a charge of $38 million in 1994 for the write-down of the Company's
investment in a hand-held tablet communication device business and an increase
in losses on foreign currency transactions of $35 million. See Note 4 of Notes
to Consolidated Financial Statements.
Interest expense of $270 million in 1994 was approximately $27 million
greater than 1993, due to higher interest rates offset by a decrease in average
borrowings in 1994 compared to 1993. The average borrowings assumed to be
outstanding in 1994 decreased to approximately $3,179 million from approximately
$3,568 million in 1993. The decrease in average borrowings was offset by a
higher associated average interest rate of 7.4% per annum in 1994 compared with
6.3% per annum in 1993.
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<PAGE> 36
The effective income tax rate was 38.5% in 1994, compared with 30.5% in
1993. The lower effective tax rate in 1993 relates primarily to a net tax
benefit recorded in 1993 to increase the Company's net deferred tax assets to
reflect the increase in the federal income tax rate from 34% to 35%.
The adoption of three accounting standards, effective January 1, 1993,
issued by the Financial Standards Accounting Board resulted in an after-tax
charge of $4,208 million in 1993, representing the cumulative effect of these
accounting changes.
Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers
Accounting for Postretirement Benefits Other Than Pensions," requires accrual of
estimated future retiree benefits during the years in which employees are
working and accumulating these benefits. Previously, health care benefits were
expensed as claims were incurred and life insurance benefits were expensed as
plans were funded. A one-time after-tax charge for the unfunded portions of
these liabilities of $3,722 million was recorded in 1993 as a cumulative effect
of accounting change upon adoption of this standard.
SFAS No. 112, "Employers' Accounting for Postemployment Benefits," requires
the Company to accrue for estimated future postemployment benefits, including
separation payments, during the years in which employees are working and
accumulating these benefits, and for disability payments when the disabilities
occur. Previously, costs for separations were recognized when approved and
disability benefits were recognized when paid. The Company recognized a $530
million after-tax charge upon adoption of this standard.
SFAS No. 109, "Accounting for Income Taxes," requires, among other
provisions, the computation of deferred tax amounts using the enacted corporate
income tax rates for the years in which the taxes will be paid or refunds
received. A cumulative effect of accounting change benefit of $44 million was
recognized in 1993 related to adopting this standard.
Reported net income increased $4,260 million for the year ended December
31, 1994 compared with the year ended December 31, 1993, primarily due to the
$4,208 million net charge for the accounting changes discussed above. Excluding
the cumulative effect of the accounting changes in 1993, net income increased
$52 million, or 12.1% for the year ended December 31, 1994 compared with the
year ended December 31, 1993.
ENVIRONMENTAL
The Company's current and historical operations are subject to a wide range
of environmental protection laws. The Company has remedial and investigatory
activities underway at 46 current and former facilities. In addition, AT&T and
its subsidiaries have been named a PRP at numerous "Superfund" sites pursuant to
CERCLA or comparable state statutes. Under the Separation and Distribution
Agreement, the Company will assume or indemnify AT&T for all liabilities
primarily relating to, arising out of or resulting from (i) the operation of the
Company Business as conducted at any time prior to, on or after the Closing Date
or (ii) any Company Assets including, without limitation, those associated with
these sites. It is often difficult to estimate the future impact of
environmental matters, including potential liabilities. The Company records an
environmental reserve when it is probable that a liability has been incurred and
the amount of the liability is reasonably estimable. This practice is followed
whether the claims are asserted or unasserted. Management expects that the
amounts reserved for will be paid out over the period of remediation for the
applicable site which ranges from 5 to 30 years. Reserves for estimated losses
from environmental remediation are, depending on the site, based primarily upon
internal or third party environmental studies, and estimates as to the number,
participation level and financial viability of any other PRPs, the extent of the
contamination and the nature of required remedial actions. Accruals are adjusted
as further information develops or circumstances change. The amounts provided
for in the Company's consolidated financial statements in respect of
environmental reserves are the gross undiscounted amount of such reserves,
without deductions for insurance or third party indemnity claims. In those cases
where insurance carriers or third party indemnitors have agreed to pay any
amounts and management believes that collectibility of such amounts is probable,
the amounts are reflected as receivables in the financial statements. Although
the Company believes that its reserves are adequate, there can be no assurance
that the amount of capital expenditures and other expenses which will be
required relating to remedial actions and compliance with applicable
environmental laws will not exceed the amounts reflected in the Company's
reserves or will not have a material adverse effect on the financial condition
of the Company or
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the Company's results of operations or cash flows. Any amounts of environmental
costs that may be incurred in excess of those provided for at December 31, 1995
cannot be determined.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company generated (used) cash flow from operations of $478 million,
$1,579 million and $(1,268) million for the years ended 1995, 1994 and 1993,
respectively. The decline in cash flow provided by operations in 1995 compared
to 1994 was primarily due to the higher accounts receivable balance at year-end
1995, reflecting significantly higher fourth quarter sales, and higher inventory
balances, as work in process for long-term contracts increased. The improvement
in cash flow from operations in 1994 compared with 1993 was due to lower levels
of contributions to trusts for retiree benefits in 1994.
Fluctuations in the amount of inventories, accounts receivable and accounts
payable are principally associated with the level and timing of business
volumes. In 1995, the Company's inventory turnover ratio decreased slightly to
3.4 times from 3.5 times in 1994. Accounts receivable were outstanding an
average of 81 days in 1995, compared with 76 days in 1994, reflecting the
increase in fourth quarter revenues in 1995.
Cash flow used in investing activities was $1,342 million, $567 million and
$1,087 million in 1995, 1994 and 1993, respectively. Capital expenditures, the
largest component, were $1,277 million, $878 million and $577 million for the
years ended 1995, 1994 and 1993, respectively. Capital expenditures generally
relate to expenditures for equipment and facilities used in manufacturing and
research and development, including expansion of manufacturing capacity, and
expenditures for cost reduction efforts and international growth. For example,
in 1995 capital expenditures included construction of a new facility to
consolidate the Company's operations relating to systems for network operators
and expansion of manufacturing capacity for ICs and wireless equipment.
Net cash provided by (used in) financing activities was $724 million,
$(741) million, and $2,510 million for the years ended 1995, 1994 and 1993,
respectively. The Company historically has relied on AT&T to provide financing
for its operations. The cash flows from financing activities reflected herein
principally reflect changes in the Company's assumed capital structure. These
cash flows are not necessarily indicative of the cash flows that would have
resulted if the Company were a stand-alone entity.
The Company leases land, buildings and equipment through contracts that
expire in various years, through 2004. Rental expense under operating leases was
$209 million in 1995, $183 million in 1994 and $202 million in 1993. Future
minimum lease payments due under noncancelable operating leases at December 31,
1995 total $245 million. The Company expects to fund such commitments through
its working capital and funds generated from operations.
In February 1996, the Company entered into an agreement with MajorCo L.P.,
an affiliate of Sprint Spectrum LP, to supply and install approximately 60% of
SSLP's market areas over a five-year period. This agreement is conditioned,
among other things, upon the Company providing (or guaranteeing) long-term
financing to SSLP for its purchase of equipment and services from the Company.
The Company has entered into discussions with SSLP with respect to such
financing and has proposed providing (or guaranteeing) $1,000 million of
long-term financing for SSLP's purchases from the Company. These discussions are
ongoing.
Prepaid pension costs are increasing as returns on pension plan assets
exceed pension benefits earned during the year plus interest cost on the
projected benefit obligation.
In the normal course of business the Company uses various financial
instruments, including derivative financial instruments, for purposes other than
trading. The Company does not use derivative financial instruments for
speculative purposes. These instruments include commitments to extend credit,
letters of credit, guarantees of debt, interest rate swap and cap agreements,
and foreign currency exchange contracts. Foreign currency exchange contracts are
used to mitigate foreign currency exposure. As is customary for these types of
instruments, collateral is generally not required to support these financial
instruments. The Separation and Distribution Agreement provides that, as between
the Company and AT&T, the Company has assumed all liabilities under or otherwise
relating to derivatives and similar obligations primarily related to the
Company's business. Initially, AT&T may continue to perform obligations under
such derivatives and similar
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obligations on behalf of the Company but all amounts paid to or received from
third parties will be charged to, or paid over or credited to, the Company, as
the case may be.
By their nature all such instruments involve risk including the credit risk
of nonperformance by counterparties, and the Company's maximum potential loss
may exceed the amount recognized in the Company's balance sheet. However, at
both December 31, 1995 and 1994, in management's opinion there was no
significant risk of loss in the event of nonperformance of the counterparties to
these financial instruments. The Company controls its exposure to credit risk
through credit approvals, credit limits and monitoring procedures, and
management believes that reserves for losses are adequate. The Company does not
have any significant exposure to any individual customer or counterparty nor any
major concentration of credit risk related to any financial instruments.
The ratio of total debt to total capital (debt plus equity) was 73.7% at
December 31, 1995, compared to 56.1% at December 31, 1994. The increase reflects
the lower level of equity due to the restructuring and other charges taken in
1995. The Offerings and the other Related Transactions result in a pro forma
debt to capital ratio for the Company as of December 31, 1995 of approximately
70.0%. If the U.S. Underwriters exercise their overallotment option in full, the
pro forma debt to capital ratio as of December 31, 1995 will be approximately
66.2%.
For the reasons described under "-- Variability in the Company's Business,"
the Company's working capital requirements and cash flow provided by operating
activities can vary greatly from quarter to quarter, depending on the volume of
production, the timing of deliveries and the payment terms offered to customers.
In the past, the Company's working capital needs have been satisfied as part of
AT&T's corporate-wide cash management policies. However, AT&T is no longer
providing funds to finance the Company's operations.
The Company estimates that the future cash expenditures to implement the
restructuring programs will be approximately $1,788 million and will be paid
primarily in 1996. Such expenditures are expected to be funded through cash
flows from operations and working capital. As part of the Separation, AT&T is
retaining accounts receivable that arose in the business of the Company having a
face amount estimated for pro forma purposes at approximately $2,000 million.
To meet its working capital needs, the Company has entered into the Working
Capital Facility. The Working Capital Facility provides that, subject to the
terms and conditions thereof, the Company may borrow on a revolving credit basis
at any time and from time to time prior to March 3, 1997 a principal amount not
in excess of $4,000 million at any time outstanding. The Company may use the
proceeds of the Working Capital Facility for capital expenditures, refunding of
debt and general corporate purposes, including working capital. The Working
Capital Facility also provides that the Company may invite the lenders party
thereto to bid on an uncommitted basis on short-term borrowings (which would
reduce the availability of the $4,000 million commitment) by the Company
maturing on or prior to such date. The final maturity of all loans under the
Working Capital Facility is March 3, 1997. The Working Capital Facility contains
certain representations and warranties, conditions to borrowing, affirmative and
negative covenants (including covenants imposing limitations on liens and on
sale and leaseback transactions) and events of default.
Each standby borrowing will be comprised entirely of Eurodollar standby
loans, certificate of deposit ("CD") loans or Alternate Base Rate ("ABR") loans,
as the Company may request. Eurodollar standby loans and CD loans will bear
interest at a rate per annum equal to the London Interbank Offered ("LIBO") rate
or the adjusted CD rate, plus the respective spreads determined pursuant to the
Applicable Percentage (as defined below), in each case as in effect from time to
time. ABR loans will bear interest at the alternate base rate (determined by
reference to federal funds or prime rates) in effect from time to time. After
the Closing Date, ABR loans will bear interest at a rate equal to the greater of
(i) the prime rate or (ii) the federal funds rate plus 1/2 of 1% per annum. Each
competitive borrowing will be comprised entirely of Eurodollar competitive loans
or fixed rate loans with interest rates established pursuant to the competitive
bid process. In addition to certain administrative fees, the Working Capital
Facility provides for a facility fee equal to the Applicable Percentage per
annum in effect from time to time on the average daily amount of the commitments
whether used or unused.
The Working Capital Facility provides that the "Applicable Percentage" will
be determined by reference to the ratings applicable at the time of
determination to the long-term debt of the Company. Subject to certain
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<PAGE> 39
exceptions and adjustments, the Eurodollar standby loan spread, the CD loan
spread and the facility fee components of the Applicable Percentage will range,
respectively, from .11%, .235% and .04% for ratings AA-or higher by S&P and Aa3
or higher by Moody's to .275%, .40%, and .10% for ratings BBB or lower by S&P
and Baa2 or lower by Moody's.
As of March 20, 1996, the Company had borrowed $1,956 million under the
Working Capital Facility, all of which was used for general working capital
purposes. Such borrowings bear interest at a daily variable rate. However, the
Company anticipates borrowing up to $3,000 million prior to the Closing Date.
The Company expects to repay approximately $2,500 million of the amount
outstanding with proceeds of the Offerings.
In addition, AT&T has commenced issuance of $4,000 million of short-term
debt under the Commercial Paper Program, which will be assumed by the Company,
subject to certain conditions, at the Closing Date. The Commercial Paper Program
will be comprised of short-term borrowings in the commercial paper market at
market interest rates. It is contemplated that AT&T will retain the proceeds of
all borrowings under the Commercial Paper Program and that, on the Closing Date,
AT&T will be released from all of its obligations thereunder, with the result
that the Company will become the obligor thereunder. The Commercial Paper
Program will be supported by a back-up credit facility with third-party
financial institutions initially entered into by AT&T but which will be assumed
by the Company, subject to certain conditions, at the Closing Date. Neither AT&T
nor the Company expects to make any borrowings under the back-up credit
facility. The Company expects that, over time, the Company may refinance all or
part of the Commercial Paper Program from the proceeds of short- or long-term
borrowings. In this regard, the Company has filed the Shelf Registration
Statement to register the offering from time to time of up to $3,500 million of
long-term debt.
Pursuant to the General Purchase Agreement, AT&T has agreed to prepay $500
million to the Company, on or prior to the Closing Date, to be applied to
accounts receivable from AT&T that are due and payable on or after January 1,
1997 for the purchase of products, licensed materials and services from the
Company. See "Certain Transactions in Connection with the Offerings."
The assumption by the Company of the Commercial Paper Program and the
retention by AT&T of accounts receivable are part of the establishment of the
initial capitalization of the Company. The factors considered in determining the
amount of this capitalization include the Company's prospective financing
requirements, the Company's working capital and capital expenditure
requirements, the Company's desired credit rating, the Company's pro forma debt
to capital ratio, and the Company's need to procure bid and performance bonds,
to arrange or provide customer financing, to engage in hedging transactions and
to attain required self-insurance levels. In reviewing these factors, the
capitalizations and credit ratings of comparable companies in the Company's
industry were also considered. The Commercial Paper Program was developed to
permit the assumption by the Company of part of AT&T's debt in light of the fact
that AT&T's preexisting debt was not assumable by the Company. The retention of
accounts receivable by AT&T was designed to permit AT&T to retain approximately
$2,000 million of cash equivalents as part of balancing the capitalizations of
the two companies.
The Company believes that the proceeds of the Offerings, as well as the
Working Capital Facility, cash flow from operations and short- and long-term
debt financings, will be sufficient to satisfy its future working capital,
capital expenditure, research and development, and debt service requirements,
including debt service requirements on the Commercial Paper Program. The Company
further believes that it will be able to access the capital markets on terms and
in amounts that will be satisfactory to it, although there can be no assurance
that will be the case. The Company believes that it will be able to obtain bid
and performance bonds, to arrange or provide customer financing as necessary,
and to engage in hedging transactions on commercially acceptable terms.
RECENT PRONOUNCEMENTS
Effective on October 1, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of ." This standard requires the Company to review long-lived assets and certain
identifiable intangibles held and used for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption
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of this standard did not have a material impact on the Company's results of
operations, financial condition or cash flows because this was essentially the
method the Company used in the past to measure and record asset impairments. The
1995 restructuring and other charges did include recognition of asset
impairments.
In 1996, SFAS No. 123, "Accounting for Stock-Based Compensation," will be
adopted. This standard establishes a fair value method for accounting for or
disclosing stock-based compensation plans. This standard will be adopted in 1996
by disclosing the pro forma consolidated net income and earnings per share
amounts assuming the fair value method was effective on January 1, 1995. The
adoption of this standard will not affect the Company's results of operations,
financial position or cash flows.
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BUSINESS
The Company is one of the world's leading designers, developers and
manufacturers of telecommunications systems, software and products. The Company
is a global market leader in the sale of public telecommunications systems, and
is a supplier of systems and software to 23 of the world's 25 largest network
operators. The Company is also a global market leader in the sale of business
communications systems and in the sale of microelectronic components for
communications applications to manufacturers of communications systems and
computers. Further, the Company is the largest supplier in the United States of
telecommunications products for consumers. In addition, the Company has provided
engineering, installation, maintenance or operation support services to over 250
network operators in 75 countries, over 1.4 million business locations in the
United States and approximately 100,000 business locations in over 90 other
countries. The Company's research and development activities are conducted
through Bell Labs, which consists of approximately three-quarters of the total
resources of AT&T's former Bell Laboratories division, one of the world's
foremost industrial research and development organizations.
The Company's revenues of $21,413 million for the year ended December 31,
1995, were generated from the sale of systems for network operators (54% of
total revenues), business communications systems (24%), microelectronic products
(9%), consumer products (8%), and other systems and products, including
integrated systems for the United States government (5%). In 1995, approximately
77% of the Company's revenue was generated from sales in the United States and
approximately 23% internationally (including exports). See Note 10 to
Consolidated Financial Statements. For the year ended December 31, 1995, the
Company recorded a net loss of $867 million, including restructuring and other
charges of $2,801 million before taxes (or $1,847 million after taxes).
The following table sets forth the revenues by product line for each of the
five years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Systems for Network Operators.................. $11,459 $10,841 $ 9,367 $ 9,616 $ 9,028
Business Communications Systems................ 5,144 4,557 3,982 3,689 3,610
Microelectronic Products....................... 1,864 1,461 1,323 1,167 781
Consumer Products.............................. 1,787 1,924 1,816 1,934 1,934
Other Systems and Products..................... 1,159 982 1,246 906 959
------- ------- ------- ------- -------
Total....................................... $21,413 $19,765 $17,734 $17,312 $16,312
======= ======= ======= ======= =======
</TABLE>
INDUSTRY OVERVIEW
The global telecommunications networking industry includes systems,
software and products used for voice, data and video communications. This
industry has undergone significant transformation and growth since the
mid-1980's as a result of changes in domestic and international public policy,
technological innovations and economic factors. The Company believes that these
forces will intensify, and that the number of customers and the complexity of
the networks they demand will increase. In addition, the Company believes that
these networks will increasingly become multifunctional in nature, supporting
simultaneous wireline or wireless access to any combination of voice, data and
video communications services, thus reducing the operating costs associated with
separate networks. The Company further believes that the traditionally distinct
technology platforms supporting voice and data will converge, as will those
platforms for the traditionally separate wireline and wireless networks. In the
Company's view, significant industry growth areas will include wireless access,
multifunctional systems and networking software. The Company further believes
that the principal building blocks of the industry are and will continue to be
software, microelectronics and product innovation in advanced digital switching
and transmission platforms, supported by a competency in and a knowledge of
telecommunications networking.
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Public Policy Changes
Changes in the public policy affecting telecommunications services have
increased, and are expected to further increase, the number of network operators
and, therefore, the demand for telecommunications network systems and products
worldwide. In the United States, changes in federal and state regulations have
created a number of new network operators and fostered competition between both
new and established network operators. For example, in 1995, the Federal
Communications Commission (the "FCC") auctioned additional spectrum for wireless
communications, thus potentially doubling the number of operators licensed to
compete in each MSA from two to four. The FCC has also announced plans to
auction additional spectrum in 1996. Changes in FCC regulations governing
interconnections have created the opportunity for CAPs to enter the market. Over
the past several years, certain state public utility commissions have removed
the prohibition on competition in intra-LATA long distance services, thereby
opening these markets to a number of competitors.
More broadly, the recently enacted Telecommunications Act permits local and
long distance telecommunications companies, cable television companies and
electric utility companies, subject to certain conditions designed to facilitate
local exchange competition, to compete with each other to provide local and long
distance telephony and video services. The Company believes that the
Telecommunications Act, together with these other government initiatives, will
increase the demand for systems, software and services as network operators
respond to the changing competitive environment by constructing new or enhancing
existing networks.
Over the last few years, the governments of a number of developed and
developing countries have privatized their state-owned telecommunications
monopolies. In most instances, as part of the privatization, such governments
have imposed service requirements on the newly privatized network operators
resulting in an acceleration of capital expenditures on networking systems,
software and services. In addition, certain governments have granted licenses to
new network operators to compete with the traditional network operators in their
countries. The Company expects the trend toward telecommunications service
competition to continue.
Technological Innovation
Telecommunications networking has undergone several technological
transformations, including the ongoing evolution from voice-centric to
multifunctional applications of any combination of voice, data and video, from
hardware-enabled to software-enabled and from wireline-only to an environment
where wireline and wireless interoperate. In addition, technological platforms
that support telecommunications networking and data networking have begun to
converge. To support the changing demands occasioned by these transformations,
networks are becoming more software intensive and the microelectronic content of
networking systems and end-user products is increasing.
These changes have added significantly to the number of services that
network operators can offer. Increasingly, network operators and business
customers are demanding multifunctional networks that can simultaneously support
any combination of voice, data and video services accessible from wireline and
wireless terminal devices. For example, telecommunications service providers are
beginning to offer multifunctional services, such as integrated services digital
network ("ISDN") which allows for the dynamic allocation of bandwidth between,
and the simultaneous transmission of any combination of voice, data and video,
and individual call routing, which permits the user to easily designate and
change the wireline or wireless telephone number to which their calls should be
directed. In addition, cable television operators are beginning to expand beyond
one-way broadcast to provide interactive services, and have announced their
intent to provide telephony and high speed data services.
The Company believes that traditionally distinct telecommunications
networks and data networks increasingly will be built on the same technological
platforms. The Company further believes that the convergence between voice and
data networking will continue as a result of the further adoption of common
technologies such as optical transmission and asynchronous transfer mode ("ATM")
switching.
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International Growth
The Company believes that the opportunities described above will be
available in both developed and developing countries and that a significant
portion of its growth will derive from the sale of telecommunications networking
systems, software and services outside the United States. Many of the network
operators and businesses that are pursuing international opportunities are well
established and well capitalized companies with whom the Company has strong
relations. The Company intends to pursue global opportunities in a focused and
disciplined approach to build upon the successes the Company has achieved and
will involve the withdrawal from areas where future profitability is deemed
questionable. The Company intends to utilize a combination of joint ventures and
direct investments to achieve its goals in this area.
SYSTEMS FOR NETWORK OPERATORS
The Company designs, develops, manufactures and services systems and
software which enable network operators to provide wireline and wireless local,
long distance and international voice, data and video services and cable
television service. The Company's networks, which include switching,
transmission and cable systems, are packaged and customized with application
software, operations support systems and associated professional services.
Systems and Services
Telecommunications Networking Systems. The Company designs, develops,
manufactures and services advanced telecommunications networking systems, which
include equipment, software and associated professional services. These systems
connect, route, manage and store voice, data and video in any combination, and
are used for: wireline access; local and long distance switching; intelligent
network services and signaling; wireless communications, including both cellular
and personal communications services ("PCS"); and high-speed, broadband
multifunctional communications.
The Company is one of the world's largest suppliers in each of the five
broad elements that comprise telecommunications networks: switching systems,
which route information through the network; transmission systems, which provide
the communications path through the network that carries information between
points in the network; operation support systems, which enable service providers
to manage the work flow, planning, surveillance, management, provisioning and
continuous testing of their networks; intelligent network/ application software,
which enables service providers to offer a broad array of enhanced and
differentiated services; and cable systems, which provide the transport media
between points in a network. These systems collectively comprise the
infrastructure that enables telecommunications network operators to provide
traditional narrowband voice and data services and that enables both new and
traditional network operators to offer broadband multifunctional services.
The Company has a wireline local access installed base (the number of
access lines serviced by switches manufactured by the Company) of approximately
110 million lines, representing approximately 58% of the United States and 13%
of the total worldwide installed base. The Company's primary switching products
are the 5ESS switch for local and long distance switching and international
gateways, and the 4ESS(TM) Digital Switch (the "4ESS switch") for long distance
and international switching.
The 5ESS switch is the most reliable switch in the industry, with an
average supplier-attributable time out of service of less than two minutes per
year. The 5ESS switch is in service in 49 countries with more than 72 million
access lines sold. In recent years, substantially all of the newly installed
access lines have been digital, providing the base for the evolution to ISDN and
other multifunctional services. From 1988 to 1994, the 5ESS switch was installed
by United States network operators to service over 40% of their new central
office lines, many to replace older analog installations.
The 5ESS switch is used throughout the world to provide a combination of
network applications, including local and long distance switching and
international gateways, operator services, network signaling, intelligent
networking and wireless switching. As of September 1995, the 5ESS switch, with
the Company's
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5E10 software, has enabled network operators to offer simultaneous wireline and
wireless, local, long distance and international services as well as any
combination of voice, data and video.
The 4ESS switch, which was developed for and is primarily deployed in
AT&T's network, is used to provide domestic and international long distance
switching. The 4ESS switch can handle over 775,000 peak hour calls.
The Company designs, develops, manufactures and services a broad range of
transmission access and transport systems. Network operators use these systems
to transport any combination of voice, data and video between subscribers and
the central office or between points within a network engaged in local, national
or international communications. In 1992, the Company's transmission systems
business was awarded the Malcolm Baldrige National Quality Award.
World standards for transmission systems have undergone rapid technological
progress in recent years. The new standards, known as Synchronous Optical
Network ("SONET") in North America and SDH in other markets, maximize
transmission capability and simplify network management for network operators.
The Company markets systems supporting both standards and is one of the largest
suppliers of SONET-based systems. As part of the acquisition of the Philips
Businesses, the Company broadened its SDH product catalog by acquiring Philips'
SDH transmission product line.
The Company offers a broad line of transmission access systems for the
provision of a wide range of services, including traditional telecommunications
service and broadband multifunctional services, in which it was the first
supplier. Transmission access systems transport information between the
subscriber and the central office. The Company's products include SLC(R)-2000, a
hybrid fiber/copper pair system, and HFC-2000(TM), a hybrid fiber/coaxial
system, both of which extend fiber-based optical transmission into the local
loop. The Company's products also include the SDV-2000, a switched digital video
system which extends fiber to the curb, and ASOS, one of the first operations
support system which enables network operators to manage the work flow,
planning, surveillance, provisioning and continuous testing of their
multifunctional networks.
The Company's transmission transport systems are utilized for high capacity
communications between points within a communications network. These products
are primarily digital and provide for the movement of any combination of voice,
data, and video across fiber, coaxial and microwave based media. The Company's
products include fiber transport systems (FT 2000), digital multiplexer systems
(DDM 2000) and the digital access and cross connect systems (DACS(TM) family of
products).
The Company's operation support systems enhance a network operator's
ability to activate, manage and maintain its networks. These systems
continuously monitor network performance and activity level, and allow for rapid
trouble identification, load balancing and planning for network utilization. The
Company's systems support the efforts of network operators to reduce operating
costs and minimize labor by automating previously labor intensive tasks.
The Company's network management systems offer a broad array of modular
software, including element managers designed for traditional telephony, video
and wireless; network managers that monitor, test and optimize the utilization
of a network; service managers that manage work flow; and business managers that
include customer service systems. For example, the Company's NetMinder system is
an advanced network management routing system that mitigates network congestion
through efficient call routing and completion which is utilized by 30 network
operators in 15 countries.
The Company's A-I-NET(R) intelligent network products enable network
operators to offer new services that can be created, deployed or managed by
themselves, the Company, or third parties. Services created with A-I-NET
products include toll free calling (800 and 888 service in the United States),
call forwarding, call waiting, voice dialing and messaging.
The Company has recently introduced products to address the growing demand
for emerging broadband multifunctional services which permit the simultaneous
transmission of any combination of voice, data and video. In 1994, the Company
introduced its GLOBEVIEW-2000 Broadband System, which is one of the
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highest capacity ATM switches offered for use in public networks. More than 100
GLOBEVIEW-2000 Broadband Systems are currently installed at more than 30
customers in nine countries, including local network operators such as Ameritech
Corporation, GTE Corporation and BellSouth Corporation; long distance network
operators such as AT&T; cable television operators such as Time Warner Inc. and
Cablevision Systems Corporation; and foreign network operators such as British
Telecommunications plc, Kokushin Denshin Denwa Co. Ltd. of Japan and the network
operator that is currently the sole broadband service provider in China.
In addition, the Company designs, develops, manufactures and services cable
systems, which include optical fiber, fiber optic cable, electronic wire and
cable and apparatus for both fiber and copper cable systems. The Company's cable
systems are used to connect various devices in a network and terminal devices to
public and private networks. These cable systems are deployed for outside plant
and central office wiring, and for traditional telephony, cable television,
wireless networks and broadband applications.
The Company is one of the world's largest suppliers of fiber optic cable
systems, high strength, high performance fiber for underseas cablers and outside
plant turnkey systems, which are generally large capital projects in emerging
markets for the engineering and construction of telecommunications
infrastructure. The Company's TRUEWAVE(TM) optical fiber enables network
operators to reduce their costs by increasing the distance between optical
amplifiers. In addition, the Company offers customers their choice of any
combination of fiber and cable design.
Wireless Network Systems. The Company designs, develops, manufactures and
services wireless network infrastructure systems, which include the 5ESS switch,
base stations, wireless network software and operation support systems. These
systems provide network operators with the capability to offer a wide range of
cellular and other wireless communications services, including PCS, wireless
data and fixed wireless access. The Company's sales of wireless infrastructure
systems have grown as a percent of total revenues from 6.1% in 1993 to 10.3% in
1995.
The Company's wireless systems are in operation in nine of the top ten
United States MSAs. The Company's primary wireless system is the AUTOPLEX(R)
System 1000 product family, which includes the Series II base station, which has
a higher call handling capacity per single control complex than any other base
station on the market. The base station contains the radio transceiver that
establishes wireless communications with a mobile telephone. Base stations are
arranged geographically so that mobile customers can be "handed off " seamlessly
from one base station to the next as they travel. The network intelligence to
accomplish this is housed in the Company's Mobile Switching Center, which
includes the 5ESS switch and which connects the base stations to the public
telephone network. The Company also offers base stations for start-up
applications and smaller markets, a minicell product for rural and international
markets and a microcell for congested, high traffic areas.
Wireless technology is evolving from analog to digital. The Company
provides networks based on a variety of the leading air interface standards:
AMPS, CDMA, TDMA and GSM. The Company believes that its implementation of CDMA
technology provides superior digital voice quality and greater capacity
utilization, and allows for the utilization of lower power handsets than other
wireless technologies. As part of the acquisition of the Philips Businesses and
in furtherance of its goal to enhance its international operations in this area,
the Company acquired Philips' GSM research, design, development, manufacturing,
marketing and sales capabilities. The Company is deploying what will be the
first and second national CDMA networks in the United States, one of the world's
largest AMPS networks in Korea, and one of the world's largest GSM-based
networks in Saudi Arabia.
In addition, the Company designs, develops, manufactures and services fixed
wireless access systems. The Company offers Wireless Subscriber Systems, which
support the AMPS standard, and the new AIRLOOP(R) Wireless Local Loop system,
which utilizes CDMA technology. Also, as part of the acquisition of the Philips
Businesses, the Company acquired Philips' fixed wireless system, which is based
on the DECT (digital enhanced cordless telephone) standard. All three systems
enable network operators to expand their networks in markets where traditional
wireline systems are not cost justified, and to provide telephone services as an
alternative to traditional network operators.
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The Company designs, develops, manufactures, and services CDPD-based
wireless data systems which enable wireless network operators to offer data
services as an overlay to their existing analog voice infrastructure without
acquiring additional spectrum or upgrading to a digital network. These systems
offer the increased reliability and efficiency of switched digital packet data
systems.
Due to the complexity of wireless systems, the Company also offers a broad
range of professional services, which include project management, site
acquisition, radio frequency engineering, microwave relocation, construction
management, cellular optimization and wireless data support.
Markets
The principal customers for the Company's systems are network operators
that provide wireline and wireless local, long distance and international
telecommunications services. The Company's systems for network operators are
installed to expand the capacity and features offered by existing networks, to
replace older technology in existing networks and to establish new networks for
entrants into deregulated or previously unserved markets. See "Risk
Factors -- Reliance on Major Customers."
As a result of structural, public policy and technological changes, since
the mid-1980's the telecommunications industry has undergone a period of
significant growth in the number of lines in service and applications offered.
In developed markets, deregulation has permitted new market entrants to
construct networks in previously monopolistic markets. In response, existing
network operators have expanded beyond traditional franchises and are offering
new services. In emerging markets, privatization, competition and economic
expansion have increased demand for networking systems. At the same time,
technological advances also have increased demand by reducing operating costs
and facilitating new applications, including multifunctional services.
Changes in customer needs and demands, public policy and technology are
creating a new industry structure in which many of the actual and potential
customers of the Company are or will be competitors of AT&T's communications
services business. As a result, the obstacles currently faced by the Company in
marketing its products to competitors and potential competitors of AT&T's
communications services business have become severe and are expected to continue
to intensify. For these reasons, AT&T has announced that, subject to certain
conditions, it intends to effect the Distribution.
The Company markets and sells its products worldwide primarily through a
direct sales force due to the complexity of these systems. Most of the Company's
sales of systems for network operators are made pursuant to general purchase
agreements, which establish the terms and conditions and provide for price
determination to be made on a contract bid basis. In addition, certain of the
large infrastructure projects are conducted under long-term, fixed-price
contracts. See "Risk Factors -- Multi-Year Contracts" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Variability in the Company's Business."
As a result of the increased complexity of systems for network operators
and the high cost of developing and maintaining in-house expertise, network
operators demand complete, integrated and turn-key projects. Network operators
increasingly are seeking overall network or systems solutions that require an
increased software content which would enable them to deploy rapidly new and
differentiable services. In response, the Company has formed an organization
focused on turn-key network engineering projects for both public and private
sector customers. The Company markets integrated solutions whereby the Company
assumes full responsibility for the project, and engineers, designs and installs
the network, including equipment and software manufactured by both the Company
and third parties. In certain cases, operation of the network through contract
also may be included in the project.
Increasingly, as a result of the financial demands of major network
deployments, network operators are looking to their suppliers to arrange for
financing. The ability to provide financing is a requirement to conduct business
in certain emerging markets. As a result, the Company works with its customers
to structure and place financing packages. See "Risk Factors -- Future Capital
Requirements; Absence of AT&T Funding."
In order to market its product line worldwide, the Company has established
wholly owned subsidiaries and joint ventures with local companies in 16
countries. This approach also helps the Company meet local content regulations,
reduce its foreign exchange exposure and establish a local identity and employee
base.
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Competition
The Company believes that it enjoys a strong competitive position due to
its broad product line, large installed base, strong relationship with key
customers, technological expertise and new product development capabilities. The
primary competitors in the market for telecommunications systems, in addition to
the Company, are four very large European and North American companies which
have substantial technological and financial resources and which offer similar
broad product catalogs. These competitors are Alcatel Alsthom, Northern Telecom
Limited, Siemens AG and Telefonaktiebolaget LM Ericsson. In 1994, the Company
and these four competitors collectively accounted for over 35% of the world's
public network systems sales, of which the Company's sales of systems for
network operators accounted for 8%.
In addition, in all of the Company's product areas other than switching,
the Company faces significant competition from companies which do business in
one or a number of such product areas. For example, in wireless systems,
Motorola, Inc. and Nokia Corporation, both of which are very large companies
with substantial technological and financial resources, are significant
competitors. In transmission and cable systems, the markets are highly
fragmented and include hundreds of smaller competitors.
BUSINESS COMMUNICATIONS SYSTEMS
The Company designs, develops, manufactures and services telecommunications
systems and products for large and small business customers, home offices and
government agencies. The Company's business communications systems can be
upgraded regularly with new software releases, can support local and wide area
voice and data networking and are often integral components of global enterprise
networks. The Company's systems primarily are customer premises-based private
switching systems and products, call center systems, voice processing systems,
which include voice messaging and voice response systems, and the associated
application software and professional support services.
The Company is the market leader in customer premises-based
telecommunication systems in the United States with the largest aggregate
installed base of PBXs, key systems, structured cabling systems and voice
processing systems. The Company serves over 1.4 million business locations in
the United States and approximately 100,000 business locations in over 90 other
countries.
Systems and Services
The Company's core business communications system products are private
switching systems, generally PBXs and key systems, usually located at the
customer's premises, that permit a number of local telephones or terminals to
communicate with one another, with or without use of the public telephone
network. The Company offers the DEFINITY communications system family of
products for large customers and the wired and wireless MERLIN LEGEND(R) and
PARTNER(R) systems for smaller businesses and home offices. The DEFINITY
Enterprise Communication Server provides real-time voice and mixed-media call
processing. The recently announced FREEWORKS family of business mobility
solutions includes the DEFINITY Cellular Business System, which enables in- and
out-of-building mobility with standard cellular phones.
The Company's messaging and response systems store and forward voice, data
and images and conduct initial call processing, which integrates PBX and
computer functions. In addition, the Company is a technological leader in the
development of speech recognition algorithms, which have been incorporated into
both public and private call processing applications, such as operator services.
The Company's principal systems include the INTUITY AUDIX and DEFINITY AUDIX
voice messaging systems for use with the Company's or a competitor's PBX;
INTUITY CONVERSANT, a multi-lingual interactive voice response system which can
recognize speech in nine languages/dialects; and the INTUITY Multimedia
Messaging System, a system that combines voice messaging and voice-response
technology into a single desktop application.
The Company is the United States market leader in the sale of call center
systems, integrating the hardware and software associated with computing,
telephony, and multifunctional messaging and response applications. Call centers
are the initial entry point for customers to access a business' telephone sales
and
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support operation. The Company's systems permit the routing and administration
of a large volume of incoming calls, and the integration with business databases
of customer and product information. The Company's call center systems are used
by companies in diverse industries such as financial services, retailing and
transportation. The call center environment in which these companies operate is
characterized by hundreds of telephone service agents located in geographically
dispersed networked sites, processing tens of thousands of calls per hour. For
example, using these systems, businesses can provide their customers with the
ability to check balances or order status, to place orders, and to receive
additional information and support. The Company has the ability to build
customized systems integrating a variety of products, including both newly
purchased equipment and equipment manufactured by third parties.
In October 1995, the Company introduced the MMCX, the industry's first
multifunctional product to deliver real-time business calling features such as
conferencing, transfer, call coverage, and add/drop to switched voice or data
networking. The MMCX allows customers to migrate their existing network to
multifunction capabilities. This enables the customer to support new
applications and transport technologies, such as ATM.
In addition, subsequent to its introduction in 1989, the Company's SYSTIMAX
structured wiring system for business customers, which provides broadband
multifunctional LAN interconnections within a building or campus, has grown into
the global market leader. These systems are comprised of fiber optic and copper
cable and associated apparatus.
The Company offers a wide range of professional service options, including
remote diagnostics, a variety of on-demand services and dedicated on-site
technicians. Their on-demand services involve routine testing and diagnostics,
maintenance and repair, moves and rearrangements, and software and hardware
upgrade installations.
The Company believes that a key competitive advantage is its remote
diagnostics and repair capability, which permits the Company to monitor, test,
maintain and resolve problems from its regional service centers. Many of the
Company's systems are designed with intelligent software which establishes a
real-time link between the customer premises and a regional service center's
expert system. This permits the customer to reduce its system down-time and
enables the Company to automate many maintenance and repair tasks.
Markets
The Company markets its systems to large and small businesses and
government agencies. In the United States, the Company markets its systems
through the industry's largest direct sales force. Outside the United States,
the Company markets its systems directly and through a network of dealers and
distributors. The Company's systems are deployed in applications for customer
sales and service, conferencing and collaboration, mobility and distributed work
force, messaging and enterprise networking. The Company fields a large group of
application specialists to design call center, distance learning and other
customized applications.
The Company considers its close working relationships with its customers
and its knowledge of their individual business needs to be important
contributors to its success. The Company's sales historically have been
facilitated by system upgrades, which provide a migration path to new
applications, and new system sales to its existing customer base.
The Company believes that the premises-based communications market is
transforming from distinct voice and data networks to single multifunctional
networks that will be able to support any combination of voice, video and data
communications simultaneously. The Company is designing certain business
communications systems to enable its customers to simplify their premises
networks by combining separate voice, video and data networks into a single
architecture. The Company's development efforts are being focused on extending
the ubiquity and ease of use of today's voice calls to multifunctional
communications, and on reducing the costs associated with the administration and
maintenance of the customer's network.
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The Company has entered into alliances with Lotus Development Corporation,
to enable multimedia messaging in the Lotus Notes* environment, and with Novell,
Inc. to extend multimedia messaging and computer/telephony integration, and was
one of the founders with International Business Machines Corporation, Apple
Computer, Inc., and Siemens AG of VERSIT*, an industry consortium organized to
ensure the interoperability of multivendor multimedia applications.
Competition
The Company competes principally with three other large companies with
substantial technological and financial resources in the sale of business
communication systems. These competitors are Northern Telecom Limited, Siemens
AG (through its subsidiary Siemens Rolm Communications, Inc.) and Alcatel
Alsthom. Together with the Company, in 1994 these four competitors accounted for
approximately 40% of the sales of business communications systems globally, with
the Company accounting for approximately 8%. In addition, as the market
transforms to multifunctional systems, the Company expects that it also may
encounter competition from companies that design and manufacture data network
equipment.
The Company believes that key competitive factors in this market are
service support, the ability to upgrade existing systems for new applications,
price and reliability.
MICROELECTRONICS PRODUCTS
The Company designs, manufactures and sells ICs, electronic power systems
and optoelectronic components for communications applications. These
microelectronic products are important components of many of the Company's own
systems and products. The Company also supplies these components to other
manufacturers of communications systems and computers. The Company is a market
leader in several IC product areas critical to communications applications,
including DSPs for digital cellular phones and standard-cell ASICs. The
Company's DSPs were included in more than half of the world's digital cellular
telephones shipped in the year ended December 31, 1995.
Products
The Company's ICs are designed to provide advanced communications and
control functions for a wide variety of electronic products and systems. The
Company focuses on IC products that are used in communications and computing and
that require high-performance and low power chip architectures; complex
large-scale chip design in digital, analog and mixed-signal technologies; DSP
architectures and algorithms; high-frequency and high-voltage technologies; and
high speed data and signal processing. The Company offers a wide variety of
standard, semi-custom and custom products for cellular equipment, communications
networks, computers and computer peripherals, modems and consumer communications
products. Products include DSPs, ASICs, field programmable gate arrays and
communications ICs. The Company's products are manufactured using a variety of
technologies, from low-power, low-voltage submicron CMOS (complementary metal
oxide semiconductors) to high-frequency and high-voltage bipolar processes. The
Company's Orlando IC factory was awarded the Shingo Prize for excellence in
manufacturing in 1994.
The Company designs, develops and manufactures energy systems, electronic
power supplies and associated magnetic components for the telecommunications and
electronic data processing industries. These products serve applications ranging
from modems for personal computers to large telephone central offices. Products
include DC/DC converters, AC/DC switching power supplies, transformers,
inductors and energy systems that provide alarm, control, and backup power
management. The Company's Dallas electronic power systems factory was awarded
the Shingo Prize in 1992. In 1994, the Company was the first United States
manufacturer to be awarded the Deming Prize for quality for its electronic power
systems business.
- ---------------
* Lotus Notes is a registered trademark of Lotus Development Corporation; VERSIT
is a trademark of the consortium's founders.
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The Company designs, develops and manufactures optoelectronic products
which convert electricity to light (emitters) and light to electricity
(detectors), thereby facilitating optical transmission of information. These
products include semiconductor lasers, photodetectors, integrated transmitters
and receivers, and advanced-technology erbium-doped fiber amplifiers. The
Company provides these products worldwide to manufacturers serving the
telecommunications, cable television and network computing markets.
Optoelectronic products extend the transmission capacity of fiber to meet the
requirements of such applications as video-on-demand, interactive video,
teleconferencing, image transmission and remote database searching. The Company
markets a number of advanced products, including critical optoelectronic
components that support telecommunication transmission; long-wavelength optical
data modules for data networking; and analog lasers for use in cable television
fiber optic transmission. The Company believes that its optoelectronic products
have higher photonics reliability than those of its competitors due to their low
field failure rate and the Company's evaluation methodologies in manufacturing
that allow the detection and elimination of early failures.
The Company seeks to respond to the pace of technological change by
improving its manufacturing process technologies and developing advanced design
tools and low-cost assembly and test capabilities. In addition to using the
capabilities of Bell Labs, the Company has established close working
relationships with customers to conceive, research, develop and design new
products jointly. To support these relationships, the Company maintains a
presence in the form of research, design, manufacturing and sales offices in
over 15 countries. As a result of these relationships, the Company has been able
to develop a number of technological innovations for its customers. For example,
in order to help reduce customers' time to market, in 1994 the Company developed
the first DSP products with on-chip flash memory. These products allow customers
to load, test, and reload development software in actual prototype systems.
The Company also designs and manufactures printed circuit boards and
backplanes. The Company expects to exit this business and has offered these
operations for sale.
Markets
The Company's microelectronic products are sold globally to manufacturers
of communications systems and computers. In addition, the Company's energy power
systems are sold directly to U.S. and foreign telephone companies. The Company's
customers are competing in markets characterized by rapid technological changes,
decreasing product life cycles, price competition and increased user
applications. These markets have experienced significant expansion in the number
and types of products they offer to end-users, particularly in personal
computing and portable access communication devices. As a result, the Company's
customers continue to demand components which are smaller, require less power,
are more complex, provide greater functionality, and are produced with shorter
design cycles and less manufacturing lead time.
In 1995, the Company also introduced a GSM hardware platform based upon a
highly integrated multiple-chip design for digital cellular phones that performs
all the key handset functions between the microphone and the antenna in both
voice and data services. The Company also sells the associated software product
elements necessary to support the GSM standard.
In 1995, more than half of the Company's microelectronic production was
sold to customers other than the Company. The Company's microelectronic products
are also key components of its systems for network operators, business
communications systems, and consumer products. The Company's microelectronics
products compete with products of third-party manufacturers for inclusion in the
Company's systems and products.
Competition
The Company believes that its success is due to technological leadership,
product leadership, and close relationships with key customers. The market for
microelectronic products is global and generally highly fragmented. The
Company's competitors differ widely among product categories. The Company's
competitors in certain IC product categories include Motorola, Inc. and Texas
Instruments Incorporated; in electronic power systems include Astec Industries,
Inc. and Unitech plc (through its subsidiary, NEMEC-Lambda); and in
optoelectronics include Fujitsu Limited and Northern Telecom Limited.
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The Company believes that key competitive factors in the microelectronics
marketplace are the early involvement in customers' future application
requirements, the speed of product and technological innovation, price, customer
service, and manufacturing capacity. Other important competitive factors include
quality, reliability and local manufacturing presence.
CONSUMER PRODUCTS
The Company designs, manufactures, services and leases communications
products for consumer, small office and home office use. In 1995, the Company
sold 31% of the corded telephones, 28% of the cordless telephones and 35% of the
telephone answering systems sold in the United States, approximately double the
market share of any single competitor in each of these categories.
Products
The Company has a broad catalog of telephone products for the consumer
market. Cordless telephones are the Company's primary consumer product line, to
which the Company has continued to make improvements and innovations. The
Company was the first in the industry to introduce cordless telephones with 25
channel capability, which reduces interference. The Company also offers a broad
line of analog, digital, stand-alone and integrated telephone answering systems,
which are offered in corded and cordless versions. The Company's main corded
product is the TRIMLINE(R) telephone, with more than 88 million units sold over
the last 30 years. The Company sold over 2.5 million TRIMLINE telephones in
1995.
The Company offers a broad range of cellular products which support all of
the major United States cellular standards. The Company has captured
approximately 5% of the United States market for cellular products since
entering the market in 1992. The Company's product development efforts are
focused on developing flexible, digital wireless handsets capable of supporting
all of the major standards for cellular and PCS service in the United States.
The Company is implementing a common design for its consumer products,
which includes a common look, feel, feature placement and feature use. As part
of this process, the Company expects to reduce the number of different
components and casings used in its product line. The Company believes this
uniformity will reduce costs, reinforce its brand identity, and increase
manufacturing flexibility. Under the Brand License Agreement (as defined
herein), the Company has the right to market certain consumer products under the
"AT&T" name alone, and in combination with the Company's name, each for certain
specified periods. See "Arrangements Between the Company and AT&T -- Brand
License and Related Matters."
Markets
The Company distributes its products in the United States through
approximately 900 retailers representing over 17,000 retail outlets, including
such national retailers as Wal-Mart Stores, Inc., Sears, Roebuck and Co.,
Circuit City Stores, Inc., Best Buy Co., Inc. and Service Merchandise Company.
The Company also sells its products through the Phone Center Stores. As part of
the Company's reorganization efforts, the Company plans to close all 338 of the
Phone Center Stores by May 1996. See "The Company -- Strategic Reorganization."
The Company also offers consumers a rental option for selected products, and
currently serves over five million rental customers.
Competition
The Company believes that its position in the consumer communications
products industry is due to the quality and reliability of its products, the
"AT&T" brand name, its strong distribution channels and its broad product line.
The Company's competitors in consumer products are traditional consumer
electronic manufacturers. The industry is characterized by significant
consolidation within each product category, although the principal competitors
in each are different. In traditional telephone products, the Company's
principal competitors are Thomson Consumer Electronics (marketing under the GE
brand), U.S. Electronics, Inc. (marketing under the BellSouth brand), Panasonic
Co., USA and Sony Corporation which, together with the
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Company, accounted for over 70% of market sales in the first three quarters of
1995, of which the Company accounted for 31%.
OTHER SYSTEMS AND PRODUCTS
The Company designs, develops and manufactures advanced technology systems
which support the United States federal government's need for specially designed
integrated systems for military and civilian use. The Company offers a full
range of products on a direct funding basis from the United States government.
These systems focus on undersea sensor systems, information processing and
secure communications. The funded research has generated commercial by-products
in lightwave transmission equipment, wireless communications systems and
multifunctional compression algorithms.
The Company, through its subsidiary, Paradyne, also designs and
manufactures modems and other data communications equipment for communications
and computing. The Company has offered for sale this subsidiary.
BELL LABORATORIES
The Company has been and will continue to be supported by the technological
expertise provided by Bell Labs, one of the world's foremost industrial research
and development organizations. Bell Labs consists of all of the operations of
AT&T's former Bell Laboratories division which support the businesses of the
Company, and basic research capability, which together comprise approximately
three quarters of the total resources of AT&T's former Bell Laboratories
division. The remaining approximately one quarter of the resources of AT&T's
former Bell Laboratories division, that historically have supported AT&T's
communications services business, will be retained by AT&T. Bell Labs has made
significant discoveries and advances in communications science and technology,
software design and engineering, and networking. These contributions include the
invention of the transistor and the design and development of ICs and many types
of lasers. Areas of Bell Labs research and development work in recent years
include: networking software; lightwave transmission, which offers greater
transmission capacity than other transmission systems; electronic switching
technology, which enables rapid call processing, increased reliability and
reduced network costs; and microelectronics components, which bring the latest
advantages of very large scale integration to the full range of products offered
by the Company.
Since its founding in 1925, on average, one patent has been issued per
business day to Bell Labs. Further, seven Bell Labs scientists have received the
Nobel Prize for physics, seven have received the United States National Medal of
Science, and five have received the National Medal of Technology. In addition,
Bell Labs was the first institution to be awarded the National Medal of
Technology.
Bell Labs is thoroughly integrated with the Company's operating units in
design, development and manufacturing engineering. In general, substantially all
of Bell Labs' development staff are aligned with specific operating units. In
addition, its research, standards, architecture work and software consulting are
core functions structured to support all of the Company's operating units.
Bell Labs' research and development activities continue to focus on the
core technologies critical to the Company's success, which are software, network
design and engineering, microelectronics and photonics.
Bell Labs is a leader in software research, development and engineering for
communications applications. In 1969, it produced the UNIX* operating system, in
1972, the C and, in 1983, the C++ programming languages, and, recently, PLAN
9(TM), a distributed operating system that advances client/server applications
over public as well as private networks. In addition, since the early 1980's
Bell Labs' innovations in fault-tolerant software have enabled the Company to
achieve a level of system reliability with off-the-shelf commercial processors
that allows the Company to reduce its reliance on custom microprocessors.
- ---------------
* UNIX is a registered trademark licensed exclusively by Novell, Inc.
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Bell Labs has contributed many innovations in voice quality, and is a
leader in the development of digital signal processing. In the 1990's Bell Labs
has developed a number of innovative algorithms for high-quality speech and
audio at low-bit rates, for high-definition television, and for data, image, and
video compression in multifunctional communications. These innovations have
contributed to the Company's implementation of speech processing applications
which include text-to-speech synthesis, speech recognition and automatic
translation of speech from one language to another.
Bell Labs has led in the development of software-based networking
technologies that support the Company's systems and products. Since the 1970's,
Bell Labs' inventions have included automated network management and cellular
mobile communications. Recently, it has developed systems for digital cellular,
PCS, mobile computing and wireless LANs. Bell Labs' research in ATM led to the
Company's offering of the first large ATM switch in 1993, and is presently
focusing on ATM offerings for office and home applications.
The microelectronics industry began with Bell Labs' invention of the
transistor. Bell Labs' innovations in IC design and manufacturing include
molecular beam epitaxy in 1968, which is the technique used to build
semiconductors one atomic layer at a time.
Similarly, Bell Labs' advances extended from the first semiconductor lasers
that could operate at room temperature to the microlasers used in today's
broadband multifunctional transmission systems, and from early optical fiber
research to today's optical amplifiers and TRUEWAVE fiber. Current photonic
research includes work on passive optical networks, photonic switching and
quantum wire lasers.
RESEARCH AND DEVELOPMENT
The Company's research and product development costs charged to expense
were $2,121 million (excluding the 1995 restructuring and other charges), $2,097
million and $1,961 million for the years ended December 31, 1995, 1994 and 1993,
respectively. Historically, the Company has targeted approximately 1% of its
revenues to fund basic research activities.
MFJ AGREEMENTS
Certain agreements associated with the implementation of the MFJ impose
obligations concerning AT&T's manufacturing support of RBOC equipment needs,
including advance notice of AT&T's discontinuance of support for certain
equipment, and, in that event, the transfer to the RBOCs of necessary technical
resources, including, under certain circumstances, software source codes, to
enable the RBOCs to obtain the necessary equipment support elsewhere. The
Company would remain obligated to comply with these agreements.
BACKLOG
The Company's backlog, calculated as the aggregate of the sales price of
orders received from customers less revenue recognized, was approximately $4,100
million and $3,700 million on December 31, 1995 and December 31, 1994,
respectively (approximately 7% and 1% of which, respectively, represented
backlog of orders from AT&T). Approximately $200 million of orders included in
the December 31, 1995 backlog are scheduled for delivery after December 31,
1996. However, all orders are subject to possible rescheduling by customers.
Although the Company believes that the orders included in the backlog are firm,
some orders may be canceled by the customer without penalty, and the Company may
elect to permit cancellation of orders without penalty where management believes
that it is in the Company's best interest to do so. Not included in backlog at
December 31, 1995 is approximately $3,400 million for a long-term contract with
the Ministry of Post and Telecommunications of Saudi Arabia. Although this
contract is considered firm, it is excluded from backlog due to the annual
appropriations of the Saudi Arabian government.
In recent years the Company's backlog as a percentage of revenues has
decreased principally as a result of reduced manufacturing cycle times and the
increased software content of orders allowing for the faster delivery and
installation of new systems. The Company believes that these advances have
allowed customers
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to deploy networks more rapidly than in the past and have resulted in a
reduction in the time between customer order and system implementation, which
has also affected the Company's backlog.
SOURCES AND AVAILABILITY OF MATERIALS
The Company makes significant purchases of electronic components, copper,
silicon, precious metals, aluminum, and other materials and components from many
domestic and foreign sources. The Company has been able to obtain sufficient
materials and components from sources around the world to meet its needs. The
Company also develops and maintains alternative sources for essential materials
and components. Occasionally, special inventories of components are maintained
to minimize the effects of shortages. The Company does not have a concentration
of sources of supply of materials, labor, services or other rights that, if
suddenly eliminated, could severely impact its operations.
PATENTS AND TRADEMARKS
The Company owns approximately 8,000 patents in the United States and
11,000 in foreign countries. These foreign patents are counterparts of the
Company's United States patents. Many of the patents owned by the Company are
licensed to others and the Company is licensed to use certain patents owned by
others. In connection with the Separation, the Company has entered into an
extensive cross-licensing agreement with AT&T and NCR. See "Arrangements Between
the Company and AT&T -- Patent Licenses and Related Matters."
The Company intends to market its products under its own name and mark,
except with respect to certain consumer products and business communications
systems, which may be marketed under the "AT&T" name alone for one year after
the Closing Date or in combination with the Company's name for a period of up to
four years after the Closing Date. In addition, certain leased products or
maintenance contracts may be marketed under the "AT&T" name for 66 months after
the Closing Date. See "Arrangements Between the Company and AT&T -- Brand
License and Related Matters."
The Company considers its many trademarks to be valuable assets. Most of
its trademarks are registered throughout the world.
EMPLOYEES
At December 31, 1995, the Company employed approximately 131,000 persons,
of whom 82% were located in the United States. Of these domestic employees, 47%
are represented by unions, primarily the Communications Workers of America and
the International Brotherhood of Electrical Workers. The Company's labor
agreements with these unions expire on May 30, 1998. Such unions have filed
grievances on behalf of Company employees they represent asserting claims for
severance pay as a result of the Distribution and related transactions. The
Company has continued to honor its labor agreements with these unions and
believes that such claims are without merit. The Company intends to oppose such
grievances vigorously.
As part of the Company's restructuring efforts, and as announced January 2,
1996, the Company will eliminate approximately 22,000 positions, of which
approximately 11,000 are management positions and 11,000 are occupational
positions. Approximately 1,000 additional management employees are employed by
businesses that the Company has announced plans to sell. As of December 31,
1995, approximately 4,100 management employees have accepted a voluntary
severance package, the majority of whom will leave the Company in early 1996.
The Company expects approximately 70% of all separations to be completed by the
end of 1996 and the majority of the remaining separations to be completed during
1997. See "The Company -- Strategic Reorganization" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Strategic
Reorganization." The Company considers its relationships with its employees to
be satisfactory.
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LEGAL PROCEEDINGS
In the normal course of business, the Company is subject to proceedings,
lawsuits and other claims, including proceedings under laws and regulations
related to environmental and other matters. Such matters are subject to many
uncertainties and outcomes are not predictable with assurance. Consequently, the
Company is unable to ascertain the ultimate aggregate amount of monetary
liability or financial impact with respect to these matters at December 31,
1995. While these matters could affect operating results of any one quarter when
resolved in future periods and, while there can be no assurance with respect
thereto, it is management's opinion that after final disposition, any monetary
liability or financial impact to the Company beyond that provided in the
consolidated balance sheet at December 31, 1995 would not be material to the
Company's annual consolidated financial statements.
On February 14, 1996, Bell Atlantic Corporation and DSC Communications
Corporation filed a complaint against AT&T and the Company in the United States
District Court for the Eastern District of Texas. The complaint alleges, among
other things, that AT&T or the Company has monopolized or attempted to
monopolize alleged markets for communications transmission equipment, related
software and caller identification services. The complaint seeks injunctive
relief and damages, after trebling, in excess of $3,500 million. AT&T and the
Company do not believe that the complaint has merit and intend to defend the
lawsuit vigorously.
ENVIRONMENTAL MATTERS
The Company's current and historical manufacturing and research operations
are subject to a wide range of environmental protection laws in the United
States and other countries. In the United States these laws often require
parties to fund remedial action regardless of fault. The Company has remedial
and investigatory activities, including assessment and cleanup work, underway at
46 current and former manufacturing, laboratory and recycling facilities to
comply, or to determine compliance with, applicable environmental protection
laws. AT&T and its subsidiaries have been listed as PRPs at numerous "Superfund"
sites pursuant to CERCLA or comparable state statutes, either by a government
agency (which may have either sought information concerning AT&T's connection to
the site, or may have sought from AT&T participation in site cleanup work or
contribution toward the cost of site cleanup), or by a private party seeking
contribution to site cleanup costs. Under the terms of the Separation and
Distribution Agreement, the Company will assume or indemnify AT&T for all
liabilities primarily relating to, arising out of or resulting from (i) the
operation of the Company Business as conducted at any time prior to, on or after
the Closing Date or (ii) any Company Assets including, without limitation, those
associated with these sites.
It is often difficult to estimate the future impact of environmental
matters, including potential liabilities. The Company records an environmental
reserve when it is probable that a liability has been incurred and the amount of
the liability is reasonably estimable. This practice is followed whether the
claims are asserted or unasserted. Management expects that the amounts reserved
for will be paid out over the period of remediation for the applicable site
which ranges from 5 to 30 years. Reserves for estimated losses from
environmental remediation are, depending on the site, based primarily upon
internal or third party environmental studies, and estimates as to the number,
participation level and financial viability of any other PRPs, the extent of the
contamination and the nature of required remedial actions. Accruals are adjusted
as further information develops or circumstances change. The amounts provided
for in the Company's consolidated financial statements in respect of
environmental reserves are the gross undiscounted amount of such reserves,
without deductions for insurance or third party indemnity claims. In those cases
where insurance carriers or third party indemnitors have agreed to pay any
amounts and management believes that collectibility of such amounts is probable,
the amounts are reflected as receivables in the financial statements. Although
the Company believes that its reserves are adequate, there can be no assurance
that the amount of capital expenditures and other expenses which will be
required to complete remedial actions and to comply with applicable
environmental laws will not exceed the amounts reflected in the Company's
reserves or will not have a material adverse effect on the financial condition
of the Company or the Company's results of operations or cash flows. Any amounts
of environmental costs that may be incurred in excess of those provided for at
December 31, 1995 cannot be determined.
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On July 31, 1991, the United States Environmental Protection Agency Region
III issued a complaint pursuant to Section 3008a of the Resource Conservation
and Recovery Act of 1976 alleging violations of various waste management
regulations at the Company's Richmond Works in Richmond, Virginia. The complaint
alleges violations relating to training, solder dross management, the facility's
waste analysis plan and the handling of gold ion exchange resins. The complaint
seeks a total of $4.2 million in penalties. The Company is contesting both
liability and the penalties.
In addition, on July 31, 1991, the United States Environmental Protection
Agency filed a civil complaint in the U.S. District Court for the Southern
District of Illinois against AT&T (with respect to the Company's businesses) and
nine other parties seeking enforcement of its CERCLA Section 106 cleanup order,
issued in November 1990 for the NL Granite City Superfund site in Granite,
Illinois. This complaint seeks past costs, civil penalties of $25,000 per day
and treble damages related to certain United States costs. While the
Environmental Protection Agency has not stated the costs for which it seeks
treble damages, its contractors, the Army Corps of Engineers, estimated that
$4.3 million of costs have been incurred as of November 15, 1995. The Company is
contesting liability.
During 1994, AT&T Nassau Metals Corporation ("Nassau"), a wholly owned
subsidiary of the Company, and the New York State Department of Environmental
Conservation (the "NYSDEC") were engaged in negotiations over a study and
cleanup of the Nassau plant located on Richmond Valley Road in Staten Island,
New York. During these negotiations, in June 1994, NYSDEC presented Nassau with
a draft consent order which included not only provisions for site investigation
and remediation but also a provision for payment of a $3.5 million penalty for
alleged violations of hazardous waste management regulations. NYSDEC claims that
Nassau improperly engaged in landfilling and storing of lead dust. No formal
proceeding has been commenced by NYSDEC. Negotiations and discussions regarding
the matter are continuing.
PROPERTIES
At December 31, 1995, the Company operated 46 manufacturing and repair
sites, of which 26 were located in the United States, occupying in excess of
20.0 million square feet, of which approximately 1.1 million square feet were
leased. These sites were located in 19 countries. In 1995, the Company closed,
relocated or sold three manufacturing and repair sites in the United States
occupying in excess of 800,000 square feet, of which none were leased. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Strategic Reorganization."
At December 31, 1995, the Company operated 106 warehouse sites, of which 80
were located in the United States, occupying in excess of 4.0 million square
feet, substantially all of which were leased. These sites were located in 19
countries.
At December 31, 1995, the Company operated 718 office sites
(administration, sales, field service), of which 639 were located in the United
States, occupying in excess of 17.0 million square feet, substantially all of
which were leased. These sites were located in 47 countries.
At December 31, 1995, the Company operated additional sites in 15 cities,
of which 14 were located in the United States, with significant research and
development activities, occupying in excess of 9.0 million square feet, of which
approximately 1.4 million square feet were leased.
In addition, the Company has plans to close or to discontinue the lease of
certain facilities. See "The Company -- Strategic Reorganization."
For a summary of certain leases and subleases to be entered into in
connection with the Separation, see "Arrangements Between the Company and
AT&T -- Real Estate Agreements."
The Company believes its plants and facilities are suitable and adequate,
and have sufficient productive capacity, to meet its current needs.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information concerning the executive officers of
the Company and the individuals who are expected to be elected to the Company
Board prior to the Closing Date to serve as directors of the Company following
the Closing Date. Seven of such directors who are officers or employees but not
directors of AT&T will only serve as directors of the Company until the
Distribution. The Company Board will be divided into three classes. Commencing
with the annual meeting of stockholders to be held in April 1997, directors for
each class will be elected at the annual meeting of stockholders held in the
year in which the term for such class expires and thereafter will serve for a
term of three years. See "Description of Capital Stock -- Antitakeover Effects
of Certain Provisions of the Certificate and By-Laws." The Company currently has
three directors, all of whom are AT&T officers and two of whom will resign as
directors prior to the Closing Date.
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES HELD
- ----------------------------------- --------- --------------------------------------------
<S> <C> <C>
Henry B. Schacht................... 61 Chairman of the Board Nominee and Chief
Executive Officer
Richard A. McGinn.................. 49 President and Chief Operating Officer, and a
Director Nominee
Carla A. Hills..................... 61 Director Nominee
Drew Lewis......................... 64 Director Nominee
Donald S. Perkins.................. 68 Director Nominee
Franklin A. Thomas................. 61 Director Nominee
Ephraim M. Brecher*................ 49 Director Nominee
Jim G. Kilpatric*.................. 57 Director Nominee
Marc E. Manly*..................... 44 Director Nominee
S. Lawrence Prendergast*........... 54 Director Nominee
Maureen B. Tart*................... 40 Director
Florence L. Walsh*................. 34 Director Nominee
Paul J. Wondrasch*................. 52 Director Nominee
Curtis R. Artis.................... 48 Senior Vice President, Human Resources
Gerald J. Butters.................. 52 President, North American Region, Network
Systems
Joseph S. Colson, Jr. ............. 48 President, AT&T Customer Business Unit,
Network Systems
Curtis J. Crawford................. 48 President, Microelectronics
Carleton S. Fiorina................ 41 Executive Vice President, Corporate
Operations
Homayoun Firouztash................ 52 Vice President, Consumer Products
William B. Marx, Jr. .............. 57 Senior Executive Vice President
William T. O'Shea.................. 48 President, International, Network Systems
Donald K. Peterson................. 46 Executive Vice President and Chief Financial
Officer
Richard J. Rawson.................. 43 Senior Vice President, General Counsel and
Secretary
Patricia F. Russo.................. 43 President, Business Communications Systems
Daniel C. Stanzione................ 51 President, Network Systems; President, Bell
Laboratories
</TABLE>
- ---------------
* Indicates an AT&T officer or employee.
Mr. Schacht was named Chief Executive Officer of the Company effective
February 1, 1996 and will become Chairman of the Board of the Company prior to
the Closing Date. He has been a member of the
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<PAGE> 58
AT&T Board since 1981 but will resign from the AT&T Board effective no later
than the Closing Date. Mr. Schacht is a director of Cummins Engine Company, Inc.
("Cummins"), a position he has held since 1977. He was Chief Executive Officer
of Cummins from 1973 to 1994 and Chairman of the Board of Cummins from 1977 to
1995. In addition, Mr. Schacht is a director of Aluminum Company of America and
of each of The Chase Manhattan Corp. and its subsidiary, The Chase Manhattan
Bank, N.A. Mr. Schacht's initial term will expire at the annual meeting of
stockholders to be held in 1999.
Mr. McGinn was named President and Chief Operating Officer of the Company
effective February 1, 1996 and will become a director prior to the Closing Date.
Previously, he was Executive Vice President and Chief Executive Officer of the
AT&T Network Systems Group, a position to which he was named in October 1994.
From August 1993 to October 1994, Mr. McGinn was President and Chief Operating
Officer, AT&T Network Systems Group, and, from August 1991 to August 1993, he
was Senior Vice President, AT&T Network Systems Group. Prior to that time, Mr.
McGinn held various senior management positions within AT&T. Mr. McGinn's
initial term will expire at the annual meeting of stockholders of the Company to
be held in 1998.
Ms. Hills will become a director prior to the Closing Date. Ms. Hills has
been a director of AT&T since 1993 but will resign from the AT&T Board effective
no later than the Closing Date. She has been Chairman and Chief Executive
Officer of Hills & Company (international consultants) since 1993. Hills &
Company assists U.S. businesses with their trade and investment interests
abroad, particularly in the emerging markets. She was the United States Trade
Representative, Executive Office of the President, from 1989 to 1993. In
addition, she is a director of American International Group, Inc., Chevron
Corporation and Time Warner Inc. Ms. Hills' initial term will expire at the
annual meeting of stockholders of the Company to be held in 1997.
Mr. Lewis will become a director prior to the Closing Date. Mr. Lewis has
been a director of AT&T since 1989, but will resign from the AT&T Board
effective no later than the Closing Date. He has been Chairman and Chief
Executive Officer of Union Pacific Corporation since 1987. He is also a director
of American Express Company, FPL Group., Inc., Ford Motor Company, and Gannett
Co., Inc. Mr. Lewis' initial term will expire at the annual meeting of
stockholders of the Company to be held in 1997.
Mr. Perkins will become a director prior to the Closing Date. Mr. Perkins
has been a director of AT&T since 1979, but will resign from the AT&T Board
effective no later than the Closing Date. From 1970 to 1980, Mr. Perkins served
as the Chairman and Chief Executive Officer of Jewel Companies, Inc., a
diversified retailer. From January through June 1995, Mr. Perkins served as
Non-Executive Chairman of Kmart Corp. In addition, Mr. Perkins is a director of
Aon Corp., Cummins, Current Assets L.L.C., Illinova Corporation and its
subsidiary, Illinois Power Corporation, Inland Steel Industries, LaSalle Street
Fund, The Putnam Funds, Springs Industries, Inc. and Time Warner Inc. Mr.
Perkins' initial term will expire at the annual meeting of stockholders of the
Company to be held in 1997.
Mr. Thomas will become a director prior to the Closing Date. Mr. Thomas has
been a director of AT&T since 1988, but will resign from the AT&T Board
effective no later than the Closing Date. He has been President of The Ford
Foundation since 1979. He also is a director of the Aluminum Company of America,
CBS Inc., Citicorp and its subsidiary, Citibank, N.A., Cummins and Pepsico, Inc.
Mr. Thomas' initial term will expire at the annual meeting of stockholders of
the Company to be held in 1998.
Mr. Brecher will become a director of the Company prior to the Closing
Date. Mr. Brecher joined AT&T as Vice President -- Law in July 1990. In this
position, he was responsible for the leadership of the AT&T Law Division Tax
Group. Since December 1991, Mr. Brecher has held the position of
President -- Taxes and Tax Counsel of AT&T. Mr. Brecher's initial term will
expire at the annual meeting of stockholders of the Company to be held in 1997.
Mr. Kilpatric will become a director of the Company prior to the Closing
Date. Mr. Kilpatric has held the position of Senior Vice President -- Law of
AT&T since 1989. Mr. Kilpatric's initial term will expire at the annual meeting
of stockholders of the Company to be held in 1998.
Mr. Manly will become a director of the Company prior to the Closing Date.
Mr. Manly has held the position of Vice President -- Law & Solicitor General of
AT&T since January 1995. Prior to that time,
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<PAGE> 59
Mr. Manly was a partner with the firm of Sidley & Austin, representing AT&T in
litigation and regulatory matters. Mr. Manly's initial term will expire at the
annual meeting of stockholders of the Company to be held in 1998.
Mr. Prendergast will become a director of the Company prior to the Closing
Date. Mr. Prendergast has held the position of Vice President and Treasurer of
AT&T since 1983. Mr. Prendergast's initial term will expire at the annual
meeting of stockholders of the Company to be held in 1999.
Ms. Tart was appointed as a director of the Company effective February 1,
1996. Ms. Tart has been Vice President and Controller of AT&T since March 1994.
Prior to her current position, Ms. Tart was the Chief Financial Officer of AT&T
Capital Corporation, a position to which she was named in 1990. Ms. Tart's
initial term will expire at the annual meeting of stockholders of the Company to
be held in 1999.
Ms. Walsh will become a director of the Company prior to the Closing Date.
Ms. Walsh has been Assistant Treasurer of AT&T since November 1994. From May
1993 until November 1994, she was Director, Domestic Finance at General Motors
Corporation. Prior to that time, Ms. Walsh held a variety of management
positions at General Motors Corporation. Ms. Walsh has been nominated as a
director of the LIN Television Corporation Board of Directors. Ms. Walsh's
initial term will expire at the annual meeting of stockholders of the Company to
be held in 1999.
Mr. Wondrasch will become a director of the Company prior to the Closing
Date. Since December 1995, Mr. Wondrasch has held the position of Senior Vice
President of AT&T International Inc. and Chief Executive Officer of AT&T
Caribbean/Latin America Inc. He held a senior management position with AT&T from
1993 to 1995. From 1989 to 1993, Mr. Wondrasch held the position of President,
AT&T General Business Systems. Mr. Wondrasch's initial term will expire at the
annual meeting of stockholders of the Company to be held in 1999.
Mr. Artis became Senior Vice President, Human Resources of the Company
effective February 1, 1996. Mr. Artis held the position of Vice President, Human
Resources for the AT&T Network Systems Group since August 1994. From December
1993 to August 1994, Mr. Artis was a Vice President of Corporate Human
Resources, AT&T. Prior to that time, Mr. Artis held various senior management
positions within AT&T.
Mr. Butters became President, North American Region, Network Systems, of
the Company effective February 1, 1996. Since January 1994, Mr. Butters has held
various positions within the AT&T Network Systems Group, including President,
North American Region (since January 1996), President, Global Public Networks,
Offer Business Unit (from January 1995 to January 1996), President, North
American Region, Customer Business Unit (from July 1994 to January 1995), and
Vice President, Strategic Business Development (from January 1994 to July 1994).
From January 1993 to January 1994, Mr. Butters held the position of President,
Northern Telecom, Inc. Mr. Butters was Executive Vice President, Sales and
Service, from February 1992 to January 1993 and Executive Vice President, Public
Networks, both of Northern Telecom, Inc., from January 1991 to February 1992.
Mr. Colson became President, AT&T Customer Business Unit, Network Systems
of the Company effective February 1, 1996. Since April 1993, Mr. Colson has held
the position of President, AT&T Customer Business Unit for the AT&T Network
Systems Group. From July 1990 to April 1993, Mr. Colson was the Switching
Systems Vice President, United States, AT&T Network Systems Group.
Mr. Crawford became President, Microelectronics of the Company effective
February 1, 1996. Mr. Crawford held the position of President, AT&T
Microelectronics since July 1993. From August 1991 to July 1993, Mr. Crawford
was Vice President, AT&T Microelectronics.
Ms. Fiorina became Executive Vice President, Corporate Operations of the
Company effective February 1, 1996. Previously, Ms. Fiorina held the positions
of President, North America (from January 1995 to January 1996) and President,
Atlantic and Canadian Region (from July 1994 to January 1995) within the AT&T
Network Systems Group. From February 1993 to July 1994, Ms. Fiorina was Vice
President, Strategy and Marketing Development for the AT&T Network Systems
Group. Prior to that time, Ms. Fiorina held various senior positions with AT&T
in business development and marketing.
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Mr. Firouztash became Vice President, Consumer Products, of the Company
effective February 1, 1996. From October 1995, Mr. Firouztash was Vice
President, Marketing, Sales and Product Management of the Consumer Products
Group of AT&T. From August 1994 to October 1995, Mr. Firouztash held the
position of Global Marketing and Sales Vice President of AT&T Consumer Products
Group. From September 1993 to August 1994, Mr. Firouztash held the position of
Group Vice President, Global Sales/Customer Service for the Consumer Products
Group. Prior to that time, Mr. Firouztash was Vice President -- America's Region
of Control Data Systems Inc., a position he held from January 1991 to January
1992, and Vice President -- Western Europe Region of Control Data Systems Inc.,
a position he held from January 1990 to January 1992.
Mr. Marx became Senior Executive Vice President of the Company effective
February 1, 1996. Since July 1989, Mr. Marx has held a number of senior
management positions within AT&T, most recently as Executive Vice President and
Chief Executive Officer, AT&T Multimedia Products Group, beginning October 1994
and, previously, as Executive Vice President and Chief Executive Officer, AT&T
Network Systems Group (from August 1993) and Group Executive, AT&T Network
Systems Group (from July 1989 to August 1993).
Mr. O'Shea became President, International, Network Systems of the Company
effective February 1, 1996. Since July 1995 Mr. O'Shea has held the position of
President, International Regions and Professional Services of the AT&T Network
Systems Group. Previously, in 1995, Mr. O'Shea held the position of acting Chief
Executive Officer of AT&T Global Information Solutions Company (renamed NCR)
("AT&T GIS"). Mr. O'Shea was named Senior Vice President, Worldwide Marketing of
AT&T GIS in 1993. Prior to that time, Mr. O'Shea held the position of Senior
Vice President of the AT&T GIS Network Products Group.
Mr. Peterson became Executive Vice President and Chief Financial Officer of
the Company effective February 1, 1996. Mr. Peterson has held the positions of
Vice President and Chief Financial Officer of the AT&T Communications Services
Group since September 1995. Prior to that time, Mr. Peterson held various senior
executive positions at Northern Telecom, Inc. which included President of Nortel
Communications Systems, Inc. (from January 1993 to September 1995), Vice
President of Finance of Northern Telecom, Inc. (from January 1991 to January
1993) and Group Vice President of Northern Telecom, Inc. (from September 1987 to
January 1991).
Mr. Rawson became Senior Vice President, General Counsel and Secretary of
the Company effective February 1, 1996. Previously, Mr. Rawson was Vice
President, Law -- AT&T Network Systems Group, a position to which he was named
in September 1992. From July 1984 to September 1992, Mr. Rawson was legal
counsel for various business units within AT&T.
Ms. Russo became President, Business Communications Systems of the Company
effective February 1, 1996. From May 1993 through January 1996, Ms. Russo held
the position of President, Global Business Communications Systems of AT&T. From
January 1992 to May 1993, Ms. Russo was Vice President, National Sales and
Service of AT&T Global Business Communications Systems. Prior to that time, Ms.
Russo held various senior positions in Marketing, Sales, and Customer Service
Operations within AT&T.
Mr. Stanzione became President, Network Systems Group and President, Bell
Laboratories effective February 1, 1996. Mr. Stanzione had held the position of
President, AT&T Bell Laboratories since January 1995. Previously, Mr. Stanzione
held the positions of President, Global Public Networks (from July 1994 to
January 1995) and President, Switching Systems (from November 1993 to July 1994)
both units of the AT&T Network Systems Group. From April 1992 to November 1993,
Mr. Stanzione held the position of Group Technical Officer and Corporate
Information Officer, AT&T Network Systems Group and from January 1989 to April
1992 Mr. Stanzione was President, Operations Systems of the AT&T Network Systems
Group.
Effective as of the Distribution, the seven directors who are officers or
employees but not directors of AT&T will resign from the Company Board. Prior to
the Distribution, the Corporate Governance and Compensation Committee of the
Company Board expects to identify a number of additional candidates not
affiliated with the Company or AT&T for election by the Company Board.
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ANNUAL MEETING
The By-Laws provide that annual meetings of stockholders will be held at
the Company's principal office or at such other place and on such date as may be
fixed from time to time by resolution of the Company Board. The first annual
meeting for which proxies will be solicited from stockholders will be held on
April 16, 1997.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company Board has established four committees: an Audit and Finance
Committee, a Corporate Governance and Compensation Committee, a Public Policy
Committee and a Development Committee. Each of Ms. Hills, Mr. Lewis, Mr. Perkins
and Mr. Thomas will serve on each of the four Committees.
The Audit and Finance Committee meets with management to consider the
adequacy of the internal controls and the objectivity of financial reporting.
The Audit and Finance Committee also meets with the independent auditors and
with appropriate financial personnel and internal auditors of the Company
regarding these matters. The Audit and Finance Committee recommends to the
Company Board the appointment of the independent auditors, subject to
ratification by the stockholders at the annual meeting. Both the internal
auditors and the independent auditors periodically will meet alone with the
Audit and Finance Committee and will have unrestricted access to the Audit and
Finance Committee. The Audit and Finance Committee also reviews the Company's
long-term plans and financings, and reports its recommendations to the full
Company Board for approval and to authorize action. The Audit and Finance
Committee will consist of directors who are not employees of the Company or
employees or directors of AT&T ("Non-Employee Directors"), together with the
Chief Executive Officer and the Chief Operating Officer, ex officio, neither of
whom will participate in Audit and Finance Committee meetings when audit matters
are discussed.
The Corporate Governance and Compensation Committee's functions include
recommending to the full Company Board nominees for election as directors of the
Company, making recommendations from time to time to the Company Board as to
matters of corporate governance, administering management incentive compensation
plans, including the 1996 LTIP, and making recommendations to the Company Board
with respect to the compensation of directors and officers of the Company. The
Corporate Governance and Compensation Committee also supervises the Company's
employee benefit plans. The Corporate Governance and Compensation Committee will
consist of Non-Employee Directors. It is expected that following the
Distribution, the Corporate Governance and Compensation Committee will be
reconstituted as the Executive, Corporate Governance and Compensation Committee,
which, between meetings of the Company Board, will be authorized to exercise all
the powers and authority of the Company Board in the management of the business
and affairs of the Company, except for powers reserved to the full board of
directors by the DGCL. At that time, it is expected that the Chief Executive
Officer and the Chief Operating Officer will become ex officio members of such
committee, but will not participate in Executive, Corporate Governance and
Compensation Committee meetings where compensation or benefit matters are
discussed.
The Development Committee is responsible for evaluating plans to develop
the overall strategic direction of the Company and for assessing the merits of
potential business ventures, plans and opportunities in order to make
recommendations to the Company Board in connection therewith.
The Public Policy Committee reviews matters concerning the policies,
practices and procedures of the Company that relate to public policy issues
facing the Company and its industry in general.
COMPENSATION OF DIRECTORS
As of the Closing Date, all Non-Employee Directors will receive an annual
retainer of $55,000. The chair of each committee will receive an additional
annual retainer of $10,000. Directors will not receive separate meeting fees.
One-half of the annual retainer and of the additional annual retainer for
committee chairs will be paid in Common Stock.
Pursuant to the Company's Deferred Compensation Plan for Directors,
Non-Employee Directors may defer all or a portion of their compensation to a
deferred compensation account (the "Account"). Directors
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may elect to defer all or part of the receipt of such compensation payable in
cash into a portion of the Account, the value of which is measured from time to
time by the value of the Common Stock (the "Company Shares Portion") or into a
cash portion of the Account (the "Cash Portion") and to defer all or part of the
receipt of such compensation payable in Common Stock into the Company Shares
Portion of the Account. The Company Shares Portion is credited on each dividend
payment date for Common Stock with a number of deferred shares of Common Stock
equivalent in market value to the amount of the quarterly dividend on the shares
then credited in the Account. The Cash Portion of the Account earns interest,
compounded quarterly, at an annual rate equal to the average interest rate for
ten-year United States Treasury notes for the previous quarter, plus 5%. All
distributions in respect of the Company Shares Portion are payable solely in
cash. For this purpose, the value of the deferred shares of Common Stock will be
equal to the average of the closing prices of the Common Stock on the five
consecutive trading days immediately prior to the payment date. In the event of
a potential change in control, the Company's Deferred Compensation Plan for
Directors will be supported by a benefits protection grantor trust, the assets
of which will be subject to the claims of the Company's creditors.
The Company also provides Non-Employee Directors with travel accident
insurance when on Company business. A Non-Employee Director may purchase life
insurance sponsored by the Company. The Company will share the premium expense
with the director; however, all the Company contributions will be returned to
the Company at the earlier of (a) the director's death or (b) the later of age
70 or 10 years from the policy's inception. This benefit will continue after the
Non-Employee Director's retirement from the Company Board.
The current Non-Employee Directors of the Company who formerly were
directors of AT&T are eligible for an annual retirement benefit under the AT&T
Retirement Plan for Outside Directors, equal to their annual retainer at
retirement from the AT&T Board, provided they attain five years of service. Such
Plan will be assumed by the Company with respect to such directors. The
directors' years of service as directors of both AT&T and the Company will be
credited in the determination of years of service. The benefit begins at the
later of age 70 or retirement and is payable for life. Except as set forth
herein, the Company does not have a retirement plan for Non-Employee Directors.
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<PAGE> 63
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
No present or future officer or director currently owns any shares of
Common Stock, all of which are currently owned by AT&T. Such directors and
officers will receive shares of Common Stock in the Distribution in respect of
shares of AT&T common stock, $1.00 par value ("AT&T Common Stock"), held by them
on the record date for the Distribution. In addition, AT&T Stock Awards will be
converted into comparable awards based on Common Stock under the 1996 LTIP as
described below. See "-- 1996 Company Long Term Incentive Plan" and
"Arrangements Between the Company and AT&T -- Employee Benefits Agreement." The
following table sets forth the number of shares of AT&T Common Stock
beneficially owned on March 1, 1996 by each of the Company's directors and
director nominees, the executive officers named in the Summary Compensation
Table below and all directors and executive officers of the Company as a group.
Except as otherwise noted, the individual director, director nominee or
executive officer or their family members had sole voting and investment power
with respect to such securities.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY DEFERRAL
NAME OWNED(1)(2) PLANS(3) TOTAL
- --------------------------------------------------------- ------------ ---------- ---------
<S> <C> <C> <C>
Henry B. Schacht......................................... 1,055 0 1,055
Richard A. McGinn........................................ 79,170 0 79,170
William B. Marx, Jr. .................................... 150,396 16,808 167,204
Daniel C. Stanzione...................................... 61,296 0 61,296
Patricia F. Russo........................................ 46,781 856 47,637
Carla A. Hills........................................... 400 3,061 3,461
Drew Lewis............................................... 4,000 0 4,000
Donald S. Perkins........................................ 3,251,450(4) 252 3,251,702
Franklin A. Thomas....................................... 1,115 2,511 3,626
Ephraim M. Brecher....................................... 36,459 0 36,459
Jim G. Kilpatric......................................... 62,499 12,526 75,025
Marc E. Manly............................................ 1,650 0 1,650
S. Lawrence Prendergast.................................. 27,637 0 27,637
Maureen B. Tart.......................................... 17,833 0 17,833
Florence L. Walsh........................................ 1,000 0 1,000
Paul J. Wondrasch........................................ 77,102 0 77,102
Directors and Executive Officers as a Group (25
persons)............................................... 4,061,541(5) 43,288 4,104,829
</TABLE>
- ---------------
(1) No individual director, director nominee or named executive officer
beneficially owns 1% or more of the AT&T Common Stock, nor do the directors
and executive officers as a group.
(2) Includes beneficial ownership of the following number of shares of AT&T
Common Stock which may be acquired within 60 days of March 1, 1996 pursuant
to stock options awarded under employee incentive compensation plans of
AT&T: Mr. Schacht - 0; Mr. McGinn - 69,653; Mr. Marx - 147,238; Mr.
Stanzione - 58,541; Ms. Russo - 44,075; Mr. Brecher - 34,059; Mr.
Kilpatric - 57,707; Mr. Manly -- 1,550; Mr. Prendergast - 25,827; Ms.
Tart - 17,697; Ms. Walsh - 1,000; Mr. Wondrasch - 61,673; and all other
executive officers as a group - 214,024.
(3) Reflects share units representing AT&T Common Stock held in elective
deferred compensation accounts.
(4) Mr. Perkins as an investment company trustee has shared voting and
investment power over 3,251,450 shares of AT&T Common Stock reflected
above.
(5) Includes beneficial ownership of 733,044 shares of AT&T Common Stock which
may be acquired within 60 days of March 1, 1996 pursuant to stock options
awarded under employee incentive compensation plans as well as 3,251,450
shares over which they have sole or shared voting and investment power as
trustees.
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<PAGE> 64
Options to purchase Common Stock and other stock-based awards may be
granted to directors, officers and other key employees of the Company in the
future under the 1996 LTIP. See "-- 1996 Company Long Term Incentive Plan."
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for the
chief executive officer and the four other executive officers of the Company as
of February 1, 1996 who, based on employment with AT&T and its subsidiaries,
were the most highly compensated for the year ended December 31, 1995. All of
the information set forth in this table reflects compensation earned by such
individuals for services with AT&T and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION(2)
ANNUAL COMPENSATION(2) AWARDS PAYOUTS
------------------------------------------------------------------------------------------------------------------
AT&T ALL
OTHER RESTRICTED AT&T OTHER
ANNUAL STOCK AT&T LTIP COMPEN-
NAME AND SALARY BONUS COMPEN- AWARD(S) OPTIONS/ PAYOUTS SATION
PRINCIPAL POSITION(1) YEAR ($) ($) SATION($)(3) ($)(4)(C) SARS(#) ($)(5) ($)(6)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Henry B. Schacht(7) 1995 0 0 0 0 0 0 0
Chairman of the Board 1994 0 0 0 0 0 0 0
and Chief Executive 1993 0 0 0 0 0 0 0
Officer
Richard A. McGinn 1995 469,400 517,200 70,637 501,897(4)(a) 36,504 158,712 31,991
President and Chief 1994 373,525 562,300 49,450 0 28,654 152,302 23,659
Operating Officer 1993 304,167 224,800 31,351 0 16,241 61,367 17,653
William B. Marx, Jr. 1995 659,000 440,500 176,782 530,389(4)(a) 138,484 523,783 62,500
571,500(4)(b)
Senior Executive 1994 598,000 830,400 134,662 0 30,220 502,640 51,408
Vice President 1993 545,000 452,067 96,130 0 30,220 226,725 51,378
Daniel C. Stanzione 1995 336,000 314,000 57,551 280,445(4)(a) 219,692 108,450 28,169
1,079,500(4)(b)
President -- Bell Labs; 1994 278,000 283,500 39,410 0 9,165 104,071 22,717
President -- Network
Systems 1993 246,000 142,500 28,336 0 9,165 62,942 25,356
Patricia F. Russo 1995 301,000 339,000 44,617 155,222(4)(a) 70,330 92,598 23,985
844,800(4)(b)
President, Business 1994 273,000 293,000 28,709 0 9,165 88,856 18,670
Communications Systems 1993 238,667 103,200 19,088 0 9,165 51,550 21,915
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Includes Chairman of the Board and Chief Executive Officer and the four
other most highly compensated executive officers as measured by salary and
bonus.
(2) Compensation deferred at the election of named officers is included in the
category (e.g., bonus, LTIP payouts) and year it would have otherwise been
reported had it not been deferred.
(3) Includes (a) payments of above-market interest on deferred compensation, (b)
dividend equivalents paid with respect to long-term performance shares prior
to end of three-year performance period, and other earnings on long-term
incentive compensation paid during the year, (c) tax payment reimbursements,
and (d) the value of personal benefits and perquisites.
(4) (a) On January 1, 1995, awards classified as performance share awards under
the 1987 Plan (the "Three Year Awards") were granted to Messrs. McGinn, Marx
and Stanzione and to Ms. Russo. At the time of such grant, the payout of
such awards was tied to achieving specific levels of return-to-equity
("RTE"). The target amount would be earned if 100% of the targeted RTE rate
is achieved. At its December 1995 meeting, the Compensation Committee of the
AT&T Board of Directors recommended and approved that the performance
amounts for the 1995-1997 performance cycle be deemed to have been met at
the target level. This action was taken in acknowledgment that AT&T's
restructuring had rendered the original performance criteria inapplicable
and of the difficulty of establishing revised criteria while the
restructuring was in progress. Awards will be distributed as common stock,
or as cash in such an amount equal to the value of these shares, or partly
in common stock and partly in cash. As a result of such action, such Three
Year Awards will vest in one installment and be payable in the first quarter
of 1998 if
61
<PAGE> 65
the holder remains in the employ of the Company for the three full years
ending December 31, 1997, with certain exceptions in the case of death,
disability or retirement. Dividend equivalents on such awards are paid in
cash to holders thereof. The number of shares of AT&T Common Stock
represented by Three Year Awards for the 1995-1997 cycle for Messrs. McGinn,
Marx and Stanzione and Ms. Russo, respectively, were 9,988, 10,555, 5,581
and 3,089. The value of such awards at the date of grant is reflected in the
Table above. In addition, on December 31, 1995, Mr. McGinn held an
outstanding grant of restricted stock of 5,000 shares.
A similar determination was made by such Compensation Committee with
respect to the 1994-1996 cycle Three Year Awards with the result that such
awards will vest in one installment and be payable in the first quarter of
1997 if the holder remains in the employ of the Company for the three full
years ending December 31, 1996, subject to the same exceptions. The number
of shares of AT&T Common Stock represented by the 1994-1996 Three Year
Awards for Messrs. McGinn, Marx and Stanzione and Ms. Russo, respectively,
were 8,317, 8,783, 2,661 and 2,661.
(b) On September 25, 1995, an award of restricted stock units was granted to
Messrs. Marx and Stanzione and on October 31, 1995 to Ms. Russo as part of
an AT&T special equity incentive/retention program in amounts of 9,000
units, 17,000 units and 13,200 units, respectively. The value at the
respective date of grant of these restricted stock units is reflected in the
Table above. These grants vest four years after the date of grant and carry
stringent penalties for competition and other specified adverse activities.
Dividends on such shares are paid in cash to holders thereof.
(c) The aggregate value at December 31, 1995 of the Three Year Awards for
the 1994-1996 cycle and the 1995-1997 cycle and for outstanding restricted
stock awards for Messrs. McGinn, Marx and Stanzione and Ms. Russo,
respectively was $1,508,999, $1,834,886, $1,634,420 and $1,227,013.
(5) Includes distribution in 1995 to Messrs. McGinn, Marx and Stanzione, and Ms.
Russo of performance shares where three-year performance period ended
December 31, 1994.
(6) In 1995, includes (a) Company contributions to savings plans (Mr. McGinn
$6,000, Mr. Marx $6,000, Mr. Stanzione $6,000 and Ms. Russo $6,000, (b)
dollar value of the benefit of premiums paid for split-dollar life insurance
policies (unrelated to term life insurance coverage) projected on an
actuarial basis (Mr. McGinn $17,409, Mr. Marx $38,756, Mr. Stanzione
$17,088, and Ms. Russo $13,151), and (c) payments equal to lost AT&T savings
match caused by IRS limitations (Mr. McGinn $8,582, Mr. Marx $17,744, Mr.
Stanzione $5,081, and Ms. Russo $4,834).
(7) Mr. Schacht became Chief Executive Officer of the Company on February 1,
1996. The Company did not have a Chief Executive Officer prior to Mr.
Schacht's appointment. For a description of Mr. Schacht's 1995 and 1996
compensation arrangements, see "-- Other Employment Arrangements."
OPTION AND SAR GRANTS OF AT&T COMMON STOCK TO EXECUTIVE OFFICERS
The following tables disclose information regarding stock options and stock
appreciation rights granted to the executive officers named in the above Summary
Compensation Table in respect of shares of AT&T Common Stock under the AT&T 1987
Long Term Incentive Plan (the "1987 Plan").
62
<PAGE> 66
AGGREGATED OPTION/STOCK APPRECIATION RIGHTS
EXERCISES IN 1995 AND YEAR-END VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT YEAR END AT YEAR END
(#)(2) ($)(2)
SHARES ACQUIRED VALUE REALIZED ------------------------- -------------------------
NAME(1) ON EXERCISE(#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------- --------------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Henry B. Schacht.......... 0 0 0 0
0 0
Richard A. McGinn......... 0 0 57,485 752,896
55,254 780,683
William B. Marx, Jr....... 84,046 1,983,425 134,410 2,352,580
225,984 1,593,198
Daniel C. Stanzione....... 1,350 52,023 51,977 1,217,027
242,192 807,663
Patricia F. Russo......... 0 0 40,465 857,003
70,330 226,003
</TABLE>
- ---------------
(1) Includes Chairman of the Board and Chief Executive Officer and the four
other most highly compensated executives officers as measured by salary and
bonus. Sets forth information regarding options/stock appreciation rights
regardless of year of grant.
(2) None of the options set forth in the table above have stock appreciation
rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------
NUMBER OF
SHARES GRANT
UNDERLYING % OF TOTAL DATE
OPTIONS OPTIONS EXERCISE PRESENT
GRANTED GRANTED TO PRICE EXPIRATION VALUE
NAME(1) #(2) EMPLOYEES(3) ($/SH) DATE ($)(4)
- ---------------------------------------- ---------- ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Henry B. Schacht........................ 0 0 0 0 0
Richard A. McGinn....................... 36,504 .28% 49.9375 1/3/05 384,752
William B. Marx, Jr..................... 38,484 1.04% 49.9375 1/3/05 405,621
100,000 63.5000 9/25/05 1,294,000
Daniel C. Stanzione..................... 19,692 1.65% 49.9375 1/3/05 207,554
200,000 63.5000 9/25/05 2,588,000
Patricia F. Russo....................... 10,830 0.53% 49.9375 1/3/05 114,148
59,500 63.5000 10/31/05 769,930
</TABLE>
- ---------------
(1) Includes Chairman of the Board and Chief Executive Officer and the four
other most highly compensated executive officers as measured by salary and
bonus.
(2) Includes the regular annual grant of options as well as a special equity
incentive/retention grant following the announcement of AT&T intended
restructuring. Options granted January 3, 1995, become exercisable to the
extent of one-third of the grant on January 3, 1996, January 3, 1997, and
January 3, 1998, respectively. Options granted September 25, 1995 and
October 31, 1995, become exercisable four years after the date of grant
provided that applicable price performance criteria have been satisfied.
Irrespective of price performance, all options granted on September 25, 1995
and October 31, 1995 will vest 6 years after the date of grant.
(3) Percent of total options granted based on total options granted to AT&T
employees.
(4) In accordance with Securities and Exchange Commission rules, the
Black-Scholes option pricing model was chosen to estimate the grant date
present value of the options set forth in this table. The Company's use of
this model should not be construed as an endorsement of its accuracy at
valuing options. All stock option valuation models, including the
Black-Scholes model, require a prediction about the future
63
<PAGE> 67
movement of the stock price. The following assumptions were made for
purposes of calculating the Grant Date Present Value: for the January grant,
an option term of 7 years, volatility at .1769, dividend yield at 2.77%,
interest rate at 7.83%, and a 3% per year discount for each year in the
vesting period for risk of forfeiture over the 3-year vesting schedule, and
for the September and October grants, an option term of 7 years, volatility
at .1572, dividend yield at 2.66%, interest rate at 6.40%, and a 3% per year
discount for each year in the vesting period for risk of forfeiture over the
4-year vesting schedule. The real value of the options in this table depends
upon the actual performance of the Company's stock and, after the
Distribution, the Common Stock, during the applicable period.
PENSION PLANS
Prior to the Distribution, the Company's management employees will be
participants in AT&T's Management Pension Plan (the "AT&T Management Pension
Plan"). Effective at the time of the Distribution, the Company will adopt a
management pension plan (the "Company Management Pension Plan") that will
replicate, in all material respects, the AT&T Management Pension Plan and that
will be a non-contributory pension plan which covers all management employees,
including Mr. McGinn, Mr. Marx, Mr. Stanzione and Ms. Russo. The Company also
will adopt non-contributory supplementary pension plans which will replicate in
all material respects AT&T's supplementary pension plans. The following is a
summary description of the expected terms of the Company Management Pension
Plan. Participants will be given full credit under the Company Management
Pension Plan for service and compensation accrued under the AT&T Management
Pension Plan. The normal retirement age under the Company Management Pension
Plan is 65; however, retirement before age 65 can be elected under certain
conditions.
Under the Company Management Pension Plan, annual pensions will be computed
on an adjusted career average pay basis. The adjusted career average pay formula
will be the sum of (a) 1.6% of the average annual pay for the six years ending
December 31, 1992, times the number of years of service prior to January 1,
1993, plus (b) 1.6% of pay subsequent to December 31, 1992. Only the basic
salary will be taken into account in the formula used to compute pension
amounts.
Federal laws place limitations on pensions that may be paid from the
pension trust related to the Company Management Pension Plan. Pension amounts
based on the Company Management Pension Plan formula which exceed the applicable
limitations will be paid under the Company's supplemental pension plans (the
"Supplemental Plans") rather than under the Company Management Pension Plan.
Such amounts will be treated for accounting purposes as an operating expense of
the Company.
Prior to the Distribution, certain of the Company's employees will be
participants in AT&T's Non-Qualified Pension Plan (the "AT&T Non-Qualified
Plan"). Effective at the time of the Distribution, the Company will adopt a
non-qualified pension plan (the "Company Non-Qualified Plan") that will
replicate, in all material respects, the AT&T Non-Qualified Plan, and under
which annual pensions for Mr. McGinn, Mr. Marx, Mr. Stanzione, Ms. Russo and
other senior managers will be computed based primarily on actual annual bonus
awards under the Company's short-term incentive plan. Participants will be given
full credit under the Company Non-Qualified Plan for service and compensation
under the AT&T Non-Qualified Plan.
Under the Company Non-Qualified Plan, pension benefits generally will
commence at the same time as benefits under the Company Management Pension Plan.
The annual pension amounts payable under the Company Non-Qualified Plan will be
equal to the greater of the amounts computed under the Basic or Alternate
Formula described below.
Basic Formula:
The sum of (a) 1.5% of the average of the actual annual bonus awards for
the three-year period ending December 31, 1989, times the number of years
of service prior to January 1, 1990, plus (b) 1.6% of the actual annual
bonus awards subsequent to December 31, 1989.
Alternate Formula:
The excess of (a) 1.7% of the adjusted career average pay, over (b) 0.8% of
the covered compensation base, times years of service to retirement, minus
the benefit calculated under the Company Management Pension Plan formula
(without regard to limitations imposed by the IRS). For purposes of this
formula,
64
<PAGE> 68
adjusted career average pay will be determined by dividing the sum of the
employee's total adjusted career income by the employee's actual term of
employment at retirement. Total adjusted career income is the sum of (A)
and (B), where (A) is the sum of (i) employee's years of service prior to
January 1, 1993, multiplied by the employee's average annual compensation
(within the meaning of the Company Management Pension Plan) for the
three-year period ending December 31, 1992, without regard to the
limitations imposed by the Code, plus (ii) the employee's years of service
prior to January 1, 1990, multiplied by the average of the employee's
actual annual bonus awards for the three-year period ending December 31,
1989, and (B) is the sum of the employee's actual compensation (within the
meaning of the Company Management Pension Plan) after December 31, 1992,
without regard to the limitations imposed by the Code, and actual annual
bonus awards subsequent to December 31, 1989. The covered compensation base
used in this formula is the average of the maximum wage amount on which an
employee was liable for social security tax for each year beginning with
1961 and ending with 1995. In 1995, the covered compensation base was
$25,800.
An Alternative Minimum Formula ("AMF") will apply to active senior managers
with five years of service who were participants in the predecessor to the AT&T
Non-Qualified Plan as of December 31, 1993. The annual pension amount payable
under the AMF will be equal to the greater of the amounts computed under
Formulas A and B plus an additional percent increase factor as described below:
Formula A:
The sum of (a) 1.5% of the average of the total compensation for the
three-year period ending December 31, 1992, times the number of years of
service prior to January 1, 1993, plus (b) 1.6% of the total compensation
from January 1, 1993, to December 31, 1993. For purposes of this Formula A,
total compensation will be basic salary plus actual annual bonus awards.
The pension amounts resulting from this Formula A will be reduced to
reflect retirements prior to age 55.
Formula B:
The excess of (a) 1.7% of the adjusted career average pay, over (b) 0.8% of
the covered compensation base, times years of service to December 31, 1993.
For purposes of this Formula B, adjusted career average pay is determined
by dividing the sum of the employee's total adjusted career income used for
purposes of Formula A, by the employee's actual term of employment to
December 31, 1993. The covered compensation base used in this Formula B is
the average of the maximum wage amounts on which an employee was liable for
social security tax for each year beginning with 1959 and ending with 1993.
In 1993, the covered compensation base was $22,800. The pension amounts
resulting from this Formula B will be reduced to reflect retirements prior
to age 60.
An additional percent increase factor based on age and service is applied
to the pension amount resulting from the higher of Formula A or B. The total AMF
pension results in a fixed benefit and such amount will be reduced by the amount
payable under the Company Management Pension Plan. It is anticipated that after
1997, a senior manager's normal pension increases resulting from additional age
and service as well as possible future pension plan amendments could cause the
regular accrued pension benefit (under the Basic or Alternative Formulas above)
to exceed the fixed AMF benefit. Pensions resulting from the AMF will be payable
under the Company Non-Qualified Plan.
Pension amounts under either the Company Management Pension Plan formula or
the Company Non-Qualified Plan are not subject to reductions for social security
benefits or other offset amounts. If Mr. McGinn, Mr. Marx, Mr. Stanzione and Ms.
Russo continue in the positions above and retire at normal retirement age, the
estimated annual pension amounts payable under the Company Management Pension
Plan formula and the Company Non-Qualified Plan (including any amounts that may
be payable pursuant to the Supplemental Plans) would be $305,400, $228,900;
$314,800, $256,800; $219,800, $114,200; and $287,600, $152,000, respectively.
Amounts shown are straight-life annuity amounts not reduced by a joint and
survivorship provision which is available to the officers named. Mr. Schacht,
based on age at hire and current mandatory retirement age practices, would have
insufficient service to vest in any Company qualified or non-qualified pension
plans.
65
<PAGE> 69
The Company has reserved the right to purchase annuity contracts to satisfy
its unfunded obligations to any of these officers under the Company
Non-Qualified Plan. In the event the Company purchases an annuity contract for
any officer, the pension payments for such officer will vary from those set
forth above. In such event, there would be a tax gross-up payment to the officer
and annuity benefits paid by the annuity provider will be reduced to offset the
tax gross-up payment. The after-tax pension benefit will be the same as the
after-tax benefit the participant would otherwise have received under the
Company Non-Qualified Plan.
Certain of the Company's non-qualified executive benefit plans will be
supported by a benefits protection grantor trust, the assets of which are
subject to the claims of the Company's creditors. In the event of a "Change in
Control" or "Potential Change in Control" of the Company (as such terms are
defined therein), certain additional funds might be required to be contributed
to such trust to support benefits under such plans.
OTHER EMPLOYMENT ARRANGEMENTS
Mr. Schacht became Chief Executive Officer of the Company on February 1,
1996. During 1995, Mr. Schacht did not receive any compensation as an employee
of either the Company or AT&T. However, he received $264,516 for consulting
services rendered from October 12, 1995 through December 31, 1995. It is
expected that Mr. Schacht will receive a salary for 1996 equal to $900,000. He
will also be eligible for an incentive bonus award, which, assuming achievement
of target levels, would result in a payment of an additional $1,118,000. In
addition, in January 1996, the Compensation Committee of the AT&T Board of
Directors awarded Mr. Schacht stock units representing 20,090 shares of AT&T
Common Stock and options to acquire 72,672 shares of AT&T Common Stock under the
1987 Plan. Such stock units vest in one installment at the end of three years.
Such options have an exercise price of $66.8125 per share of AT&T Common Stock,
vest in equal installments over three years, and have a term of 10 years from
the date of grant. At the time of the Distribution, such stock units and stock
options will be converted into Awards based on shares of Common Stock, as more
fully set forth below under "Arrangements Between the Company and
AT&T -- Employee Benefits Agreement."
1996 COMPANY LONG TERM INCENTIVE PLAN
The Company intends to adopt, with the approval of AT&T in its capacity as
the sole stockholder of the Company, the 1996 LTIP. After the Distribution, the
1996 LTIP will be administered by the Compensation Subcommittee of the
Executive, Corporate Governance and Compensation Committee of the Company Board
(the "Compensation Committee"). In order to ensure that compensation paid
pursuant to the 1996 LTIP can qualify as "performance-based compensation" not
subject to the limitation on deductibility of certain executive compensation in
excess of $1 million, the Company intends to seek stockholder approval of the
1996 LTIP at either its 1997 or 1998 annual meeting of stockholders. Such
stockholder approval is not required for any other purpose. The following
description of the 1996 LTIP is qualified by reference to the full text thereof,
a copy of which will be filed as an exhibit to the Registration Statement. See
"Available Information."
Awards
The 1996 LTIP provides for the grant of incentive stock options that
qualify under Section 422 of the Code ("ISOs") and non-statutory stock Options,
SARs, Restricted Stock Awards, Performance Awards, Other Stock Unit Awards (as
such terms are defined herein), and any other right, interest, or option
relating to shares of Common Stock or other securities of the Company
(collectively, "Awards"). No determination has yet been made as to the number of
employees of the Company who will be eligible to participate in the 1996 LTIP.
However, as described under "Arrangements Between the Company and
AT&T -- Employee Benefits Agreement," employees of the Company who hold AT&T
Stock Awards (approximately 1,400 persons as of March 1, 1996) are expected to
receive in substitution therefor, following consummation of the Distribution,
Awards under the 1996 LTIP (the "Substitute Awards"). Although the Company
expects that, in addition to the Substitute Awards, Awards will be made from
time to time after the Distribution under the 1996 LTIP, no determinations have
yet been made in that regard.
66
<PAGE> 70
Shares Available
The 1996 LTIP contains a formula for establishing an annual limit on the
number of shares of Common Stock which may be awarded (or with respect to which
non-stock Awards may be made) in any given calendar year, except that Substitute
Awards will not be counted against such limit. Subject to customary
anti-dilution adjustments, the total number of shares of Common Stock available
for grant under the 1996 LTIP in each calendar year is 1.2% of the total
outstanding shares of Common Stock as of the first day of such year for which
the 1996 LTIP is in effect (except that for 1996, the number of shares of Common
Stock outstanding immediately after the Offerings will be used); provided that
such number will be increased in any year by the number of shares of Common
Stock available for grant under the 1996 LTIP in previous years but not covered
by Awards granted thereunder in such years; provided, further; that no more than
50 million shares of Common Stock will be cumulatively available for the grant
of ISOs. Any shares of Common Stock issued by the Company through the assumption
or substitution of outstanding grants from an acquired company ("Rollover
Awards") will not reduce the number of shares of Common Stock available for
grants thereunder. In addition, no one individual may be granted Awards with
respect to more than 1,000,000 shares of Common Stock in any one year (not
including Substitute Awards). Any shares of Common Stock issued under the 1996
LTIP (including in connection with Substitute Awards) may consist, in whole or
in part, of authorized and unissued shares or treasury shares or shares
purchased in the open market. If any shares of Common Stock subject to any Award
are forfeited or such Award otherwise terminates without the issuance of such
shares of Common Stock or of other consideration in lieu of such shares, the
shares subject to such Award, to the extent of any such forfeiture or
termination, will again be available for grant under the 1996 LTIP. In the event
of any merger, reorganization, consolidation, recapitalization, stock dividend,
stock split, reverse stock split, spin off or similar transaction or other
change in corporate structure affecting the shares of Common Stock, such
adjustments and other substitutions will be made to the 1996 LTIP and to Awards
as the Compensation Committee in its sole discretion deems equitable or
appropriate, including without limitation such adjustments in the aggregate
number, class and kind of shares of Common Stock which may be delivered under
the 1996 LTIP, in the aggregate or to any one Participant, in the number, class,
kind and option or exercise price of shares of Common Stock subject to
outstanding Options, SARs or other Awards granted under the 1996 LTIP, and in
the number, class and kind of shares of Common Stock subject to Awards granted
under the 1996 LTIP (including, if the Compensation Committee deems appropriate,
the substitution of similar options to purchase the shares of, or other awards
denominated in the shares of, another company), as the Compensation Committee
may determine to be appropriate in its sole discretion, provided that the number
of shares of Common Stock or other securities subject to any Award shall always
be a whole number.
Corporate Governance and Compensation Committee
The Compensation Committee, which is comprised of Non-Employee Directors,
none of whom may receive any Awards under the 1996 LTIP, will administer the
1996 LTIP after the Distribution. See "-- Committees of the Board of Directors."
The Compensation Committee will have full power and authority, subject to such
orders or resolutions not inconsistent with the provisions of the 1996 LTIP as
may from time to time be adopted by the Company Board, (i) to select the
employees of the Company and its affiliates to whom Awards may from time to time
be granted (the "Participants"); (ii) to determine the type or types of Award to
be granted to each Participant; (iii) to determine the number of shares of
Common Stock to be covered by each Award; (iv) to determine the terms and
conditions, not inconsistent with the provisions of the 1996 LTIP of any Award;
(v) to determine whether, to what extent and under what circumstances Awards may
be settled in cash, shares of Common Stock or other property or canceled or
suspended; (vi) to determine whether, to what extent and under what
circumstances cash, shares of Common Stock and other property and other amounts
payable with respect to an Award will be deferred either automatically or at the
election of the Participant; (vii) to interpret and administer the 1996 LTIP and
any instrument or agreement entered into thereunder; (viii) to establish such
rules and regulations and appoint such agents as it may deem appropriate for the
proper administration thereof; and (ix) to make any other determination and take
any other action that the Compensation Committee deems necessary or desirable
for administration of the 1996 LTIP.
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Substitute Awards
Pursuant to the Employee Benefits Agreement, Substitute Awards will be
issued to employees of the Company following the Distribution in exchange for
AT&T Stock Awards. The terms and conditions of each Substitute Award, including,
without limitation, the time or times when, and the manner in which, each Option
or SAR constituting a Substitute Award will be exercisable, the duration of the
exercise period, the permitted method of exercise, settlement and payment, the
rules that will apply in the event of the termination of employment of the
employee, the events, if any, that may give rise to an employee's right to
accelerate the vesting or the time of exercise thereof and the vesting
provisions of any Restricted Stock Award or Performance Award constituting
Substitute Awards, will be the same as those of the surrendered or forfeited
AT&T Stock Award. See "Arrangements Between the Company and AT&T -- Employee
Benefits Agreement."
Options; Stock Appreciation Rights
Options to purchase Common Stock ("Options") may be granted under the 1996
LTIP, either alone or in addition to other Awards. Except in the case of
Substitute Awards and Rollover Awards, the purchase price per share of Common
Stock purchasable under an Option will be determined by the Compensation
Committee, in its sole discretion; provided that such purchase price will not be
less than the Fair Market Value (as defined in the 1996 LTIP) of a share of
Common Stock on the date of the grant of the Option. The term of each Option
will be fixed by the Compensation Committee in its sole discretion; provided
that no ISO will be exercisable after the expiration of 10 years from the date
the Option is granted. Options will be exercisable at such time or times as
determined by the Compensation Committee at or subsequent to grant. Unless
otherwise determined by the Compensation Committee at or subsequent to grant, no
ISO will be exercisable during the year ending on the day before the first
anniversary date of the granting of the ISO. Subject to the other provisions of
the 1996 LTIP and any applicable Award agreement, any Option may be exercised by
the Participant, in whole or in part, at such time or times, and the Participant
may make payment of the option price in such form or forms, including, without
limitation, payment by delivery of cash, shares of Common Stock or other
consideration (including, where permitted by law and the Compensation Committee,
Awards) having a Fair Market Value on the exercise date equal to the total
option price, or by any combination of cash, shares of Common Stock and other
consideration as the Compensation Committee may specify in the applicable Award
agreement.
In accordance with rules and procedures established by the Compensation
Committee, the aggregate Fair Market Value (determined as of the time of grant)
of the shares of Common Stock with respect to which ISOs held by any Participant
and exercisable for the first time by such Participant during any calendar year
under the 1996 LTIP (and under any other benefit plans of the Company or of any
parent or subsidiary corporation of the Company) will not exceed $100,000 or, if
different, the maximum limitation in effect at the time of grant under Section
422 of the Code, or any successor provision, and any regulations promulgated
thereunder. In its sole discretion, the Compensation Committee may provide, at
the time of grant, that the shares to be issued upon an Option's exercise will
be in the form of restricted stock or other similar securities, or may reserve
the right so to provide after the time of grant. SARs may be granted to
Participants either alone or in addition to other Awards and may, but need not,
relate to a specific Option. The provisions of SARs need not be the same with
respect to each recipient. Any SAR related to an Option other than an ISO may be
granted at the same time such Option is granted or at any time thereafter before
exercise or expiration of such Option. Any SAR related to an ISO must be granted
at the same time such Option is granted. In the case of any SAR related to any
Option, the SAR or applicable portion thereof will terminate and no longer be
exercisable upon the termination or exercise of the related Option, except that
any SAR granted with respect to less than the full number of shares of Common
Stock covered by a related Option will not be reduced except to the extent that
the number of shares affected by the exercise or termination of the related
Option exceeds the number of shares not covered by the SAR. Any Option related
to any SAR will no longer be exercisable to the extent the related SAR has been
exercised. The Compensation Committee may impose such conditions or restrictions
on the exercise of any SAR as it may deem appropriate.
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Performance Shares
Performance-based equity awards ("Performance Awards") may be issued to
Participants, for no cash consideration or for such minimum consideration as may
be required by applicable law, either alone or in addition to other Awards
granted under the 1996 LTIP. The performance criteria to be achieved during any
Performance Period (as defined in the 1996 LTIP) and the length of the
Performance Period will be determined by the Compensation Committee upon the
grant of each Performance Award. With certain exceptions, Performance Awards
will be distributed only after the end of the relevant Performance Period.
Performance Awards may be paid in cash, shares of Common Stock, other property
or any combination thereof, in the sole discretion of the Compensation Committee
at the time of payment. The performance levels to be achieved for each
Performance Period and the amount of the Performance Award to be distributed
will be conclusively determined by the Compensation Committee. Performance
Awards may be paid in a lump sum or in installments following the close of the
Performance Period or, in accordance with procedures established by the
Compensation Committee, on a deferred basis.
Other Stock Unit Awards
Other Awards of shares of Common Stock and other Awards that are valued in
whole or in part by reference to, or are otherwise based on, shares of Common
Stock or other property ("Other Stock Unit Awards") may be granted to
Participants, either alone or in addition to other Awards. Other Stock Unit
Awards may be paid in shares of Common Stock, other securities of the Company,
cash or any other form of property as the Compensation Committee may determine.
Subject to the provisions of the 1996 LTIP, the Compensation Committee will have
sole and complete authority to determine the employees of the Company and its
affiliates to whom, and the time or times at which, such Awards will be made,
the number of shares of Common Stock to be granted pursuant to such Awards, and
all other conditions of the Awards. The provisions of Other Stock Unit Awards
need not be the same with respect to each recipient.
Shares of Common Stock (including securities convertible into shares of
Common Stock) granted as Other Stock Unit Awards may be issued for no cash
consideration or for such minimum consideration as may be required by applicable
law; shares of Common Stock (including securities convertible into such shares)
purchased pursuant to a purchase right granted as an Other Stock Unit Award will
be purchased for such consideration as the Compensation Committee may, in its
sole discretion, determine, which (other than in the case of Substitute Awards
or Rollover Awards) will not be less than the Fair Market Value of such shares
of Common Stock or other securities as of the date such purchase right is
awarded.
Restricted Shares
Restricted stock awards ("Restricted Stock Awards") may be issued to
Participants, for no cash consideration or for such minimum consideration as may
be required by applicable law, either alone or in addition to other Awards
granted under the 1996 LTIP. The provisions of Restricted Stock Awards need not
be the same with respect to each recipient. Except as otherwise determined by
the Compensation Committee at the time of grant, upon termination of employment
for any reason during the restriction period, all Restricted Stock Awards still
subject to restriction will be forfeited by the Participant and reacquired by
the Company; provided that, in the event of a Participant's retirement,
permanent disability, other termination of employment or death, or in cases of
special circumstances, the Compensation Committee may, in its sole discretion,
when it finds that a waiver would be in the best interests of the Company,
waive, in whole or in part, any or all remaining restrictions with respect to
such Participant's Restricted Stock Awards.
Change in Control
The 1996 LTIP provides, that unless the Compensation Committee determines
otherwise at the time of grant with respect to a particular Award, in the event
of a Change in Control (as defined below), with certain exceptions, (i) any
Options and SARs outstanding as of the date such Change in Control will become
fully exercisable and vested to the full extent of the original grant; (ii) the
restrictions and deferral limitations applicable to any Restricted Stock Awards
will lapse; (iii) all Performance Awards will be considered to be
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earned and payable in full, and any deferral or other restriction will lapse and
such Performance Awards will be immediately settled or distributed; and (iv) the
restrictions and deferral limitations and other conditions applicable to any
Other Stock Awards or any other Awards will lapse, and such Other Stock Awards
or such other Awards will become free of all restrictions, limitations or
conditions and become fully vested and transferable to the full extent of the
original grant.
The 1996 LTIP also provides, with certain exceptions, that, if determined
by the Compensation Committee at or after the time of grant, during the 60-day
period from and after a Change in Control (the "Exercise Period"), a Participant
holding an Option will have the right, whether or not the Option is fully
exercisable and in lieu of the payment of the purchase price for the shares of
Common Stock being purchased under the Option and by giving notice to the
Company, to elect (within the Exercise Period) to surrender all or part of the
Option to the Company and to receive cash, within 30 days of such notice, in an
amount equal to the amount by which the Change in Control Price (as defined
below) per share of the Common Stock on the date of such election exceeds the
purchase price per share under the Option multiplied by the number of Shares
granted under the Option as to which such right has been exercised.
The 1996 LTIP defines "Change in Control" to mean, with certain exceptions,
the happening of any of the following events: (i) an acquisition by any
individual, entity or group of beneficial ownership of 20% or more of either (A)
the then outstanding shares of Common Stock or (B) the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors; or (ii) a change in the composition of the Board
such that the individuals who, as of the Distribution, constitute the Board
cease for any reason to constitute at least a majority of the Board; or (iii)
the approval by the stockholders of the Company of a merger, reorganization or
consolidation or sale of other disposition of all or substantially all of the
assets of the Company (each, a "Corporate Transaction") or, if consummation of
such Corporate Transaction is subject, at the time of such approval by
stockholders, to the consent of any government or governmental agency, the
obtaining of such consent (either explicitly or implicitly by consummation); or
(iv) the approval of the stockholders of the Company of a complete liquidation
or dissolution of the Company.
The 1996 LTIP defines "Change in Control Price", with certain exceptions,
as the higher of (i) the highest price of a share of Common Stock during the
60-day period prior to and including the date of a Change in Control or (ii) if
the Change in Control is the result of a tender or exchange offer or a Corporate
Transaction, the highest price per share of Common Stock paid in such tender or
exchange offer or Corporate Transaction.
Other Provisions
The Company Board may amend, alter or discontinue the 1996 LTIP, but no
amendment, alteration, or discontinuation may be made that would impair rights
under an Award theretofore granted without the Participant's consent, or that,
without the approval of the stockholders, would (a) except pursuant to the
provisions providing for anti-dilution adjustments, increase the total number of
shares of Common Stock reserved thereunder; (b) change the employees or class of
employees eligible to participate therein; or (c) prevent the Company from
fulfilling its obligations with respect to Substitute Awards pursuant to the
Employee Benefits Agreement. The Compensation Committee may amend the terms of
any Award theretofore granted, prospectively or retroactively, but no such
amendment may impair the rights of any Participant without his or her consent.
The Compensation Committee may also substitute new Awards for previously granted
Awards, including, without limitation, previously granted Options having higher
Option prices.
The Compensation Committee will be authorized to make adjustments in
Performance Award criteria or in the terms and conditions of other Awards in
recognition of unusual or nonrecurring events affecting the Company or its
financial statements or changes in applicable laws, regulations or accounting
principles. The Compensation Committee may also establish certain procedures
providing for the deferral of the payment of any Award and the delivery of
shares of Common Stock in satisfaction of withholding tax obligations.
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Subject to the provisions of the 1996 LTIP and any Award agreement, the
recipient of an Award (including, without limitation, any deferred Award) may,
if so determined by the Compensation Committee, be entitled to receive,
currently or on a deferred basis, interest or dividends, or interest or dividend
equivalents, with respect to the number of shares of Common Stock covered by the
Award, as determined by the Compensation Committee, in its sole discretion, and
the Compensation Committee may provide that such amounts (if any) will be deemed
to have been reinvested in additional shares of Common Stock or otherwise
reinvested.
The 1996 LTIP also provides that, if the Compensation Committee determines
at the time Restricted Stock, a Performance Award or an Other Stock Unit Award
is granted to a Participant that such Participant is, or is likely to be at the
time he or she recognizes income for federal income tax purposes in connection
with such Award, a covered employee within the meaning of Section 162(m) of the
Code, then the Compensation Committee may impose certain performance goals and
impose certain other restrictions with respect to such Award.
The Company's Other Benefit Plans
Pursuant to the Employee Benefits Agreement, the Company will create plans
for management and occupational employees of the Company that replicate in all
material respects AT&T's benefit plans. Except as provided therein, the Employee
Benefits Agreement does not preclude the Company from discontinuing any plan,
changing any plan or benefit or adopting any new plan. See "Arrangements Between
the Company and AT&T -- Employee Benefits Agreement."
In addition, the Company plans to investigate other programs for more
broad-based ownership of Common Stock by the Company's employees following the
Distribution.
RELATED TRANSACTIONS
AT&T owns over 80% of the outstanding common stock of AT&T Capital Corp.
("AT&T Capital"). In 1993, AT&T and AT&T Capital entered into an operating
agreement (the "Operating Agreement"), pursuant to which AT&T provides AT&T
Capital with the right to be the preferred provider of leasing and financing
services for AT&T's products on a basis consistent with past practice. The
Operating Agreement expires in August 2000. The Company, as a subsidiary of
AT&T, has operated under the Operating Agreement and, pursuant to the terms
thereof, has entered into a comparable operating agreement with AT&T Capital
having the same term. In connection therewith, the Company has also agreed that,
under the existing license agreement between AT&T and AT&T Capital, AT&T Capital
and certain subsidiaries will be entitled to use certain of the Company's marks
for use in connection with the provision of financing services under the
operating agreement. The Company has further agreed that it will continue to be
bound by the provisions of an intercompany agreement between AT&T and AT&T
Capital to the extent the Company is currently bound thereby, under which the
Company will continue to give AT&T Capital the right to bid for the provision of
leasing and financing services in connection with the Company's internal
equipment purchasing and leasing. In addition, right, title and interest in
certain lease receivables for business communication equipment are sold at a
discount to AT&T Capital. The Company acts as an agent to bill and collect such
receivables. The Company has agreed to repurchase certain of these lease
receivables in the event of a default thereon. At December 31, 1995, $206
million of such receivables had recourse to the Company in the event of default.
As described under "Risk Factors -- Reliance on Major Customers," the
Company's largest customer in terms of total revenue has been AT&T. For the year
1995, the Company had $2,119 million of revenues from AT&T. At December 31,
1995, the related receivables amounted to $291 million.
In addition, the Company has engaged, and expects to continue to engage,
with AT&T and with affiliates of AT&T, in certain ordinary course business
transactions. For a summary of such transactions, see "Arrangements Between the
Company and AT&T" and Note 12 of Notes to Consolidated Financial Statements
included elsewhere in this Prospectus.
During 1995, the Company had outstanding two loans to Mr. Butters,
President, North American Region, Network Systems. The largest aggregate
principal amounts of such loans during such year were $120,000 and $95,000,
although $12,000 and $28,000, respectively, of such amounts were voluntarily
repaid
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during such year. The loans carry rates of 5.19% and 5.21% per annum,
respectively, payable annually, and mature in 1999.
As described under "-- Other Employment Arrangements," Mr. Schacht received
$264,516 for consulting services rendered from October 12, 1995 to December 31,
1995. Such services included advising in connection with the structuring and
organization of the Company and assisting in the Company's transition from a
division of AT&T to a publicly held company.
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ARRANGEMENTS BETWEEN THE COMPANY AND AT&T
For the purposes of governing certain of the relationships between the
Company and AT&T (including NCR) following the Separation, the Offerings and the
Distribution, the Company, AT&T and NCR have entered into the Separation and
Distribution Agreement, and have entered into or, on or prior to the Closing
Date, will enter into the Ancillary Agreements to which they are parties
(collectively, the "Transaction Agreements"). The Ancillary Agreements include
the Interim Services and Systems Replication Agreement; the General Purchase
Agreement and the supplemental agreements related thereto; the Employee Benefits
Agreement; the Brand License Agreement; the Patent License Agreement and other
patent-related agreements; the Technology License Agreement and other
technology-related agreements; the Tax Sharing Agreement and other tax-related
agreements; certain agreements providing for the assignment of, and the
establishment of transitional arrangements with respect to, real property; and
agreements pursuant to which AT&T will provide communications services to the
Company and NCR will sell certain products to the Company. Certain of the
Transaction Agreements summarized below have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part and the summaries
of such agreements are qualified in their entirety by reference to the full text
of such agreements. See "Available Information." Capitalized terms used in this
section and not otherwise defined in the section entitled "-- Certain
Definitions" below or elsewhere herein shall have their respective meanings set
forth in the Separation and Distribution Agreement (except that the term
"Company" is used in lieu of the term "Lucent").
SEPARATION AND DISTRIBUTION AGREEMENT
The Separation and Distribution Agreement sets forth the agreements among
the Company, AT&T and NCR with respect to the principal corporate transactions
required to effect the Separation, the Offerings and the Distribution, and
certain other agreements governing the relationship among the parties
thereafter. Certain agreements specifying the series of transactions necessary
to effect the separation of Assets and Liabilities of the Company, AT&T and NCR
located outside the United States are contained in the Non-U.S. Plan.
The Separation
To effect the Separation, AT&T and NCR have transferred or agreed to
transfer, or to cause their respective subsidiaries to transfer, the Company
Assets to the Company. The Company has assumed or agreed to assume and has
agreed faithfully to perform and fulfill all the Company Liabilities in
accordance with their respective terms. Except as expressly set forth in the
Separation and Distribution Agreement or in any Ancillary Agreement, no party is
making any representation or warranty as to the assets, businesses or
liabilities transferred or assumed as part of the Separation, as to any consents
or approvals required in connection therewith, as to the value or freedom from
any Security Interests of any of the Assets transferred or as to the absence of
any defenses or freedom from counterclaim with respect to any claim of any
party, or as to the legal sufficiency of any assignment, document or instrument
delivered to convey title to any Asset transferred. Except as expressly set
forth in any Transaction Agreement, all Assets are being transferred on an "as
is," "where is" basis, and the respective transferees have agreed to bear the
economic and legal risks that the conveyance is insufficient to vest in the
transferee good and marketable title, free and clear of any Security Interest.
The Distribution
The Separation and Distribution Agreement provides that, subject to the
terms and conditions thereof, AT&T and the Company will take all reasonable
steps necessary and appropriate to cause all conditions to the Distribution to
be satisfied, and to effect the Distribution on the Distribution Date. The AT&T
Board will have the sole discretion to determine the date of consummation of the
Distribution at any time after the Closing Date and on or prior to December 31,
1996. AT&T has agreed to consummate the Distribution no later than December 31,
1996, subject to the satisfaction or waiver by the AT&T Board, in its sole
discretion, of the following conditions:
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(i) a private letter ruling from the IRS shall have been obtained, and
shall continue in effect, to the effect that, among other things, the
Distribution will qualify as a tax-free distribution for federal income tax
purposes under Section 355 of the Code and the transfer to the Company of
the Company Assets and the assumption by the Company of the Company
Liabilities in connection with the Separation will not result in
recognition of any gain or loss for federal income tax purposes to AT&T,
the Company or AT&T's or the Company's shareholders, and such ruling shall
be in form and substance satisfactory to AT&T, in its sole discretion;
(ii) any material Governmental Approvals and Consents necessary to
consummate the Distribution shall have been obtained and be in full force
and effect;
(iii) no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Distribution shall be in effect, and no other event
outside the control of AT&T shall have occurred or failed to occur that
prevents the consummation of the Distribution; and
(iv) no other events or developments shall have occurred subsequent to
the Closing Date that, in the judgment of the AT&T Board, would result in
the Distribution having a material adverse effect on AT&T or on the
shareholders of AT&T.
In the event that any such condition is not satisfied or waived on or before
December 31, 1996, AT&T has agreed to consummate the Distribution as promptly as
practicable following the satisfaction or waiver of all such conditions. AT&T
may terminate the obligation to consummate the Distribution if the Distribution
has not occurred by December 31, 1997. See "-- Termination."
On March 21, 1996, the Company received a private letter ruling from the
IRS to the effect described in clause (i) above.
The Company, AT&T and NCR have agreed that, after the Closing Date, none of
the parties will take, or permit any of its affiliates to take, any action which
reasonably could be expected to prevent the Distribution from qualifying as a
tax-free distribution within the meaning of Section 355 of the Code. The parties
have also agreed to take any reasonable actions necessary in order for the
Distribution to qualify as a tax-free distribution pursuant to Section 355 of
the Code. Without limiting the foregoing, after the Closing Date and on or prior
to the Distribution Date, the Company will not issue or grant, and will not
permit any member of the Company Group to issue or grant, directly or
indirectly, any shares of Common Stock or any rights, warrants, options or other
securities to purchase or acquire (whether upon conversion, exchange or
otherwise) any shares of Common Stock (whether or not then exercisable,
convertible or exchangeable).
Retained Receivables
Under the Separation and Distribution Agreement, AT&T has retained all the
Retained Receivables, consisting of certain receivables that arose in the
Company Business. The Retained Receivables have a face amount estimated for pro
forma purposes at approximately $2,000 million. The Separation and Distribution
Agreement provides that the Company will use its reasonable best efforts to
satisfy any conditions to the payment of any Retained Receivables and to fulfill
all obligations to the applicable account debtors related to such Retained
Receivables. Any payment made by an account debtor to the Company or any member
of the Company Group with respect to an account receivable will be applied to
any Retained Receivables attributable to that account debtor (and paid over to
AT&T) before they are applied to any other account receivable whenever arising
for such account debtor, subject to certain limited exceptions. In the
Separation and Distribution Agreement, the Company represents and warrants to
AT&T that each Retained Receivable constitutes a legal, valid and binding
obligation of the applicable account debtor enforceable against such account
debtor in accordance with its respective terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, moratorium and other similar
laws affecting the enforcement of creditors' rights generally, and is not
subject to any Security Interest or any other lien, claim, defense or right of
set-off.
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Releases and Indemnification
The Separation and Distribution Agreement provides for a full and complete
release and discharge as of the Closing Date of all Liabilities existing or
arising from all acts and events occurring or failing to occur or alleged to
have occurred or to have failed to occur and all conditions existing or alleged
to have existed on or before the Closing Date, between or among the Company or
any member of the Company Group, on the one hand, and AT&T, NCR or any member of
the AT&T Services Group or the NCR Group, on the other hand (including any
contractual agreements or arrangements existing or alleged to exist between or
among any such members on or before the Closing Date), except as expressly set
forth in the Separation and Distribution Agreement.
Except as provided in the Separation and Distribution Agreement, the
Company has agreed to indemnify, defend and hold harmless each of AT&T and NCR,
each member of the AT&T Group and the NCR Group, and each of their respective
directors, officers and employees, from and against all Liabilities relating to,
arising out of or resulting from (i) the failure of the Company or any member of
the Company Group or any other Person to pay, perform or otherwise promptly
discharge any Company Liabilities, any Environmental Liabilities of a Subsidiary
of the Company not directly assumed by the Company, or any Company Contract, in
accordance with their respective terms, (ii) the Company Business, any Company
Liability, the Environmental Liabilities referred to above or any Company
Contract, (iii) any breach by the Company or any member of the Company Group of
the Separation and Distribution Agreement or any of the Ancillary Agreements,
and (iv) any untrue statement or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, with respect
to all information contained in this Prospectus or the Registration Statement of
which it forms a part. Also, in the Separation and Distribution Agreement, the
Company has indemnified the members of the AT&T Group, subject to limited
exceptions, against any claims of patent, copyright or trademark infringement or
trade secret misappropriation with respect to any product, software or other
material provided by or ordered from the Company Business (whether alone or in
combination with other items provided by the Company Business or third parties)
prior to the Offerings.
AT&T has agreed to indemnify, defend and hold harmless the Company, each
member of the Company Group and each of their respective directors, officers and
employees from and against all Liabilities relating to, arising out of or
resulting from (i) the failure of AT&T or any member of the AT&T Group or any
other Person to pay, perform or otherwise promptly discharge any liabilities of
the AT&T Group other than the Company Liabilities or the NCR Covered
Liabilities, (ii) the AT&T Services Business or any Liability of the AT&T Group
other than the Company Liabilities and the NCR Covered Liabilities, and (iii)
any breach by AT&T or any member of the AT&T Services Group of the Separation
and Distribution Agreement or any of the Ancillary Agreements.
NCR has agreed to indemnify, defend and hold harmless the Company, each
member of the Company Group and each of their respective directors, officers and
employees from and against all liabilities relating to, arising out of or
resulting from (i) the failure of NCR or any member of the NCR Group or any
other Person to pay, perform or otherwise promptly discharge any Exclusive NCR
Contingent Liability or any Shared NCR Percentage of any Shared Contingent
Liability, and (ii) any breach by NCR or any member of the NCR Group of the
Separation and Distribution Agreement or any of the Ancillary Agreements, or any
other agreement that is not contemplated to be terminated as of the Closing Date
pursuant to the Separation and Distribution Agreement.
The Separation and Distribution Agreement also specifies certain procedures
with respect to claims subject to indemnification and related matters.
Contingent Liabilities and Contingent Gains
The Separation and Distribution Agreement provides for indemnification by
the Company, AT&T and NCR with respect to Contingent Liabilities primarily
relating to their respective businesses or otherwise assigned to them
("Exclusive Contingent Liabilities"), subject to the sharing provisions
described below. In addition to contingent liabilities relating to present or
former businesses of the Company, any contingent
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liabilities related to AT&T's discontinued computer operations (other than those
of NCR) have been assigned to the Company. In the event the aggregate Value (as
defined herein) of all amounts paid by the Company, AT&T or NCR (in each case,
together with any members of its respective Group) in respect of any single
Exclusive Contingent Liability of such Group or any set or group of Related
Exclusive Contingent Liabilities of such Group is in excess of $100 million, the
Company, AT&T and NCR will share such portion in excess of $100 million (the
"Excess Portion") in accordance with the following percentages:
(i) if the Exclusive Contingent Liability primarily relates to the
business of AT&T, AT&T will bear 75% of such Excess Portion, the Company
will bear 22% of such Excess Portion, and NCR will bear 3% of such Excess
Portion;
(ii) if the Exclusive Contingent Liability primarily relates to the
business of the Company, the Company will bear 50% of such Excess Portion,
AT&T will bear 47% of such Excess Portion, and NCR will bear 3% of such
Excess Portion;
(iii) if the Exclusive Contingent Liability primarily relates to the
business of NCR, NCR will bear 50% of such Excess Portion, AT&T will bear
37% of such Excess Portion, and the Company will bear 13% of such Excess
Portion.
For purposes of the foregoing, the term "Value" is defined as the aggregate
amount of all cash payments, the fair market value of all non-cash payments and
the incremental cost of providing any goods or services made or provided in
respect of any Exclusive Contingent Liability or Related Exclusive Contingent
Liabilities, net of: (a) any Insurance Proceeds received or realized in respect
of the applicable Exclusive Contingent Liability or Related Exclusive Contingent
Liabilities, (b) any Tax benefits associated with such payments or the provision
of such goods or services (calculated in the manner specified in the Separation
and Distribution Agreement), (c) any amounts received pursuant to certain
specified third party agreements in respect of the Exclusive Contingent
Liability or Related Exclusive Contingent Liabilities, (d) any other amounts
recovered (including by way of set off) from a third party in connection with
any such Action or threatened Action and (e) the amount of any reserve, account
payable or similar accrual in respect of the Exclusive Contingent Liability or
Related Exclusive Contingent Liabilities, net of any offsetting receivables in
respect of such Exclusive Contingent Liability or Related Exclusive Contingent
Liabilities, in each case as reflected on the Company's Balance Sheet or the
audited consolidated balance sheet of AT&T, including the notes thereto, as of
December 31, 1995.
As a result of the foregoing provisions, if the Value of amounts paid in
respect of any Exclusive Contingent Liability or Related Exclusive Contingent
Liabilities of AT&T or NCR exceeds $100 million, the Company will be required to
pay 22% of the Excess Portion (in the case of any Exclusive AT&T Contingent
Liability or Related Exclusive Contingent Liabilities) or 13% of the Excess
Portion (in the case of any Exclusive NCR Contingent Liability or Related
Exclusive Contingent Liabilities), notwithstanding the fact that the Exclusive
Contingent Liability or Related Exclusive Contingent Liabilities do not relate
to the business and operations of the Company or any other member of the Company
Group. Conversely, if the Value of amounts paid in respect of any Company
Exclusive Contingent Liability or Related Exclusive Contingent Liabilities
exceeds $100 million, the Company will be entitled to reimbursement from AT&T
and NCR of 50%, in the aggregate, of the Excess Portion, notwithstanding the
fact that the Exclusive Contingent Liability or Related Exclusive Contingent
Liabilities do not relate to the business and operations of AT&T or NCR or the
members of their Groups.
The Separation and Distribution Agreement also provides for the sharing of
Shared Contingent Liabilities, which are defined as (a) any Contingent
Liabilities that are not Exclusive AT&T Contingent Liabilities, Exclusive
Company Contingent Liabilities or Exclusive NCR Contingent Liabilities, (b) any
RBOC Liability, and (c) certain specifically identified Liabilities, including
certain Liabilities relating to terminated, divested or discontinued businesses
or operations of AT&T or its current or former Affiliates. With respect to any
Shared Contingent Liability, the parties have agreed that AT&T will be
responsible for 75%, the Company for 22% and NCR for 3% of such Shared
Contingent Liability. AT&T will assume the defense of, and may seek to settle or
compromise, any Third Party Claim that is a Shared Contingent Liability, and the
costs and expenses thereof will be included in the amount to be shared by the
parties.
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The Separation and Distribution Agreement provides that the Company, AT&T
and NCR will have the exclusive right to any benefit received with respect to
any Contingent Gain that primarily relates to the business of, or that is
expressly assigned to, the Company, AT&T or NCR, respectively (an "Exclusive
Contingent Gain"). Each of the Company, AT&T and NCR will have sole and
exclusive authority to manage, control and otherwise determine all matters
whatsoever with respect to an Exclusive Contingent Gain that primarily relates
to its respective business. The parties have agreed to share any benefit that
may be received from any Contingent Gain that is not an Exclusive Contingent
Gain (a "Shared Contingent Gain"), with AT&T receiving 75%, the Company
receiving 22% and NCR receiving 3% of any such benefit. The parties have agreed
that AT&T will have the sole and exclusive authority to manage, control and
otherwise determine all matters whatsoever with respect to any Shared Contingent
Gain. Pursuant to the Separation and Distribution Agreement, each of the Company
and NCR acknowledges that AT&T may elect not to pursue any Shared Contingent
Gain for any reason whatsoever (including a different assessment of the merits
of any Action, claim or right than the Company or NCR or any business reasons
that are in the best interests of AT&T or a member of the AT&T Services Group,
without regard to the best interests of any member of the Company Group or the
NCR Group) and that no member of the AT&T Group will have any liability to any
Person (including any member of the Company Group or the NCR Group) as a result
of any such determination.
The Separation and Distribution Agreement provides for the establishment of
a Contingent Claims Committee comprised of one representative designated from
time to time by each of AT&T, the Company and NCR and sets forth procedures for
the purpose of resolving disagreements among the parties as to Contingent Gains
and Contingent Liabilities.
Dispute Resolution
The Separation and Distribution Agreement contains provisions that govern,
except as otherwise provided in any Ancillary Agreement, the resolution of
disputes, controversies or claims that may arise between or among the parties.
These provisions contemplate that efforts will be made to resolve disputes,
controversies and claims by escalation of the matter to senior management (or
other mutually agreed) representatives of the parties. If such efforts are not
successful, any party may submit the dispute, controversy or claim to mandatory,
binding arbitration, subject to the provisions of the Separation and
Distribution Agreement. The Separation and Distribution Agreement contains
procedures for the selection of a sole arbitrator of the dispute, controversy or
claim and for the conduct of the arbitration hearing, including certain
limitations on discovery rights of the parties. These procedures are intended to
produce an expeditious resolution of any such dispute, controversy or claim.
In the event that any dispute, controversy or claim is, or is reasonably
likely to be, in excess of $100 million, or in the event that an arbitration
award in excess of $100 million is issued in any arbitration proceeding
commenced under the Separation and Distribution Agreement, subject to certain
conditions, any party may submit such dispute, controversy or claim to a court
of competent jurisdiction and the arbitration provisions contained in the
Separation and Distribution Agreement will not apply. In the event that the
parties do not agree that the amount in controversy is in excess of $100
million, the Separation and Distribution Agreement provides for arbitration of
such disagreement.
Certain Business Transactions
The Separation and Distribution Agreement provides that no member of any
Group will have any duty to refrain from engaging in the same or similar
activities or lines of business as any member of any other Group, or from doing
business with any potential or actual supplier or customer of any member of any
other Group. The Separation and Distribution Agreement also provides for the
allocation of certain corporate opportunities following the Closing Date and
prior to the Distribution Date. During this period, none of the Company, AT&T or
NCR will have any duty to communicate or offer such opportunities to any of the
others and may pursue or acquire any such opportunity for itself or direct such
opportunity to any other Person, unless (a) the opportunity relates primarily to
the Company Business, the AT&T Services Business or the NCR Business, in which
case the party that acquires knowledge of the opportunity will generally be
required to communicate
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and offer the opportunity to the company to whose business the opportunity
primarily relates, or (b) the opportunity relates both to the AT&T Services
Business and the Company Business but not primarily to either one, in which case
such party will generally be required to communicate and offer the opportunity
to the Company. In the event the foregoing clause (a) or (b) is applicable, no
party, other than the party to whom the opportunity must be offered in
accordance with such clauses, will pursue or acquire such opportunity for
itself, or direct such opportunity to any other Person, unless the party to whom
the opportunity is required to be offered does not within a reasonable period of
time begin to pursue, or does not thereafter continue to pursue, such
opportunity diligently and in good faith.
Ability to Terminate Certain Rights
The Separation and Distribution Agreement provides that certain rights
granted to the Company and the members of the Company Group will be subject to
the following provisions. Except as otherwise expressly provided, in the event
that, at any time prior to February 1, 2001, the Company or any member of the
Company Group offers, furnishes or provides any Telecommunications Services of
the type offered by the AT&T Services Business as of the Closing Date, then AT&T
may, in its sole discretion: (a) terminate all or any portion of the rights
granted by AT&T under the Brand License Agreement; (b) terminate all or any
remaining portion of the purchase commitments made by AT&T and the members of
the AT&T Group in the General Purchase Agreement; (c) exercise the right to
require the Company to transfer to AT&T certain personnel, information,
technology and software under the Supplemental Agreements; (d) terminate all or
any portion of the rights to patents and technology of AT&T or any member of the
AT&T Group granted to the Company and the members of the Company Group pursuant
to the Patent License Agreement and the Technology License Agreement; and (e)
direct the Company and the members of the Company Group to reconvey to AT&T all
interests in any and all patents and technology in which the Company or any
member of the Company Group was granted an undivided one-half interest pursuant
to the Patent Assignments or the Technology Assignment and Joint Ownership
Agreements. The Company and the members of the Company Group will not be deemed
to offer, furnish or provide any Telecommunications Services (and the foregoing
provisions will not apply) solely by virtue of certain specified investments in
Persons that offer, furnish or provide Telecommunications Services or by virtue
of offering, furnishing or providing Telecommunications Services below a
specified de minimis amount.
Provisions Relating to Third Party Patent License Agreements
The Separation and Distribution Agreement provides, subject to specified
exceptions, for the grant by AT&T to the Company and NCR of rights to share with
AT&T the patent license rights granted to AT&T under third-party patent license
agreements. To the extent this grant is not effective, AT&T will transfer the
patent license agreement to the Company (and the Company will seek equivalent
rights from the third party for AT&T and NCR) or, if such transfer is not
effective, AT&T will retain the patent license agreement (and AT&T will seek
equivalent rights from the third party for the Company and NCR).
Proceeds; Expenses
The Separation and Distribution Agreement provides that the Offerings will
be primary Offerings of the Common Stock and that the net proceeds of the
Offerings will be retained by the Company. See "Use of Proceeds." The Company
has agreed to pay all third party costs, fees and expenses relating to the
Offerings, all of the reimbursable expenses of the Underwriters pursuant to the
Underwriting Agreement, all of the costs of producing, printing, mailing and
otherwise distributing this Prospectus, as well as the Underwriters' discount as
provided in the Underwriting Agreement. See "Underwriting." Except as expressly
set forth in the Separation and Distribution Agreement or in any Ancillary
Agreement, whether or not the Offerings or the Distribution is consummated, all
third party fees, costs and expenses paid or incurred in connection with the
Distribution will be paid by AT&T.
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Termination
The Separation and Distribution Agreement may be terminated at any time
prior to the Distribution Date by the mutual consent of AT&T, NCR and the
Company, or by AT&T at any time prior to the Closing Date. In addition, the
obligations of AT&T and the Company to pursue or effect the Distribution may be
terminated by AT&T if the Distribution does not occur on or prior to December
31, 1997. If the Separation and Distribution Agreement is terminated prior to
the Closing Date, no party thereto (or any of its respective directors or
officers) will have any Liability or further obligation to any other party. In
the event of any termination of the Separation and Distribution Agreement on or
after the Closing Date, only the provisions of the Separation and Distribution
Agreement that obligate the parties to pursue the Distribution will terminate
and the other provisions of the Separation and Distribution Agreement and each
Ancillary Agreement will remain in full force and effect.
Amendments and Waivers
No provisions of the Separation and Distribution Agreement or any Ancillary
Agreement will be deemed waived, amended, supplemented or modified by any party,
unless such waiver, amendment, supplement or modification is in writing and
signed by the authorized representative against whom it is sought to enforce
such waiver, amendment, supplement or modification. The Company has agreed and
acknowledged on behalf of itself and each other member of the Company Group that
(a) AT&T and NCR may enter into a separation and distribution agreement and
other agreements and instruments in connection with the NCR Distribution or
otherwise providing for certain arrangements between AT&T and NCR and that no
consent of any member of the Company Group will be required in connection
therewith, (b) certain transfers of Assets and Liabilities may occur between
members of the AT&T Services Group and the NCR Group and that no consent of any
member of the Company Group will be required in connection therewith, (c) AT&T
will have no obligation to proceed with the NCR Distribution, and (d) except as
otherwise set forth, all of the rights and obligations of the NCR Group will
continue regardless of whether NCR is an Affiliate of AT&T. Effective
immediately on notice to the Company, without any further action required by any
member of the Company Group, AT&T may assume any Asset or Liability of any
member of the NCR Group under the Separation and Distribution Agreement or under
any Ancillary Agreement (and any rights of any member of the NCR Group in
connection therewith) and all members of the NCR Group will thereupon
automatically be released therefrom.
Further Assurances
In addition to the actions specifically provided for elsewhere in the
Separation and Distribution Agreement, each of the parties has agreed to use its
reasonable best efforts, prior to, on and after the Closing Date, to take, or
cause to be taken, all actions, and to do, or cause to be done, all things,
reasonably necessary, proper or advisable under applicable laws, regulations and
agreements to consummate and make effective the transactions contemplated by the
Separation and Distribution Agreement and the Ancillary Agreements.
INTERIM SERVICES AND SYSTEMS REPLICATION AGREEMENT
The Company, AT&T and NCR have entered into an Interim Services and Systems
Replication Agreement (the "Interim Services and Systems Replication
Agreement"), governing the provision by each to one or more of the others, on an
interim basis, of certain data processing and telecommunications services
(including voice telecommunications and data transmission), and certain
corporate support services (including accounting, financial management, tax,
payroll, stockholder and public relations, legal, human resources
administration, procurement, real estate management and other administrative
functions), each as specified and on the terms set forth therein and in the
schedules thereto. Specified charges for such services are generally intended to
allow the providing company to recover the fully allocated direct costs of
providing the services, plus all out-of-pocket costs and expenses, but without
any profit. The Interim Services and System Replication Agreement also provides
for the provision of certain additional services identified from time to time
after the Closing Date that a party reasonably believes were inadvertently or
unintentionally omitted from the specified services, or that are essential to
effectuate an orderly transition under the Separation and
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Distribution Agreement (so long as the provision of such services would not
significantly disrupt the providing party's operations).
In addition, the Interim Services and Systems Replication Agreement
provides for the replication and transfer, from each party to one or more of the
others, of certain computer systems, including hardware, software, data storage
or maintenance and support components, specified therein and in the schedules
thereto. The computer systems that will be replicated or transferred include
specified computer systems that are used to provide administrative support
services to the Company or for business applications specific to the Company's
business. Except where otherwise specified, the costs and expenses of separating
or replicating a system are intended to be borne by the parties in proportion to
their prior usage of the system. Costs and expenses of purchasing new hardware
or obtaining new software licenses will be borne by the party purchasing the new
hardware or licensing the new software.
With limited exceptions, these interim services are not expected to extend
beyond January 1, 1998 and many are expected to terminate at or prior to the
Distribution.
PURCHASE AGREEMENTS
The Company and AT&T have entered into a General Purchase Agreement (the
"General Purchase Agreement") and various related and supplemental agreements
pursuant thereto (the "Supplemental Agreements"). The General Purchase Agreement
governs transactions pursuant to which the company provides Products, Licensed
Materials and Services (as such terms are defined in the General Purchase
Agreement) to AT&T and certain designated AT&T affiliates (each an "Ordering
Company"). The Products, Licensed Materials and Services include those related
to switching, signaling, transmission, power and operations support systems. In
the General Purchase Agreement, AT&T has committed that payments made to the
Company (commencing January 1, 1996) for purchases of Products, Licensed
Materials and Services by all Ordering Companies will total at least $3,000
million cumulatively for the calendar years 1996, 1997 and 1998. If AT&T does
not meet this purchase commitment by December 31, 1998, AT&T will be required
thereafter to pay interest based on the shortfall until the $3,000 million
purchase commitment is met. Such interest payment is the sole remedy for any
shortfall in such commitment. Under the General Purchase Agreement, on or prior
to the Closing Date, AT&T will prepay to the Company $500 million, which will be
applied to accounts receivable owed by AT&T covering purchases of Products,
Licensed Materials and Services that are due and payable on or after January 1,
1997.
The General Purchase Agreement also contains provisions governing (i)
ordering and delivery, (ii) payment terms, (iii) certain intellectual property
matters, (iv) product warranties, (v) product support and documentation, (vi)
engineering, installation, maintenance and other services, and (vii) consulting
services. The General Purchase Agreement has a five-year term, which will be
automatically extended for additional one-year periods unless either party
provides the other party one year's prior written notice of its desire to permit
the General Purchase Agreement to expire without further extension of its term.
The Supplemental Agreements set forth the specific terms and conditions,
including pricing, applicable to the provision by the Company to AT&T of the
particular Products, Licensed Materials and Services covered by each
Supplemental Agreement. Under certain circumstances, including a Change of
Control of the Company that AT&T determines will have a material adverse impact
on particular AT&T programs, AT&T will have the right to require the Company to
transfer to AT&T certain personnel and certain information, technology and
software used by the Company in connection with specified Products, Licensed
Materials and Services provided by the Company to AT&T. The pricing terms for
the Products, Licensed Materials and Services covered by the Supplemental
Agreements reflect negotiated prices taking into account the size of AT&T's
purchase commitment and AT&T's position as one of the Company's largest
customers. Any purchases by AT&T Wireless Services, Inc. ("AT&T Wireless") under
separate agreements with the Company will also be included in determining
whether AT&T's $3,000 million commitment under the General Purchase Agreement is
met.
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EMPLOYEE BENEFITS AGREEMENT
AT&T and the Company have entered into an Employee Benefits Agreement,
dated as of February 1, 1996 (the "Employee Benefits Agreement") that governs
the employee benefit obligations of the Company, including both compensation and
benefits, with respect to active employees and retirees assigned to the Company.
Pursuant to the Employee Benefits Agreement, the Company assumes and agrees to
pay, perform, fulfill and discharge, in accordance with their respective terms,
all Liabilities to, or relating to, former employees of AT&T or its affiliates
who will be employed by the Company and its affiliates and certain former
employees of AT&T or its affiliates (including retirees) who either were
employed in the Company Business or who otherwise are assigned to the Company
for purposes of allocating employee benefit obligations (including all retirees
of Bell Labs). Until the Distribution Date, the employees and former employees
assigned to the Company will continue to participate in AT&T's pension and other
employee benefit plans, although the Company will bear its allocable share of
the costs of benefits and administration of such plans. Effective immediately
after the Distribution, the Company will establish its own pension and employee
benefit plans, which generally will be the same as AT&T's plans as in effect at
that time. The Employee Benefits Agreement does not preclude the Company from
discontinuing or changing such plans at any time thereafter, with certain
exceptions noted below. The Company's plans generally will assume all
liabilities under AT&T's plans to employees and former employees assigned to the
Company, and certain assets funding such liabilities, including assets held in
trusts constituting Voluntary Employee Beneficiary Associations (VEBAs), will be
transferred from trusts and other funding vehicles associated with AT&T's plans
to the corresponding trusts and other funding vehicles associated with the
Company's plans.
Assets of trusts under qualified pension plans will be divided, immediately
after the Distribution Date, between the trusts for AT&T qualified pension plans
and the new Company qualified pension plans. Each such trust will receive the
legally required funding minimum and, if greater, a sufficient amount of
additional trust assets to ensure continued compliance with the existing AT&T
pension funding policy. Any trust assets in excess of the funding policy level
will be divided equally between the trusts of AT&T and the Company for such
qualified pension plans. Consistent with existing collective bargaining
agreements and applicable law, there will be a specified period of portability
of benefits under certain pension and other employee benefit plans for
occupational employees who move from AT&T to the Company or from the Company to
AT&T after the Distribution Date. For management employees, there will be a
limited period of portability of such benefits after the Distribution Date if
such employees move between the companies. In addition, during a transitional
period, AT&T or its affiliates will provide certain benefit plan administrative
services, investment management services, and actuarial services to the Company
and will share the administration of contracts with third parties to support
certain welfare benefit plans of both AT&T and the Company. During the period of
joint administration of welfare benefit plans, changes to the plans may only be
made in accordance with procedures specified in the Employee Benefits Agreement
so that any such changes will not materially increase the costs of the other
company.
AT&T Stock Awards
General. Pursuant to the Employee Benefits Agreement, the Company will
issue Substitute Awards under the 1996 LTIP in substitution for awards
(collectively, "AT&T Stock Awards") under the 1987 Plan and under other
stock-based plans of AT&T as of the Distribution Date and held by individuals
employed by the Company as of such date (the "Company Employees"). With certain
exceptions, AT&T Stock Awards held by individuals employed by AT&T as of the
Distribution Date and AT&T Stock Awards held by individuals who will not
continue their employment after the Distribution Date with any of AT&T, the
Company or any of their subsidiaries, including individuals who have retired
prior to such date, will remain outstanding as AT&T Stock Awards, with an
appropriate antidilution adjustment to reflect the Distribution.
In the case of AT&T Stock Awards consisting of stock options, the
Substitute Award will provide for the purchase of a number of shares of the
Common Stock equal to the number of shares of AT&T Common Stock subject to such
AT&T Stock Award as of the Distribution Date, multiplied by the Ratio (as
defined herein), rounded down to the nearest whole share. The per share exercise
price of the Substitute Award will equal the per share exercise price of such
AT&T Stock Award as of the Distribution Date divided by the Ratio. The Company
will pay the holder of the Substitute Award cash in lieu of any fractional
share. The
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Substitute Award for each AT&T Stock Award consisting of performance shares,
stock units, restricted stock or restricted stock units will be a new award
consisting of Company performance shares, stock units, restricted stock or
restricted stock units, respectively, representing a number of shares of Common
Stock equal to the number of shares of AT&T Common Stock represented by such
AT&T Stock Award multiplied by the Ratio rounded down to the nearest whole
share. The Company will pay to the holder of such Substitute Award cash in lieu
of any fractional share. The other terms and conditions of each Substitute
Award, will be the same as those of the surrendered AT&T Stock Award. The
"Ratio" means the amount obtained by dividing (i) the average of the daily high
and low per share prices of the AT&T Common Stock as listed on the NYSE during
each of the five trading days immediately preceding the ex-dividend date for the
Distribution by (ii) the average of the daily high and low per share prices of
the Common Stock as listed on the NYSE during each of the five trading days
immediately preceding the ex-dividend date for the Distribution.
Shares Subject to Substitute Awards
It is not possible to specify how many shares of Common Stock will be
subject to Substitute Awards. It is expected that some AT&T Stock Awards
consisting of stock options and SARs held by Company Employees will be
exercised, other AT&T Stock Awards will vest and other AT&T Stock Awards could
be granted, prior to the Distribution Date. In addition, the remaining balance
of unexercised AT&T Stock Awards will be converted into Substitute Awards by
reference to the Ratio, which will not be known until after the Distribution is
completed. Stockholders of the Company are, however, likely to experience some
dilutive impact from the above-described adjustments. Under the Employee
Benefits Agreement, in the event that the market value of the shares of Common
Stock subject to Substitute Awards (based on the same measurement period used to
calculate the Ratio) plus the amounts paid by the Company or Company Employees
in connection with the exercise of AT&T stock options, as described below,
exceeds seven percent of the total market value of the shares of Common Stock
outstanding as of the Distribution Date (based on the same measurement period),
AT&T will make a cash payment to the Company in the amount of such excess.
Treatment of AT&T Stock Awards Pending the Distribution
Pending the Distribution, AT&T Stock Awards held by Company Employees will
remain outstanding as AT&T Stock Awards. Pursuant to the Employee Benefits
Agreement, however, the Company will pay AT&T (i) upon the exercise of an AT&T
Stock Award consisting of stock options by a Company Employee whether prior to,
on or after the Distribution, in an amount equal to the excess, if any, of the
Market Value (as defined below) of the purchased shares on the date of exercise
of such option or the date of such purchase, as applicable, over the price paid
for such shares; and (ii) upon the vesting or delivery of shares of AT&T Common
Stock pursuant to an Award (other than an option) held by a Company Employee in
an amount equal to the Market Value of such AT&T Common Stock on the date of
such vesting or delivery. The "Market Value" of a share of AT&T Common Stock on
a given date means the average of the high and the low per share price of the
AT&T Common Stock as listed on the NYSE on such date, or if there is no trading
on the NYSE on such date, on the most recent previous date on which such trading
takes place.
Outstanding AT&T Stock Awards Held by Employees of the Company
As of March 1, 1996, there were approximately 8.7 million shares of AT&T
Common Stock subject to options for AT&T Common Stock (approximately 4.9 million
of which were exercisable as of March 1, 1996) and approximately 638,000 shares
of AT&T Common Stock represented by other AT&T Stock Awards, in each case held
by Company Employees. If the Ratio were determined using the closing price of
the AT&T Common Stock on March 11, 1996, on the NYSE ($62 1/8 per share) and a
price of $23.50 per share of Common Stock (the mid-point of the range set forth
on the cover page of this Prospectus), the foregoing number of shares subject to
AT&T stock options and other AT&T Stock Awards would be replaced by options on
approximately 23 million shares of Common Stock and other stock awards covering
approximately 1.68 million shares of Common Stock.
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BRAND LICENSE AND RELATED MATTERS
The Company and AT&T have entered into a license agreement (the "Brand
License Agreement") pursuant to which the Company will have rights, on a
royalty-free basis, to continue to use the AT&T brand (including the AT&T globe
design) for specified transition periods following the Closing Date. Under the
Brand License Agreement, the Company will be entitled to use the AT&T brand,
alone or in combination with the Company's brand, for the sale of consumer
products and services and business communications systems and services for a
period of one year following the Closing Date. After the initial one-year
period, the Company will be entitled to continue to use the AT&T brand on these
products, systems and services, but only in combination with the Company's
brand, for an additional three-year period. The right to use the AT&T brand,
alone or in combination with the Company's brand, in connection with certain
leased products or maintenance contracts will extend for 66 months after the
Closing Date. The Brand License Agreement permits the Company to use the AT&T
brand on the Company's other products, systems and services until the earlier of
the Distribution or six months after the Closing Date. In addition, the Company
may use the AT&T brand after these time periods to the extent necessary to
deplete pre-existing inventory. Subject to certain conditions set forth in the
Brand License Agreement, the Company may also extend these rights to use the
AT&T brand to authorized dealers of the Company's products, systems and
services.
The Brand License Agreement provides that the Company will comply with
specified quality, customer care and marketing standards in connection with the
use of the AT&T brand. It also provides that neither the Company nor any of its
authorized dealers will, during the period it is using the AT&T brand, provide,
offer or market telecommunications services provided by any person other than
AT&T (with certain exceptions, including to permit specified authorized dealers
to continue existing practices). AT&T has agreed in the Brand License Agreement
that, for a period of one year after the Closing Date, it will not license the
AT&T brand or trade dress to third parties (other than AT&T's affiliates) for
use in connection with products or services that compete with the Company's
consumer products and services or business communications systems and services.
AT&T may terminate the Brand License Agreement in the event of a significant
breach (as defined therein), including in the event of a change of control of
the Company.
Pursuant to separate assignments, AT&T has also assigned to the Company all
rights in specified other trademarks, service marks and trade dress used in the
Company's business.
PATENT LICENSES AND RELATED MATTERS
The Separation and Distribution Agreement provides that, on or prior to the
Closing Date, the Company, AT&T and NCR will execute and deliver assignments and
other agreements, including a patent license agreement, related to patents
currently owned or controlled by AT&T and its subsidiaries. The patent
assignments will divide ownership of patents, patent applications and foreign
counterparts among the Company, AT&T and NCR, with the substantial portion of
those currently owned or controlled by AT&T and its subsidiaries (other than
NCR) being assigned to the Company. A small number of the patents assigned to
the Company will be jointly owned with either AT&T or NCR. Certain of the
patents that the Company will jointly own with AT&T will be subject to a joint
ownership agreement under which each of the Company and AT&T will have full
ownership rights in the patents. The other patents that the Company will jointly
own with AT&T, and the patents that the Company will jointly own with NCR, will
be subject to defensive protection agreements with AT&T and NCR, respectively,
under which the Company will hold most ownership rights in the patents
exclusively. Under these defensive protection agreements, AT&T or NCR, as the
case may be, will have the ability, subject to specified restrictions, to assert
infringement claims under the patents against companies that assert patent
infringement claims against them, and will have consent rights in the event the
Company wishes to license the patents to certain third parties or for certain
fields of use under specified circumstances. The defensive protection agreements
also provide for one-time payments from AT&T and NCR to the Company.
The patent license agreement to be entered into by the Company, AT&T and
NCR provides for royalty-free cross-licenses to each company, under each of the
other company's patents that are covered by the licenses, to use, lease, sell
and import any and all products and services of the businesses in which the
licensed
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company (including specified related companies) is now or hereafter engaged. The
cross-licenses also permit each company, subject to specified limitations, to
have third parties make items under the other companies' patents, as well as to
pass through to customers certain rights under the other companies' patents with
respect to products and services furnished to customers by the licensed company.
In addition, the rights granted to the Company and AT&T include the right to
license third parties under each of the other company's patents to the extent
necessary to meet existing patent licensing obligations and AT&T has the right,
subject to specified restrictions and procedures, to seek sublicensing of a
limited number of identified patents to be assigned to the Company.
The cross-licenses between the Company and AT&T cover all of each company's
patents, including patents issued on patent applications filed on or before
December 31, 1996, except for certain patents and patents on filed applications
owned or controlled by AT&T Wireless. The cross-licenses between the Company and
NCR cover all of each company's patents, including patents issued on patent
applications filed on or before December 31, 1999.
TECHNOLOGY LICENSES AND RELATED MATTERS
The Separation and Distribution Agreement provides that, on or prior to the
Closing Date, the Company, AT&T and NCR will execute and deliver assignments and
other agreements, including the Technology License Agreement, related to
technology currently owned or controlled by AT&T and its subsidiaries.
Technology includes copyrights, mask works and other intellectual property other
than trademarks, trade names, trade dress, service marks and patent rights. The
technology assignments will divide ownership of technology among the Company,
AT&T and NCR, with the Company and AT&T owning technology that was developed by
or for, or purchased by, the Company's business or AT&T's services business,
respectively, and NCR owning technology that was developed by or for, or
purchased by, NCR. Technology that is not covered by any of these categories
will be owned jointly by the Company and AT&T or, in the case of certain
specified technology, owned jointly by the Company, AT&T and NCR.
The Technology License Agreement to be entered into by the Company, AT&T
and NCR provides for royalty-free cross-licenses to each company to use the
other companies' technology existing as of the Closing Date, except for
specified portions of each company's technology as to which use by the other
companies is restricted or prohibited.
TAX AGREEMENTS
Tax Allocation Agreements
The parties have entered into agreements to govern the allocation of
consolidated or combined federal and state and local income tax liability (the
"Tax Allocation Agreements") among AT&T, the Company, NCR and all other domestic
subsidiaries of AT&T for the period before the Distribution Date. No party will
pay an amount of income tax greater than the income tax it would have paid had
it filed its income tax return as a separate entity (prior to credits), except
in cases in which the consolidated or combined group as a whole realizes a
detriment from consolidation or combination. The Tax Allocation Agreements also
provide that profitable entities will compensate loss entities to the extent
that the losses are utilized in the consolidated tax return. No loss entity,
however, will be compensated for an amount of losses in excess of the amount of
losses that it would have shown had it filed its income tax return separately.
Consolidated or combined credits allowed against tax on a consolidated or
combined income tax return will be allocated to each entity in proportion to the
creditable expenditures by such entity (or, in the case of credits not based on
expenditures, in proportion to its contribution to such credits). To the extent
that the consolidated or combined group is subject to alternative minimum tax
("AMT"), such AMT will be allocated proportionately among those members of the
group that would have owed AMT had they filed their income tax return
separately.
Tax Sharing Agreement
The Tax Sharing Agreement, by and among the Company, AT&T and NCR (the "Tax
Sharing Agreement"), governs contingent tax liabilities and benefits, tax
contests and other tax matters with respect to
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tax returns filed with respect to tax periods, in the case of the Company,
ending or deemed to end on or before the Distribution Date. Under the Tax
Sharing Agreement, Adjustments (as defined in the Tax Sharing Agreement) to
Taxes that are clearly attributable to the business of one party will be borne
solely by that party. Adjustments to all other Tax liabilities will be borne 75%
by AT&T, 22% by the Company and 3% by NCR.
Notwithstanding the above, if as a result of the acquisition of all or a
portion of the capital stock or assets of the Company, the Distribution fails to
qualify as a tax-free distribution under Section 355 of the Code, then the
Company will be liable for any and all increases in Tax attributable thereto.
REAL ESTATE AGREEMENTS
AT&T, the Company and NCR have executed a series of instruments that assign
AT&T's worldwide real estate portfolio, consisting of both owned and leased
property, among the parties. Generally, such real estate was assigned by
reference to which party was the dominant tenant in the applicable facility. The
parties also have agreed to share, pursuant to intercompany leases, subleases
and sub-subleases, certain facilities, consisting predominantly of office space
and laboratory sites.
With certain exceptions the terms of such leases, subleases and
sub-subleases are substantially the same regardless of which company is tenant
or landlord. In the case of owned real estate to be leased, the lease terms will
be either two or three years, except that a limited number of leases may be
terminated on 90 days' notice by the tenant. In the case of subleases or
sub-subleases of property, the lease term will generally coincide with the
remaining term of the primary lease or sublease, respectively. In the case of
owned property, rent payments are generally determined by reference to
prevailing market rents or previously specified internal budget levels. In the
case of subleases of third-party leases, or sub-subleases, rent payments are
generally determined by reference to the rent specified in the underlying lease
or sublease, plus an administrative fee. The leases, subleases and sub-subleases
provide generally that owner, landlord or sub-landlord will provide property
services for specified fees.
OTHER AGREEMENTS
AT&T and the Company have entered into the Virtual Telecommunications
Network Service Agreement pursuant to which the Company has committed to
purchase a minimum of $62.5 million of telecommunication services from AT&T
under a publicly filed tariff (without regard to actual volume requirements of
the Company) over a three-year term. In addition, NCR and the Company have
entered into the Volume Purchase Agreement under which the Company has committed
to purchase at least $150 million of products and services from NCR (without
regard to actual volume requirements of the Company) by December 31, 1998.
CERTAIN DEFINITIONS
Set forth below are certain defined terms contained in the Separation and
Distribution Agreement.
AT&T Group means AT&T and each Person (other than any member of the Company
Group) that is an Affiliate of AT&T immediately after the Closing Date
(including any member of the NCR Group).
AT&T Services Business means: (a) the business and operations of the
telecommunications services divisions and Subsidiaries and the financial
services and leasing divisions and Subsidiaries of AT&T consisting principally
of the Communications Services Group, AT&T Wireless Services and its
Subsidiaries, Universal Card Services, Inc. and its Subsidiaries, AT&T Capital
and its Subsidiaries, AT&T Solutions, the Assets of Bell Labs that are being
retained by AT&T, Submarine Systems and, subject to the terms of the Separation
and Distribution Agreement, AT&T Ventures; (b) except as otherwise expressly
provided in the Separation and Distribution Agreement, any terminated, divested
or discontinued businesses or operations that at the time of termination,
divestiture or discontinuation primarily related to the AT&T Services Business
as then conducted; and (c) certain terminated, divested or discontinued
businesses and operations specified pursuant to the Separation and Distribution
Agreement.
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AT&T Services Group means each member of the AT&T Group other than any
member of the NCR Group.
Company Assets means (without duplication): (a) any and all Assets that are
expressly contemplated by the Separation and Distribution Agreement or any
Ancillary Agreement as Assets to be transferred to the Company or any other
member of the Company Group; (b) all issued and outstanding capital stock of
AT&T International Inc. ("ATTI") and any and all Assets owned by ATTI or its
Subsidiaries as of the date of the transfer of such capital stock to the Company
pursuant to the Separation and Distribution Agreement, except for the Assets
contemplated to be sold or otherwise transferred to any member of the AT&T Group
pursuant to the Non-U.S. Plan; (c) any Exclusive Company Contingent Gain and any
Shared Company Percentage of any Shared Contingent Gain; (d) certain rights in
respect of Insurance Policies and specified indemnification agreements; (e) (i)
specified tangible property, (ii) Company Contracts, and (iii) the Company's
Subsidiaries; (f) any Assets reflected in the Company's audited consolidated
Balance Sheet as of December 31, 1995, including the notes thereto, as Assets of
the Company and its Subsidiaries, subject to any dispositions of such Assets
subsequent to the date thereof; and (g) except as contemplated by the Separation
and Distribution Agreement, any and all Assets owned or held immediately prior
to the Closing Date by AT&T or any of its Subsidiaries that are used primarily
in the Company Business; provided, however, that the intention of such clause
(g) is only to rectify any inadvertent omission of transfer or conveyance of any
Assets that, had the parties given specific consideration to such Asset as of
the date thereof, would have otherwise been classified as a Company Asset; and
provided, further that no Asset will be deemed to be a Company Asset solely as a
result of such clause (g) if such Asset is within the category or type of Asset
expressly covered by the subject matter of an Ancillary Agreement and unless a
claim with respect thereto is made by the Company on or prior to the first
anniversary of the Distribution.
Notwithstanding the foregoing, the Company Assets will not in any event
include (collectively, "Excluded Assets"): (a) the Retained Receivables and
certain other specified Assets; (b) any and all Assets that are expressly
contemplated by the Separation and Distribution Agreement or any Ancillary
Agreement as Assets to be retained by AT&T or any other member of the AT&T Group
(including the NCR Group); and (c) certain specified contracts and agreements.
Company Business means: (a) the business and operations of the
telecommunications equipment divisions and Subsidiaries of AT&T consisting
principally of the Network Systems Group, the Global Business Communications
Systems Group, the Consumer Products Group, the Microelectronics Group, AT&T
Paradyne and the Assets of Bell Labs that are being transferred to the Company;
and (b) any terminated, divested or discontinued businesses or operations that
at the time of termination, divestiture or discontinuation primarily related to
the Company Business as then conducted.
Company Group means the Company, each Subsidiary of the Company and each
other Person that is either controlled directly or indirectly by the Company
immediately after the Closing Date or that is contemplated to be controlled by
the Company pursuant to the Non-U.S. Plan (other than any Person that is
contemplated not to be controlled by the Company pursuant to the Non-U.S. Plan).
Company Liabilities means (without duplication):
(a) any and all Liabilities that are expressly contemplated by the
Separation and Distribution Agreement or any Ancillary Agreement as
Liabilities to be assumed by the Company or any member of the Company
Group, and all agreements, obligations and Liabilities of any member of the
Company Group under the Separation and Distribution Agreement or any of the
Ancillary Agreements;
(b) all Liabilities (other than Taxes based on, or measured by
reference to, net income), including any employee-related Liabilities and
Environmental Liabilities, primarily relating to, arising out of or
resulting from:
(i) the operation of the Company Business, as conducted at any time
prior to, on or after the Closing Date (including any Liability relating
to, arising out of or resulting from any act or failure to act by any
director, officer, employee, agent or representative (whether or not
such act or failure to act is or was within such Person's authority));
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(ii) the operation of any business conducted by any member of the
Company Group at any time after the Closing Date (including any
Liability relating to, arising out of or resulting from any act or
failure to act by any director, officer, employee, agent or
representative (whether or not such act or failure to act is or was
within such Person's authority)); or
(iii) any Company Assets (including any Company Contracts and any
real property and leasehold interests);
in any such case whether arising before, on or after the Closing Date;
(c) subject to the terms of the Separation and Distribution Agreement,
all Exclusive Company Contingent Liabilities and the Shared Company
Percentage of any Shared Contingent Liabilities;
(d) all Liabilities relating to, arising out of or resulting from the
Working Capital Facility and, as of the Closing Date, the Commercial Paper
Program;
(e) all Liabilities relating to, arising out of or resulting from any
of certain specified terminated, divested or discontinued businesses and
operations;
(f) all Liabilities of ATTI or its Subsidiaries, as of the date of the
transfer of the capital stock of ATTI to the Company pursuant to the
Separation and Distribution Agreement, except for the Liabilities
contemplated to be assumed by any member of the AT&T Group pursuant to the
Non-U.S. Plan, and all Liabilities of any other member of the Company
Group; and
(g) all Liabilities reflected as Liabilities or obligations of the
Company in the Company's audited consolidated balance sheet, including the
notes thereto, as of December 31, 1995, subject to any discharge of such
Liabilities subsequent to the date thereof.
Notwithstanding the foregoing, the Company Liabilities will not include
(collectively, "Excluded Liabilities"): (a) any and all Liabilities that are
expressly contemplated by the Separation and Distribution Agreement or any
Ancillary Agreement as Liabilities to be retained or assumed by AT&T or any
other member of the AT&T Group (including the NCR Group), and all agreements and
obligations of any member of the AT&T Group under the Separation and
Distribution Agreement or any of the Ancillary Agreements; (b) subject to the
terms of the Separation and Distribution Agreement, all Exclusive AT&T Services
Contingent Liabilities and Exclusive NCR Contingent Liabilities and the Shared
AT&T Percentage and the Shared NCR Percentage of any Shared Contingent
Liabilities; and (c) certain specified Liabilities.
Contingent Gain means any claim or other right of AT&T, the Company, NCR or
any their respective Affiliates, whenever arising, against any Person other than
AT&T, the Company, NCR or any of their respective Affiliates, if and to the
extent that (a) such claim or right has accrued as of the Closing Date (based on
then existing law) and (b) the existence or scope of the obligation of such
other Person as of the Closing Date was not acknowledged, fixed or determined in
any material respect, due to a dispute or other uncertainty as of the Closing
Date or as a result of the failure of such claim or other right to have been
discovered or asserted as of the Closing Date, with certain specified exceptions
and as more fully set forth in the Separation and Distribution Agreement.
Contingent Liability means any Liability, other than Liabilities for Taxes
(which are governed by the Tax Sharing Agreement), of AT&T, the Company, NCR or
any of their respective Affiliates, whenever arising, to any Person other than
AT&T, the Company, NCR or any of their respective Affiliates, if and to the
extent that (a) such Liability has accrued as of the Closing Date (based on then
existing law) and (b) the existence or scope of the obligation of AT&T, the
Company, NCR or any of their respective Affiliates as of the Closing Date with
respect to such Liability was not acknowledged, fixed or determined in any
material respect, due to a dispute or other uncertainty as of the Closing Date
or as a result of the failure of such Liability to have been discovered or
asserted as of the Closing Date (it being understood that the existence of a
litigation or other reserve with respect to any Liability will not be sufficient
for such Liability to be considered acknowledged, fixed or determined), in the
case of any Liability a portion of which had accrued as of the Closing Date and
a portion of which accrues after the Closing Date, only that portion that had
accrued as of the Closing Date will be considered a Contingent Liability. For
purposes of the foregoing, a Liability will be deemed to have accrued
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as of the Closing Date if all the elements necessary for the assertion of a
claim with respect to such Liability have occurred on or prior to the Closing
Date, such that the claim, were it asserted in an Action on or prior to the
Closing Date, would not be dismissed by a court on ripeness or similar grounds.
For purposes of clarification of the foregoing, the parties agree that no
Liability relating to, arising out of or resulting from any obligation of any
Person to perform the executory portion of any contract or agreement existing as
of the Closing Date, or to satisfy any obligation accrued under any Plan (as
defined in the Employee Benefits Agreement) as of the Closing Date, will be
deemed to be a Contingent Liability.
NCR Business means: (a) the computer products, computer systems, data
processing and information solutions business and operations as conducted by NCR
and its Subsidiaries; (b) except as otherwise expressly provided in the
Separation and Distribution Agreement, any terminated, divested or discontinued
businesses or operations (i) that at the time of termination, divestiture or
discontinuation primarily related to the NCR Business as then conducted, or (ii)
that were conducted by NCR, or any Person that at any time was an Affiliate of
NCR, prior to the acquisition of NCR by AT&T; and (c) specified terminated,
divested or discontinued businesses and operations.
NCR Covered Liabilities means Liabilities relating to, arising out of or
resulting from any of the following items (without duplication): (a) the failure
of NCR or any member of the NCR Group or any other Person to pay, perform or
otherwise promptly discharge any Exclusive NCR Contingent Liability or any
Shared NCR Percentage of any Shared Contingent Liability, whether prior to or
after the Closing Date or the date of the Separation and Distribution Agreement;
and (b) any breach by NCR or any member of the NCR Group of the Separation and
Distribution Agreement or any of the Ancillary Agreements, or any other
agreement that is not contemplated to be terminated as of the Closing Date
pursuant to the Separation and Distribution Agreement.
NCR Group means NCR, each Subsidiary of NCR and each other Person that is
either controlled directly or indirectly by NCR immediately after the Closing or
that is contemplated to be controlled by NCR pursuant to the Non-U.S. Plan.
PRINCIPAL STOCKHOLDER
Prior to the Offerings, all of the outstanding shares of Common Stock will
be owned by AT&T. After the Offerings, AT&T will own approximately 82.5% (80.4%
if the U.S. Underwriters exercise their overallotment option in full) of the
Common Stock then outstanding. Except as described above, the Company is not
aware of any person or group that will beneficially own more than 5% of the
outstanding shares of Common Stock following the Offerings.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Immediately after the Offerings, the Company's authorized capital stock
will consist of 250 million shares of preferred stock, par value $1.00 per share
(the "Preferred Stock"), and 3,000 million shares of Common Stock. Immediately
following the Offerings, 635,624,894 shares of Common Stock (652,274,894 shares
if the U.S. Underwriters exercise their overallotment option in full) will be
outstanding. All of the shares of Common Stock that will be outstanding
immediately following the Offerings, including the shares of Common Stock sold
in the Offerings, will be validly issued, fully paid and nonassessable.
COMMON STOCK
The holders of Common Stock will be entitled to one vote for each share on
all matters voted on by stockholders, including elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by the
Company Board with respect to any series of Preferred Stock, the holders of such
shares will possess all voting power. The Certificate does not provide for
cumulative voting in the election of directors. Subject to any preferential
rights of any outstanding series of Preferred Stock created by the Company Board
from time to time, the holders of Common Stock will be entitled to such
dividends as may be declared from time to time by the Company Board from funds
available therefor, and upon liquidation will be entitled to receive pro rata
all assets of the Company available for distribution to such holders. See
"Dividend Policy."
PREFERRED STOCK
The Certificate authorizes the Company Board to establish one or more
series of Preferred Stock and to determine, with respect to any series of
Preferred Stock, the terms and rights of such series, including (i) the
designation of the series, (ii) the number of shares of the series, which number
the Company Board may thereafter (except where otherwise provided in the
applicable certificate of designation) increase or decrease (but not below the
number of shares thereof then outstanding), (iii) whether dividends, if any,
will be cumulative or noncumulative, and, in the case of shares of any series
having cumulative dividend rights, the date or dates or method of determining
the date or dates from which dividends on the shares of such series shall be
cumulative, (iv) the rate of any dividends (or method of determining such
dividends) payable to the holders of the shares of such series, any conditions
upon which such dividends will be paid and the date or dates or the method for
determining the date or dates upon which such dividends will be payable; (v) the
redemption rights and price or prices, if any, for shares of the series, (vi)
the terms and amounts of any sinking fund provided for the purchase or
redemption of shares of the series, (vii) the amounts payable on and the
preferences, if any, of shares of the series in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Company, (viii) whether the shares of the series will be convertible or
exchangeable into shares of any other class or series, or any other security, of
the Company or any other corporation, and, if so, the specification of such
other class or series or such other security, the conversion or exchange price
or prices or rate or rates, any adjustments thereof, the date or dates as of
which such shares will be convertible or exchangeable and all other terms and
conditions upon which such conversion or exchange may be made, (ix) restrictions
on the issuance of shares of the same series or of any other class or series,
(x) the voting rights, if any, of the holders of the shares of the series, and
(xi) any other relative rights, preferences and limitations of such series.
The Company believes that the ability of the Company Board to issue one or
more series of Preferred Stock will provide the Company with flexibility in
structuring possible future financings and acquisitions, and in meeting other
corporate needs which might arise. The authorized shares of Preferred Stock, as
well as shares of Common Stock, will be available for issuance without further
action by the Company's stockholders, unless such action is required by
applicable law or the rules of any stock exchange or automated quotation system
on which the Company's securities may be listed or traded. The NYSE currently
requires stockholder approval as a prerequisite to listing shares in several
instances, including where the present or potential issuance of shares could
result in an increase in the number of shares of common stock, or in the amount
of voting securities, outstanding of at least 20%. If the approval of the
Company's stockholders is not required for
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the issuance of shares of Preferred Stock or Common Stock, the Board may
determine not to seek stockholder approval.
Although the Company Board has no intention at the present time of doing
so, it could issue a series of Preferred Stock that could, depending on the
terms of such series, impede the completion of a merger, tender offer or other
takeover attempt. The Company Board will make any determination to issue such
shares based on its judgment as to the best interests of the Company and its
stockholders. The Company Board, in so acting, could issue Preferred Stock
having terms that could discourage an acquisition attempt through which an
acquirer may be able to change the composition of the Company Board, including a
tender offer or other transaction that some, or a majority, of the Company's
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then current
market price of such stock.
As of the Closing Date, 7,500,000 Junior Preferred Shares (as defined
herein) will be reserved for issuance upon exercise of the Rights. See
"-- Rights Plan."
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE AND BY-LAWS
Board of Directors
The Certificate provides that except as otherwise fixed by or pursuant to
the provisions of a Certificate of Designations setting forth the rights of the
holders of any class or series of Preferred Stock, the number of the directors
of the Company will be fixed from time to time exclusively pursuant to a
resolution adopted by a majority of the total number of directors which the
Company would have if there were no vacancies (the "Whole Board") (but shall not
be less than three). The directors, other than those who may be elected by the
holders of Preferred Stock, will be classified, with respect to the time for
which they severally hold office, into three classes, as nearly equal in number
as possible, one class to be originally elected for a term expiring at the
annual meeting of stockholders to be held in 1997, another class to be
originally elected for a term expiring at the annual meeting of stockholders to
be held in 1998 and another class to be originally elected for a term expiring
at the annual meeting of stockholders to be held in 1999, with each director to
hold office until its successor is duly elected and qualified. Commencing with
the 1997 annual meeting of stockholders, directors elected to succeed directors
whose terms then expire will be elected for a term of office to expire at the
third succeeding annual meeting of stockholders after their election, with each
director to hold office until such person's successor is duly elected and
qualified.
The Certificate provides that except as otherwise provided for or fixed by
or pursuant to a Certificate of Designations setting forth the rights of the
holders of any class or series of Preferred Stock, newly created directorships
resulting from any increase in the number of directors and any vacancies on the
Company Board resulting from death, resignation, disqualification, removal or
other cause will be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the
Company Board, and not by the stockholders. Any director elected in accordance
with the preceding sentence will hold office for the remainder of the full term
of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor shall have been duly
elected and qualified. No decrease in the number of directors constituting the
Company Board will shorten the term of any incumbent director. Subject to the
rights of holders of Preferred Stock, any director may be removed from office
only for cause by the affirmative vote of the holders of at least a majority of
the voting power of all Voting Stock then outstanding, voting together as a
single class; provided, however, that prior to the Trigger Date (as defined
herein), any director or directors may be removed from office by the affirmative
vote of the holders of at least 80% of the voting power of all Voting Stock then
outstanding, voting together as a single class.
These provisions would preclude a third party from removing incumbent
directors and simultaneously gaining control of the Company Board by filling the
vacancies created by removal with its own nominees. Under the classified board
provisions described above, it would take at least two elections of directors
for any individual or group to gain control of the Company Board. Accordingly,
these provisions could discourage a third party from initiating a proxy contest,
making a tender offer or otherwise attempting to gain control of the Company.
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No Stockholder Action by Written Consent; Special Meetings
The Certificate and By-Laws provide that as of the time at which AT&T and
its affiliates cease to be the beneficial owner of an aggregate of at least a
majority of the then outstanding shares of Common Stock (the "Trigger Date"),
any action required or permitted to be taken by the stockholders of the Company
must be effected at a duly called annual or special meeting of such holders and
may not be effected by any consent in writing by such holders. Effective as of
the Trigger Date, except as otherwise required by law and subject to the rights
of the holders of any Preferred Stock, special meetings of stockholders of the
Company for any purpose or purposes may be called only by the Company Board
pursuant to a resolution stating the purpose or purposes thereof approved by a
majority of the Whole Board or by the Chairman of the Company Board and,
effective as of the Trigger Date, any power of stockholders to call a special
meeting is specifically denied. No business other than that stated in the notice
shall be transacted at any special meeting. In addition, prior to the Trigger
Date, the Company will call a special meeting of stockholders promptly upon
request by AT&T, or any of its affiliates, in each case, if such entity is a
stockholder of the Company. These provisions may have the effect of delaying
consideration of a stockholder proposal until the next annual meeting unless a
special meeting is called by the Company Board or the Chairman of the Board.
Advance Notice Procedures
The By-Laws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors or to bring other business
before an annual meeting of stockholders of the Company (the "Stockholder Notice
Procedure"). The Stockholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the Chairman of the Board, or by a
stockholder who has given timely written notice to the Secretary of the Company
prior to the meeting at which directors are to be elected, will be eligible for
election as directors of the Company. The Stockholder Notice Procedure also
provides that at an annual meeting only such business may be conducted as has
been brought before the meeting by, or at the direction of, the Chairman of the
Board or the Company Board, or by a stockholder who has given timely written
notice to the Secretary of the Company of such stockholder's intention to bring
such business before such meeting. Under the Stockholder Notice Procedure, for
notice of stockholder nominations to be made at an annual meeting to be timely,
such notice must be received by the Company not later than the close of business
on the 90th calendar day nor earlier than the close of business on the 120th
calendar day prior to the first anniversary of the preceding year's annual
meeting (except that, in the event that the date of the annual meeting is more
than 30 calendar days before or more than 60 calendar days after such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the close of business on the 120th calendar day prior to such
annual meeting and not later than the close of business on the later of the 90th
calendar day prior to such annual meeting or the 10th calendar day following the
day on which public announcement of a meeting date is first made by the
Company).
Notwithstanding the foregoing, in the event that the number of directors to
be elected to the Company Board is increased and there is no public announcement
by the Company naming all of the nominees for director or specifying the size of
the increased Company Board at least 100 calendar days prior to the first
anniversary of the preceding year's annual meeting, a stockholder's notice also
will be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered not later than the
close of business on the 10th calendar day following the day on which such
public announcement is first made by the Company. Under the Stockholder Notice
Procedure, for notice of a stockholder nomination to be made at a special
meeting at which directors are to be elected to be timely, such notice must be
received by the Company not earlier than the close of business on the 120th
calendar day prior to such special meeting and not later than the close of
business on the later of the 90th calendar day prior to such special meeting or
the 10th calendar day following the day on which public announcement is first
made of the date of the special meeting and of the nominees proposed by the
Company Board to be elected at such meeting.
In addition, under the Stockholder Notice Procedure, a stockholder's notice
to the Company proposing to nominate a person for election as a director or
relating to the conduct of business other than the nomination of directors must
contain certain specified information. If the chairman of a meeting determines
that an individual was not nominated, or other business was not brought before
the meeting, in accordance with the
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Stockholder Notice Procedure, such individual will not be eligible for election
as a director, or such business will not be conducted at such meeting, as the
case may be.
The Stockholder Notice Procedure does not apply to AT&T and its affiliates
prior to the Trigger Date.
Amendment
The Certificate provides that the affirmative vote of the holders of at
least 80% of the Voting Stock, voting together as a single class, is required to
amend provisions of the Certificate relating to stockholder action without a
meeting; the calling of special meetings; the number, election and term of the
Company's directors; the filling of vacancies; and the removal of directors. The
Certificate further provides that the related By-Laws described above (including
the Stockholder Notice Procedure) may be amended only by the Company Board or by
the affirmative vote of the holders of at least 80% of the voting power of the
outstanding shares of Voting Stock, voting together as a single class.
Rights Plan
The Company Board currently expects to adopt a Share Purchase Rights Plan
(the "Rights Plan") on or prior to the Closing Date. Pursuant to the Rights
Plan, the Company Board will cause to be issued one preferred share purchase
right (a "Right") for each outstanding share of Common Stock. Each Right will
entitle the registered holder to purchase from the Company one one-hundredth of
a share of a new series of junior preferred stock, par value $1.00 per share
(the "Junior Preferred Shares"), of the Company at a price of $90 per share (the
"Purchase Price"), subject to adjustment. The description and terms of the
Rights will be set forth in a Rights Agreement (the "Rights Agreement"), between
the Company and the designated Rights Agent (the "Rights Agent"). The
description set forth below is intended as a summary only and is qualified in
its entirety by reference to the form of the Rights Agreement, which will be
filed as an exhibit to the Registration Statement. See "Available Information."
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") have acquired beneficial ownership of 10% or more of the outstanding
shares of Common Stock or (ii) 10 business days (or such later date as may be
determined by action of the Company Board prior to such time as any person
becomes an Acquiring Person) following the commencement of, or announcement of
an intention to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 10% or more of
such outstanding shares of Common Stock (the earlier of such dates being called
the "Rights Distribution Date"), the Rights will be evidenced by the
certificates representing the Common Stock.
The Rights Agreement will provide that, until the Rights Distribution Date
(or earlier redemption or expiration of the Rights), the Rights will be
transferred with and only with the Common Stock. Until the Rights Distribution
Date (or earlier redemption or expiration of the Rights), the Common Stock
certificates will contain a notation incorporating the Rights Agreement by
reference. As soon as practicable following the Rights Distribution Date,
separate certificates evidencing the Rights (the "Right Certificates") will be
mailed to holders of record of the Common Stock as of the close of business on
the Rights Distribution Date and such separate Right Certificates alone will
evidence the Rights.
The Rights will not be exercisable until the Rights Distribution Date. The
Rights will expire on the 10th anniversary of the date of issuance (the "Final
Expiration Date"), unless the Final Expiration Date is extended or unless the
Rights are earlier redeemed or exchanged by the Company, in each case, as
summarized below.
In the event that any person or group of affiliated or associated persons
become an Acquiring Person, proper provision shall be made so that each holder
of a Right, other than Rights beneficially owned by the Acquiring Person (which
will thereafter be void), will thereafter have the right to receive upon
exercise that number of shares of Common Stock having a market value of two
times the exercise price of the Right. In the event that the Company is acquired
in a merger or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold after a person or group of
affiliated or associated persons
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becomes an Acquiring Person, proper provision will be made so that each holder
of a Right will thereafter have the right to receive, upon the exercise thereof
at the then-current exercise price of the Right, that number of shares of common
stock of the acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the Right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 10% or more of the then
outstanding Common Stock and prior to the acquisition by such person or group of
50% or more of the outstanding Common Stock, the Company Board may exchange the
Rights (other than Rights owned by such person or group which have become void),
in whole or in part, at an exchange ratio of one share of Common Stock, or one
one-hundredth of a Junior Preferred Share, per Right (subject to adjustment).
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 10% or more of the then
outstanding Common Stock, the Company Board may redeem the Rights in whole, but
not in part, at a price of $.01 per Right (the "Redemption Price"). The
redemption of the Rights may be made effective at such time on such basis and
with such conditions as the Company Board, in its sole discretion, may
establish. Immediately upon any redemption of the Rights, the right to exercise
the rights will terminate and the only right of the holders of the Rights will
be eligible to receive the Redemption Price.
The terms of the Rights may be amended by the Company Board without the
consent of the holders of the Rights; provided, however, that, from and after
such time as any person or group of affiliated or associated persons becomes an
Acquiring Person, no such amendment may adversely affect the interests of the
holders of the Rights. Until a Right is exercised, the holder thereof, as such,
will have no rights as a stockholder of the Company, including, without
limitation, the right to vote or to receive dividends.
The number of outstanding Rights and the number of one one-hundredths of a
Junior Preferred Share issuable upon exercise of each Right also will be subject
to adjustment in the event of a stock split of the Common Stock or a stock
dividend on the Common Stock payable in Common Stock or subdivisions,
consolidations or combinations of the Common Stock occurring, in any such case,
prior to the Rights Distribution Date. The Purchase Price payable, and the
number of Junior Preferred Shares or other securities or property issuable, upon
exercise of the Rights will be subject to adjustment from time to time to
prevent dilution (i) in the event of a stock dividend on, or a subdivision,
combination or reclassification of, the Junior Preferred Shares, (ii) upon the
grant to holders of the Junior Preferred Shares of certain rights or warrants to
subscribe for or purchase Junior Preferred Shares at a price, or securities
convertible into Junior Preferred Shares with a conversion price, less than the
then-current market price of the Junior Preferred Shares or (iii) upon the
distribution to holders of the Junior Preferred Shares of evidences of
indebtedness or assets (excluding regular periodic cash dividends paid out of
earnings or retained earnings or dividends payable in Junior Preferred Shares)
or of subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least one
percent in such Purchase Price. No fractional Junior Preferred Shares will be
issued (other than fractions which are integral multiples of one one-hundredth
of a Junior Preferred Share, which may, at the election of the Company, be
evidenced by depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Junior Preferred Shares on the
last trading day prior to the date of exercise.
Junior Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Junior Preferred Share will be entitled to a minimum
preferential quarterly dividend payment of $1.00 per share but will be entitled
to an aggregate dividend of 100 times the dividend declared per share of Common
Stock. In the event of liquidation, the holders of the Junior Preferred Shares
will be entitled to a minimum preferential liquidation payment of $100 per share
but will be entitled to an aggregate payment of 100 times the payment made per
share of Common Stock. Each Junior Preferred Share will have 100 votes voting
together with the Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of Common Stock are
exchanged, each Junior Preferred Share will be entitled to receive 100 times the
amount received per Common Stock. These rights are protected by customary
anti-dilution provisions.
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Due to the nature of the Junior Preferred Shares' dividend, liquidation and
voting rights, the value of the one one-hundredth interest in a Junior Preferred
Share purchasable upon exercise of each Right should approximate the value of
one share of Common Stock.
The Rights have certain antitakeover effects. The Rights will cause
substantial dilution to a person or group of persons that attempts to acquire
the Company on terms not approved by the Company Board. The Rights should not
interfere with any merger or other business combination approved by the Company
Board prior to the time that a person or group has acquired beneficial ownership
of 10% percent or more of the Common Stock since the Rights may be redeemed by
the Company at the Redemption Price until such time.
The Rights contain certain provisions to exclude AT&T and its affiliates
and associates from the operative provisions thereof.
DELAWARE BUSINESS COMBINATION STATUTE
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, an "interested stockholder" of a Delaware corporation shall
not engage in any business combination, including mergers or consolidations or
acquisitions of additional shares of the corporation, with the corporation for a
three-year period following the date that such stockholder becomes an interested
stockholder unless (i) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
"interested stockholder," the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares), or (iii) on or subsequent to such date,
the business combination is approved by the board of directors of the
corporation and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least 66 2/3% of the outstanding voting stock which
is not owned by the interested stockholder. Except as otherwise specified in
Section 203, an interested stockholder is defined to include (x) any person that
is the owner of 15% or more of the outstanding voting stock of the corporation,
or is an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within three
years immediately prior to the date of determination and (y) the affiliates and
associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an interested stockholder to effect various business
combinations with a corporation for a three-year period. The Company has not
elected to be exempt from the restrictions imposed under Section 203. However,
AT&T and its affiliates are excluded from the definition of "interested
stockholder" pursuant to the terms of Section 203. The provisions of Section 203
may encourage persons interested in acquiring the Company to negotiate in
advance with the Company Board, since the stockholder approval requirement would
be avoided if a majority of the directors then in office approves either the
business combination or the transaction which results in any such person
becoming an interested shareholder. Such provisions also may have the effect of
preventing changes in the management of the Company. It is possible that such
provisions could make it more difficult to accomplish transactions which the
Company's stockholders may otherwise deem to be in their best interests.
LIABILITY OF DIRECTORS; INDEMNIFICATION
The Certificate provides that a director of the Company will not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except, if required by the DGCL as
amended from time to time, for liability (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL, which concerns unlawful payments of
dividends, stock purchases or redemptions, or (iv) for any transaction from
which the director derived an improper personal benefit. Neither the amendment
nor repeal of such provision will eliminate or reduce the effect of such
provision in respect of any matter occurring, or any cause of action, suit or
claim that, but for such provision, would accrue or arise prior to such
amendment or repeal.
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While the Certificate provides directors with protection from awards for
monetary damages for breaches of their duty of care, it does not eliminate such
duty. Accordingly, the Certificate will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care.
The Certificate provides that each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person, or a person of whom such person is the legal
representative, is or was a director or officer of the Company or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, will be indemnified and held harmless by
the Company to the fullest extent authorized by the DGCL, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to provide prior to
such amendment), against all expense, liability and loss reasonably incurred or
suffered by such person in connection therewith. Such right to indemnification
includes the right to have the Company pay the expenses incurred in defending
any such proceeding in advance of its final disposition, subject to the
provisions of the DGCL. Such rights are not exclusive of any other right which
any person may have or thereafter acquire under any statute, provision of the
Certificate, By-Law, agreement, vote of stockholders or disinterested directors
or otherwise. No repeal or modification of such provision will in any way
diminish or adversely affect the rights of any director, officer, employee or
agent of the Company thereunder in respect of any occurrence or matter arising
prior to any such repeal or modification. The Certificate also specifically
authorizes the Company to maintain insurance and to grant similar
indemnification rights to employees or agents of the Company.
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York will be the transfer agent and
registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 635,624,894 shares of Common Stock to be outstanding as of the
Closing Date (652,274,894 shares if the U.S. Underwriters exercise their
overallotment option in full) the 111,000,000 shares of Common Stock sold in the
Offerings (127,650,000 shares if the U.S. Underwriters exercise their
overallotment option in full) will be freely tradable without restriction under
the Securities Act of 1933, as amended (the "1933 Act"), except for any such
shares which be may acquired by an affiliate of the Company (an "Affiliate"), as
that term is defined in Rule 144 promulgated under the 1933 Act ("Rule 144").
AT&T has announced that, subject to certain conditions, AT&T intends to
distribute to its shareholders by December 31, 1996 all of the Common Stock of
the Company owned by AT&T by means of the Distribution. Shares of Common Stock
distributed to AT&T shareholders in the Distribution generally will be freely
transferable, except for shares of Common Stock received by persons who may be
deemed to be Affiliates. Persons who may be deemed to be Affiliates generally
include individuals or entities that control, are controlled by, or are under
common control with, the Company and may include directors and certain officers
of the Company as well as significant stockholders of the Company, if any.
Persons who are Affiliates will be permitted to sell the shares of Common Stock
that are issued in the Offerings or that they receive in the Distribution only
pursuant to an effective registration statement under the 1933 Act or an
exemption from the registration requirements of the 1933 Act, including
exemptions provided by Rule 144.
The shares of Common Stock held by AT&T are deemed "restricted securities"
as defined in Rule 144, and may not be sold other than through registration
under the 1933 Act or pursuant to an exemption from the regulations thereunder,
including exceptions provided by Rule 144. The Company and AT&T have agreed not
to offer or sell any shares of Common Stock, subject to certain exceptions
(including the Distribution), for a
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period of 180 days after the date of this Prospectus, without the prior written
consent of the Underwriters. See "Underwriting."
Under the 1996 LTIP, the Company will issue Substitute Awards in
substitution for AT&T Stock Awards outstanding under various AT&T employee
benefit plans. See "Arrangements Between the Company and AT&T -- Employee
Benefits Agreement". In addition to such Substitute Awards, the Company may
grant shares of Common Stock and non-stock awards pursuant to the 1996 LTIP
subject to certain restrictions. See "Management -- 1996 Company Long Term
Incentive Plan." The Company currently expects to file in 1996 a registration
statement under the 1933 Act to register shares reserved for issuance under the
1996 LTIP. Shares issued pursuant to Awards after the effective date of such
registration statement (other than shares issued to Affiliates) generally will
be freely tradeable without restriction or further registration under the 1933
Act.
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UNDERWRITING
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters
named below for whom Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as U.S.
Representatives, and the International Underwriters named below for whom Morgan
Stanley & Co. International Limited, Goldman, Sachs International and Merrill
Lynch International Limited are acting as International Representatives, have
severally agreed to purchase, and the Company has agreed to sell to them,
severally, the respective numbers of shares of Common Stock set forth opposite
the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---------------------------------------------------------------- -----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.............................
Goldman, Sachs & Co. .........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................
Bear, Stearns & Co. Inc. .....................................
CS First Boston Corporation...................................
J.P. Morgan Securities Inc. ..................................
PaineWebber Incorporated......................................
----------
Subtotal................................................... 97,000,000
International Underwriters:
Morgan Stanley & Co. International Limited....................
Goldman Sachs International...................................
Merrill Lynch International Limited...........................
Banque Paribas................................................
Morgan Grenfell & Co. Limited.................................
Swiss Bank Corporation........................................
UBS Limited...................................................
Bear, Stearns International Limited...........................
CS First Boston Limited.......................................
J.P. Morgan Securities Ltd. ..................................
PaineWebber International (U.K.) Ltd. ........................
----------
Subtotal................................................... 14,000,000
----------
Total................................................. 111,000,000
==========
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
shares of Common Stock offered hereby (other than those covered by the U.S.
Underwriters' overallotment option described below) if any such shares are
taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (a)
it is not purchasing any U.S. Shares (as defined herein) for the account of
anyone other than a United States or Canadian Person (as defined herein) and (b)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside
of the United States or Canada or to anyone other than a United States or
Canadian Person. Pursuant to the Agreement between U.S. and International
Underwriters, each International Underwriter has represented and agreed that,
with certain exceptions: (i) it is not purchasing any International Shares (as
defined herein) for the account of any United States or Canadian
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Person and (ii) it has not offered or sold, and will not offer or sell, directly
or indirectly, any International Shares or distribute any prospectus relating to
the International Shares in the United States or in any province or territory of
Canada or to any United States or Canadian Person. The foregoing limitations do
not apply to stabilization transactions or to certain other transactions
specified in the Agreement between U.S. and International Underwriters. As used
herein, "United States or Canadian Person" means any national or resident of the
United States or of any province or territory of Canada, or any corporation,
pension, profit-sharing or other trust or other entity organized under the laws
of the United States or Canada or of any political subdivision thereof (other
than a branch located outside the United States and Canada of any United States
or Canadian Person) and includes any United States or Canadian branch of a
person who is otherwise not a United States or Canadian Person. All shares of
Common Stock to be purchased by the U.S. Underwriters and the International
Underwriters are referred to herein as the "U.S. Shares" and the "International
Shares," respectively.
Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares sold shall be the Price to Public set forth on the cover page hereof, in
United States dollars, less an amount not greater than the per share amount of
the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in any
province or territory of Canada in contravention of the securities laws thereof
and has represented that any offer of Common Stock in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
shares of Common Stock a notice stating in substance that, by purchasing such
Common Stock, such dealer represents and agrees that it has not offered or sold,
and will not offer or sell, directly or indirectly, any of such Common Stock in
any province or territory of Canada or to, or for the benefit of, any resident
of any province or territory of Canada in contravention of the securities laws
thereof and that any offer of Common Stock in Canada will be made only pursuant
to an exemption from the requirement to file a prospectus in the province or
territory of Canada in which such offer is made, and that such dealer will
deliver to any other dealer to whom it sells any of such Common Stock a notice
to the foregoing effect.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and during the period of six months after the date hereof will not offer
to sell any shares of Common Stock to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of their
business or otherwise in circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995 (the "U.K. Regulations"); (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 and the U.K. Regulations with respect to anything done by it
in relation to the shares of Common Stock offered hereby in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and will
only issue or pass on to any person in the United Kingdom any document received
by it in connection with the issue of the shares of Common Stock, other than any
document which consists of, or is a part of, listing particulars, supplementary
listing particulars or any other document required or permitted to be published
by listing rules under Article IV of the Financial Services Act 1986, if that
person is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1995, or is a person to whom
the document may otherwise lawfully be issued or passed on.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the Price to Public set forth on the cover page
hereof and part to certain dealers at a price which represents a concession not
in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to other Underwriters or to
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certain dealers. After the initial offering of the shares of Common Stock, the
offering price and other selling terms may from time to time be varied by the
Representatives.
The Common Stock has been approved for listing, subject to official notice
of issuance, on the NYSE under the symbol "LU."
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 16,650,000 additional shares of Common Stock at
the public offering price set forth on the cover page hereof, less underwriting
discounts and commissions. The U.S. Underwriters may exercise such option to
purchase solely for the purpose of covering overallotments, if any, made in
connection with the offering of the shares of Common Stock offered hereby. To
the extent such option is exercised, each U.S. Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number set forth next to such U.S.
Underwriter's name in the preceding table bears to the total number of shares of
Common Stock offered by the U.S. Underwriters in the Offerings.
The Company has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated, it will not (a) register for sale or offer, issue,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (b) enter into any swap or other agreement that
transfers, in whole or in part, any of the economic consequences of ownership of
Common Stock, whether any such transaction described in clause (a) or (b) of
this sentence is to be settled by delivery of Common Stock or other securities,
in cash or otherwise, for a period of 180 days after the date of this
Prospectus, other than: (i) the shares of Common Stock offered hereby; (ii) any
shares of Common Stock issued upon the exercise, exchange or conversion of a
security outstanding on the date of this Prospectus; and (iii) any shares of
Common Stock issued pursuant to employee benefit, director or shareholder plans
or other continuous offerings of the same type of the Company (including in
connection with any Substitute Awards). In addition, except for the Distribution
and as set forth above, AT&T has agreed not to (a) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (b) enter into any swap or other agreement that transfers, in whole or in
part, the economic consequences of ownership of Common Stock, whether any such
transaction described in clause (a) or (b) of this sentence is to be settled by
delivery of Common Stock or other securities, in cash or otherwise, for a period
of 180 days after the date of this Prospectus without the prior written consent
of Morgan Stanley & Co. Incorporated.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the 1933 Act.
From time to time, each of Morgan Stanley & Co. Incorporated, Goldman,
Sachs & Co. and Merrill Lynch & Co. provide certain financial advisory services
to each of the Company and AT&T.
PRICING OF THE OFFERING
Prior to the Offerings, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock was determined by
negotiations between the Company and the Representatives. Among the factors
considered in determining the initial public offering price were the sales,
earnings and certain other pro forma financial and operating information of the
Company in recent periods, the future prospects of the Company and its industry
in general, and certain ratios and market prices of securities and certain
financial and operating information of companies engaged in activities similar
to those of the Company.
100
<PAGE> 103
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other legal
matters will be passed upon for the Company by Richard J. Rawson, Senior Vice
President and General Counsel of the Company, and by Wachtell, Lipton, Rosen &
Katz, New York, New York. Certain legal matters will be passed upon for the
Underwriters by Davis Polk & Wardwell, New York, New York.
EXPERTS
The audited consolidated financial statements and financial statement
schedule included in this Prospectus and in the Registration Statement of which
this Prospectus forms a part have been included herein in reliance on the report
of Coopers & Lybrand L.L.P., independent auditors, given on the authority of
that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the 1933 Act with respect to the Common
Stock offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain parts of which have been omitted in accordance with the rules
and regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete, and, in each instance, reference is made to the copy of the document
filed as an exhibit to the Registration Statement. The Registration Statement
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; and at
the Commission's regional offices at Suite 1400, Northwest Atrium Center, 500
West Madison Street, Chicago, Illinois 60661, and 7 World Trade Center (13th
Floor), New York, New York 10048. Copies of such material can also be obtained
from the Commission at prescribed rates through its Public Reference Section at
450 Fifth Street, N.W., Washington, D.C. 20549.
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934 (the "1934 Act"). As a result of the
Offerings, the Company will become subject to the informational requirements of
the 1934 Act. The Company will fulfill its obligations with respect to such
requirements by filing periodic reports and other information with the
Commission. In addition, the Company intends to furnish to its stockholders
annual reports containing consolidated financial statements examined by an
independent public accounting firm.
FOR FLORIDA RESIDENTS
AT&T, the parent of the Company, provides telecommunications services
between the United States and Cuba jointly with Empresa de Telecomunicaciones
Internacionales de Cuba ("EMTELCUBA"), the Cuban telephone company, pursuant to
all applicable U.S. laws and regulations. All payments due EMTELCUBA are handled
in accordance with the provisions of the Cuban Assets Control Regulations and
the Cuban Democracy Act of 1992 and specific licenses issued thereunder. AT&T is
the sole owner of the Cuban American Telephone and Telegraph Company ("CATT"), a
Cuban corporation. CATT owns cable facilities between the United States and Cuba
that were activated on November 25, 1994.
This information is accurate as of the date hereof. Current information
concerning the Company's and its affiliates' business dealings with the
government of Cuba or with any person or affiliate located in Cuba may be
obtained from the Division of Securities and Investor Protection of the Florida
Department of Banking and Finance, the Capitol, Tallahassee, Florida 32399-0350,
telephone number (904) 488-9805.
101
<PAGE> 104
LUCENT TECHNOLOGIES INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Consolidated Statements of Operations for the three years ended December 31, 1995..... F-3
Consolidated Balance Sheets at December 31, 1995 and 1994............................. F-4
Consolidated Statements of Changes in Stockholder's Equity for the three years ended
December 31, 1995................................................................... F-5
Consolidated Statements of Cash Flows for the three years ended December 31, 1995..... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 105
REPORT OF INDEPENDENT AUDITORS
To the Stockholder of Lucent Technologies Inc.:
We have audited the consolidated financial statements of Lucent
Technologies Inc. and subsidiaries (the "Company") listed in the index on page
F-1 of this Form S-1. We have also audited the financial statement schedule of
the Company appearing on page S-1 of this Form S-1. These financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Lucent
Technologies Inc. and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations, changes in their stockholder's equity
and their cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles. In
addition, in our opinion the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
As discussed in Note 3 to the consolidated financial statements, in 1993
the Company changed its methods of accounting for postretirement benefits,
postemployment benefits and income taxes.
Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York
January 25, 1996
(Note 14 is dated February 1, 1996)
F-2
<PAGE> 106
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1995 1994 1993
------- ------- -------
(IN MILLIONS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES (includes $2,119 in 1995, $2,137 in 1994, and $1,967
in 1993 from AT&T) (Note 12)................................ $21,413 $19,765 $17,734
COSTS......................................................... 12,945 11,337 10,088
------- ------- -------
GROSS MARGIN.................................................. 8,468 8,428 7,646
------- ------- -------
OPERATING EXPENSES
Selling, general and administrative expenses (Note 12)........ 7,083 5,360 5,016
Research and development expenses............................. 2,385 2,097 1,961
------- ------- -------
TOTAL OPERATING EXPENSES...................................... 9,468 7,457 6,977
------- ------- -------
OPERATING INCOME (LOSS)....................................... (1,000) 971 669
Other income -- net (Note 4).................................. 164 83 193
Interest expense (includes $237 in 1995, $203 in 1994, and
$162 in 1993 to AT&T) (Note 7).............................. 302 270 243
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECTS OF
ACCOUNTING CHANGES.......................................... (1,138) 784 619
Provision (benefit) for income taxes (Note 6)................. (271) 302 189
------- ------- -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECTS OF ACCOUNTING
CHANGES..................................................... (867) 482 430
Cumulative effects of accounting changes, net of taxes (Note
3).......................................................... -- -- (4,208)
------- ------- -------
NET INCOME (LOSS)............................................. $ (867) $ 482 $(3,778)
======= ======= =======
UNAUDITED PRO FORMA NET INCOME (LOSS) PER COMMON SHARE (Note
1).......................................................... $ (1.65)
=======
</TABLE>
The notes on pages F-7 through F-23 are an integral part of the consolidated
financial statements.
F-3
<PAGE> 107
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31
----------------------
1995 1994
------- -------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Cash and cash equivalents (Note 14)................................... $ 448 $ 580
Accounts receivable, less allowances of $248 in 1995, and $206 in
1994................................................................ 5,354 4,191
Inventories (Note 4).................................................. 3,222 2,405
Deferred income taxes -- net (Note 6)................................. 1,482 1,028
Other current assets.................................................. 173 288
------- -------
TOTAL CURRENT ASSETS.................................................. 10,679 8,492
Property, plant and equipment -- net (Note 4)......................... 4,338 4,676
Prepaid pension costs (Note 8)........................................ 2,522 2,252
Deferred income taxes -- net (Note 6)................................. 872 685
Capitalized software.................................................. 387 420
Other assets.......................................................... 924 815
------- -------
TOTAL ASSETS.......................................................... $19,722 $17,340
======= =======
LIABILITIES
Accounts payable...................................................... $ 1,229 $ 945
Payroll and benefit-related liabilities............................... 3,026 1,931
Postretirement and postemployment benefit liabilities (Notes 3 and
9).................................................................. 227 594
Debt sharing amount in anticipation of assumption of the Commercial
Paper Program (Notes 7 and 14)...................................... 3,842 2,961
Debt maturing within one year......................................... 49 49
Other current liabilities............................................. 2,690 1,766
------- -------
TOTAL CURRENT LIABILITIES............................................. 11,063 8,246
Postretirement and postemployment benefit liabilities (Notes 3 and
9).................................................................. 5,569 5,566
Long-term debt........................................................ 123 154
Other liabilities..................................................... 1,533 898
Commitments and contingencies (Note 13)
------- -------
TOTAL LIABILITIES..................................................... 18,288 14,864
STOCKHOLDER'S EQUITY
Common stock: 1,000 shares, without par value, authorized, issued
and outstanding at December 31, 1995............................. -- --
Additional paid-in capital.......................................... 1,406 --
Foreign currency translation........................................ 28 92
Stockholder's net investment........................................ -- 2,384
------- -------
TOTAL STOCKHOLDER'S EQUITY............................................ 1,434 2,476
------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY............................ $19,722 $17,340
======= =======
</TABLE>
The notes on pages F-7 through F-23 are an integral part of the consolidated
financial statements.
F-4
<PAGE> 108
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C>
Common Stock
Balance -- Beginning of Year..................................... $ -- $ -- $ --
Issuance of 1,000 shares without par value.......................
------- ------ -------
Balance -- End of Year........................................... $ -- $ -- $ --
------- ------ -------
Additional Paid-in-Capital
Balance -- Beginning of Year..................................... $ -- $ -- $ --
Contribution from AT&T........................................... 1,406 -- --
------- ------ -------
Balance -- End of Year........................................... 1,406 -- --
------- ------ -------
Foreign Currency Translation
Balance -- Beginning of Year..................................... $ 92 $ (10) $ (26)
Translation adjustments.......................................... (64) 102 16
------- ------ -------
Balance -- End of Year........................................... $ 28 $ 92 $ (10)
------- ------ -------
Stockholder's Net Investment
Balance -- Beginning of Year..................................... $ 2,384 $2,590 $ 3,124
Net income (loss)................................................ (867) 482 (3,778)
Transfers from (to) AT&T......................................... (111) (688) 3,244
Transfer to Additional Paid-in-Capital........................... (1,406) -- --
------- ------ -------
Balance -- End of Year........................................... $ -- $2,384 $ 2,590
------- ------ -------
Total Stockholder's Equity......................................... $ 1,434 $2,476 $ 2,580
------- ------ -------
</TABLE>
The notes on pages F-7 through F-23 are an integral part of the consolidated
financial statements.
F-5
<PAGE> 109
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1995 1994 1993
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................................. $ (867) $ 482 $ (3778)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Business restructuring charge............................... 2,613 -- --
Asset impairment and other charges.......................... 188 -- --
Cumulative effects of accounting changes.................... -- -- 4,208
Depreciation and amortization............................... 1,493 1,311 1,213
Deferred income taxes....................................... (653) 338 64
Provision for uncollectibles................................ 69 83 68
Other adjustments for noncash items, net.................... (103) (177) (375)
Increase in accounts receivable............................. (1,203) (159) (645)
Increase in inventories..................................... (1,089) (26) (409)
Increase in accounts payable................................ 271 291 42
Net increase in other operating assets and liabilities...... (241) (564) (1,656)
------- ------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES........... 478 1,579 (1,268)
------- ------- -------
INVESTING ACTIVITIES
Capital expenditures.......................................... (1,277) (878) (577)
Proceeds from sale or disposal of property, plant and
equipment................................................... 118 15 38
Purchases of equity investments............................... (86) (38) (48)
Sales of equity investments................................... -- 290 3
(Acquisitions) dispositions, net of cash acquired............. 10 119 (170)
Other investing activities, net............................... (107) (75) (333)
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES......................... (1,342) (567) (1,087)
------- ------- -------
FINANCING ACTIVITIES
Repayments of long-term debt.................................. (46) (22) (109)
Proceeds (repayments) of debt sharing agreement -- net........ 881 53 (624)
Transfers from (to) AT&T...................................... (111) (688) 3,244
Decrease in short-term borrowings -- net...................... -- (84) (1)
------- ------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES........... 724 (741) 2,510
------- ------- -------
Effect of exchange rate changes on cash....................... 8 13 (5)
------- ------- -------
Net increase (decrease) in cash and cash equivalents.......... (132) 284 150
Cash and cash equivalents at beginning of year................ 580 296 146
------- ------- -------
Cash and cash equivalents at end of year...................... $ 448 $ 580 $ 296
======= ======= =======
</TABLE>
Interest paid was $303, $274 and $353 during 1995, 1994 and 1993,
respectively. Income taxes paid were $224, $46 and $98, during 1995, 1994 and
1993 respectively.
The notes on pages F-7 through F-23 are an integral part of the
consolidated financial statements.
F-6
<PAGE> 110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
1. BACKGROUND AND BASIS OF PRESENTATION
BACKGROUND
Lucent Technologies Inc. (the "Company") is currently a wholly owned
subsidiary of AT&T. On September 20, 1995, AT&T announced its intention to
create a separate company comprised of the AT&T businesses and operations that
now comprise the Company, and the associated assets and liabilities of such
businesses and operations and Bell Laboratories (the "Separation"). AT&T also
announced its intention to distribute to its shareholders by December 31, 1996,
subject to certain conditions, all of its interest in the Company following the
Offerings (the "Distribution"). The Company was incorporated on November 29,
1995 with 1,000 shares of Common Stock, without par value, authorized and
outstanding, all of which are owned by AT&T. Beginning February 1, 1996, AT&T is
planning to transfer to the Company substantially all of the assets and
liabilities related to the Company's operations, except that AT&T is retaining
approximately $2,000 in accounts receivable.
BASIS OF PRESENTATION
The consolidated financial statements reflect the results of operations,
financial position, changes in stockholder's equity and cash flows of the
businesses that will be transferred to the Company from AT&T in the Separation
(the "Company Businesses") as if the Company were a separate entity for all
periods presented. The consolidated financial statements have been prepared
using the historical basis in the assets and liabilities and historical results
of operations related to the Company Businesses. Changes in additional paid-in
capital and stockholder's net investment represent AT&T's contribution of its
net investment after giving effect to the net income (loss) of the Company plus
net cash transfers to or from AT&T. The Company will begin accumulating its
retained earnings on February 1, 1996, the date on which AT&T will begin to
transfer to the Company substantially all of the assets and liabilities relating
to the Company's operations.
Additionally, the consolidated financial statements include allocations of
certain AT&T corporate headquarters assets (including prepaid pension assets),
liabilities (including debt and benefit obligations, pension and postretirement
benefits), and expenses relating to the Company Businesses that will be
transferred to the Company from AT&T. Management believes these allocations are
reasonable. All material intercompany transactions and balances between the
Company Businesses have been eliminated.
The liabilities of the Company include outstanding direct third-party
indebtedness and the amounts of debt and related interest expense determined
under the Debt Sharing Agreement discussed in Note 7.
Interest expense shown in the consolidated financial statements reflects
the interest expense associated with the aggregate borrowings for each period
presented principally based on a blend of AT&T's short-term and long-term
weighted average interest rates for the applicable period. General corporate
overhead related to AT&T's corporate headquarters and common support divisions
has been allocated to the Company based on the ratio of the Company's external
costs and expenses to AT&T's external costs and expenses. Management believes
these allocations are reasonable. However, the costs of these services charged
to the Company are not necessarily indicative of the costs that would have been
incurred if the Company had performed these functions as a stand-alone entity.
Subsequent to the Separation, the Company will perform these functions using its
own resources or purchased services and will be responsible for the costs and
expenses associated with the management of a public corporation. Additionally,
income taxes are calculated on a separate tax return basis.
The Company's financial statements include the costs experienced by the
AT&T pension and postretirement benefit plans for employees and retirees for
whom the Company will assume responsibility.
F-7
<PAGE> 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. BACKGROUND AND BASIS OF PRESENTATION -- (CONTINUED)
The financial information included herein may not necessarily reflect the
consolidated results of operations, financial position, changes in stockholder's
equity and cash flows of the Company in the future or what they would have been
had it been a separate, stand-alone entity during the periods presented.
EARNINGS (LOSS) PER COMMON SHARE
The Company has 1,000 shares of Common Stock outstanding, all of which are
owned by AT&T. Immediately prior to the Offerings, the Company will effect a
stock split or other issuance of shares resulting in 524,624,894 shares
outstanding. The pro forma net loss per common share was calculated by dividing
the 1995 net loss of $867 million by the 524,624,894 shares of Common Stock.
Subsequent to the Offerings of 111,000,000 shares, 635,624,894 shares will be
outstanding. Replacement stock options and awards have not been considered in
calculating the pro forma net loss per common share because their effect would
be anti-dilutive.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include all majority-owned
subsidiaries of the Company. Investments in which the Company exercises
significant influence but which it does not control (generally a 20% - 50%
ownership interest) are accounted for under the equity method of accounting.
Investments in which the Company has less than a 20% ownership interest are
accounted for under the cost method of accounting.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenue and expenses during the period reported. Actual results
could differ from those estimates. Estimates are used when accounting for
long-term contracts, allowance for uncollectible accounts receivable, inventory
obsolescence, product warranty, depreciation, employee benefit plans, taxes,
restructuring reserves and contingencies.
CURRENCY TRANSLATION
For operations outside the United States that prepare financial statements
in currencies other than the United States dollar, income statement amounts are
translated at average exchange rates during the year, and assets and liabilities
are translated at year-end exchange rates. These translation adjustments are
included as a separate component of stockholder's equity.
REVENUE RECOGNITION
Revenue is generally recognized on the sales of products or services when
the products are delivered or the services performed, all substantial
contractual obligations have been satisfied, and the collection of the resulting
receivable is deemed probable. Revenue from sales of software products is
generally recognized upon product delivery, acceptance, and completion of all
significant vendor obligations. Revenue from rental sales is recognized
proportionately over the contract period. Revenues and estimated profits on
long-term construction type contracts are recognized under the percentage of
completion method of accounting using either a units of delivery or a cost to
cost methodology. Revisions of profit estimates are reflected in the period in
which the facts that require the revision to the estimate become known. Any
losses on contracts are immediately recognized when determinable.
F-8
<PAGE> 112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred except
for costs incurred for the development of computer software that will be sold,
leased or otherwise marketed which are capitalized when technological
feasibility has been established. These capitalized costs are recorded as
capitalized software and are subject to an ongoing assessment of recoverability
based upon anticipated future revenues and changes in hardware and software
technologies. Costs capitalized include direct labor and related overhead.
Amortization of capitalized software development costs begins when the
product is available for general release. Amortization is provided on a
product-by-product basis on either the straight-line method over periods not
exceeding two years or the sales ratio method. Unamortized capitalized software
development costs determined to be in excess of net realizable value of the
product are expensed at the date of such determination.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses various financial instruments, including derivative
financial instruments, for purposes other than trading. The Company does not
enter into derivative financial instruments for speculative purposes.
Derivatives, used as part of the Company's risk management strategy, must be
designated at inception as a hedge, and measured for effectiveness both at
inception and on an ongoing basis. For qualifying foreign currency hedges, the
gains and losses are deferred and recognized as adjustments of carrying amounts
when the underlying hedged transaction is recorded. Interest rate swap
agreements involve the periodic exchange of payments without the exchange of the
underlying principal or notional amounts. Net payments are recognized as an
adjustment to income or expense of the underlying hedged transaction. Gains and
losses on interest rate swap agreements that do not qualify as hedges are
recorded at fair value and recognized in other income or expense. If the Company
terminates a swap agreement, the gain or loss is recorded as an adjustment to
the basis of the underlying asset or liability and amortized over the remaining
life.
INCOME TAXES
Historically, the Company's operations have been included in the
consolidated income tax returns filed by AT&T. Income tax expense in the
Company's consolidated financial statements has been calculated on a separate
tax return basis.
INVESTMENT TAX CREDITS
For financial reporting purposes, investment tax credits are amortized as a
reduction to the provision for income taxes over the useful lives of the
property that produced the credits.
CASH AND CASH EQUIVALENTS
All highly liquid investments with original maturities of three months or
less are considered to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market (i.e., net realizable
value or replacement cost). Cost includes material, labor and manufacturing
overhead. Cost is determined principally on a first-in, first-out ("FIFO")
basis. Inventories also include unbilled costs and fees on contracts in process
net of progress payments.
F-9
<PAGE> 113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation is determined primarily using the unit method. The
group method is used for certain facilities and equipment, except factory
machinery which is depreciated using the unit method. When assets that were
depreciated using the unit method are sold, the gains or losses are included in
operating results. When assets that were depreciated using the group method are
sold or retired, the original cost is deducted from the plant account and from
accumulated depreciation and any proceeds are applied against accumulated
depreciation. Buildings are depreciated over a 30 year life and equipment is
depreciated over a range of 3 to 10 years.
Accelerated depreciation methods are used for certain high technology
computer processing equipment. All other facilities and equipment are
depreciated on a straight-line basis over their estimated useful lives.
GOODWILL
Goodwill is the excess of the purchase price over the fair value of net
assets acquired in business combinations accounted for as purchases. Goodwill is
amortized on a straight-line basis over the periods benefited, principally in
the range of 10 to 15 years. Goodwill is reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected future undiscounted cash flows is less
than the carrying amount of the asset, a loss is recognized immediately.
3. CHANGES IN ACCOUNTING PRINCIPLES
POSTRETIREMENT BENEFITS
AT&T adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," effective January 1, 1993. This standard requires
accrual of estimated future retiree benefits during the years employees are
working and accumulating these benefits. Previously, health care benefits were
expensed as claims were incurred and life insurance benefits were expensed as
plans were funded. AT&T recorded a one-time pretax charge for the unfunded
portions of these liabilities of $11,317 ($7,023 after taxes).
For purposes of preparing these consolidated financial statements,
estimates were made (see Note 9) of the Company's share of the unfunded portions
of postretirement benefit obligations and a one-time pretax charge of $6,142
($3,722 after taxes) was recorded. The impact of this change on 1993 operating
income was immaterial. This change in accounting does not affect cash flows.
POSTEMPLOYMENT BENEFITS
AT&T also adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," effective January 1, 1993. Analogous to SFAS No. 106, this standard
requires the Company to accrue for estimated future postemployment benefits,
including separation payments, during the years employees are working and
accumulating these benefits, and for disability payments when the disabilities
occur. Before this change in accounting, costs for separations were recognized
when approved and disability benefits were recognized when paid. AT&T recorded a
one-time pretax charge for the unprovided portion of these liabilities of $1,809
($1,128 after taxes).
For purposes of preparing these consolidated financial statements,
estimates were made of the Company's share of the unprovided portion of
postemployment liabilities and a one-time pretax charge of $875 ($530 after
taxes) was recorded. This change reduced 1993 operating income by $229 and net
income by $139. This change in accounting does not affect cash flows.
F-10
<PAGE> 114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. CHANGES IN ACCOUNTING PRINCIPLES -- (CONTINUED)
INCOME TAXES
The Company adopted SFAS No. 109, "Accounting for Income Taxes," effective
January 1, 1993. Among other provisions, this standard requires the computation
of deferred tax amounts using the enacted corporate income tax rates for the
years in which the taxes will be paid or refunds received. Before this change in
accounting, deferred tax accounts reflected rates in effect when the deferrals
were made.
The change in calculating deferred tax amounts required by this standard
resulted in a one-time benefit of $44 in the first quarter of 1993. This change
in accounting does not affect cash flows. The impact of this change on 1993
income before cumulative effect of accounting change was a $54 increase in net
income due to the increase in the federal statutory tax rate to 35% from 34%
during 1993. See Note 6. This change will only affect net income in future
periods if applicable tax rates change.
IMPAIRMENT OF LONG-LIVED ASSETS
Effective October 1, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." This standard requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The adoption of the standard did not materially impact
the Company's consolidated results of operations, financial condition or cash
flows because this was essentially the method the Company used in the past to
measure and record asset impairments. The 1995 restructuring and other charges
did include recognition of asset impairments.
STOCK-BASED COMPENSATION
In 1996, SFAS No. 123, "Accounting for Stock-Based Compensation," will be
adopted. This standard establishes a fair value method for accounting for or
disclosing stock-based compensation plans. This standard will be adopted by
disclosing the pro forma consolidated net income and earnings per share amounts
assuming the fair value method was effective on January 1, 1995. The adoption of
this standard will not impact consolidated results of operations, financial
position, or cash flows.
F-11
<PAGE> 115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUPPLEMENTARY FINANCIAL INFORMATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
1995 1994 1993
------ ---- ----
<S> <C> <C> <C>
INCLUDED IN COSTS
Amortization of software development costs.......................... $ 312 $345 $314
INCLUDED IN SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Amortization of goodwill............................................ $ 40 $ 31 $ 22
INCLUDED IN COSTS AND OPERATING EXPENSES
Depreciation and amortization of property, plant and equipment...... $1,109 $891 $836
OTHER INCOME
Interest income..................................................... $ 44 $ 24 $ 20
Minority interests in (earnings) losses of subsidiaries............. (20) (14) 21
Net equity (losses) earnings from investments....................... (25) 21 29
Increase in cash surrender value of life insurance.................. 40 30 32
Gain/loss on foreign currency transactions.......................... (26) (48) (13)
Miscellaneous -- net................................................ 151 70 104
------ ---- ----
Total other income -- net........................................... $ 164 $ 83 $193
====== ==== ====
</TABLE>
SUPPLEMENTARY BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
INVENTORIES
Completed goods......................................................... $ 1,673 $ 1,297
Unbilled costs and fees on contracts in process (net of progress
payments of $355 in 1995)............................................. 371 43
Work in process and raw materials....................................... 1,178 1,065
-------- -------
Inventories............................................................. $ 3,222 $ 2,405
======== =======
PROPERTY, PLANT AND EQUIPMENT -- NET
Land and improvements................................................... $ 273 $ 258
Buildings and improvements.............................................. 2,668 2,613
Machinery, electronic and other equipment............................... 8,096 8,355
Total property, plant and equipment..................................... 11,037 11,226
Less: Accumulated depreciation.......................................... (6,699) (6,550)
-------- -------
Property, plant and equipment -- net.................................... $ 4,338 $ 4,676
======== =======
</TABLE>
5. BUSINESS RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of 1995, a pre-tax charge of $2,801 was recorded to
cover restructuring costs of $2,613 and asset impairment and other charges of
$188. The Company's fourth quarter restructuring plans include the following
items: restructuring its consumer products business to implement major process
improvements in how it designs, manufactures and distributes those products,
including closing all of its Company-owned retail phone center stores,
consolidating and reengineering numerous corporate and business unit operations
during the next two years, and selling its Microelectronics interconnect
business and Paradyne business. Accordingly, the fourth quarter restructuring
charge of $2,613 included the separation costs, both voluntary and involuntary,
for nearly 22,000 employees, comprised of about 11,000 management and 11,000
F-12
<PAGE> 116
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. BUSINESS RESTRUCTURING AND OTHER CHARGES -- (CONTINUED)
occupational employees. Approximately 1,000 additional management employees are
employed by businesses that the Company has announced plans to sell. As of
December 31, 1995, approximately 4,100 management employees of the 22,000 total
employees have accepted a voluntary severance package and the majority of these
employees will leave the Company in early 1996. The Company expects
approximately 70% of all separations to be completed by the end of 1996, with
the majority of the remaining separations being completed during 1997. The
restructuring charge also included costs associated with early termination of
building leases and asset write-downs as part of the plan to sell certain
businesses and restructure its operations.
The pre-tax total of the fourth quarter charge for restructuring,
impairments and other charges of $2,801 for 1995 was recorded as $892 of costs,
$1,645 of selling, general and administrative expenses, and $264 of research and
development expenses. The charges include $1,509 for employee separations; $627
for asset write-downs; $202 for closing, selling and consolidating facilities;
and $463 for other items. The total charges reduced net income by approximately
$1,847.
The following table displays a rollforward of the liabilities for business
restructuring from December 31, 1993 to December 31, 1995:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31,
1993 -------------------------------- 1994
TYPE OF COST BALANCE ADDITIONS OTHER PAYMENTS BALANCE
- ------------------------------------ ------------ --------- ----- -------- ------------
<S> <C> <C> <C> <C> <C>
Employee Separation................. 112 (4) (56) 52
Facility closings................... 80 15 (25) 70
Other............................... 13 0 15 (17) 11
--- --------- ----- --- ------
Total............................. 205 0 26 (98) 133
========== ======= ==== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31,
1994 -------------------------------- 1995
TYPE OF COST BALANCE ADDITIONS OTHER PAYMENTS BALANCE
- ------------------------------------ ------------ --------- ----- -------- ------------
<S> <C> <C> <C> <C> <C>
Employee Separation................. 52 1,167 1,219
Facility closings................... 70 202 272
Other............................... 11 405 416
--- --------- ----- --- ------
Total............................. 133 1,774 1,907
========== ======= ==== ======= ==========
</TABLE>
The December 31, 1993 business restructuring balance included reserves
primarily for real estate. As of December 31, 1995, $133 of the $205 December
31, 1993 balance remained. The majority of this balance is related to excess
space at some locations and is expected to be fully utilized over the remaining
terms of the leases,
Management believes that the liabilities for business restructuring of
$1,907, at December 31, 1995 are adequate to complete its plans.
In 1995 in addition to restructuring liabilities of $1,774, asset
impairments of $497 (which were credited directly to the related asset balances)
and $342 of benefit plan losses were included in the total restructure costs of
$2,613. Benefit plan losses relate to pension and other employee benefit plans
and primarily represent losses in the current year for actuarial changes that
otherwise might have been amortized over future periods.
The 1995 charges also included $188 primarily for other asset impairments.
Of the total combined charges, $1,788 will result in cash payments in the
future and approximately $1,013 related to non cash items.
F-13
<PAGE> 117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The following table presents the principal reasons for the difference
between the effective tax rate and the United States federal statutory income
tax rate:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
U.S. federal statutory income tax rate........................ 35% 35% 35%
------- ------- -------
Federal income tax provision (benefit) at statutory rate...... $ (398) $ 274 $ 217
State and local income taxes, net of federal income tax
effect...................................................... (57) 23 23
Amortization of intangibles................................... 29 12 6
Foreign rate differential..................................... 66 (64) (17)
Taxes on foreign income....................................... 74 100 38
Research credits.............................................. (3) (27) (20)
Effect of tax rate change on deferred tax assets.............. -- -- (54)
Other differences -- net...................................... 18 (16) (4)
------- ------- -------
Provision (benefit) for income taxes.......................... $ (271) $ 302 $ 189
======= ======= =======
Effective income tax rate..................................... 23.8% 38.5% 30.5%
</TABLE>
The following table presents the U.S. and foreign components of income
before income taxes and the provision for income taxes:
<TABLE>
<CAPTION>
1995 1994 1993
------- ----- ----
<S> <C> <C> <C>
INCOME (LOSS) BEFORE INCOME TAXES
United States................................................. $(1,253) $ 405 $405
Foreign....................................................... 115 379 214
------- ----- ----
$(1,138) $ 784 $619
======= ===== ====
PROVISION (BENEFIT) FOR INCOME TAXES
CURRENT
Federal....................................................... $ 199 $(119) $ 44
State and local............................................... 42 (40) 4
Foreign....................................................... 141 123 77
------- ----- ----
382 (36) 125
------- ----- ----
DEFERRED
Federal....................................................... (523) 267 34
State and local............................................... (130) 76 32
Foreign....................................................... 1 (4) (1)
------- ----- ----
(652) 339 65
Deferred investment tax credits............................... (1) (1) (1)
------- ----- ----
Provision (benefit) for income taxes.......................... $ (271) $ 302 $189
======= ===== ====
</TABLE>
The foreign deferred income tax provision is shown net of valuation
allowance increases of $46 and $39 in 1995 and 1993, respectively, and a
valuation allowance decrease of $27 in 1994.
Deferred income tax liabilities are taxes the Company expects to pay in
future periods. Similarly, deferred income tax assets are taxes recognized for
expected reductions in taxes payable. Deferred income taxes arise
F-14
<PAGE> 118
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES -- (CONTINUED)
because of differences in the book and tax bases of certain assets and
liabilities. Deferred income tax assets/ liabilities consist of the following:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
CURRENT DEFERRED INCOME TAX ASSETS:
Business restructuring................................................. $ 519 $ 57
Employee pensions and other benefits................................... 516 540
Reserves and allowances................................................ 537 474
Valuation allowance.................................................... (117) --
Other.................................................................. 143 45
------- -------
Total current deferred income tax assets................................. 1,598 1,116
------- -------
CURRENT DEFERRED INCOME TAX LIABILITIES:
Other.................................................................. $ 116 $ 88
------- -------
Total current deferred income tax liabilities............................ $ 116 $ 88
------- -------
Net current deferred income tax assets................................... $ 1,482 $ 1,028
======= =======
LONG-TERM DEFERRED INCOME TAX ASSETS:
Employee pensions and other benefits, net.............................. $ 1,425 $ 1,478
Business restructuring................................................. 267 68
Net operating losses/credit carryforwards.............................. 28 96
Reserves and allowances................................................ 9 31
Valuation allowance.................................................... (25) (96)
Other.................................................................. 270 199
------- -------
Total long-term deferred income tax assets............................... 1,974 1,776
------- -------
LONG-TERM DEFERRED INCOME TAX LIABILITIES:
Property, plant and equipment.......................................... $ 738 $ 806
Other.................................................................. 364 285
------- -------
Total long-term deferred income tax liabilities.......................... 1,102 1,091
------- -------
Net long-term deferred income tax assets................................. $ 872 $ 685
======= =======
</TABLE>
The Company has not provided for United States federal income taxes or
foreign withholding taxes on $1,004 and $765 of undistributed earnings of its
non-United States subsidiaries as of December 31, 1995 and December 31, 1994,
respectively, because such earnings are intended to be reinvested indefinitely.
It is not practicable to determine the amount of applicable taxes.
7. DEBT SHARING AGREEMENT
As discussed in Note 1, the Company's consolidated financial statements
include an allocation of AT&T's consolidated debt and the related interest
expense. The allocation was based on the capital structure of the Company
anticipated at the Closing Date. At that date, the Company will assume
approximately $4,000 of Commercial Paper issued by AT&T, which is estimated to
be the amount of debt necessary to support the Company's assets and operations.
An allocation methodology was used to reflect the capital structure through each
historic period presented based on cash flows for those periods, adjusted for
interest expense. To formalize the allocations, the Company and AT&T entered
into a Debt Sharing Agreement which is effective from January 1, 1991 through
December 31, 1995.
F-15
<PAGE> 119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. DEBT SHARING AGREEMENT -- (CONTINUED)
Amounts shown as outstanding under the Debt Sharing Agreement were $3,842
and $2,961 at December 31, 1995 and 1994, respectively. Such amounts were
classified as short-term given the Company's plans to replace the amounts shown
as outstanding under the Debt Sharing Agreement with Commercial Paper issued by
AT&T. The Company expects that, over time, the Company may refinance all or part
of the Commercial Paper Program from the proceeds of short- or long-term
borrowings, as market conditions permit. The amount, timing and pricing of such
debt issues are uncertain.
Interest expense of $237, $203 and $162 for the years ended December 31,
1995, 1994 and 1993, respectively, was determined based on a blend of AT&T's
short-term and long-term weighted average interest rates of 6.8%, 6.9% and 6.2%
for each of the respective years.
The Company believes these allocations are reasonable estimates of the cost
of financing the Company's assets and operations in the past. However, the
Company may not be able to obtain financing with interest rates as favorable as
those enjoyed by AT&T, with the result that the Company's cost of capital will
be higher than that reflected in its historical consolidated financial
statements.
8. EMPLOYEE BENEFIT PLANS
At the Distribution, the Company will assume responsibility for pension and
post-retirement benefits for retirees whose last work assignment was a unit of
the Company, for other retirees assigned to the Company and for the employees of
the Company. Until the Distribution, the Company's financial statements will
include the costs experienced by the AT&T plans for employees and retirees for
whom the Company will assume responsibility.
PENSION PLANS
The majority of the Company's employees participate in AT&T's
noncontributory defined benefit plans. Benefits for management employees are
principally based on career-average pay. Benefits for occupational employees are
not directly pay-related. Pension contributions are principally determined using
the aggregate cost method and are primarily made to trust funds held for the
sole benefit of plan participants.
Immediately following the Distribution, the Company will establish separate
defined benefit plans for the employees and retirees of the Company. Pension
assets will be transferred from AT&T's pension trust to the Company's pension
trust pursuant to a specified formula. Assets of trusts under qualified pension
plans will be divided, immediately after the Distribution Date, between the
trusts for AT&T qualified pension plans and the new Company qualified pension
plans. Each such trust will receive the legally required funding minimum and, if
greater, a sufficient amount of additional trust assets to ensure continued
compliance with the existing AT&T pension funding policy. Any trust assets in
excess of the funding policy level will be divided equally between the trusts of
AT&T and the Company for such qualified pension plans. For purposes of preparing
these financial statements, estimates were made, as of December 31, 1995, of the
assets and pension obligations that will be transferred to the Company. As of
December 31, 1995, the projected benefit obligation is estimated at $23,410 and
the assets to be transferred are estimated at $29,092. The actual amounts
transferred will be measured at the Distribution date, using the same
methodology, and will likely be different from these estimates. The estimated
December 31, 1995 assets and pension obligations were also the basis for
estimating the Company's assets and pension obligations for 1994 and 1993.
As of December 31, 1995 and 1994, AT&T had a prepaid pension asset of
$4,664 and $4,151, respectively. Based on the estimates described in this note,
the Company's share of the prepaid pension asset as of December 31, 1995 and
1994 is $2,522 and $2,252, respectively.
F-16
<PAGE> 120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
Pension cost is computed using the projected unit credit method. The
Company recorded pension income related to the AT&T plans of $135, $288 and $284
in 1995, 1994 and 1993, respectively. The 1995 consolidated statement of
operations includes a charge of $97 for curtailment loss.
The following information relates to the entire AT&T noncontributory
defined benefit plans. The Company's share of the amounts shown below for net
pension credit, actuarial present value of the accumulated plan benefit
obligation, plan assets at fair value, and prepaid pension costs have not been
determined at this time.
AT&T sponsors noncontributory defined benefit plans covering the majority
of its employees. Benefits for management employees are principally based on
career-average pay. Benefits for occupational employees are not directly related
to pay.
Pension contributions are principally determined using the aggregate cost
method and are primarily made to trust funds held for the sole benefit of plan
participants. AT&T computes pension cost using the projected unit credit method
and assumed a long-term rate of return on plan assets of 9.0% in 1995, 1994 and
1993.
Pension cost includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost -- benefits earned during the period............. $ 570 $ 669 $ 536
Interest cost on projected benefit obligation................. 2,551 2,400 2,294
Amortization of unrecognized prior service costs.............. 280 230 251
Credit for expected return on plan assets*.................... (3,318) (3,260) (3,110)
Amortization of transition asset.............................. (500) (501) (500)
Charges for special pension options........................... 213 -- 74
------- ------- -------
Net pension credit............................................ $ (204) $ (462) $ (455)
======= ======= =======
</TABLE>
- ---------------
* The actual return on plan assets was $9,484 in 1995, $582 in 1994 and $5,068
in 1993.
The net pension credit of $204 in 1995 was reduced by a one-time charge of
$213 for early retirement options and curtailments.
This table shows the funded status of the entire AT&T noncontributory
defined benefit plans:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation, including
vested benefits of $32,726 and $26,338, respectively................... $36,052 $28,801
------- -------
Plan assets at fair value................................................ $47,634 $40,131
Less: Actuarial present value of projected benefit obligation............ 37,989 30,125
------- -------
Excess of assets over projected benefit obligation....................... 9,645 10,006
Unrecognized prior service costs......................................... 2,297 2,319
Unrecognized transition asset............................................ (2,961) (3,460)
Unrecognized net gain.................................................... (4,528) (4,928)
Net minimum liability of nonqualified plans.............................. (166) (103)
Prepaid pension costs.................................................... $ 4,287 $ 3,834
</TABLE>
F-17
<PAGE> 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
AT&T used these rates and assumptions to calculate the projected benefit
obligation:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1995 1994
---- ----
<S> <C> <C>
Weighted-average discount rate............................. 7.0 % 8.7 %
Rate of increase in future compensation levels............. 5.0 % 5.0 %
</TABLE>
The prepaid pension costs shown above are net of pension liabilities for
plans where accumulated plan benefits exceed assets. Such liabilities are
included in other liabilities in AT&T's consolidated balance sheets.
AT&T is amortizing over approximately 15.9 years the unrecognized
transition asset related to its 1986 adoption of SFAS No. 87, "Employers'
Accounting for Pensions." AT&T amortizes prior service costs primarily on a
straight-line basis over the average remaining service period of active
employees. AT&T's plan assets consist primarily of listed stocks (including $259
and $216 of AT&T common stock at December 31, 1995 and 1994, respectively),
corporate and governmental debt, real estate investments, and cash and cash
equivalents.
SAVINGS PLANS
The majority of the Company's employees are eligible to participate in
savings plans sponsored by AT&T. The plans allow employees to contribute a
portion of their pre-tax and/or after-tax income in accordance with specified
guidelines. AT&T matches a certain percentage of employee contributions, up to
certain limits. The Company's expense related to the AT&T savings plans was $196
in 1995, $178 in 1994 and $167 in 1993. The Company expects to establish similar
plans following the Distribution.
9. POSTRETIREMENT BENEFITS
The majority of the Company's employees and retirees participate in AT&T's
benefit plans for retirees, which currently include health care benefits, life
insurance coverage and telephone concessions.
Immediately following the Distribution, the Company will establish separate
postretirement benefit plans for the employees and retirees of the Company.
Postretirement benefit assets will be transferred from AT&T to the Company pro
rata on the basis of the present value of future benefit obligations of the
applicable plan. For purposes of preparing these financial statements, estimates
were made, as of December 31, 1995, of the assets and postretirement benefit
obligations that will be transferred to the Company. As of December 31, 1995,
the accumulated postretirement benefit obligation is estimated at $8,368 and the
assets to be transferred are estimated at $3,462. The actual amounts transferred
will be measured at the Distribution date, using the same methodology, and will
likely be different from these estimates. The estimated December 31, 1995 assets
and postretirement benefit obligations were also the basis for estimating the
Company's assets and postretirement benefit obligations for 1994 and 1993.
As of December 31, 1995 and 1994, AT&T had an accrued postretirement
benefit liability of $7,389 and $7,816, respectively. Based on the estimates
described in this note, the Company's share of the accrued postretirement
benefit liability as of December 31, 1995 and 1994 is $4,635 and $5,006,
respectively.
The Company recorded postretirement benefit expense related to the AT&T
plans of $468, $461 and $529 in 1995, 1994 and 1993, respectively. It is
estimated that increasing the assumed health care cost trend rate by 1% would
raise the Company's portion of the accumulated postretirement benefit obligation
as of December 31, 1995 by $423 and 1995 postretirement benefit costs by $35.
The following information relates to the entire AT&T Postretirement Benefit
Plan. The Company's share of the amounts shown below for net postretirement
benefit cost, accumulated postretirement benefit
F-18
<PAGE> 122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. POSTRETIREMENT BENEFITS -- (CONTINUED)
obligation, plan assets at fair value and accrued postretirement benefit
obligation have not been determined at this time.
AT&T's benefit plans for retirees include health care benefits, life
insurance coverage and telephone concessions. This table shows the components of
the net postretirement benefit cost:
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Service cost -- benefits earned during the period................. $ 98 $ 108
Interest cost on accumulated postretirement benefit obligation.... 888 852
Expected return on plan assets*................................... (298) (243)
Amortization of unrecognized prior service costs.................. 67 14
Amortization of net loss (gain)................................... (14) 1
Charge for special options........................................ 11 --
----- -----
Net postretirement benefit cost................................... $ 752 $ 732
===== =====
</TABLE>
- ---------------
* The actual return on plan assets was $962 and ($30) in 1994.
AT&T had approximately 146,700 retirees in 1995, 144,900 in 1994 and
142,200 in 1993.
AT&T's plan assets consist primarily of listed stocks, corporate and
governmental debt, cash and cash equivalents, and life insurance contracts. The
following table shows the funded status of AT&T's postretirement benefit plans
reconciled with the amounts recognized in AT&T's consolidated balance sheets:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1995 1994
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees..................................................... $ 8,250 $ 7,476
Fully eligible active plan participants...................... 1,453 822
Other active plan participants............................... 2,869 1,751
------- -------
Accumulated postretirement benefit obligation.................. 12,572 10,049
Plan assets at fair value...................................... 4,704 3,291
------- -------
Unfunded postretirement obligation............................. 7,868 6,758
Less:
Unrecognized prior service costs............................. 771 (46)
Unrecognized net (gain) loss................................. (292) (1,012)
------- -------
Accrued postretirement benefit obligation...................... $ 7,389 $ 7,816
======= =======
</TABLE>
AT&T made these assumptions in valuing its postretirement benefit
obligation at December 31:
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Weighted-average discount rate...................................... 7.0% 8.8%
Expected long-term rate of return on plan assets.................... 9.0% 9.0%
Assumed rate of increase in the per capita cost of covered
health care benefits.............................................. 6.1% 8.6%
</TABLE>
AT&T assumed that the growth in the per capita cost of covered health care
benefits (the health care cost trend rate) would gradually decline after 1995 to
4.9% by the year 2005 and then remain level. This assumption greatly affects the
amounts reported. To illustrate, increasing the assumed trend rate by 1% in each
year would raise AT&T's accumulated postretirement benefit obligation at
December 31, 1995 by $646 and AT&T's 1995 postretirement benefit costs by $53.
F-19
<PAGE> 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SEGMENT INFORMATION
INDUSTRY SEGMENT
The Company operates in the global telecommunications networking industry
segment. This segment includes systems, software and products used for voice
data and video communications.
GEOGRAPHIC SEGMENTS
Transfers between geographic areas are on terms and conditions comparable
with sales to external customers. The methods followed in developing the
geographic area data require the use of estimation techniques and do not take
into account the extent to which product development, manufacturing and
marketing depend upon each other. Thus the information may not be indicative of
results if the geographic areas were independent organizations.
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
REVENUES
United States..................................................... $17,826 $17,207 $16,213
Other geographic areas............................................ 3,587 2,558 1,521
------- ------- -------
$21,413 $19,765 $17,734
======= ======= =======
TRANSFERS BETWEEN GEOGRAPHIC AREAS (ELIMINATED IN CONSOLIDATION)
United States..................................................... $ 1,081 $ 1,338 $ 946
Other geographic areas............................................ 911 1,041 892
------- ------- -------
$ 1,992 $ 2,379 $ 1,838
======= ======= =======
OPERATING INCOME (LOSS)
United States..................................................... $ (679) $ 1,241 $ 1,123
Other geographic areas............................................ (67) (5) (242)
Corporate, eliminations and nonoperating.......................... (392) (452) (262)
------- ------- -------
Income (loss) before income taxes................................. $(1,138) $ 784 $ 619
======= ======= =======
ASSETS
United States..................................................... $15,043 $14,114 $14,955
Other geographic areas............................................ 4,696 3,493 2,289
Corporate assets.................................................. 738 696 458
Eliminations...................................................... (755) (963) (593)
------- ------- -------
$19,722 $17,340 $17,109
======= ======= =======
</TABLE>
Corporate assets are principally cash and temporary cash investments. Data
on other geographic areas pertain to operations that are located outside the
United States. Revenues from all international activities, including those in
the table and exports, provided 23.3%, 19.1%, and 16.9% of consolidated revenues
in 1995, 1994 and 1993, respectively.
CONCENTRATIONS
Historically, the Company has relied on a limited number of customers for a
substantial portion of its total revenues. In terms of total revenues, the
Company's largest customer has been AT&T, although other large customers may
purchase more of any particular system or product line. The Company expects that
a significant portion of its future revenues will continue to be generated by a
limited number of customers. The loss of any of these customers or any
substantial reduction in orders by any of these customers could materially
F-20
<PAGE> 124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SEGMENT INFORMATION -- (CONTINUED)
adversely affect the Company's operating results. The Company does not have a
concentration of available sources of supply of materials, labor, services or
other rights that, if suddenly eliminated, could severely impact its operations.
11. FINANCIAL INSTRUMENTS
In the normal course of business, AT&T has entered into various financial
instruments, including derivative financial instruments, for purposes other than
trading. A portion of such financial instruments related to the Company's
Businesses have, as between AT&T and the Company, been assumed by the Company.
Derivative financial instruments are not entered into for speculative purposes.
These instruments include letters of credit, commitments to extend credit,
guarantees of debt and foreign currency exchange contracts. Unless otherwise
noted, the Company generally does not require collateral to support these
financial instruments.
By their nature, all such instruments involve risk, including the credit
risk of nonperformance by counterparties, and the maximum potential loss may
exceed the amount recognized in the balance sheet. The contract or notional
amount of the financial instruments reflects the maximum amount of the Company's
commitments to extend credit or the extent of involvement that the Company has
in particular classes of financial instruments. At December 31, 1995 and 1994,
the Company's maximum exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
financial guarantees is represented by the amount drawn and outstanding on those
instruments. For forward and futures contracts, and option contracts, the
contract or notional amounts do not represent exposure to credit loss.
At December 31, 1995 and 1994, in management's opinion, there was no
significant risk of loss in the event of nonperformance of the counterparties to
these financial instruments. Exposure to credit risk is controlled through
credit approvals, credit limits and monitoring procedures and management
believes that the reserves for losses are adequate. The Company had no
significant exposure to any individual customer or counterparty at December 31,
1995 and December 31, 1994. Letters of credit, commitments to extend credit and
guarantees of debt may exist or expire without being drawn upon. Therefore, the
total notional or contract amounts do not necessarily represent future cash
flows.
Requests for providing commitments to extend credit and financial
guarantees are reviewed and approved by the senior management of the Company.
Management conducts regular reviews of all outstanding commitments, letters of
credit and financial guarantees, and the results of these reviews are considered
in assessing the adequacy of the Company's reserve for possible credit and
guarantee losses.
For the years ended December 31, 1995 and December 31, 1994, no interest
rate cap agreements had been entered into for the benefit of the Company. The
Company may, in the future, enter into these or other types of derivative
transactions as it judges prudent for the proper management of its business.
LETTERS OF CREDIT
Letters of credit are purchased guarantees that ensure the Company's
performance or payment to third parties in accordance with specified terms and
conditions.
COMMITMENTS TO EXTEND CREDIT
Commitments to extend credit are legally binding, conditional agreements
generally having fixed expiration or termination dates and specified interest
rates and purposes.
F-21
<PAGE> 125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. FINANCIAL INSTRUMENTS -- (CONTINUED)
GUARANTEES OF DEBT
From time to time, the Company guarantees the financing for product
purchases by customers and the debt of certain unconsolidated joint ventures.
Requests for providing such guarantees are reviewed and approved by the senior
management of the Company. The Company seeks to limit its exposure to credit
risks in any single country or region. Certain financial guarantees are backed
by amounts held in trust for the Company.
FOREIGN CURRENCY EXCHANGE CONTRACTS
Foreign currency exchange contracts, including forward, option and swap
contracts are used to manage exposure to changes in currency exchange rates,
principally Dutch guilders, Deutsche marks, and Japanese yen. Some of the
contracts involve the exchange of two foreign currencies, according to local
needs in foreign subsidiaries. The use of derivative financial instruments
allows the Company to reduce its exposure to the risk that the eventual dollar
net cash inflows and outflows resulting from the sale of products to foreign
customers and purchases from foreign suppliers will be adversely affected by
changes in exchange rates. The foreign exchange contracts are designated for
firmly committed or forecasted purchases and sales. These transactions are
generally expected to occur in less than one year for firmly committed sales and
purchases. These gains and losses are deferred in other current assets and
liabilities. Deferred gains and losses are recognized as adjustments to the
underlying hedged transactions when the future sales or purchases are
recognized, or immediately, if the commitment is canceled. Gains and losses on
foreign exchange contracts that are designated for forecasted transactions are
recognized in other income as the exchange rates change. At December 31, 1995
and 1994, deferred unrealized gains were $8 and $3 and deferred unrealized
losses were $6 and $7, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS INCLUDING DERIVATIVE FINANCIAL INSTRUMENTS
The tables below present the valuation methods and the carrying or notional
amounts and estimated fair values of material financial instruments. The
notional amounts represent agreed-upon amounts on which calculations of dollars
to be exchanged are based. They do not represent amounts exchanged by the
parties and, therefore, are not a measure of the instruments. The Company's
exposure is limited to the fair value of the contracts with a positive fair
value at the reporting date plus interest receivable, if any, at the reporting
date.
<TABLE>
<CAPTION>
FINANCIAL INSTRUMENT VALUATION METHOD
<S> <C>
Short-term debt............................. The carrying amount is a reasonable estimate
of fair value.
Letters of credit........................... Fees paid to obtain the obligations.
Guarantees of debt.......................... Costs to terminate agreements.
Commitments to extend credit................ Costs to terminate agreements.
Foreign currency exchange contracts......... Market quotes.
</TABLE>
<TABLE>
<CAPTION>
1995 1994
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
<S> <C> <C> <C> <C>
ON BALANCE SHEET
Liabilities:
Debt sharing amount in anticipation of assumption of
the commercial paper program......................... $3,842 $3,842 $2,961 $2,961
</TABLE>
F-22
<PAGE> 126
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. FINANCIAL INSTRUMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AMOUNTS DRAWN
1995 1994 DOWN AND
CONTRACT/ CONTRACT/ OUTSTANDING
NOTIONAL NOTIONAL ---------------
AMOUNT AMOUNT 1995 1994
--------- --------- ----- -----
<S> <C> <C> <C> <C>
DERIVATIVES AND OFF BALANCE SHEET INSTRUMENTS
Foreign exchange:.......................................
Forward contracts.....................................
Dutch guilders..................................... $ 324 $ 108
Deutsche marks..................................... 131 27
Japanese yen....................................... 304 393
Other.............................................. 327 262
---- ----
1,086 790
Swap contracts........................................ -- 118
Option contracts...................................... 4 --
Letters of credit....................................... 659 640
Commitments to extend credit............................ 16 119 $ 13 $ 34
Guarantees of debt...................................... 598 368 296 280
</TABLE>
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
--------------------- ---------------------
ASSET LIABILITY ASSET LIABILITY
------- --------- ------- ---------
<S> <C> <C> <C> <C>
1995
Foreign exchange forward contracts.................. $ 16 $ 10 $ 11 $ 15
Letters of credit................................... -- -- 2 --
1994
Foreign exchange forward contracts.................. $ 7 $ 12 $ 9 $ 28
Foreign exchange swap contracts..................... -- 5 5 4
Letters of credit................................... -- -- 1 --
</TABLE>
12. TRANSACTIONS WITH AT&T
For the years 1995, 1994 and 1993, the Company had $2,119, $2,137, and
$1,967, respectively, of revenues from AT&T. At December 31, 1995 and 1994, the
related receivables amounted to $291 and $81, respectively.
AT&T has allocated general corporate overhead expenses amounting to $372,
$358 and $312 in 1995, 1994 and 1993, respectively. Additionally, the Company
incurred expenses for long distance services provided by AT&T of $80, $93 and
$92 for the years ended December 31, 1995, 1994 and 1993, respectively. Amounts
payable to AT&T were $25 at December 31, 1995 and 1994.
Rights, title and interest in certain lease receivables for business
communication equipment are sold at a discount to AT&T's finance subsidiary,
AT&T Capital Corporation. The Company acts as an agent to bill and collect such
receivables. The Company has agreed to repurchase certain of these lease
receivables in the event of a default thereon. At December 31, 1995 and 1994,
$206 and $208, respectively, of such receivables had recourse to the Company in
the event of default.
In connection with the Separation, AT&T has agreed to prepay prior to the
closing of the Offerings $500 to the Company, which amount will be applied to
accounts receivable from AT&T that are due and payable on or after January 1,
1997 for the purchase of products, services and licensed materials from the
Company.
F-23
<PAGE> 127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is subject to proceedings,
lawsuits and other claims, including proceedings under government laws and
regulations related to environmental and other matters. Such matters are subject
to many uncertainties, and outcomes are not predictable with assurance.
Consequently, the ultimate aggregate amount of monetary liability or financial
impact with respect to these matters at December 31, 1995 cannot be ascertained.
While these matters could affect the operating results of any one quarter when
resolved in future periods, and while there can be no assurance with respect
thereto, management believes that after final disposition, any monetary
liability or financial impact to the Company beyond that provided for at
year-end would not be material to the annual consolidated financial statements.
The Company's current and historical manufacturing and research operations
are subject to a wide range of environmental protection laws in the United
States and other countries. In the United States, these laws often require
parties to fund remedial action regardless of fault. The Company has remedial
and investigatory activities, including assessment and cleanup work, underway at
46 current and former manufacturing, laboratory and recycling facilities to
comply, or to determine compliance, with applicable environmental protection
laws. AT&T and its subsidiaries have been listed as potentially responsible
parties ("PRPs") at numerous "Superfund" sites pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") or
comparable state statutes, either by a government agency (which may have either
sought information concerning AT&T's connection to the site, or may have sought
from AT&T participation in site cleanup work or contribution toward the cost of
site cleanup), or by a private party seeking contribution to site cleanup costs.
Under the terms of the Separation and Distribution Agreement the Company will
assume or indemnify AT&T for all liabilities primarily relating to, arising out
of or resulting from (i) the operation of the Company Business as conducted at
any time prior to, on or after the Closing Date or (ii) any Company Assets
including, without limitation, those associated with these sites.
It is often difficult to estimate the future impact of environmental
matters, including potential liabilities. The Company records an environmental
reserve when it is probable that a liability has been incurred and the amount of
the liability is reasonably estimable. This practice is followed whether the
claims are asserted or unasserted. Management expects that the amounts reserved
for will be paid out over the period of remediation for the applicable site
which ranges from 5 to 30 years. Reserves for estimated losses from
environmental remediation are, depending on the site, based primarily upon
internal or third party environmental studies, and estimates as to the number,
participation level and financial viability of any other PRPs, the extent of the
contamination and the nature of required remedial actions. Accruals are adjusted
as further information develops or circumstances change. The amounts provided
for in the Company's consolidated financial statements in respect of
environmental reserves are the gross undiscounted amount of such reserves,
without deductions for insurance or third party indemnity claims. In those cases
where insurance carriers or third party indemnitors have agreed to pay any
amounts and management believes that collectibility of such amounts is probable,
the amounts are reflected as receivables in the financial statements. Although
the Company believes that its reserves are adequate, there can be no assurance
that the amount of capital expenditures and other expenses which will be
required to complete remedial actions and to comply with applicable
environmental laws will not exceed the amounts reflected in the Company's
reserves or will not have a material adverse effect on the financial condition
of the Company or on the Company's results of operations or cash flows. Any
amounts of environmental costs that may be incurred in excess of those provided
for at December 31, 1995 cannot be determined.
One of the Company's multi-year contracts is with Pacific Bell for the
provision of a broadband network based on hybrid fiber-coaxial cable technology.
Implementation difficulties and cost overruns have arisen under this contract,
which may result in claims being made by the parties under the contract. The
Company and Pacific Bell are conducting negotiations in an effort to resolve
outstanding issues and potential claims. The Company's historical financial
statements reflect a reserve relating to this contract. Based on the future
negotiations with Pacific Bell, the Company will continue to assess the adequacy
of this reserve.
F-24
<PAGE> 128
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
The Company leases land, buildings and equipment through contracts that
expire in various years, through 2004. Rental expense under operating leases was
$209 in 1995, $183 in 1994 and $202 in 1993. The table below shows the future
minimum lease payments due under noncancelable operating leases at December 31,
1995. Such payments total $245.
<TABLE>
<CAPTION>
LATER
1996 1997 1998 1999 2000 YEARS
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Operating leases........................ $85 $59 $40 $26 $13 $22
</TABLE>
14. SUBSEQUENT EVENTS
In connection with the Separation and Distribution, the Company, AT&T and
NCR Corporation, a wholly owned subsidiary ("NCR"), executed and delivered the
Separation and Distribution Agreement, dated as of February 1, 1996 (the
"Separation and Distribution Agreement"), and certain related agreements which
are summarized below. This summary is qualified in all respects by the terms of
the Separation and Distribution Agreement and such related agreements.
SEPARATION AND DISTRIBUTION AGREEMENT
Pursuant to the Separation and Distribution Agreement, AT&T will transfer
to the Company substantially all of the assets and liabilities associated with
the Company's Business, other than accounts receivable having a face amount of
approximately $2,000.
The Separation and Distribution Agreement, among other things, provides
that the Company will indemnify AT&T and NCR for all liabilities relating to the
Company's business and operations and for all contingent liabilities relating to
the Company's business and operations or otherwise assigned to the Company. In
addition to contingent liabilities relating to present or former businesses of
the Company, any contingent liabilities related to AT&T's discontinued computer
operations (other than those of NCR) have been assigned to the Company. In
addition, the Separation and Distribution Agreement provides for the sharing of
contingent liabilities not allocated to one of the parties, in the following
proportions: AT&T: 75%, the Company: 22%, and NCR: 3%. The Separation and
Distribution Agreement also provides that each party will share specified
portions of contingent liabilities related to the business of any of the other
parties that exceed specified levels.
EMPLOYEE BENEFITS AGREEMENT
The Company entered into an agreement which governs its employee benefit
obligations with respect to actual employees as well as retirees assigned to the
Company. This agreement provides that, from the Separation until the
Distribution, the Company will be a "Participating Company" in AT&T employee
benefit plans and will bear its allocable share of costs for benefits and
administration under these plans. Immediately after the Distribution, pension
plan assets will be divided between AT&T pension plans and the Company's pension
plans so that each plan will receive the legally required minimum and a
sufficient amount of additional assets to ensure continued compliance with the
existing AT&T pension funding policy. Any trust assets in excess of the funding
policy level will be divided equally between the trusts of AT&T and the Company
with respect to such qualified plans. Liability under the AT&T plans relating to
the Company's employees or retirees will be assumed by the Company's plans.
FEDERAL, STATE AND LOCAL TAX ALLOCATION AGREEMENTS
The Company has entered into agreements with AT&T and its other domestic
subsidiaries that apply to income taxes attributable to the period from the
Company's incorporation through the Distribution. The
F-25
<PAGE> 129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUBSEQUENT EVENTS -- (CONTINUED)
agreements set forth principles to be applied in allocating tax liability among
those entities filing returns on a consolidated or combined basis.
TAX SHARING AGREEMENT
The Company has entered into an agreement with AT&T and NCR that governs
contingent tax liabilities and benefits, tax contests and other tax matters with
respect to tax periods ending or deemed to end on the date of the Distribution.
Under such agreement, adjustments to taxes that are clearly attributable to the
business of one party will be borne solely by that party. Adjustments to all
other tax liabilities generally will be borne 75% by AT&T, 22% by the Company
and 3% by NCR.
GENERAL PURCHASE AGREEMENT
The Company and AT&T have entered into the General Purchase Agreement and
various related and supplemental agreements which govern transactions pursuant
to which the Company provides products, licensed materials and services to AT&T
and certain designated AT&T affiliates. AT&T commits therein that payments made
to the Company (commencing January 1, 1996) for purchases of products, licensed
materials and services by AT&T and such designated affiliates will total at
least $3,000 cumulatively for the calendar years 1996, 1997 and 1998. If that
commitment is not fulfilled by December 31, 1998, interest is payable on the
shortfall until the $3,000 purchase commitment is met. Such interest is the sole
remedy for any shortfall.
INTERIM SERVICES AND SYSTEMS REPLICATION AGREEMENT; REAL ESTATE
SHARING
The Company, AT&T and NCR have entered into an agreement governing the
provision by each to one or more of the others on an interim basis of certain
data processing and telecommunications services and certain corporate support
services on specified terms. Specified charges are generally intended to allow
the providing company to recover the fully allocated direct costs of providing
the services, plus all out-of-pocket costs and expenses, but without any profit.
Such agreement also provides for the replication and transfer of certain
computer systems on specified terms. With limited exceptions, these interim
services are not expected to extend beyond January 1, 1998 and many are expected
to terminate at or prior to the Distribution. AT&T, the Company and NCR also
have entered into various leases and sublease arrangements for the sharing of
certain facilities for a transitional period on commercial terms. In the case of
owned real estate to be leased, the lease terms will be either two or three
years, except that a limited number of leases may be terminated on 90 days'
notice by the tenant. In the case of subleases or sub-subleases of property, the
lease term will generally coincide with the remaining term of the primary lease
or sublease, respectively.
BRAND LICENSE AGREEMENT
The Company and AT&T have entered into the Brand License Agreement,
pursuant to which the Company will have rights, on a royalty-free basis, to
continue to use the AT&T brand for specified transition periods following the
closing of the Offerings. Under the Brand License Agreement, the Company will be
entitled to use the AT&T brand, alone or in combination with the Company's
brand, for the sale of consumer products and services and business
communications systems and services for a period of one year following the
closing of the Offerings. After the initial one-year period, the Company will be
entitled to continue to use the AT&T brand on these products, systems and
services, but only in combination with the Company's brand, for an additional
three-year period. The right to use the AT&T brand, alone or in combination with
the Company's brand, in connection with certain leased products or maintenance
contracts will extend for 66 months after the closing of the Offerings. The
Brand License Agreement permits the Company to use the AT&T brand on the
Company's other products, systems and services until the earlier of the
Distribution or six
F-26
<PAGE> 130
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUBSEQUENT EVENTS -- (CONTINUED)
months after the closing of the Offerings. In addition, the Company may use the
AT&T brand after these time periods to the extent necessary to deplete
pre-existing inventory.
FINANCING
The Company entered into a Competitive Advance and Revolving Credit
Facility Agreement, dated as of February 1, 1996, with Chemical Bank, as agent
(the "Initial Working Capital Facility"), pursuant to which the Company may
borrow up to $1,000 subject to the terms and conditions thereof. In addition,
AT&T intends to issue up to approximately $4,000 of short-term debt under a
commercial paper facility ("Commercial Paper Program"), which will be assumed by
the Company in respect of the debt sharing amount under the Debt Sharing
Agreement.
ACQUISITIONS OF CERTAIN PHILIPS OPERATIONS
On February 7, 1996, the Company will acquire several operations of Philips
Electronics, N.V. for approximately $260. This acquisition augments the
Company's global position in the development, manufacturing and marketing of
Synchronous Digital Hierarchy, Global System Mobile and Fixed Wireless Systems.
This acquisition is not expected to have a material impact on the Company's
results of operations.
LONG TERM INCENTIVE PLAN
The Company intends to adopt the 1996 Long Term Incentive Plan, under which
stock options, stock appreciation rights ("SARs") and other awards would be
granted. Details of the Plan are described elsewhere in this prospectus. No
grants under this Plan have been made at December 31, 1995.
Under AT&T's Long Term Incentive Program, certain employees of the Company
are eligible for the grant of stock options, SARs, either in tandem with stock
options or free standing, and other awards. Pending AT&T's distribution of all
of its interest in the Company, AT&T stock awards held by Company employees will
remain outstanding as AT&T stock awards. If any such AT&T stock options are
exercised or any such AT&T stock awards vest or are delivered, the Company will
reimburse AT&T for the difference between the exercise price and AT&T's common
stock market price on the date of exercise, in the case of stock options, and
for the market value of AT&T common stock on the date of vesting or delivery, in
the case of stock awards.
Immediately following the Distribution, outstanding awards under the AT&T
Long Term Incentive Program held by Company employees will be replaced by
substitute awards under the Company's 1996 Stock Plan. The substitute awards
will have the same ratio of the exercise price per option to the market value
per share, the same aggregate difference between market value and exercise price
and the same vesting provisions, option periods and other terms and conditions
as the AT&T options and SARs they replace. The formula for determining the total
number of substitute awards to be issued to Company employees depends on an
average of the respective market values of AT&T's and the Company's common stock
during the five trading days immediately preceding the ex-dividend date for the
Distribution. The formula is a fraction, with the average market value of AT&T's
common stock as the numerator and with the average market value of the Company's
common stock as the denominator, multiplied by the number of AT&T stock options,
SARs and other stock awards held by Company employees at the Distribution date.
Accordingly, the Company cannot currently determine the number of shares of its
common stock that will be subject to substitute awards after the Distribution.
At December 31, 1995, there were approximately 7.8 million shares of AT&T
Common Stock subject to options and other stock awards for AT&T Common Stock
held by Company employees. Approximately 4.7 million of such options and awards
were exercisable at December 31, 1995. Using AT&T's closing price at December
31, 1995 ($64.75) and a price of $23.50 per share of the Company's Common Stock
(the mid-
F-27
<PAGE> 131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUBSEQUENT EVENTS -- (CONTINUED)
point of the range set forth on the cover page of this Prospectus), the
foregoing number of shares subject to AT&T stock options and other awards would
be replaced by options and other awards on 21.5 million shares of the Company's
common stock.
15. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH(1) TOTAL
------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
1995
Total revenues.............................. $4,159 $ 5,083 $4,744 $7,427 $21,413
Gross margin................................ 1,850 2,251 2,042 2,325 8,468
Net income (loss)........................... (22) 159 13 (1,017) (867)
1994
Total revenues.............................. $4,052 $ 4,665 $4,776 $6,272 $19,765
Gross margin................................ 1,740 2,028 2,006 2,654 $ 8,428
Net income (loss)........................... (43) 78 44 403 482
</TABLE>
- ---------------
(1) 1995 includes pre-tax charges of $2,801 ($1,847 after taxes), to cover
restructuring costs of $2,613 and asset impairment and other charges of
$188. (See Note 5.)
F-28
<PAGE> 132
SCHEDULE II
LUCENT TECHNOLOGIES INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
IN MILLIONS
<TABLE>
<CAPTION>
COLUMN C
-------------------------
COLUMN B ADDITIONS COLUMN E
------------ ------------------------- ----------
COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D BALANCE AT
- ------------------------------- BEGINNING COSTS & OTHER ---------- END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year 1995
Allowance for Doubtful
Accounts.................. 206 94 (3) 49 248
Reserves related to business
restructuring and facility
consolidation............. 133 1,774 0 0 1,907
Deferred tax asset valuation
allowance................. 96 46 0 0 142
Inventory valuation
reserves.................. 591 336(a) 0 137 790
Year 1994
Allowance for Doubtful
Accounts.................. 143 82 17 36 206
Reserves related to business
restructuring and facility
consolidation............. 205 0 26 98 133
Deferred tax asset valuation
allowance................. 123 0 0 27 96
Inventory valuation
reserves.................. 521 174 0 104 591
Year 1993
Allowance for Doubtful
Accounts.................. 139 67 (2) 61 143
Reserves related to business
restructuring and facility
consolidation............. 233 37 (53) 12 205
Deferred tax asset valuation
allowance................. 84 39 0 0 123
Inventory valuation
reserves.................. 488 137 0 104 521
</TABLE>
- ---------------
(a) Includes $194 related to business restructuring in the fourth quarter of
1995.
S-1
<PAGE> 133
[Alternate Cover Page for International Prospectus]
PROSPECTUS (Subject to Completion)
Issued April 1, 1996
111,000,000 Shares
LUCENT TECHNOLOGIES LOGO
COMMON STOCK
------------------------
OF THE 111,000,000 SHARES OF COMMON STOCK BEING OFFERED, 14,000,000 SHARES ARE
BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 97,000,000 SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. ALL
OF THE SHARES OF COMMON STOCK ARE BEING OFFERED BY LUCENT TECHNOLOGIES
INC., WHICH IS CURRENTLY A WHOLLY OWNED SUBSIDIARY OF AT&T CORP.
EACH SHARE WILL HAVE ATTACHED ONE PREFERRED SHARE PURCHASE RIGHT
WHICH WILL INITIALLY TRADE TOGETHER WITH THE SHARE. PRIOR TO THE
OFFERINGS, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK.
IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING
PRICE WILL BE BETWEEN $22 AND $25 PER SHARE. SEE
"UNDERWRITING" FOR A DISCUSSION OF THE FACTORS CONSIDERED
IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
AFTER THE OFFERINGS, AT&T WILL OWN APPROXIMATELY 82.5% (80.4% IF THE U.S.
UNDERWRITERS EXERCISE THEIR OVERALLOTMENT OPTION IN FULL) OF THE COMMON STOCK.
AT&T HAS ANNOUNCED ITS INTENTION, SUBJECT TO SATISFACTION OF CERTAIN
CONDITIONS, TO DIVEST ITS OWNERSHIP INTEREST IN THE COMPANY BY DECEMBER
31, 1996 BY MEANS OF A TAX-FREE DISTRIBUTION TO ITS SHAREHOLDERS. SEE
"ARRANGEMENTS BETWEEN THE COMPANY AND AT&T."
------------------------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING, SUBJECT TO OFFICIAL NOTICE OF
ISSUANCE ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "LU."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR INFORMATION CONCERNING CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
--------------------------------------------------------------------------
PRICE $ A SHARE
----------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) THE COMPANY(2)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per Share..................... $ $ $
Total(3)...................... $ $ $
</TABLE>
- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company estimated at
$12,000,000.
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
16,650,000 additional shares of Common Stock at the Price to Public less
Underwriting Discounts and Commissions for the purpose of covering
overallotments, if any. If the U.S. Underwriters exercise such option in
full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that
delivery of the shares will be made on or about , 1996 at the office
of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor
in immediately available funds.
------------------------
Joint Global Coordinators
MORGAN STANLEY & CO. GOLDMAN, SACHS & CO.
Incorporated
------------------------
MORGAN STANLEY & CO. GOLDMAN SACHS INTERNATIONAL
International
MERRILL LYNCH INTERNATIONAL LIMITED
DEUTSCHE MORGAN GRENFELL
PARIBAS CAPITAL MARKETS
SBC WARBURG
A Division of Swiss Bank
Corporation
UBS LIMITED
BEAR, STEARNS INTERNATIONAL LIMITED
CS FIRST BOSTON
J.P. MORGAN SECURITIES LTD.
PAINEWEBBER INTERNATIONAL
, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
<PAGE> 134
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL , 1996 (25 DAYS AFTER COMMENCEMENT OF THE OFFERINGS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
For investors outside the United States: No action has been or will be
taken in any jurisdiction by the Company or by any Underwriter that would permit
a public offering of the Common Stock or possession or distribution of this
Prospectus in any jurisdiction where action for that purpose is required, other
than in the United States. Persons into whose possession this Prospectus comes
are required by the Company and the Underwriters to inform themselves about and
to observe any restrictions as to the offering of the Common Stock and the
distribution of this Prospectus.
In this Prospectus references to "dollars" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 9
The Company........................... 15
Use of Proceeds....................... 17
Dividend Policy....................... 17
Certain Transactions in Connection
with the Offerings.................. 18
Capitalization........................ 20
Selected Financial Data............... 21
Pro Forma Condensed Financial
Statements.......................... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 36
<CAPTION>
PAGE
-----
<S> <C>
Management............................ 54
Arrangements Between the Company and
AT&T................................ 72
Principal Stockholder................. 87
Description of Capital Stock.......... 88
Shares Eligible for Future Sale....... 94
Certain United States Tax Consequences
to Non-United States Holders........ 96
Underwriting.......................... 98
Legal Matters......................... 101
Experts............................... 101
Available Information................. 101
Index to Financial Statements......... F-1
</TABLE>
------------------------
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVERALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
------------------------
This Prospectus contains trademarks, service marks or registered marks of
the Company, AT&T Corp. ("AT&T"), their respective subsidiaries, and other
companies, as indicated.
------------------------
I-2
<PAGE> 135
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of the
Common Stock applicable to Non-United States Holders of such Common Stock. For
the purpose of this discussion, a "Non-United States Holder" is any holder that
is, as to the United States, a foreign corporation, a non-resident alien
individual, a foreign partnership or a non-resident fiduciary of a foreign
estate or trust as such terms are defined in the Code. This discussion does not
deal with all aspects of United States federal income and estate taxation and
does not deal with foreign, state and local tax consequences that may be
relevant to Non-United States Holders in light of their personal circumstances.
Furthermore, the following discussion is based on current provisions of the Code
and administrative and judicial interpretations as of the date hereof, all of
which are subject to change. PROSPECTIVE FOREIGN INVESTORS ARE URGED TO CONSULT
THEIR TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND
NON-UNITED STATES INCOME AND OTHER TAX CONSEQUENCES OF OWNING AND DISPOSING OF
COMMON STOCK.
DIVIDENDS
Generally, any dividend paid to a Non-United States Holder of Common Stock
will be subject to United States withholding tax either at a rate of 30% of the
gross amount of the dividend or such lower rate as may be specified by an
applicable tax treaty. Under current United States Treasury Regulations (the
"U.S. Regulations"), dividends paid to an address outside the United States are
presumed to be paid to a resident of such country (absent knowledge that such
presumption is not warranted) for purposes of the withholding discussed above
and, under the current interpretation of the U.S. Regulations, for purposes of
determining applicability of a tax treaty rate. However, under proposed U.S.
Regulations not currently in effect, a Non-United States Holder of Common Stock
who wishes to claim the benefit of an applicable treaty rate would be required
to satisfy applicable certification and other requirements. Dividends received
by a Non-United States Holder that are effectively connected with a United
States trade or business conducted by such Non-United States Holder are exempt
from such withholding tax. However, such effectively connected dividends, net of
certain deductions and credits, are taxed at the same graduated rates applicable
to United States person. A Non-United States Holder may claim exemption from
withholding under the effectively connected income exception by filing Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected With the
Conduct of Business in the United States) each year with the Company or its
paying agent prior to the payment of the dividends for such year.
In addition to the graduated tax described above, dividends received by a
corporate Non-United States Holder that are effectively connected with a United
States trade or business of the corporate Non-United States Holder may also be
subject to a branch profits tax at a rate of 30% or such lower rate as may be
specified by an applicable tax treaty.
A Non-United States Holder of Common Stock eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate claim for refund
with the IRS. In the event that dividends from the Company are not out of
current or accumulated earnings and profits (see "Dividend Policy"), a
Non-United States Holder of Common Stock may obtain a refund of any excess
amounts withheld by filing an appropriate claim for refund with the IRS.
GAIN OR DISPOSITION OF COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax on any gain realized upon the sale or other disposition of
his Common Stock unless: (i) such gain is effectively connected with a United
States trade or business of the Non-United States Holder; (ii) the Non-United
States Holder is an individual who holds such Common Stock as a capital asset
and who is present in the
96
<PAGE> 136
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
United States for a period or periods aggregating 183 days or more during the
calendar year in which such sale or disposition occurs and certain other
conditions are met; or (iii) the Company is or has been a "United States real
property holding corporation" for federal income tax purposes at any time within
the shorter of the five-year period preceding such disposition or such holder's
holding period. The Company has determined that it is not and does not believe
that it will become a "United States real property holding corporation" for
federal income tax purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, the Company must report to the IRS the amount of dividends paid,
the name and address of the recipient, and the amount, if any, of tax withheld.
A similar report is sent to the holder. Pursuant to tax treaties or other
agreements, the IRS may make its reports available to tax authorities in the
recipient's country of residence.
Dividends paid to a Non-United States Holder at an address within the
United States may be subject to backup withholding at a rate of 31% if the
Non-United States Holder fails to establish that it is entitled to an exemption
or to provide a correct taxpayer identification number and other information to
the payer. Backup withholding will generally not apply to dividends paid to
Non-United States Holders at an address outside the United States (unless the
payer has knowledge that the payee is a U.S. person).
The payment of the proceeds of the disposition of Common Stock to or
through the United States office of a broker is subject to information reporting
and backup withholding at a rate of 31% unless the holder certified its
non-United States status under penalties of perjury or otherwise establishes an
exemption. Generally, the payment of the proceeds of the disposition by a
Non-United States Holder of Common Stock outside the United States through a
foreign office of a broker will not be subject to backup withholding. However,
information reporting requirements (but not backup withholding) will apply to a
payment of disposition proceeds outside the United States through an office
outside the United States of a broker that is (a) a United States person, (b) a
United States "controlled foreign corporation" for U.S. tax purposes or (c) a
foreign person 50% or more of whose gross income for certain periods is from the
conduct of a United States trade or business unless such broker has documentary
evidence in its files of the owner's foreign status and has no actual knowledge
to the contrary or the holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the IRS.
ESTATE TAX
An individual Non-United States Holder who owns Common Stock at the time of
his death or has made certain lifetime transfers of an interest in Common Stock
will be required to include the value of such Common Stock in such holder's
gross estate for United States federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
97
<PAGE> 137
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters
named below for whom Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as U.S.
Representatives, and the International Underwriters named below for whom Morgan
Stanley & Co. International Limited, Goldman, Sachs International and Merrill
Lynch International Limited are acting as International Representatives, have
severally agreed to purchase, and the Company has agreed to sell to them,
severally, the respective numbers of shares of Common Stock set forth opposite
the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---------------------------------------------------------------- -----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.............................
Goldman, Sachs & Co. .........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................
Bear, Stearns & Co. Inc. .....................................
CS First Boston Corporation...................................
J.P. Morgan Securities Inc. ..................................
PaineWebber Incorporated......................................
Subtotal................................................... 97,000,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited....................
Goldman Sachs International...................................
Merrill Lynch International Limited...........................
Banque Paribas................................................
Morgan Grenfell & Co. Limited.................................
Swiss Bank Corporation........................................
UBS Limited...................................................
Bear, Stearns International Limited...........................
CS First Boston Limited.......................................
J.P. Morgan Securities Ltd. ..................................
PaineWebber International (U.K.) Ltd. ........................
Subtotal................................................... 14,000,000
----------
Total................................................. 111,000,000
==========
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
shares of Common Stock offered hereby (other than those covered by the U.S.
Underwriters' overallotment option described below) if any such shares are
taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (a)
it is not purchasing any U.S. Shares (as defined herein) for the account of
anyone other than a United States or Canadian Person (as defined herein) and (b)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside
of the United States or Canada or to anyone other than a
98
<PAGE> 138
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
United States or Canadian Person. Pursuant to the Agreement between U.S. and
International Underwriters, each International Underwriter has represented and
agreed that, with certain exceptions: (i) it is not purchasing any International
Shares (as defined herein) for the account of any United States or Canadian
Person and (ii) it has not offered or sold, and will not offer or sell, directly
or indirectly, any International Shares or distribute any prospectus relating to
the International Shares in the United States or in any province or territory of
Canada or to any United States or Canadian Person. The foregoing limitations do
not apply to stabilization transactions or to certain other transactions
specified in the Agreement between U.S. and International Underwriters. As used
herein, "United States or Canadian Person" means any national or resident of the
United States or of any province or territory of Canada, or any corporation,
pension, profit-sharing or other trust or other entity organized under the laws
of the United States or Canada or of any political subdivision thereof (other
than a branch located outside the United States and Canada of any United States
or Canadian Person) and includes any United States or Canadian branch of a
person who is otherwise not a United States or Canadian Person. All shares of
Common Stock to be purchased by the U.S. Underwriters and the International
Underwriters are referred to herein as the "U.S. Shares" and the "International
Shares," respectively.
Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares sold shall be the Price to Public set forth on the cover page hereof, in
United States dollars, less an amount not greater than the per share amount of
the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in any
province or territory of Canada in contravention of the securities laws thereof
and has represented that any offer of Common Stock in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
shares of Common Stock a notice stating in substance that, by purchasing such
Common Stock, such dealer represents and agrees that it has not offered or sold,
and will not offer or sell, directly or indirectly, any of such Common Stock in
any province or territory of Canada or to, or for the benefit of, any resident
of any province or territory of Canada in contravention of the securities laws
thereof and that any offer of Common Stock in Canada will be made only pursuant
to an exemption from the requirement to file a prospectus in the province or
territory of Canada in which such offer is made, and that such dealer will
deliver to any other dealer to whom it sells any of such Common Stock a notice
to the foregoing effect.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and during the period of six months after the date hereof will not offer
to sell any shares of Common Stock to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of their
business or otherwise in circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995 (the "U.K. Regulations"); (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 and the U.K. Regulations with respect to anything done by it
in relation to the shares of Common Stock offered hereby in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and will
only issue or pass on to any person in the United Kingdom any document received
by it in connection with the issue of the shares of Common Stock, other than any
document which consists of, or is a part of, listing particulars, supplementary
listing particulars or any other document required or permitted to be published
by listing rules under Article IV of the Financial Services Act 1986, if that
person is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1995, or is a person to whom
the document may otherwise lawfully be issued or passed on.
99
<PAGE> 139
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the Price to Public set forth on the cover page
hereof and part to certain dealers at a price which represents a concession not
in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to other Underwriters or to certain dealers. After the
initial offering of the shares of Common Stock, the offering price and other
selling terms may from time to time be varied by the Representatives.
The Common Stock has been approved for listing, subject to official notice
of issuance, on the NYSE under the symbol "LU."
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 16,650,000 additional shares of Common Stock at
the public offering price set forth on the cover page hereof, less underwriting
discounts and commissions. The U.S. Underwriters may exercise such option to
purchase solely for the purpose of covering overallotments, if any, made in
connection with the offering of the shares of Common Stock offered hereby. To
the extent such option is exercised, each U.S. Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number set forth next to such U.S.
Underwriter's name in the preceding table bears to the total number of shares of
Common Stock offered by the U.S. Underwriters in the Offerings.
The Company has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated, it will not (a) register for sale or offer, issue,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (b) enter into any swap or other agreement that
transfers, in whole or in part, any of the economic consequences of ownership of
Common Stock, whether any such transaction described in clause (a) or (b) of
this sentence is to be settled by delivery of Common Stock or other securities,
in cash or otherwise, for a period of 180 days after the date of this
Prospectus, other than: (i) the shares of Common Stock offered hereby; (ii) any
shares of Common Stock issued upon the exercise, exchange or conversion of a
security outstanding on the date of this Prospectus; and (iii) any shares of
Common Stock issued pursuant to employee benefit, director or shareholder plans
or other continuous offerings of the same type of the Company (including in
connection with any Substitute Awards). In addition, except for the Distribution
and as set forth above, AT&T has agreed not to (a) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (b) enter into any swap or other agreement that transfers, in whole or in
part, the economic consequences of ownership of Common Stock, whether any such
transaction described in clause (a) or (b) of this sentence is to be settled by
delivery of Common Stock or other securities, in cash or otherwise, for a period
of 180 days after the date of this Prospectus without the prior written consent
of Morgan Stanley & Co. Incorporated.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the 1933 Act.
From time to time, each of Morgan Stanley & Co. Incorporated, Goldman,
Sachs & Co. and Merrill Lynch & Co. provide certain financial advisory services
to each of the Company and AT&T.
PRICING OF THE OFFERING
Prior to the Offerings, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock was determined by
negotiations between the Company and the Representatives.
100
<PAGE> 140
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
Among the factors considered in determining the initial public offering price
were the sales, earnings and certain other pro forma financial and operating
information of the Company in recent periods, the future prospects of the
Company and its industry in general, and certain ratios and market prices of
securities and certain financial and operating information of companies engaged
in activities similar to those of the Company.
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other legal
matters will be passed upon for the Company by Richard J. Rawson, Senior Vice
President and General Counsel of the Company, and by Wachtell, Lipton, Rosen &
Katz, New York, New York. Certain legal matters will be passed upon for the
Underwriters by Davis Polk & Wardwell, New York, New York.
EXPERTS
The audited consolidated financial statements and financial statement
schedule included in this Prospectus and in the Registration Statement of which
this Prospectus forms a part have been included herein in reliance on the report
of Coopers & Lybrand L.L.P., independent auditors, given on the authority of
that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the 1933 Act with respect to the Common
Stock offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain parts of which have been omitted in accordance with the rules
and regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete, and, in each instance, reference is made to the copy of the document
filed as an exhibit to the Registration Statement. The Registration Statement
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; and at
the Commission's regional offices at Suite 1400, Northwest Atrium Center, 500
West Madison Street, Chicago, Illinois 60661, and 7 World Trade Center (13th
Floor), New York, New York 10048. Copies of such material can also be obtained
from the Commission at prescribed rates through its Public Reference Section at
450 Fifth Street, N.W., Washington, D.C. 20549.
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934 (the "1934 Act"). As a result of the
Offerings, the Company will become subject to the informational requirements of
the 1934 Act. The Company will fulfill its obligations with respect to such
requirements by filing periodic reports and other information with the
Commission. In addition, the Company intends to furnish to its stockholders
annual reports containing consolidated financial statements examined by an
independent public accounting firm.
FOR FLORIDA RESIDENTS
AT&T, the parent of the Company, provides telecommunications services
between the United States and Cuba jointly with Empresa de Telecomunicaciones
Internacionales de Cuba ("EMTELCUBA"), the Cuban telephone company, pursuant to
all applicable U.S. laws and regulations. All payments due EMTELCUBA are handled
in accordance with the provisions of the Cuban Assets Control Regulations and
the Cuban Democracy Act of 1992 and specific licenses issued thereunder. AT&T is
the sole owner of the Cuban
101
<PAGE> 141
[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
American Telephone and Telegraph Company ("CATT"), a Cuban corporation. CATT
owns cable facilities between the United States and Cuba that were activated on
November 25, 1994.
This information is accurate as of the date hereof. Current information
concerning the Company's and its affiliates' business dealings with the
government of Cuba or with any person or affiliate located in Cuba may be
obtained from the Division of Securities and Investor Protection of the Florida
Department of Banking and Finance, the Capitol, Tallahassee, Florida 32399-0350,
telephone number (904) 488-9805.
102
<PAGE> 142
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered hereby, other than
underwriting discounts and commissions. All amounts are estimated except the
Securities and Exchange Commission (the "Commission") registration fee, the
National Association of Securities Dealers, Inc. ("NASD") registration fee and
the New York Stock Exchange listing fee.
<TABLE>
<CAPTION>
PAYABLE BY
THE REGISTRANT
--------------
<S> <C>
SEC registration fee............................................ $ 1,100,432
NASD registration fee........................................... 30,500
New York Stock Exchange listing fee............................. 455,600*
Blue Sky fees and expenses...................................... 20,000*
Accounting fees and expenses.................................... 2,800,000*
Legal fees and expenses......................................... 4,000,000*
Printing and engraving expenses................................. 3,500,000*
Miscellaneous fees and expenses................................. 93,468*
--------
Total................................................. $ 12,000,000*
</TABLE>
- ---------------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation, a
"derivative action") if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, if they had no reasonable
cause to believe their conduct was unlawful. A similar standard is applicable in
the case of derivative actions, except that indemnification only extends to
expenses (including attorneys' fees) incurred in connection with the defense or
settlement of such actions, and the statute requires court approval before there
can be any indemnification where the person seeking indemnification has been
found liable to the corporation. The statute provides that it is not exclusive
of other indemnification that may be granted by a corporation's bylaws,
disinterested director vote, stockholder vote, agreement or otherwise.
The Restated Certificate of Incorporation of the Company (the
"Certificate") provides that each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person, or a person of whom such person is the legal
representative, is or was a director or officer of the Company or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, will be indemnified and held harmless by
the Company to the fullest extent authorized by the DGCL, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to provide prior to
such amendment), against all expense, liability and loss reasonably incurred or
suffered by such person in connection therewith. Such right to indemnification
includes the right to have the Company pay the expenses incurred in defending
any such proceeding in advance of its final disposition, subject to the
II-1
<PAGE> 143
provisions of the DGCL. Such rights are not exclusive of any other right which
any person may have or thereafter acquire under any statute, provision of the
Certificate, By-Law, agreement, vote of stockholders or disinterested directors
or otherwise. No repeal or modification of such provision will in any way
diminish or adversely affect the rights of any director, officer, employee or
agent of the Company thereunder in respect of any occurrence or matter arising
prior to any such repeal or modification. The Certificate also specifically
authorizes the Company to maintain insurance and to grant similar
indemnification rights to employees or agents of the Company.
The DGCL permits a corporation to provide in its certificate of
incorporation that a director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability for (i) any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) payments of unlawful dividends or unlawful stock
repurchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit.
The Certificate provides that a director of the Company will not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except, if required by the DGCL as
amended from time to time, for liability (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL, which concerns unlawful payments of
dividends, stock purchases or redemptions, or (iv) for any transaction from
which the director derived an improper personal benefit. Neither the amendment
nor repeal of such provision will eliminate or reduce the effect of such
provision in respect of any matter occurring, or any cause of action, suit or
claim that, but for such provision, would accrue or arise prior to such
amendment or repeal.
The Underwriting Agreements provide for indemnification by the Underwriters
of the registrant, its Directors and officers, and by the registrant of the
Underwriters, for certain liabilities, including liabilities arising under the
Act, and affords certain rights of contribution with respect thereto.
The Separation and Distribution Agreement by and among the Company, AT&T
Corp. ("AT&T") and NCR Corporation ("NCR") provides for indemnification by the
Company of AT&T and its directors, officers and employees for certain
liabilities, including liabilities under the Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Form of Restated Certificate of Incorporation of the Company.*
3.2 Form of By-Laws of the Company.*
4.1 Form of the Company's Common Stock certificate.*
4.2 Form of Rights Agreement between the Company and First Chicago Trust Company of New
York, as Rights Agent, dated as of April 4, 1996.*
5.1 Opinion of Richard J. Rawson re: legality of shares being registered.*
5.2 Opinion of Wachtell, Lipton, Rosen & Katz re: legality of shares being registered.*
10.1 Separation and Distribution Agreement by and among the Company, AT&T and NCR, dated
as of February 1, 1996 and amended and restated as of March 29, 1996.*
10.2 Employee Benefits Agreement by and between AT&T and the Company, dated as of
February 1, 1996 and amended and restated as of March 29, 1996.*
</TABLE>
II-2
<PAGE> 144
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
10.3 General Purchase Agreement by and between AT&T and the Company, dated as of February
1, 1996 and amended and restated as of March 29, 1996.*
10.4 Interim Services and Systems Replication Agreement by and among AT&T, the Company
and NCR, dated as of February 1, 1996.
10.5 Brand License Agreement by and between the Company and AT&T, dated as of February 1,
1996.
10.6 Tax Sharing Agreement by and among the Company, AT&T and NCR, dated as of February
1, 1996 and amended and restated as of March 29, 1996.*
10.7 Patent License Agreement among AT&T, NCR and the Company, effective as of March 29,
1996.*
10.8 Technology License Agreement among AT&T, NCR and the Company, effective as of March
29, 1996.*
10.9 Form of Lucent Technologies Inc. 1996 Long Term Incentive Program.
10.10 Form of Lucent Technologies Inc. Deferred Compensation Plan for Non-Employee
Directors.
10.11 Form of Pension Plan for Non-Employee Directors of Lucent Technologies Inc.
10.12 Form of Lucent Technologies Inc. Stock Retainer Plan for Non-Employee Directors.
10.13 Form of Lucent Technologies Operating Agreement between the Company and AT&T Capital
Corporation, dated as of April , 1996.*
10.14 Form of Lucent Technologies Inc. 1996 Employee Stock Purchase Plan.
21.1 Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Richard J. Rawson (included in Exhibit 5.1).*
23.3 Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit 5.2).*
27.1 Financial Data Schedule.
99.1 Consent of Carla A. Hills to be named as a director nominee.
99.2 Consent of Drew Lewis to be named as a director nominee.
99.3 Consent of Richard A. McGinn to be named as a director nominee.
99.4 Consent of Donald S. Perkins to be named as a director nominee.
99.5 Consent of Henry B. Schacht to be named as a director nominee.
99.6 Consent of Franklin A. Thomas to be named as a director nominee.
99.7 Consent of Ephraim M. Brecher to be named as a director nominee.
99.8 Consent of Jim G. Kilpatric to be named as a director nominee.
99.9 Consent of Marc E. Manly to be named as a director nominee.
99.10 Consent of S. Lawrence Prendergast to be named as a director nominee.
99.11 Consent of Florence L. Walsh to be named as a director nominee.
99.12 Consent of Paul J. Wondrasch to be named as a director nominee.
</TABLE>
- ---------------
* Filed herewith. All other exhibits have been previously filed.
(b) Financial Statement Schedules.
The following financial statement schedules are filed herewith:
Schedule of Valuation and Qualifying Accounts.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
II-3
<PAGE> 145
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing of the Offerings specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE> 146
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 1st day of April, 1996.
LUCENT TECHNOLOGIES INC.
By /s/ HENRY B. SCHACHT
------------------------------------
Henry B. Schacht
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------------------------- ------------------------------- ---------------
<S> <C> <C>
/s/ HENRY B. SCHACHT Chief Executive Officer April 1, 1996
- ---------------------------------------------
Henry B. Schacht
/s/ DONALD K. PETERSON Chief Financial Officer and April 1, 1996
- --------------------------------------------- Chief Accounting Officer
Donald K. Peterson
/s/ PAMELA F. Director April 1, 1996
CRAVEN
- ---------------------------------------------
Pamela F. Craven
/s/ MAUREEN B. TART Director April 1, 1996
- ---------------------------------------------
Maureen B. Tart
/s/ MARILYN J. WASSER Director April 1, 1996
- ---------------------------------------------
Marilyn J. Wasser
</TABLE>
II-5
<PAGE> 147
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
</TABLE>
<TABLE>
<C> <S>
3.1 Form of Restated Certificate of Incorporation of the Company.*
3.2 Form of By-Laws of the Company.*
4.1 Form of the Company's Common Stock certificate.*
4.2 Form of Rights Agreement between the Company and First Chicago Trust Company of New
York, as Rights Agent, dated April 4, 1996.*
5.1 Opinion of Richard Rawson re: legality of shares being registered.*
5.2 Opinion of Wachtell, Lipton, Rosen & Katz re: legality of shares being registered.*
10.1 Separation and Distribution Agreement by and among the Company, AT&T and NCR, dated
as of February 1, 1996 and amended and restated as of March 29, 1996.*
10.2 Form of Employee Benefits Agreement by and between AT&T and the Company, dated as of
February 1, 1996 and amended and restated as of March 29, 1996.*
10.3 General Purchase Agreement by and between AT&T and the Company, dated as of February
1, 1996 and amended and restated as of March 29, 1996.*
10.4 Interim Services and Systems Replication Agreement by and among AT&T, the Company
and NCR, dated as of February 1, 1996.
10.5 Brand License Agreement by and between the Company and AT&T, dated as of February 1,
1996.
10.6 Tax Sharing Agreement by and among the Company, AT&T and NCR, dated as of February
1, 1996 and amended and restated as of March 29, 1996.*
10.7 Patent License Agreement among AT&T, NCR and the Company effective as of March 29,
1996.*
10.8 Technology License Agreement among AT&T, NCR and the Company effective as of March
29, 1996.*
10.9 Form of Lucent Technologies Inc. 1996 Long Term Incentive Program.
10.10 Form of Lucent Technologies Inc. Deferred Compensation Plan for Non-Employee
Directors.
10.11 Form of Pension Plan for Non-Employee Directors of Lucent Technologies Inc.
10.12 Form of Lucent Technologies Inc. Stock Retainer Plan for Non-Employee Directors.
10.13 Form of Lucent Technologies Operating Agreement between the Company and AT&T Capital
Corporation, dated as of , 1996.*
10.14 Form of Lucent Technologies Inc. 1996 Employee Stock Purchase Plan.
21.1 Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Richard J. Rawson (included in Exhibit 5.1).*
23.3 Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit 5.2).*
27.1 Financial Data Schedule.
99.1 Consent of Carla A. Hills to be named as a director nominee.
99.2 Consent of Drew Lewis to be named as a director nominee.
99.3 Consent of Richard A. McGinn to be named as a director nominee.
99.4 Consent of Donald S. Perkins to be named as a director nominee.
99.5 Consent of Henry B. Schacht to be named as a director nominee.
99.6 Consent of Franklin A. Thomas to be named as a director nominee.
99.7 Consent of Ephraim M. Brecher to be named as a director nominee.
99.8 Consent of Jim G. Kilpatric to be named as a director nominee.
99.9 Consent of Marc E. Manly to be named as a director nominee.
99.10 Consent of S. Lawrence Prendergast to be named as a director nominee.
99.11 Consent of Florence L. Walsh to be named as a director nominee.
99.12 Consent of Paul J. Wondrasch to be named as a director nominee.
</TABLE>
- ---------------
* Filed herewith. All other exhibits have been previously filed.
<PAGE> 1
EXHIBIT 1.1
LUCENT TECHNOLOGIES INC.
UNDERWRITING AGREEMENT
<PAGE> 2
- 2 -
LUCENT TECHNOLOGIES INC.
111,000,000 Shares
Common Stock, par value $.01 per share
UNDERWRITING AGREEMENT
_____ __, 1996
New York, New York
Morgan Stanley & Co. Incorporated
1221 Avenue of the Americas
New York, NY 10020
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Merrill Lynch, Pierce,
Fenner & Smith Incorporated
World Financial Center
250 Vesey Street
New York, New York 10281
Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Goldman Sachs International
Peterborough Court
133 Fleet Street
<PAGE> 3
- 3 -
London EC4A 2BB
England
Merrill Lynch International Limited
Ropemaker Place
25th Street
London EC24-9LY
England
As Representatives of the Several Underwriters
Named in Schedules I and II hereof
Dear Sirs:
The undersigned, Lucent Technologies Inc. (the "Company"), hereby
confirms its agreement with the several Underwriters, named in Schedules I and
II hereof, as follows:
1. Underwriters and Representatives. The term "U.S.
Underwriters" as used herein shall mean the several persons, firms and
corporations named in Schedule I hereof, and the term "U.S. Underwriter" shall
mean any one of such persons, firms or corporations. The term "International
Underwriters" as used herein shall mean the several persons, firms and
corporations named in Schedule II hereof, and the term "International
Underwriter" shall mean any one of such persons, firms or corporations. The
U.S. Underwriters and the International Underwriters are hereinafter
collectively referred to as the "Underwriters." The terms "U.S.
Underwriters," "International Underwriters," "Underwriters," "persons," "firms"
and "corporations" as used herein shall include the singular of such terms as
well as the plural. The term "U.S. Representatives" shall mean Morgan Stanley
& Co. Incorporated, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, who, by signing this Agreement represent that they have
been authorized by each U.S. Underwriter to execute this Agreement on behalf of
such U.S. Underwriter and to act for such U.S. Underwriter in the manner
herein provided. The term
<PAGE> 4
- 4 -
"International Representatives" shall mean Morgan Stanley & Co. International
Limited, Goldman Sachs International and Merrill Lynch International Limited
who, by signing this Agreement represent that they have been authorized by each
International Underwriter to execute this Agreement on behalf of such
International Underwriter and to act for such International Underwriter in the
manner herein provided. The U.S. Representatives and the International
Representatives are hereinafter collectively referred to as the
"Representatives." All obligations of the Underwriters hereunder are several
and not joint.
2. Description of Securities. The Company proposes to issue and
sell an aggregate of 97,000,000 shares of its Common Stock, par value $.01 per
share (the "U.S. Stock") to the U.S. Underwriters and an aggregate of
14,000,000 shares of its Common Stock, par value $.01 per share (the
"International Stock") to the International Underwriters. The U.S. Stock and
International Stock are hereinafter collectively referred to as the "Firm
Stock."
The Company also proposes to grant to the several U.S.
Underwriters an option to purchase up to an additional 16,650,000 shares of its
Common Stock, par value $.01 per share (the "Option Stock") to cover
over-allotments. The Firm Stock and the Option Stock are hereinafter
collectively referred to as the "Common Stock". Each share of Common Stock
will have attached thereto one right (collectively, the "Rights") to purchase
one-hundredth of a share of junior preferred stock, par value $.01 of the
Company (the "Junior Preferred Shares"). The Rights have been issued pursuant
to a Rights Agreement (the "Rights Agreement") dated as of April 4, 1996
between the Company and First Chicago Trust Company of New York, as Rights
Agent.
It is understood and agreed to by all parties that the U.S.
Underwriters and the International Underwriters are simultaneously entering
into an Agreement between U.S. and International Underwriters which provides,
among other things, for the transfer of Common Stock between the two
syndicates. Two
<PAGE> 5
- 5 -
forms of prospectus are to be used in connection with the offering and sale of
Common Stock contemplated by the foregoing, one relating to the U.S. Stock and
the other relating to the International Stock. The latter form of Prospectus
will be identical to the former except for certain substitute pages as included
in the registration statement and amendments thereto. Except as the context
may otherwise require, references herein to any prospectus, whether in
preliminary or final form, and whether as amended or supplemented, shall
include both the U.S. and the international versions thereof.
3. Representations and Warranties of the Company. The Company
represents and warrants to the several Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement (No.
333-00703) on Form S-1, including a prospectus relating to the
Common Stock, which has become effective under the Securities Act
of 1933 (the "Act"). The term "Registration Statement" means the
Registration Statement as amended to the date hereof including the
information, if any, deemed to be part of the Registration
Statement at the time of effectiveness pursuant to Rule 430A under
the Act, and the term "Prospectus" means the prospectus in the form
first used to confirm sales of the Common Stock. The term
"preliminary prospectus" means any preliminary prospectus relating
to the Common Stock used prior to the effectiveness of the
Registration Statement. If the Company has filed an abbreviated
registration statement to register additional shares of Common
Stock pursuant to Rule 462(b) under the Securities Act (the "Rule
462 Registration Statement"), then any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462
Registration Statement.
(b)(i) The Registration Statement when it became effective, did
not contain any untrue statement of a
<PAGE> 6
- 6 -
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, (ii) each preliminary prospectus relating to the Common
Stock, if any, complied when so filed in all material respects with
the Act and the applicable rules and regulations of the Commission
thereunder, (iii) the Registration Statement and the Prospectus
comply and, as amended or supplemented, if applicable, will comply
in all material respects with the Act and the applicable rules and
regulations of the Commission thereunder and (iv) the Registration
Statement and the Prospectus (incuding, without limitation, the
section entitled "Arrangements between the Company and AT&T") do
not and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made,
not misleading; provided, however, that the Company makes no
representations or warranties as to the information contained in
or omitted from the Registration Statement, any preliminary
prospectus or the Prospectus in reliance upon written information
furnished to the Company by or on behalf of any Underwriter
specifically for inclusion therein.
(c) The accountants who have certified the financial statements
filed with the Commission as parts of the Registration Statement
and the Prospectus are public or certified accountants, independent
with respect to the Company, as required by the Act and the rules
and regulations of the Commission thereunder.
(d) The Common Stock has been duly authorized and, when issued
and delivered in accordance with the terms hereof, will be validly
issued, fully paid and non-assessable, and the issuance of such
Common Stock will not be subject to any preemptive rights.
(e) Neither the issuance or sale of the Common Stock nor the
consummation of any other of the transactions
<PAGE> 7
- 7 -
herein contemplated nor the fulfillment of the terms hereof will
result in a breach of any of the terms and provisions of, or
constitute a default under, any indenture, mortgage, deed of trust
or other agreement or instrument to which the Company is a party
or by which it is bound, or the Company's Certificate of
Incorporation or By-Laws, or, to the best of its knowledge, any
order, rule or regulation applicable to the Company of any court,
federal or state regulatory body, administrative agency or other
governmental body having jurisdiction over the Company or its
properties and except for the registration of the Common Stock and
the Rights under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required
under the United States Securities Exchange Act of 1934 (the
"Exchange Act") and applicable state or foreign securities laws in
connection with the purchase and distribution of the Common Stock
by the Underwriters, no consent, approval, authorization or order
of, or filing or registration with, any such court or governmental
agency or body is required for the execution and delivery by the
Company of, compliance by the Company with the provisions of or
consummation of the transactions contemplated by, this Agreement.
(f) The Separation and Distribution Agreement and each of
the Ancillary Agreements (each such term, as defined in the
Registration Statement) have been duly authorized, executed and
delivered by the Company and each such agreement constitutes a
valid and binding agreement of the Company.
(g) The compliance by the Company with all of the
provisions of the Separation and Distribution Agreement and each
of the Ancillary Agreements will not conflict with or result in
a breach or the violation of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which
the Company or any of its subsidiaries is bound or to which the
Company or
<PAGE> 8
- 8 -
any of its subsidiaries is subject, nor will such actions result
in any violation of the provisions of the certificate of
incorporation or by-laws of the Company or any statute or any
order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its
subsidiaries or any of their properties or assets (except for such
conflicts, breaches, violations and defaults as would not have a
material adverse effect on the Company and its subsidiaries taken
as a whole); and no consent, approval, authorization or order of,
or filing or registration with, any such court or governmental
agency or body is required for the execution and delivery by the
Company of, and compliance by the Company with, the provisions of
the Separation and Distribution Agreement and each of the
Ancillary Agreements (except for such consents, approvals,
authorizations, orders, filings, registrations and qualifications
the failure to obtain which would not have a material adverse
effect on the Company and its subsidiaries taken as a whole).
(h) At the date hereof, no subsidiary of the Company organized
and operating in the United States would constitute a significant
subsidiary (as such term is defined in Rule 1-02(w) of Regulation
S-X).
4. Purchase and Sale of Common Stock. On the basis of the
representations and warranties and on the terms and subject to the conditions
herein set forth, each of the Underwriters agrees to purchase from the Company,
severally and not jointly, and on the terms and subject to the conditions
herein set forth the Company agrees to sell to each of the Underwriters,
severally and not jointly, the number of shares of Firm Stock set forth
opposite its name in Schedule I or Schedule II hereof at a price of $_________
per share (the "purchase price").
The Company hereby grants an option to the U.S. Underwriters, pro
rata in accordance with the number of shares of Firm Stock being purchased
(subject to adjustment for fractions)
<PAGE> 9
- 9 -
and subject to the terms and conditions hereinafter stated, to purchase up to
an aggregate of 16,650,000 shares of Option Stock at the purchase price. Said
option may be exercised only to cover over-allotments in the sale of the Firm
Stock by the U.S. Underwriters. Said option may be exercised only once, in
whole or in part, on or before the 30th day after the date of the Prospectus
upon written or telegraphic notice by the U.S. Representatives to the Company
setting forth the number of shares of Option Stock as to which the Underwriters
are exercising the option and the settlement date. Delivery of certificates
evidencing the Option Stock, and payment therefor, shall be made as provided in
section 5 hereof.
The terms of the public offering of the Common Stock are as set
forth in the Prospectus.
5. Closing. Delivery of, and payment of the purchase price for,
the shares of Firm Stock and Option Stock (if the option provided in section 4
hereof shall have been exercised on or before the second business day prior to
the time of closing) which the Underwriters severally agree to purchase shall
be made at the office of Davis Polk & Wardwell, 450 Lexington Avenue, New York,
New York, at 10:00 a.m.(1) on _____ __, 1996 or at such other place or time on
the same or such other day as shall be agreed upon by the Company and the
Representatives. The time and date for such payment and delivery are herein
referred to as the "time of closing". At the time of closing, the Company will
deliver the shares of Firm Stock, registered in such names and in such
authorized denominations as the Representatives shall have specified not less
than two business days prior to the day of closing, against payment therefor as
provided in section 6 hereof, to the Representatives for the respective
accounts of the Underwriters.
__________________________________
(1) Times mentioned herein are New York time.
<PAGE> 10
- 10 -
The Company agrees to make the shares of Firm Stock available to
the Representatives for examination on behalf of the Underwriters at a place to
be mutually agreed upon, New York, New York, not later than 2:00 p.m. on the
business day next preceding the day of closing.
If the option provided for in section 4 hereof is exercised after
the second business day prior to the time of closing, the Company will deliver
to the U.S. Representatives for the respective accounts of the several U.S.
Underwriters, at 1221 Avenue of the Americas, New York, New York, on the date
(the "option time of closing") specified by the U.S. Representatives (which
shall be within five business days after the exercise of said option),
certificates evidencing the shares of Option Stock purchased pursuant to the
terms hereof by the U.S. Underwriters registered in such names and in such
denominations as the Representatives shall request in writing not later than
two full business days prior to the option time of closing (unless shorter
notice is acceptable to the U.S. Representatives). Such delivery shall be made
against payment of the purchase price thereof as provided in section 6 hereof.
If settlement for the Option Stock purchased by the U.S. Underwriters pursuant
to the terms hereof occurs after the time of closing, the Company will deliver
to the U.S. Underwriters on the settlement date for the Option Stock, and the
obligation of the U.S. Underwriters to purchase such Option Stock shall be
conditioned upon receipt of, supplemental opinions, certificates and letters
confirming as of such date the opinions, certificates and letters delivered at
the time of closing pursuant to section 8 hereof.
If, at the time of closing or option time of closing, as the case
may be, for any reason (other than termination of this Agreement in accordance
with the provisions of section 8, 9 or 10 hereof), one or more of the
Underwriters shall fail or refuse to pay for the shares of Firm Stock or Option
Stock it has or they have agreed to purchase at such time (any such Underwriter
being hereinafter referred to as a "defaulting Underwriter"), and the aggregate
number of shares of the Common Stock which such defaulting Underwriter or
Underwriters agreed but failed or
<PAGE> 11
- 11 -
refused to purchase is not more than one-tenth of the aggregate number of
shares of Common Stock to be purchased at such time, the remaining Underwriters
shall be obligated severally in the proportion which the number of shares of
Firm Stock set forth opposite their names in Schedule I or Schedule II of this
Agreement bear to the aggregate number of shares of Firm Stock set forth
opposite the names of all such non-defaulting Underwriters (or in such other
proportion as the Representatives shall specify) to purchase the Common Stock
which the defaulting Underwriter or Underwriters agreed but failed or refused
to purchase; provided that in no event shall the number of shares of Common
Stock that any Underwriter is obligated to purchase be increased pursuant to
the provisions of this paragraph by more than one-ninth of the number of shares
of Common Stock which such Underwriter has agreed to purchase at such time
pursuant to section 4 without the written consent of such Underwriter. In the
event that any defaulting Underwriter or Underwriters shall fail or refuse to
purchase a number of shares of Common Stock which is more than one-tenth of the
aggregate principal amount of the Common Stock, and if arrangements
satisfactory to the Representatives and the Company for the purchase of all
such Common Stock are not made within two business days after such default,
this Agreement will terminate without liability on the part of any of the
non-defaulting Underwriters or of the Company. In the event that the
non-defaulting Underwriters agree to purchase, in accordance with this
paragraph, all the shares of Common Stock which the defaulting Underwriter or
Underwriters fail or refuse to purchase, the Representatives or the Company
shall have the right to postpone the time of closing or the option time of
closing, as the case may be, but in no event longer than five business days, in
order that the required changes, if any, in the Registration Statement and in
the Prospectus or in any other documents or arrangements may be effected.
Except to the extent provided in subparagraphs (d) and (f) of section 7 hereof,
termination of this Agreement pursuant to this section 5 shall be without any
liability on the part of the Company or any Underwriter other than a defaulting
Underwriter which shall have failed, otherwise than for some reason sufficient
to justify under the terms hereof the
<PAGE> 12
- 12 -
cancellation or termination of its obligations hereunder, to pay for the shares
of Common Stock which such Underwriter has agreed to purchase (any such failure
or refusal being hereinafter referred to as a "default"). Unless this
Agreement is terminated in accordance with any of its provisions, a default by
one or more of the Underwriters shall not relieve any other Underwriter from
its obligation to purchase the shares of Common Stock which it has agreed to
purchase.
6. Payment. At the time of closing or option time of closing,
the Company will cause the shares of Common Stock to be delivered to the
Representatives for the account of each Underwriter against payment of the
purchase price of such Common Stock in Federal or other funds immediately
available.
7. Covenants of the Company. The Company agrees as follows:
(a) The Company will not file any amendment or supplement to
the Registration Statement or the Prospectus of which the
Representatives shall not previously have been advised or which
shall be disapproved by Davis Polk & Wardwell, which firm is acting
as counsel for the Underwriters.
(b) The Company will deliver to the Representatives a
reasonable number of copies of the registration statement as
originally filed and of all amendments thereto up to the time of
closing. Promptly upon the filing with the Commission of any
amendment to the Registration Statement or of any supplement to or
amendment of the Prospectus, the Company will deliver to the
Representatives a reasonable number of copies thereof.
(c) The Company will advise the Representatives promptly
(confirming such advice in writing) of any official request made by
the Commission for an amendment to the Registration Statement or
Prospectus or for
<PAGE> 13
- 13 -
additional information with respect thereto and of any official
notice of the institution of proceedings for, or of the entry of,
a stop order suspending the effectiveness of the Registration
Statement. The Company will use its best efforts to prevent the
issuance of any such stop order and, if such a stop order should
be entered, the Company will make every reasonable effort to
obtain the lifting or removal thereof as soon as possible.
(d) The Company will pay all expenses in connection with the
preparation and filing of the Registration Statement, the issuance
and delivery of the Common Stock and the printing of the copies of
any preliminary prospectus and of the Prospectus to be furnished as
provided in the first sentence of subparagraph (g) below; and will
pay any taxes on the issuance of the Common Stock, but will not pay
any transfer taxes. The Company will not be required to pay any
amount for any expenses of the Representatives or any of the
Underwriters, except the cost of mailing to Underwriters of copies
of the Registration Statement and all amendments thereto, the
preliminary prospectuses and the Prospectus, and except as provided
by subparagraph (f) below. The Company will not in any event be
liable to any of the several Underwriters for damages on account of
loss of anticipated profits.
(e) The Company will apply the proceeds from the sale of the
Common Stock as set forth under the heading "Use of Proceeds"
appearing in the Prospectus.
(f) The Company will use its best efforts to qualify the Common
Stock, or to assist in the qualification of the Common Stock by or
on behalf of the Representatives, for offer and sale under the
securities or Blue Sky laws of such states of the United States as
the Representatives may designate, and will pay or reimburse the
Representatives for counsel fees, filing fees and
<PAGE> 14
- 14 -
out-of-pocket expenses in connection with such qualification;
provided that the Company shall not be required (i) to qualify as
a foreign corporation or to file a general consent to service of
process in any state or (ii) to pay, or to incur, or to reimburse
the Representatives for, any such expenses if no shares of Common
Stock are delivered to and purchased by the Underwriters hereunder
because of a default by one or more of the Underwriters or the
termination of this Agreement pursuant to section 10 hereof.
(g) The Company will furnish to the Representatives or to the
respective Underwriters as many copies of the Prospectus as the
Representatives or the respective Underwriters may reasonably
request for the purposes contemplated by the Act. If, during such
period after the first date of the public offering of the Common
Stock as, in the opinion of the counsel for the Underwriters, the
Prospectus is required by law to be delivered, any event shall
occur which should be set forth in a supplement to or an amendment
of the Prospectus in order to make the Prospectus not misleading,
the Company will, upon the occurrence of each such event, forthwith
at its expense, prepare and furnish to the Representatives or to
the respective Underwriters as many copies as the Representatives
or the respective Underwriters may reasonably request for the
purposes contemplated by the Act of a supplement to or amendment of
the Prospectus which will supplement or amend the Prospectus so
that, as supplemented or amended, it will not at the date of such
supplement or amendment contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make
the statement therein not misleading. For the purpose of this
subparagraph (g), the Company will furnish such reasonable
information with respect to itself as the Representatives may from
time to time request, and the Representatives, at their own
expense, may visit any of the properties of the Company and may
inspect the books of account of the Company at
<PAGE> 15
- 15 -
any reasonable time. Notwithstanding any of the other provisions
of this subparagraph (g), the Company shall not be under any
obligation to furnish any supplement to or amendment of the
Prospectus on account of any change in, or to include in any
amended prospectus any change in, the information furnished to the
Company by any Underwriter or Underwriters or by the
Representatives on its or their behalf for use in the Prospectus,
unless the Representatives have advised the Company in writing of
such change and has requested the Company at the expense of such
Underwriter or Underwriters to prepare a supplement to or
amendment of the Prospectus to reflect such change or to include
such change in an amended prospectus.
(h) The Company will cause to be made generally available to
its security holders as soon as practicable, but in any event not
later than June 30, 1997, an earnings statement or statements which
shall meet the requirements of Section 11(a) of the Act and Rule
158 promulgated thereunder.
(i) Without the prior written consent of the Morgan Stanley &
Co. Incorporated, the Company will not (a) register for sale or
offer, issue, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (b) enter into any swap or other
agreement that transfers, in whole or in part, any of the economic
consequences of ownership of Common Stock, whether any such
transaction described in clause (a) or (b) of this sentence is to
be settled by delivery of Common Stock, or other securities, in
cash or otherwise, for a period of 180 days after the date of the
Prospectus, other than: (i) the shares of Common Stock sold
pursuant to this Agreement; (ii) any
<PAGE> 16
- 16 -
shares of Common Stock issued upon the exercise, exchange or
conversion of a security outstanding on the date hereof; and (iii)
any shares of Common Stock issued pursuant to employee benefit,
director or shareowner plans or other continuous offerings of the
same type of the Company (including in connection with any
Substitute Awards, as such term is defined in the Prospectus).
8. Conditions of the Obligations of the Underwriters. The
obligations of the Underwriters to purchase and pay for the Common Stock shall
be subject to the following additional conditions:
(a) At the time of closing no stop order suspending the
effectiveness of the Registration Statement, as amended from time
to time, shall be in effect and no proceedings for that purpose
shall be pending before or threatened by the Commission, and the
Representatives shall have received a certificate dated the day of
the closing and signed by a Vice President of the Company to the
effect that no such stop order is in effect and, to the knowledge
of the Company, no proceedings for such purpose are pending before,
or threatened by, the Commission.
(b) At or prior to the time of closing, the Representatives
shall have received from Wachtell, Lipton, Rosen & Katz, counsel
for the Company, an opinion, satisfactory to Davis Polk & Wardwell,
to the effect that --
(i) the Company is a corporation in good standing, duly
organized and validly existing under the laws of the State of
Delaware; and is authorized by its Certificate of Incorporation
to transact the business in which it is engaged, as set forth
in the Prospectus;
<PAGE> 17
- 17 -
(ii) the Company is duly qualified to transact the business
in which it is engaged, as set forth in the Prospectus, in each
State in the United States in which it operates;
(iii) the shares of Common Stock and the Rights to be
issued and sold by the Company hereunder have been duly and
validly authorized and, when issued and delivered against
payment therefor as provided herein, will be duly and validly
issued, fully paid and non-assessable and free of preemptive
rights;
(iv) each of this Agreement and the Rights Agreement has
been duly authorized, executed and delivered on behalf of the
Company and is valid and binding on the Company, except as
rights to indemnity and contribution hereunder may be limited
under applicable law;
(v) all consents, approvals, authorizations or other orders
of U.S. regulatory authorities legally required for the
issuance and sale of the Common Stock to the Underwriters
pursuant to the terms of this Agreement, have been obtained,
except such as may be required by the securities or Blue Sky
laws of the various States in connection with the offer and
sale of the Common Stock; and
(vi) except as to financial statements and schedules and
other financial and statistical information contained
therein, which such opinion need not pass upon, (A) the
Registration Statement when it became effective complied as to
form in all material respects with the requirements of the Act
and the applicable instructions, rules and regulations of the
Commission thereunder; and (B) the Registration Statement and
the Prospectus, as amended or supplemented, if applicable,
comply, and at the date thereof complied, as to form in all
material
<PAGE> 18
- 18 -
respects with the requirements of the Act and the
applicable instructions, rules and regulations of the
Commission thereunder.
The opinion specified in clause (ii) above may be delivered
by Richard J. Rawson, Senior Vice President and General Counsel
of the Company, in lieu of Wachtell, Lipton, Rosen & Katz.
(c) At or prior to the time of closing, the Representatives
shall have received from Davis Polk & Wardwell an opinion to the
effect specified in clauses (i), (iii), (iv) and (vi)(A) and (B) of
subparagraph (b) above.
(d) At the date hereof and at or prior to the time of closing,
the Representatives shall have received an executed copy of a
letter of Coopers & Lybrand, addressed to the Company and to the
Representatives, to the effect that (i) they are independent public
accountants as required by the Act and the applicable published
rules and regulations of the Commission thereunder; (ii) the
audited financial statements contained in the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the applicable
published rules and regulations of the Commission thereunder; and
(iii) nothing has come to their attention as the result of
specified procedures not constituting an audit that caused them to
believe (A) that there was any change in the capital stock or long
term debt of the Company, or any decrease in net assets, from the
date of the latest balance sheet which is contained in the
Registration Statement, to a date not more than five days prior to
the date of such letter or (B) that there were any decreases, as
compared with the corresponding period in the preceding year, in
total revenues, operating income or net income from the date of the
latest figures for such items contained in the Registration
Statement to the date
<PAGE> 19
- 19 -
of the latest available financial statements of the Company;
provided that, with respect to any of the items specified in
clause (iii), such letter may contain an exception for matters
which the Registration Statement discloses have occurred or may
occur; and provided further, that the letter may vary from the
requirements specified in this subparagraph in such manner as the
Representatives in their sole discretion may determine to be
immaterial or in such manner as may be acceptable to the
Representatives.
(e) Except as reflected in or contemplated by the Registration
Statement and the Prospectus, since the respective dates as of
which information is given in the Registration Statement and the
Prospectus there shall not have been, at the time of closing, any
material adverse change, financial or otherwise, in the condition
of the Company from that set forth in the Registration Statement
and the Prospectus; the representations and warranties of the
Company herein shall be true at the time of closing; the Company
shall not have failed, at or prior to the time of closing, to have
performed all agreements herein contained which should have been
performed by it at or prior to such time; and the Representatives
shall have received, at the time of closing, a certificate to the
foregoing effect dated the day of the closing and signed by a Vice
President of the Company.
(f) The New York Stock Exchange shall have approved the Common
Stock for listing, subject only to official notice of issuance.
(g) The "lock-up" agreement, substantially in the form of
Exhibit A hereto, between the Representatives and AT&T Corp.
relating to sales and certain other dispositions of shares of
Common Stock or certain other securities shall have been delivered
to you on or before the date hereof.
<PAGE> 20
- 20 -
(h) The Respresentatives shall have received a certificate,
dated the day of closing and signed by a Vice President or the
Treasurer of AT&T Corp., to the effect that:
(i) the Separation and Distribution Agreement and each of
the Ancillary Agreements have been duly authorized, executed
and delivered by AT&T and each such agreement constitutes a
valid and binding agreement of AT&T; and
(ii) the compliance by AT&T with all of the provisions of
the Separation and Distribution Agreement and each of the
Ancillary Agreements will not conflict with or result in a
breach or the violation of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which
AT&T or any of its subsidiaries is bound or to which AT&T or
any of its subsidiaries is subject, nor will such actions
result in any violation of the provisions of the certificate of
incorporation or by-laws of AT&T or any statute or any order,
rule or regulation of any court or governmental agency or body
having jurisdiction over AT&T or any of its subsidiaries or any
of their properties or assets (except for such conflicts,
breaches, violations and defaults as would not have a material
adverse effect on the Company and its subsidiaries taken as a
whole); and no consent, approval, authorization or order of, or
filing or registration with, any such court or governmental
agency or body is required for the execution and delivery by
AT&T of, and compliance by AT&T with, the provisions of the
Separation and Distribution Agreement and each of the Ancillary
Agreements (except for such consents, approvals,
authorizations, orders, filings, registrations and
qualifications the failure to obtain which would not have a
material adverse effect on the Company and its subsidiaries
taken as a whole).
<PAGE> 21
- 21 -
In case any of the conditions specified above in this section 8
shall not have been fulfilled, this Agreement may be terminated by the
Representatives by delivering written notice of termination to the Company.
Any such termination shall be without liability of any party to any other party
except to the extent provided in subparagraphs (d) and (f) of section 7 hereof.
9. Conditions of Company's Obligation. The obligation of the
Company to deliver the Common Stock upon payment therefor shall be subject to
the following conditions:
(a) At the time of closing no stop order suspending the
effectiveness of the Registration Statement, as amended from time to time,
shall be in effect and no proceedings for that purpose shall then be pending
before, or threatened by, the Commission.
(b) The Company shall assume simultaneously with the closing of
the sale of the Common Stock sold pursuant to this Agreement $___ billion of
commercial paper outstanding under the Commercial Paper Program (as such term
is defined in the Prospectus).
In case any of the conditions specified above in this section 9
shall not have been fulfilled, this Agreement may be terminated by the Company
by delivering written notice of termination to the Representatives. Any such
termination shall be without liability of any party to any other party except
to the extent provided in subparagraphs (d) and (f) of section 7 hereof.
10. Termination of Agreement. This Agreement may be terminated
by the Representatives by delivering written notice of termination to the
Company at any time prior to the time of closing, if after the signing of this
Agreement trading in securities generally on the New York Common Stock Exchange
shall have been materially suspended or materially limited or minimum prices
shall have been established on such Exchange (which shall not include trading
suspensions or limitations resulting from the operation of General Rules 80A
and 80B of such Exchange, as
<PAGE> 22
- 22 -
amended or supplemented), or a banking moratorium shall have been declared by
either federal or New York State authorities.
A termination of this Agreement pursuant to this section 10 shall
be without liability of any party to any other party.
11. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold each Underwriter, and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, harmless from and against any and all losses, claims, damages,
and liabilities with respect to the Common Stock or any other securities of the
Company arising because the Registration Statement, any preliminary prospectus
used in connection with the offering of the Common Stock or the Prospectus (if
used within the period set forth in section 7(g) hereof and if used, as amended
or supplemented by all amendments or supplements thereto which have been
furnished to the Representatives or to such Underwriter) contained or is
alleged to have contained any untrue statement of a material fact or omitted or
is alleged to have omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, except as
to losses, claims, damages or liabilities caused by any such untrue statement
or omission or alleged untrue statement or omission made in reliance upon
information furnished to the Company herein or otherwise in writing by or on
behalf of any Underwriter for use in connection with the preparation of any
preliminary prospectus, the Registration Statement or the Prospectus or any
amendment or supplement thereof, provided that the indemnity agreement with
respect to any preliminary prospectus shall not inure to the benefit of any
Underwriter (or to the benefit of any person controlling such Underwriter) on
account of any losses, claims, damages or liabilities arising from the sale of
Common Stock to any person if a copy of the Prospectus (as amended or
supplemented by all amendments or supplements thereto which have been furnished
to the Representatives or to such Underwriter, but without exhibits) shall not
have been sent, mailed or given to such person, if
<PAGE> 23
- 23 -
required by the Act, at or prior to the written confirmation of the sale of
such Common Stock to such person.
(b) Each Underwriter agrees to indemnify and hold the Company,
its directors, its officers who sign the registration statement, and each
person who controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, harmless from and against any and all losses,
claims, damages and liabilities arising because the Registration Statement or
any preliminary prospectus relating to the Common Stock, or the Prospectus or
any amendment or supplement thereto contained or is alleged to have contained
any untrue statement of a material fact or omitted or is alleged to have
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, which untrue statement or omission
or alleged untrue statement or omission was made in any such preliminary
prospectus or in the Registration Statement or Prospectus or any amendment or
supplement thereto in reliance upon information furnished to the Company herein
or otherwise in writing by or on behalf of such Underwriter for use in
connection with the preparation thereof.
(c) The Company and each Underwriter agree that upon the
commencement of any action against it, its directors, its officers who sign the
registration statement, or any person controlling it as aforesaid in respect of
which indemnity may be sought on account of any indemnity agreement contained
herein, it will promptly give written notice of the commencement thereof to the
party or parties against whom indemnity shall be sought, but the omission so to
notify such indemnifying party or parties of any such action shall not relieve
such indemnifying party or parties from any liability which it or they may have
to the indemnified party or parties otherwise than on account of such indemnity
agreement. In case such notice of any such action shall be so given, such
indemnifying party or parties shall be entitled to participate at its or their
own expense in the defense of such action, or, if it or they so elect, to
assume the defense of such action, and in the latter event such defense shall
be conducted by counsel chosen by such indemnifying party
<PAGE> 24
- 24 -
or parties and satisfactory to the indemnified party or parties who shall be
defendant or defendants in such action, and such defendant or defendants shall
bear the fees and expenses of any additional counsel retained by them; but if
the indemnifying party or parties shall not elect to assume the defense of such
action, such indemnifying party or parties will reimburse such indemnified
party or parties for the reasonable fees and expenses of any counsel retained
by them. In the event that the parties to any such action (including impleaded
parties) include both the indemnifying party and the indemnified party and
either (i) the indemnifying party or parties and indemnified party or parties
mutually agree or (ii) representation of both the indemnifying party or parties
and the indemnified party or parties by the same counsel is inappropriate under
applicable standards of professional conduct due to actual or potential
differing interests between them, then the indemnifying party or parties shall
not have the right to assume the defense of such action on behalf of such
indemnified party or parties and will reimburse such indemnified party or
parties for the reasonable fees and expenses of any counsel retained by them
and satisfactory to the indemnifying party or parties, it being understood that
the indemnifying party or parties shall not, in connection with any one action
or separate but similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys for all such
indemnified parties, which firm shall be designated in writing by the
Representatives in the case of an action in which one or more Underwriters or
controlling persons are indemnified parties and by the Company in the case of
an action in which the Company or any of its directors, officers or controlling
persons are indemnified parties. The indemnifying party or parties shall not
be liable under this Agreement with respect to any settlement made by any
indemnified party or parties without prior written consent by the indemnifying
party or parties to such settlement.
(d) If the indemnification provided for in subparagraph (a) or
(b) of this section 11 is unavailable to an indemnified party in respect of any
losses, claims, damages, or
<PAGE> 25
- 25 -
liabilities referred to therein, then each indemnifying party under such
paragraph, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect primarily the relative benefits received by the Company
on the one hand and the Underwriters on the other from the offering of the
Common Stock and also to reflect where appropriate the relative fault of the
Company on the one hand and the Underwriters on the other in connection with
the statements or omissions or alleged statements or omissions which resulted
in such losses, claims, damages, or liabilities, as well as any other relevant
equitable considerations. The relative fault of the Company and of the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this subparagraph (d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subparagraph (d).
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in this subparagraph (d) shall be
deemed to include, subject to the limitations set forth above in this section
11, any legal or other expenses reasonably incurred by such indemnified party
in connection with defending any such action or claim. Notwithstanding the
provisions of this subparagraph (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the shares of Common Stock underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has been required to pay, otherwise than pursuant to this
subparagraph (d), by reason of such untrue or
<PAGE> 26
- 26 -
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Each Underwriter's obligation to contribute
pursuant to this subparagraph (d) is several in an amount which shall bear the
same proportion to the number of shares of Firm Common Stock set forth opposite
the name of such Underwriter in Schedule I hereto (plus any increase in such
amount as may be required pursuant to Section 5 hereof).
12. Miscellaneous. This Agreement shall inure to the benefit of
the Company, its directors, its officers who sign the registration statement,
the several Underwriters and each controlling person referred to in section 11
hereof and their respective successors. Nothing in this Agreement is intended
or shall be construed to give to any other person, firm or corporation any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision herein contained. The term "successor" as used in this
Agreement shall not include any purchaser, as such purchaser, of any of the
Common Stock from any of the several Underwriters.
13. Notices. All communications hereunder shall be in writing,
and if to the Underwriters, unless otherwise provided, shall be mailed or
delivered to the Representatives, in care of Morgan Stanley & Co. Incorporated,
Attention: Managing Director, Equity Syndicate Department, at 1585 Broadway,
New York, NY 10036, and if to the Company, unless otherwise provided, shall be
mailed or delivered to the Company attention: Chief Financial Officer, 600
Mountain Avenue, Murray Hill, NJ 07928.
14. Governing Law. The validity and interpretation of this
Agreement shall be governed by the laws of the State of New York.
15. Survival Clause. Except with respect to any Underwriter who
is in default within the meaning of section 5 hereof, the indemnity and
contribution agreement contained in
<PAGE> 27
- 27 -
section 11 hereof and the representations and warranties of the Company set
forth in this Agreement or in any certificate furnished pursuant hereto shall
remain operative and in full force and effect regardless of (i) any termination
of this Agreement, (ii) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter, or (iii) acceptance of
and payment for the Common Stock.
<PAGE> 28
- 28 -
Please sign and return to us the enclosed duplicate of this
letter, whereupon this letter will become a binding agreement between the
Company and the several Underwriters, in accordance with its terms.
Very truly yours,
Lucent Technologies Inc.
By: _________________________
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of
the date first above written.
Morgan Stanley & Co. Incorporated Morgan Stanley & Co.
Goldman, Sachs & Co. International Limited
Merrill Lynch, Pierce, Goldman Sachs
Fenner & Smith Incorporated International
Merrill Lynch
International Limited
Acting severally on behalf Acting severally on
of themselves and the behalf of themselves
several U.S. Underwriters and the several
named herein. International
Underwriters named
herein.
By Morgan Stanley & Co. By Morgan Stanley &
Incorporated Co. International
Limited
<PAGE> 29
- 29 -
By__________________________ By_______________________
Name: Name:
Title: Title:
<PAGE> 30
- 30 -
SCHEDULE I
<TABLE>
<CAPTION>
Number
Name of Shares
- ----------------------------- ---------
<S> <C>
Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner
Smith & Co.
Total. . . . .
</TABLE>
<PAGE> 31
- 31 -
SCHEDULE II
<TABLE>
<CAPTION>
Number
Name of Shares
- ----------------------------- ---------
<S> <C>
Morgan Stanley & Co.
International Limited
Goldman Sachs International
Merrill Lynch International
Limited
Total. . . . .
</TABLE>
<PAGE> 32
- 32 -
Exhibit A
[Form of Lock-up Contract]
_______________, 1996
Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Merrill Lynch, Pierce,
Fenner & Smith Incorporated
Morgan Stanley & Co. International
Limited
Goldman Sachs International
Merrill Lynch & Co. International
Limited
c/o Morgan Stanley & Co., Incorporated
1221 Avenue of the Americas
New York, NY 10020
Dear Sirs:
The undersigned understands that you, as U.S. Representatives and
International Representatives of the several U.S. Underwriters and
International Underwriters (collectively, the "Underwriters"), propose to enter
into an Underwriting Agreement with Lucent Technologies Inc., a Delaware
corporation (the "Company"), providing for the public offering (the "Public
Offering") by the several Underwriters, including yourselves, of up to
[__________] shares of the Common Stock, par value $.01 per share of the
Company (the "Common Stock").
The undersigned hereby agrees that, without the prior written
consent of Morgan Stanley & Co. Incorporated it will not (a) offer, pledge,
sell, contract to sell, sell any option or
<PAGE> 33
- 33 -
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or (b) enter
into any swap or other agreement that transfers, in whole or in part, the
economic consequences of ownership of Common Stock, whether any such
transaction described in clause (a) or (b) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise, for a period of
180 days after the date of the Prospectus, other than: (i) the shares of
Common Stock offered by the Prospectus; (ii) any shares of Common Stock issued
upon the exercise, exchange or conversion of a security outstanding on the date
of the Prospectus; and (iii) any shares of Common Stock issued pursuant to
existing employee benefit, director or shareowner plans or other continuous
offerings of the same type of the Company (including in connection with any
Substitute Awards (as defined in the Prospectus)). The foregoing sentence
shall not apply to grants, transfers or dispositions of shares of Common Stock
or any securities convertible into or exercisable or exchangeable for Common
Stock made pursuant to the Distribution (as defined in the Prospectus).
Very truly yours,
AT&T CORP.
By:_________________________
Name:
Title:
<PAGE> 1
Exhibit 3.1
FORM OF RESTATED CERTIFICATE OF INCORPORATION
OF
LUCENT TECHNOLOGIES INC.
The name of the Corporation (which is hereinafter referred to as the
Corporation) is "Lucent Technologies Inc."
The original certificate of incorporation was filed with the Secretary of State
of the State of Delaware on November 29, 1995, under the name "NS-MPG Inc." Such
certificate of incorporation was amended on February 5, 1996.
This Restated Certificate of Incorporation has been duly proposed by resolutions
adopted and declared advisable by the Board of Directors of the Corporation,
duly adopted by the sole stockholder of the Corporation and duly executed and
acknowledged by the officers of the Corporation in accordance with Sections 103,
242 and 245 of the General Corporation Law of the State of Delaware.
The text of the Certificate of Incorporation of the Corporation is hereby
amended and restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the corporation (which is hereinafter referred to as the
"Corporation") is: "Lucent Technologies Inc."
ARTICLE II
REGISTERED AGENT
The address of the Corporation's registered office in the State of Delaware is
The Prentice-Hall Corporation System, Inc., 1013 Center Road, Wilmington,
Delaware 19805. The name of the Corporation's registered agent at such address
is The Prentice-Hall Corporation System, Inc.
ARTICLE III
PURPOSE
The purpose of the Corporation shall be to engage in any lawful act or activity
for which corporations may be organized and incorporated under the General
Corporation Law of the State of Delaware (the "DGCL").
<PAGE> 2
ARTICLE IV
CAPITAL STOCK
SECTION 1. The Corporation shall be authorized to issue 3,250,000,000 shares of
capital stock, of which 3,000,000,000 shares shall be shares of Common Stock,
$.01 par value ("Common Stock"), and 250,000,000 shares shall be shares of
Preferred Stock, $1.00 par value ("Preferred Stock").
SECTION 2. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized to provide for the issuance
of shares of Preferred Stock in series and, by filing a certificate pursuant to
the DGCL (hereinafter referred to as a "Preferred Stock Designation"), to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, privileges, preferences and rights
of the shares of each such series and the qualifications, limitations and
restrictions thereof. The authority of the Board of Directors with respect to
each series shall include, but not be limited to, determination of the
following:
(a) the designation of the series, which may be by distinguishing number, letter
or title;
(b) the number of shares of the series, which number the Board of Directors may
thereafter (except where otherwise provided in the Preferred Stock Designation)
increase or decrease (but not below the number of shares thereof then
outstanding);
(c) whether dividends, if any, shall be cumulative or noncumulative, and, in the
case of shares of any series having cumulative dividend rights, the date or
dates or method of determining the date or dates from which dividends on the
shares of such series shall be cumulative;
(d) the rate of any dividends (or method of determining such dividends) payable
to the holders of the shares of such series, any conditions upon which such
dividends shall be paid and the date or dates or the method for determining the
date or dates upon which such dividends shall be payable;
(e) the price or prices (or method of determining such price or prices) at
which, the form of payment of such price or prices (which may be cash, property
or rights, including securities of the same or another corporation or other
entity) for which, the period or periods within which and the terms and
conditions upon which the shares of such series may be redeemed, in whole or in
part, at the option of the Corporation or at the option of the holder or holders
thereof or upon the happening of a specified event or events, if any;
(f) the obligation, if any, of the Corporation to purchase or redeem shares of
such series pursuant to a sinking fund or otherwise and the price or prices at
which, the form of payment of such price or prices (which may be cash, property
or rights, including securities of the same or another corporation or other
entity) for which, the period or periods within which and the terms
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<PAGE> 3
and conditions upon which the shares of such series shall be redeemed or
purchased, in whole or in part, pursuant to such obligation;
(g) the amount payable out of the assets of the Corporation to the holders of
shares of the series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation;
(h) provisions, if any, for the conversion or exchange of the shares of such
series, at any time or times at the option of the holder or holders thereof or
at the option of the Corporation or upon the happening of a specified event or
events, into shares of any other class or classes or any other series of the
same or any other class or classes of stock, or any other security, of the
Corporation, or any other corporation or other entity, and the price or prices
or rate or rates of conversion or exchange and any adjustments applicable
thereto, and all other terms and conditions upon which such conversion or
exchange may be made;
(i) restrictions on the issuance of shares of the same series or of any other
class or series, if any; and
(j) the voting rights, if any, of the holders of shares of the series.
SECTION 3. The Common Stock shall be subject to the express terms of the
Preferred Stock and any series thereof. The holders of shares of Common Stock
shall be entitled to one vote for each such share upon all proposals presented
to the stockholders on which the holders of Common Stock are entitled to vote.
Except as otherwise provided by law or by the resolution or resolutions adopted
by the Board of Directors designating the rights, powers and preferences of any
series of Preferred Stock, the Common Stock shall have the exclusive right to
vote for the election of directors and for all other purposes, and holders of
Preferred Stock shall not be entitled to receive notice of any meeting of
stockholders at which they are not entitled to vote. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the outstanding Common Stock, without a vote of the
holders of the Preferred Stock, or of any series thereof, unless a vote of any
such holders is required pursuant to any Preferred Stock Designation.
The Corporation shall be entitled to treat the person in whose name any share of
its stock is registered as the owner thereof for all purposes and shall not be
bound to recognize any equitable or other claim to, or interest in, such share
on the part of any other person, whether or not the Corporation shall have
notice thereof, except as expressly provided by applicable law.
3
<PAGE> 4
ARTICLE V
STOCKHOLDER ACTION
Effective as of the time at which AT&T Corp., a New York corporation, and its
affiliates shall cease to be the beneficial owner of an aggregate of at least a
majority of the then outstanding shares of Common Stock (the "Trigger Date"),
any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such holders.
Effective as of the Trigger Date, except as otherwise required by law and
subject to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation, special
meetings of stockholders of the Corporation for any purpose or purposes may be
called only by the Board of Directors pursuant to a resolution stating the
purpose or purposes thereof approved by a majority of the total number of
Directors which the Corporation would have if there were no vacancies (the
"Whole Board") or by the Chairman of the Board of Directors of the Corporation
and, effective as of the Trigger Date, any power of stockholders to call a
special meeting is specifically denied. No business other than that stated in
the notice shall be transacted at any special meeting. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least 80% of the voting power of all shares of the
Corporation entitled to vote generally in the election of directors (the "Voting
Stock") then outstanding, voting together as a single class, shall be required
to alter, amend, or adopt any provision inconsistent with or repeal this Article
V.
ARTICLE VI
ELECTION OF DIRECTORS
Unless and except to the extent that the By-Laws of the Corporation shall so
require, the election of directors of the Corporation need not be by written
ballot.
ARTICLE VII
BOARD OF DIRECTORS
SECTION 1. NUMBER, ELECTION AND TERMS. Except as otherwise fixed by or pursuant
to the provisions of Article IV hereof relating to the rights of the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect additional directors under specified
circumstances, the number of the Directors of the Corporation shall be fixed
from time to time exclusively pursuant to a resolution adopted by a majority of
the Whole Board (but shall not be less than three). The Directors, other than
those who may be elected by the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation, shall be
classified, with respect to the time for which they severally hold office, into
three classes, as nearly equal in number as possible, one class to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
1997, another class to be originally elected for a term expiring at the annual
meeting of stockholders to be held in 1998, and another class to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
1999, with each class to hold office until its successor is duly elected and
qualified. At each succeeding annual meeting of stockholders,
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<PAGE> 5
directors elected to succeed those directors whose terms then expire shall be
elected for a term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each director to hold office until such
person's successor shall have been duly elected and qualified.
SECTION 2. STOCKHOLDER NOMINATION OF DIRECTOR CANDIDATES; STOCKHOLDER PROPOSAL
OF BUSINESS. Advance notice of stockholder nominations for the election of
Directors and of the proposal of business by stockholders shall be given in the
manner provided in the By-Laws of the Corporation, as amended and in effect from
time to time.
SECTION 3. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as otherwise
provided for or fixed by or pursuant to the provisions of Article IV hereof
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances, newly created directorships resulting
from any increase in the number of Directors and any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or other
cause shall be filled by the affirmative vote of a majority of the remaining
Directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any Director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the class of Directors in which the new directorship was created or the vacancy
occurred and until such Director's successor shall have been duly elected and
qualified. No decrease in the number of Directors constituting the Board of
Directors shall shorten the term of any incumbent Director.
SECTION 4. REMOVAL. Subject to the rights of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation to elect
Directors under specified circumstances, any Director may be removed from office
only for cause by the affirmative vote of the holders of at least a majority of
the voting power of all Voting Stock then outstanding, voting together as a
single class.
SECTION 5. AMENDMENT, REPEAL, ETC. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80% of the voting power of all Voting Stock then
outstanding, voting together as a single class, shall be required to alter,
amend, adopt any provision inconsistent with or repeal this Article VII.
ARTICLE VIII
BY-LAWS
The By-Laws may be altered or repealed and new By-Laws may be adopted (1) at any
annual or special meeting of stockholders, by the affirmative vote of the
holders of a majority of the voting power of the stock issued and outstanding
and entitled to vote thereat, provided, however, that any proposed alteration or
repeal of, or the adoption of any By-Law inconsistent with, Section 2.2, 2.7 or
2.10 of Article II of the By-Laws or with Section 3.2, 3.9 or 3.11 of Article
III of the By-Laws or this sentence, by the stockholders shall require the
affirmative vote of the holders of at least 80% of the voting power of all
Voting Stock then outstanding, voting together as a single class; and provided,
further, however, that in the case of any such stockholder action at a special
5
<PAGE> 6
meeting of stockholders, notice of the proposed alteration, repeal or adoption
of the new By-Law or By-Laws must be contained in the notice of such special
meeting, or (2) by the affirmative vote of a majority of the Whole Board.
Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, the affirmative vote of the holders of at least 80% of the voting
power of all Voting Stock then outstanding, voting together as a single class,
shall be required to alter, amend, adopt any provision inconsistent with or
repeal this Article VIII.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time from time to time to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and, except as set forth in Article X, all rights,
preferences and privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are granted subject to
the right reserved in this Article. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80% of the Voting Stock then outstanding, voting together as
a single class, shall be required to alter, amend, adopt any provision
inconsistent with or repeal Article V, VII, VIII or this sentence.
ARTICLE X
LIMITED LIABILITY; INDEMNIFICATION
SECTION 1. LIMITED LIABILITY OF DIRECTORS. A director of the Corporation shall
not be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except, if required by the
DGCL, as amended from time to time, for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit.
Neither the amendment nor repeal of Section 1 of this Article X shall eliminate
or reduce the effect of Section 1 of this Article X in respect of any matter
occurring, or any cause of action, suit or claim that, but for Section 1 of this
Article X would accrue or arise, prior to such amendment or repeal.
SECTION 2. INDEMNIFICATION AND INSURANCE.
(a) Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a director or
officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other
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<PAGE> 7
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the DGCL, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, amounts paid or to be paid in settlement, and
excise taxes or penalties arising under the Employee Retirement Income Security
Act of 1974, as in effect from time to time) reasonably incurred or suffered by
such person in connection therewith and such indemnification shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of such person's heirs, executors and administrators;
provided, however, that, except as provided in paragraph (b) hereof, the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to have the Corporation pay the expenses incurred in defending
any such proceeding in advance of its final disposition; any advance payments to
be paid by the Corporation within 20 calendar days after the receipt by the
Corporation of a statement or statements from the claimant requesting such
advance or advances from time to time; provided, however, that, if and to the
extent the DGCL requires, the payment of such expenses incurred by a director or
officer in such person's capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise. The Corporation may, to the extent authorized from
time to time by the Board of Directors, grant rights to indemnification, and
rights to have the Corporation pay the expenses incurred in defending any
proceeding in advance of its final disposition, to any employee or agent of the
Corporation to the fullest extent of the provisions of this Article with respect
to the indemnification and advancement of expenses of directors and officers of
the Corporation.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of this
Section is not paid in full by the Corporation within 30 calendar days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standard of conduct which makes
it permissible under the DGCL for the Corporation to indemnify the claimant for
the amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its
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<PAGE> 8
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because the claimant has met the applicable standard of conduct set forth in the
DGCL, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the payment of
expenses incurred in defending a proceeding in advance of its final disposition
conferred in this Section shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, By-Law, agreement, vote of stockholders or
disinterested directors or otherwise. No repeal or modification of this Article
shall in any way diminish or adversely affect the rights of any director,
officer, employee or agent of the Corporation hereunder in respect of any
occurrence or matter arising prior to any such repeal or modification.
(d) Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the DGCL.
(e) Severability. If any provision or provisions of this Article X shall be held
to be invalid, illegal or unenforceable for any reason whatsoever: (1) the
validity, legality and enforceability of the remaining provisions of this
Article X (including, without limitation, each portion of any paragraph of this
Article X containing any such provision held to be invalid, illegal or
unenforceable, that is not itself held to be invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (2) to the fullest
extent possible, the provisions of this Article X (including, without
limitation, each such portion of any paragraph of this Article X containing any
such provision held to be invalid, illegal or unenforceable) shall be construed
so as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
IN WITNESS WHEREOF, said Lucent Technologies Inc. has caused this
Restated Certificate of Incorporation to be signed by its Senior Vice President
and General Counsel and attested by its Assistant Secretary this 1st day of
April 1996.
/s/ Richard J. Rawson
- ----------------------------
Richard J. Rawson
Senior Vice President and
General Counsel
Attest:
/s/ Pamela F. Craven
- ----------------------------
Assistant Secretary
8
<PAGE> 1
EXHIBIT 3.2
FORM OF BY-LAWS
OF
LUCENT TECHNOLOGIES INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1. DELAWARE OFFICE. The principal office of the Corporation in the
State of Delaware shall be located in the City of Wilmington, County of New
Castle, and the name and address of its registered agent is The Prentice-Hall
Corporation System, Inc., 1013 Center Road, Wilmington, Delaware 19805.
SECTION 1.2. OTHER OFFICES. The Corporation may have such other offices, either
within or without the State of Delaware, as the Board of Directors may designate
or as the business of the Corporation may from time to time require.
SECTION 1.3. BOOKS AND RECORDS. The books and records of the Corporation may be
kept outside the State of Delaware at such place or places as may from time to
time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. ANNUAL MEETING. The annual meeting of the stockholders of the
Corporation shall be held on such date and at such time as may be fixed by
resolution of the Board of Directors.
SECTION 2.2. SPECIAL MEETING. Except as otherwise required by law and subject to
the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation, special meetings of
stockholders of the Corporation for any purpose or purposes may be called only
by (i) the Board of Directors pursuant to a resolution stating the purpose or
purposes thereof approved by a majority of the total number of Directors which
the Corporation would have if there were no vacancies (the "Whole Board"), or
(ii) by the Chairman of the Board of Directors of the Corporation. In addition,
prior to the Trigger Date (as defined in the Certificate of Incorporation), the
Corporation will call a special meeting of stockholders promptly upon request by
AT&T Corp., a New York corporation ("AT&T"), or any of its affiliates, in each
case, if such entity is a stockholder of the Corporation. No business other than
that stated in the notice shall be transacted at any special meeting.
SECTION 2.3. PLACE OF MEETING. The Board of Directors or the Chairman of the
Board, as the case may be, may designate the place of meeting for any annual
meeting or for any special meeting of the stockholders. If no designation is so
made, the place of meeting shall be the principal office of the Corporation.
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SECTION 2.4. NOTICE OF MEETING. Written or printed notice, stating the place,
day and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be delivered by the Corporation not less than 10 calendar days nor
more than 60 calendar days before the date of the meeting, either personally or
by mail, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail with postage thereon prepaid, addressed to the stockholder at such
person's address as it appears on the stock transfer books of the Corporation.
Such further notice shall be given as may be required by law. Only such business
shall be conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of meeting.
Meetings may be held without notice if all stockholders entitled to vote are
present, or if notice is waived by those not present in accordance with Section
6.4 of these By-Laws. Any previously scheduled meeting of the stockholders may
be postponed, and any special meeting of the stockholders may be canceled, by
resolution of the Board of Directors upon public notice given prior to the date
previously scheduled for such meeting of stockholders.
SECTION 2.5. QUORUM AND ADJOURNMENT; VOTING. Except as otherwise provided by law
or by the Certificate of Incorporation, the holders of a majority of the voting
power of all outstanding shares of the Corporation entitled to vote generally in
the election of directors (the "Voting Stock"), represented in person or by
proxy, shall constitute a quorum at a meeting of stockholders, except that when
specified business is to be voted on by a class or series of stock voting as a
class, the holders of a majority of the shares of such class or series shall
constitute a quorum of such class or series for the transaction of such
business. The Chairman of the meeting may adjourn the meeting from time to time,
whether or not there is such a quorum. No notice of the time and place of
adjourned meetings need be given except as required by law. The stockholders
present at a duly called meeting at which a quorum is present may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
SECTION 2.6. PROXIES. At all meetings of stockholders, a stockholder may vote by
proxy executed in writing (or in such manner prescribed by the General
Corporation Law of the State of Delaware (the "DGCL")) by the stockholder, or by
such person's duly authorized attorney in fact.
SECTION 2.7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(A) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders (a) pursuant to the
Corporation's notice of meeting pursuant to Section 2.4 of these By-Laws, (b) by
or at the direction of the Board of Directors, (c) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of notice
provided for in this By-Law, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this By-Law, or (d) prior to
the Trigger Date, by AT&T or any of its affiliates that is a stockholder of the
Corporation.
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(2) For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of this
By-Law, the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation and such other business must otherwise be a proper
matter for stockholder action. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the 90th calendar day nor earlier than
the close of business on the 120th calendar day prior to the first anniversary
of the preceding year's annual meeting; provided, however, that in the event
that the date of the annual meeting is more than 30 calendar days before or more
than 60 calendar days after such anniversary date, notice by the stockholder to
be timely must be so delivered not earlier than the close of business on the
120th calendar day prior to such annual meeting and not later than the close of
business on the later of the 90th calendar day prior to such annual meeting or
the 10th calendar day following the calendar day on which public announcement of
the date of such meeting is first made by the Corporation. For purposes of
determining whether a stockholder's notice shall have been delivered in a timely
manner for the annual meeting of stockholders in 1997, the first anniversary of
the previous year's meeting shall be deemed to be April 16, 1997. In no event
shall the public announcement of an adjournment of an annual meeting commence a
new time period for the giving of a stockholder's notice as described above.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (b) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this
By-Law to the contrary, in the event that the number of directors to be elected
to the Board of Directors of the Corporation is increased and there is no public
announcement by the Corporation naming all of the nominees for director or
specifying the size of the increased Board of Directors at least 100 calendar
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this By-Law shall also be considered timely,
but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business on the 10th
calendar day following the day on which such public announcement is first made
by the Corporation.
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<PAGE> 4
(B) Special Meetings of Stockholders. Only such business shall be conducted at a
special meeting of stockholders as shall have been brought before the meeting
pursuant to the Corporation's notice of meeting under Section 2.4 of these
By-Laws. Nominations of persons for election to the Board of Directors may be
made at a special meeting of stockholders at which directors are to be elected
pursuant to the Corporation's notice of meeting (a) by or at the direction of
the Board of Directors, (b) provided that the Board of Directors has determined
that directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this By-Law, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this By-Law, or (c) by AT&T
or any of its affiliates that is a stockholder of the Corporation. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any stockholder may
nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting pursuant to such
clause (b), if the stockholder's notice required by paragraph (A)(2) of this
By-Law shall be delivered to the Secretary at the principal executive offices of
the Corporation not earlier than the close of business on the 120th calendar day
prior to such special meeting and not later than the close of business on the
later of the 90th calendar day prior to such special meeting or the 10th
calendar day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time period
for the giving of a stockholder's notice as described above.
(C) General.
(1) Only such persons who are nominated in accordance with the procedures set
forth in this By-Law shall be eligible to serve as directors and only such
business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
By-Law. Except as otherwise provided by law, the Certificate of Incorporation or
these By-Laws, the Chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before the
meeting was made or proposed, as the case may be, in accordance with the
procedures set forth in this By-Law and, if any proposed nomination or business
is not in compliance with this By-Law, to declare that such defective proposal
or nomination shall be disregarded.
(2) For purposes of this By-Law, "public announcement" shall mean disclosure in
a press release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a stockholder shall
also comply with all applicable requirements of the Exchange Act and the rules
and regulations thereunder with respect to the matters set forth in this By-Law.
Nothing in this By-Law shall be deemed to affect any rights (i) of stockholders
to request inclusion of proposals in the Corporation's proxy statement pursuant
to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of
Preferred Stock to elect directors under an applicable Preferred Stock
Designation (as defined in the Corporation's Certificate of Incorporation).
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<PAGE> 5
SECTION 2.8. PROCEDURE FOR ELECTION OF DIRECTORS; REQUIRED VOTE. Election of
directors at all meetings of the stockholders at which directors are to be
elected shall be by ballot, and, subject to the rights of the holders of any
series of Preferred Stock to elect directors under an applicable Preferred Stock
Designation, a plurality of the votes cast thereat shall elect directors. Except
as otherwise provided by law, the Certificate of Incorporation, Preferred Stock
Designation, or these By-Laws, in all matters other than the election of
directors, the affirmative vote of a majority of the voting power of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the matter shall be the act of the stockholders.
SECTION 2.9. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. The Board
of Directors by resolution shall appoint, or shall authorize an officer of the
Corporation to appoint, one or more inspectors, which inspector or inspectors
may include individuals who serve the Corporation in other capacities,
including, without limitation, as officers, employees, agents or
representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate inspector(s)
to replace any inspector who fails to act. If no inspector or alternate has been
appointed to act or is able to act at a meeting of stockholders, the Chairman of
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging such person's duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of such person's ability. The inspector(s) shall have the
duties prescribed by law. The Chairman of the meeting shall fix and announce at
the meeting the date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting.
SECTION 2.10. NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Effective as of the
Trigger Date, any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special meeting
of such holders and may not be effected by any consent in writing by such
holders.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. GENERAL POWERS. The business and affairs of the Corporation shall
be managed under the direction of the Board of Directors. In addition to the
powers and authorities by these By-Laws expressly conferred upon them, the Board
of Directors may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-Laws required to be exercised or done by the
stockholders.
SECTION 3.2. NUMBER AND TENURE. Except as otherwise fixed by or pursuant to the
provisions of Article IV of the Certificate of Incorporation relating to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation to elect additional
directors under specified circumstances,
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<PAGE> 6
the number of the Directors of the Corporation shall be fixed from time to time
exclusively pursuant to a resolution adopted by a majority of the Whole Board
(but shall not be less than three). The Directors, other than those who may be
elected by the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation, shall be classified, with
respect to the time for which they severally hold office, into three classes, as
nearly equal in number as possible, one class to be originally elected for a
term expiring at the annual meeting of stockholders to be held in 1997, another
class to be originally elected for a term expiring at the annual meeting of
stockholders to be held in 1998, and another class to be originally elected for
a term expiring at the annual meeting of stockholders to be held in 1999, with
each class to hold office until its successor is duly elected and qualified. At
each succeeding annual meeting of stockholders, directors elected to succeed
those directors whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, with each director to hold office until such person's successor shall
have been duly elected and qualified.
SECTION 3.3. REGULAR MEETINGS. A regular meeting of the Board of Directors shall
be held without other notice than this By-Law immediately after, and at the same
place as, the annual meeting of stockholders. The Board of Directors may, by
resolution, provide the time and place for the holding of additional regular
meetings without other notice than such resolution.
SECTION 3.4. SPECIAL MEETINGS. Special meetings of the Board of Directors shall
be called at the request of the Chairman of the Board, the President or a
majority of the Board of Directors then in office. The person or persons
authorized to call special meetings of the Board of Directors may fix the place
and time of the meetings.
SECTION 3.5. NOTICE. Notice of any special meeting of directors shall be given
to each director at such person's business or residence in writing by hand
delivery, first-class or overnight mail or courier service, telegram or
facsimile transmission, or orally by telephone. If mailed by first-class mail,
such notice shall be deemed adequately delivered when deposited in the United
States mails so addressed, with postage thereon prepaid, at least 5 calendar
days before such meeting. If by telegram, overnight mail or courier service,
such notice shall be deemed adequately delivered when the telegram is delivered
to the telegraph company or the notice is delivered to the overnight mail or
courier service company at least 24 hours before such meeting. If by facsimile
transmission, such notice shall be deemed adequately delivered when the notice
is transmitted at least 12 hours before such meeting. If by telephone or by hand
delivery, the notice shall be given at least 12 hours prior to the time set for
the meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice of such meeting, except for amendments to these By-Laws, as provided
under Section 8.1. A meeting may be held at any time without notice if all the
directors are present or if those not present waive notice of the meeting either
before or after such meeting.
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<PAGE> 7
SECTION 3.6. ACTION BY CONSENT OF BOARD OF DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
SECTION 3.7. CONFERENCE TELEPHONE MEETINGS. Members of the Board of Directors or
any committee thereof may participate in a meeting of the Board of Directors or
such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at such meeting.
SECTION 3.8. QUORUM. Subject to Section 3.9, a whole number of directors equal
to at least a majority of the Whole Board shall constitute a quorum for the
transaction of business, but if at any meeting of the Board of Directors there
shall be less than a quorum present, a majority of the directors present may
adjourn the meeting from time to time without further notice. The act of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors. The directors present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a quorum.
SECTION 3.9. VACANCIES. Except as otherwise provided for or fixed by or pursuant
to the provisions of Article IV of the Certificate of Incorporation relating to
the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation to elect directors
under specified circumstances, newly created directorships resulting from any
increase in the number of Directors and any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal or other cause
shall be filled by the affirmative vote of a majority of the remaining Directors
then in office, even though less than a quorum of the Board of Directors. Any
Director elected in accordance with the preceding sentence shall hold office for
the remainder of the full term of the class of Directors in which the new
directorship was created or the vacancy occurred and until such Director's
successor shall have been duly elected and qualified. No decrease in the number
of Directors constituting the Board of Directors shall shorten the term of any
incumbent Director.
SECTION 3.10. EXECUTIVE AND OTHER COMMITTEES. (a) The Board of Directors may, by
resolution adopted by a majority of the Whole Board, designate an Executive
Committee to exercise, subject to applicable provisions of law, all the powers
of the Board in the management of the business and affairs of the Corporation
when the Board is not in session, including without limitation the power to
declare dividends, to authorize the issuance of the Corporation's capital stock
and to adopt a certificate of ownership and merger pursuant to Section 253 of
the General Corporation Law of the State of Delaware, and may, by resolution
similarly adopted, designate one or more other committees. The Executive
Committee and each such other committee shall consist of two or more directors
of the Corporation. The Board may designate one or more directors as alternate
members of any
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<PAGE> 8
committee, who may replace any absent or disqualified member at any meeting of
the committee. Any such committee, other than the Executive Committee (the
powers of which are expressly provided for herein), may to the extent permitted
by law exercise such powers and shall have such responsibilities as shall be
specified in the designating resolution. In the absence or disqualification of
any member of such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the Board to
act at the meeting in the place of any such absent or disqualified member. Each
committee shall keep written minutes of its proceedings and shall report such
proceedings to the Board when required.
(b) A majority of any committee may determine its action and fix the time and
place of its meetings, unless the Board shall otherwise provide. Notice of such
meetings shall be given to each member of the committee in the manner provided
for in Section 3.5 of these By-Laws. The Board shall have power at any time to
fill vacancies in, to change the membership of, or to dissolve any such
committee. Nothing herein shall be deemed to prevent the Board from appointing
one or more committees consisting in whole or in part of persons who are not
directors of the Corporation; provided, however, that no such committee shall
have or may exercise any authority of the Board.
SECTION 3.11. REMOVAL. Subject to the rights of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation to
elect Directors under specified circumstances, any Director may be removed from
office only for cause by the affirmative vote of the holders of at least a
majority of the voting power of all Voting Stock then outstanding, voting
together as a single class.
SECTION 3.12. RECORDS. The Board of Directors shall cause to be kept a record
containing the minutes of the proceedings of the meetings of the Board and of
the stockholders, appropriate stock books and registers and such books of
records and accounts as may be necessary for the proper conduct of the business
of the Corporation.
ARTICLE IV
OFFICERS
SECTION 4.1. ELECTED OFFICERS. The elected officers of the Corporation shall be
a Chairman of the Board of Directors, a President, a Secretary, a Treasurer, and
such other officers (including, without limitation, Senior Vice Presidents and
Executive Vice Presidents and Vice Presidents) as the Board of Directors from
time to time may deem proper. The Chairman of the Board shall be chosen from
among the directors. All officers elected by the Board of Directors shall each
have such powers and duties as generally pertain to their respective offices,
subject to the specific provisions of this Article IV. Such officers shall also
have such powers and duties as from time to time may be conferred by the Board
of Directors or by any committee thereof. The Board or any committee thereof may
from time to time elect, or the Chairman of the Board or President may appoint,
such other officers (including one or more Vice Presidents, Controllers,
Assistant Secretaries and Assistant
17
<PAGE> 9
Treasurers), as may be necessary or desirable for the conduct of the business of
the Corporation. Such other officers and agents shall have such duties and shall
hold their offices for such terms as shall be provided in these By-Laws or as
may be prescribed by the Board or such committee or by the Chairman of the Board
or President, as the case may be.
SECTION 4.2. ELECTION AND TERM OF OFFICE. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after the annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Each officer shall
hold office until such person's successor shall have been duly elected and shall
have qualified or until such person's death or until he shall resign or be
removed pursuant to Section 4.8.
SECTION 4.3. CHAIRMAN OF THE BOARD; CHIEF EXECUTIVE OFFICER. The Chairman of the
Board shall preside at all meetings of the stockholders and of the Board of
Directors and shall be the Chief Executive Officer of the Corporation. The
Chairman of the Board shall be responsible for the general management of the
affairs of the Corporation and shall perform all duties incidental to such
person's office which may be required by law and all such other duties as are
properly required of him by the Board of Directors. He shall make reports to the
Board of Directors and the stockholders, and shall see that all orders and
resolutions of the Board of Directors and of any committee thereof are carried
into effect. The Chairman of the Board may also serve as President, if so
elected by the Board. The Directors also may elect a Vice-Chairman to act in the
place of the Chairman upon his or her absence or inability to act.
SECTION 4.4. PRESIDENT. The President shall act in a general executive capacity
and shall assist the Chairman of the Board in the administration and operation
of the Corporation's business and general supervision of its policies and
affairs. The President, if he or she is also a Director, shall, in the absence
of or because of the inability to act of the Chairman of the Board, perform all
duties of the Chairman of the Board and preside at all meetings of stockholders
and of the Board of Directors.
SECTION 4.5. VICE PRESIDENTS. Each Senior Vice President and Executive Vice
President and any Vice President shall have such powers and shall perform such
duties as shall be assigned to him by the Board of Directors.
SECTION 4.6. TREASURER. The Treasurer shall exercise general supervision over
the receipt, custody and disbursement of corporate funds. The Treasurer shall
cause the funds of the Corporation to be deposited in such banks as may be
authorized by the Board of Directors, or in such banks as may be designated as
depositories in the manner provided by resolution of the Board of Directors. The
Treasurer shall have such further powers and duties and shall be subject to such
directions as may be granted or imposed from time to time by the Board of
Directors, the Chairman of the Board or the President.
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<PAGE> 10
SECTION 4.7. SECRETARY. (a) The Secretary shall keep or cause to be kept in one
or more books provided for that purpose, the minutes of all meetings of the
Board, the committees of the Board and the stockholders; the Secretary shall see
that all notices are duly given in accordance with the provisions of these
By-Laws and as required by law; shall be custodian of the records and the seal
of the Corporation and affix and attest the seal to all stock certificates of
the Corporation (unless the seal of the Corporation on such certificates shall
be a facsimile, as hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation under its seal; and
shall see that the books, reports, statements, certificates and other documents
and records required by law to be kept and filed are properly kept and filed;
and in general, shall perform all the duties incident to the office of Secretary
and such other duties as from time to time may be assigned to the Secretary by
the Board, the Chairman of the Board or the President.
(b) Assistant Secretaries shall have such of the authority and perform such of
the duties of the Secretary as may be provided in these By-Laws or assigned to
them by the Board of Directors or the Chairman of the Board or by the Secretary.
During the Secretary's absence or inability, the Secretary's authority and
duties shall be possessed by such Assistant Secretary or Assistant Secretaries
as the Board of Directors, the Chairman of the Board, the President or a Vice
Chairman of the Board may designate.
SECTION 4.8. REMOVAL. Any officer elected, or agent appointed, by the Board of
Directors may be removed by the affirmative vote of a majority of the Whole
Board whenever, in their judgment, the best interests of the Corporation would
be served thereby. Any officer or agent appointed by the Chairman of the Board
or the President may be removed by him whenever, in such person's judgment, the
best interests of the Corporation would be served thereby. No elected officer
shall have any contractual rights against the Corporation for compensation by
virtue of such election beyond the date of the election of such person's
successor, such person's death, such person's resignation or such person's
removal, whichever event shall first occur, except as otherwise provided in an
employment contract or under an employee deferred compensation plan.
SECTION 4.9. VACANCIES. A newly created elected office and a vacancy in any
elected office because of death, resignation, or removal may be filled by the
Board of Directors for the unexpired portion of the term at any meeting of the
Board of Directors. Any vacancy in an office appointed by the Chairman of the
Board or the President because of death, resignation, or removal may be filled
by the Chairman of the Board or the President.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
SECTION 5.1. STOCK CERTIFICATES AND TRANSFERS. The interest of each stockholder
of the Corporation shall be evidenced by certificates for shares of stock in
such form as the appropriate officers of the Corporation may from time to time
prescribe. The shares of the stock of the Corporation shall be transferred on
the books of the Corporation by the holder thereof in person or by such person's
attorney, upon surrender for cancellation of
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<PAGE> 11
certificates for at least the same number of shares, with an assignment and
power of transfer endorsed thereon or attached thereto, duly executed, with such
proof of the authenticity of the signature as the Corporation or its agents may
reasonably require. The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution prescribe,
which resolution may permit all or any of the signatures on such certificates to
be in facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
SECTION 5.2. LOST, STOLEN OR DESTROYED CERTIFICATES. No certificate for shares
of stock in the Corporation shall be issued in place of any certificate alleged
to have been lost, destroyed or stolen, except on production of such evidence of
such loss, destruction or theft and on delivery to the Corporation of a bond of
indemnity in such amount, upon such terms and secured by such surety, as the
Board of Directors or any financial officer may in its or such person's
discretion require.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1. FISCAL YEAR. The fiscal year of the Corporation shall begin on the
first day of January and end on the thirty-first day of December of each year.
SECTION 6.2. DIVIDENDS. The Board of Directors may from time to time declare,
and the Corporation may pay, dividends on its outstanding shares in the manner
and upon the terms and conditions provided by law and the Certificate of
Incorporation.
SECTION 6.3. SEAL. The corporate seal shall have inscribed thereon the words
"Corporate Seal," the year of incorporation and around the margin thereof the
words "Delaware."
SECTION 6.4. WAIVER OF NOTICE. Whenever any notice is required to be given to
any stockholder or director of the Corporation under the provisions of the DGCL
or these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice. Neither the business to be
transacted at, nor the purpose of, any annual or special meeting of the
stockholders or the Board of Directors or committee thereof need be specified in
any waiver of notice of such meeting.
SECTION 6.5. AUDITS. The accounts, books and records of the Corporation shall be
audited upon the conclusion of each fiscal year by an independent certified
public accountant selected by the Board of Directors, and it shall be the duty
of the Board of Directors to cause such audit to be done annually.
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<PAGE> 12
SECTION 6.6. RESIGNATIONS. Any director or any officer, whether elected or
appointed, may resign at any time by giving written notice of such resignation
to the Chairman of the Board, the President, or the Secretary, and such
resignation shall be deemed to be effective as of the close of business on the
date said notice is received by the Chairman of the Board, the President, or the
Secretary, or at such later time as is specified therein. No formal action shall
be required of the Board of Directors or the stockholders to make any such
resignation effective.
ARTICLE VII
CONTRACTS, PROXIES, ETC.
SECTION 7.1. CONTRACTS. Except as otherwise required by law, the Certificate of
Incorporation, a Preferred Stock Designation, or these By-Laws, any contracts or
other instruments may be executed and delivered in the name and on the behalf of
the Corporation by such officer or officers of the Corporation as the Board of
Directors may from time to time direct. Such authority may be general or
confined to specific instances as the Board may determine. The Chairman of the
Board, the President or any Senior Vice President, Executive Vice President or
Vice President may execute bonds, contracts, deeds, leases and other instruments
to be made or executed for or on behalf of the Corporation. Subject to any
restrictions imposed by the Board of Directors or the Chairman of the Board, the
President or any Senior Vice President, Executive Vice President or Vice
President of the Corporation may delegate contractual powers to others under
such person's jurisdiction, it being understood, however, that any such
delegation of power shall not relieve such officer of responsibility with
respect to the exercise of such delegated power.
SECTION 7.2. PROXIES. Unless otherwise provided by resolution adopted by the
Board of Directors, the Chairman of the Board, the President or any Senior Vice
President, Executive Vice President or Vice President may from time to time
appoint an attorney or attorneys or agent or agents of the Corporation, in the
name and on behalf of the Corporation, to cast the votes which the Corporation
may be entitled to cast as the holder of stock or other securities in any other
corporation, any of whose stock or other securities may be held by the
Corporation, at meetings of the holders of the stock or other securities of such
other corporation, or to consent in writing, in the name of the Corporation as
such holder, to any action by such other corporation, and may instruct the
person or persons so appointed as to the manner of casting such votes or giving
such consent, and may execute or cause to be executed in the name and on behalf
of the Corporation and under its corporate seal or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the premises.
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ARTICLE VIII
AMENDMENTS
SECTION 8.1. AMENDMENTS. The By-Laws may be altered or repealed and new By-Laws
may be adopted (1) at any annual or special meeting of stockholders by the
affirmative vote of the holders of a majority of the voting power of the stock
issued and outstanding and entitled to vote thereat, provided, however, that any
proposed alteration or repeal of, or the adoption of any By-Law inconsistent
with, Section 2.2, 2.7 or 2.10 of Article II or Section 3.2, 3.9 or 3.11 of
Article III of the By-Laws by the stockholders shall require the affirmative
vote of the holders of at least 80% of the voting power of all Voting Stock then
outstanding, voting together as a single class, and provided, further, however,
that, in the case of any such stockholder action at a special meeting of
stockholders, notice of the proposed alteration, repeal or adoption of the new
By-Law or By-Laws must be contained in the notice of such special meeting, or
(2) by the affirmative vote of a majority of the Whole Board.
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<PAGE> 1
Exhibit 4.1
[CERTIFICATE OMITTED: THE FACE OF THE CERTIFICATE HAS A COLORED BORDER DESIGN
APPROXIMATELY ONE-HALF INCH IN WIDTH. THE CERTIFICATE NUMBER AND THE NUMBER OF
SHARES ALSO HAVE A BORDER DESIGN]
TEMPORARY CERTIFICATE:
EXCHANGEABLE FOR DEFINITIVE ENGRAVED
CERTIFICATE WHEN AVAILABLE FOR DELIVERY
Lucent Technologies Inc.
<TABLE>
<S> <C>
COMMON STOCK THIS CERTIFICATE IS TRANSFERABLE
INCORPORATED UNDER LAWS OF IN NEW YORK, NY
THE STATE OF DELAWARE CUSIP 549463 10 7
SEE REVERSE SIDE FOR CERTAIN DEFINITIONS
</TABLE>
This certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES, $.01 PAR VALUE OF
Lucent Technologies Inc.
transferable on the records of the corporation in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by a Transfer Agent and registered by a
Registrar.
WITNESS the seal of said corporation and the signatures of its duly
authorized officers.
DATED:
Countersigned and Registered:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C> <C>
LUCENT TECHNOLOGIES INC. TRANSFER AGENT TREASURER CHAIRMAN OF THE BOARD
CORPORATE AND REGISTRAR
SEAL 1995 BY /s/ JOSEPH L
DELAWARE AUTHORIZED SIGNATURE
</TABLE>
<PAGE> 2
LUCENT TECHNOLOGIES INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES
THEREOF OF THE CORPORATION AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS
OF SUCH PREFERENCES AND/OR RIGHTS. SUCH REQUEST MAY BE MADE TO THE TRANSFER
AGENT.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ............ Custodian ............
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform gifts to Minors
JT TEN - as joint tenants with right Act ........................
of survivorship and not (State)
as tenants in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER
IDENTIFICATION NUMBER OF
ASSIGNEE
................................................................................
PLEASE PRINT OR TYPEWRITE NAND AND ADDRESS,INCLUDING POSTAL ZIP CODE, OR
ASSIGNEE
................................................................................
................................................................................
......................................................................... Shares
of the Common Stock represented by the within Certificate and do hereby
irrevocably constitute and appoint ............
....................................................................... Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated: .................................. ....................................
By
----------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCK BROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM) PURSUANT TO
S.E.C. RULE 17Ad-15.
This certificate also evidences and entitles the holder hereof to certain
rights as set forth in a Rights Agreement between Lucent Technologies Inc. and
First Chicago Trust Company of New York, dated as of April 4, 1996 (the "Rights
Agreement"), the terms of which are hereby incorporated herein by reference and
a copy of which is on file at the principal executive offices of Lucent
Technologies Inc. Under certain circumstances as set forth in the Rights
Agreements, such Rights will be evidenced by separate certificates and will no
longer be evidenced by this certificate. Lucent Technologies Inc. will mail to
the holder of this certificate a copy of the Rights Agreement without charge
after receipt of a written request therefor. Under certain circumstances, as set
forth in the Rights Agreement. Rights issued to any Person who becomes an
Acquiring Person (as defined in the Rights Agreement) may become null void.
<PAGE> 1
Exhibit 4.2
------------------------------------------------------------
RIGHTS AGREEMENT
Dated as of April 4, 1996
Between
LUCENT TECHNOLOGIES INC.
and
FIRST CHICAGO TRUST COMPANY OF NEW YORK
Rights Agent
------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Appointment of Rights Agent . . . . . . . . . . . . . . . . . . . . . 10
Section 3. Issue of Right Certificates . . . . . . . . . . . . . . . . . . . . . 10
Section 4. Form of Right Certificates . . . . . . . . . . . . . . . . . . . . . . 14
Section 5. Countersignature and Registration . . . . . . . . . . . . . . . . . . 15
Section 6. Transfer, Split Up, Combination and
Exchange of Right Certificates;
Mutilated, Destroyed, Lost or
Stolen Right Certificates . . . . . . . . . . . . . . . . . . . . . 16
Section 7. Exercise of Rights; Purchase Price;
Expiration Date of Rights . . . . . . . . . . . . . . . . . . . . . 17
Section 8. Cancellation and Destruction of
Right Certificates . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 9. Availability of Preferred Shares . . . . . . . . . . . . . . . . . . . 21
Section 10. Preferred Shares Record Date . . . . . . . . . . . . . . . . . . . . . 22
Section 11. Adjustment of Purchase Price, Number of
Shares or Number of Rights . . . . . . . . . . . . . . . . . . . . 23
Section 12. Certificate of Adjusted Purchase Price
or Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power . . . . . . . . . . . . . . . . . . . . 39
Section 14. Fractional Rights and Fractional Shares . . . . . . . . . . . . . . . 41
Section 15. Rights of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 16. Agreement of Right Holders . . . . . . . . . . . . . . . . . . . . . . 45
Section 17. Right Certificate Holder Not Deemed a
Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
- i -
<PAGE> 3
<TABLE>
Page
----
<S> <C>
Section 18. Concerning the Rights Agent . . . . . . . . . . . . . . . . . . . . . 46
Section 19. Merger or Consolidation or Change of
Name of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . 47
Section 20. Duties of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 21. Change of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 22. Issuance of New Right Certificates . . . . . . . . . . . . . . . . . . 55
Section 23. Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 24. Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 25. Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . 60
Section 26. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 27. Supplements and Amendments . . . . . . . . . . . . . . . . . . . . . . 63
Section 28. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 29. Benefits of this Agreement . . . . . . . . . . . . . . . . . . . . . . 63
Section 30. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 31. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 32. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 33. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . 65
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
</TABLE>
Exhibit A - Form of Certificate of Designations
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase Preferred
Shares
- ii -
<PAGE> 4
This Rights Agreement (the "Agreement"), dated as of
April 4, 1996, between Lucent Technologies Inc., a Delaware corporation (the
"Company"), and First Chicago Trust Company of New York, as Rights Agent
(the "Rights Agent").
The board of directors of the Company (the "Board of
Directors") has authorized and declared a dividend of one preferred share
purchase right (a "Right") for each Common Share (as hereinafter
defined) of the Company outstanding on April 4, 1996 (the "Record
Date"), each Right representing the right to purchase one one-hundredth of a
Preferred Share (as hereinafter defined), upon the terms and subject to the
conditions herein set forth, and has further authorized and directed the
issuance of one Right with respect to each Common Share that shall become
outstanding between the Record Date and the earliest of the Distribution Date,
the Redemption Date and the Final Expiration Date (as such terms are hereinafter
defined), including any Common Shares issued in connection with the initial
public offering of the Common Shares.
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement,
the following terms have the meanings indicated:
<PAGE> 5
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 10% or more of the Common Shares of the Company then
outstanding, but shall not include (i) the Company, (ii) any Subsidiary of the
Company, (iii) any employee benefit plan of the Company or of any Subsidiary of
the Company, or any entity holding Common Shares for or pursuant to the terms of
any such plan, or (iv) prior to the Spinoff Date, any AT&T Entity.
Notwithstanding anything in this definition of Acquiring Person to the contrary,
no Person shall become an "Acquiring Person" as the result of an acquisition of
Common Shares by the Company which, by reducing the number of shares
outstanding, increases the proportionate number of shares beneficially owned by
such Person to 10% or more of the Common Shares of the Company then outstanding;
provided, however, that if a Person shall become the Beneficial Owner of 10% or
more of the Common Shares of the Company then outstanding by reason of share
purchases by the Company and shall, after such share purchases by the Company,
become the Beneficial Owner of any additional Common Shares of the Company, then
such Person shall be deemed to be an "Acquiring Person." Notwithstanding
anything in this definition of Acquiring Person to the contrary, if the Board of
Directors determines in good faith that a Person who would otherwise be an
"Acquiring Person," as defined pursuant to
- 2 -
<PAGE> 6
the foregoing provisions of this paragraph (a), has become such inadvertently,
and such Person divests as promptly as practicable a sufficient number of Common
Shares so that such Person would no longer be an "Acquiring Person," as defined
pursuant to the foregoing provisions of this paragraph (a), then such Person
shall not be deemed to be an "Acquiring Person" for any purposes of this
Agreement.
(b) "Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act as in
effect on the date of this Agreement.
(c) "Associate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act as in
effect on the date of this Agreement.
(d) "AT&T" shall mean AT&T Corp., a New York corporation.
(e) "AT&T Entity" shall mean AT&T or any Affiliate or Associate
of AT&T.
(f) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own" any securities:
- 3 -
<PAGE> 7
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights (other than
these Rights), warrants or options, or otherwise; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted
for purchase or exchange; or (B) the right to vote, or the right to
direct the vote, pursuant to any agreement, arrangement or
understanding; provided, however , that a Person shall not be deemed
the Beneficial Owner of, or to beneficially own, any security, if the
agreement, arrangement or understanding to vote, or direct the vote of,
such security (1) arises solely from
- 4 -
<PAGE> 8
a revocable proxy or consent given to such Person in response to a
public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations promulgated under
the Exchange Act and (2) is not also then reportable on Schedule 13D
under the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates
or Associates has any agreement, arrangement or understanding (other
than customary agreements with and between underwriters and selling
group members with respect to a bona fide public offering of
securities) for the purpose of acquiring, holding, voting (except to
the extent contemplated by the proviso to Section 1(c)(ii)(B)) or
disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial Ownership to
the contrary, no Person (and no Affiliate or Associate of any Person) shall at
any time prior to the Spinoff Date be deemed to be the "Beneficial Owner" of or
to "beneficially own" any securities if such Person is the Beneficial Owner of
or "beneficially owns" such securities as a result of one or more
- 5 -
<PAGE> 9
agreements, arrangements or understandings with any AT&T Entity (whether or not
the Company or any other Person is a party thereto) and if such Person would not
be the Beneficial Owner of or "beneficially own" such securities if such
agreements, arrangements or understandings were not then in effect.
Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, the phrase "then outstanding", when used with reference to a Person's
Beneficial Ownership of securities of the Company, shall mean the number of such
securities then issued and outstanding together with the number of such
securities not then actually issued and outstanding which such Person would be
deemed to own beneficially hereunder.
(g) "Board of Directors" shall have the meaning set forth in the
preamble hereof.
(h) "Business Day" shall mean any day other than a Saturday, a Sunday,
or a day on which banking institutions in New York are authorized or obligated
by law or executive order to close.
(i) "Close of Business" on any given date shall mean 5:00 P.M., New
York time, on such date; provided, however, that, if such date is not a Business
Day, it shall mean 5:00 P.M., New York time, on the next succeeding Business
Day.
- 6 -
<PAGE> 10
(j) "Common Shares" when used with reference to the Company shall mean
the shares of common stock, par value $.01 per share, of the Company. "Common
Shares" when used with reference to any Person other than the Company shall mean
the capital stock (or equity interest) with the greatest voting power of such
other Person or, if such other Person is a Subsidiary of another Person, the
Person or Persons which ultimately control such first-mentioned Person.
(k) "Company" shall have the meaning set forth in the preamble hereof.
(l) "Current Per Share Market Price" shall have the meaning set forth
in Section 11(d)(i) hereof.
(m) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
(n) "equivalent preferred shares" shall have the meaning set forth in
Section 11(b) hereof.
(o) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(p) "Exchange Ratio" shall have the meaning set forth in Section 24(a)
hereof.
- 7 -
<PAGE> 11
(q) "Final Expiration Date" shall have the meaning set forth in Section
7(a) hereof.
(r) "Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
(s) "Preferred Shares" shall mean shares of Series A Junior
Participating Preferred Stock, par value $1.00 per share, of the Company having
the rights and preferences set forth in the Form of Certificate of Designations
attached to this Agreement as Exhibit A.
(t) "Purchase Price" shall have the meaning set forth in Section 4
hereof.
(u) "Record Date" shall have the meaning set forth in the preamble
hereof.
(v) "Redemption Date" shall have the meaning set forth in Section 7(a)
hereof.
(w) "Redemption Price" shall have the meaning set forth in Section
23(a) hereof.
(x) "Right" shall have the meaning set forth in the preamble hereof.
- 8 -
<PAGE> 12
(y) "Right Certificate" shall have the meaning set forth in Section
3(a) hereof.
(z) "Rights Agent" shall have the meaning set forth in the preamble
hereof.
(aa) "Security" shall have the meaning set forth in Section 11(d)
hereof.
(bb) "Shares Acquisition Date" shall mean the first date of public
announcement by the Company or an Acquiring Person that an Acquiring Person has
become such.
(cc) "Spinoff Date" means the time at which AT&T shall distribute all
of its Common Shares to its shareholders pursuant to the Separation and
Distribution Agreement by and among the Company, NCR Corporation and AT&T, dated
as of February 1, 1996, as amended, modified or supplemented from time to time.
(dd) "Subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.
(ee) "Summary of Rights" shall have the meaning set forth in Section
3(b) hereof.
- 9 -
<PAGE> 13
(ff) "Trading Day" shall have the meaning set forth in Section 11(d)
hereof.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall, prior to the Distribution, Date also
be the holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier of (i)
the tenth day after the Shares Acquisition Date or (ii) the tenth Business Day
(or such later date as may be determined by action of the Board of Directors
prior to such time as any Person becomes an Acquiring Person) after the date of
the commencement by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company, any entity holding Common Shares for or pursuant to the terms of any
such plan, or, prior to the Spinoff Date, any AT&T Entity) of, or of the first
public announcement of the intention of any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of
- 10 -
<PAGE> 14
any Subsidiary of the Company, any entity holding Common Shares for or pursuant
to the terms of any such plan or, prior to the Spinoff Date, any AT&T Entity) to
commence, a tender or exchange offer the consummation of which would result in
any Person becoming the Beneficial Owner of Common Shares aggregating 10% or
more of the then outstanding Common Shares (the earlier of such dates being
herein referred to as the "Distribution Date"), (x) the Rights will be evidenced
(subject to the provisions of Section 3(b) hereof) by the certificates for
Common Shares registered in the names of the holders thereof (which certificates
shall also be deemed to be Right Certificates) and not by separate Right
Certificates, and (y) the right to receive Right Certificates will be
transferable only in connection with the transfer of Common Shares. As soon as
practicable after the Distribution Date, the Company will prepare and execute,
the Rights Agent will countersign, and the Company will send or cause to be sent
(and the Rights Agent will, if requested, send) by first-class, postage-prepaid
mail, to each record holder of Common Shares as of the Close of Business on the
Distribution Date, at the address of such holder shown on the records of the
Company, a Right Certificate, in substantially the form of Exhibit B hereto (a
"Right Certificate"), evidencing one Right for each Common Share so held. From
and
- 11 -
<PAGE> 15
after the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Preferred Shares, in
substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of Common Shares as of
the Close of Business on the Record Date, at the address of such holder shown on
the records of the Company. With respect to certificates for Common Shares
outstanding as of the Record Date, until the Distribution Date, the Rights will
be evidenced by such certificates registered in the names of the holders thereof
together with a copy of the Summary of Rights attached thereto. Until the
Distribution Date (or the earlier of the Redemption Date or the Final Expiration
Date), the surrender for transfer of any certificate for Common Shares
outstanding on the Record Date, with or without a copy of the Summary of Rights
attached thereto, shall also constitute the transfer of the Rights associated
with the Common Shares represented thereby.
(c) Certificates for Common Shares which become outstanding (including,
without limitation, reacquired Common Shares referred to in the last sentence of
this paragraph (c)) after the Record Date but prior to the earliest of the
- 12 -
<PAGE> 16
Distribution Date, the Redemption Date or the Final Expiration Date, shall have
impressed on, printed on, written on or otherwise affixed to them the following
legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between Lucent
Technologies Inc. and First Chicago Trust Company of New York, dated as
of April 4, 1996 (the "Rights Agreement"), the terms of which are
hereby incorporated herein by reference and a copy of which is on file
at the principal executive offices of Lucent Technologies Inc. Under
certain circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. Lucent Technologies Inc. will mail to
the holder of this certificate a copy of the Rights Agreement without
charge after receipt of a written request therefor. Under certain
circumstances, as set forth in the Rights Agreement, Rights issued to
any Person who becomes an Acquiring Person (as defined in the Rights
Agreement) may become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed cancelled and retired so that
- 13 -
<PAGE> 17
the Company shall not be entitled to exercise any Rights associated with the
Common Shares which are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates (and the
forms of election to purchase Preferred Shares and of assignment to be printed
on the reverse thereof) shall be substantially the same as Exhibit B hereto and
may have such marks of identification or designation and such legends, summaries
or endorsements printed thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange or automated
quotation system on which the Rights may from time to time be listed, or to
conform to usage. Subject to the provisions of Section 22 hereof, the Right
Certificates shall entitle the holders thereof to purchase such number of one
one-hundredths of a Preferred Share as shall be set forth therein at the price
per one one-hundredth of a Preferred Share set forth therein (the "Purchase
Price"), but the number of such one one-hundredths of a Preferred Share and the
Purchase Price shall be subject to adjustment as provided herein.
- 14 -
<PAGE> 18
Section 5. Countersignature and Registration. The Right
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, its Chief Executive Officer, its President, any of its Vice Presidents,
or its Treasurer, either manually or by facsimile signature, shall have affixed
thereto the Company's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless countersigned. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the individual who signed such Right Certificates had not ceased to be such
officer of the Company; and any Right Certificate may be signed on behalf of the
Company by any individual who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate although at the date of the execution of this Agreement any such
individual was not such an officer.
- 15 -
<PAGE> 19
Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its principal office, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
to the provisions of Section 14 hereof, at any time after the Close of Business
on the Distribution Date, and at or prior to the Close of Business on the
earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined, or exchanged for another Right Certificate or other Right Certificates
entitling the registered holder to purchase a like number of one one-hundredths
of a Preferred Share as the Right Certificate or Right Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate or Right
Certificates shall
- 16 -
<PAGE> 20
make such request in writing delivered to the Rights Agent, and shall surrender
the Right Certificate or Right Certificates to be transferred, split up,
combined or exchanged at the principal office of the Rights Agent. Thereupon the
Rights Agent shall countersign and deliver to the Person entitled thereto a
Right Certificate or Right Certificates, as the case may be, as so requested.
The Company may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. (a) The registered holder of any
- 17 -
<PAGE> 21
Right Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein), in whole or in part, at any time after the Distribution Date,
upon surrender of the Right Certificate, with the form of election to purchase
on the reverse side thereof duly executed, to the Rights Agent at the principal
office of the Rights Agent, together with payment of the Purchase Price for each
one one-hundredth of a Preferred Share as to which the Rights are exercised, at
or prior to the earliest of (i) the Close of Business on March 31, 2006 (the
"Final Expiration Date"), (ii) the time at which the Rights are redeemed as
provided in Section 23 hereof (the "Redemption Date"), or (iii) the time at
which such Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each one one-hundredth of a Preferred Share
purchasable pursuant to the exercise of a Right shall initially be $90, and
shall be subject to adjustment from time to time as provided in Section 11 or 13
hereof and shall be payable in lawful money of the United States of America in
accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the shares to be purchased and an amount equal
to any applicable transfer tax required to be paid by the holder of
- 18 -
<PAGE> 22
such Right Certificate in accordance with Section 9 hereof by certified check,
cashier's check or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly (i) (A) requisition from any transfer agent of
the Preferred Shares certificates for the number of Preferred Shares to be
purchased and the Company hereby irrevocably authorizes any such transfer agent
to comply with all such requests, or (B) requisition from the depositary agent
depositary receipts representing such number of one one-hundredths of a
Preferred Share as are to be purchased (in which case certificates for the
Preferred Shares represented by such receipts shall be deposited by the transfer
agent of the Preferred Shares with such depositary agent) and the Company hereby
directs such depositary agent to comply with such request; (ii) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional shares in accordance with Section 14 hereof; (iii)
promptly after receipt of such certificates or depositary receipts, cause the
same to be delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder; and (iv) when appropriate, after receipt, promptly deliver such cash to
or upon the order of the registered holder of such Right Certificate.
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<PAGE> 23
(d) In case the registered holder of any Right Certificate
shall exercise less than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Right
Certificate or to his duly authorized assigns, subject to the provisions of
Section 14 hereof.
Section 8. Cancellation and Destruction of Right
Certificates. All Right Certificates surrendered for the purpose of
exercise, transfer, split up, combination or exchange shall, if surrendered to
the Company or to any of its agents, be delivered to the Rights Agent for
cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall
be cancelled by it, and no Right Certificates shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Agreement. The
Company shall deliver to the Rights Agent for cancellation and retirement, and
the Rights Agent shall so cancel and retire, any other Right Certificate
purchased or acquired by the Company otherwise than upon the exercise thereof.
The Rights Agent shall deliver all cancelled Right Certificates to the Company,
or shall, at the written request of the Company, destroy such cancelled Right
Certificates, and, in such case, shall deliver a certificate of destruction
thereof to the Company.
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<PAGE> 24
Section 9. Availability of Preferred Shares. The
Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued Preferred Shares or any Preferred
Shares held in its treasury, the number of Preferred Shares that will be
sufficient to permit the exercise in full of all outstanding Rights in
accordance with Section 7. The Company covenants and agrees that it will take
all such action as may be necessary to ensure that all Preferred Shares
delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such Preferred Shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable shares.
The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a Person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or
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<PAGE> 25
depositary receipts for Preferred Shares upon the exercise of any Rights until
any such tax shall have been paid (any such tax being payable by the holder of
such Right Certificate at the time of surrender) or until it has been
established to the Company's reasonable satisfaction that no such tax is due.
Section 10. Preferred Shares Record Date. Each Person
in whose name any certificate for Preferred Shares is issued upon the exercise
of Rights shall for all purposes be deemed to have become the holder of record
of the Preferred Shares represented thereby on, and such certificate shall be
dated, the date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such
surrender and payment is a date upon which the Preferred Shares transfer books
of the Company are closed, such Person shall be deemed to have become the record
holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Shares transfer books of the
Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Right Certificate shall not be entitled to any rights of a holder of
Preferred Shares for which the Rights shall be exercisable, including, without
limitation,
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<PAGE> 26
the right to vote, to receive dividends or other distributions or to exercise
any preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of
Shares or Number of Rights. The Purchase Price, the number of Preferred
Shares covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in effect
at the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, shall be proportionately adjusted
so that the holder of any Right
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<PAGE> 27
exercised after such time shall be entitled to receive the aggregate number and
kind of shares of capital stock which, if such Right had been exercised
immediately prior to such date and at a time when the Preferred Shares transfer
books of the Company were open, he would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event any
Person becomes an Acquiring Person, each holder of a Right shall thereafter have
a right to receive, upon exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-hundredths of a Preferred
Share for which a Right is then exercisable, in accordance with the terms of
this Agreement and in lieu of Preferred Shares, such number of Common Shares of
the Company as shall equal the result obtained by (A) multiplying the then
current Purchase Price by the number of one one-hundredths of a Preferred Share
for which a Right is then exercisable and dividing that product by (B) 50% of
the then Current Per Share Market Price of the Company's Common Shares
(determined pursuant to Section 11(d)(i) hereof) on the date
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<PAGE> 28
of the occurrence of such event. In the event that any Person shall become an
Acquiring Person and the Rights shall then be outstanding, the Company shall not
take any action which would eliminate or diminish the benefits intended to be
afforded by the Rights.
From and after the occurrence of such event, any Rights that are or
were acquired or beneficially owned by any Acquiring Person (or any Associate or
Affiliate of such Acquiring Person) shall be void and any holder of such Rights
shall thereafter have no right to exercise such Rights under any provision of
this Agreement. No Right Certificate shall be issued pursuant to Section 3 that
represents Rights beneficially owned by an Acquiring Person whose Rights would
be void pursuant to the preceding sentence, or any Associate or Affiliate
thereof; no Right Certificate shall be issued at any time upon the transfer of
any Rights to an Acquiring Person whose Rights would be void pursuant to the
preceding sentence or any Associate or Affiliate thereof or to any nominee of
such Acquiring Person, Associate or Affiliate; and any Right Certificate
delivered to the Rights Agent for transfer to an Acquiring Person whose Rights
would be void pursuant to the preceding sentence shall be cancelled.
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<PAGE> 29
(iii) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit the exercise in
full of the Rights in accordance with the foregoing subparagraph (ii), the
Company shall take all such action as may be necessary to authorize additional
Common Shares for issuance upon exercise of the Rights. In the event the Company
shall, after good faith effort, be unable to take all such action as may be
necessary to authorize such additional Common Shares, the Company shall
substitute, for each Common Share that would otherwise be issuable upon exercise
of a Right, a number of Preferred Shares or fraction thereof such that the
Current Per Share Market Price of one Preferred Share multiplied by such number
or fraction is equal to the Current Per Share Market Price of one Common Share
as of the date of issuance of such Preferred Shares or fraction thereof.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Shares (or shares having the same rights,
privileges and preferences as the Preferred Shares ("equivalent preferred
shares")) or securities convertible into Preferred Shares or equivalent
preferred shares at a price per Preferred Share or equivalent preferred share
(or
- 26 -
<PAGE> 30
having a conversion price per share, if a security convertible into
Preferred Shares or equivalent preferred shares) less than the then Current Per
Share Market Price of the Preferred Shares) on such record date, the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of Preferred Shares
outstanding on such record date plus the number of Preferred Shares which the
aggregate offering price of the total number of Preferred Shares and/or
equivalent preferred shares so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price and the denominator of which shall be the number of
Preferred Shares outstanding on such record date plus the number of additional
Preferred Shares and/or equivalent preferred shares to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined
- 27 -
<PAGE> 31
in good faith by the Board of Directors, whose determination shall be described
in a statement filed with the Rights Agent and shall be binding on the Rights
Agent and holders of the Rights. Preferred Shares owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of any
such computation. Such adjustment shall be made successively whenever such a
record date is fixed; and in the event that such rights, options or warrants are
not so issued, the Purchase Price shall be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making
of a distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then Current Per Share Market Price of the Preferred Shares on such
record date, less the fair market value (as determined
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<PAGE> 32
in good faith by the Board of Directors, whose determination shall be described
in a statement filed with the Rights Agent and shall be binding on the Rights
Agent and holders of the Rights) of the portion of the assets or evidences of
indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Preferred Share and the denominator of which shall be such
Current Per Share Market Price of the Preferred Shares; provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
to be issued upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) (i) For the purpose of any computation hereunder, the
"Current Per Share Market Price" of any security (a "Security"
for the purpose of this Section 11(d)(i)) on any date shall be deemed to be the
average of the daily closing prices per share of such Security for the 30
consecutive Trading Days immediately prior to such date; provided,
however, that in the event that the Current Per Share Market Price of
the Security is determined during a period following the announcement by the
issuer of such Security of (A) a
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<PAGE> 33
dividend or distribution on such Security payable in shares of such Security or
securities convertible into such shares, or (B) any subdivision, combination or
reclassification of such Security and prior to the expiration of 30 Trading Days
after the ex-dividend date for such dividend or distribution, or the record date
for such subdivision, combination or reclassification, then, and in each such
case, the Current Per Share Market Price shall be appropriately adjusted to
reflect the current market price per share equivalent of such Security. The
closing price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case, as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Security is not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Security is
listed or admitted to trading or, if the Security is not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-the-
counter market, as reported on the Nasdaq National Market or such other system
then in
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<PAGE> 34
use, or, if on any such date the Security is not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Security selected by the Board
of Directors. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the Security is listed or admitted to
trading is open for the transaction of business or, if the Security is not
listed or admitted to trading on any national securities exchange, a Business
Day.
(ii) For the purpose of any computation hereunder, the "Current Per
Share Market Price" of the Preferred Shares shall be determined in accordance
with the method set forth in Section 11(d)(i). If the Preferred Shares are not
publicly traded, the "Current Per Share Market Price" of the Preferred
Shares shall be conclusively deemed to be the Current Per Share Market Price of
the Common Shares as determined pursuant to Section 11(d)(i) (appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof), multiplied by one hundred. If neither the
Common Shares nor the Preferred Shares are publicly held or so listed or traded,
"Current Per Share Market Price" shall mean the fair value per share as
determined in good faith by the Board of Directors, whose determination shall be
described in a statement filed with the
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<PAGE> 35
Rights Agent and shall be binding on the Rights Agent and the holders of the
Rights.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-millionth of a
Preferred Share or one ten-thousandth of any other share or security as the
case may be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three years from the date of the transaction which requires such
adjustment or (ii) the date of the expiration of the right to exercise any
Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as
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<PAGE> 36
practicable to the provisions with respect to the Preferred Shares contained in
Section 11(a) through (c), inclusive, and the provisions of Sections 7, 9, 10
and 13 with respect to the Preferred Shares shall apply on like terms to any
such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a Preferred Share (calculated to the nearest one
one-millionth of a Preferred Share) obtained by (A) multiplying (x) the number
of one one-hundredths of a share covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (B)
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<PAGE> 37
dividing the product so obtained by the Purchase Price in effect immediately
after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights in substitution for any adjustment
in the number of one one-hundredths of a Preferred Share purchasable upon the
exercise of a Right. Each of the Rights outstanding after such adjustment of the
number of Rights shall be exercisable for the number of one one-hundredths of a
Preferred Share for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest one
ten-thousandth) obtained by dividing the Purchase Price in effect immediately
prior to adjustment of the Purchase Price by the Purchase Price in effect
immediately after adjustment of the Purchase Price. The Company shall make a
public announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least 10 days later than the date of the public
announcement. If Right Certificates have been issued, upon
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<PAGE> 38
each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date Right Certificates evidencing,
subject to Section 14 hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-hundredths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of one one-hundredths
of a Preferred Share which were expressed in the initial Right Certificates
issued hereunder.
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<PAGE> 39
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below one one-hundredth of the then par value, if
any, of the Preferred Shares issuable upon exercise of the Rights, the Company
shall take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder
a due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares upon the occurrence of the event requiring such
adjustment.
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<PAGE> 40
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that it, in its sole discretion, shall
determine to be advisable in order that any consolidation or subdivision of the
Preferred Shares, issuance wholly for cash of any Preferred Shares at less than
the current market price, issuance wholly for cash of Preferred Shares or
securities which by their terms are convertible into or exchangeable for
Preferred Shares, dividends on Preferred Shares payable in Preferred Shares or
issuance of rights, options or warrants referred to hereinabove in Section
11(b), hereafter made by the Company to holders of its Preferred Shares shall
not be taxable to such stockholders.
(n) In the event that at any time after the date of this
Agreement and prior to the Distribution Date, the Company shall (i) declare or
pay any dividend on the Common Shares payable in Common Shares, or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (A) the
number of one one-hundredths of a Preferred Share purchasable after such event
upon proper exercise of each Right shall be determined by
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<PAGE> 41
multiplying the number of one one- hundredths of a Preferred Share so
purchasable immediately prior to such event by a fraction, the numerator of
which is the number of Common Shares outstanding immediately before such event
and the denominator of which is the number of Common Shares outstanding
immediately after such event, and (B) each Common Share outstanding immediately
after such event shall have issued with respect to it that number of Rights
which each Common Share outstanding immediately prior to such event had issued
with respect to it. The adjustments provided for in this Section 11(n) shall be
made successively whenever such a dividend is declared or paid or such a
subdivision, combination or consolidation is effected.
Section 12. Certificate of Adjusted Purchase Price
or Number of Shares. Whenever an adjustment is made as provided in
Section 11 or 13 hereof, the Company shall promptly (a) prepare a certificate
setting forth such adjustment, and a brief statement of the facts accounting for
such adjustment, (b) file with the Rights Agent and with each transfer agent for
the Common Shares or the Preferred Shares a copy of such certificate and (c)
mail a brief summary thereof to each holder of a Right Certificate in accordance
with Section 25 hereof.
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<PAGE> 42
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power. In the event, directly or indirectly, at any time after a Person
has become an Acquiring Person, (a) the Company shall consolidate with, or merge
with and into, any other Person, (b) any Person shall consolidate with the
Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged for
stock or other securities of any other Person (or the Company) or cash or any
other property, or (c) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person other than the Company or one or more of its wholly owned
Subsidiaries (except, prior to the Spinoff Date in the case of each of (a),
(b) and (c) above, where such other Person is an AT&T Entity), then, and in each
such case, proper provision shall be made so that (i) each holder of a Right
(except as otherwise provided herein) shall thereafter have the right to
receive, upon the exercise thereof at a price equal to the then current Purchase
Price multiplied by the number of one one-hundredths of a Preferred Share for
which a Right
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<PAGE> 43
is then exercisable, in accordance with the terms of this Agreement and in lieu
of Preferred Shares, such number of Common Shares of such other Person
(including the Company as successor thereto or as the surviving corporation) as
shall equal the result obtained by (A) multiplying the then current Purchase
Price by the number of one one-hundredths of a Preferred Share for which a
Right is then exercisable and dividing that product by (B) 50% of the then
Current Per Share Market Price of the Common Shares of such other Person
(determined pursuant to Section 11(d) hereof) on the date of consummation of
such consolidation, merger, sale or transfer; (ii) the issuer of such Common
Shares shall thereafter be liable for, and shall assume, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be
deemed to refer to such issuer; and (iv) such issuer shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
Common Shares in accordance with Section 9 hereof) in connection with such
consummation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to the
Common Shares thereafter deliverable upon the exercise of the Rights. The
Company shall not consummate any such consolidation, merger, sale or transfer
unless prior thereto the Company and such
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<PAGE> 44
issuer shall have executed and delivered to the Rights Agent a supplemental
agreement so providing. The Company shall not enter into any transaction of the
kind referred to in this Section 13 if at the time of such transaction there are
any rights, warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such transaction, would
eliminate or substantially diminish the benefits intended to be afforded by the
Rights. The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares. (a) The Company
shall not be required to issue fractions of Rights or to distribute Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place
- 41 -
<PAGE> 45
on such day, the average of the closing bid and asked prices, regular way, in
either case, as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Rights are not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Rights are listed or admitted to trading or, if
the Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported on the
Nasdaq National Market or such other system then in use or, if on any such date
the Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Rights selected by the Board of Directors. If on any such date no such
market maker is making a market in the Rights, the fair value of the Rights on
such date as determined in good faith by the Board of Directors shall be used.
(b) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share)
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<PAGE> 46
upon exercise of the Rights or to distribute certificates which evidence
fractional Preferred Shares (other than fractions which are integral multiples
of one one-hundredth of a Preferred Share). Fractions of Preferred Shares in
integral multiples of one one-hundredth of a Preferred Share may, at the
election of the Company, be evidenced by depositary receipts, pursuant to an
appropriate agreement between the Company and a depositary selected by it;
provided that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they are
entitled as beneficial owners of the Preferred Shares represented by such
depositary receipts. In lieu of fractional Preferred Shares that are not
integral multiples of one one-hundredth of a Preferred Share, the Company shall
pay to the registered holders of Right Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one Preferred Share. For the purposes of this Section
14(b), the current market value of a Preferred Share shall be the closing price
of a Preferred Share (as determined pursuant to the second sentence of Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of such
exercise.
(c) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional
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<PAGE> 47
Rights or any fractional shares upon exercise of a Right (except as provided
above).
Section 15. Rights of Action. All rights of action in
respect of this Agreement, excepting the rights of action given to the Rights
Agent under Section 18 hereof, are vested in the respective registered holders
of the Right Certificates (and, prior to the Distribution Date, the registered
holders of the Common Shares); and any registered holder of any Right
Certificate (or, prior to the Distribution Date, of the Common Shares), without
the consent of the Rights Agent or of the holder of any other Right Certificate
(or, prior to the Distribution Date, of the Common Shares), may, in his own
behalf and for his own benefit, enforce, and may institute and maintain any
suit, action or proceeding against the Company to enforce, or otherwise act in
respect of, his right to exercise the Rights evidenced by such Right Certificate
in the manner provided in such Right Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of the obligations of any Person subject to, this
Agreement.
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<PAGE> 48
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificate or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
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<PAGE> 49
Section 17. Right Certificate Holder Not Deemed a
Stockholder. No holder, as such, of any Right Certificate shall be
entitled to vote, receive dividends or be deemed for any purpose the holder of
the Preferred Shares or any other securities of the Company which may at any
time be issuable on the exercise of the Rights represented thereby, nor shall
anything contained herein or in any Right Certificate be construed to confer
upon the holder of any Right Certificate, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in Section 25 hereof),
or to receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Right Certificate shall have been exercised in
accordance with the provisions hereof.
Section 18. Concerning the Rights Agent. The Company
agrees to pay to the Rights Agent reasonable compensation for all services
rendered by it hereunder and, from time to time, on demand of the Rights Agent,
its reasonable expenses and counsel fees and other disbursements incurred in the
administration and execution of this Agreement and the exercise and performance
of its duties hereunder. The Company also agrees to indemnify the Rights Agent
for, and to
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<PAGE> 50
hold it harmless against, any loss, liability, or expense incurred
without negligence, bad faith or willful misconduct on the part of the Rights
Agent, for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability in the premises.
The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Shares or Common Shares or for
other securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of
Name of Rights Agent. Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or
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<PAGE> 51
any successor Rights Agent shall be a party, or any corporation succeeding to
the stock transfer or corporate trust powers of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; provided that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall succeed
to the agency created by this Agreement, any of the Right Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and deliver such
Right Certificates so countersigned; and, in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior
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<PAGE> 52
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Right Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to
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<PAGE> 53
be conclusively proved and established by a certificate signed by any one of the
Chairman of the Board, the Chief Executive Officer, the President, any Vice
President, the Treasurer or the Secretary of the Company and delivered to the
Rights Agent; and such certificate shall be full authorization to the Rights
Agent for any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company
and any other Person only for its own negligence, bad faith or willful
misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this
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<PAGE> 54
Agreement or in any Right Certificate; nor shall it be responsible for any
change in the exercisability of the Rights (including the Rights becoming void
pursuant to Section 11(a)(ii) hereof) or any adjustment in the terms of the
Rights (including the manner, method or amount thereof) provided for in Section
3, 11, 13, 23 or 24, or the ascertaining of the existence of facts that would
require any such change or adjustment (except with respect to the exercise of
Rights evidenced by Right Certificates after actual notice that such change or
adjustment is required); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
Preferred Shares to be issued pursuant to this Agreement or any Right
Certificate or as to whether any Preferred Shares will, when issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance
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<PAGE> 55
of its duties hereunder from any one of the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the Secretary or the
Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered by it in good faith in accordance with instructions of
any such officer or for any delay in acting while waiting for those
instructions.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys or agents, and the Rights Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such attorneys
or agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct,
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<PAGE> 56
provided reasonable care was exercised in the selection and continued employment
thereof.
Section 21. Change of Rights Agent. The Rights Agent or
any successor Rights Agent may resign and be discharged from its duties under
this Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares or Preferred Shares by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Shares or
Preferred Shares by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit his Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any
court of competent jurisdiction for the appointment of a
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<PAGE> 57
new Rights Agent. Any successor Rights Agent, whether appointed by the Company
or by such a court, shall be a corporation organized and doing business under
the laws of the United States or of the State of New York (or of any other state
of the United States so long as such corporation is authorized to do business as
a banking institution in the State of New York, in good standing, having an
office in the State of New York, which is authorized under such laws to exercise
corporate trust or stock transfer powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $50
million. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment, the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Common Shares
or Preferred Shares, and mail a notice thereof in writing to the registered
holders of the Right Certificates. Failure to give any notice provided
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<PAGE> 58
for in this Section 21, however, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the Rights Agent or the
appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by the Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement.
Section 23. Redemption. (a) The Board of Directors may,
at its option, at any time prior to such time as any Person becomes an Acquiring
Person, redeem all but not less than all the then outstanding Rights at a
redemption price of $.01 per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(such redemption price being hereinafter referred to as the "Redemption
Price"). The redemption of the Rights by the Board of Directors may be made
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<PAGE> 59
effective at such time, on such basis and with such conditions as the Board of
Directors, in its sole discretion, may establish.
(b) Immediately upon the action of the Board of Directors
ordering the redemption of the Rights pursuant to paragraph (a) of this Section
23, and without any further action and without any notice, the right to exercise
the Rights will terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price. The Company shall promptly give public
notice of any such redemption; provided, however, that the failure to give, or
any defect in, any such notice shall not affect the validity of such redemption.
Within 10 days after such action of the Board of Directors ordering the
redemption of the Rights, the Company shall mail a notice of redemption to all
the holders of the then outstanding Rights at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the Distribution
Date, on the registry books of the transfer agent for the Common Shares. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption Price will be made.
Neither the Company nor any of its Affiliates or Associates may redeem, acquire
or purchase for value any Rights at any time in any
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<PAGE> 60
manner other than that specifically set forth in this Section 23 or in Section
24 hereof, and other than in connection with the purchase of Common Shares prior
to the Distribution Date.
Section 24. Exchange. (a) The Board of Directors may, at its
option, at any time after any Person becomes an Acquiring Person, exchange all
or part of the then outstanding and exercisable Rights (which shall not include
Rights that have become void pursuant to the provisions of Section 11(a)(ii)
hereof) for Common Shares at an exchange ratio of one Common Share per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors shall not be empowered to effect such exchange at any
time after any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or of any Subsidiary of the Company or
any entity holding Common Shares for or pursuant to the terms of any such plan
or, prior to the Spinoff Date, any AT&T Entity), together with all Affiliates
and Associates of such Person, becomes the Beneficial Owner of 50% or more of
the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to
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<PAGE> 61
paragraph (a) of this Section 24 and without any further action and without any
notice, the right to exercise such Rights shall terminate and the only right
thereafter of a holder of such Rights shall be to receive that number of Common
Shares equal to the number of such Rights held by such holder multiplied by the
Exchange Ratio. The Company shall promptly give public notice of any such
exchange; provided, however, that the failure to give, or any defect in, such
notice shall not affect the validity of such exchange. The Company promptly
shall mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of the Common Shares for Rights will be
effected and, in the event of any partial exchange, the number of Rights which
will be exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than Rights which have become void pursuant to the
provisions of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company
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<PAGE> 62
shall take all such action as may be necessary to authorize additional Common
Shares for issuance upon exchange of the Rights. In the event the Company shall,
after good faith effort, be unable to take all such action as may be necessary
to authorize such additional Common Shares, the Company shall substitute, for
each Common Share that would otherwise be issuable upon exchange of a Right, a
number of Preferred Shares or fraction thereof such that the Current Per Share
Market Price of one Preferred Share multiplied by such number or fraction is
equal to the Current Per Share Market Price of one Common Share as of the date
of issuance of such Preferred Shares or fraction thereof.
(d) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, the Company shall pay to the
registered holders of the Right Certificates with regard to which such
fractional Common Shares would otherwise be issuable an amount in cash equal to
the same fraction of the current market value of a whole Common Share. For the
purposes of this paragraph (d), the current market value of a whole Common Share
shall be the closing price of a Common Share (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24.
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<PAGE> 63
Section 25. Notice of Certain Events. (a) In case the
Company shall propose (i) to pay any dividend payable in stock of any class to
the holders of its Preferred Shares or to make any other distribution to the
holders of its Preferred Shares (other than a regular quarterly cash dividend),
(ii) to offer to the holders of its Preferred Shares rights or warrants to
subscribe for or to purchase any additional Preferred Shares or shares of stock
of any class or any other securities, rights or options, (iii) to effect any
reclassification of its Preferred Shares (other than a reclassification
involving only the subdivision of outstanding Preferred Shares), (iv) to effect
any consolidation or merger into or with, or to effect any sale or other
transfer (or to permit one or more of its Subsidiaries to effect any sale or
other transfer), in one or more transactions, of 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to, any
other Person, (v) to effect the liquidation, dissolution or winding up of the
Company, or (vi) to declare or pay any dividend on the Common Shares payable in
Common Shares or to effect a subdivision, combination or consolidation of the
Common Shares (by reclassification or otherwise than by payment of dividends in
Common Shares), then, in each such case, the Company shall give to each holder
of a Right Certificate, in accordance with Section 26 hereof, a notice of such
proposed action, which shall specify
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<PAGE> 64
the record date for the purposes of such stock dividend, or distribution of
rights or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take place
and the date of participation therein by the holders of the Common Shares and/or
Preferred Shares, if any such date is to be fixed, and such notice shall be so
given in the case of any action covered by clause (i) or (ii) above at least 10
days prior to the record date for determining holders of the Preferred Shares
for purposes of such action, and in the case of any such other action, at least
10 days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares and/or Preferred
Shares, whichever shall be the earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof
shall occur, then the Company shall as soon as practicable thereafter give to
each holder of a Right Certificate, in accordance with Section 26 hereof, a
notice of the occurrence of such event, which notice shall describe such event
and the consequences of such event to holders of Rights under Section 11(a)(ii)
hereof.
Section 26. Notices. Notices or demands authorized by
this Agreement to be given or made by the Rights Agent or by the holder of any
Right Certificate to or on the
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<PAGE> 65
Company shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing with the Rights
Agent) as follows:
Lucent Technologies Inc.
600 Mountain Avenue
Murray Hill, New Jersey 07974
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
First Chicago Trust Company of New York
30 W. Broadway
New York, New York 10008
Attention: Corporate Secretary
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Rights Agent.
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<PAGE> 66
Section 27. Supplements and Amendments. The Company may
from time to time supplement or amend this Agreement without the approval of any
holders of Right Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, or to make any other provisions with respect
to the Rights which the Company may deem necessary or desirable, any such
supplement or amendment to be evidenced by a writing signed by the Company and
the Rights Agent; provided, however, that from and after such
time as any Person becomes an Acquiring Person, this Agreement shall not be
amended in any manner which would adversely affect the interests of the holders
of Rights.
Section 28. Successors. All the covenants and provisions
of this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any Person other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Shares) any legal or equitable right, remedy
or claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company,
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<PAGE> 67
the Rights Agent and the registered holders of the Right Certificates (and,
prior to the Distribution Date, the Common Shares).
Section 30. Severability. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
Section 31. Governing Law. This Agreement and each
Right Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 32. Counterparts. This Agreement may be
executed in any number of counterparts and each of such counterparts shall for
all purposes be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.
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<PAGE> 68
Section 33. Descriptive Headings. Descriptive headings
of the several Sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
hereof.
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<PAGE> 69
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and attested, all as of the day and year first
above written.
Attest: LUCENT TECHNOLOGIES INC.
By By
--------------------- -------------------
Name: Name:
Title: Title:
Attest: FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By By
--------------------- -------------------
Name: Name:
Title: Title:
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<PAGE> 70
Exhibit A
FORM
of
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
LUCENT TECHNOLOGIES INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
----------------------------
Lucent Technologies Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (hereinafter called
the "Corporation"), hereby certifies that the following resolution was adopted
by the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on April __, 1996:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, par value $1.00 per share, of the Corporation (the "Preferred Stock") and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such
series shall be designated as "Series A Junior Participating Preferred Stock"
(the "Series A Preferred Stock") and the number of shares constituting the
Series A Preferred Stock shall be 7,500,000. Such number of shares may be
increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series A
Preferred Stock to a number less than the number of shares then outstanding plus
the number of shares reserved for issuance upon the exercise of outstanding
options, rights
A-1
<PAGE> 71
or warrants or upon the conversion of any outstanding securities
issued by the Corporation convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock, in preference to the
holders of Common Stock, par value $.01 per share (the "Common Stock"),
of the Corporation, and of any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in
cash on the first day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series A
Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $1 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Preferred Stock. In the
event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the
A-2
<PAGE> 72
number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) The Corporation shall declare a dividend or distribution on
the Series A Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1 per share on the Series A Preferred
Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares
of Series A Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Preferred Stock
entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes on
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all matters submitted to a vote of the stockholders of the Corporation.
In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series A Preferred
Stock and the holders of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock;
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(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except dividends
paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock, provided that the Corporation may
at any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A Preferred
Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences
of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the
respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock subject to the conditions and restrictions on issuance set
forth herein, in the
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<PAGE> 75
Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
Section 6. Liquidation, Dissolution or Winding
Up. Upon any liquidation, dissolution or winding up of the Corporation,
no distribution shall be made (1) to the holders of shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred Stock unless, prior thereto, the holders of shares of
Series A Preferred Stock shall have received $100 per share, plus an amount
equal to accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment, provided that the holders of shares of
Series A Preferred Stock shall be entitled to receive an aggregate amount per
share, subject to the provision for adjustment hereinafter set forth, equal to
100 times the aggregate amount to be distributed per share to holders of shares
of Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the
Corporation shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or changed
into other stock or securities, cash and/or any other property, then in any such
case each share of Series A Preferred Stock shall at the same time be similarly
exchanged or changed into an amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount of
stock,
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<PAGE> 76
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred
Stock shall not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall
rank, with respect to the payment of dividends and the distribution of assets,
junior to all series of any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Certificate of Incorporation
of the Corporation shall not be amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of at least two-thirds of the outstanding shares of Series A
Preferred Stock, voting together as a single class.
IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Corporation by its and attested
by its this day of , 1996.
---------------------
Attest:
- ---------------------
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<PAGE> 77
Exhibit B
Form of Right Certificate
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER MARCH 31, 2006 OR EARLIER IF REDEMPTION OR
EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER
RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT.
Right Certificate
LUCENT TECHNOLOGIES INC.
This certifies that _____________ , or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of April 4, 1996 (the "Rights Agreement"), between Lucent
Technologies Inc., a Delaware corporation (the "Company"), and First Chicago
Trust Company of New York (the "Rights Agent"), to purchase from the Company at
any time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 P.M., New York time, on March 31, 2006 at the
principal office of the Rights Agent, or at the office of its successor as
Rights Agent, one one-hundredth of a fully paid non-assessable share of Series
A Junior Participating Preferred Stock, par value $1.00 per share, of the
Company (the "Preferred Shares"), at a purchase price of $90 per one
one-hundredth of a Preferred Share (the "Purchase Price"), upon presentation and
surrender of this Right Certificate with the Form of Election to Purchase duly
executed. The number of Rights evidenced by this Right Certificate (and the
number of one one-hundredths of a Preferred Share which may be purchased upon
exercise hereof) set forth above, and the Purchase Price set forth above, are
the number and Purchase Price as of April 4, 1996, based on the Preferred Shares
as constituted at such date. As provided in the Rights Agreement, the Purchase
Price and the number of one one-hundredths of a Preferred Share which may be
purchased upon the exercise of the Rights evidenced by this Right Certificate
are subject to modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement,
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<PAGE> 78
which terms, provisions and conditions are hereby incorporated herein by
reference and made a part hereof and to which Rights Agreement reference is
hereby made for a full description of the rights, limitations of rights,
obligations, duties and immunities hereunder of the Rights Agent, the Company
and the holders of the Right Certificates. Copies of the Rights Agreement are on
file at the principal executive offices of the Company and the offices of the
Rights Agent.
This Right Certificate, with or without other Right Certificates,
upon surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Right Certificate (i) may be redeemed by the Company at a
redemption price of $.01 per Right or (ii) may be exchanged in whole or in part
for Preferred Shares or shares of the Company's Common Stock, par value $.01 per
share.
No fractional Preferred Shares will be issued upon the exercise
of any Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts), but, in lieu thereof, a
cash payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
B-2
<PAGE> 79
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of .
ATTEST: LUCENT TECHNOLOGIES INC.
By
- -------------------------------- -----------------------------
Name: Name:
Title: Title:
Countersigned:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
By
--------------------------------
Name:
Title:
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<PAGE> 80
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED ____________________ hereby sells, assigns and
transfers unto _________________________________
_____________________________________________________________________________
(Please print name and address of transferee)
_____________________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ___________ Attorney, to transfer
the within Right Certificate on the books of the within-named Company, with full
power of substitution.
Dated: _________________ , ___
______________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States or by another eligible guarantor institution,
as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934.
- ------------------------------------------------------------
B-4
<PAGE> 81
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
______________________
Signature
- -------------------------------------------------------------
B-5
<PAGE> 82
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To: LUCENT TECHNOLOGIES INC.
The undersigned hereby irrevocably elects to exercise __________ Rights
represented by this Right Certificate to purchase the Preferred Shares issuable
upon the exercise of such Rights and requests that certificates for such
Preferred Shares be issued in the name of:
Please insert social security
or other identifying number
___________________________________________________________________________
(Please print name and address)
___________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
___________________________________________________________________________
(Please print name and address)
___________________________________________________________________________
Dated: _____________________,______
_________________________
Signature
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<PAGE> 83
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States or by another eligible guarantor institution,
as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934.
B-7
<PAGE> 84
Form of Reverse Side of Right Certificate -- continued
-------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
________________________
Signature
-------------------------------------------------------------
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
B-8
<PAGE> 85
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On April , 1996, the Board of Directors of Lucent Technologies
Inc. (the "Company") declared a dividend of one preferred share purchase right
(a "Right") for each outstanding share of common stock, par value $.01 per
share, of the Company (the "Common Shares"). The dividend is payable on April 4,
1996 (the "Record Date") to the stockholders of record on that date. Each Right
entitles the registered holder to purchase from the Company one one-hundredth of
a share of Series A Junior Participating Preferred Stock, par value $1.00 per
share, of the Company (the "Preferred Shares") at a price of $90 per one
one-hundredth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and First Chicago Trust
Company of New York, as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") have acquired beneficial ownership of 10% or more of the
outstanding Common Shares or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors of the Company prior to such time
as any person or group of affiliated persons becomes an Acquiring Person)
following the commencement of, or announcement of an intention to make, a tender
offer or exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 10% or more of the outstanding Common Shares
(the earlier of such dates being the "Distribution Date"), the Rights will be
evidenced, with respect to any of the Common Share certificates outstanding as
of the Record Date, by such Common Share certificate with a copy of this Summary
of Rights attached thereto. The Rights Agreement contains exceptions from its
operating provision for AT&T and its affiliates and associates prior to the
time it effects the distribution of all of its shares in the Company to its
shareowners.
The Rights Agreement provides that, until the Distribution Date
(or earlier redemption or expiration of the Rights), the Rights will be
transferred with and only with the Common Shares. Until the Distribution Date
(or earlier redemption or expiration of the Rights), new Common Share
certificates issued after the Record Date upon transfer or
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<PAGE> 86
new issuance of Common Shares will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Shares outstanding as of the Record Date, even without such notation or a
copy of this Summary of Rights being attached thereto, will also constitute the
transfer of the Rights associated with the Common Shares represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
The Rights are not exercisable until the Distribution Date. The
Rights will expire on March 31, 2006 (the "Final Expiration Date"), unless the
Final Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of Preferred Shares
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares; (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion price;
less than the then-current market price of the Preferred Shares or (iii) upon
the distribution to holders of the Preferred Shares of evidences of indebtedness
or assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one
one-hundredths of a Preferred Share issuable upon exercise of each Right are
also subject to adjustment in the event of a stock split of the Common Shares or
a stock dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will
not be redeemable. Each Preferred Share will be entitled to a minimum
preferential quarterly dividend payment of $1 per share but will be entitled to
an aggregate dividend
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<PAGE> 87
of 100 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per Common Share. Each Preferred
Share will have 100 votes, voting together with the Common Shares. Finally, in
the event of any merger, consolidation or other transaction in which Common
Shares are exchanged, each Preferred Share will be entitled to receive 100 times
the amount received per Common Share. These rights are protected by customary
antidilution provisions.
Because of the nature of the Preferred Shares' dividend,
liquidation and voting rights, the value of the one one-hundredth interest in a
Preferred Share purchasable upon exercise of each Right should approximate the
value of one Common Share.
In the event that the Company is acquired in a merger or other
business combination transaction or 50% or more of its consolidated assets or
earning power are sold after a person or group has become an Acquiring Person,
proper provision will be made so that each holder of a Right will thereafter
have the right to receive, upon the exercise thereof at the then current
exercise price of the Right, that number of shares of common stock of the
acquiring company which at the time of such transaction will have a market value
of two times the exercise price of the Right. In the event that any person or
group of affiliated or associated persons becomes an Acquiring Person, proper
provision shall be made so that each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter have the right to receive upon exercise that number of Common Shares
having a market value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring
Person and prior to the acquisition by such person or group of 50% or more of
the outstanding Common Shares, the Board of Directors of the Company may
exchange the Rights (other than Rights owned by such person or group which will
have become void), in whole or in part, at an exchange ratio of one Common
Share, or one one-hundredth of a Preferred Share, per Right (subject to
adjustment).
With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an adjustment of at least
1% in such Purchase Price.
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<PAGE> 88
No fractional Preferred Shares will be issued (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share, which may, at the
election of the Company, be evidenced by depositary receipts) and, in lieu
thereof, an adjustment in cash will be made based on the market price of the
Preferred Shares on the last trading day prior to the date of exercise.
At any time prior to the acquisition by a person or group of
affiliated or associated persons of beneficial ownership of 10% or more of the
then outstanding Common Shares, the Board of Directors of the Company may redeem
the Rights in whole, but not in part, at a price of $.01 per Right (the
"Redemption Price"). The redemption of the Rights may be made effective at such
time on such basis with such conditions as the Board of Directors in its sole
discretion may establish. Immediately upon any redemption of the Rights, the
right to exercise the Rights will terminate and the only right of the holders of
Rights will be to receive the Redemption Price.
The terms of the Rights may be amended by the Board of
Directors of the Company without the consent of the holders of the Rights,
except that from and after such time as any person or group of affiliated or
associated persons becomes an Acquiring Person no such amendment may adversely
affect the interests of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an Exhibit to a Registration Statement on
Form 10 (Registration No. 1-11639). A copy of the Rights Agreement is available
free of charge from the Company. This summary description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, which is hereby incorporated herein by reference.
C-4
<PAGE> 1
Exhibit 5.1
[Letterhead of Richard J. Rawson]
April 1, 1996
Lucent Technologies Inc.
600 Mountain Avenue
Murray Hill, New Jersey 07974
Ladies and Gentlemen:
In connection with the registration of 127,650,000 shares of common
stock, par value $.01 per share (the "Shares"), of Lucent Technologies Inc.
(the "Company") under the Securities Act of 1933, as amended, on Form S-1 filed
with the Securities and Exchange Commission (the "Commission") on February 5,
1996 (File No. 333-703), as amended by Amendment No. 1 filed with the
Commission on March 12, 1996, Amendment No. 2 filed with the Commission on
March 22, 1996 and Amendment No. 3 filed with the Commission on April 1, 1996
(collectively, and as it may be further amended, the "Registration Statement"),
you have requested my opinion with respect to the following matters.
In connection with my rendering this opinion, I have reviewed (i) the
forms of the Restated Certificate of Incorporation (the "Restated Certificate")
and By-Laws of the Company as set forth as exhibits to Amendment No. 3 to the
Registration Statement; (ii) the Registration Statement; (iii) certain
resolutions adopted or to be adopted by the Board of Directors or Pricing
Committee of the Board of Directors of the Company; (iv) the form of stock
certificate representing the Shares and (v) such other documents, records and
papers as I have deemed necessary or appropriate in order to give the opinions
set forth herein. I am familiar with the proceedings heretofore taken, and
with the additional proceedings proposed to be taken, by the Company in
connection with the authorization, registration, issuance and sale of the
Shares. I have, with your consent, relied as to factual matters on
certificates or other documents furnished by the Company or its officers and by
governmental authorities and upon such other documents and data
<PAGE> 2
Lucent Technologies Inc.
April 1, 1996
Page 2
that I have deemed appropriate. I have assumed the authenticity of all
documents submitted to me as originals and the conformity to original documents
of all documents submitted to us as copies. I have also assumed that the
Restated Certificate will be duly filed with and accepted by the Secretary of
State of the State of Delaware in the form reviewed by me prior to the issuance
of the Shares registered under the Registration Statement.
I am not a member of the Bar of any jurisdiction other than the State
of New York and the District of Columbia, and, with your consent, I am opining
herein as to the effect on the subject transaction only of the General
Corporation Law of the State of Delaware, and I express no opinion with
respect to the applicability thereto, or the effect thereon, of any other laws
or the laws of any other jurisdiction.
Based on such examination and review, and subject to the foregoing, I
am of the opinion that the Shares have been duly authorized and, upon issuance,
delivery and payment therefor in the manner contemplated by the Registration
Statement, will be validly issued, fully paid and non-assessable.
I hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to me in the Prospectus that is a
part of the Registration Statement. In giving such consent, I do not hereby
admit that I am in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Richard J. Rawson
Richard J. Rawson
Senior Vice President and
General Counsel
<PAGE> 1
Exhibit 5.2
[Letterhead of Wachtell, Lipton, Rosen & Katz]
April 1, 1996
Lucent Technologies Inc.
600 Mountain Avenue
Murray Hill, New Jersey 07974
Ladies and Gentlemen:
In connection with the registration of 127,650,000 shares of common
stock, par value $.01 per share (the "Shares"), of Lucent Technologies Inc.
(the "Company") under the Securities Act of 1933, as amended, on Form S-1 filed
with the Securities and Exchange Commission (the "Commission") on February 5,
1996 (File No. 333-703), as amended by Amendment No. 1 filed with the
Commission on March 12, 1996, Amendment No. 2 filed with the Commission on
March 22, 1996 and Amendment No. 3 filed with the Commission on April 1, 1996
(collectively, and as it may be further amended, the "Registration Statement"),
you have requested our opinion with respect to the following matters.
In connection with our rendering this opinion, we have reviewed (i) the
forms of the Restated Certificate of Incorporation (the "Restated Certificate")
and By-Laws of the Company as set forth as exhibits to Amendment No. 3 to the
Registration Statement; (ii) the Registration Statement; (iii) certain
resolutions adopted or to be adopted by the Board of Directors or Pricing
Committee of the Board of Directors of the Company; (iv) the form of stock
certificate representing the Shares and (v) such other documents, records and
papers as we have deemed necessary or appropriate in order to give the opinions
set forth herein. We are familiar with the proceedings heretofore taken, and
with the additional proceedings proposed to be taken, by the Company in
connection with the authorization, registration, issuance and sale of the
Shares. We have, with your consent, relied as to factual matters on
certificates or other documents furnished by the Company or its officers and by
governmental authorities and upon such other documents and data
<PAGE> 2
Lucent Technologies Inc.
April 1, 1996
Page 2
that we have deemed appropriate. We have assumed the authenticity of all
documents submitted to us as originals and the conformity to original documents
of all documents submitted to us as copies. We have also assumed that the
Restated Certificate will be duly filed with and accepted by the Secretary of
State of the State of Delaware in the form reviewed by us prior to the issuance
of the Shares registered under the Registration Statement.
We are not members of the Bar of any jurisdiction other than the State
of New York, and, with your consent, we are opining herein as to the effect on
the subject transaction only of the General Corporation Law of the State of
Delaware, and we express no opinion with respect to the applicability thereto,
or the effect thereon, of any other laws or the laws of any other jurisdiction.
Based on such examination and review, and subject to the foregoing, we
are of opinion that the Shares have been duly authorized and, upon issuance,
delivery and payment therefor in the manner contemplated by the Registration
Statement, will be validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an Exhibit to the Registration
Statement and to the reference to our firm in the Prospectus that is a part of
the Registration Statement. In giving such consent, we do not hereby admit
that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Wachtell, Lipton, Rosen & Katz
<PAGE> 1
Exhibit 10.1
SEPARATION AND DISTRIBUTION AGREEMENT
BY AND AMONG
AT&T CORP.,
LUCENT TECHNOLOGIES INC.
AND
NCR CORPORATION
DATED AS OF FEBRUARY 1, 1996 AND
AMENDED AND RESTATED AS OF
MARCH 29, 1996
<PAGE> 2
SEPARATION AND DISTRIBUTION AGREEMENT
THIS SEPARATION AND DISTRIBUTION AGREEMENT, dated as of
February 1, 1996, as amended and restated as of March 29, 1996, is by and among
AT&T, Lucent and NCR. Capitalized terms used herein and not otherwise defined
shall have the respective meanings assigned to them in Article I hereof.
WHEREAS, the Board of Directors of AT&T has determined that it
is in the best interests of AT&T and its shareholders to separate AT&T's
existing businesses into three independent businesses;
WHEREAS, in furtherance of the foregoing, it is appropriate
and desirable to transfer the Lucent Assets to Lucent and its Subsidiaries and
to cause Lucent and its Subsidiaries to assume the Lucent Liabilities, all as
more fully described in this Agreement and the Ancillary Agreements;
WHEREAS, the Board of Directors of AT&T has further determined
that it is appropriate and desirable, on the terms and conditions contemplated
hereby, to cause Lucent to offer and sell for its own account in the IPO a
limited number of shares of Lucent Common Stock, and subsequently for AT&T to
distribute to holders of shares of AT&T Common Stock the outstanding shares of
Lucent Common Stock owned directly or indirectly by AT&T;
WHEREAS, the Distribution is intended to qualify as a tax-free
spin-off under Section 355 of the Code;
WHEREAS, it is also expected that, following certain
additional transfers of Assets and assignments and assumptions of Liabilities,
AT&T will distribute to its shareholders all of the capital stock of NCR held
directly or indirectly by AT&T and that, in connection therewith, AT&T and NCR
will enter into such additional agreements as may be necessary to address
matters not addressed by this Agreement or the Ancillary Agreements; and
WHEREAS, it is appropriate and desirable to set forth the
principal corporate transactions required to effect the Separation, the IPO and
the Distribution and certain other agreements that will govern certain matters
relating to the Separation, the IPO and the Distribution and the relationship of
AT&T, Lucent, NCR and their respective Subsidiaries following the IPO and the
Distribution.
NOW, THEREFORE, the parties, intending to be legally bound,
agree as follows:
ARTICLE I
DEFINITIONS
For the purpose of this Agreement the following terms shall
have the following meanings:
<PAGE> 3
1.1. ACTION means any demand, action, suit, countersuit,
arbitration, inquiry, proceeding or investigation by or before any federal,
state, local, foreign or international Governmental Authority or any arbitration
or mediation tribunal.
1.2. AFFILIATE of any Person means a Person that controls, is
controlled by, or is under common control with such Person. As used herein,
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such entity, whether
through ownership of voting securities or other interests, by contract or
otherwise.
1.3. AGENT means the distribution agent to be appointed by
AT&T to distribute to the shareholders of AT&T the shares of Lucent Common Stock
held by AT&T pursuant to the Distribution.
1.4. AGREEMENT means this Separation and Distribution
Agreement, including all of the Schedules hereto.
1.5. AMERICAN RIDGE means American Ridge Insurance Company, a
Vermont corporation.
1.6. ANCILLARY AGREEMENTS means the deeds, lease assignments
and assumptions, leases, subleases and sub-subleases, and the supplemental and
other agreements and instruments related thereto, substantially in the forms
attached as Schedule 2.5, the AT&T General Purchase Agreement and the
supplemental and other agreements related thereto, the Brand License Agreement,
the Employee Benefits Agreement, the Interim Services and Systems Replication
Agreement, the NCR Volume Purchase Agreement, the Patent Assignments and related
agreements regarding powers of attorney, the Patent Defensive Protection
Agreements, the Patent Joint Ownership Agreement, the Patent License Agreement,
the Tax Sharing Agreement, the Technology Access and Development Project
Agreement, the Technology Assignment and Joint Ownership Agreements, the
Technology License Agreement, the Trade Dress Assignment, the Trademark and
Service Mark Assignment, the VTNS Agreement, and the agreements and other
documents comprising the Non-U.S. Plan.
1.7. APPLICABLE DEADLINE has the meaning set forth in Section
9.3(b).
1.8. ARBITRATION ACT means the United States Arbitration Act,
9 U.S.C. Sections 1-14, as the same may be amended from time to time.
1.9. ARBITRATION DEMAND DATE has the meaning set forth in
Section 9.3(a).
1.10. ARBITRATION DEMAND NOTICE has the meaning set forth in
Section 9.3(a).
1.11. ASSETS means assets, properties and rights (including
goodwill), wherever located (including in the possession of vendors or other
third parties or elsewhere), whether real, personal or mixed, tangible,
intangible or contingent, in each case whether or not recorded or reflected or
required to be recorded or reflected on the books and records or financial
statements of any Person, including the following:
(a) all accounting and other books, records and files whether
in paper, microfilm, microfiche, computer tape or disc, magnetic tape
or any other form;
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<PAGE> 4
(b) all apparatus, computers and other electronic data
processing equipment, fixtures, machinery, equipment, furniture, office
equipment, automobiles, trucks, aircraft, rolling stock, vessels, motor
vehicles and other transportation equipment, special and general tools,
test devices, prototypes and models and other tangible personal
property;
(c) all inventories of materials, parts, raw materials,
supplies, work-in-process and finished goods and products;
(d) all interests in real property of whatever nature,
including easements, whether as owner, mortgagee or holder of a
Security Interest in real property, lessor, sublessor, lessee,
sublessee or otherwise;
(e) all interests in any capital stock or other equity
interests of any Subsidiary or any other Person, all bonds, notes,
debentures or other securities issued by any Subsidiary or any other
Person, all loans, advances or other extensions of credit or capital
contributions to any Subsidiary or any other Person and all other
investments in securities of any Person;
(f) all license agreements, leases of personal property, open
purchase orders for raw materials, supplies, parts or services,
unfilled orders for the manufacture and sale of products and other
contracts, agreements or commitments;
(g) all deposits, letters of credit and performance and surety
bonds;
(h) all written technical information, data, specifications,
research and development information, engineering drawings, operating
and maintenance manuals, and materials and analyses prepared by
consultants and other third parties;
(i) all domestic and foreign patents, copyrights, trade names,
trademarks, service marks and registrations and applications for any of
the foregoing, mask works, trade secrets, inventions, other proprietary
information and licenses from third Persons granting the right to use
any of the foregoing;
(j) all computer applications, programs and other software,
including operating software, network software, firmware, middleware,
design software, design tools, systems documentation and instructions;
(k) all cost information, sales and pricing data, customer
prospect lists, supplier records, customer and supplier lists, customer
and vender data, correspondence and lists, product literature, artwork,
design, development and manufacturing files, vendor and customer
drawings, formulations and specifications, quality records and reports
and other books, records, studies, surveys, reports, plans and
documents;
(l) all prepaid expenses, trade accounts and other accounts
and notes receivables;
(m) all rights under contracts or agreements, all claims or
rights against any Person arising from the ownership of any Asset, all
rights in connection with any bids or offers and all claims, choses in
action or similar rights, whether accrued or contingent;
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<PAGE> 5
(n) all rights under insurance policies and all rights in the
nature of insurance, indemnification or contribution;
(o) all licenses (including radio and similar licenses),
permits, approvals and authorizations which have been issued by any
Governmental Authority;
(p) cash or cash equivalents, bank accounts, lock boxes and
other deposit arrangements; and
(q) interest rate, currency, commodity or other swap, collar,
cap or other hedging or similar agreements or arrangements.
1.12. AT&T means AT&T Corp., a New York corporation.
1.13. AT&T COMMON STOCK means the Common Stock, $1.00 par
value per share, of AT&T.
1.14. AT&T CP RATE during any month of determination shall be
equal to the weighted average rate on all AT&T commercial paper (across all
maturities) for such month.
1.15. AT&T GENERAL PURCHASE AGREEMENT means the General
Purchase Agreement, dated as of the date hereof, as amended, by and between AT&T
and Lucent.
1.16. AT&T GROUP means AT&T and each Person (other than any
member of the Lucent Group) that is an Affiliate of AT&T immediately after the
Closing Date (including any member of the NCR Group).
1.17. AT&T INDEMNITEES has the meaning set forth in Section
5.2.
1.18. AT&T LABORATORIES means the Assets of AT&T's Bell
Laboratories division described or listed on Schedule 1.18 and any other Assets
of AT&T's Bell Laboratories division that primarily relate to the AT&T Services
Business or the NCR Business.
1.19. AT&T SERVICES BUSINESS means: (a) the business and
operations of the telecommunications services divisions and Subsidiaries and the
financial services and leasing divisions and Subsidiaries of AT&T consisting
principally of the Communications Services Group, AT&T Wireless Services, Inc.
and its Subsidiaries, Universal Card Services, Inc. and its Subsidiaries, AT&T
Capital Corporation and its Subsidiaries, AT&T Solutions, AT&T Laboratories,
Submarine Systems and, subject to Section 2.9(a), AT&T Ventures; (b) except as
otherwise expressly provided herein, any terminated, divested or discontinued
businesses or operations that at the time of termination, divestiture or
discontinuation primarily related to the AT&T Services Business as then
conducted; and (c) the terminated, divested or discontinued businesses and
operations listed or described on Schedule 1.19.
1.20. AT&T SERVICES GROUP means each member of the AT&T Group
other than any member of the NCR Group.
1.21. AT&T VENTURES means AT&T Ventures, a limited
partnership.
1.22. ATTI means AT&T International Inc., a Delaware
corporation.
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<PAGE> 6
1.23. BRAND LICENSE AGREEMENT means the Brand License
Agreement, dated as of the date hereof, by and between AT&T and Lucent.
1.24. CHANGE OF CONTROL of any Person means any of the
following: (a) the consummation of a merger, consolidation, or similar business
combination involving such Person, or a sale or other disposition of all or
substantially all of the assets of such Person; (b) the acquisition by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under such Act) of 40% or more of
either (i) the then outstanding shares of common stock of such Person, or (ii)
the combined voting power of the then outstanding voting securities of such
Person entitled to vote generally in the election of directors; or (c)
individuals who, as of the Distribution Date, constitute the Board of Directors
of such Person (the "Incumbent Board") cease for any reason to constitute at
least a majority of such Board; provided, however, that any individual becoming
a director subsequent to the Distribution Date (other than any such individual
whose initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of any
Person other than the Board) whose election or nomination for election by the
stockholders of such Person was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board.
1.25. CLOSING means the receipt by Lucent of the net proceeds
of the IPO in accordance with the terms of the Underwriting Agreement.
1.26. CLOSING DATE means the first time at which any shares of
Lucent Common Stock are sold to the Underwriters pursuant to the IPO in
accordance with the terms of the Underwriting Agreement.
1.27. CODE means the Internal Revenue Code of 1986, as
amended.
1.28. COMMISSION means the Securities and Exchange Commission.
1.29. CONSENTS means any consents, waivers or approvals from,
or notification requirements to, any third parties.
1.30. CONTINGENT CLAIM COMMITTEE, CONTINGENT GAIN AND
CONTINGENT LIABILITIES have the respective meanings set forth in Section 6.1.
1.31. CPR means the Center for Public Resources.
1.32. DELAYED TRANSFER ASSETS means any Lucent Assets that are
expressly provided in this Agreement or any Ancillary Agreement to be
transferred after the date of this Agreement.
1.33. DELAYED TRANSFER LIABILITIES means any Lucent
Liabilities that are expressly provided in this Agreement or any Ancillary
Agreement to be assumed after the date of this Agreement.
1.34. DETERMINATION REQUEST means a written request made to
the Contingent Claim Committee, pursuant to Section 5.5(b), for a determination
as to whether a Third Party Claim specified in such request constitutes a Shared
Contingent Liability.
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<PAGE> 7
1.35. DISTRIBUTION means the distribution by AT&T on a pro
rata basis to holders of AT&T Common Stock of all of the outstanding shares of
Lucent Common Stock owned by AT&T on the Distribution Date as set forth in
Article IV.
1.36. DISTRIBUTION DATE means the date determined pursuant to
Section 4.1 on which the Distribution occurs.
1.37. EFFECTIVE IPO DATE means the date on which the IPO
Registration Statement is declared effective by the Commission.
1.38. EFFECTIVE TIME means 5:00 p.m., Eastern Standard Time or
Eastern Daylight Time (whichever shall be then in effect), on the Distribution
Date.
1.39. EMPLOYEE BENEFITS AGREEMENT means the Employee Benefits
Agreement, dated as of the date hereof, as amended, by and between AT&T and
Lucent.
1.40. ENVIRONMENTAL LAW means any federal, state, local,
foreign or international statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, common law (including tort and
environmental nuisance law), legal doctrine, order, judgment, decree,
injunction, requirement or agreement with any Governmental Authority, now or
hereafter in effect relating to health, safety, pollution or the environment
(including ambient air, surface water, groundwater, land surface or subsurface
strata) or to emissions, discharges, releases or threatened releases of any
substance currently or at any time hereafter listed, defined, designated or
classified as hazardous, toxic, waste, radioactive or dangerous, or otherwise
regulated, under any of the foregoing, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of any such substances, including the Comprehensive Environmental
Response, Compensation and Liability Act, the Superfund Amendments and
Reauthorization Act and the Resource Conservation and Recovery Act and
comparable provisions in state, local, foreign or international law.
1.41. ENVIRONMENTAL LIABILITIES means all Liabilities relating
to, arising out of or resulting from any Environmental Law or contract or
agreement relating to environmental, health or safety matters (including all
removal, remediation or cleanup costs, investigatory costs, governmental
response costs, natural resources damages, property damages, personal injury
damages, costs of compliance with any settlement, judgment or other
determination of Liability and indemnity, contribution or similar obligations)
and all costs and expenses (including allocated costs of in-house counsel and
other personnel), interest, fines, penalties or other monetary sanctions in
connection therewith.
1.42. ESCALATION NOTICE has the meaning set forth in Section
9.2.
1.43. EXCESS PORTION has the meaning specified in Section 6.1.
1.44. EXCHANGE ACT means the Securities Exchange Act of 1934,
as amended, together with the rules and regulations promulgated thereunder.
1.45. EXCLUDED ASSETS has the meaning set forth in Section
2.2(b).
1.46. EXCLUDED LIABILITIES has the meaning set forth in
Section 2.3(b).
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<PAGE> 8
1.47. EXCLUSIVE AT&T CONTINGENT GAIN, EXCLUSIVE AT&T
CONTINGENT LIABILITY, EXCLUSIVE LUCENT CONTINGENT GAIN, EXCLUSIVE LUCENT
CONTINGENT LIABILITY, EXCLUSIVE NCR CONTINGENT GAIN, EXCLUSIVE NCR CONTINGENT
LIABILITY AND EXCLUSIVE CONTINGENT LIABILITY have the respective meanings set
forth in Section 6.1.
1.48. FINANCING FACILITY means the commercial paper facility
and related credit agreement to be entered into prior to the Closing Date by and
among AT&T, Lucent, and an agent or co-agents selected by AT&T and Lucent,
pursuant to which, prior to the Closing Date, AT&T will issue commercial paper
or otherwise borrow an amount determined by AT&T and, as of the Closing Date,
Lucent will become the sole obligor and AT&T will have no further liability or
obligation thereunder.
1.49. GOVERNMENTAL APPROVALS means any notices, reports or
other filings to be made, or any consents, registrations, approvals, permits or
authorizations to be obtained from, any Governmental Authority.
1.50. GOVERNMENTAL AUTHORITY shall mean any federal, state,
local, foreign or international court, government, department, commission,
board, bureau, agency, official or other regulatory, administrative or
governmental authority.
1.51. GROUP means any of the AT&T Services Group, the Lucent
Group or the NCR Group, as the context requires.
1.52. IDENTIFIED BELL LABS SERVICES means:
(a) environmental, health and safety services provided by
Lucent Bell Laboratories, including (i) compatibility, product
compliance, telephone network interconnect, product design and
mandatory standards consultation services, (ii) wireless safety,
radiation protection and product safety services, (iii) groundwater
remediation services, (iv) environmental and energy management, and (v)
industrial hygiene, safety and toxicology;
(b) technical support services provided by Lucent Bell
Laboratories, including (i) technical cataloging and processing
services and (ii) product design shop services;
(c) additional research and similar services provided by
Lucent Bell Laboratories;
(d) information systems reengineering center services,
including systems design and programming support for human resource,
billing, procurement and facilities systems; and
(e) services provided by Lucent Bell Laboratories relating to
projects initiated prior to the date hereof but not completed prior to
the Closing Date.
1.53. INDEMNIFYING PARTY has the meaning set forth in Section
5.4(a).
1.54. INDEMNITEE has the meaning set forth in Section 5.4(a).
1.55. INDEMNITY PAYMENT has the meaning set forth in Section
5.4(a).
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<PAGE> 9
1.56. INFORMATION means information, whether or not patentable
or copyrightable, in written, oral, electronic or other tangible or intangible
forms, stored in any medium, including studies, reports, records, books,
contracts, instruments, surveys, discoveries, ideas, concepts, know-how,
techniques, designs, specifications, drawings, blueprints, diagrams, models,
prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes,
computer programs or other software, marketing plans, customer names,
communications by or to attorneys (including attorney-client privileged
communications), memos and other materials prepared by attorneys or under their
direction (including attorney work product), and other technical, financial,
employee or business information or data.
1.57. INSURANCE POLICIES means the insurance policies written
by insurance carriers unaffiliated with AT&T pursuant to which Lucent or one or
more of its Subsidiaries (or their respective officers or directors) will be
insured parties after the Closing Date.
1.58. INSURANCE PROCEEDS means those monies:
(a) received by an insured from an insurance carrier;
(b) paid by an insurance carrier on behalf of the insured; or
(c) received (including by way of set off) from American Ridge
or any of its Subsidiaries or from any third party in the nature of
insurance, contribution or indemnification in respect of any Liability
(other than pursuant to or in connection with any RBOC Agreement);
in any such case net of any applicable premium adjustments (including reserves
and retrospectively rated premium adjustments) and net of any costs or expenses
(including allocated costs of in-house counsel and other personnel) incurred in
the collection thereof.
1.59. INTERIM SERVICES AND SYSTEMS REPLICATION AGREEMENT means
the Interim Services and Systems Replication Agreement, dated as of the date
hereof, by and among AT&T, Lucent and NCR.
1.60. IPO means the initial public offering by Lucent of
shares of Lucent Common Stock pursuant to the IPO Registration Statement.
1.61. IPO REGISTRATION STATEMENT means the registration
statement on Form S-1 to be filed under the Securities Act, pursuant to which
the Lucent Common Stock to be issued in the IPO will be registered, together
with all amendments thereto.
1.62. LIABILITIES means any and all losses, claims, charges,
debts, demands, actions, causes of action, suits, damages, obligations,
payments, costs and expenses, sums of money, accounts, reckonings, bonds,
specialties, indemnities and similar obligations, exonerations, covenants,
contracts, controversies, agreements, promises, doings, omissions, variances,
guarantees, make whole agreements and similar obligations, and other
liabilities, including all contractual obligations, whether absolute or
contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, and including those arising under
any law, rule, regulation, Action, threatened or contemplated Action (including
the costs and expenses of demands, assessments, judgments, settlements and
compromises relating thereto and attorneys' fees and any and all costs and
expenses (including allocated costs of in-house counsel and other personnel),
whatsoever
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<PAGE> 10
reasonably incurred in investigating, preparing or defending against any such
Actions or threatened or contemplated Actions), order or consent decree of any
Governmental Authority or any award of any arbitrator or mediator of any kind,
and those arising under any contract, commitment or undertaking, including those
arising under this Agreement or any Ancillary Agreement, in each case, whether
or not recorded or reflected or required to be recorded or reflected on the
books and records or financial statements of any Person.
1.63. LUCENT means Lucent Technologies Inc., a Delaware
corporation, formerly known as NS-MPG Inc.
1.64. LUCENT ASSETS has the meaning set forth in Section
2.2(a).
1.65. LUCENT BALANCE SHEET means the audited consolidated
balance sheet of Lucent, including the notes thereto, as of December 31, 1995.
1.66. LUCENT BELL LABORATORIES means the Assets of AT&T's Bell
Laboratories division as of the date hereof other than the Assets of AT&T
Laboratories.
1.67. LUCENT BUSINESS means: (a) the business and operations
of the telecommunications equipment divisions and Subsidiaries of AT&T
consisting principally of the Network Systems Group, the Global Business
Communications Systems Group, the Consumer Products Group, the Microelectronics
Group, AT&T Paradyne and Lucent Bell Laboratories; and (b) except as otherwise
expressly provided herein, any terminated, divested or discontinued businesses
or operations that at the time of termination, divestiture or discontinuation
primarily related to the Lucent Business as then conducted.
1.68. LUCENT COMMON STOCK means the Common Stock, $.01 par
value per share, of Lucent.
1.69. LUCENT CONTRACTS means the following contracts and
agreements to which AT&T or any of its Affiliates is a party or by which it or
any of its Affiliates or any of their respective Assets is bound, whether or not
in writing, except for any such contract or agreement that is contemplated to be
retained by AT&T or any member of the AT&T Group pursuant to any provision of
this Agreement or any Ancillary Agreement:
(a) any supply or vendor contracts or agreements listed or
described on Schedule 1.69(a);
(b) any contract or agreement entered into in the name of, or
expressly on behalf of, any division, business unit or member of the
Lucent Group (other than ATTI or any Person controlled by ATTI);
(c) any contract or agreement that relates primarily to the
Lucent Business;
(d) federal, state and local government and other contracts
and agreements that are listed or described on Schedule 1.69(d) and any
other government contracts or agreements entered into after the date
hereof and prior to the Closing Date that relate primarily to the
Lucent Business;
(e) any contract or agreement to which ATTI or any Person
controlled by ATTI is a party (or by which any of the Assets of ATTI or
any such Person is
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<PAGE> 11
bound), other than (i) any such contract or agreement to which AT&T
World Services, Inc. is a party that primarily relates to AT&T's
EasyLink Services business, AT&T's International Correspondence
Assistance Program, or to AT&T's Federal Systems, including the
contracts and agreements listed or described on Schedule 1.69(e)(i),
(ii) any joint venture or other contract or agreement listed or
described on Schedule 1.69(e)(ii), and (iii) any such contract or
agreement that relates primarily to the AT&T Services Business or the
NCR Business;
(f) any contract or agreement representing capital or
operating equipment lease obligations reflected on the Lucent Balance
Sheet, including obligations as lessee under those contracts or
agreements listed on Schedule 1.69(f) (as such Schedule may be
supplemented by mutual agreement of the parties after the date hereof
and prior to the Closing Date to assign capital and operating equipment
lease obligations executed and delivered after the date of the Lucent
Balance Sheet);
(g) any contract or agreement that is otherwise expressly
contemplated pursuant to this Agreement or any of the Ancillary
Agreements to be assigned to Lucent or any member of the Lucent Group;
(h) (i) any guarantee, indemnity, representation, warranty or
other Liability of any member of the Lucent Group or the AT&T Group in
respect of any other Lucent Contract, any Lucent Liability or the
Lucent Business (including guarantees of financing incurred by
customers or other third parties in connection with purchases of
products or services from the Lucent Business), and (ii) the contracts,
agreements and other documents listed or described on Schedule
1.69(h));
(i) the arrangements between AT&T and NEC Corp. with respect
to the joint venture known as AT&T Japan Semiconductor Marketing, Ltd.;
and
(j) any Lucent OFL.
No RBOC Agreement shall be deemed to be a Lucent Contract, except to the extent
expressly set forth herein.
1.70. LUCENT GROUP means Lucent, each Subsidiary of Lucent and
each other Person that is either controlled directly or indirectly by Lucent
immediately after the Closing Date or that is contemplated to be controlled by
Lucent pursuant to the Non-U.S. Plan (other than any Person that is contemplated
not to be controlled by Lucent pursuant to the Non-U.S. Plan).
1.71. LUCENT INDEMNITEES has the meaning set forth in Section
5.3(a).
1.72. LUCENT LIABILITIES has the meaning set forth in Section
2.3(a).
1.73. LUCENT OFL'S has the meaning set forth in Section
7.3(a).
1.74. NCR means NCR Corporation (formerly named AT&T Global
Information Solutions Company), a Maryland corporation.
1.75. NCR BUSINESS means: (a) the computer products, computer
systems, data processing and information solutions business and operations as
conducted by NCR and its Subsidiaries; (b) except as otherwise expressly
provided herein, any terminated, divested
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or discontinued businesses or operations (i) that at the time of termination,
divestiture or discontinuation primarily related to the NCR Business as then
conducted, or (ii) that were conducted by NCR, or any Person that at any time
was an Affiliate of NCR, prior to the acquisition of NCR by AT&T; and (c) the
terminated, divested or discontinued businesses and operations listed or
described on Schedule 1.75.
1.76. NCR COMMON STOCK means the Common Stock, par value $5.00
per share, of NCR.
1.77. NCR COVERED LIABILITIES has the meaning set forth in
Section 5.3(b).
1.78. NCR DISTRIBUTION means the distribution by AT&T on a pro
rata basis to holders of AT&T Common Stock of all of the outstanding shares of
NCR owned directly or indirectly by AT&T.
1.79. NCR GROUP means NCR, each Subsidiary of NCR and each
other Person that is either controlled directly or indirectly by NCR immediately
after the Closing or that is contemplated to be controlled by NCR pursuant to
the Non-U.S. Plan.
1.80. NCR INDEMNITEES has the meaning set forth in Section
5.2.
1.81. NCR VOLUME PURCHASE AGREEMENT means the Volume Purchase
Agreement, dated as of the date hereof, by and between NCR and Lucent.
1.82. NYSE means The New York Stock Exchange, Inc.
1.83. NASSAU METALS LIABILITIES means all Environmental
Liabilities primarily relating to, arising out of or resulting from the
operations of AT&T Nassau Metals Corporation, as conducted at any time prior to,
on or after the Closing Date.
1.84. NON-LUCENT ASSETS means any Assets of AT&T or any of its
Affiliates (including any member of the NCR Group) other than Lucent Assets.
1.85. NON-U.S. PLAN means the Non-U.S. Plan, comprised of the
series of transactions, agreements and other arrangements, pursuant to which the
non-U.S. Assets and Liabilities of AT&T and its Affiliates have been or will be
assigned among the parties hereto, which are set forth or described in Schedule
1.85 (as such Schedule may be supplemented by mutual consent of the parties
prior to the Closing Date).
1.86. OFL'S mean all liabilities, obligations, contingencies
and instruments and other Liabilities of any member of the AT&T Group of a
financial nature with third parties existing on the date hereof or entered into
or established between the date hereof and the Closing Date, including any of
the following:
(a) foreign exchange contracts;
(b) letters of credit;
(c) guarantees of third party loans to customers;
(d) surety bonds (excluding surety for workers' compensation
self-insurance);
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(e) interest support agreements on third party loans to
customers;
(f) performance bonds or guarantees issued by third parties;
(g) swaps or other derivatives contracts; and
(h) recourse arrangements on the sale of receivables or notes.
1.87. OTHER DISCONTINUED OPERATIONS means (a) the business and
operations as conducted by any RBOC prior to its divestiture from AT&T, (b)
Cincinnati Bell Concession Service and (c) any other terminated, divested or
discontinued businesses and operations of AT&T, Lucent or NCR or of any former
or current Affiliate of AT&T, Lucent or NCR (whether such business or operations
were terminated, divested or discontinued prior to, at the time or after such
Person was, became or ceased to be an Affiliate of AT&T, Lucent or NCR) that are
not listed or described in, or on the Schedules to, the definitions of AT&T
Services Business, Lucent Business or NCR Business or on Schedule 2.3(a)(v).
1.88. PATENT ASSIGNMENTS means the six Patent Assignments,
effective as of March 29, 1996, executed and delivered by AT&T to Lucent, NCR to
AT&T, AT&T to NCR, Lucent to NCR, and Lucent to AT&T.
1.89. PATENT DEFENSIVE PROTECTION AGREEMENTS means the two
Defensive Protection Agreements, effective as of March 29, 1996, by and between
AT&T and Lucent, and by and between Lucent and NCR, respectively.
1.90. PATENT JOINT OWNERSHIP AGREEMENT means the Patent Joint
Ownership Agreement, effective as of March 29, 1996, by and between AT&T and
Lucent.
1.91. PATENT LICENSE AGREEMENT means the Patent License
Agreement, effective as of March 29, 1996, by and among AT&T, Lucent and NCR.
1.92. PERSON means an individual, a general or limited
partnership, a corporation, a trust, a joint venture, an unincorporated
organization, a limited liability entity, any other entity and any Governmental
Authority.
1.93. PRIME RATE means the rate which Chemical Bank (or any
successor thereto or other major money center commercial bank agreed to by the
parties hereto) announces from time to time as its prime lending rate, as in
effect from time to time.
1.94. PROSPECTUS means each preliminary, final or supplemental
prospectus forming a part of the IPO Registration Statement.
1.95. RBOC means each of Ameritech Corporation, Bell Atlantic
Corporation, BellSouth Corporation, NYNEX Corporation, Pacific Telesis Group,
SBC Communications Inc., and U S West, Inc., and each of their respective
Affiliates, and the respective successors and assigns of any of the foregoing.
1.96. RBOC AGREEMENTS means the Agreement Concerning
Contingent Liabilities, Tax Matters and Termination of Certain Agreements among
AT&T, and the Bell System Operating Companies Regional Holding Companies and
affiliates, and the Agreement Regarding Sharing of Environmental Liabilities.
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1.97. RBOC LIABILITY means any Liability of any member of any
Group relating to, arising out of or resulting from any RBOC Agreement.
1.98. RBOC PLAN means the Plan of Reorganization filed on
December 16, 1982, in the United States District Court for the District of
Columbia in United States v. Western Electric Co., Inc., Civil Action No.
82-0192, as modified by the Court's orders and as thereafter amended, modified
or supplemented.
1.99. RECORD DATE means the close of business on the date to
be determined by the AT&T Board of Directors as the record date for determining
shareholders of AT&T entitled to receive shares of Lucent Common Stock in the
Distribution.
1.100. RELATED EXCLUSIVE CONTINGENT LIABILITIES has the
meaning set forth in Section 6.1.
1.101. RETAINED RECEIVABLES means any and all accounts
receivable and other rights to payment for goods or services sold, leased or
otherwise provided in the conduct of the Lucent Business that as of the date
hereof are payable by a third Person to AT&T, whether past due, due or to become
due on or prior to June 30, 1996, including any interest, sales or use taxes,
finance charges, late or returned check charges and other obligations of the
account debtor with respect thereto, and any proceeds of any of the foregoing,
that are (a) reflected in the CBS System for accounts receivable arising in the
Global Business Communications Systems Group, (b) reflected in the CARMS system
for accounts receivable arising in the Network Systems Group or the
Microelectronics Group, or (c) accounts receivables arising in the Consumer
Products Group if the account debtor is one of the 20 largest third-party
domestic customers of the Consumer Products Group as of the date hereof;
provided, however, that any accounts receivable arising in the Network Systems
Group or the Microelectronics Group shall not be Retained Receivables if such
accounts receivable were more than 90 days past due as of the date hereof.
1.102. RIDGE LUCENT POLICIES means any insurance policies
written by American Ridge or any other captive insurance company of AT&T
covering the Lucent Business or any member of the Lucent Group.
1.103. SECURITIES ACT means the Securities Act of 1933, as
amended, together with the rules and regulations promulgated thereunder.
1.104. SECURITY INTEREST means any mortgage, security
interest, pledge, lien, charge, claim, option, right to acquire, voting or other
restriction, right-of-way, covenant, condition, easement, encroachment,
restriction on transfer, or other encumbrance of any nature whatsoever.
1.105. SEPARATION means the transfer of the Lucent Assets to
Lucent and its Subsidiaries and the assumption by Lucent and its Subsidiaries of
the Lucent Liabilities, all as more fully described in this Agreement and the
Ancillary Agreements.
1.106. SHARED AT&T PERCENTAGE, SHARED NCR PERCENTAGE, SHARED
LUCENT PERCENTAGE, SHARED PERCENTAGE, SHARED CONTINGENT GAIN AND SHARED
CONTINGENT LIABILITY have the respective meanings set forth in Section 6.1.
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1.107. SUBMARINE SYSTEMS means the Assets, businesses and
operations of AT&T's Submarine Systems, Inc., and the additional Assets listed
or described in Section 2.2(b)(vi).
1.108. SUBSIDIARY of any Person means any corporation or other
organization whether incorporated or unincorporated of which at least a majority
of the securities or interests having by the terms thereof ordinary voting power
to elect at least a majority of the board of directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such Person or by any one or more
of its Subsidiaries, or by such Person and one or more of its Subsidiaries;
provided, however that no Person that is not directly or indirectly wholly owned
by any other Person shall be a Subsidiary of such other Person unless such other
Person controls, or has the right, power or ability to control, that Person.
1.109. TAX SHARING AGREEMENT means the Tax Sharing Agreement,
dated as of the date hereof, as amended, by and among AT&T, Lucent and NCR.
1.110. TAXES has the meaning set forth in the Tax Sharing
Agreement.
1.111. TECHNOLOGY ACCESS AND DEVELOPMENT PROJECT AGREEMENT
means the Technology Access and Development Project Agreement, dated as of the
date hereof, by and between NCR and Lucent.
1.112. TECHNOLOGY ASSIGNMENT AND JOINT OWNERSHIP AGREEMENTS
means the two Technology Assignment and Joint Ownership Agreements, effective as
of March 29, 1996, by and between AT&T and Lucent, and by and among AT&T, Lucent
and NCR, respectively.
1.113. TECHNOLOGY LICENSE AGREEMENT means the Technology
License Agreement, effective as of March 29, 1996, by and among AT&T, Lucent and
NCR.
1.114. TELECOMMUNICATIONS SERVICE means any service providing
the transmission of voice, data, image or other messages, by radio or by aid of
wire, cable or other like connection now known or later developed between the
points of origin and reception of such transmission or by means of any
combination of the foregoing, including telecommunications services commonly
characterized as local, toll (whether intraLATA or interLATA), long distance and
cellular (whether mobile or fixed).
1.115. THIRD PARTY CLAIM has the meaning set forth in Section
5.5(a).
1.116. TRADE DRESS ASSIGNMENT means the Trade Dress
Assignment, dated as of the date hereof, by AT&T to Lucent.
1.117. TRADEMARK AND SERVICE MARK ASSIGNMENT means the
Trademark and Service Mark Assignment, dated as of the date hereof, by AT&T to
Lucent.
1.118. UNDERWRITERS means the managing underwriters for the
IPO.
1.119. UNDERWRITING AGREEMENT means the underwriting agreement
to be entered into among Lucent and the Underwriters with respect to the IPO.
1.120. VALUE has the meaning set forth in Section 6.1.
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1.121. VTNS AGREEMENT means the Virtual Telecommunications
Network Service Agreement, between AT&T and Lucent, dated as of the date hereof.
1.122. WORKING CAPITAL FACILITY means the Working Capital
Agreement to be entered into by Lucent, as borrower, and Chemical Bank, as
Agent, and the Lending Banks named therein, to fund the working capital
requirements of Lucent following the date hereof.
ARTICLE II
THE SEPARATION
2.1. TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES. (a)
Each of AT&T and NCR hereby assigns, transfers, conveys and delivers to Lucent,
and agrees to cause its applicable Subsidiaries to assign, transfer, convey and
deliver to Lucent, and Lucent hereby accepts from each of AT&T and NCR and their
respective Subsidiaries, all of AT&T's and NCR's and their applicable
Subsidiaries' respective right, title and interest in all Lucent Assets, other
than the Delayed Transfer Assets.
(b) Lucent hereby assumes and agrees faithfully to perform and
fulfill all the Lucent Liabilities, other than the Delayed Transfer Liabilities,
in accordance with their respective terms. Lucent shall be responsible for all
Lucent Liabilities, regardless of when or where such Liabilities arose or arise,
or whether the facts on which they are based occurred prior to or subsequent to
the date hereof, regardless of where or against whom such Liabilities are
asserted or determined (including any Lucent Liabilities arising out of claims
made by AT&T's, Lucent's or NCR's respective directors, officers, employees,
agents, Subsidiaries or Affiliates against any member of the AT&T Group or the
Lucent Group) or whether asserted or determined prior to the date hereof, and
regardless of whether arising from or alleged to arise from negligence,
recklessness, violation of law, fraud or misrepresentation by any member of the
AT&T Group or the Lucent Group or any of their respective directors, officers,
employees, agents, Subsidiaries or Affiliates.
(c) Each of the parties hereto agrees that the Delayed
Transfer Assets will be assigned, transferred, conveyed and delivered, and the
Delayed Transfer Liabilities will be assumed, in accordance with the terms of
the agreements that provide for such assignment, transfer, conveyance and
delivery, or such assumption, after the date of this Agreement or as otherwise
set forth on Schedule 2.1(c). Following such assignment, transfer, conveyance
and delivery of any Delayed Transfer Asset, or the assumption of any Delayed
Transfer Liability, the applicable Delayed Transfer Asset or Delayed Transfer
Liability shall be treated for all purposes of this Agreement and the Ancillary
Agreements as an Lucent Asset or an Lucent Liability, as the case may be.
(d) In the event that at any time or from time to time
(whether prior to or after the Distribution Date), any party hereto (or any
member of such party's respective Group), shall receive or otherwise possess any
Asset that is allocated to any other Person pursuant to this Agreement or any
Ancillary Agreement, such party shall promptly transfer, or cause to be
transferred, such Asset to the Person so entitled thereto. Prior to any such
transfer, the Person receiving or possessing such Asset shall hold such Asset in
trust for any such other Person.
2.2. LUCENT ASSETS. (a) For purposes of this Agreement,
"Lucent Assets" shall mean (without duplication):
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(i) any and all Assets that are expressly contemplated by this
Agreement or any Ancillary Agreement (or Schedule 2.2(a)(i) or any
other Schedule hereto or thereto) as Assets to be transferred to Lucent
or any other member of the Lucent Group;
(ii) all issued and outstanding capital stock of ATTI and any
and all Assets owned by ATTI or its Subsidiaries as of the date of the
transfer of such capital stock to Lucent pursuant to Section 2.8(b),
except for the Assets contemplated to be sold or otherwise transferred
to any member of the AT&T Group pursuant to the Non-U.S. Plan;
(iii) any Exclusive Lucent Contingent Gain and any Shared
Lucent Percentage of any Shared Contingent Gain;
(iv) (A) any amounts actually paid to AT&T after the Closing
Date pursuant to any RBOC Agreement in respect of any Lucent Liability
or any Nassau Metals Liability, (B) any rights of any member of the
Lucent Group under any RBOC Agreement in respect of any Lucent
Liability or any Nassau Metals Liability, and (C) subject to Section
7.1, any rights of any member of the Lucent Group under any of the
Insurance Policies, including any rights thereunder arising after the
Distribution Date in respect of any Insurance Policies that are
occurrence policies;
(v) (A) any Assets that Section 2.5(b) contemplates will be
transferred to, or be retained by, any member of the Lucent Group, (B)
any Lucent Contracts and (C) all issued and outstanding capital stock
of AT&T Nassau Metals Corporation and the other Subsidiaries of AT&T
listed on Schedule 2.2(a)(v);
(vi) any Assets reflected in the Lucent Balance Sheet as
Assets of Lucent and its Subsidiaries, subject to any dispositions of
such Assets subsequent to the date of the Lucent Balance Sheet; and
(vii) except as contemplated by Section 2.5(b), any and all
Assets owned or held immediately prior to the Closing Date by AT&T or
any of its Subsidiaries that are used primarily in the Lucent Business.
The intention of this clause (vii) is only to rectify any inadvertent
omission of transfer or conveyance of any Assets that, had the parties
given specific consideration to such Asset as of the date hereof, would
have otherwise been classified as a Lucent Asset. No Asset shall be
deemed to be a Lucent Asset solely as a result of this clause (vii) if
such Asset is within the category or type of Asset expressly covered by
the subject matter of an Ancillary Agreement. In addition, no Asset
shall be deemed a Lucent Asset solely as a result of this clause (vii)
unless a claim with respect thereto is made by Lucent on or prior to
the first anniversary of the Distribution Date.
Notwithstanding the foregoing, the Lucent Assets shall not in any event include
the Excluded Assets referred to in Section 2.2(b) below.
(b) For the purposes of this Agreement, "Excluded Assets"
shall mean:
(i) the Assets listed or described on Schedule 2.2(b)(i);
(ii) the Retained Receivables;
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(iii) any and all Assets that are expressly contemplated by
this Agreement or any Ancillary Agreement (or the Schedules hereto or
thereto) as Assets to be retained by AT&T or any other member of the
AT&T Group (including the NCR Group);
(iv) any contract or agreement described in clause (e)(i)
through (e)(iii) of the definition of Lucent Contract;
(v) except to the extent expressly set forth in Section
2.2(a)(iii) or (iv), respectively, (A) any Contingent Gains and (B) any
rights in respect of, or proceeds received pursuant to, any RBOC
Agreement; and
(vi) all Assets (including land, buildings, manufacturing
equipment and inventory) of the undersea repeaters factory of Lucent's
Microelectronic Group located in Clark, New Jersey.
2.3. LUCENT LIABILITIES. (a) For the purposes of this
Agreement, "Lucent Liabilities" shall mean (without duplication):
(i) any and all Liabilities that are expressly contemplated by
this Agreement or any Ancillary Agreement (or the Schedules hereto or
thereto) as Liabilities to be assumed by Lucent or any member of the
Lucent Group, and all agreements, obligations and Liabilities of any
member of the Lucent Group under this Agreement or any of the Ancillary
Agreements;
(ii) all Liabilities (other than Taxes based on, or measured
by reference to, net income), including any employee-related
Liabilities and Environmental Liabilities, primarily relating to,
arising out of or resulting from:
(A) the operation of the Lucent Business, as
conducted at any time prior to, on or after the Closing Date
(including any Liability relating to, arising out of or
resulting from any act or failure to act by any director,
officer, employee, agent or representative (whether or not
such act or failure to act is or was within such Person's
authority));
(B) the operation of any business conducted by any
member of the Lucent Group at any time after the Closing Date
(including any Liability relating to, arising out of or
resulting from any act or failure to act by any director,
officer, employee, agent or representative (whether or not
such act or failure to act is or was within such Person's
authority)); or
(C) any Lucent Assets (including any Lucent Contracts
and any real property and leasehold interests);
in any such case whether arising before, on or after the Closing Date;
(iii) subject to the terms of Article VI, all Exclusive Lucent
Contingent Liabilities and the Shared Lucent Percentage of any Shared
Contingent Liabilities;
(iv) all Liabilities relating to, arising out of or resulting
from the Working Capital Facility and, as of the Closing Date, the
Financing Facility, in each case
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other than any third party costs and expenses incurred by any member of
the AT&T Group;
(v) all Liabilities relating to, arising out of or resulting
from any of the terminated, divested or discontinued businesses and
operations listed or described on Schedule 2.3(a)(v);
(vi) all Liabilities of ATTI or its Subsidiaries, as of the
date of the transfer of the capital stock of ATTI to Lucent pursuant to
Section 2.8(b), except for the Liabilities contemplated to be assumed
by any member of the AT&T Group pursuant to the Non-U.S. Plan, and all
Liabilities of any other member of the Lucent Group; and
(vii) all Liabilities reflected as liabilities or obligations
of Lucent in the Lucent Balance Sheet, subject to any discharge of such
Liabilities subsequent to the date of the Lucent Balance Sheet.
Notwithstanding the foregoing, the Lucent Liabilities shall not include the
Excluded Liabilities referred to in Section 2.3(b) below. Subject to Articles V
and VI hereof, the Lucent Liabilities shall not include any Nassau Metals
Liabilities.
(b) For the purposes of this Agreement, "Excluded Liabilities"
shall mean:
(i) any and all Liabilities that are expressly contemplated by
this Agreement or any Ancillary Agreement (or the Schedules hereto or
thereto) as Liabilities to be retained or assumed by AT&T or any other
member of the AT&T Group (including the NCR Group), and all agreements
and obligations of any member of the AT&T Group under this Agreement or
any of the Ancillary Agreements;
(ii) subject to the terms of Article VI, all Exclusive AT&T
Services Contingent Liabilities and Exclusive NCR Contingent
Liabilities and the Shared AT&T Percentage and the Shared NCR
Percentage of any Shared Contingent Liabilities; and
(iii) except as set forth in any Ancillary Agreement, all
Environmental Liabilities accrued as of the date hereof solely relating
to, arising out of or resulting from the existence of any leasehold
interest that is an Lucent Asset if the applicable lessor, sublessor or
sub-sublessor under the applicable lease, sublease or sub-sublease is a
member of the AT&T Services Group or the NCR Group.
2.4. TERMINATION OF AGREEMENTS. (a) Except as set forth in
Section 2.4(b), in furtherance of the releases and other provisions of Section
5.1 hereof, Lucent and each member of the Lucent Group, on the one hand, and
each of AT&T, NCR and the respective members of the AT&T Services Group and the
NCR Group, on the other hand, hereby terminate, any and all agreements,
arrangements, commitments or understandings, whether or not in writing, between
or among Lucent and/or any member of the Lucent Group, on the one hand, and AT&T
or NCR and/or any member of the AT&T Services Group or the NCR Group, on the
other hand, effective as of the Closing Date; provided, however, to the extent
any such agreement, arrangement, commitment or understanding is inconsistent
with any Ancillary Agreement, such termination shall be effective as of the date
of effectiveness of the applicable Ancillary Agreement. No such terminated
agreement, arrangement, commitment or understanding (including any provision
thereof which purports
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to survive termination) shall be of any further force or effect after the
Closing Date (or, to the extent contemplated by the proviso to the immediately
preceding sentence, after the effective date of the applicable Ancillary
Agreement). Each party shall, at the reasonable request of any other party,
take, or cause to be taken, such other actions as may be necessary to effect the
foregoing.
(b) The provisions of Section 2.4(a) shall not apply to any of
the following agreements, arrangements, commitments or understandings (or to any
of the provisions thereof): (i) this Agreement and the Ancillary Agreements (and
each other agreement or instrument expressly contemplated by this Agreement or
any Ancillary Agreement to be entered into by any of the parties hereto or any
of the members of their respective Groups); (ii) any agreements, arrangements,
commitments or understandings listed or described on Schedule 2.4(b)(ii); (iii)
any agreements, arrangements, commitments or understandings to which any Person
other than the parties hereto and their respective Affiliates is a party (it
being understood that to the extent that the rights and obligations of the
parties and the members of their respective Groups under any such agreements,
arrangements, commitments or understandings constitute Lucent Assets or Lucent
Liabilities, they shall be assigned pursuant to Section 2.1); (iv) any
intercompany accounts payable or accounts receivable accrued as of the Closing
Date that are reflected in the books and records of the parties or otherwise
documented in writing in accordance with past practices; (v) any agreements,
arrangements, commitments or understandings to which AT&T Capital Corporation or
any other non-wholly owned Subsidiary of AT&T, Lucent or NCR, as the case may
be, is a party (it being understood that directors' qualifying shares or similar
interests will be disregarded for purposes of determining whether a Subsidiary
is wholly owned); (vi) any written Tax sharing or Tax allocation agreements to
which any member of any Group is a party; and (vii) any other agreements,
arrangements, commitments or understandings that this Agreement or any Ancillary
Agreement expressly contemplates will survive the Closing Date.
2.5. DOCUMENTS RELATING TO TRANSFER OF REAL PROPERTY INTERESTS
AND TANGIBLE PROPERTY LOCATED THEREON. (a) In furtherance of the assignment,
transfer and conveyance of Lucent Assets and the assumption of Lucent
Liabilities set forth in Section 2.1(a) and (b), simultaneously with the
execution and delivery hereof or as promptly as practicable thereafter, each of
AT&T, Lucent and NCR, or their applicable Subsidiaries, is executing and
delivering or will execute and deliver deeds, lease assignments and assumptions,
leases, subleases and sub-subleases substantially in the forms attached as
Schedule 2.5 (which in certain cases includes different forms for real property
and leasehold interests located outside of the United States), with such changes
as may be necessary to conform to any laws, regulations or usage applicable in
the jurisdiction in which the relevant real property is located. Set forth in,
or referenced by, such Schedule is, among other things, a summary of each
property or interest therein to be conveyed, assigned, leased, subleased or
sub-subleased, the applicable entities relevant to each property and their
capacities with respect to each property (e.g., as transferor, transferee,
assignor, assignee, lessor, lessee, sublessor, sublessee, sub-sublessor or
sub-sublessee), and any terms applicable to each property that are not specified
in the forms of deed, lease assignment and assumption, lease, sublease or
sub-sublease (e.g., rent and term).
(b) Except as otherwise expressly provided in this Agreement
or any Ancillary Agreement, all tenant improvements, fixtures, furniture, office
equipment, servers, private branch exchanges, artwork and other tangible
property (other than equipment subject to capital or operating equipment leases,
which will be transferred or retained based on whether the associated capital or
operating equipment lease is or is not an Lucent Contract)
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located as of the date hereof on any real property that is covered by any
Ancillary Agreement referred to in Section 2.5(a), including the Schedules
thereto, shall, except to the extent expressly set forth on a Schedule referred
to in Section 2.5(a), be transferred or retained as follows:
(i) DEEDS AND ASSIGNMENTS. In the case of any real property or
leasehold interests covered by an Ancillary Agreement set forth on
Schedule 2.5 that is a deed or lease assignment and assumption, all
such tangible property will be transferred to the transferee or
assignee of the applicable real property or leasehold interest;
(ii) SHARED FACILITIES WITHOUT THIRD PARTY LEASES. In the case
of any real property or leasehold interests covered by an Ancillary
Agreement set forth on Schedule 2.5 that is a lease, all such tangible
property will be retained by the lessor under the applicable lease,
except that any such tangible property (other than tenant improvements,
fixtures, furniture and artwork) used exclusively by the lessee shall
be transferred to, or retained by, the lessee.
(iii) SHARED DOMESTIC FACILITIES WITH THIRD PARTY LEASES. In
the case of any real property or leasehold interests located in the
United States covered by an Ancillary Agreement set forth on Schedule
2.5 that is a sublease or sub-sublease, all such tangible property will
be retained by the sublessor or sub-sublessor, respectively, under the
applicable sublease or sub-sublease, except that any such tangible
property (other than tenant improvements, fixtures and artwork),
including furniture used exclusively by the sublessee or sub-sublessee,
respectively, shall be transferred to, or retained by, such sublessee
or sub-sublessee.
(iv) SHARED NON-U.S. FACILITIES WITH THIRD PARTY LEASES. In
the case of any real property or leasehold interests located outside of
the United States covered by an Ancillary Agreement set forth on
Schedule 2.5 that is a sublease or sub-sublease, all such tangible
property will be retained by the sublessor or sub-sublessor,
respectively, under the applicable sublease or sub-sublease, except
that any such tangible property (other than tenant improvements,
fixtures, furniture and artwork) used exclusively by the sublessee or
sub-sublessee, respectively, shall be transferred to, or retained by,
such sublessee or sub-sublessee.
In the case of this Section 2.5(b), all determinations as to exclusive use by
any member of a Group shall be made without regard to infrequent and immaterial
use by the members of any other Group, if the transfer of such Asset to, or the
retention of such Asset by, such first Group would not interfere in any material
respect with either the business or operations of any such other Group.
Notwithstanding the foregoing provisions of this Section 2.5(b), any artwork
located as of the date hereof in the private office of any senior manager or
officer of any Group may, at the election of such senior manager or officer, be
retained by, or transferred to, the Group by which such executive is employed as
of the Closing Date.
(c) In the case of any real property or leasehold interest
that is covered by Section 2.5(b)(i) and any of Section 2.5(b)(ii), (iii) or
(iv), all such tangible property shall first be allocated pursuant to the
provisions of Section 2.5(b)(i) and thereafter pursuant to whichever of such
other clauses is applicable.
2.6. DOCUMENTS RELATING TO OTHER TRANSFERS OF ASSETS AND
ASSUMPTION OF LIABILITIES. In furtherance of the assignment, transfer and
conveyance of Lucent Assets and the assumption of Lucent Liabilities set forth
in Section 2.1(a) and (b), simultaneously
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with the execution and delivery hereof or as promptly as practicable thereafter,
(i) each of AT&T and NCR shall execute and deliver, and each shall cause its
respective Subsidiaries to execute and deliver, such bills of sale, stock
powers, certificates of title, assignments of contracts and other instruments of
transfer, conveyance and assignment as and to the extent necessary to evidence
the transfer, conveyance and assignment of all of AT&T's, NCR's and their
respective Subsidiaries' right, title and interest in and to the Lucent Assets
to Lucent and (ii) Lucent shall execute and deliver, to AT&T, NCR and their
respective Subsidiaries such bills of sale, stock powers, certificates of title,
assumptions of contracts and other instruments of assumption as and to the
extent necessary to evidence the valid and effective assumption of the Lucent
Liabilities by Lucent.
2.7. OTHER ANCILLARY AGREEMENTS. (a) Effective as of the date
hereof, except as provided in Section 2.7(b) or Section 2.8, each of AT&T,
Lucent and NCR will execute and deliver all Ancillary Agreements to which it is
a party.
(b) Effective as of March 29, 1996, the parties shall execute
and deliver each of the following Ancillary Agreements to which it is a party:
(i) the Patent Assignments and related agreements regarding
powers of attorney;
(ii) the Patent License Agreement;
(iii) the Patent Joint Ownership Agreement;
(iv) the Patent Defensive Protection Agreements;
(v) the Technology Assignment and Joint Ownership Agreements;
and
(vi) the Technology License Agreement.
(a) 2.8. THE NON-U.S. PLAN. (a) Each of AT&T, Lucent and NCR
shall take, and shall cause each member of its respective Group to take, such
action as reasonably necessary to consummate the transactions contemplated by
the Non-U.S. Plan (whether prior to or after the Closing Date). Notwithstanding
anything in this Agreement or in any Ancillary Agreement to the contrary, no
party shall be entitled to receive or retain any Asset unless such party shall
have paid any consideration contemplated to be paid in connection therewith
pursuant to the Non-U.S. Plan.
(b) After the date hereof and on or prior to the Closing Date,
AT&T shall transfer all of its right, title and interest in and to all of the
issued and outstanding capital stock in each of ATTI and NCS Ventures, Inc., a
Delaware corporation, to Lucent by means of a contribution of such capital stock
by AT&T to Lucent. The parties hereto shall execute, or cause to be executed,
such transfer instruments as they mutually deem appropriate to effectuate and
evidence such transfer.
2.9. AT&T VENTURES; LUCENT FOUNDATION. (a) On or prior to the
Closing Date, AT&T shall transfer to Lucent 35% of AT&T's interest as a limited
partner in AT&T Ventures and Lucent shall assume all Liabilities of a limited
partner of AT&T Ventures relating to such interest. AT&T and Lucent shall use
reasonable best efforts to cooperate so that Lucent will be admitted to AT&T
Ventures as a limited partner in respect of such interest. Without duplication
of any such Liability assumed in its capacity as a limited
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partner, Lucent shall indemnify, defend and hold harmless each AT&T Indemnitee
and each NCR Indemnitee from and against 35% of any and all Liabilities of the
AT&T Indemnitees or the NCR Indemnitees, respectively, relating to, arising out
of or resulting from AT&T Ventures, including in respect of any capital calls or
commitments and in connection with the operation or management thereof.
(b) (i) Following the date hereof, Lucent will incorporate a
private foundation to be qualified under Section 501(c)(3) of the Code. The AT&T
Foundation will make an $18 million grant to the new foundation formed by
Lucent, as soon as is reasonably practicable following such new foundation's
request, subject to the satisfaction by such new foundation of the following
requirements: the election or appointment of a governing board of directors or
trustees, the adoption of by-laws, the hiring of a professional staff, the
formulation of a mission statement, and commencement of the development of
programs and priorities for funding grants. The determination as to whether such
requirements have been satisfied shall be made by the trustees of the AT&T
Foundation in their sole discretion and shall be binding on all parties. Such
$18 million grant shall be payable, at the AT&T Foundation's election, in cash
or in appreciated property (or any combination thereof). All determinations with
respect to the fair market value of any appreciated property will be made by the
trustees of the AT&T Foundation in their sole discretion and shall be binding on
all parties.
(ii) The AT&T Foundation has approved a 1996 grant budget that
includes grants totalling $13 million relating to Lucent initiatives. The staffs
of the AT&T Foundation and the new foundation to be formed by Lucent pursuant to
subparagraph (i) above will work together to administer the grants relating to
these Lucent initiatives. In the event such $13 million has not been fully
disbursed prior to the Distribution Date, the AT&T Foundation will transfer to
the new foundation formed by Lucent an amount equal to the portion of such $13
million that has not been disbursed, and such foundation will assume the
obligation to make grants equal to such remaining amount. The AT&T Foundation
will also allocate up to $1 million of its 1996 administrative budget for
administrative costs related to Lucent programs.
2.10. DISCLAIMER OF REPRESENTATIONS AND WARRANTIES. (a) Each
of AT&T (on behalf of itself and each member of the AT&T Services Group), Lucent
(on behalf of itself and each member of the Lucent Group) and NCR (on behalf of
itself and each member of the NCR Group) understands and agrees that, except as
expressly set forth herein (including in Section 7.2(g)) or in any Ancillary
Agreement, no party to this Agreement, any Ancillary Agreement or any other
agreement or document contemplated by this Agreement, any Ancillary Agreement or
otherwise, is representing or warranting in any way as to the Assets, businesses
or Liabilities transferred or assumed as contemplated hereby or thereby, as to
any consents or approvals required in connection therewith, as to the value or
freedom from any Security Interests of, or any other matter concerning, any
Assets of such party, or as to the absence of any defenses or right of setoff or
freedom from counterclaim with respect to any claim or other Asset, including
any accounts receivable, of any party, or as to the legal sufficiency of any
assignment, document or instrument delivered hereunder to convey title to any
Asset or thing of value upon the execution, delivery and filing hereof or
thereof. Except as may expressly be set forth herein or in any Ancillary
Agreement, all such Assets are being transferred on an "as is," "where is" basis
(and, in the case of any real property, by means of a quitclaim or similar form
deed or conveyance) and the respective transferees shall bear the economic and
legal risks that any conveyance shall prove to be insufficient to vest in the
transferee good and marketable title, free and clear of any Security Interest.
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2.11. FINANCING ARRANGEMENTS. (a) Prior to the Closing Date,
AT&T and Lucent shall enter into the Financing Facility. AT&T and Lucent agree
to take all such reasonable action as may be necessary to permit AT&T to borrow
such amount as it shall determine under the Financing Facility prior to the
Closing Date and to assure the assignment to and the assumption by Lucent of all
obligations thereunder and the full release and discharge of each of AT&T and
any other member of the AT&T Group of all of its obligations thereunder as of
the Closing Date in accordance with the terms of the Financing Facility. AT&T
and Lucent shall participate in the preparation of all materials and
presentations as may be reasonably necessary to secure funding pursuant to the
Financing Facility, including rating agency presentations necessary to obtain
the requisite ratings needed to secure the financing under the Financing
Facility and such assignment, assumption, release and discharge. As of the time
of such assignment, assumption, release and discharge, AT&T shall pay all third
party costs and expenses incurred by any member of the AT&T Group associated
with the Financing Facility.
(b) Simultaneously with or following the execution and
delivery of this Agreement, Lucent intends to enter into the Working Capital
Facility. Lucent agrees to cause all obligations of AT&T or any other member of
the AT&T Group, if any, under the Working Capital Facility to be terminated at
the Closing Date. Lucent shall pay all expenses associated with the Working
Capital Facility.
2.12. GOVERNMENTAL APPROVALS AND CONSENTS. (a) To the extent
that the Separation requires any Governmental Approvals or Consents, the parties
will use their reasonable best efforts to obtain any such Governmental Approvals
and Consents.
(b) If and to the extent that the valid, complete and
perfected transfer or assignment (or novation of any federal government
contract) to the Lucent Group of any Lucent Assets (or from the Lucent Group of
any Non-Lucent Assets) would be a violation of applicable laws or require any
Consent or Governmental Approval in connection with the Separation, the IPO or
the Distribution, then, unless AT&T shall otherwise determine, the transfer or
assignment to or from the Lucent Group, as the case may be, of such Lucent
Assets or Non-Lucent Assets, respectively, shall be automatically deemed
deferred and any such purported transfer or assignment shall be null and void
until such time as all legal impediments are removed and/or such Consents or
Governmental Approvals have been obtained. Notwithstanding the foregoing, such
Asset shall be deemed an Lucent Asset for purposes of determining whether any
Liability is an Lucent Liability.
(c) If the transfer or assignment of any Assets intended to be
transferred or assigned hereunder, including pursuant to the Non-U.S. Plan, is
not consummated prior to or at the Closing Date, whether as a result of the
provisions of Section 2.12(b) or for any other reason, then the Person retaining
such Asset shall thereafter hold such Asset for the use and benefit, insofar as
reasonably possible, of the Person entitled thereto (at the expense of the
Person entitled thereto). In addition, the Person retaining such Asset shall
take such other actions as may be reasonably requested by the Person to whom
such Asset is to be transferred in order to place such Person, insofar as
reasonably possible, in the same position as if such Asset had been transferred
as contemplated hereby and so that all the benefits and burdens relating to such
Lucent Assets (or such Non-Lucent Assets, as the case may be), including
possession, use, risk of loss, potential for gain, and dominion, control and
command over such Assets, are to inure from and after the Closing Date to the
Lucent Group (or the AT&T Group, as the case may be).
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(d) If and when the Consents and/or Governmental Approvals,
the absence of which caused the deferral of transfer of any Asset pursuant to
Section 2.12(b), are obtained, the transfer of the applicable Asset shall be
effected in accordance with the terms of this Agreement and/or the applicable
Ancillary Agreement.
(e) The Person retaining an Asset due to the deferral of the
transfer of such Asset shall not be obligated, in connection with the foregoing,
to expend any money unless the necessary funds are advanced by the Person
entitled to the Asset, other than reasonable out-of-pocket expenses, attorneys'
fees and recording or similar fees, all of which shall be promptly reimbursed by
the Person entitled to such Asset.
2.13. NOVATION OF ASSUMED LUCENT LIABILITIES. (a) Each of
AT&T, Lucent and NCR, at the request of any of the others, shall use their
reasonable best efforts to obtain, or to cause to be obtained, any consent,
substitution, approval or amendment required to novate (including with respect
to any federal government contract) or assign all obligations under agreements,
leases, licenses and other obligations or Liabilities (including Lucent OFL's)
of any nature whatsoever that constitute Lucent Liabilities or Nassau Metals
Liabilities, or to obtain in writing the unconditional release of all parties to
such arrangements other than any member of the Lucent Group, so that, in any
such case, Lucent and its Subsidiaries will be solely responsible for such
Liabilities; provided, however, that none of AT&T, Lucent or NCR shall be
obligated to pay any consideration therefor to any third party from whom such
consents, approvals, substitutions and amendments are requested.
(b) If AT&T, Lucent or NCR is unable to obtain, or to cause to
be obtained, any such required consent, approval, release, substitution or
amendment, the applicable member of the AT&T Services Group or the NCR Group, as
the case may be, shall continue to be bound by such agreements, leases, licenses
and other obligations and, unless not permitted by law or the terms thereof
(except to the extent expressly set forth in Section 7.3 in the case of Lucent
OFL's), Lucent shall, as agent or subcontractor for AT&T, NCR or such other
Person, as the case may be, pay, perform and discharge fully all the obligations
or other Liabilities of AT&T, NCR or such other Person, as the case may be,
thereunder from and after the date hereof. Lucent shall indemnify each AT&T
Indemnitee and each NCR Indemnitee, and hold each of them harmless against any
Liabilities arising in connection therewith. Except as expressly set forth in
Section 7.3 in the case of Lucent OFL's, each of AT&T and NCR, as the case may
be, shall, without further consideration, pay and remit, or cause to be paid or
remitted, to Lucent promptly all money, rights and other consideration received
by it or any member of its respective Group in respect of such performance
(unless any such consideration is an Excluded Asset). If and when any such
consent, approval, release, substitution or amendment shall be obtained or such
agreement, lease, license or other rights or obligations shall otherwise become
assignable or able to be novated, each of AT&T and NCR, as the case may be,
shall thereafter assign, or cause to be assigned, all its rights, obligations
and other Liabilities thereunder or any rights or obligations of any member of
its respective Group to Lucent without payment of further consideration and
Lucent shall, without the payment of any further consideration, assume such
rights and obligations.
2.14. NOVATION OF ASSUMED LIABILITIES OTHER THAN LUCENT
LIABILITIES. (a) Each of AT&T, Lucent and NCR, at the request of any of the
others, shall use their reasonable best efforts to obtain, or to cause to be
obtained, any consent, substitution, approval or amendment required to novate or
assign all obligations under agreements, leases, licenses and other obligations
or Liabilities of any nature whatsoever that do not constitute Lucent
Liabilities or Nassau Metals Liabilities, or to obtain in writing the
unconditional release of
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all parties to such arrangements other than any member of the AT&T Group, so
that, in any such case, the members of the AT&T Group will be solely responsible
for such Liabilities; provided, however, that none of AT&T, Lucent or NCR shall
be obligated to pay any consideration therefor to any third party from whom such
consents, approvals, substitutions and amendments are requested.
(b) If AT&T, Lucent or NCR is unable to obtain, or to cause to
be obtained, any such required consent, approval, release, substitution or
amendment, the applicable member of the Lucent Group shall continue to be bound
by such agreements, leases, licenses and other obligations and, unless not
permitted by law or the terms thereof, AT&T shall cause a member of the AT&T
Group, as agent or subcontractor for such member of the Lucent Group, to pay,
perform and discharge fully all the obligations or other Liabilities of such
member of the Lucent Group thereunder from and after the date hereof. AT&T shall
indemnify each Lucent Indemnitee and hold each of them harmless against any
Liabilities arising in connection therewith. Lucent shall cause each member of
the Lucent Group without further consideration, to pay and remit, or cause to be
paid or remitted, to AT&T or to another member of the AT&T Group specified by
AT&T promptly all money, rights and other consideration received by it or any
member of the Lucent Group in respect of such performance. If and when any such
consent, approval, release, substitution or amendment shall be obtained or such
agreement, lease, license or other rights or obligations shall otherwise become
assignable or able to be novated, Lucent shall promptly assign, or cause to be
assigned, all its rights, obligations and other Liabilities thereunder or any
rights or obligations of any member of the Lucent Group to AT&T or to another
member of the AT&T Group specified by AT&T without payment of further
consideration and AT&T, without the payment of any further consideration shall,
or shall cause such other member of the AT&T Group to, assume such rights and
obligations.
2.15. THIRD PARTY PATENT LICENSE AGREEMENTS. (a) Except as
otherwise set forth in this Section 2.15, effective as of the date of execution
of the Patent Assignments and other agreements set forth in Section 2.7(b), AT&T
hereby: (i) grants to each of Lucent and NCR the right to share with AT&T the
license rights granted by any third party to AT&T pursuant to any patent license
agreement between AT&T and such third party existing as of the date hereof and
(ii) grants to Lucent the right to receive any net royalty payments from third
parties pursuant to the patent license agreements referred to in clause (i)
above. Except as otherwise set forth in this Section 2.15, AT&T will retain all
rights in and to the patent license agreements referred to in this Section 2.15.
(b) The grants set forth in the first sentence of Section
2.15(a) shall not apply to (i) the patent license agreements set forth in
Schedule 2.15(b) or (ii) any other patent license agreement with respect to
which there otherwise exists, on or prior to the date of execution of the Patent
Assignments, written provision for the allocation or sharing of rights under
such patent license agreement between or among any two or all three of AT&T,
Lucent and NCR.
(c) Except as set forth in Section 2.15(d), in the event that
any grant of rights set forth in Section 2.15(a) would violate or is found to
violate the terms of, or result in the loss of rights or imposition of penalty
under, any patent license agreement covered thereby, or would not be effective
subsequent to the Distribution Date, such grant of rights with respect to such
patent license agreement shall be deemed null and void and, in lieu thereof, (i)
effective as of the Distribution Date, AT&T hereby transfers any such patent
license agreement to Lucent without retaining any rights therein (and AT&T
waives any
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such right it could otherwise retain) and (ii) Lucent shall use all reasonable
efforts to arrange for the grant by the applicable third party of comparable
rights (other than any right to receive royalty payments) to each of AT&T and
NCR, provided that none of Lucent, AT&T or NCR shall be obligated to pay any
consideration therefor.
(d) In the event that any transfer set forth in Section
2.15(c) would violate or is found to violate the terms of, or result in the loss
of rights or imposition of penalty under, any patent license agreement covered
thereby, or would not be effective subsequent to the Distribution Date, such
transfer shall be deemed null and void and, in lieu thereof, (i) AT&T hereby
retains all rights under any such patent license agreement, (ii) AT&T will pay
over to Lucent any royalty payments it may receive from any third party pursuant
to any such patent license agreement and (iii) AT&T shall use all reasonable
efforts to arrange for the grant by the applicable third party of comparable
rights (other than any right to royalty payments) to each of Lucent and NCR,
provided that none of Lucent, AT&T or NCR shall be obligated to pay any
consideration therefor.
(e) In the event that license rights under any patent license
agreement intended to be granted or transferred to Lucent under this Section
2.15 are not effectively granted or transferred (including in the event such
grant or transfer is not effective after the Distribution Date and/or the
parties are unable to arrange for the grant by the applicable third party of
comparable license rights to Lucent), then, at the written request of Lucent:
(i) AT&T will exercise any have-made rights it may have under the applicable
third-party license agreement to have Lucent make, and will purchase from
Lucent, such products or other materials as Lucent may direct using the
applicable third-party patents as to which AT&T has such have-made rights (at
the price and on the terms to be paid and agreed to by the Person or Persons to
whom AT&T may be directed to sell such products or other materials pursuant to
the following clause (ii)); and (ii) following any such purchase, AT&T will sell
such products or other materials to such Person or Persons, on such terms, as
may be directed by Lucent (except that AT&T will not be required to make any
representations, warranties or commitments in respect thereof other than to
provide to such Person or Persons the representations, warranties and
commitments of Lucent in respect thereof, for which only Lucent, and not AT&T,
will be responsible). In connection with the foregoing, Lucent will cause the
Person or Persons to which such products or other materials are sold to
acknowledge in writing that only Lucent and the members of the Lucent Group, and
not AT&T or any member of the AT&T Group, will be responsible to such Person or
Persons in respect of such products or other materials. Nothing in this Section
(e) shall be construed to require AT&T or any member of the AT&T Group to
violate any applicable laws, rules or regulations of any Governmental Authority.
(f) In the event AT&T makes any purchases and sales as
directed by Lucent under the foregoing paragraph (e), then: (i) Lucent will
promptly reimburse AT&T for all costs and expenses (including allocated costs of
in-house counsel and other personnel) that AT&T or any member of the AT&T Group
may incur in connection with such actions, plus a fee of two percent (2%); and
(ii) Lucent will indemnify and hold harmless AT&T and each AT&T Indemnitee for
all Liabilities that may arise as a result of such actions (including any claims
by the purchaser of such products or materials, any loss incurred on the sale of
such products or materials by AT&T to the Person or Persons directed by Lucent,
or arising out of the failure of such Person or Persons to purchase such
products or materials on the terms directed by Lucent, and any claims alleging
any infringement of any patent, copyright, trademark or misappropriation of a
trade secret, any product liability claims, and any other claims, in connection
with such products or materials).
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(g) Each of AT&T, Lucent and NCR agrees that it will fulfill
any obligations it may have to any third party pursuant to the patent license
agreements to which the provisions of this Section 2.15 apply.
2.16. CERTAIN TERMINATION RIGHTS. (a) Notwithstanding anything
in this Agreement or any Ancillary Agreement to the contrary, the rights granted
to Lucent and the members of the Lucent Group shall be subject to the provisions
of this Section 2.16.
(b) Except as otherwise expressly provided in this Section
2.16, in the event that, at any time prior to the fifth anniversary of this
Agreement, Lucent or any member of the Lucent Group offers, furnishes or
provides, either directly or indirectly (whether through any reseller or joint
venture or otherwise), any Telecommunications Services of the type offered by
the AT&T Services Business as of the Closing Date, then:
(i) pursuant to Section 2.5 and Article IX of the Brand
License Agreement, AT&T may, in its sole discretion, terminate all or
any portion of the rights granted to Lucent and the members of the
Lucent Group pursuant to the Brand License Agreement;
(ii) AT&T may, in its sole discretion, terminate all or any
remaining portion of the purchase commitments made by AT&T and the
members of the AT&T Group in the AT&T General Purchase Agreement;
(iii) AT&T may, in its sole discretion, exercise either the
Full Grant rights or the Partial Grant rights described in
subparagraphs 8.4(b) and 8.4(c), respectively, of the Supplemental
General Purchase Agreement, dated as of the date hereof, between AT&T
and Lucent;
(iv) AT&T may, in its sole discretion, terminate all or any
portion of the rights to patents and technology of AT&T or any member
of the AT&T Group granted to Lucent and the members of the Lucent Group
pursuant to the Patent License Agreement and the Technology License
Agreement; and
(v) at AT&T's direction, which may be given in its sole
discretion, Lucent and the members of the Lucent Group will reconvey to
AT&T or any member of the AT&T Group all of their right, title and
interest in any and all patents and technology in which Lucent or any
member of the Lucent Group was granted an undivided one-half interest
pursuant to the Patent Assignments or the Technology Assignment and
Joint Ownership Agreement.
(c) Lucent and the members of the Lucent Group shall not be
deemed to offer, furnish or provide, either directly or indirectly, any
Telecommunications Services (and Section 2.16(b) will not apply) solely by
virtue of either of the following:
(i) a passive investment by Lucent or any of the members of
the Lucent Group of, in the aggregate, (A) less than 5% of the
ownership interest in any Person that offers, furnishes or provides
Telecommunications Services in the United States or (B) not more than
15% of the ownership interest in any Person that offers, furnishes or
provides Telecommunications Services solely outside of the United
States (it being understood that Telecommunications Services operating
outside the United States will be considered solely outside the United
States notwithstanding the ability
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of such Telecommunications Services to receive transmissions from or
send transmissions to the United States, so long as such
Telecommunications Services may not be used to send and receive
transmissions solely within the United States); or
(ii) an investment by Lucent or any of the members of the
Lucent Group of, in the aggregate, not more than 40% of the ownership
interest in any Person outside the United States formed for the purpose
of building a network or similar system for the provision of
Telecommunications Services solely outside of the United States, which
network or system is built by Lucent or any members of the Lucent
Group; so long as Lucent and the members of the Lucent Group divest
such interest to, in the aggregate, not more than 15% of the ownership
interest in such Person within one year of commencement of the
provision of any Telecommunications Services over such network or
system, or such longer period as may be necessary to permit such
reduction in interest and to which AT&T shall consent, which consent
will not be unreasonably withheld; or
(iii) the offer, furnishing or provision by Lucent and the
members of the Lucent Group, either directly or indirectly, of
Telecommunications Services from which the aggregate revenues in any
fiscal year do not exceed one percent of the aggregate revenues of
Lucent and the members of the Lucent Group for such fiscal year,
provided that, in determining whether such one percent threshold has
been met, any resale of Telecommunications Services provided by AT&T or
any member of the AT&T Group to Lucent or any member of the Lucent
Group pursuant to the VTNS Agreement or any tariff or contract shall
not be considered as Telecommunications Services offered, furnished or
provided by Lucent and the members of the Lucent Group.
ARTICLE III
THE IPO AND ACTIONS PENDING THE IPO
3.1. TRANSACTIONS PRIOR TO THE IPO. (a) Subject to the
conditions specified in Section 3.3, AT&T and Lucent shall use their reasonable
best efforts to consummate the IPO. Such actions shall include, but not
necessarily be limited to, those specified in this Section 3.1.
(b) Lucent shall file the IPO Registration Statement, and such
amendments or supplements thereto, as may be necessary in order to cause the
same to become and remain effective as required by law or by the Underwriters,
including, but not limited to, filing such amendments to the IPO Registration
Statement as may be required by the Underwriting Agreement, the Commission or
federal, state or foreign securities laws. AT&T and Lucent shall also cooperate
in preparing, filing with the Commission and causing to become effective a
registration statement registering the Lucent Common Stock under the Exchange
Act, and any registration statements or amendments thereof which are required to
reflect the establishment of, or amendments to, any employee benefit and other
plans necessary or appropriate in connection with the IPO, the Separation, the
Distribution or the other transactions contemplated by this Agreement and the
Ancillary Agreements.
(c) Lucent shall enter into the Underwriting Agreement, in
form and substance reasonably satisfactory to Lucent and shall comply with its
obligations thereunder.
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(d) AT&T and Lucent shall consult with each other and the
Underwriters regarding the timing, pricing and other material matters with
respect to the IPO.
(e) Lucent shall use its reasonable best efforts to take all
such action as may be necessary or appropriate under state securities and blue
sky laws of the United States (and any comparable laws under any foreign
jurisdictions) in connection with the IPO.
(f) Lucent shall prepare, file and use reasonable best efforts
to seek to make effective, an application for listing of the Lucent Common Stock
issued in the IPO on the NYSE, subject to official notice of issuance.
(g) Lucent shall participate in the preparation of materials
and presentations as the Underwriters shall deem necessary or desirable.
(h) Lucent shall pay all third party costs, fees and expenses
relating to the IPO, all of the reimbursable expenses of the Underwriters
pursuant to the Underwriting Agreement, all of the costs of producing, printing,
mailing and otherwise distributing the Prospectus, as well as the Underwriters'
discount as provided in the Underwriting Agreement.
3.2. PROCEEDS OF THE IPO. The IPO will be a primary offering
of Lucent Common Stock and the net proceeds of the IPO will be retained by
Lucent.
3.3. CONDITIONS PRECEDENT TO CONSUMMATION OF THE IPO. As soon
as practicable after the date of this Agreement, the parties hereto shall use
their reasonable best efforts to satisfy the following conditions to the
consummation of the IPO. The obligations of the parties to consummate the IPO
shall be conditioned on the satisfaction, or waiver by AT&T, of the following
conditions:
(a) The IPO Registration Statement shall have been filed and
declared effective by the Commission, and there shall be no stop-order
in effect with respect thereto.
(b) The Financing Facility shall have been executed and
delivered, pursuant to which AT&T shall have borrowed an amount of
funds determined by AT&T, and AT&T shall be satisfied in its sole
discretion that as of the Closing Date it will have no further
liability or obligation whatsoever under either the Working Capital
Facility or the Financing Facility.
(c) The actions and filings with regard to state securities
and blue sky laws of the United States (and any comparable laws under
any foreign jurisdictions) described in Section 3.1 shall have been
taken and, where applicable, have become effective or been accepted.
(d) The Lucent Common Stock to be issued in the IPO shall have
been accepted for listing on the NYSE, on official notice of issuance.
(e) Lucent shall have entered into the Underwriting Agreement
and all conditions to the obligations of Lucent and the Underwriters
shall have been satisfied or waived.
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(f) AT&T shall be satisfied in its sole discretion that it
will own at least 80.1% of the outstanding Lucent Common Stock
following the IPO on a fully diluted basis, after giving effect to the
issuance of any shares of restricted stock or employee stock options to
any employees of Lucent, and all other conditions to permit the
Distribution to qualify as a tax-free distribution to AT&T, Lucent and
AT&T's shareholders shall, to the extent applicable as of the time of
the IPO, be satisfied and there shall be no event or condition that is
likely to cause any of such conditions not to be satisfied as of the
time of the Distribution or thereafter.
(g) No order, injunction or decree issued by any court or
agency of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Separation or the IPO or
any of the other transactions contemplated by this Agreement or any
Ancillary Agreement shall be in effect.
(h) Such other actions as the parties hereto may, based upon
the advice of counsel, reasonably request to be taken prior to the
Separation and the IPO in order to assure the successful completion of
the Separation and the IPO and the other transactions contemplated by
this Agreement shall have been taken.
(i) This Agreement shall not have been terminated.
(j) A pricing committee of AT&T officers designated by the
Board of Directors of AT&T shall have determined that the terms of the
IPO are acceptable to AT&T.
ARTICLE IV
THE DISTRIBUTION
4.1. THE DISTRIBUTION. (a) Subject to Section 4.3 hereof, on
or prior to the Distribution Date, AT&T will deliver to the Agent for the
benefit of holders of record of AT&T Common Stock on the Record Date, a single
stock certificate, endorsed by AT&T in blank, representing all of the
outstanding shares of Lucent Common Stock then owned by AT&T or any member of
the AT&T Group, and shall cause the transfer agent for the shares of AT&T Common
Stock to instruct the Agent to distribute on the Distribution Date the
appropriate number of such shares of Lucent Common Stock to each such holder or
designated transferee or transferees of such holder.
(b) Subject to Section 4.4, each holder of AT&T Common Stock
on the Record Date (or such holder's designated transferee or transferees) will
be entitled to receive in the Distribution a number of shares of Lucent Common
Stock equal to the number of shares of AT&T Common Stock held by such holder on
the Record Date multiplied by a fraction the numerator of which is the number of
shares of Lucent Common Stock beneficially owned by AT&T or any other member of
the AT&T Group on the Record Date and the denominator of which is the number of
shares of AT&T Common Stock outstanding on the Record Date.
(c) Lucent and AT&T, as the case may be, will provide to the
Agent all share certificates and any information required in order to complete
the Distribution on the basis specified above.
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4.2. ACTIONS PRIOR TO THE DISTRIBUTION. (a) AT&T and Lucent
shall prepare and mail, prior to the Distribution Date, to the holders of AT&T
Common Stock, such information concerning Lucent, its business, operations and
management, the Distribution and such other matters as AT&T shall reasonably
determine and as may be required by law. AT&T and Lucent will prepare, and
Lucent will, to the extent required under applicable law, file with the
Commission any such documentation and any requisite no action letters which AT&T
determines are necessary or desirable to effectuate the Distribution and AT&T
and Lucent shall each use its reasonable best efforts to obtain all necessary
approvals from the Commission with respect thereto as soon as practicable.
(b) AT&T and Lucent shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of the United
States (and any comparable laws under any foreign jurisdiction) in connection
with the Distribution.
(c) AT&T and Lucent shall take all reasonable steps necessary
and appropriate to cause the conditions set forth in Section 4.3 (subject to
Sections 4.3(d)) to be satisfied and to effect the Distribution on the
Distribution Date.
(d) Lucent shall prepare and file, and shall use its
reasonable best efforts to have approved, an application for the listing of the
Lucent Common Stock to be distributed in the Distribution on the NYSE, subject
to official notice of distribution.
4.3. CONDITIONS TO DISTRIBUTION. The AT&T Board currently
intends to effect the Distribution by December 31, 1996. Subject to any
restrictions contained in the Underwriting Agreement, the AT&T Board shall have
the sole discretion to determine the date of consummation of the Distribution at
any time after the Closing Date and on or prior to December 31, 1996. AT&T shall
be obligated to consummate the Distribution no later than December 31, 1996,
subject to the satisfaction, or waiver by the AT&T Board in its sole discretion,
of the conditions set forth below. In the event that any such condition shall
not have been satisfied or waived on or before December 31, 1996, AT&T shall
consummate the Distribution as promptly as practicable following the
satisfaction or waiver of all such conditions.
(a) a private letter ruling from the Internal Revenue Service
shall have been obtained, and shall continue in effect, to the effect
that, among other things, the Distribution will qualify as a tax-free
distribution for federal income tax purposes under Section 355 of the
Code and the transfer to Lucent of the Lucent Assets and the assumption
by Lucent of the Lucent Liabilities in connection with the Separation
will not result in the recognition of any gain or loss to AT&T, Lucent
or AT&T's or Lucent's shareholders for federal income tax purposes, and
such ruling shall be in form and substance satisfactory to AT&T in its
sole discretion;
(b) any material Governmental Approvals and Consents necessary
to consummate the Distribution shall have been obtained and be in full
force and effect;
(c) no order, injunction or decree issued by any court or
agency of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Distribution shall be in
effect and no other event outside the control of AT&T shall have
occurred or failed to occur that prevents the consummation of the
Distribution; and
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(d) no other events or developments shall have occurred
subsequent to the Closing Date that, in the judgment of the Board of
Directors of AT&T, would result in the Distribution having a material
adverse effect on AT&T or on the shareholders of AT&T.
The foregoing conditions are for the sole benefit of AT&T and shall not give
rise to or create any duty on the part of AT&T or the AT&T Board of Directors to
waive or not waive any such condition.
4.4. FRACTIONAL SHARES. As soon as practicable after the
Distribution Date, AT&T shall direct the Agent to determine the number of whole
shares and fractional shares of Lucent Common Stock allocable to each holder of
record or beneficial owner of AT&T Common Stock as of the Record Date, to
aggregate all such fractional shares and sell the whole shares obtained thereby
at the direction of AT&T either to AT&T, in open market transactions or
otherwise, in each case at then prevailing trading prices, and to cause to be
distributed to each such holder or for the benefit of each such beneficial
owner, in lieu of any fractional share, such holder's or owner's ratable share
of the proceeds of such sale, after making appropriate deductions of the amount
required to be withheld for federal income tax purposes and after deducting an
amount equal to all brokerage charges, commissions and transfer taxes attributed
to such sale. AT&T and the Agent shall use their reasonable best efforts to
aggregate the shares of AT&T Common Stock that may be held by any beneficial
owner thereof through more than one account in determining the fractional share
allocable to such beneficial owner.
4.5. THE LUCENT BOARD OF DIRECTORS. AT&T and Lucent shall each
take all actions which may be required to elect or otherwise appoint as
directors of Lucent, on or prior to the Distribution Date, persons to be
designated by a nominating committee of Lucent's Board of Directors (which
nominating committee shall be comprised of individuals who are at such time
neither officers nor directors of AT&T) as additional or substitute members of
the Board of Directors of Lucent on the Distribution Date.
ARTICLE V
MUTUAL RELEASES; INDEMNIFICATION
5.1. RELEASE OF PRE-CLOSING CLAIMS. (a) Except as provided in
Section 5.1(c), effective as of the Closing Date, Lucent does hereby, for itself
and each other member of the Lucent Group, their respective Affiliates (other
than any member of the AT&T Group), successors and assigns, and all Persons who
at any time prior to the Closing Date have been shareholders, directors,
officers, agents or employees of any member of the Lucent Group (in each case,
in their respective capacities as such), remise, release and forever discharge
each of AT&T and NCR, the respective members of the AT&T Services Group and the
NCR Group, their respective Affiliates (other than any member of the Lucent
Group), successors and assigns, and all Persons who at any time prior to the
Closing Date have been shareholders, directors, officers, agents or employees of
any member of the AT&T Services Group or the NCR Group (in each case, in their
respective capacities as such), and their respective heirs, executors,
administrators, successors and assigns, from any and all Liabilities whatsoever,
whether at law or in equity (including any right of contribution), whether
arising under any contract or agreement, by operation of law or otherwise,
existing or arising from any acts or events occurring or failing to occur or
alleged to
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have occurred or to have failed to occur or any conditions existing or alleged
to have existed on or before the Closing Date, including in connection with the
transactions and all other activities to implement any of the Separation, the
IPO and the Distribution.
(b) Except as provided in Section 5.1(c), effective as of the
Closing Date, each of AT&T and NCR does hereby, for itself and each other member
of the AT&T Services Group and the NCR Group, their respective Affiliates (other
than any member of the Lucent Group), successors and assigns, and all Persons
who at any time prior to the Closing Date have been shareholders, directors,
officers, agents or employees of any member of the AT&T Services Group or the
NCR Group (in each case, in their respective capacities as such), remise,
release and forever discharge Lucent, the respective members of the Lucent
Group, their respective Affiliates (other than any member of the AT&T Group),
successors and assigns, and all Persons who at any time prior to the Closing
Date have been shareholders, directors, officers, agents or employees of any
member of the Lucent Group (in each case, in their respective capacities as
such), and their respective heirs, executors, administrators, successors and
assigns, from any and all Liabilities whatsoever, whether at law or in equity
(including any right of contribution), whether arising under any contract or
agreement, by operation of law or otherwise, existing or arising from any acts
or events occurring or failing to occur or alleged to have occurred or to have
failed to occur or any conditions existing or alleged to have existed on or
before the Closing Date, including in connection with the transactions and all
other activities to implement any of the Separation, the IPO and the
Distribution.
(c) Nothing contained in Section 5.1(a) or (b) shall impair
any right of any Person to enforce this Agreement, any Ancillary Agreement or
any agreements, arrangements, commitments or understandings that are specified
in Section 2.4(b) or the applicable Schedules thereto not to terminate as of the
Closing Date, in each case in accordance with its terms. Nothing contained in
Section 5.1(a) or (b) shall release any Person from:
(i) any Liability provided in or resulting from any agreement
among any members of the AT&T Services Group, the Lucent Group or the
NCR Group that is specified in Section 2.4(b) or the applicable
Schedules thereto as not to terminate as of the Closing Date, or any
other Liability specified in such Section 2.4(b) as not to terminate as
of the Closing Date;
(ii) any Liability, contingent or otherwise, assumed,
transferred, assigned or allocated to the Group of which such Person is
a member in accordance with, or any other Liability of any member of
any Group under, this Agreement or any Ancillary Agreement;
(iii) any Liability for the sale, lease, construction or
receipt of goods, property or services purchased, obtained or used in
the ordinary course of business by a member of one Group from a member
of any other Group prior to the Closing Date;
(iv) any Liability for unpaid amounts for products or services
or refunds owing on products or services due on a value-received basis
for work done by a member of one Group at the request or on behalf of a
member of another Group;
(v) any Liability that the parties may have with respect to
indemnification or contribution pursuant to this Agreement for claims
brought against the parties by third Persons, which Liability shall be
governed by the provisions of this Article V
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and Article VI and, if applicable, the appropriate provisions of the
Ancillary Agreements; or
(vi) any Liability the release of which would result in the
release of any Person other than a Person released pursuant to this
Section 5.1; provided that the parties agree not to bring suit or
permit any of their Subsidiaries to bring suit against any Person with
respect to any Liability to the extent that such Person would be
released with respect to such Liability by this Section 5.1 but for the
provisions of this clause (vi).
(d) Lucent shall not make, and shall not permit any member of
the Lucent Group to make, any claim or demand, or commence any Action asserting
any claim or demand, including any claim of contribution or any indemnification,
against AT&T, NCR or any member of the AT&T Services Group or NCR Group, or any
other Person released pursuant to Section 5.1(a), with respect to any
Liabilities released pursuant to Section 5.1(a). AT&T shall not, and shall not
permit any member of the AT&T Services Group, to make any claim or demand, or
commence any Action asserting any claim or demand, including any claim of
contribution or any indemnification, against Lucent or any member of the Lucent
Group, or any other Person released pursuant to Section 5.1(b), with respect to
any Liabilities released pursuant to Section 5.1(b). NCR shall not, and shall
not permit any member of the NCR Group, to make any claim or demand, or commence
any Action asserting any claim or demand, including any claim of contribution or
any indemnification, against Lucent or any member of the Lucent Group, or any
other Person released pursuant to Section 5.1(b), with respect to any
Liabilities released pursuant to Section 5.1(b).
(e) It is the intent of each of AT&T, Lucent and NCR by virtue
of the provisions of this Section 5.1 to provide for a full and complete release
and discharge of all Liabilities existing or arising from all acts and events
occurring or failing to occur or alleged to have occurred or to have failed to
occur and all conditions existing or alleged to have existed on or before the
Closing Date, between or among Lucent or any member of the Lucent Group, on the
one hand, and AT&T, NCR or any member of the AT&T Services Group or the NCR
Group, on the other hand (including any contractual agreements or arrangements
existing or alleged to exist between or among any such members on or before the
Closing Date), except as expressly set forth in Section 5.1(c). At any time, at
the request of any other party, each party shall cause each member of its
respective Group to execute and deliver releases reflecting the provisions
hereof.
5.2. INDEMNIFICATION BY LUCENT. Except as provided in Section
5.4, Lucent shall indemnify, defend and hold harmless AT&T, each member of the
AT&T Services Group and each of their respective directors, officers and
employees, and each of the heirs, executors, successors and assigns of any of
the foregoing (collectively, the "AT&T Indemnitees"), and NCR, each member of
the NCR Group and each of their respective directors, officers and employees,
and each of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "NCR Indemnitees"), from and against any and all Liabilities
of the AT&T Indemnitees and the NCR Indemnitees, respectively, relating to,
arising out of or resulting from any of the following items (without
duplication):
(a) the failure of Lucent or any other member of the Lucent
Group or any other Person to pay, perform or otherwise promptly
discharge any Lucent Liabilities, any Nassau Metals Liabilities or
Lucent Contract in accordance with their respective terms, whether
prior to or after the Closing Date or the date hereof;
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(b) the Lucent Business, any Lucent Liability, any Lucent
Contract or any Nassau Metals Liabilities;
(c) any breach by Lucent or any member of the Lucent Group of
this Agreement or any of the Ancillary Agreements; and
(d) any untrue statement or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, with respect to all information contained in
any IPO Registration Statement or Prospectus.
5.3. INDEMNIFICATION BY AT&T AND BY NCR. (a) AT&T shall
indemnify, defend and hold harmless Lucent, each member of the Lucent Group and
each of their respective directors, officers and employees, and each of the
heirs, executors, successors and assigns of any of the foregoing (collectively,
the "Lucent Indemnitees"), from and against any and all Liabilities of the
Lucent Indemnitees relating to, arising out of or resulting from any of the
following items (without duplication):
(i) the failure of AT&T or any other member of the AT&T Group
or any other Person to pay, perform or otherwise promptly discharge any
Liabilities of the AT&T Group other than the Lucent Liabilities, the
Nassau Metals Liabilities and the NCR Covered Liabilities, whether
prior to or after the Closing Date or the date hereof;
(ii) the AT&T Services Business or any Liability of the AT&T
Group other than the Lucent Liabilities, the Nassau Metals Liabilities
and the NCR Covered Liabilities; and
(iii) any breach by AT&T or any member of the AT&T Services
Group of this Agreement or any of the Ancillary Agreements.
(b) NCR shall indemnify, defend and hold harmless each Lucent
Indemnitee from and against any and all Liabilities of the Lucent Indemnitees
relating to, arising out of or resulting from any of the following items
(without duplication): (i) the failure of NCR or any member of the NCR Group or
any other Person to pay, perform or otherwise promptly discharge any Exclusive
NCR Contingent Liability or any Shared NCR Percentage of any Shared Contingent
Liability, whether prior to or after the Closing Date or the date hereof; and
(ii) any breach by NCR or any member of the NCR Group of this Agreement or any
of the Ancillary Agreements, or any other agreement that is not contemplated to
be terminated as of the Closing Date pursuant to Section 2.4(b) (collectively,
the "NCR Covered Liabilities").
(c) NCR shall indemnify, defend and hold harmless each AT&T
Indemnitee from and against any and all Liabilities of the AT&T Indemnitees
relating to, arising out of or resulting from any NCR Covered Liability.
5.4. INDEMNIFICATION OBLIGATIONS NET OF INSURANCE PROCEEDS AND
OTHER AMOUNTS. (a) The parties intend that any Liability subject to
indemnification or reimbursement pursuant to this Article V or Article VI will
be net of Insurance Proceeds and any amounts recovered pursuant to an RBOC
Agreement that actually reduce the amount of the Liability. Accordingly, the
amount which any party (an "Indemnifying Party") is required to pay to any
Person entitled to indemnification hereunder (an "Indemnitee") will be
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reduced by any Insurance Proceeds theretofore actually recovered by or on behalf
of the Indemnitee in reduction of the related Liability and by any amount
actually theretofore recovered pursuant to an RBOC Agreement. If an Indemnitee
receives a payment (an "Indemnity Payment") required by this Agreement from an
Indemnifying Party in respect of any Liability and subsequently receives
Insurance Proceeds, or recovers any amount pursuant to an RBOC Agreement, then
the Indemnitee will pay to the Indemnifying Party an amount equal to the excess
of the Indemnity Payment received over the amount of the Indemnity Payment that
would have been due if the Insurance Proceeds and/or RBOC Agreement recovery had
been received, realized or recovered before the Indemnity Payment was made.
(b) In the case of any Shared Contingent Liability, any
Insurance Proceeds, or recoveries pursuant to any RBOC Agreement actually
received, realized or recovered by any party in respect of the Shared Contingent
Liability will be shared among the parties in such manner as may be necessary so
that the obligations of the parties for such Shared Contingent Liability, net of
such Insurance Proceeds or recovery pursuant to an RBOC Agreement, will remain
in proportion to their respective Shared Percentages, regardless of which party
or parties may actually receive, realize or recover such Insurance Proceeds or
amount pursuant to an RBOC Agreement.
(c) An insurer who would otherwise be obligated to pay any
claim shall not be relieved of the responsibility with respect thereto or,
solely by virtue of the indemnification provisions hereof, have any subrogation
rights with respect thereto, it being expressly understood and agreed that no
insurer or any other third party shall be entitled to a "windfall" (i.e., a
benefit they would not be entitled to receive in the absence of the
indemnification provisions) by virtue of the indemnification provisions hereof.
Nothing contained in this Agreement or any Ancillary Agreement shall obligate
any member of any Group to seek to collect or recover any Insurance Proceeds.
5.5. PROCEDURES FOR INDEMNIFICATION OF THIRD PARTY CLAIMS. (a)
If an Indemnitee shall receive notice or otherwise learn of the assertion by a
Person (including any Governmental Authority) who is not a member of the AT&T
Services Group, the Lucent Group or the NCR Group of any claim or of the
commencement by any such Person of any Action (collectively, a "Third Party
Claim") with respect to which an Indemnifying Party may be obligated to provide
indemnification to such Indemnitee pursuant to Section 5.2 or 5.3, or any other
Section of this Agreement or any Ancillary Agreement, such Indemnitee shall give
such Indemnifying Party and, if AT&T is not the Indemnifying Party, AT&T written
notice thereof within 20 days after becoming aware of such Third Party Claim.
Any such notice shall describe the Third Party Claim in reasonable detail. If
any Person shall receive notice or otherwise learn of the assertion of a Third
Party Claim which may reasonably be determined to be a Shared Contingent
Liability, such Person (if other than AT&T) shall give AT&T and any other party
to this Agreement written notice thereof within 20 days after becoming aware of
such Third Party Claim. Any such notice shall describe the Third Party Claim in
reasonable detail. Notwithstanding the foregoing, the failure of any Indemnitee
or other Person to give notice as provided in this Section 5.5(a) shall not
relieve the related Indemnifying Party of its obligations under this Article V,
except to the extent that such Indemnifying Party is actually prejudiced by such
failure to give notice.
(b) If the Indemnitee, the party receiving any notice pursuant
to Section 5.5(a) or any other party to this Agreement believes that the Third
Party Claim is or may be a Shared Contingent Liability, such Indemnitee or other
party may make a Determination
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Request at any time following any notice given by the Indemnitee to an
Indemnifying Party or given by any other Person to AT&T pursuant to Section
5.5(a). AT&T may make such a Determination Request at any time. Unless all
parties have acknowledged that the applicable Third Party Claim (including any
Third Party Claim set forth on Schedule 6.6) is not a Shared Contingent
Liability or unless a determination to such effect has been made in accordance
with Section 6.6, AT&T shall be entitled (but not obligated) to assume the
defense of such Third Party Claim as if it were the Indemnifying Party
hereunder. In any such event, AT&T shall be entitled to reimbursement of all the
costs and expenses (including allocated costs of in-house counsel and other
personnel) of such defense once a final determination or acknowledgment is made
as to the status of the Third Party Claim from the applicable party or parties
that would have been required to pay such amounts if the status of the Third
Party Claim had been determined immediately; provided that, if such Third Party
Claim is determined to be a Shared Contingent Liability, such costs and expenses
shall be shared as provided in Section 5.5(c).
(c) AT&T shall assume the defense of, and may seek to settle
or compromise, any Third Party Claim that is a Shared Contingent Liability, and
the costs and expenses (including allocated costs of in-house counsel and other
personnel) thereof shall be included in the calculation of the amount of the
applicable Shared Contingent Liability in determining the reimbursement
obligations of the other parties with respect thereto pursuant to Section 6.4.
Any Indemnitee in respect of a Shared Contingent Liability shall have the right
to employ separate counsel and to participate in (but not control) the defense,
compromise, or settlement thereof, but all fees and expenses of such counsel
shall be the expense of such Indemnitee.
(d) Other than in the case of a Shared Contingent Liability,
an Indemnifying Party may elect to defend (and, unless the Indemnifying Party
has specified any reservations or exceptions, to seek to settle or compromise),
at such Indemnifying Party's own expense and by such Indemnifying Party's own
counsel, any Third Party Claim. Within 30 days after the receipt of notice from
an Indemnitee in accordance with Section 5.5(a) (or sooner, if the nature of
such Third Party Claim so requires), the Indemnifying Party shall notify the
Indemnitee of its election whether the Indemnifying Party will assume
responsibility for defending such Third Party Claim, which election shall
specify any reservations or exceptions. After notice from an Indemnifying Party
to an Indemnitee of its election to assume the defense of a Third Party Claim,
such Indemnitee shall have the right to employ separate counsel and to
participate in (but not control) the defense, compromise, or settlement thereof,
but the fees and expenses of such counsel shall be the expense of such
Indemnitee except as set forth in the next sentence. In the event that (i) the
Third Party Claim is not a Shared Contingent Liability and (ii) the Indemnifying
Party has elected to assume the defense of the Third Party Claim but has
specified, and continues to assert, any reservations or exceptions in such
notice, then, in any such case, the reasonable fees and expenses of one separate
counsel for all Indemnitees shall be borne by the Indemnifying Party.
(e) Other than in the case of a Shared Contingent Liability,
if an Indemnifying Party elects not to assume responsibility for defending a
Third Party Claim, or fails to notify an Indemnitee of its election as provided
in Section 5.5(d), such Indemnitee may defend such Third Party Claim at the cost
and expense (including allocated costs of in-house counsel and other personnel)
of the Indemnifying Party.
(f) Unless the Indemnifying Party has failed to assume the
defense of the Third Party Claim in accordance with the terms of this Agreement,
no Indemnitee may
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settle or compromise any Third Party Claim that is not a Shared Contingent
Liability without the consent of the Indemnifying Party. No Indemnitee may
settle or compromise any Third Party Claim that is a Shared Contingent Liability
without the consent of AT&T.
(g) In the case of a Third Party Claim that is not a Shared
Contingent Liability, no Indemnifying Party shall consent to entry of any
judgment or enter into any settlement of the Third Party Claim without the
consent of the Indemnitee if the effect thereof is to permit any injunction,
declaratory judgment, other order or other nonmonetary relief to be entered,
directly or indirectly, against any Indemnitee. In the case of a Third Party
Claim that is a Shared Contingent Liability, AT&T shall not consent to entry of
any judgment or enter into any settlement of the Third Party Claim without the
consent of the Indemnitee if the effect thereof is to permit any injunction,
declaratory judgment, other order or other nonmonetary relief to be entered,
directly or indirectly, against any Indemnitee.
(h) The provisions of Section 5.5 and Section 5.6 shall not
apply to Taxes (which are covered by the Tax Sharing Agreement).
5.6. ADDITIONAL MATTERS. (a) Any claim on account of a
Liability which does not result from a Third Party Claim shall be asserted by
written notice given by the Indemnitee to the related Indemnifying Party. Such
Indemnifying Party shall have a period of 30 days after the receipt of such
notice within which to respond thereto. If such Indemnifying Party does not
respond within such 30-day period, such Indemnifying Party shall be deemed to
have refused to accept responsibility to make payment. If such Indemnifying
Party does not respond within such 30-day period or rejects such claim in whole
or in part, such Indemnitee shall be free to pursue such remedies as may be
available to such party as contemplated by this Agreement and the Ancillary
Agreements.
(b) In the event of payment by or on behalf of any
Indemnifying Party to any Indemnitee in connection with any Third Party Claim,
such Indemnifying Party shall be subrogated to and shall stand in the place of
such Indemnitee as to any events or circumstances in respect of which such
Indemnitee may have any right, defense or claim relating to such Third Party
Claim against any claimant or plaintiff asserting such Third Party Claim or
against any other person. Such Indemnitee shall cooperate with such Indemnifying
Party in a reasonable manner, and at the cost and expense (including allocated
costs of in-house counsel and other personnel) of such Indemnifying Party, in
prosecuting any subrogated right, defense or claim; provided, however, that AT&T
shall be entitled to control the prosecution of any such right, defense or claim
in respect of any Shared Contingent Liability.
(c) In the event of an Action in which the Indemnifying Party
is not a named defendant, if either the Indemnified Party or Indemnifying Party
shall so request, the parties shall endeavor to substitute the Indemnifying
Party for the named defendant or, in the case of a Shared Contingent Liability,
add the Indemnifying Party as a named defendant, if at all practicable. If such
substitution or addition cannot be achieved for any reason or is not requested,
the named defendant shall allow the Indemnifying Party to manage the Action as
set forth in this Section and, subject to Section 6.4 with respect to Shared
Contingent Liabilities, the Indemnifying Party shall fully indemnify the named
defendant against all costs of defending the Action (including court costs,
sanctions imposed by a court, attorneys' fees, experts' fees and all other
external expenses, and the allocated costs of in-house counsel and other
personnel), the costs of any judgment or settlement, and the cost of any
interest or penalties relating to any judgment or settlement.
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5.7. REMEDIES CUMULATIVE. The remedies provided in this
Article V shall be cumulative and, subject to the provisions of Article IX,
shall not preclude assertion by any Indemnitee of any other rights or the
seeking of any and all other remedies against any Indemnifying Party.
5.8. SURVIVAL OF INDEMNITIES. The rights and obligations of
each of AT&T, Lucent and NCR and their respective Indemnitees under this Article
V shall survive the sale or other transfer by any party of any Assets or
businesses or the assignment by it of any Liabilities.
5.9. RBOC AGREEMENT PROCEDURES. (a) With respect to the RBOC
Agreements, and except as otherwise provided in this Section 5.9 or as otherwise
agreed by the parties hereto, AT&T shall be the party to provide and receive
notices and all other information to and from the RBOCs, and otherwise to deal
with the RBOCs, in respect of all matters arising under the RBOC Agreements or
the RBOC Plan. Without limiting the foregoing, AT&T shall continue as the
representative of all Groups to the contingent liability oversight committee,
except as and to the extent AT&T and the other parties to the RBOC Agreements
may otherwise agree.
(b) After the date hereof, AT&T and Lucent will cooperate with
each other to take reasonable steps to transfer to Lucent the responsibilities
for providing and receiving notices and other information to and from, and for
otherwise dealing with, the RBOCs in respect of Lucent Liabilities and any
Nassau Metals Liabilities that may be subject to sharing with the RBOCs under
any RBOC Agreements (other than Shared Contingent Liabilities, which will be
controlled by AT&T in accordance with the provisions of Section 5.5(c)),
including the right to receive directly from the RBOCs any sharing payments that
may be due from the RBOCs under any RBOC Agreements in respect of Lucent
Liabilities or Nassau Metals Liabilities. Unless and until such responsibilities
are transferred to Lucent in accordance with the foregoing, the provisions of
the following paragraphs (c), (d) and (e) will apply.
(c) In the event that Lucent determines that any Lucent
Liability or any Nassau Metals Liability (other than a Shared Contingent
Liability) is or may be subject to sharing with the RBOCs pursuant to any RBOC
Agreement, and Lucent so requests, AT&T will promptly submit any notice, claim
or other information or material with respect thereto as may be required by such
RBOC Agreement and provided by Lucent to AT&T in accordance with the notice
provisions of Section 12.5 hereof. Upon receipt of any amounts from any RBOCs
with respect to their sharing obligation under an RBOC Agreement relating to an
Lucent Liability or any Nassau Metals Liability (other than a Shared Contingent
Liability), AT&T will promptly remit such amounts to Lucent. AT&T will also
forward to Lucent, in accordance with the notice provisions of Section 12.5
hereof, any notices, information or other materials that it may receive from the
RBOCs pursuant to such RBOC Agreement in respect of any Lucent Liability or any
Nassau Metals Liability. Notwithstanding the foregoing, in no event shall AT&T
have any liability for its failure or delay in submitting or forwarding any such
notice, claim, information or other material except to the extent Lucent is
prejudiced thereby. AT&T shall have no obligation to send, deliver or make any
such notice or claim, or take any other action under any RBOC Agreement in
respect of any Lucent Liability or any Nassau Metals Liability, unless Lucent
shall request that AT&T do so, and provide AT&T with any necessary notice, claim
or other information or material, as set forth above.
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(d) In the event any member of the Lucent Group desires to
commence an arbitration or other proceeding to recover any amounts that may be
due under any RBOC Agreement in respect of an Lucent Liability or any Nassau
Metals Liability (other than a Shared Contingent Liability), AT&T will take such
action as such member of the Lucent Group may reasonably request to commence
such arbitration or other proceeding in accordance with such RBOC Agreement,
including consenting to be the named party in such arbitration or other
proceeding, but such arbitration or other proceeding will be managed and
controlled by such member of the Lucent Group and such member of the Lucent
Group will be responsible for the prosecution of such arbitration or other
proceeding and all decisions made with respect thereto.
(e) Lucent will, upon receipt of any invoice therefor,
promptly reimburse AT&T for all costs or expenses (including allocated costs of
in-house counsel and other personnel) incurred in taking any actions pursuant to
the foregoing paragraphs (c) and (d), and will defend, indemnify and hold
harmless AT&T and each other AT&T Indemnitee with respect to all matters taken
at the direction of or on behalf of any member of the Lucent Group in connection
with any RBOC Agreement.
(f) Each party hereto further agrees that it will from time to
time promptly provide AT&T with all such information, notices and other
materials (and shall make available the former, current and future directors,
officers, employees, other personnel and agents of the members of its respective
Group as witnesses and any books, records or other documents within its control
or which it otherwise has the ability to make available) as AT&T may determine
to be necessary or advisable to permit AT&T to pursue any rights or potential
rights under each such RBOC Agreement, to perform the obligations of any member
of the AT&T Group under each such RBOC Agreement in accordance with the
respective terms thereof and to defend itself, its Affiliates and any other
Person for which AT&T may have any indirect liability (through an
indemnification obligation or otherwise) from any claims or potential claims
thereunder.
5.10. ALLEGED INFRINGEMENT OR MISAPPROPRIATION. (a) The
provisions of this Section 5.10 shall apply notwithstanding any other provisions
of this Agreement or any Ancillary Agreement. In the event of any claim, action,
proceeding or suit by a third party against any member of the AT&T Group
alleging an infringement of any patent, copyright, trademark or misappropriation
of a trade secret with respect to any product, software or other material
provided by or ordered from the Lucent Business prior to the Closing Date (other
than any such product, software or other material provided under and ordered
pursuant to the AT&T General Purchase Agreement, or any supplemental or related
agreement thereto, with respect to which an infringement or misappropriation
indemnity is provided under such agreement) for use by the AT&T Services
Business or the NCR Business (whether used alone or in combination with any
product, software or other material provided by the Lucent Business or by a
third party), Lucent, at its expense, shall defend and hold harmless each such
member of the AT&T Group with respect to such claim, action, proceeding or suit,
subject to the conditions and exceptions stated in paragraphs (b), (c) and (d)
below. Lucent shall reimburse each such member of the AT&T Group for all costs,
expenses or attorneys' fees (including allocated costs of in-house counsel and
other personnel) incurred at Lucent's written request or authorization, and
shall indemnify each such member of the AT&T Group against any liability
assessed against it by final judgment, on account of such infringement or
misappropriation arising out of such use.
(b) If the use by any member of the AT&T Group of any such
product, software or other material referred to in Section 5.10(a) is enjoined
or in the opinion of
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such member of the AT&T Group is likely to be enjoined, Lucent shall, at its
expense and at the sole option of such member of the AT&T Group, (i) replace the
enjoined product, software or materials with a substitute free of any
infringement; (ii) modify the enjoined product, software or materials so that
they will be free of the infringement; or (iii) procure for such member of the
AT&T Group a license or other right to use the enjoined product, software or
materials. In the alternative, such member of the AT&T Group, may at its option,
procure a license with a reasonable royalty rate payable to the third party
alleging infringement, and Lucent shall reimburse, indemnify and hold harmless
such member of the AT&T Group for all liability for payment of such reasonable
royalty.
(c) AT&T or another member of the AT&T Group shall give Lucent
prompt written notice of all such claims, actions, proceedings or suits alleging
infringement or misappropriation and Lucent shall have full and complete
authority to assume the sole defense thereof, including appeals, and to settle
the same; provided, however, that this does not limit any rights of any member
of the AT&T Group concerning injunctions addressed in Section 5.10(b). The
members of the AT&T Group shall, upon Lucent's request and at Lucent's expense,
furnish all information and assistance available to such members of the AT&T
Group and cooperate in every reasonable way to facilitate the defense and/or
settlement of any such claim, action, proceeding or suit.
(d) The foregoing indemnity will not apply to any alleged
infringement or misappropriation if and to the extent such alleged infringement
or misappropriation arises from (i) the use by any member of the AT&T Group of
any product, software or other material provided by the Lucent Business, in
combination with any product, software or other material provided after the
Closing Date by a third party (other than any third-party product, software,
other material or components furnished to such member of the AT&T Group by any
member of the Lucent Group), or (ii) any changes made by any member of the AT&T
Group after the Closing Date in any combination of any product, software or
other material provided by the Lucent Business, with any product, software or
other material provided by a third party (other than any third-party product,
software, other material or components furnished by the Lucent Group), except
for the addition of any product, software or other material provided by any
member of the Lucent Group after the Closing Date to any such combination in
place as of the Closing Date.
ARTICLE VI
CONTINGENT GAINS AND CONTINGENT LIABILITIES
6.1. DEFINITIONS RELATING TO CONTINGENT GAINS AND CONTINGENT
LIABILITIES. For the purpose of this Agreement the following terms shall have
the following meanings:
(a) CONTINGENT CLAIM COMMITTEE means a committee composed of
one representative designated from time to time by each of AT&T, NCR and Lucent
that shall be established in accordance with Section 6.6.
(b) CONTINGENT GAIN means any claim or other right of AT&T,
Lucent, NCR or any their respective Affiliates, whenever arising, against any
Person other than AT&T, Lucent, NCR or any of their respective Affiliates, if
and to the extent that (i) such claim or right has accrued as of the Closing
Date (based on then existing law) and (ii) the
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existence or scope of the obligation of such other Person as of the Closing Date
was not acknowledged, fixed or determined in any material respect, due to a
dispute or other uncertainty as of the Closing Date or as a result of the
failure of such claim or other right to have been discovered or asserted as of
the Closing Date. A claim or right meeting the foregoing definition shall be
considered a Contingent Gain regardless of whether there was any Action pending,
threatened or contemplated as of the Closing Date with respect thereto. For
purposes of the foregoing, a claim or right shall be deemed to have accrued as
of the Closing Date if all the elements of the claim necessary for its assertion
shall have occurred on or prior to the Closing Date, such that the claim or
right, were it asserted in an Action on or prior to the Closing Date, would not
be dismissed by a court on ripeness or similar grounds. Notwithstanding the
foregoing, none of (i) any payment to any member of any Group pursuant to or in
respect of any of the RBOC Agreements, (ii) any Insurance Proceeds, (iii) any
Excluded Assets, (iv) any reversal of any litigation or other reserve, or (v)
any matters relating to Taxes (which are governed by the Tax Sharing Agreement)
shall deemed to be a Contingent Gain.
(c) CONTINGENT LIABILITY means any Liability, other than
Liabilities for Taxes (which are governed by the Tax Sharing Agreement), of
AT&T, Lucent, NCR or any of their respective Affiliates, whenever arising, to
any Person other than AT&T, Lucent, NCR or any of their respective Affiliates,
if and to the extent that (i) such Liability has accrued as of the Closing Date
(based on then existing law) and (ii) the existence or scope of the obligation
of AT&T, Lucent, NCR or any of their respective Affiliates as of the Closing
Date with respect to such Liability was not acknowledged, fixed or determined in
any material respect, due to a dispute or other uncertainty as of the Closing
Date or as a result of the failure of such Liability to have been discovered or
asserted as of the Closing Date (it being understood that the existence of a
litigation or other reserve with respect to any Liability shall not be
sufficient for such Liability to be considered acknowledged, fixed or
determined). In the case of any Liability a portion of which had accrued as of
the Closing Date and a portion of which accrues after the Closing Date, only
that portion that had accrued as of the Closing Date shall be considered a
Contingent Liability. For purposes of the foregoing, a Liability shall be deemed
to have accrued as of the Closing Date if all the elements necessary for the
assertion of a claim with respect to such Liability shall have occurred on or
prior to the Closing Date, such that the claim, were it asserted in an Action on
or prior to the Closing Date, would not be dismissed by a court on ripeness or
similar grounds. For purposes of clarification of the foregoing, the parties
agree that no Liability relating to, arising out of or resulting from any
obligation of any Person to perform the executory portion of any contract or
agreement existing as of the Closing Date, or to satisfy any obligation accrued
under any Plan (as defined in the Employee Benefits Agreement) as of the Closing
Date, shall deemed to be a Contingent Liability.
(d) EXCESS PORTION means that portion, if any, of the
aggregate Value of all amounts actually paid by AT&T, Lucent or NCR (in each
case, together with any members of its respective Group), in respect of any
single Exclusive Contingent Liability of such Group or any Related Exclusive
Contingent Liabilities of such Group that is in excess of $100 million.
(e) EXCLUSIVE AT&T CONTINGENT GAIN means any Contingent Gain
if such Contingent Gain primarily relates to any AT&T Services Business,
including the matters listed or described on Schedule 6.1(e) hereto, or if such
Contingent Gain is expressly assigned to AT&T pursuant to this Agreement or any
Ancillary Agreement.
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(f) EXCLUSIVE LUCENT CONTINGENT GAIN means any Contingent Gain
if such Contingent Gain primarily relates to any Lucent Business, including the
matters listed or described on Schedule 6.1(f) hereto, or if such Contingent
Gain is expressly assigned to Lucent pursuant to this Agreement or any Ancillary
Agreement.
(g) EXCLUSIVE NCR CONTINGENT GAIN means any Contingent Gain if
such Contingent Gain primarily relates to any NCR Business, including the
matters listed or described on Schedule 6.1(g) hereto, or if such Contingent
Gain is expressly assigned to NCR pursuant to this Agreement or any Ancillary
Agreement.
(h) EXCLUSIVE AT&T CONTINGENT LIABILITY means any Contingent
Liability (other than an RBOC Liability) if such Contingent Liability primarily
relates to any AT&T Services Business, including the matters listed or described
on Schedule 6.1(e) hereto (as supplemented pursuant to Section 6.6(d)), or if
such Contingent Liability is expressly assigned to AT&T pursuant to this
Agreement or any Ancillary Agreement.
(i) EXCLUSIVE CONTINGENT LIABILITY means any Exclusive AT&T
Contingent Liability, Exclusive NCR Contingent Liability or Exclusive Lucent
Contingent Liability.
(j) EXCLUSIVE LUCENT CONTINGENT LIABILITY means any Contingent
Liability (other than an RBOC Liability) if (i) such Contingent Liability
primarily relates to any Lucent Business or to the matters listed or described
on Schedule 2.3(a)(v), including the matters listed or described on Schedule
6.1(f) (as supplemented pursuant to Section 6.6(d)) hereto, (ii) such Contingent
Liability relates to, arises out of or results from any Nassau Metals Liability,
or (iii) such Contingent Liability is expressly assigned to Lucent pursuant to
this Agreement or any Ancillary Agreement. The parties agree that the matters
specified on Schedule 6.1(f)(iv) shall be deemed Exclusive Lucent Contingent
Liabilities to the extent reflected thereon.
(k) EXCLUSIVE NCR CONTINGENT LIABILITY means any Contingent
Liability (other than an RBOC Liability) if such Contingent Liability primarily
relates to any NCR Business, including the matters listed or described on
Schedule 6.1(g) (as supplemented pursuant to Section 6.6(d)) hereto, or if such
Contingent Liability is expressly assigned to NCR pursuant to this Agreement or
any Ancillary Agreement.
(l) RELATED EXCLUSIVE CONTINGENT LIABILITIES of any Group
means:
(i) in the case of any Exclusive Contingent Liabilities of
such Group other than Environmental Liabilities, any set or group of
Exclusive Contingent Liabilities of such Group (but not including any
Exclusive Contingent Liabilities of any other Group) arising from:
(A) any single Action (including any group of Actions
that are consolidated as a single Action and any Action or
Actions certified as a class action);
(B) any Action that is brought or threatened to be
brought as a class action and that is settled; or
(C) any group of Actions (other than workers'
compensation Actions by or on behalf of former or current
employees of any member of such Group) asserting claims in
respect of repetitive stress injuries (RSIs) that
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arise or are alleged to arise from the manufacture or sale of
equipment, such as computer keyboards, to third parties; and
(ii) in the case of any Exclusive Contingent Liabilities of
such Group that are Environmental Liabilities:
(A) any and all Environmental Liabilities of such
Group associated with a single site; and
(B) any and all Environmental Liabilities of such
Group arising from separate sites but listed on the National
Priorities List as a single site. Exclusive Contingent
Liabilities of such Group that are Environmental Liabilities
of such Group arising from sites listed separately on the
National Priorities List shall not be deemed to be Related
Exclusive Contingent Liabilities. Whether sites not listed on
the National Priorities List shall be deemed to be a "single
site" for purposes of clause (B) of this definition shall be
determined by applying the definition of "on-site" contained
in 40 C.F.R. Section 300.5 (as in effect an as of the date of
this Agreement) which provides that "On-site means the areal
extent of contamination and all suitable areas in very close
proximity to the contamination necessary for implementation of
the response action." Site identifications by a state or local
Governmental Authority similar in import to those authorized
by the definition of "on-site" in 40 C.F.R. Section 300.5 (as
in effect as of the date of this Agreement) shall similarly be
determinative of whether sites not listed on the National
Priorities List shall be deemed to be a "single site" for
purposes of this definition.
(m) SHARED AT&T PERCENTAGE means 75%.
(n) SHARED CONTINGENT GAIN means any Contingent Gain that is
not an Exclusive AT&T Contingent Gain, an Exclusive Lucent Contingent Gain or an
Exclusive NCR Contingent Gain, including any Contingent Gain relating to,
arising out of or resulting from the matters set forth on Schedule 6.1(n).
(o) SHARED CONTINGENT LIABILITY means, without duplication:
(i) any Contingent Liability that is not an Exclusive AT&T
Contingent Liability, an Exclusive Lucent Contingent Liability or an
Exclusive NCR Contingent Liability;
(ii) any RBOC Liability;
(iii) any Liability (other than Taxes) relating to, arising
out of or resulting from any Other Discontinued Operation; and
(iv) any Liability (other than Taxes) relating to, arising out
of or resulting from the matters set forth on Schedule 6.1(n).
(p) SHARED NCR PERCENTAGE means 3%.
(q) SHARED LUCENT PERCENTAGE means 22%.
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(r) SHARED PERCENTAGE means the Shared AT&T Percentage, the
Shared NCR Percentage or the Shared Lucent Percentage, as the case may be.
(s) VALUE means the aggregate amount of all cash payments, the
fair market value of all non-cash payments and the incremental cost of providing
any goods or services made or provided in respect of any Exclusive Contingent
Liability or Related Exclusive Contingent Liabilities, whether in satisfaction
of any judgment, in settlement of any Action or threatened Action or otherwise
(including all costs and expenses (including allocated costs of in-house counsel
and other personnel), of defending or investigating any Action or threatened
Action), net of: (i) any Insurance Proceeds received or realized in respect of
the applicable Exclusive Contingent Liability or Related Exclusive Contingent
Liabilities (applied in reduction of the applicable Liability in the manner
contemplated by Section 5.4), (ii) any Tax benefits associated with such
payments or the provision of such goods or services (based on assumed effective
Tax rate equal to the effective Tax rate of the applicable party for the fiscal
year immediately preceding the year in which such payments are made or goods or
services provided (it being understood that the effective Tax rate for any party
whose earnings for such immediately preceding fiscal year are consolidated for
federal income tax purposes with another corporation shall be the effective Tax
rate of the corporation filing such federal income tax return for such
immediately preceding fiscal year)), (iii) any amounts received pursuant to any
RBOC Agreement in respect of the Exclusive Contingent Liability or Related
Exclusive Contingent Liabilities, (iv) any other amounts recovered (including by
way of set off) from a third party in connection with any such Action or
threatened Action and (v) the amount of any reserve, account payable or similar
accrual in respect of the Exclusive Contingent Liability or Related Exclusive
Contingent Liabilities, net of any offsetting receivables in respect of such
Exclusive Contingent Liability or Related Exclusive Contingent Liabilities, in
each case as reflected on the Lucent Balance Sheet or the audited consolidated
balance sheet of AT&T, including the notes thereto, as of December 31, 1995 (and
without giving effect to any subsequent adjustment of any such reserve, account
payable, accrual or offsetting receivable).
6.2. CONTINGENT GAINS. (a) Each of AT&T, Lucent and NCR shall
have sole and exclusive right to any benefit received with respect to any
Exclusive AT&T Contingent Gain, Exclusive Lucent Contingent Gain or Exclusive
NCR Contingent Gain, respectively. Each of AT&T, Lucent and NCR shall have sole
and exclusive authority to commence, prosecute, settle, manage, control,
conduct, waive, forego, release, discharge, forgive and otherwise determine all
matters whatsoever with respect to any Exclusive AT&T Contingent Gain, Exclusive
Lucent Contingent Gain or Exclusive NCR Contingent Gain, respectively.
(b) Any benefit that may be received from any Shared
Contingent Gain shall be shared among AT&T, Lucent and NCR in proportion to the
Shared AT&T Percentage, the Shared Lucent Percentage and the Shared NCR
Percentage, respectively, and shall be paid in accordance with Section 6.5.
Notwithstanding the foregoing, AT&T shall have sole and exclusive authority to
commence, prosecute, settle, manage, control, conduct, waive, forgo, release,
discharge, forgive and otherwise determine all matters whatsoever with respect
to any Shared Contingent Gain. Neither Lucent nor NCR shall take, or permit any
member of their respective Groups to take, any action (including commencing any
claim) that would interfere with such rights and powers of AT&T. AT&T shall use
its reasonable efforts to notify each of Lucent and NCR in the event that it
commences an Action with respect to a Shared Contingent Gain; provided that the
failure to provide such notice shall not give rise to any rights on the part of
Lucent or NCR against AT&T or affect any other provision of this Section 6.2.
Each of Lucent and NCR acknowledges that AT&T may
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elect not to pursue any Shared Contingent Gain for any reason whatsoever
(including a different assessment of the merits of any Action, claim or right
than Lucent or NCR or any business reasons that are in the best interests of
AT&T or a member of the AT&T Services Group, without regard to the best
interests of any member of the Lucent Group or the NCR Group) and that no member
of the AT&T Group shall have any liability to any Person (including any member
of the Lucent Group or the NCR Group) as a result of any such determination.
(c) In the event of any dispute as to whether any claim or
right is a Contingent Gain or whether any Contingent Gain is a Shared Contingent
Gain, an Exclusive AT&T Contingent Gain, an Exclusive Lucent Contingent Gain or
an Exclusive NCR Contingent Gain, AT&T may, but shall not be obligated to,
commence prosecution or other assertion of such claim or right pending
resolution of such dispute. In the event that AT&T commences any such
prosecution or assertion and, upon resolution of the dispute, a party other than
AT&T is determined hereunder to have the exclusive right to such claim or right,
AT&T shall, promptly upon the request of such other party, discontinue the
prosecution or assertion of such right or claim and transfer the control thereof
to the party so determined to have the right thereto. In such event, the party
having the right to such claim or right will reimburse AT&T for all costs and
expenses (including allocated costs of in-house counsel and other personnel),
reasonably incurred prior to resolution of such dispute in the prosecution or
assertion of such claim or right.
6.3. EXCLUSIVE CONTINGENT LIABILITIES. (a) Except as otherwise
provided in this Section 6.3, each Exclusive Contingent Liability or Related
Exclusive Contingent Liability shall constitute a Liability for which
indemnification is provided by AT&T, Lucent or NCR, as the case may be, pursuant
to Article V hereof and shall be subject to the procedures set forth in Article
V with respect thereto.
(b) Notwithstanding anything to the contrary in this
Agreement, except as set forth in paragraph (f) of this Section 6.3, if the
aggregate Value of all amounts paid by AT&T, Lucent or NCR (in each case,
together with any members of its respective Group) in respect of any single
Exclusive Contingent Liability of such Group or any Related Exclusive Contingent
Liabilities of such Group is in excess of $100 million, each of AT&T, Lucent or
NCR, as the case may be, shall be entitled to reimbursement from each of the
others for a share of the Excess Portion in accordance with the following
percentages:
(i) in the case of Exclusive AT&T Contingent Liabilities, AT&T
shall bear 75 percent of such Excess Portion, Lucent shall bear 22
percent of such Excess Portion, and NCR shall bear 3 percent of such
Excess Portion;
(ii) in the case of Exclusive NCR Contingent Liabilities, NCR
shall bear 50 percent of such Excess Portion, AT&T shall bear 37
percent of such Excess Portion and Lucent shall bear 13 percent of such
Excess Portion; and
(iii) in the case of Exclusive Lucent Contingent Liabilities,
Lucent shall bear 50 percent of such Excess Portion, AT&T shall bear 47
percent of such Excess Portion and NCR shall bear 3 percent of such
Excess Portion.
(c) In the event that after any payment is made by any party
to any other party in accordance with the allocation set forth in Section
6.3(b), any party or any member of such party's Group receives any Insurance
Proceeds, obtains any recovery pursuant to an RBOC Agreement or obtains any
other amounts that, in any such case, would reduce the
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Value of all amounts paid by such party and the members of its Group in respect
of the applicable Exclusive Contingent Liability or Liabilities, such party will
promptly notify each other party of the receipt of such Insurance Proceeds or
recovery of such amount pursuant to an RBOC Agreement or otherwise and will
promptly reimburse each other party for the amount of any payment that such
first party would not have been entitled to receive if it had received such
Insurance Proceeds or obtained such recovery pursuant to an RBOC Agreement or
otherwise on or prior to the date it received a payment pursuant to this
Section. Each such repayment will be accompanied by interest accruing from the
date of receipt of the original payment pursuant to this Section to the date of
such repayment at a rate equal to the Prime Rate plus 2% per annum.
(d) Each party agrees to use its reasonable best efforts to
advise each other party if it becomes aware of one or more Exclusive Contingent
Liabilities that may result in a Value of $100 million or more; provided,
however, that no failure to give any such notice shall relieve any other party
of any obligation pursuant to this Agreement. In the event of any such notice,
or if any other party otherwise determines that any such risk may exist, the
other parties will be entitled at their own expense to monitor any such Action.
In any such event, the parties will enter into a mutually acceptable joint
defense agreement so as to maintain to the extent reasonably practicable the
attorney-client privilege with respect thereto.
(e) It shall not be a defense to any obligation by any party
to pay any amount in respect of any Excess Portion that such party was not
consulted in the defense thereof, that such party's views or opinions as to the
conduct of such defense were not accepted or adopted, that such party does not
approve of the quality or manner of the defense thereof or that such Excess
Portion was incurred by reason of a settlement rather than by a judgment or
other determination of liability (even if, subject to Section 5.5(g), such
settlement was effected without the consent or over the objection of such
party).
(f) Neither AT&T nor Lucent (nor any member of their
respective Groups) will be entitled to reimbursement pursuant to this Section
6.3 for a share of the Excess Portion in respect of any Exclusive Contingent
Liability or Related Exclusive Contingent Liabilities that would be subject to
sharing with the RBOCs pursuant to any RBOC Agreement, unless the applicable
party shall have pursued in good faith any recovery to which it or any member of
its Group may be entitled under such RBOC Agreement in respect of such Exclusive
Contingent Liability or Related Exclusive Contingent Liabilities.
6.4. SHARED CONTINGENT LIABILITIES. (a) As set forth in
Section 5.5(c), AT&T shall assume the defense of, and may seek to settle or
compromise, any Third Party Claim that is a Shared Contingent Liability, and the
costs and expenses (including allocated costs of in-house counsel and other
personnel) thereof shall be included in the calculation of the amount of the
applicable Shared Contingent Liability in determining the reimbursement
obligations of the other parties with respect thereto pursuant to this Section
6.4.
(b) Each of AT&T, Lucent and NCR shall be responsible for its
Shared Percentage of any Shared Contingent Liability. It shall not be a defense
to any obligation by any party to pay any amount in respect of any Shared
Contingent Liability that such party was not consulted in the defense thereof,
that such party's views or opinions as to the conduct of such defense were not
accepted or adopted, that such party does not approve of the
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quality or manner of the defense thereof or that such Shared Contingent
Liability was incurred by reason of a settlement rather than by a judgment or
other determination of liability (even if, subject to Section 5.5(g), such
settlement was effected without the consent or over the objection of such
party).
6.5. PAYMENTS. (a) Any amount owed in respect of any Shared
Contingent Liabilities (including reimbursement for the cost or expense
(including allocated costs of in-house counsel and other personnel) of defense
of (i) any Third Party Claim that is a Shared Contingent Liability), (ii) any
Excess Portion of any Exclusive Contingent Liabilities or of any Related
Exclusive Contingent Liabilities or (iii) any Shared Contingent Gains pursuant
to this Article VI shall be remitted promptly after the party entitled to such
amount provides an invoice (including reasonable supporting information with
respect thereto) to the party owing such amount.
(b) In the case of any Shared Contingent Liability, AT&T shall
be entitled to reimbursement from Lucent and NCR in advance of a final
determination of any Action for amounts paid in respect of costs and expenses
(including allocated costs of in-house counsel and other personnel) related
thereto, from time to time as such costs and expenses are incurred. In the case
of any Shared Contingent Gain, AT&T shall be entitled to retain from the amount
of the Shared Contingent Gain otherwise payable to Lucent and NCR, Lucent's and
NCR's respective Shared Percentage of the costs and expenses (including
allocated costs of in-house counsel and other personnel) paid or incurred by or
on behalf of any member of the AT&T Services Group in connection with such
Shared Contingent Gain.
(c) Any amounts billed and properly payable in accordance with
this Article VI that are not paid within 30 days of such bill shall bear
interest at the Prime Rate plus 2% per annum.
6.6. PROCEDURES TO DETERMINE STATUS OF CONTINGENT LIABILITY OR
CONTINGENT GAIN. (a) With respect to the Actions set forth on Schedule 6.6, and
with respect to any other matters not set forth on Schedules 6.1(e), 6.1(f),
6.1(g) or 6.1(n) (regardless of whether such matters are currently pending but
not set forth on such Schedules or are asserted or filed hereafter), AT&T,
Lucent and NCR will form the Contingent Claim Committee for the purpose of
resolving whether:
(i) any claim or right is a Contingent Gain;
(ii) any Contingent Gain is a Shared Contingent Gain, an
Exclusive AT&T Contingent Gain, an Exclusive Lucent Contingent Gain or
an Exclusive NCR Contingent Gain;
(iii) any Liability is a Contingent Liability;
(iv) any Contingent Liability is a Shared Contingent
Liability, an Exclusive AT&T Contingent Liability, an Exclusive Lucent
Contingent Liability or an Exclusive NCR Contingent Liability; or
(v) any Exclusive Contingent Liabilities constitute Related
Exclusive Contingent Liabilities.
(b) Any of the parties may refer any potential Contingent
Gains or Contingent Liabilities to the Contingent Claim Committee for resolution
as described in Section
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6.6(a) and the Contingent Claim Committee's determination (which shall be made
within 30 days of such referral), if unanimous, shall be binding on all of the
parties and their respective successors and assigns. In the event that the
Contingent Claim Committee cannot reach a unanimous determination as to the
nature or status of any such Contingent Liabilities or Contingent Gains within
30 days after such referral, the issue will be submitted for arbitration
pursuant to the procedures set forth in Article IX of this Agreement, subject to
Section 9.8. The outcome of the arbitration pursuant to Article IX (subject to
Section 9.8) shall be final and binding on all parties and their respective
successors and assigns.
(c) In resolving, with respect to any Action set forth on
Schedule 6.6 or any other matter not set forth in Schedules 6.1(e), 6.1(f),
6.1(g) and 6.1(n), whether (i) any Contingent Gain is a Shared Contingent Gain,
an Exclusive AT&T Contingent Gain, an Exclusive Lucent Contingent Gain or an
Exclusive NCR Contingent Gain or (ii) any Contingent Liability is a Shared
Contingent Liability, an Exclusive AT&T Contingent Liability, an Exclusive
Lucent Contingent Liability or an Exclusive NCR Contingent Liability, the
categorization of Contingent Claims and Contingent Liabilities reflected in
Schedules 6.1(e), 6.1(f), 6.1(g) and 6.1(n) shall be considered and used as a
precedential guide.
(d) At any time or from time to time prior to the Closing
Date, the Solicitor General of AT&T, following consultation with representatives
of each of Lucent and NCR, may amend or supplement any of Schedules 6.1(e),
6.1(f), 6.1(g) and 6.1(n). Without limiting the foregoing, prior to the Closing
Date, the parties will continue to review Schedule 6.6 to determine whether any
matter set forth therein will be reassigned to one of Schedules 6.1(e), 6.1(f),
6.1(g) or 6.1(n).
6.7. CERTAIN CASE ALLOCATION MATTERS. (a) Lucent and NCR
acknowledge that Third Party Claims may be asserted in respect of alleged
repetitive stress injuries in a single Action (including a group of consolidated
Actions) that involve both computer keyboards or related equipment manufactured
in the conduct of the NCR Business (which would constitute an Exclusive NCR
Contingent Liability) and computer keyboards or related equipment manufactured
in the conduct of the discontinued computer operations of AT&T and its
Affiliates, other than any member of the NCR Group (which would constitute an
Exclusive Lucent Contingent Liability). Lucent and NCR agree to use their
reasonable best efforts to share responsibility (including for all costs and
expenses (including allocated costs of in-house counsel and other personnel))
for any such Third Party Claims or Actions, notwithstanding any allocation of
such Actions set forth in Schedules 6.1(e), 6.1(f), 6.1(g) and 6.1(n), so that,
to the maximum extent reasonably practicable, the parties will have the same
rights and obligations (including pursuant to Article V hereof) as would have
been applicable if such matters had been commenced as separate Actions. Third
Party Claims with respect to computer keyboards or related equipment
manufactured in the conduct of the NCR Business shall not be deemed to be
Related Exclusive Contingent Liabilities with Third Party Claims with respect to
any computer keyboards or related equipment manufactured in the conduct of the
discontinued computer operations of AT&T and its Affiliates (other than any
member of the NCR Group).
(b) The parties agree that if any Action not set forth on
Schedule 6.1(e), 6.1(f), 6.1(g) or 6.1(n) involves separate and distinct claims
that, if not joined in a single Action, would constitute separate Exclusive
Contingent Liabilities of two or more parties, they will use their reasonable
best efforts to segregate such separate and distinct claims so that the
Liabilities associated with each such claim (including all costs and expenses
(including allocated costs of in-house counsel and other personnel)) shall be
treated as Exclusive Contingent Liabilities of the appropriate party and so that
each party shall have the rights
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and obligations with respect to each such claim (including pursuant to Article V
hereof) as would have been applicable had such claims been commenced as separate
Actions. Notwithstanding the foregoing provisions, this Section 6.7(b) shall not
apply to any separate and distinct claim that is de minimis or frivolous in
nature.
[/R]
(c) The parties agree that notwithstanding anything in this
Agreement to the contrary, all Liabilities arising out of, resulting from or
relating to the Action commenced by Bell Atlantic Corporation and DSC
Communications Corporation against AT&T and Lucent in the United States District
Court for the Eastern District of Texas on February 14, 1996, (i) to the extent
relating to Caller ID services, shall be Exclusive AT&T Contingent Liabilities
and (ii) to the extent relating to telecommunications equipment, systems or
software, shall be Exclusive Lucent Contingent Liabilities; provided however
that each of the parties shall bear its own costs and expenses (including
allocated costs of in-house counsel and other personnel) of defending any such
claims, including any such costs and expenses of any related document
productions.
ARTICLE VII
INTERIM OPERATIONS AND CERTAIN OTHER MATTERS
7.1. INSURANCE MATTERS. (a) Lucent agrees that it will pay to
AT&T $1 million per month (prorated on a daily basis for any partial month) in
respect of the period from the date hereof until the Distribution Date, such
amount to be payable in arrears by the 10th day of the next succeeding month, in
respect of Insurance Policies under which Lucent will continue to have coverage
following the date hereof. AT&T and Lucent agree to cooperate in good faith to
provide for an orderly transition of insurance coverage from the date hereof
through the Distribution Date and for the treatment of any Insurance Policies
that will remain in effect following the Closing Date on a mutually agreeable
basis. In no event shall AT&T, any other member of the AT&T Group or any AT&T
Indemnitee or NCR Indemnitee have liability or obligation whatsoever to any
member of the Lucent Group in the event that any Insurance Policy or other
contract or policy of insurance shall be terminated or otherwise cease to be in
effect for any reason, shall be unavailable or inadequate to cover any Liability
of any member of the Lucent Group for any reason whatsoever or shall not be
renewed or extended beyond the current expiration date.
(b) As promptly as practicable, each party shall use its
reasonable best efforts to consummate the transactions set forth on Schedule
7.1(b) with respect to American Ridge and its Subsidiaries.
(c) (i) Except in the case of the Ridge Lucent Policies and
except as otherwise provided in any Ancillary Agreement, the parties intend by
this Agreement that Lucent and each other member of the Lucent Group be
successors-in-interest to all rights that any member of the Lucent Group may
have as of the Closing Date as a subsidiary, affiliate, division or department
of AT&T prior to the Closing Date under any policy of insurance issued to AT&T
by any insurance carrier unaffiliated with AT&T or under any agreements related
to such policies executed and delivered prior to the Closing Date, including any
rights such member of the Lucent Group may have, as an insured or additional
named insured, subsidiary, affiliate, division or department, to avail itself of
any such policy of insurance or any such agreements related to such policies as
in effect prior to the Closing Date. At the request of Lucent, AT&T shall take
all reasonable steps, including the execution and delivery of any instruments,
to effect the foregoing; provided however that AT&T
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shall not be required to pay any amounts, waive any rights or incur any
Liabilities in connection therewith.
(ii) Except in the case of the Ridge Lucent Policies and
except as otherwise contemplated by any Ancillary Agreement, after the Closing
Date, none of AT&T or Lucent or any member of their respective Groups shall,
without the consent of the other, provide any such insurance carrier with a
release, or amend, modify or waive any rights under any such policy or
agreement, if such release, amendment, modification or waiver would adversely
affect any rights or potential rights of any member of the other Group
thereunder; provided however that the foregoing shall not (A) preclude any
member of any Group from presenting any claim or from exhausting any policy
limit, (B) require any member of any Group to pay any premium or other amount or
to incur any Liability, or (C) require any member of any Group to renew, extend
or continue any policy in force. Each of Lucent and AT&T will share such
information as is reasonably necessary in order to permit the other to manage
and conduct its insurance matters in an orderly fashion.
(d) This Agreement shall not be considered as an attempted
assignment of any policy of insurance or as a contract of insurance and shall
not be construed to waive any right or remedy of any member of the AT&T Group in
respect of any Insurance Policy or any other contract or policy of insurance.
(e) Lucent does hereby, for itself and each other member of
the Lucent Group, their respective Affiliates (other than any member of the AT&T
Group), successors and assigns, and all Persons who at any time have been
shareholders, directors, officers, agents or employees of any member of the
Lucent Group (in each case, in their respective capacities as such), agree that
all Ridge Lucent Policies will automatically be terminated in all respects as of
the Distribution Date (without any further action by any Person) and, as of such
date, remise, release and forever discharge each AT&T Indemnitee and each NCR
Indemnitee with respect thereto. Lucent agrees to indemnify, defend and hold
harmless each member of the AT&T Group and each AT&T Indemnitee and NCR
Indemnitee if any Person shall claim that it is entitled to any payment from any
of the foregoing in respect of any Ridge Lucent Policy. At the request of AT&T,
Lucent will take, or cause to be taken, all action necessary to terminate any
Ridge Lucent Policies and all Liabilities of any member of the AT&T Group
thereunder, effective as of the Distribution Date.
(f) Lucent does hereby, for itself and each other member of
the Lucent Group, agree that no member of the AT&T Group or any AT&T Indemnitee
or NCR Indemnitee shall have any Liability whatsoever as a result of the
insurance policies and practices of AT&T and its Affiliates as in effect at any
time prior to the Closing Date, including as a result of the level or scope of
any such insurance, the creditworthiness of any insurance carrier, the terms and
conditions of any policy, the adequacy or timeliness of any notice to any
insurance carrier with respect to any claim or potential claim or otherwise.
(g) Nothing in this Agreement shall be deemed to restrict any
member of the Lucent Group from acquiring at its own expense any other insurance
policy in respect of any Liabilities or covering any period.
7.2. COLLECTION OF ACCOUNTS RECEIVABLE. (a) Lucent
acknowledges on behalf of itself and each other member of the Lucent Group that
it is aware that the Retained Receivables are Excluded Assets and that certain
Persons that are account debtors with respect to accounts receivables included
in the Lucent Assets (or that in the future may otherwise become payable to a
member of the Lucent Group) are also account debtors with
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respect to the Retained Receivables. Lucent agrees that from and after the date
hereof and prior to December 31, 1997, unless otherwise specifically directed by
AT&T, Lucent, as agent for AT&T, will take all commercially reasonable steps
consistent with the Lucent Business's current practices to service and collect
the Retained Receivables. AT&T and Lucent will cooperate to establish as
promptly as practicable mutually acceptable operational procedures. In addition,
Lucent will use all reasonable best efforts to satisfy any conditions to the
payment of any Retained Receivables and to fulfill all obligations to the
applicable account debtors related to such Retained Receivables; provided,
however that if, in order to collect any Retained Receivables, Lucent is
required to engage a collection agency or to institute legal proceedings or any
other Action it shall be entitled to be reimbursed for its reasonable
out-of-pocket costs and expenses incurred in connection therewith. After
December 31, 1997, the parties will negotiate in good faith with respect to the
final disposition of any then outstanding Retained Receivables.
(b) Any payment made by an account debtor to Lucent or any
member of the Lucent Group with respect to an account receivable shall be
applied to the Retained Receivables (and paid over to AT&T in accordance with
this Section 7.2) before they are applied to any other account receivable
whenever arising for such account debtor (regardless of the respective dates of
such accounts receivable or of any specific notation to the contrary by the
applicable account debtor), unless the applicable account debtor specifies that
such payment shall be applied to another account payable of such account debtor
that (i) arose from an order placed after the date of this Agreement and (ii) is
both due and paid prior to the first due date of any Retained Receivable or any
other account receivable of such account debtor.
(c) Each of AT&T and Lucent shall deliver to the other such
schedules and other information with respect to the Retained Receivables and the
accounts receivables included in the Lucent Assets as each shall reasonably
request from time to time in order to permit such parties to reconcile their
respective records and to monitor the collection of all accounts receivable
(whether Lucent Assets or Retained Receivables). Each of Lucent and AT&T shall
afford the other reasonable access to its books and records relating to any
accounts receivable. Without limiting the foregoing, Lucent shall at all times
maintain the ability to provide to AT&T promptly upon request a true and
complete schedule of all Retained Receivables due and owing as of the end of the
prior month.
(d) By the 15th day of each month (or if such day is not a
business day, by the next business day), Lucent hereby irrevocably agrees to pay
over, or cause to be paid over, in immediately available funds to AT&T, at no
cost or charge to AT&T or any of its Affiliates (other than any member of the
Lucent Group), any and all amounts which were received (or deemed received in
accordance with Section 7.2(b)) during the immediately preceding month by any
member of the Lucent Group in respect of the Retained Receivables. Any such
amounts not paid over to AT&T by the date specified in the first sentence of
this Section 7.2(d) shall bear interest at the Prime Rate plus 2% per annum.
(e) Nothing in this Agreement or any Ancillary Agreement shall
be construed to grant to any member of the Lucent Group any right, title or
interest in any Retained Receivable and no member of the Lucent Group shall have
any right or power to, and no member of the Lucent Group shall, grant or suffer
to exist any right of set off, lien or any other Security Interest in any
Retained Receivables or proceeds thereof. Lucent will not, and it will not
permit any member of the Lucent Group to, extend or otherwise change the amount
or other terms of payment of any Retained Receivable, unless Lucent shall have
paid to AT&T an amount equal to the full amount of such Retained Receivable.
Lucent
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hereby irrevocably and unconditionally agrees that it shall not assert (and it
shall not permit any member of the Lucent Group to assert) any offsets, claims,
counterclaims or defenses in respect of the Retained Receivables or its
obligations to pay over any such Retained Receivables to AT&T hereunder (whether
existing on the date hereof or arising hereafter and whether or not relating to
the transactions contemplated by this Agreement, any Ancillary Agreement or
otherwise).
(f) AT&T shall retain the right to collect or seek to collect
in such manner as it may in its sole discretion determine all or any portion of
the Retained Receivables.
(g) Lucent hereby represents and warrants to AT&T that each
Retained Receivable constitutes a legal, valid and binding obligation of the
applicable account debtor enforceable against such account debtor in accordance
with its respective terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally, and is not subject to any Security
Interest or any other lien, claim, defense or right of set-off.
(h) On or prior to February 15, 1996, Lucent shall deliver to
AT&T a true and correct list of each of the Retained Receivables in such form as
AT&T shall reasonably request. Such list shall specify the face amount of each
Retained Receivable and a summary of the total Retained Receivables, including
the allocations thereof among the Lucent business units, the applicable credit
loss reserve thereon and such other information as AT&T shall reasonably
request.
7.3. OPERATING FINANCIAL LIABILITIES. (a) As between Lucent
and AT&T, Lucent hereby irrevocably assumes and agrees to pay, perform, satisfy
and discharge all liabilities, obligations, contingencies and other Liabilities
under, or otherwise relating to, arising out of or resulting from, all Lucent
OFL's. For purposes of this Agreement, the term "Lucent OFL" means the OFL's
listed or described on Schedule 7.3(a) and any other OFL's that are primarily
related to, arise out of or result from any Lucent Asset, Lucent Liability
(including any Lucent Contract) or Lucent Business or that were otherwise
entered into in connection with the conduct of the Lucent Business. The parties
hereto acknowledge that there may be OFL's that are Lucent OFL's that are not
set forth or described on such Schedule 7.3(a), either because such OFL's are
entered into after the date hereof or because such OFL's were inadvertently
excluded from such Schedule. As a result, the parties agree to cooperate in good
faith to supplement Schedule 7.3(a) as any additional Lucent OFL's are
identified. In the event that any OFL is so added to such Schedule 7.3(a), AT&T
will retroactively bill Lucent in accordance with this Section 7.3 for any
amount payable by any member of the AT&T Group on or after the date hereof, and
AT&T will retroactively credit Lucent in accordance with this Section 7.3 for
any amount paid to any member of the AT&T Group on or after the date hereof,
together in each case with interest thereon from the date of payment by or to
any such member of the AT&T Group, as the case may be, to the date of settlement
of such bill or credit, at the AT&T CP Rate that would have been applicable if
such Lucent OFL had originally been included on Schedule 7.3(a), subject to
increase pursuant to Section 7.3(c)(ii).
(b) (i) AT&T may, from time to time, set forth on Schedule
7.3(a) whether any Lucent OFL's are to be paid, performed, satisfied and
discharged directly by Lucent. AT&T may at any time or from time to time on at
least 30 days' written notice to Lucent, modify such Schedule 7.3(a) to change
whether any Lucent OFL shall thereafter be paid, performed, satisfied and
discharged directly by Lucent or by AT&T. AT&T shall, in the absence of any
default by Lucent under this Section 7.3, pay, or cause to be paid, all other
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Lucent OFL's, and Lucent agrees to reimburse AT&T for such payments in
accordance with the terms of this Section 7.3. If Lucent is in default of any of
its obligations under this Section 7.3, AT&T shall no longer be required to pay,
or cause to be paid, any Lucent OFL's and Lucent shall be required directly to
pay, perform, satisfy and discharge such Lucent OFL's.
(ii) In the event that payments are made by a third party
under any Lucent OFL, if Lucent is not in default of any of its obligations
under this Section 7.3, (A) if any such payment is made to any member of the
Lucent Group, such member of the Lucent Group will be entitled to retain any
such payments received by it, and (B) if any such payment is made to any member
of the AT&T Group, such member of the AT&T Group shall, at AT&T's election,
either remit any such amounts it receives to Lucent or net such amounts against
payments AT&T is then required to make under any other Lucent OFL or against
payments then owed (whether or not then due) to AT&T by Lucent hereunder.
(iii) In the event that payments are made by a third party
under any Lucent OFL, if Lucent is in default of any of its obligations under
this Section 7.3, (A) if any such payment is made to any member of the Lucent
Group, Lucent shall promptly remit any such payments to AT&T, and (B) if any
such payment is made to any member of the AT&T Group, AT&T shall be entitled
(but not required) to apply any such payments to satisfy, any such breach by
Lucent, either, at AT&T's option, by netting amounts then owed (whether or not
then due) to AT&T by Lucent hereunder or by paying over such monies in order to
satisfy any obligation in respect of any Lucent OFL.
(iv) In the event that payment or receipt of commodities or
other property is called for under any Lucent OFL, the parties will mutually
agree upon reasonable then current market-based valuations to convert such
payment or receipt into dollars, unless Lucent determines to make delivery or
take receipt under the Lucent OFL in commodities or property.
(c) (i) AT&T shall issue a statement to Lucent for the
payments due from or payable to Lucent pursuant to this Section 7.3 in respect
of any month by the tenth business day of the following month. Each such
statement shall set forth the AT&T CP Rate for the immediately preceding month.
Interest will accrue and be payable by Lucent on all amounts due pursuant to
this Section 7.3 in respect of Lucent OFL's at the AT&T CP Rate in effect for
the month immediately preceding the month in which the statement is issued from
the date of payment of any such amount by any member of the AT&T Group under any
Lucent OFL to the date of payment therefor to AT&T by Lucent. In the event
payments are due by AT&T to Lucent under this Section 7.3, AT&T will pay
interest at the AT&T CP Rate in effect for the month immediately preceding the
month in which the statement is issued from the date of receipt by AT&T under an
Lucent OFL to the date of payment by AT&T. All payments under this Section 7.3
shall be in same day funds.
(ii) Lucent agrees to pay AT&T any amounts due (including in
respect of interest) within 10 days of receipt of each statement. AT&T will
remit to Lucent any payments (including in respect of interest) received by any
member of the AT&T Group under any Lucent OFL (to the extent not netted in
accordance with Section 7.3(b)) within 10 days of the date of statement. Any
amounts not paid when due shall bear interest at the Prime Rate plus 2% per
annum in lieu of the AT&T CP Rate.
(d) (i) Lucent may prepay (or effect the early termination) of
any Lucent OFL's provided that no additional Liability is thereby created for
any member of the AT&T
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Group other than any Liabilities that are fully discharged and satisfied by
Lucent simultaneously with such prepayment or early termination.
(ii) Without AT&T's written consent, Lucent will not enter
into or permit any amendment, modification or waiver of any provision of any
Lucent OFL; provided that AT&T agrees that it will consent to any such
amendments, modifications or waivers that do not create additional obligations
or Liabilities for any member of the AT&T Group or otherwise adversely affect
any member of the AT&T Group.
(iii) Each party will give prompt notice to the other party of
any default by it or, if it becomes aware thereof, by any third party under any
Lucent OFL.
(iv) In the event that Lucent makes any payment in respect of
an Lucent OFL, Lucent will be subrogated to all rights of AT&T or any member of
the AT&T Group with respect to such Lucent OFL, including with respect to
collateral, to the extent of such payment.
7.4. CERTAIN BUSINESS MATTERS. (a) No member of any Group
shall have any duty to refrain from (i) engaging in the same or similar
activities or lines of business as any member of any other Group, (ii) doing
business with any potential or actual supplier or customer of any member of any
other Group, or (iii) engaging in, or refraining from, any other activities
whatsoever relating to any of the potential or actual suppliers or customers of
any member of any other Group.
(b) Each of AT&T, Lucent and NCR is aware that from time to
time certain business opportunities may arise which more than one Group may be
financially able to undertake, and which are, from their nature, in the line of
more than one Group's business and are of practical advantage to more than one
Group. In connection therewith, the parties agree that if prior to (but not
following) the Distribution Date, any of AT&T, Lucent or NCR acquires knowledge
of an opportunity that meets the foregoing standard with respect to more than
one Group, none of AT&T, Lucent or NCR shall have any duty to communicate or
offer such opportunity to any of the others and may pursue or acquire such
opportunity for itself, or direct such opportunity to any other Person, unless
(i) such opportunity relates primarily to the AT&T Services Business, the Lucent
Business or the NCR Business, in which case the party that acquires knowledge of
such opportunity shall use its reasonable best efforts to communicate and offer
such opportunity to AT&T, Lucent or NCR, respectively, or (ii) such opportunity
relates both to the AT&T Services Business and the Lucent Business but not
primarily to either one, in which case such party shall use its reasonable best
efforts to communicate and offer such opportunity to Lucent. Notwithstanding the
foregoing, no party shall be required to so communicate or offer any such
opportunity if it would result in the breach of any contract or agreement or
violate any applicable law, rule or regulation of any Governmental Authority, no
party shall have any obligation to finance (or provide any other assistance
whatsoever) to any other party in connection with any such opportunity. In the
event the foregoing clause (i) or (ii) is applicable, no party, other than the
party to whom the opportunity must be offered in accordance with such clauses,
shall pursue or acquire such opportunity for itself, or direct such opportunity
to any other Person, unless the party to whom the opportunity is required to be
offered does not within a reasonable period of time begin to pursue, or does not
thereafter continue to pursue, such opportunity diligently and in good faith.
7.5. LATE PAYMENTS. Except as expressly provided to the
contrary in this Agreement or in any Ancillary Agreement, any amount not paid
when due pursuant to this
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Agreement or any Ancillary Agreement (and any amounts billed or otherwise
invoiced or demanded and properly payable that are not paid within 30 days of
such bill, invoice or other demand) shall accrue interest at a rate per annum
equal to the Prime Rate plus 2%.
7.6. TRANSITIONAL BELL LABS SERVICES. Prior to, on, and after
the Closing Date, AT&T and each member of the AT&T Group, shall have the right,
to obtain from Lucent or any member of the Lucent Group, the Identified Bell
Labs Services, and such other services that are provided by Lucent Bell
Laboratories that AT&T may from time to time reasonably determine are necessary
to assure a smooth and orderly transition of the businesses, in each case on a
commercially reasonable basis. Each of the parties shall use their reasonable
best efforts to identify and document any such additional services on or prior
to the Closing Date; provided, however, that whether or not identified prior to
the Closing Date, prior to, on, and after the Closing Date, each member of the
AT&T Group shall continue to have the right to obtain such services, on
commercially reasonable terms, as contemplated by this Section 7.6.
ARTICLE VIII
EXCHANGE OF INFORMATION; CONFIDENTIALITY
8.1. AGREEMENT FOR EXCHANGE OF INFORMATION; ARCHIVES. (a) Each
of AT&T, Lucent and NCR, on behalf of its respective Group, agrees to provide,
or cause to be provided, to each other Group, at any time before or after the
Distribution Date, as soon as reasonably practicable after written request
therefor, any Information in the possession or under the control of such
respective Group which the requesting party reasonably needs (i) to comply with
reporting, disclosure, filing or other requirements imposed on the requesting
party (including under applicable securities or tax laws) by a Governmental
Authority having jurisdiction over the requesting party, (ii) for use in any
other judicial, regulatory, administrative, tax or other proceeding or in order
to satisfy audit, accounting, claims, regulatory, litigation, tax or other
similar requirements, or (iii) to comply with its obligations under this
Agreement, any Ancillary Agreement or any Lucent OFL; provided, however, that in
the event that any party determines that any such provision of Information could
be commercially detrimental, violate any law or agreement, or waive any
attorney-client privilege, the parties shall take all reasonable measures to
permit the compliance with such obligations in a manner that avoids any such
harm or consequence.
(b) After the Closing Date, Lucent shall have access during
regular business hours (as in effect from time to time) to the documents and
objects of historic significance that relate to the Lucent Business that are
located in the AT&T Archives located at 5 Reineman Road, Warren, New Jersey.
Lucent may obtain copies (but not originals) of documents for bona fide business
purposes and may obtain objects for exhibition purposes for commercially
reasonable periods of time if required for bona fide business purposes, provided
that Lucent shall cause any such objects to be returned promptly in the same
condition in which they were delivered to Lucent and Lucent shall comply with
any rules, procedures or other requirements, and shall be subject to any
restrictions (including prohibitions on removal of specified objects), that are
then applicable to AT&T. Lucent shall pay $125 per hour for archives research
services (subject to increase from time to time to reflect rates then in effect
for AT&T generally). Nothing herein shall be deemed to restrict the access of
any member of the AT&T Group or the NCR Group to any such documents or objects
or to impose any liability on any member of the AT&T Group if any such documents
or objects are not maintained or preserved by AT&T.
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(c) After the date hereof, (i) Lucent shall maintain in effect
at its own cost and expense adequate systems and controls to the extent
necessary to enable the members of the AT&T Group to satisfy their respective
reporting, accounting, audit and other obligations, and (ii) Lucent shall
provide, or cause to be provided, to AT&T in such form as AT&T shall request, at
no charge to AT&T, all financial and other data and information as AT&T
determines necessary or advisable in order to prepare AT&T financial statements
and reports or filings with any Governmental Authority.
8.2. OWNERSHIP OF INFORMATION. Any Information owned by one
Group that is provided to a requesting party pursuant to Section 8.1 shall be
deemed to remain the property of the providing party. Unless specifically set
forth herein, nothing contained in this Agreement shall be construed as granting
or conferring rights of license or otherwise in any such Information.
8.3. COMPENSATION FOR PROVIDING INFORMATION. The party
requesting such Information agrees to reimburse the other party for the
reasonable costs, if any, of creating, gathering and copying such Information,
to the extent that such costs are incurred for the benefit of the requesting
party. Except as may be otherwise specifically provided elsewhere in this
Agreement or in any other agreement between the parties, such costs shall be
computed in accordance with the providing party's standard methodology and
procedures.
8.4. RECORD RETENTION. To facilitate the possible exchange of
Information pursuant to this Article VIII and other provisions of this Agreement
after the Distribution Date, the parties agree to use their reasonable best
efforts to retain all Information in their respective possession or control on
the Distribution Date in accordance with the policies of AT&T as in effect on
the Closing Date. No party will destroy, or permit any of its Subsidiaries to
destroy, any Information which the other party may have the right to obtain
pursuant to this Agreement prior to the third anniversary of the date hereof
without first using its reasonable best efforts to notify the other party of the
proposed destruction and giving the other party the opportunity to take
possession of such information prior to such destruction; provided, however,
that in the case of any Information relating to Taxes or to Environmental
Liabilities, such period shall be extended to the expiration of the applicable
statute of limitations (giving effect to any extensions thereof).
8.5. LIMITATION OF LIABILITY. No party shall have any
liability to any other party in the event that any Information exchanged or
provided pursuant to this Agreement which is an estimate or forecast, or which
is based on an estimate or forecast, is found to be inaccurate, in the absence
of willful misconduct by the party providing such Information. No party shall
have any liability to any other party if any Information is destroyed after
reasonable best efforts by such party to comply with the provisions of Section
8.4.
8.6. OTHER AGREEMENTS PROVIDING FOR EXCHANGE OF INFORMATION.
The rights and obligations granted under this Article VIII are subject to any
specific limitations, qualifications or additional provisions on the sharing,
exchange or confidential treatment of Information set forth in any Ancillary
Agreement.
8.7. PRODUCTION OF WITNESSES; RECORDS; COOPERATION. (a) After
the Closing Date, except in the case of an adversarial Action by one party
against another party (which shall be governed by such discovery rules as may be
applicable under Article IX or otherwise), each party hereto shall use its
reasonable best efforts to make available to each other party, upon written
request, the former, current and future directors, officers, employees, other
personnel and agents of the members of its respective Group as witnesses and
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any books, records or other documents within its control or which it otherwise
has the ability to make available, to the extent that any such person (giving
consideration to business demands of such directors, officers, employees, other
personnel and agents) or books, records or other documents may reasonably be
required in connection with any Action in which the requesting party may from
time to time be involved, regardless of whether such Action is a matter with
respect to which indemnification may be sought hereunder. The requesting party
shall bear all costs and expenses (including allocated costs of in-house counsel
and other personnel) in connection therewith.
(b) If an Indemnifying Party or AT&T chooses to defend or to
seek to compromise or settle any Third Party Claim, or if any party chooses to
prosecute or otherwise evaluate or to pursue any Contingent Gain or any recovery
in respect of any RBOC Agreement, the other parties shall make available to such
Indemnifying Party, AT&T or such other party, as the case may be, upon written
request, the former, current and future directors, officers, employees, other
personnel and agents of the members of its respective Group as witnesses and any
books, records or other documents within its control or which it otherwise has
the ability to make available, to the extent that any such person (giving
consideration to business demands of such directors, officers, employees, other
personnel and agents) or books, records or other documents may reasonably be
required in connection with such defense, settlement or compromise, or such
prosecution, evaluation or pursuit, as the case may be, and shall otherwise
cooperate in such defense, settlement or compromise, or such prosecution,
evaluation or pursuit, as the case may be.
(c) Without limiting the foregoing, the parties shall
cooperate and consult to the extent reasonably necessary with respect to any
Actions, Contingent Liabilities and Contingent Gains.
(d) Without limiting any provision of this Section, each of
the parties agrees to cooperate, and to cause each member of its respective
Group to cooperate, with each other in the defense of any infringement or
similar claim with respect any intellectual property and shall not claim to
acknowledge, or permit any member of its respective Group to claim to
acknowledge, the validity or infringing use of any intellectual property of a
third Person in a manner that would hamper or undermine the defense of such
infringement or similar claim.
(e) The obligation of the parties to provide witnesses
pursuant to this Section 8.7 is intended to be interpreted in a manner so as to
facilitate cooperation and shall include the obligation to provide as witnesses
inventors and other officers without regard to whether the witness or the
employer of the witness could assert a possible business conflict (subject to
the exception set forth in the first sentence of Section 8.7(a)).
(f) In connection with any matter contemplated by this Section
8.7, the parties will enter into a mutually acceptable joint defense agreement
so as to maintain to the extent practicable any applicable attorney-client
privilege or work product immunity of any member of any Group.
8.8. CONFIDENTIALITY. (a) Subject to Section 8.9, each of
AT&T, Lucent and NCR, on behalf of itself and each member of its respective
Group, agrees to hold, and to cause its respective directors, officers,
employees, agents, accountants, counsel and other advisors and representatives
to hold, in strict confidence, with at least the same degree of care that
applies to AT&T's confidential and proprietary information pursuant to policies
in effect as of the Closing Date, all Information concerning each such other
Group that is
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either in its possession (including Information in its possession prior to any
of the date hereof, the Closing Date or the Distribution Date) or furnished by
any such other Group or its respective directors, officers, employees, agents,
accountants, counsel and other advisors and representatives at any time pursuant
to this Agreement, any Ancillary Agreement or otherwise, and shall not use any
such Information other than for such purposes as shall be expressly permitted
hereunder or thereunder, except, in each case, to the extent that such
Information has been (i) in the public domain through no fault of such party or
any member of such Group or any of their respective directors, officers,
employees, agents, accountants, counsel and other advisors and representatives,
(ii) later lawfully acquired from other sources by such party (or any member of
such party's Group) which sources are not themselves bound by a confidentiality
obligation), or (iii) independently generated without reference to any
proprietary or confidential Information of the other party.
(b) Each party agrees not to release or disclose, or permit to
be released or disclosed, any such Information to any other Person, except its
directors, officers, employees, agents, accountants, counsel and other advisors
and representatives who need to know such Information (who shall be advised of
their obligations hereunder with respect to such Information), except in
compliance with Section 8.9. Without limiting the foregoing, when any
Information is no longer needed for the purposes contemplated by this Agreement
or any Ancillary Agreement, each party will promptly after request of the other
party either return to the other party all Information in a tangible form
(including all copies thereof and all notes, extracts or summaries based
thereon) or certify to the other party that it has destroyed such Information
(and such copies thereof and such notes, extracts or summaries based thereon).
8.9. PROTECTIVE ARRANGEMENTS. In the event that any party or
any member of its Group either determines on the advice of its counsel that it
is required to disclose any Information pursuant to applicable law or receives
any demand under lawful process or from any Governmental Authority to disclose
or provide Information of any other party (or any member of any other party's
Group) that is subject to the confidentiality provisions hereof, such party
shall notify the other party prior to disclosing or providing such Information
and shall cooperate at the expense of the requesting party in seeking any
reasonable protective arrangements requested by such other party. Subject to the
foregoing, the Person that received such request may thereafter disclose or
provide Information to the extent required by such law (as so advised by
counsel) or by lawful process or such Governmental Authority.
ARTICLE IX
ARBITRATION; DISPUTE RESOLUTION
9.1. AGREEMENT TO ARBITRATE. Except as otherwise specifically
provided in any Ancillary Agreement, the procedures for discussion, negotiation
and arbitration set forth in this Article IX shall apply to all disputes,
controversies or claims (whether sounding in contract, tort or otherwise) that
may arise out of or relate to, or arise under or in connection with this
Agreement or any Ancillary Agreement, or the transactions contemplated hereby or
thereby (including all actions taken in furtherance of the transactions
contemplated hereby or thereby on or prior to the date hereof), or the
commercial or economic relationship of the parties relating hereto or thereto,
between or among any member of the AT&T Services Group, the Lucent Group and the
NCR Group. Each party agrees on behalf of itself and each member of its
respective Group that the procedures set forth in this
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Article IX shall be the sole and exclusive remedy in connection with any
dispute, controversy or claim relating to any of the foregoing matters and
irrevocably waives any right to commence any Action in or before any
Governmental Authority, except as expressly provided in Sections 9.7(b) and 9.8
and except to the extent provided under the Arbitration Act in the case of
judicial review of arbitration results or awards. Each party on behalf of itself
and each member of its respective Group irrevocably waives any right to any
trial by jury with respect to any claim, controversy or dispute set forth in the
first sentence of this Section 9.1.
9.2. ESCALATION. (a) It is the intent of the parties to use
their respective reasonable best efforts to resolve expeditiously any dispute,
controversy or claim between or among them with respect to the matters covered
hereby that may arise from time to time on a mutually acceptable negotiated
basis. In furtherance of the foregoing, any party involved in a dispute,
controversy or claim may deliver a notice (an "Escalation Notice") demanding an
in person meeting involving representatives of the parties at a senior level of
management of the parties (or if the parties agree, of the appropriate strategic
business unit or division within such entity). A copy of any such Escalation
Notice shall be given to the General Counsel, or like officer or official, of
each party involved in the dispute, controversy or claim (which copy shall state
that it is an Escalation Notice pursuant to this Agreement). Any agenda,
location or procedures for such discussions or negotiations between the parties
may be established by the parties from time to time; provided, however, that the
parties shall use their reasonable best efforts to meet within 30 days of the
Escalation Notice.
(b) The parties may, by mutual consent, retain a mediator to
aid the parties in their discussions and negotiations by informally providing
advice to the parties. Any opinion expressed by the mediator shall be strictly
advisory and shall not be binding on the parties, nor shall any opinion
expressed by the mediator be admissible in any arbitration proceedings. The
mediator may be chosen from a list of mediators previously selected by the
parties or by other agreement of the parties. Costs of the mediation shall be
borne equally by the parties involved in the matter, except that each party
shall be responsible for its own expenses. Mediation is not a prerequisite to a
demand for arbitration under Section 9.3.
9.3. DEMAND FOR ARBITRATION. (a) At any time after the first
to occur of (i) the date of the meeting actually held pursuant to the applicable
Escalation Notice or (ii) 45 days after the delivery of an Escalation Notice (as
applicable, the "Arbitration Demand Date"), any party involved in the dispute,
controversy or claim (regardless of whether such party delivered the Escalation
Notice) may, unless the Applicable Deadline has occurred, make a written demand
(the "Arbitration Demand Notice") that the dispute be resolved by binding
arbitration, which Arbitration Demand Notice shall be given to the parties to
the dispute, controversy or claim in the manner set forth in Section 12.5. In
the event that any party shall deliver an Arbitration Demand Notice to another
party, such other party may itself deliver an Arbitration Demand Notice to such
first party with respect to any related dispute, controversy or claim with
respect to which the Applicable Deadline has not passed without the requirement
of delivering an Escalation Notice. No party may assert that the failure to
resolve any matter during any discussions or negotiations, the course of conduct
during the discussions or negotiations or the failure to agree on a mutually
acceptable time, agenda, location or procedures for the meeting, in each case,
as contemplated by Section 9.2, is a prerequisite to a demand for arbitration
under Section 9.3. In the event that any party delivers an Arbitration Demand
Notice with respect to any dispute, controversy or
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claim that is the subject of any then pending arbitration proceeding or of a
previously delivered Arbitration Demand Notice, all such disputes, controversies
and claims shall be resolved in the arbitration proceeding for which an
Arbitration Demand Notice was first delivered unless the arbitrator in his or
her sole discretion determines that it is impracticable or otherwise inadvisable
to do so.
(b) Except as may be expressly provided in any Ancillary
Agreement, any Arbitration Demand Notice may be given until one year and 45 days
after the later of the occurrence of the act or event giving rise to the
underlying claim or the date on which such act or event was, or should have
been, in the exercise of reasonable due diligence, discovered by the party
asserting the claim (as applicable and as it may in a particular case be
specifically extended by the parties in writing, the "Applicable Deadline"). Any
discussions, negotiations or mediations between the parties pursuant to this
Agreement or otherwise will not toll the Applicable Deadline unless expressly
agreed in writing by the parties. Each of the parties agrees on behalf of itself
and each member of its Group that if an Arbitration Demand Notice with respect
to a dispute, controversy or claim is not given prior to the expiration of the
Applicable Deadline, as between or among the parties and the members of their
Groups, such dispute, controversy or claim will be barred. Subject to Sections
9.7(d) and 9.8, upon delivery of an Arbitration Demand Notice pursuant to
Section 9.3(a) prior to the Applicable Deadline, the dispute, controversy or
claim shall be decided by a sole arbitrator in accordance with the rules set
forth in this Article IX.
9.4. ARBITRATORS. (a) Within 15 days after a valid Arbitration
Demand Notice is given, the parties involved in the dispute, controversy or
claim referenced therein shall attempt to select a sole arbitrator satisfactory
to all such parties.
(b) In the event that such parties are not able jointly to
select a sole arbitrator within such 15-day period, such parties shall each
appoint an arbitrator (who need not be disinterested as to the parties or the
matter) within 30 days after delivery of the Arbitration Demand Notice. If one
party appoints an arbitrator within such time period and the other party or
parties fail to appoint an arbitrator within such time period, the arbitrator
appointed by the one party shall be the sole arbitrator of the matter.
(c) In the event that a sole arbitrator is not selected
pursuant to paragraph (a) or (b) above and, instead, two or three arbitrators
are selected pursuant to paragraph (b) above, the two or three arbitrators will,
within 30 days after the appointment of the later of them to be appointed,
select an additional arbitrator who shall act as the sole arbitrator of the
dispute. After selection of such sole arbitrator, the initial arbitrators shall
have no further role with respect to the dispute. In the event that the
arbitrators so appointed do not, within 30 days after the appointment of the
later of them to be appointed, agree on the selection of the sole arbitrator,
any party involved in such dispute may apply to CPR, New York, New York to
select the sole arbitrator, which selection shall be made by such organization
within 30 days after such application. Any arbitrator selected pursuant to this
paragraph (c) shall be disinterested with respect to any of the parties and the
matter and shall be reasonably competent in the applicable subject matter.
(d) The sole arbitrator selected pursuant to paragraph (a),
(b) or (c) above will set a time for the hearing of the matter which will
commence no later than 90 days after the date of appointment of the sole
arbitrator pursuant to paragraph (a), (b) or (c) above and which hearing will be
no longer than 30 days (unless in the judgment of the arbitrator the matter is
unusually complex and sophisticated and thereby requires a longer time, in which
event such hearing shall be no longer than 90 days). The final decision of
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such arbitrator will be rendered in writing to the parties not later than 60
days after the last hearing date, unless otherwise agreed by the parties in
writing.
(e) The place of any arbitration hereunder will be New York,
New York, unless otherwise agreed by the parties.
9.5. HEARINGS. Within the time period specified in Section
9.4(d), the matter shall be presented to the arbitrator at a hearing by means of
written submissions of memoranda and verified witness statements, filed
simultaneously, and responses, if necessary in the judgment of the arbitrator or
both the parties. If the arbitrator deems it to be essential to a fair
resolution of the dispute, live cross-examination or direct examination may be
permitted, but is not generally contemplated to be necessary. The arbitrator
shall actively manage the arbitration with a view to achieving a just, speedy
and cost-effective resolution of the dispute, claim or controversy. The
arbitrator may, in his or her discretion, set time and other limits on the
presentation of each party's case, its memoranda or other submissions, and
refuse to receive any proffered evidence, which the arbitrator, in his or her
discretion, finds to be cumulative, unnecessary, irrelevant or of low probative
nature. Except as otherwise set forth herein, any arbitration hereunder will be
conducted in accordance with the CPR Rules for Non-Administered Arbitration of
Business Disputes then prevailing (except that the fee schedule of CPR will not
apply). Except as expressly set forth in Section 9.8(b), the decision of the
arbitrator will be final and binding on the parties, and judgment thereon may be
had and will be enforceable in any court having jurisdiction over the parties.
Arbitration awards will bear interest at an annual rate of the Prime Rate plus
2% per annum. To the extent that the provisions of this Agreement and the
prevailing rules of the CPR conflict, the provisions of this Agreement shall
govern.
9.6. DISCOVERY AND CERTAIN OTHER MATTERS. (a) Any party
involved in the applicable dispute may request limited document production from
the other party or parties of specific and expressly relevant documents, with
the reasonable expenses of the producing party incurred in such production paid
by the requesting party. Any such discovery (which rights to documents shall be
substantially less than document discovery rights prevailing under the Federal
Rules of Civil Procedure) shall be conducted expeditiously and shall not cause
the hearing provided for in Section 9.5 to be adjourned except upon consent of
all parties involved in the applicable dispute or upon an extraordinary showing
of cause demonstrating that such adjournment is necessary to permit discovery
essential to a party to the proceeding. Depositions, interrogatories or other
forms of discovery (other than the document production set forth above) shall
not occur except by consent of the parties involved in the applicable dispute.
Disputes concerning the scope of document production and enforcement of the
document production requests will be determined by written agreement of the
parties involved in the applicable dispute or, failing such agreement, will be
referred to the arbitrator for resolution. All discovery requests will be
subject to the parties' rights to claim any applicable privilege. The arbitrator
will adopt procedures to protect the proprietary rights of the parties and to
maintain the confidential treatment of the arbitration proceedings (except as
may be required by law). Subject to the foregoing, the arbitrator shall have the
power to issue subpoenas to compel the production of documents relevant to the
dispute, controversy or claim.
(b) The arbitrator shall have full power and authority to
determine issues of arbitrability but shall otherwise be limited to interpreting
or construing the applicable provisions of this Agreement or any Ancillary
Agreement, and will have no authority or power to limit, expand, alter, amend,
modify, revoke or suspend any condition or provision of this Agreement or any
Ancillary Agreement; it being understood, however, that the arbitrator
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will have full authority to implement the provisions of this Agreement or any
Ancillary Agreement, and to fashion appropriate remedies for breaches of this
Agreement (including interim or permanent injunctive relief); provided that the
arbitrator shall not have (i) any authority in excess of the authority a court
having jurisdiction over the parties and the controversy or dispute would have
absent these arbitration provisions or (ii) any right or power to award punitive
or treble damages. It is the intention of the parties that in rendering a
decision the arbitrator give effect to the applicable provisions of this
Agreement and the Ancillary Agreements and follow applicable law (it being
understood and agreed that this sentence shall not give rise to a right of
judicial review of the arbitrator's award).
(c) If a party fails or refuses to appear at and participate
in an arbitration hearing after due notice, the arbitrator may hear and
determine the controversy upon evidence produced by the appearing party.
(d) Arbitration costs will be borne equally by each party
involved in the matter, except that each party will be responsible for its own
attorney's fees and other costs and expenses, including the costs of witnesses
selected by such party.
9.7. CERTAIN ADDITIONAL MATTERS. (a) Any arbitration award
shall be a bare award limited to a holding for or against a party and shall be
without findings as to facts, issues or conclusions of law (including with
respect to any matters relating to the validity or infringement of patents or
patent applications) and shall be without a statement of the reasoning on which
the award rests, but must be in adequate form so that a judgment of a court may
be entered thereupon. Judgment upon any arbitration award hereunder may be
entered in any court having jurisdiction thereof.
(b) Prior to the time at which an arbitrator is appointed
pursuant to Section 9.4, any party may seek one or more temporary restraining
orders in a court of competent jurisdiction if necessary in order to preserve
and protect the status quo. Neither the request for, or grant or denial of, any
such temporary restraining order shall be deemed a waiver of the obligation to
arbitrate as set forth herein and the arbitrator may dissolve, continue or
modify any such order. Any such temporary restraining order shall remain in
effect until the first to occur of the expiration of the order in accordance
with its terms or the dissolution thereof by the arbitrator.
(c) Except as required by law, the parties shall hold, and
shall cause their respective officers, directors, employees, agents and other
representatives to hold, the existence, content and result of mediation or
arbitration in confidence in accordance with the provisions of Article VIII and
except as may be required in order to enforce any award. Each of the parties
shall request that any mediator or arbitrator comply with such confidentiality
requirement.
(d) In the event that at any time the sole arbitrator shall
fail to serve as an arbitrator for any reason, the parties shall select a new
arbitrator who shall be disinterested as to the parties and the matter in
accordance with the procedures set forth herein for the selection of the initial
arbitrator. The extent, if any, to which testimony previously given shall be
repeated or as to which the replacement arbitrator elects to rely on the
stenographic record (if there is one) of such testimony shall be determined by
the replacement arbitrator.
9.8. LIMITED COURT ACTIONS. (a) Notwithstanding anything
herein to the contrary, in the event that any party reasonably determines the
amount in controversy in any dispute, controversy or claim (or any series of
related disputes, controversies or claims)
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under this Agreement or any Ancillary Agreement is, or is reasonably likely to
be, in excess of $100 million and if such party desires to commence an Action in
lieu of complying with the arbitration provisions of this Article, such party
shall so state in its Arbitration Demand Notice or by notice given to the other
parties within 20 days after receipt of an Arbitration Demand Notice with
respect thereto. If the other parties to the arbitration do not agree that the
amount in controversy in such dispute, controversy or claim (or such series of
related disputes, controversies or claims) is, or is reasonably likely to be, in
excess of $100 million, the arbitrator selected pursuant to Section 9.4 hereof
shall decide whether the amount in controversy in such dispute, controversy or
claim (or such series of related disputes, controversies or claims) is, or is
reasonably likely to be, in excess of $100 million. The arbitrator shall set a
date that is no later than ten days after the date of his or her appointment for
submissions by the parties with respect to such issue. There shall not be any
discovery in connection with such issue. The arbitrator shall render his or her
decision on such issue within five days of such date so set by the arbitrator.
In the event that the arbitrator determines that the amount in controversy in
such dispute, controversy or claim (or such series of related disputes,
controversies or claims) is or is reasonably likely to be in excess of $100
million, the provisions of Sections 9.4(d) and (e), 9.5, 9.6, 9.7 and 9.10
hereof shall not apply and on or before (but, except as expressly set forth in
Section 9.8(b), not after) the tenth business day after the date of such
decision, any party to the arbitration may elect, in lieu of arbitration, to
commence an Action with respect to such dispute, controversy or claim (or such
series of related disputes, controversies or claims) in any court of competent
jurisdiction. If the arbitrator does not so determine, the provisions of this
Article (including with respect to time periods) shall apply as if no
determinations were sought or made pursuant to this Section 9.8(a).
(b) In the event that an arbitration award in excess of $100
million is issued in any arbitration proceeding commenced hereunder, any party
may, within 60 days after the date of such award, submit the dispute,
controversy or claim (or series of related disputes, controversies or claims)
giving rise thereto to a court of competent jurisdiction, regardless of whether
such party or any other party sought to commence an Action in lieu of proceeding
with arbitration in accordance with Section 9.8(a). In such event, the
applicable court may elect to rely on the record developed in the arbitration
or, if it determines that it would be advisable in connection with the matter,
allow the parties to seek additional discovery or to present additional
evidence. Each party shall be entitled to present arguments to the court with
respect to whether any such additional discovery or evidence shall be permitted
and with respect to all other matters relating to the applicable dispute,
controversy or claim (or series of related disputes, controversies or claims).
(c) No party shall raise as a defense the statute of
limitations if the applicable Arbitration Demand Notice was delivered on or
prior to the Applicable Deadline and, if applicable, if the matter is submitted
to a court of competent jurisdiction within the 60-day period specified in
Section 9.8(b).
9.9. CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise
agreed in writing, the parties will continue to provide service and honor all
other commitments under this Agreement and each Ancillary Agreement during the
course of dispute resolution pursuant to the provisions of this Article IX with
respect to all matters not subject to such dispute, controversy or claim.
9.10. LAW GOVERNING ARBITRATION PROCEDURES. The interpretation
of the provisions of this Article IX, only insofar as they relate to the
agreement to arbitrate and
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any procedures pursuant thereto, shall be governed by the Arbitration Act and
other applicable federal law. In all other respects, the interpretation of this
Agreement shall be governed as set forth in Section 12.2.
ARTICLE X
FURTHER ASSURANCES AND ADDITIONAL COVENANTS
10.1. FURTHER ASSURANCES. (a) In addition to the actions
specifically provided for elsewhere in this Agreement, each of the parties
hereto shall use its reasonable best efforts, prior to, on and after the Closing
Date, to take, or cause to be taken, all actions, and to do, or cause to be
done, all things, reasonably necessary, proper or advisable under applicable
laws, regulations and agreements to consummate and make effective the
transactions contemplated by this Agreement and the Ancillary Agreements.
(b) Without limiting the foregoing, prior to, on and after the
Closing Date, each party hereto shall cooperate with the other parties, and
without any further consideration, but at the expense of the requesting party,
to execute and deliver, or use its reasonable best efforts to cause to be
executed and delivered, all instruments, including instruments of conveyance,
assignment and transfer, and to make all filings with, and to obtain all
consents, approvals or authorizations of, any Governmental Authority or any
other Person under any permit, license, agreement, indenture or other instrument
(including any Consents or Governmental Approvals), and to take all such other
actions as such party may reasonably be requested to take by any other party
hereto from time to time, consistent with the terms of this Agreement and the
Ancillary Agreements, in order to effectuate the provisions and purposes of this
Agreement and the Ancillary Agreements and the transfers of the Lucent Assets
and the assignment and assumption of the Lucent Liabilities and the other
transactions contemplated hereby and thereby. Without limiting the foregoing,
each party will, at the reasonable request, cost and expense of any other party,
take such other actions as may be reasonably necessary to vest in such other
party good and marketable title, free and clear of any Security Interest, if and
to the extent it is practicable to do so.
(c) On or prior to the Closing Date, AT&T, Lucent and NCR in
their respective capacities as direct and indirect stockholders of their
respective Subsidiaries, shall each ratify any actions which are reasonably
necessary or desirable to be taken by AT&T, Lucent, NCR or any other Subsidiary
of AT&T, as the case may be, to effectuate the transactions contemplated by this
Agreement. On or prior to the Closing Date, AT&T and Lucent shall take all
actions as may be necessary to approve the stock-based employee benefit plans of
Lucent in order to satisfy the requirement of Rule 16b-3 under the Exchange Act
and Section 162(m) of the Code.
(d) The parties hereto agree to take any reasonable actions
necessary in order for the Distribution to qualify as a tax-free distribution
pursuant to Section 355 of the Code.
(e) AT&T, Lucent and NCR, and each of the members of their
respective Groups, waive (and agree not to assert against any of the others) any
claim or demand that any of them may have against any of the others for any
Liabilities or other claims relating to or arising out of: (i) the failure of
Lucent or any member of the Lucent Group, on the one hand, or of AT&T, NCR or
any member of the AT&T Services Group or the NCR Group, on the other hand, to
provide any notification or disclosure required under any state
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Environmental Law in connection with the Separation or the other transactions
contemplated by this Agreement, including the transfer by any member of any
Group to any member of any other Group of ownership or operational control of
any Assets not previously owned or operated by such transferee; or (ii) any
inadequate, incorrect or incomplete notification or disclosure under any such
state Environmental Law by the applicable transferor. To the extent any
Liability to any Governmental Authority or any third Person arises out of any
action or inaction described in clause (i) or (ii) above, the transferee of the
applicable Asset hereby assumes and agrees to pay any such Liability.
(f) Prior to the Closing Date, if one or more of the parties
identifies any commercial or other service that is needed to assure a smooth and
orderly transition of the businesses in connection with the consummation of the
transactions contemplated hereby, and that is not otherwise governed by the
provisions of this Agreement or any Ancillary Agreement, the parties will
cooperate in determining whether there is a mutually acceptable arm's-length
basis on which one or more of the other parties will provide such service.
10.2. QUALIFICATION AS TAX-FREE DISTRIBUTION. After the
Closing Date, none of AT&T, Lucent or NCR shall take, or permit any member of
its respective Group to take, any action which could reasonably be expected to
prevent the Distribution from qualifying as a tax-free distribution within the
meaning of Section 355 of the Code or any other transaction contemplated by this
Agreement or any Ancillary Agreement which is intended by the parties to be
tax-free from failing so to qualify. Without limiting the foregoing, after the
Closing Date and on or prior to the Distribution Date, Lucent shall not issue or
grant, and shall not permit any member of the Lucent Group to issue or grant,
directly or indirectly, any shares of Lucent Common Stock or any rights,
warrants, options or other securities to purchase or acquire (whether upon
conversion, exchange or otherwise) any shares of Lucent Common Stock (whether or
not then exercisable, convertible or exchangeable).
ARTICLE XI
TERMINATION
11.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time prior to the Distribution Date by the mutual consent of
AT&T, Lucent and NCR.
11.2. OTHER TERMINATION. This Agreement may be terminated by
AT&T at any time prior to the Closing Date. The obligations of the parties under
Article IV (including the obligation to pursue or effect the Distribution) may
be terminated by AT&T if the Distribution Date shall not have occurred on or
prior to December 31, 1997.
11.3. EFFECT OF TERMINATION. (a) In the event of any
termination of this Agreement prior to the Closing Date, no party to this
Agreement (or any of its directors or officers) shall have any Liability or
further obligation to any other party.
(b) In the event of any termination of this Agreement on or
after the Closing Date, only the provisions of Article IV will terminate and the
other provisions of this Agreement and each Ancillary Agreement shall remain in
full force and effect.
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ARTICLE XII
MISCELLANEOUS
12.1. COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER. (a)
This Agreement and each Ancillary Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
(b) This Agreement, and the Ancillary Agreements and the
Exhibits, Schedules and Appendices hereto and thereto contain the entire
agreement between the parties with respect to the subject matter hereof,
supersede all previous agreements, negotiations, discussions, writings,
understandings, commitments and conversations with respect to such subject
matter and there are no agreements or understandings between the parties other
than those set forth or referred to herein or therein.
(c) AT&T represents on behalf of itself and each other member
of the AT&T Services Group, Lucent represents on behalf of itself and each other
member of the Lucent Group and NCR represents on behalf of itself and each other
member of the NCR Group as follows:
(i) each such Person has the requisite corporate or other
power and authority and has taken all corporate or other action
necessary in order to execute, deliver and perform each of this
Agreement and each other Ancillary Agreements to which it is a party
and to consummate the transactions contemplated hereby and thereby; and
(ii) this Agreement and each Ancillary Agreement to which it
is a party has been duly executed and delivered by it and constitutes a
valid and binding agreement of it enforceable in accordance with the
terms thereof.
(d) Each party hereto acknowledges that it and each other
party hereto is executing certain of the Ancillary Agreements by facsimile,
stamp or mechanical signature. Each party hereto expressly adopts and confirms
each such facsimile, stamp or mechanical signature made in its respective name
as if it were a manual signature, agrees that it will not assert that any such
signature is not adequate to bind such party to the same extent as if it were
signed manually and agrees that at the reasonable request of any other party
hereto at any time it will as promptly as reasonably practicable cause each such
Ancillary Agreement to be manually executed (any such execution to be as of the
date of the initial date thereof).
(e) Notwithstanding any provision of this Agreement or any
Ancillary Agreement, neither AT&T, Lucent nor NCR shall be required to take or
omit to take any act that would violate its fiduciary duties to any minority
stockholders of AT&T Capital Corporation or any other non-wholly owned
Subsidiary of AT&T, Lucent or NCR, as the case may be (it being understood that
directors' qualifying shares or similar interests will be disregarded for
purposes of determining whether a Subsidiary is wholly owned).
12.2. GOVERNING LAW. Except as set forth in Section 9.10, this
Agreement and, unless expressly provided therein, each Ancillary Agreement,
shall be governed by and construed and interpreted in accordance with the laws
of the State of New York (other than as to its laws of arbitration which shall
be governed under the Arbitration Act or other
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applicable federal law pursuant to Section 9.10), irrespective of the choice of
laws principles of the State of New York, as to all matters, including matters
of validity, construction, effect, enforceability, performance and remedies.
12.3. ASSIGNABILITY. (a) Except as set forth in any Ancillary
Agreement, this Agreement and each Ancillary Agreement shall be binding upon and
inure to the benefit of the parties hereto and thereto, respectively, and their
respective successors and assigns; provided, however, that no party hereto or
thereto may assign its respective rights or delegate its respective obligations
under this Agreement or any Ancillary Agreement without the express prior
written consent of the other parties hereto or thereto.
(b) Lucent agrees and acknowledges on behalf of itself and
each other member of the Lucent Group that (i) AT&T and NCR may enter into a
separation and distribution agreement and other agreements and instruments in
connection with the NCR Distribution or otherwise providing for certain
arrangements between AT&T and NCR and that no consent of any member of the
Lucent Group will be required in connection therewith, (ii) certain transfers of
Assets and Liabilities may occur after the date hereof between members of the
AT&T Services Group and the NCR Group and that no consent of any member of the
Lucent Group will be required in connection therewith, (iii) AT&T shall have no
obligation to proceed with the NCR Distribution, and (iv) except as set forth
below, all of the rights and obligations of the NCR Group shall continue
regardless of whether NCR is an Affiliate of AT&T. Lucent agrees that if any
technical or other nonmaterial amendments to this Agreement or any Ancillary
Agreement are advisable in connection with the NCR Distribution or the
separation of the NCR Business from the AT&T Services Business, Lucent will
reasonably cooperate with AT&T and NCR in connection therewith for no additional
consideration. Without limiting the foregoing, effective immediately on notice
to Lucent, without any further action required by any member of the Lucent
Group, AT&T may assume any Asset or Liability of any member of the NCR Group
hereunder or under any Ancillary Agreement (and any rights of any member of the
NCR Group in connection therewith) and all members of the NCR Group shall
thereupon automatically be released therefrom.
12.4. THIRD PARTY BENEFICIARIES. Except for the
indemnification rights under this Agreement of any AT&T Indemnitee, Lucent
Indemnitee or NCR Indemnitee in their respective capacities as such, (a) the
provisions of this Agreement and each Ancillary Agreement are solely for the
benefit of the parties and are not intended to confer upon any Person except the
parties any rights or remedies hereunder, and (b) there are no third party
beneficiaries of this Agreement or any Ancillary Agreement and neither this
Agreement nor any Ancillary Agreement shall provide any third person with any
remedy, claim, liability, reimbursement, claim of action or other right in
excess of those existing without reference to this Agreement or any Ancillary
Agreement. No party hereto shall have any right, remedy or claim with respect to
any provision of this Agreement or any Ancillary Agreement to the extent such
provision relates solely to the other two parties hereto or the members of such
other two parties' respective Groups. No party shall be required to deliver any
notice under this Agreement or under any Ancillary Agreement to any other party
with respect to any matter in which such other party has no right, remedy or
claim.
12.5. NOTICES. All notices or other communications under this
Agreement or any Ancillary Agreement shall be in writing and shall be deemed to
be duly given when (a) delivered in person or (b) deposited in the United States
mail or private express mail, postage prepaid, addressed as follows:
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If to AT&T, to: AT&T Corp.
131 Morristown Road
Basking Ridge, NJ 07920
Attn: Vice President-Law and
Corporate Secretary
If to Lucent, to: Lucent Technologies Inc.
600 Mountain Avenue
Murray Hill, New Jersey 07974
Attn: General Counsel
If to NCR, to: NCR Corporation
1700 S. Patterson Blvd.
Dayton, Ohio 45479
Attn: Chief Financial Officer
with a copy to: NCR Corporation
1700 S. Patterson Blvd.
Dayton, Ohio 45479
Attn: General Counsel
Any party may, by notice to the other party, change the address to which such
notices are to be given.
12.6. SEVERABILITY. If any provision of this Agreement or any
Ancillary Agreement or the application thereof to any Person or circumstance is
determined by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions hereof or thereof, or the application of
such provision to Persons or circumstances or in jurisdictions other than those
as to which it has been held invalid or unenforceable, shall remain in full
force and effect and shall in no way be affected, impaired or invalidated
thereby, so long as the economic or legal substance of the transactions
contemplated hereby or thereby, as the case may be, is not affected in any
manner adverse to any party. Upon such determination, the parties shall
negotiate in good faith in an effort to agree upon such a suitable and equitable
provision to effect the original intent of the parties.
12.7. FORCE MAJEURE. No party shall be deemed in default of
this Agreement or any Ancillary Agreement to the extent that any delay or
failure in the performance of its obligations under this Agreement or any
Ancillary Agreement results from any cause beyond its reasonable control and
without its fault or negligence, such as acts of God, acts of civil or military
authority, embargoes, epidemics, war, riots, insurrections, fires, explosions,
earthquakes, floods, unusually severe weather conditions, labor problems or
unavailability of parts, or, in the case of computer systems, any failure in
electrical or air conditioning equipment. In the event of any such excused
delay, the time for performance shall be extended for a period equal to the time
lost by reason of the delay.
12.8. PUBLICITY. Prior to the Distribution, each of Lucent,
NCR and AT&T shall consult with each other prior to issuing any press releases
or otherwise making public statements with respect to the IPO, the Distribution
or any of the other transactions contemplated hereby and prior to making any
filings with any Governmental Authority with respect thereto.
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12.9. EXPENSES. Except as expressly set forth in this
Agreement (including Section 3.1(h) hereof) or in any Ancillary Agreement,
whether or not the IPO or the Distribution is consummated, all third party fees,
costs and expenses paid or incurred in connection with the Distribution will be
paid by AT&T.
12.10. HEADINGS. The article, section and paragraph headings
contained in this Agreement and in the Ancillary Agreements are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement or any Ancillary Agreement.
12.11. SURVIVAL OF COVENANTS. Except as expressly set forth in
any Ancillary Agreement, the covenants, representations and warranties contained
in this Agreement and each Ancillary Agreement, and liability for the breach of
any obligations contained herein, shall survive each of the Separation, the IPO
and the Distribution and shall remain in full force and effect regardless of
whether AT&T shall consummate, delay, modify or abandon the NCR Distribution.
12.12. WAIVERS OF DEFAULT. Waiver by any party of any default
by the other party of any provision of this Agreement or any Ancillary Agreement
shall not be deemed a waiver by the waiving party of any subsequent or other
default, nor shall it prejudice the rights of the other party.
12.13. SPECIFIC PERFORMANCE. In the event of any actual or
threatened default in, or breach of, any of the terms, conditions and provisions
of this Agreement or any Ancillary Agreement, the party or parties who are or
are to be thereby aggrieved shall have the right to specific performance and
injunctive or other equitable relief of its rights under this Agreement or such
Ancillary Agreement, in addition to any and all other rights and remedies at law
or in equity, and all such rights and remedies shall be cumulative. The parties
agree that the remedies at law for any breach or threatened breach, including
monetary damages, are inadequate compensation for any loss and that any defense
in any action for specific performance that a remedy at law would be adequate is
waived. Any requirements for the securing or posting of any bond with such
remedy are waived.
12.14. AMENDMENTS. (a) No provisions of this Agreement or any
Ancillary Agreement shall be deemed waived, amended, supplemented or modified by
any party, unless such waiver, amendment, supplement or modification is in
writing and signed by the authorized representative of the party against whom it
is sought to enforce such waiver, amendment, supplement or modification. Without
limiting the foregoing, the parties agree that any waiver, amendment, supplement
or modification of this Agreement or any Ancillary Agreement that solely relates
to and affects only two of the three parties hereto shall not require the
consent of the third party hereto.
(b) Without limiting the foregoing, the parties anticipate
that, prior to the Closing Date, some or all of the Schedules to this Agreement
may be amended or supplemented and, in such event, such amended or supplemented
Schedules shall be attached hereto in lieu of the original Schedules.
12.15. INTERPRETATION. Words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other genders as the context requires. The terms "hereof," "herein,"
and "herewith" and words of similar
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import shall, unless otherwise stated, be construed to refer to this Agreement
(or the applicable Ancillary Agreement) as a whole (including all of the
Schedules, Exhibits and Appendices hereto and thereto) and not to any particular
provision of this Agreement (or such Ancillary Agreement). Article, Section,
Exhibit, Schedule and Appendix references are to the Articles, Sections,
Exhibits, Schedules and Appendices to this Agreement (or the applicable
Ancillary Agreement) unless otherwise specified. The word "including" and words
of similar import when used in this Agreement (or the applicable Ancillary
Agreement) shall mean "including, without limitation," unless the context
otherwise requires or unless otherwise specified. The word "or" shall not be
exclusive. For all purposes of this Agreement, "allocated costs of in-house
counsel and other personnel" shall be determined in accordance with the
principles set forth in Schedule 12.15. Unless expressly stated to the contrary
in this Agreement or in any Ancillary Agreement, all references to "the date
hereof," "the date of this Agreement," "hereby" and "hereupon" and words of
similar import shall all be references to February 1, 1996, regardless of any
amendment or restatement hereof.
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IN WITNESS WHEREOF, the parties have caused this Separation
and Distribution Agreement to be executed by their duly authorized
representatives.
AT&T CORP.
By: /s/
------------------------
Name:
Title:
LUCENT TECHNOLOGIES INC.
By: /s/
------------------------
Name:
Title:
NCR CORPORATION
By: /s/
------------------------
Name:
Title:
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Exhibit 10.2
EMPLOYEE BENEFITS AGREEMENT
BETWEEN
AT&T CORP.
AND
LUCENT TECHNOLOGIES INC.
DATED AS OF
FEBRUARY 1, 1996
AND
AMENDED AND RESTATED AS OF
MARCH 29, 1996
<PAGE> 2
EMPLOYEE BENEFITS AGREEMENT
This EMPLOYEE BENEFITS AGREEMENT, dated as of February 1, 1996, and
amended and restated as of March 29, 1996, is by and between AT&T and Lucent.
Capitalized terms used herein (other than the formal names of AT&T Plans (as
defined below) and related trusts of AT&T) and not otherwise defined shall have
the respective meanings assigned to them in Article I hereof or as assigned to
them in the Separation and Distribution Agreement (as defined below).
WHEREAS, the Board of Directors of AT&T has determined that it is in
the best interests of AT&T and its shareholders to separate AT&T's existing
businesses into three independent businesses;
WHEREAS, in furtherance of the foregoing, AT&T, Lucent and NCR have
entered into a Separation and Distribution Agreement, dated as of the date
hereof (the "Separation and Distribution Agreement") and certain other
agreements that will govern certain matters relating to the Separation, the IPO,
the Distribution and the relationship of AT&T, Lucent and NCR and their
respective Subsidiaries following the IPO and the Distribution; and
WHEREAS, pursuant to the Separation and Distribution Agreement, AT&T
and Lucent have agreed to enter into this agreement allocating assets,
liabilities and responsibilities with respect to certain employee compensation
and benefit plans and programs between them.
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement the following terms shall have the
following meanings:
1.1 414(l)(1) AMOUNT is defined in Section 3.2(b)(i)(A).
1.2 1992 COLLECTIVE BARGAINING AGREEMENT is defined in Section 5.18.
1.3 AGREEMENT means this Employee Benefits Agreement, including all the
Schedules and Exhibits hereto.
1.4 AGGREGATE LUCENT STOCK VALUE means the Lucent Stock Value
multiplied by the number of shares of Lucent Common Stock issued and outstanding
as of Immediately after the Distribution Date.
1.5 ASA is defined in Section 8.11.
1.6 ASA AGREEMENT means the agreement with ASA described in Section
8.11.
1.7 ASO CONTRACT is defined in Section 5.7(a)(i).
1.8 ASSIGNED SPLIT DOLLAR POLICIES is defined in Section 6.9.
<PAGE> 3
1.9 ATTIMCO means the AT&T Investment Management Corporation, a
Delaware corporation.
1.10 AT&T DEFERRED SEVERANCE ACCOUNT means an account established on
the financial books and records of AT&T or an AT&T Entity to reflect a liability
to pay a deferred severance benefit to an AT&T Executive.
1.11 AT&T ENTITY means any Person that is, at the relevant time, an
Affiliate of AT&T, except that, for periods beginning on and after the
Participation Commencement Date, the term "AT&T Entity" shall not include Lucent
or a Lucent Entity.
1.12 AT&T EXECUTIVE means an employee or former employee of AT&T, an
AT&T Entity, Lucent or a Lucent Entity, who immediately before the Close of the
Distribution Date is eligible to participate in or receive a benefit under any
AT&T Executive Benefit Plan.
1.13 AT&T GROUP PENSION TRUST is defined in Section 3.1.
1.14 AT&T LEAVE OF ABSENCE PROGRAMS means the Local Leave, Disability
Leave, Educational Leave of Absence, Accompanying AT&T Employed Spouse-Foreign
Assignment Leave, Personal Leave, Union Business Leave, Anticipated Disability
Leave, Care of Newborn/Newly Adopted Child Leave, Family Care Leave, Military
Leave, Transition Leave, Special Leave, Enhanced Leave, and ELOA Plus Leave
Programs offered from time to time under the personnel policies and practices of
AT&T.
1.15 AT&T LTD PLANS means the AT&T Long-Term Disability Plan for
Management Employees and the AT&T Long Term Disability Plan for Occupational
Employees.
1.16 AT&T MANAGEMENT SAVINGS GROUP TRUST means the group trust under
IRS Rev. Rul. 81-100 established in connection with the AT&T LTSPME and the AT&T
RSPSP pursuant to a group trust agreement between AT&T and Fidelity Management
Trust Company.
1.17 AT&T MPP means the AT&T Management Pension Plan. Unless the
context indicates otherwise, AT&T MPP includes disability pensions payable from
the AT&T LTD VEBA and death benefits payable under the AT&T Special Accidental
Death Insurance Policy.
1.18 AT&T OCCUPATIONAL SAVINGS GROUP TRUST means the group trust under
IRS Rev. Rul. 81-100 established in connection with the AT&T LTSSP pursuant to a
group trust agreement between AT&T and Bankers Trust Company.
1.19 AT&T PP means the AT&T Pension Plan. Unless the context indicates
otherwise, AT&T PP includes disability pensions payable from the AT&T LTD VEBA
and death benefits payable under the AT&T Special Accidental Death Insurance
Policy.
1.20 AT&T SADBP means the AT&T Sickness and Accident Disability Benefit
Plan.
1.21 AT&T SPECIAL EXECUTIVE DEFERRAL ACCOUNT means an account
established on the financial books and records of any member of the AT&T Group
to reflect a liability to
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pay a special pension enhancement, hiring bonus or
benefit to an AT&T Executive pursuant to an Individual Agreement.
1.22 AT&T STOCK VALUE means the average of the daily high and low
per-share prices of the AT&T Common Stock as listed on the NYSE during each of
the five trading days immediately preceding the ex-dividend date for the
Distribution.
1.23 AT&T TRANSFERRED EMPLOYEE means an individual who (a) on the
Participation Commencement Date, is either actively employed by or on leave of
absence from Lucent or a Lucent Entity (including for purposes of this
definition any division or business unit of AT&T on the Participation
Commencement Date that is part of the Lucent Business), if such individual is
part of a work group or organization that, at any time before the Close of the
Distribution Date, moves to the employ of AT&T or an AT&T Entity and that, after
such move, performs substantially the same functions as before such move; (b) on
the Participation Commencement Date, is either actively employed by or on leave
of absence from a Subsidiary of AT&T that becomes a Lucent Entity before the
Close of the Distribution Date, if such individual, at any time before the Close
of the Distribution Date, moves to the employ of AT&T or an AT&T Entity that
does not become a Lucent Entity before the Close of the Distribution Date; or
(c) on the Participation Commencement Date, is either actively employed by or on
leave of absence from Lucent or a Lucent Entity in a common support function, is
at any time before the Close of the Distribution Date designated by AT&T for
transfer to AT&T or an AT&T Entity and, at any time after the Participation
Commencement Date and before the Close of the Distribution Date, moves to the
employ of AT&T or an AT&T Entity. In addition, AT&T and Lucent may designate, by
mutual agreement, any other individual or group of individuals as AT&T
Transferred Employees.
1.24 AT&T WCP means the AT&T Workers' Compensation Program, comprised
of the various arrangements established by AT&T or an AT&T Entity to comply with
the workers' compensation requirements of the states in which AT&T and its
Affiliates conduct business.
1.25 AUDITING PARTY is defined in Section 8.7(b)(i).
1.26 AWARD means an award under a Long Term Incentive Plan or a Short
Term Incentive Plan.
1.27 BDEC is defined in Section 5.16(a).
1.28 BDS is defined in Section 5.16(a).
1.29 CECRA, when immediately preceded by "AT&T," means the AT&T
Child/Elder Care Reimbursement Account Plan. When immediately preceded by
"Lucent," CECRA means the child/elder care reimbursement account plan to be
established by Lucent pursuant to Section 2.3.
1.30 CHANGE is defined in Section 5.8(b)(i).
1.31 CLOSE OF THE DISTRIBUTION DATE means 11:59:59 P.M., Eastern
Standard Time or Eastern Daylight Time (whichever shall then be in effect), on
the Distribution Date.
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1.32 COBRA means the continuation coverage requirements for "group
health plans" under Title X of the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended, and as codified in Code Section 4980B and ERISA
Sections 601 through 608.
1.33 CODE means the Internal Revenue Code of 1986, as amended, or any
successor federal income tax law. Reference to a specific Code provision also
includes any proposed, temporary, or final regulation in force under that
provision.
1.34 COLLECTIVE BARGAINING AGREEMENT means the National AT&T/CWA/IBEW
Memorandum of Understanding, including all Attachments, National Items and
letters included as a part thereof, executed by AT&T and the CWA and IBEW as of
May 28, 1995, and such local collective bargaining agreements into which the
National AT&T/CWA/IBEW Memorandum of Understanding has been incorporated.
1.35 CORPORATE-OWNED LIFE INSURANCE means the life insurance policies
owned by AT&T insuring the lives of certain AT&T Executives and certain other
highly compensated employees of AT&T or an AT&T Entity that were purchased by
AT&T between the years 1985 and 1992.
1.36 COVERED AT&T AWARDS means any AT&T Options or non-vested AT&T
performance shares, stock units, restricted stock or restricted stock units held
as of the Close of the Distribution Date by Transferred Individuals who as of
the Distribution Date are either active employees of or on a leave of absence
from Lucent or a Lucent Entity.
1.37 CWA means the Communication Workers of America, AFL-CIO.
1.38 DEFERRAL PLAN, when immediately preceded by "AT&T," means the AT&T
Senior Management Incentive Award Deferral Plan. When immediately preceded by
"Lucent," Deferral Plan means the senior management incentive award deferral
plan to be established by Lucent pursuant to Section 2.3.
1.39 DOL means the United States Department of Labor.
1.40 ERISA means the Employee Retirement Income Security Act of 1974,
as amended. Reference to a specific provision of ERISA also includes any
proposed, temporary, or final regulation in force under that provision.
1.41 ESOP, when immediately preceded by "AT&T," means the AT&T Employee
Stock Ownership Plan. When immediately preceded by "Lucent," ESOP means the
employee stock ownership plan to be established by Lucent pursuant to Section
2.3.
1.42 ESOP TRUST, when immediately preceded by "AT&T," means the trust
established by AT&T forming part of the AT&T ESOP. When immediately preceded by
"Lucent," ESOP Trust has the meaning set forth in Section 4.3(a).
1.43 EXECUTIVE BENEFIT PLANS, when immediately preceded by "AT&T,"
means the executive benefit and nonqualified plans, programs, and arrangements
established, maintained, agreed upon, or assumed by AT&T or an AT&T Entity for
the benefit of employees and former employees of AT&T or an AT&T Entity before
the Close of the Distribution Date, including the plans listed in Schedule 1,
but excluding the Senior Management Ground Transportation Program. When
immediately preceded by "Lucent," Executive
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Benefit Plans means the executive benefit plans and programs to be established
by Lucent pursuant to Section 2.3 that correspond to the respective AT&T
Executive Benefit Plans.
1.44 EXISTING ACQUISITION LOAN is defined in Section 4.2(c)(ii).
1.45 FMLA means the Family and Medical Leave Act of 1993, as amended.
1.46 FOREIGN PLAN means a Plan maintained by AT&T, an AT&T Entity,
Lucent, or a Lucent Entity for the benefit of employees outside the U.S.
1.47 FUNDING POLICY AMOUNT is defined in Section 3.2(b)(i)(A).
1.48 GROSS VALUE OF THE ASSUMED STOCK AWARDS means the sum of (a) the
Lucent Stock Value multiplied by the number of shares of Lucent Common Stock
that Immediately after the Distribution Date would be issuable in respect of
then outstanding Covered AT&T Awards, assuming all then outstanding Covered AT&T
Awards were converted into replacement Awards as of such time in accordance with
the terms of Section 6.4(a), plus (b) the aggregate amount paid to AT&T by
Lucent on or after the Closing Date and prior to the Close of the Distribution
Date pursuant to Section 8.2(f)(i) and (iii), plus (c) the aggregate of the
exercise prices paid to AT&T on or after the Closing Date and prior to the Close
of the Distribution Date in respect of the exercise of all AT&T Options that
constitute Covered AT&T Awards and for which payments are made by Lucent to AT&T
pursuant to Section 8.2(f)(i) as a result of such exercise.
1.49 GROUP INSURANCE POLICIES is defined in Section 5.7(b)(i).
1.50 GROUP LIFE PROGRAM, when immediately preceded by "AT&T," means the
AT&T Dependent Accidental Loss Insurance Plan, the AT&T Dependent Group Life
Insurance Plan, the AT&T Group Life Insurance Plan, the AT&T Supplementary
Accidental Loss Insurance Plan and the AT&T Supplementary Life Insurance Plan.
When immediately preceded by "Lucent," Group Life Program means the life
insurance plans and programs to be established by Lucent pursuant to Section 2.3
that correspond to the respective AT&T Group Life Programs.
1.51 HCFA means the Health Care Financing Administration.
1.52 HCRA PLAN, when immediately preceded by "AT&T," means the AT&T
Health Care Reimbursement Account Plan. When immediately preceded by "Lucent,"
HCRA Plan means the Health Care Reimbursement Account Plan to be established by
Lucent pursuant to Section 2.3.
1.53 HEALTH AND WELFARE PLANS, when immediately preceded by "AT&T,"
means the health and welfare plans listed on Schedule II established and
maintained by AT&T for the benefit of employees and retirees of AT&T and certain
AT&T Entities, and such other welfare plans or programs as may apply to such
employees and retirees as of the Distribution Date. When immediately preceded by
"Lucent," Health and Welfare Plans means the health and welfare plans to be
established by Lucent pursuant to Section 2.3 that correspond to the respective
AT&T Health and Welfare Plans.
1.54 HEALTH PLANS, when immediately preceded by "AT&T," means the AT&T
Dental Expense Plan for Active Employees, the AT&T Dental Expense Plan for
Retired Employees, the AT&T Medical Plans, the AT&T HCRA Plan and the AT&T
Vision Care
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Plan. When immediately preceded by "Lucent," Health Plans means the
health plans to be established by Lucent pursuant to Section 2.3 that correspond
to the respective AT&T Health Plans.
1.55 HEALTH PLANS BENEFIT TRUST, when immediately preceded by "AT&T,"
means the American Telephone and Telegraph Company Health Plans Benefit Trust.
When immediately preceded by "Lucent," Health Plans Benefit Trust means the
trust to be established by Lucent pursuant to Section 5.1 that corresponds to
the AT&T Health Plans Benefit Trust.
1.56 HEALTH TRUSTS, when immediately preceded by "AT&T," means the AT&T
Health Plans Benefit Trust, the AT&T Management VEBA, and the AT&T Union VEBA.
When immediately preceded by "Lucent," Health Trusts means the trusts to be
established by Lucent pursuant to Section 5.1 that correspond to the respective
AT&T Health Trusts.
1.57 HMO means a health maintenance organization that provides benefits
under the AT&T Medical Plans or the Lucent Medical Plans.
1.58 HMO AGREEMENTS is defined in Section 5.7(c)(i).
1.59 HPSS is defined in Section 5.21(c)(v).
1.60 HWLI COMMITTEE means the Health, Welfare and Life Insurance
Committee established pursuant to Section 5.9.
1.61 IBEW means the International Brotherhood of Electrical Workers.
1.62 IMMEDIATELY AFTER THE DISTRIBUTION DATE means 12:00 A.M., Eastern
Standard Time or Eastern Daylight Time (whichever shall then be in effect), on
the day after the Distribution Date.
1.63 INITIAL ALLOCATION AMOUNT is defined in Section 3.2(b)(i)(A).
1.64 INDIVIDUAL AGREEMENT means an individual contract or agreement
(whether written or unwritten) entered into between AT&T, an AT&T Entity, Lucent
or a Lucent Entity and an AT&T Executive that establishes the right of such
individual to special executive compensation or benefits, including a
supplemental pension benefit, hiring bonus, loan, guaranteed payment, special
allowance, tax equalization or disability benefit, or share units granted (and
payable in the form of cash or otherwise) under individual phantom share
agreements, or that provides benefits similar to those identified in Schedule I.
1.65 IRS means the Internal Revenue Service.
1.66 LEGALLY PERMISSIBLE is defined in Section 5.15(a)(iv).
1.67 LEGALLY PERMITTED is defined in Section B.4 of Exhibit B.
1.68 LESOP, when immediately preceded by "AT&T," means the portion of
the AT&T LTSSP that is a leveraged employee stock ownership plan. When
immediately preceded by "Lucent," LESOP means the portion of the Lucent LTSSP
that is a leveraged employee stock ownership plan.
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1.69 LESOP TRUST, when immediately preceded by "AT&T," means the trust
established by AT&T under Article 20 of the AT&T LTSSP. When immediately
preceded by "Lucent," LESOP Trust has the meaning set forth in Section
4.2(c)(i).
1.70 LONG TERM INCENTIVE PLAN, when immediately preceded by "AT&T,"
means any of the AT&T 1984 Stock Option Plan, the AT&T 1987 Long Term Incentive
Program, and such other stock-based incentive plans assumed by AT&T by reason of
merger, acquisition, or otherwise, including incentive plans of NCR, Teradata
Corporation, AT&T Wireless Services, Inc. (formerly McCaw Cellular
Communications, Inc.), and Lin Broadcasting Corporation. When immediately
preceded by "Lucent," Long Term Incentive Plan means the long term incentive
plan to be established by Lucent pursuant to Section 2.3.
1.71 LTD VEBA, when immediately preceded by "AT&T," means the American
Telephone & Telegraph Company Long-Term Disability Plans Benefit Trust. When
immediately preceded by "Lucent," LTD VEBA means the welfare benefit fund to be
established by Lucent pursuant to Section 5.1 that corresponds to the AT&T LTD
VEBA.
1.72 LTSPME, when immediately preceded by "AT&T," means the AT&T Long
Term Savings Plan for Management Employees. When immediately preceded by
"Lucent," LTSPME means the management savings plan to be established by Lucent
pursuant to Section 2.3 that corresponds to the AT&T LTSPME.
1.73 LTSSP, when immediately preceded by "AT&T," means the AT&T Long
Term Savings and Security Plan. When immediately preceded by "Lucent," LTSSP
means the occupational savings plan to be established by Lucent pursuant to
Section 2.3 that corresponds to the AT&T LTSSP.
1.74 LUCENT ACQUISITION LOAN is defined in Section 4.2(c)(ii).
1.75 LUCENT ADMINISTRATIVE EMPLOYEES is defined in Section 8.1(c).
1.76 LUCENT ENTITY means any Person that is, at the relevant time, a
Subsidiary of Lucent or is otherwise controlled, directly or indirectly, by
Lucent.
1.77 LUCENT INDIVIDUAL means any individual who (a) on the
Participation Commencement Date, is either actively employed by or on leave of
absence from Lucent or a Lucent Entity (including for purposes of this
definition any division or business unit of AT&T or an AT&T Entity on the
Participation Commencement Date that is part of the Lucent Business), other than
any AT&T Transferred Employee; (b) on the Participation Commencement Date, is
either actively employed by or on leave of absence from AT&T or an AT&T Entity
as part of a work group or organization that, at any time after the
Participation Commencement Date and before the Close of the Distribution Date,
moves to the employ of Lucent or a Lucent Entity from the employ of AT&T or an
AT&T Entity and that, after such move, performs substantially the same functions
as before such move; (c) on the Participation Commencement Date, is either
actively employed by or on leave of absence from AT&T or an AT&T Entity in a
common support function, is at any time before the Close of the Distribution
Date designated by AT&T for transfer to Lucent or a Lucent Entity and, at any
time after the Participation Commencement Date and before the Close of the
Distribution Date, moves to the employ of Lucent or a Lucent Entity from the
employ of AT&T or an AT&T Entity; (d) on the Participation Commencement Date, is
either actively employed by or on leave of absence from a Subsidiary of AT&T
that becomes a Lucent Entity before the Close of the Distribution Date, other
than any AT&T
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Transferred Employee; (e) at any time after the Participation Commencement Date
and before the Close of the Distribution Date both (i) is declared to be surplus
by AT&T or an AT&T Entity and (ii) applies for, obtains and accepts employment
with Lucent or a Lucent Entity; or (f) is a Lucent Administrative Employee. In
addition, AT&T and Lucent may designate, by mutual agreement, any other
individual or group of individuals as Lucent Individuals.
1.78 LUCENT STOCK VALUE means the average of the daily high and low
per-share prices of the Lucent Common Stock as listed on the NYSE during each of
the five trading days immediately preceding the ex-dividend date for the
Distribution.
1.79 LUCENT WCP CLAIMS is defined in Section 5.15(a)(i).
1.80 MANAGEMENT EMPLOYEE means any individual who is an "Employee" as
defined under the terms of the AT&T MPP or the Pension Plan to be established by
Lucent pursuant to Section 2.3 that corresponds to the AT&T MPP.
1.81 MANAGEMENT TRANSITION PERIOD means the period beginning
Immediately after the Distribution Date and ending on the earlier of December
31, 1997 and the end of the third calendar month that ends after the
Distribution Date.
1.82 MANAGEMENT VEBA, when immediately preceded by "AT&T," means The
American Telephone and Telegraph Company Management and Nonrepresented Employees
Postretirement Health Benefits Trust. When immediately preceded by "Lucent,"
Management VEBA means the welfare benefit fund to be established by Lucent
pursuant to Section 5.1 that corresponds to the AT&T Management VEBA.
1.83 MATERIAL FEATURE means any feature of a Plan that could reasonably
be expected to be of material importance to the sponsoring employer or the
participants and beneficiaries of the Plan, which could include, depending on
the type and purpose of the particular Plan, the class or classes of employees
eligible to participate in such Plan, the nature, type, form, source, and level
of benefits provided by the employer under such Plan and the amount or level of
contributions, if any, required to be made by participants (or their dependents
or beneficiaries) to such Plan.
1.84 MEDICAL PLANS, when immediately preceded by "AT&T," means the AT&T
Medical Expense Plan for Management Employees, the AT&T Medical Expense Plan for
Occupational Employees and the AT&T Medical Expense Plan for Retired Employees.
When immediately preceded by "Lucent," Medical Plans means the medical plans to
be established by Lucent pursuant to Section 2.3 that correspond to the
respective AT&T Medical Plans.
1.85 MPA means the Mandatory Portability Agreement established as of
January 1, 1985 among AT&T, American Information Technologies Corporation, Bell
Atlantic Corporation, Bell Communications Research, Inc., BellSouth Corporation,
Cincinnati Bell Telephone Company, NYNEX Corporation, Pacific Telesis Group,
Inc., The Southern New England Telephone Company, Southwestern Bell Corporation
and US WEST, Inc. that provides, in accordance with Section 559 of the Tax
Reform Act of 1984, for the mutual recognition of service credit and the
transfer of benefit obligations for specified employees who terminate employment
with one "Interchange Company" as defined under such agreement and subsequently
commence employment with another such Interchange Company.
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1.86 NON-EMPLOYEE DIRECTOR, when immediately preceded by "AT&T," means
a member of AT&T's Board of Directors who is not an employee of AT&T, an AT&T
Entity, Lucent, or a Lucent Entity. When immediately preceded by "Lucent,"
Non-Employee Director means a member of Lucent's Board of Directors who is not
an employee of AT&T, an AT&T Entity, Lucent or a Lucent Entity.
1.87 NON-EMPLOYEE DIRECTOR PLANS, when immediately preceded by "AT&T,"
means the AT&T Deferred Compensation Plan for Non-Employee Directors, the AT&T
Directors' Individual Life Insurance Program and the AT&T Pension Plan for
Non-Employee Directors. When immediately preceded by "Lucent," Non-Employee
Director Plans means the plans and programs to be established by Lucent pursuant
to Section 2.3 that correspond to the AT&T Non-Employee Director Plans.
1.88 NON-PARTIES is defined in Section 8.7(b)(ii).
1.89 OCCUPATIONAL EMPLOYEE means any individual who is an "Employee" as
defined under the terms of the AT&T PP or the Pension Plan to be established by
Lucent pursuant to Section 2.3 that corresponds to the AT&T PP.
1.90 OCCUPATIONAL TRANSITION PERIOD means the period beginning
Immediately after the Distribution Date and ending on May 30, 1998, the
scheduled expiration date of the Collective Bargaining Agreement as in effect on
the date hereof.
1.91 OPTION, when immediately preceded by "AT&T," means an option to
purchase AT&T Common Stock. When immediately preceded by "Lucent," Option means
an option to purchase Lucent Common Stock, in each case pursuant to a Long Term
Incentive Plan.
1.92 OUTSOURCE is defined in Sections 5.10(b) and 5.15(a)(iii) for
purposes of such respective sections.
1.93 PARTICIPATING COMPANY means (a) AT&T, (b) any Person that AT&T has
approved for participation in, and which is participating in, a Plan sponsored
by AT&T, and (c) any Person (other than an individual) which, by the terms of
such a Plan, participates in such Plan or any employees of which, by the terms
of such Plan, participate in or are covered by such Plan.
1.94 PARTICIPATION COMMENCEMENT DATE means February 1, 1996.
1.95 PBGC means the Pension Benefit Guaranty Corporation.
1.96 PENSION PLANS, when immediately preceded by "AT&T," means the AT&T
MPP and the AT&T PP. When immediately preceded by "Lucent," Pension Plans means
the respective management and occupational pension plans to be established by
Lucent pursuant to Section 2.3 that correspond to the AT&T Pension Plans.
1.97 PLAN, when immediately preceded by "AT&T" or "Lucent," means any
plan, policy, program, payroll practice, on-going arrangement, contract, trust,
insurance policy or other agreement or funding vehicle providing benefits to
employees, former employees or Non-Employee Directors of AT&T or an AT&T Entity,
or Lucent or a Lucent Entity, as applicable.
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1.98 QDRO means a domestic relations order which qualifies under Code
Section 414(p) and ERISA Section 206(d) and which creates or recognizes an
alternate payee's right to, or assigns to an alternate payee, all or a portion
of the benefits payable to a participant under any of the AT&T Pension Plans,
the AT&T Savings Plans, or the AT&T ESOP.
1.99 QMCSO means a medical child support order which qualifies under
ERISA Section 609(a) and which creates or recognizes the existence of an
alternate recipient's right to, or assigns to an alternate recipient the right
to, receive benefits for which a participant or beneficiary is eligible under an
AT&T Health Plan.
1.100 RABBI TRUST, when immediately preceded by "AT&T," means the
American Telephone and Telegraph Company Benefits Protection Trust. When
immediately preceded by "Lucent," Rabbi Trust means the grantor trust to be
established by Lucent pursuant to Section 6.8(a) that corresponds to the AT&T
Rabbi Trust.
1.101 RABBI TRUST DETERMINATION DATE is defined in Section 6.8(b)(i).
1.102 RATIO means the amount obtained by dividing the AT&T Stock Value
by the Lucent Stock Value.
1.103 RFA means Retirement Funding Account.
1.104 RSPSP, when immediately preceded by "AT&T," means the AT&T
Retirement Savings and Profit Sharing Plan. When immediately preceded by
"Lucent," RSPSP means the savings plan to be established by Lucent pursuant to
Section 2.3 that corresponds to the AT&T RSPSP.
1.105 SAVINGS PLANS, when immediately preceded by "AT&T," means the
AT&T LTSPME, the AT&T LTSSP and the AT&T RSPSP. When immediately preceded by
"Lucent," Savings Plans means the Lucent LTSPME, the Lucent LTSSP and the Lucent
RSPSP.
1.106 SEPARATION AND DISTRIBUTION AGREEMENT is defined in the third
paragraph of the preamble of this Agreement.
1.107 SHORT TERM INCENTIVE PLAN, when immediately preceded by "AT&T,"
means the AT&T Short Term Incentive Plan. When immediately preceded by "Lucent,"
Short Term Incentive Plan means the AT&T Short Term Incentive Plan to be
established by Lucent pursuant to Section 2.3.
1.108 SPLIT DOLLAR LIFE INSURANCE means the life insurance policies
purchased by AT&T on behalf of certain AT&T Executives and AT&T Non-Employee
Directors under (a) the AT&T Senior Management Individual Life Insurance
Program, (b) the AT&T Senior Management Basic Life Insurance Program and (c) the
AT&T Directors' Individual Life Insurance Program, with respect to which such
AT&T Executives or AT&T Non-Employee Directors (or their assignees or
delegates), respectively, have executed collateral assignments for the benefit
of AT&T.
1.109 SPREAD is defined in Section 8.2(f).
1.110 STOCK PURCHASE PLAN, when immediately preceded by "AT&T," means
the AT&T 1996 Employee Stock Purchase Plan. When immediately preceded by
"Lucent,"
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Stock Purchase Plan means the employee stock purchase plan to be established by
Lucent pursuant to Section 2.3.
1.111 TRANSFERRED INDIVIDUAL means any individual who, as of the Close
of the Distribution Date: (a) is either then actively employed by, or then on a
leave of absence from, Lucent or a Lucent Entity; or (b) is neither then
actively employed by, nor then on a leave of absence from, Lucent or a Lucent
Entity, but who (i) was a Lucent Individual, or (ii) whose most recent active
employment with AT&T or a past or present Affiliate of AT&T was with an entity
or a corporate division having a "Company Code," "Managed Entity Code" or "Legal
Entity Code" set forth in Schedule V, to the extent such information is
available, and who has not had an intervening period of employment covered by an
interchange agreement under which assets and liabilities with respect to the
individual were or are to be transferred from an AT&T Pension Plan, or (iii)
otherwise is identified pursuant to a methodology approved by the Lucent Senior
Vice President-Human Resources and the AT&T Senior Vice President-Benefits and
Compensation, which methodology shall be consistent with the intent of the
parties that former employees of AT&T or a past or present Affiliate of AT&T
will be aligned with the entity for which they most recently worked and based
upon the business of such entity. Transferred Individuals shall also include the
Lucent Administrative Employees and the individuals designated as such pursuant
to Section 9.2. An alternate payee under a QDRO, alternate recipient under a
QMCSO, beneficiary or covered dependent, in each case, of an employee or former
employee described in either of the preceding two sentences shall also be a
Transferred Individual with respect to that employee's or former employee's
benefit under the applicable Plans. Such an alternate payee, alternate
recipient, beneficiary, or covered dependent shall not otherwise be considered a
Transferred Individual with respect to his or her own benefits under any
applicable Plans unless he or she is a Transferred Individual by virtue of
either of the first two sentences of this definition. In addition, AT&T and
Lucent may designate, by mutual agreement, any other individuals, or group of
individuals, as Transferred Individuals. An individual may be a Transferred
Individual pursuant to this definition regardless of whether such individual is
or was a Lucent Individual and regardless of whether such individual is, as of
the Distribution Date, alive, actively employed, on a temporary leave of absence
from active employment, on layoff, terminated from employment, retired or on any
other type of employment or post-employment status relative to an AT&T Plan, and
regardless of whether, as of the Close of the Distribution Date, such individual
is then receiving any benefits from an AT&T Plan. Notwithstanding the foregoing,
if the Distribution does not occur on or before December 31, 1997, references in
this definition to the Close of the Distribution Date shall be deemed to refer
to the close of business on the earlier of the date AT&T publicly announces that
the Distribution will not occur and December 31, 1997.
1.112 TRANSITION INDIVIDUAL means any individual who:
(a) is a Transferred Individual who during the applicable
Transition Period becomes an employee of AT&T or an AT&T Entity without an
intervening period of employment covered by an interchange agreement under which
assets and liabilities with respect to the individual were or are to be
transferred from an AT&T Pension Plan; or
(b) is an employee or former employee of AT&T or an AT&T
Entity as of the Distribution Date (but is not a Transferred Individual) who
during the applicable Transition Period becomes an employee of Lucent or a
Lucent Entity without an intervening period of employment covered by an
interchange agreement under which assets and liabilities with respect to the
individual were or are to be transferred from an AT&T Pension Plan; or
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(c) is an individual described in clause (a) or (b) of this
definition whose employer changes during the applicable Transition Period either
(i) from AT&T or an AT&T Entity to Lucent or a Lucent Entity, or (ii) from
Lucent or a Lucent Entity to AT&T or an AT&T Entity without an intervening
period of employment covered by an interchange agreement under which assets and
liabilities with respect to the individual were or are to be transferred from an
AT&T Pension Plan.
For these purposes, the applicable Transition Period is determined by the
positions (Management Employee or Occupational Employee) from which and into
which the individual is hired as more fully set forth in Sections 2.5(b) and
2.5(c). An alternate payee under a QDRO, alternate recipient under a QMCSO,
beneficiary or covered dependent, in each case, of an individual described in
clause (a), (b), or (c) of this definition shall also be a Transition Individual
with respect to that individual's benefit under the applicable Plans. Such an
alternate payee, alternate recipient, beneficiary, and covered dependent shall
not otherwise be considered a Transition Individual with respect to his or her
own benefits under any applicable Plans unless he or she is a Transition
Individual by virtue of clause (a), (b), or (c) of this definition.
1.113 TRANSITION PERIOD means the Management Transition Period or the
Occupational Transition Period, as applicable.
1.114 TRUST-OWNED LIFE INSURANCE (VEBA) means the group life insurance
policies purchased from The Prudential Insurance Company of America by the
trustee of the AT&T Management VEBA.
1.115 UNFUNDED COST SHARING AGREEMENTS means the 1983 Force Adjustment
Cost Reimbursement and Indemnification Agreement established as of January 1,
1984 among AT&T, American Information Technologies Corporation, Bell Atlantic
Corporation, BellSouth Corporation, NYNEX Corporation, Pacific Telesis Group,
Inc., Southwestern Bell Corporation, and US WEST, Inc., which provides for
reimbursement by AT&T and certain AT&T Entities to the other parties of certain
expenses for medical and dental benefits and certain post-retirement pension
increases for employees designated for reassignment from the other parties to
AT&T on or about January 1, 1984, and the Unfunded Post-Retirement Benefits Cost
Sharing Agreement established as of January 1, 1984 among AT&T, Advanced Mobile
Phone Service, Inc., American Information Technologies Corporation, Bell
Atlantic Corporation, BellSouth Corporation, Central Services Organization,
NYNEX Corporation, Pacific Telesis Group, Inc., Southwestern Bell Corporation,
and US WEST, Inc., which provides for the allocation of expenses relating to
post-retirement medical, dental, specified disability and future contingent
pension increases with respect to Bell System employees who retired before
January 1, 1984 or who otherwise left the service of a Bell System Company
before that date with eligibility to continue any such benefits on or after
January 1, 1984.
1.116 UNION VEBA, when immediately preceded by "AT&T," means the
American Telephone and Telegraph Company Represented Employees Post-Retirement
Health Benefits Trust. When immediately preceded by "Lucent," Union VEBA means
the welfare benefit fund to be established by Lucent pursuant to Section 5.1
that corresponds to the AT&T Union VEBA.
1.117 U.S. means the 50 United States and the District of Columbia.
1.118 VALUE is defined in Section 8.2(f).
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1.119 VEBA, when immediately preceded by "AT&T," means any voluntary
employees' beneficiary association trust sponsored by AT&T. When immediately
preceded by "Lucent," VEBA means any voluntary employees' beneficiary
association trust sponsored by Lucent.
1.120 VEBA PLANS is defined in Section 5.3.
ARTICLE II
GENERAL PRINCIPLES
2.1 ASSUMPTION OF LIABILITIES.
(a) LUCENT LIABILITIES. Lucent hereby assumes and agrees to
pay, perform, fulfill and discharge, in accordance with their respective terms,
all of the following (regardless of when or where such Liabilities arose or
arise or were or are incurred): (i) all Liabilities to or relating to Lucent
Individuals and Transferred Individuals, and their respective dependents and
beneficiaries, in each case relating to, arising out of or resulting from
employment by AT&T or an AT&T Entity before becoming Lucent Individuals or
Transferred Individuals, respectively (including Liabilities under AT&T Plans
and Lucent Plans); (ii) all other Liabilities to or relating to Lucent
Individuals, Transferred Individuals and other employees or former employees of
Lucent or a Lucent Entity, and their dependents and beneficiaries, to the extent
relating to, arising out of or resulting from future, present or former
employment with Lucent or a Lucent Entity (including Liabilities under AT&T
Plans and Lucent Plans); (iii) all Liabilities relating to, arising out of or
resulting from any other actual or alleged employment relationship with Lucent
or a Lucent Entity; (iv) all Liabilities relating to, arising out of or
resulting from the imposition of withdrawal liability under Subtitle E of Title
IV of ERISA as a result of a complete or partial withdrawal of AT&T Network
Construction Services, Inc. from a "multiemployer plan" within the meaning of
ERISA Section 4021, except to the extent that such withdrawal liability is
imposed solely as a result of the Separation, the IPO, or the Distribution; and
(v) all other Liabilities relating to, arising out of or resulting from
obligations, liabilities and responsibilities expressly assumed or retained by
Lucent, a Lucent Entity, or a Lucent Plan pursuant to this Agreement.
Notwithstanding the foregoing, Lucent shall not, by virtue of any provision of
this Agreement or the Separation and Distribution Agreement, be deemed to have
assumed any Excluded Liability or to have agreed to alter or amend any provision
of Article VI of the Separation and Distribution Agreement.
(b) EXCLUDED LIABILITIES. All Liabilities to or relating to
AT&T Transferred Employees and their respective dependents and beneficiaries
relating to, arising out of or resulting from employment by Lucent or a Lucent
Entity before becoming AT&T Transferred Employees or employment by AT&T or an
AT&T Entity (including Liabilities under AT&T Plans) shall be "Excluded
Liabilities" within the meaning of the Separation and Distribution Agreement.
2.2 LUCENT PARTICIPATION IN AT&T PLANS.
(a) PARTICIPATION IN AT&T PENSION, SAVINGS, HEALTH AND WELFARE
AND EXECUTIVE BENEFIT PLANS. Effective as of the Participation Commencement Date
and subject to the terms and conditions of this Agreement, Lucent shall become a
Participating Company in the AT&T Plans in effect as of the Participation
Commencement Date. Each Lucent Entity that is, as of the date of this Agreement,
a Participating Company in any of
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the AT&T Plans shall continue as such. Effective as of any date on or after the
Participation Commencement Date and before the Distribution Date, a Lucent
Entity not described in the preceding sentence may, at its request and with the
consent of AT&T (which shall not be unreasonably withheld), become a
Participating Company in any or all of the AT&T Plans. Without Lucent consent,
neither Lucent nor any Lucent Entity shall become a Participating Company in an
AT&T Plan established after the Participation Commencement Date.
(b) PARTICIPATION IN AT&T STOCK PURCHASE PLAN. If the AT&T
Stock Purchase Plan is approved by the shareholders of AT&T at the 1996 annual
meeting, then (i) effective as of July 1, 1996, Lucent shall become a
Participating Company in the AT&T Stock Purchase Plan; and (ii) effective as of
July 1, 1996, any Lucent Entity may (at the discretion of AT&T in accordance
with the terms of the AT&T Stock Purchase Plan) become a Participating Company
in the AT&T Stock Purchase Plan.
(c) AT&T'S GENERAL OBLIGATIONS AS PLAN SPONSOR. AT&T shall
continue through the Close of the Distribution Date to administer, or cause to
be administered, in accordance with their terms and applicable law, the AT&T
Plans, and shall have the sole discretion and authority to interpret the AT&T
Plans as set forth therein. Before the Close of the Distribution Date, AT&T
shall not, without first consulting with Lucent (on behalf of itself and each
Lucent Entity which is a Participating Company), amend any Material Feature of
any AT&T Plan in which Lucent or a Lucent Entity is a Participating Company,
except to the extent such amendment would not affect any benefits of Lucent
Individuals or Transferred Individuals under such Plan or as may be necessary or
appropriate to comply with any collective bargaining agreement or applicable
law.
(d) LUCENT'S GENERAL OBLIGATIONS AS PARTICIPATING COMPANY.
Lucent shall perform with respect to its participation in the AT&T Plans, and
shall cause each other Lucent Entity that is a Participating Company in any AT&T
Plan to perform, the duties of a Participating Company as set forth in such
Plans or any procedures adopted pursuant thereto, including: (i) assisting in
the administration of claims, to the extent requested by the claims
administrator of the applicable AT&T Plan; (ii) cooperating fully with AT&T Plan
auditors, benefit personnel and benefit vendors; (iii) preserving the
confidentiality of all financial arrangements AT&T has or may have with any
vendors, claims administrators, trustees or any other entity or individual with
whom AT&T has entered into an agreement relating to the AT&T Plans; and (iv)
preserving the confidentiality of participant health information (including
health information in relation to FMLA leaves).
(e) TERMINATION OF PARTICIPATING COMPANY STATUS. Effective as
of the Close of the Distribution Date, Lucent and each Lucent Entity shall cease
to be a Participating Company in the AT&T Plans, except that Lucent and each
Lucent Entity shall cease to be a Participating Company in the AT&T Rabbi Trust
as of the Rabbi Trust Determination Date.
2.3 ESTABLISHMENT OF LUCENT PLANS. Effective Immediately after the
Distribution Date, Lucent shall adopt, or cause to be adopted, the Lucent
Pension Plans, the Lucent Savings Plans, the Lucent ESOP, the Lucent Stock
Purchase Plan (if the AT&T Stock Purchase Plan is then in existence), the Lucent
Health and Welfare Plans, and the Lucent Executive Benefit Plans for the benefit
of the Transferred Individuals and other current, future, and former employees
of Lucent and the Lucent Entities. Except for the Lucent Long Term Incentive
Plan and the Lucent Stock Purchase Plan, the foregoing Lucent Plans as in effect
Immediately after the Distribution Date shall be substantially identical in all
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<PAGE> 16
Material Features to the corresponding AT&T Plans as in effect as of the Close
of the Distribution Date. The Lucent Long Term Incentive Plan and the Lucent
Stock Purchase Plan shall be adopted by Lucent and approved by AT&T as sole
shareholder of Lucent, before the Closing Date, to become effective Immediately
after the Distribution Date. Effective as of the Closing Date, Lucent shall
adopt, or cause to be adopted, the Lucent Non-Employee Director Plans, for the
benefit of Lucent Non-Employee Directors who were, immediately before the
Closing Date, AT&T Non-Employee Directors. The Lucent Non-Employee Director
Plans shall be substantially identical in all Material Features to the
corresponding AT&T Non-Employee Director Plans as in effect on the Closing Date,
except that they need not provide for the accrual of additional benefits after
the Closing Date. In addition, before the Closing Date, Lucent may adopt, and in
that event AT&T shall approve as sole shareholder of Lucent, a plan or other
arrangement for the payment of compensation of the Lucent Non-Employee Directors
in Lucent Common Stock, under which the number of shares permitted to be issued
before the Close of the Distribution Date shall not exceed 10,000 in the
aggregate.
2.4 TERMS OF PARTICIPATION BY TRANSFERRED INDIVIDUALS IN LUCENT PLANS
AND LUCENT NON-EMPLOYEE DIRECTORS IN LUCENT NON-EMPLOYEE DIRECTOR PLANS.
(a) LUCENT PLANS. The Lucent Plans shall be, with respect to
Transferred Individuals, in all respects the successors in interest to, and
shall not provide benefits that duplicate benefits provided by, the
corresponding AT&T Plans. AT&T and Lucent shall agree on methods and procedures,
including amending the respective Plan documents, to prevent Transferred
Individuals from receiving duplicative benefits from the AT&T Plans and the
Lucent Plans. Lucent shall not permit any Lucent Plan to commence benefit
payments to any Transferred Individual until it receives notice from AT&T
regarding the date on which payments under the corresponding AT&T Plan shall
cease. With respect to Transferred Individuals, each Lucent Plan shall provide
that all service, all compensation and all other benefit-affecting
determinations that, as of the Close of the Distribution Date, were recognized
under the corresponding AT&T Plan shall, as of Immediately after the
Distribution Date, receive full recognition, credit, and validity and be taken
into account under such Lucent Plan to the same extent as if such items occurred
under such Lucent Plan, except to the extent that duplication of benefits would
result. The provisions of this Agreement for the transfer of assets from certain
trusts relating to AT&T Plans (including Foreign Plans) to the corresponding
trusts relating to Lucent Plans (including Foreign Plans) are based upon the
understanding of the parties that each such Lucent Plan will assume all
Liabilities of the corresponding AT&T Plan to or relating to Transferred
Individuals, as provided for herein. If any such Liabilities are not effectively
assumed by the appropriate Lucent Plan, then the amount of assets transferred to
the trust relating to such Lucent Plan from the trust relating to the
corresponding AT&T Plan shall be recomputed, ab initio, as set forth below but
taking into account the retention of such Liabilities by such AT&T Plan, and
assets shall be transferred by the trust relating to such Lucent Plan to the
trust relating to such AT&T Plan so as to place each such trust in the position
it would have been in, had the initial asset transfer been made in accordance
with such recomputed amount of assets.
(b) LUCENT NON-EMPLOYEE DIRECTOR PLANS. The Lucent
Non-Employee Director Plans shall be, with respect to the Lucent Non-Employee
Directors who participated in the corresponding AT&T Non-Employee Director
Plans, in all respects the successors in interest to, and shall not provide
benefits that duplicate benefits provided by such AT&T Plans.
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<PAGE> 17
2.5 TRANSITION INDIVIDUALS. Portability of benefits (without
duplication thereof) for Transition Individuals shall be set forth in the
separate agreements provided for below.
(a) MANDATORY PORTABILITY AGREEMENT. Effective as of the
Participation Commencement Date, AT&T shall designate Lucent as, and Lucent
shall become, an Interchange Company under the MPA, with all the applicable
rights and obligations of such an Interchange Company. Each Lucent Entity that
is an Interchange Company as of the date of this Agreement shall continue as
such. Effective as of any date on or after the Participation Commencement Date,
any other Lucent Entity that becomes a Participating Company in the AT&T Pension
Plans pursuant to Section 2.2 may, at its request and with the consent of AT&T
(which shall not be unreasonably withheld), become an Interchange Company.
Effective Immediately after the Distribution Date, the Lucent Pension Plans
shall be "Interchange Company Pension Plans" under, and subject to the terms of,
the MPA. AT&T shall use its reasonable best efforts to seek an amendment of the
MPA to allow Lucent to become a "Tier II Signatory Company" under the MPA with
the same rights and obligations as have been granted to AirTouch International,
Inc. as a Tier II Signatory Company. Lucent shall take any and all action,
including any action reasonably requested by AT&T, to become a Tier II Signatory
Company under the MPA. During the applicable Transition Periods, neither AT&T
nor Lucent shall permit any Transition Individual covered by the Interchange
Agreements described above to waive portability under the MPA with respect to
movement as a Transition Individual.
(b) MANAGEMENT INTERCHANGE AGREEMENT. On or before the Closing
Date, AT&T and Lucent shall enter into an Interchange Agreement providing for
(among other things) the portability of benefits and mutual recognition of
service during the Management Transition Period with respect to Transition
Individuals who terminate employment with AT&T or an AT&T Entity and who become
Management Employees (or employees covered by an alternate benefit program) of
Lucent or a Lucent Entity and Transition Individuals who terminate employment
with Lucent or a Lucent Entity and who become Management Employees (or employees
covered by an alternate benefit program) of AT&T or an AT&T Entity after the
Distribution Date, as more fully described in Section 2.5(d).
(c) OCCUPATIONAL INTERCHANGE AGREEMENT. On or before the
Closing Date, AT&T and Lucent shall enter into an Interchange Agreement
providing for the portability of benefits and mutual recognition of service
during the Occupational Transition Period with respect to Transition Individuals
who cease employment with AT&T or an AT&T Entity and who become Occupational
Employees of Lucent or a Lucent Entity and Transition Individuals who cease
employment with Lucent or a Lucent Entity and who become Occupational Employees
of AT&T or an AT&T Entity after the Distribution Date, as more fully described
in Section 2.5(d).
(d) TERMS OF THE MANAGEMENT AND OCCUPATIONAL INTERCHANGE
AGREEMENTS. The Interchange Agreements described in Sections 2.5(b) and 2.5(c)
shall provide in a mutually agreeable manner for the following with respect to
Transition Individuals: (i) prohibition of the commencement of benefits under
any transferor AT&T or Lucent Pension Plan, and suspension of any benefits
already commenced, with respect to any individual for whom the liability for
benefits is transferred either from the AT&T Pension Plans to the Lucent Pension
Plans or from the Lucent Pension Plans to the AT&T Pension Plans; (ii) transfer
of service credit between the AT&T Plans and the Lucent Plans, where
appropriate; (iii) transfer of assets and liabilities between the AT&T Pension
Plans and the Lucent Pension Plans in the same manner and in accordance with the
same methods and assumptions as prescribed by the MPA, regardless of whether
such employees are covered by the
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<PAGE> 18
MPA (but in no event shall a Transition Individual be entitled to obtain
overlapping benefits under both the MPA and the Interchange Agreement); (iv)
transfer of accounts between the AT&T Savings Plans and the Lucent Savings
Plans; (v) transfer of accounts between the AT&T ESOP and the Lucent ESOP; (vi)
transfer of accounts between the AT&T Stock Purchase Plan and the Lucent Stock
Purchase Plan; (vii) mutual maintenance and recognition by the AT&T Health and
Welfare Plans and the Lucent Health and Welfare Plans of the coverage elections
and all amounts applied to deductibles and out-of-pocket maximums met under the
other company's Health and Welfare Plans for plan years in the applicable
Transition Period; (viii) mutual maintenance and recognition by the AT&T Health
and Welfare Plans and the Lucent Health and Welfare Plans of all lifetime
maximum benefits reached under the other company's Health and Welfare Plans;
(ix) transfer of service credit, assets, and liabilities between the AT&T
Executive Benefit Plans and the Lucent Executive Benefit Plans and the related
trusts, insurance policies and other funding vehicles; (x) allocation and
transfer of RFA assets and liabilities between the applicable AT&T Health and
Welfare Plans and the applicable Lucent Health and Welfare Plans and the related
trusts, insurance policies and other funding vehicles; and (xi) assumption of
Individual Agreements. Each of the service crediting provisions described above
shall be subject to any applicable "service bridging" or "break in service"
rules under the AT&T Plans and the Lucent Plans.
(e) RESTRICTION ON PLAN AMENDMENTS. During the Management
Transition Period, neither AT&T nor Lucent shall adopt any amendment, or allow
any amendment to be adopted, to any of their respective Pension Plans, Savings
Plans or ESOPs that would violate Code Section 411(d)(6) or that would create an
optional form of benefit subject to Code Section 411(d)(6).
ARTICLE III
DEFINED BENEFIT PLANS
3.1 ESTABLISHMENT OF MIRROR PENSION TRUSTS. Before the Close of the
Distribution Date, AT&T shall cause the trust presently established under the
AT&T Pension Plans to be amended and restated as a group trust under IRS Rev.
Rul. 81-100 (the "AT&T Group Pension Trust") in a form reasonably satisfactory
to Lucent. AT&T shall establish, or cause to be established, a new master
pension trust under the AT&T Pension Plans, which shall be substantially
identical in all Material Features to the trust established under the AT&T
Pension Plans as in effect before such amendment and restatement and which shall
be a participating trust in the AT&T Group Pension Trust. Effective Immediately
after the Distribution Date, Lucent shall establish, or cause to be established,
a master pension trust qualified in accordance with Code Section 401(a), exempt
from taxation under Code Section 501(a)(1), and forming part of the Lucent
Pension Plans, which shall be a participating trust in the AT&T Group Pension
Trust, subject to ratification of such participation by the Board of Directors
of Lucent or its authorized delegate after the Close of the Distribution Date
(and Lucent shall seek such ratification within 60 days after the Close of the
Distribution Date).
3.2 ASSUMPTION OF PENSION PLAN LIABILITIES AND ALLOCATION OF INTERESTS
IN THE AT&T MASTER PENSION TRUST.
(a) ASSUMPTION OF LIABILITIES BY LUCENT PENSION PLAN.
Immediately after the Distribution Date, all Liabilities to or relating to
Transferred Individuals under the AT&T MPP or AT&T PP, as applicable, shall
cease to be Liabilities of the AT&T MPP or AT&T PP, as applicable, and shall be
assumed by the corresponding Lucent Pension Plan.
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<PAGE> 19
(b) ASSET ALLOCATIONS AND TRANSFERS.
(i) CALCULATION OF ASSET ALLOCATION.
(A) As soon as practicable after the Close of the
Distribution Date, AT&T shall cause to be calculated, for the AT&T MPP and the
corresponding Lucent Pension Plan, as of Immediately after the Distribution
Date, (1) the "Funding Policy Amount," which shall be consistent with the
minimum amount necessary to satisfy AT&T's pension funding policy as set forth
in Schedule VI, as applied to the AT&T MPP and the corresponding Lucent Pension
Plan; (2) the "414(l)(1) Amount," which shall equal the minimum amount necessary
to fully fund benefits under the AT&T MPP and the corresponding Lucent Pension
Plan on a "termination basis" (as that term is defined in Treas. Reg. Section
1.414(l)-1(b)(5)); and (3) the "Initial Allocation Amount," which shall equal
the Funding Policy Amount for that particular Pension Plan, plus one-half times
the difference (positive or negative) between (x) the amount of assets as of the
Close of the Distribution Date of the AT&T MPP and (y) the sum of the Funding
Policy Amounts for the AT&T MPP and the corresponding Lucent Pension Plan. The
assumptions used in determining the 414(l)(1) Amount for each Pension Plan shall
be those used in the determination of the minimum required contribution under
ERISA for the Plan year beginning January 1, 1996, except that the discount
rates shall be the rates issued by the PBGC for valuing annuities in terminating
single-employer pension plans during the month containing the Close of the
Distribution Date.
(B) If the aggregate amount of the assets of the AT&T
MPP as of the Close of the Distribution Date is not less than the sum of the
414(l)(1) Amounts for the AT&T MPP and the corresponding Lucent Pension Plan,
then such assets shall be allocated between the AT&T MPP and the corresponding
Lucent Pension Plan in accordance with the following: (1) if the Initial
Allocation Amount is greater than or equal to the 414(l)(1) Amount for the AT&T
MPP, and the Initial Allocation Amount is greater than or equal to the 414(l)(1)
Amount for the corresponding Lucent Pension Plan, then the amounts of assets
allocated to the AT&T MPP and the corresponding Lucent Pension Plan shall equal
their respective Initial Allocation Amounts; (2) if the Initial Allocation
Amount is greater than or equal to the 414(l)(1) Amount for the AT&T MPP, but
the Initial Allocation Amount is less than the 414(l)(1) Amount for the
corresponding Lucent Pension Plan, then the amount of assets allocated to the
Lucent Pension Plan shall equal the 414(l)(1) Amount for that Pension Plan, and
the amount of assets allocated to the AT&T MPP shall equal the excess of (x) the
total amount of assets, as of the Close of the Distribution Date, of the AT&T
MPP over (y) the 414(l)(1) Amount for the corresponding Lucent Pension Plan; and
(3) if the Initial Allocation Amount is less than the 414(l)(1) Amount for the
AT&T MPP, but the Initial Allocation Amount is greater than or equal to the
414(l)(1) Amount for the corresponding Lucent Pension Plan, then the amount of
assets allocated to the AT&T MPP shall equal the 414(l)(1) Amount for the AT&T
MPP, and the amount of assets allocated to the corresponding Lucent Pension Plan
shall equal the excess of (x) the total amount of assets, as of the Close of the
Distribution Date, of the AT&T MPP over (y) the 414(l)(1) Amount for the AT&T
MPP.
(C) If the aggregate amount of the assets of the AT&T
MPP as of the Close of the Distribution Date is less than the sum of the
414(l)(1) Amounts for the AT&T MPP and the corresponding Lucent Pension Plan,
then such assets shall be allocated between the AT&T MPP and the corresponding
Lucent Pension Plan as follows: (i) AT&T
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and Lucent shall obtain a quote from a mutually agreeable insurance company for
the provision of immediate and deferred annuities payable under the AT&T MPP and
the corresponding Lucent Pension Plan for all accrued benefits under the AT&T
MPP as of the Close of the Distribution Date; (ii) if the amount of assets as of
the Close of the Distribution Date is not less than the amount of such quote,
the amount of assets allocated to the AT&T MPP and the corresponding Lucent
Pension Plan shall equal the portion of the quote allocable to each plan plus
one-half of the excess, if any, over such quote; and (iii) if the amount of
assets as of the Close of the Distribution Date is less than the amount of such
quote, the amount of assets allocated to the AT&T MPP and the corresponding
Lucent Pension Plan shall be determined on a plan termination basis in
accordance with ERISA Section 4044 using the same assumptions as those used in
computing the 414(l)(1) Amounts.
(ii) CALCULATION OF THE AT&T PP'S ASSET ALLOCATION. The asset
allocation of the AT&T PP and the corresponding Lucent Pension Plan shall be
determined by applying Section 3.2(b)(i) but substituting "AT&T PP" for "AT&T
MPP" wherever it appears in that section.
(iii) SEGREGATION OF LUCENT PENSION PLANS' INTERESTS WITHIN
THE AT&T GROUP PENSION TRUST. The actual segregation of the interests of the
Lucent Pension Plans in the AT&T Group Pension Trust into separate trust
accounts shall occur as soon as practicable after the calculation of such
interests pursuant to Section 3.2(b)(i) and (ii), but in no event before AT&T
determines that the calculation and the data on which it is based are acceptably
complete, accurate and consistent. In addition, the interests so calculated
shall be adjusted as of the date of the actual segregation by AT&T to the extent
necessary or appropriate to reasonably and appropriately reflect additional
pension contributions, interest, investment gains and losses, and benefit
payments and data corrections, enhancements, and computational refinements from
Immediately after the Distribution Date through the date of the actual
segregation of such interests. If the master pension trust established by Lucent
pursuant to the last sentence of Section 3.1 is for any reason not then a
participating trust in the AT&T Group Pension Trust, such master pension trust
shall be entitled to receive its allocable share of the assets of the AT&T Group
Pension Trust as determined pursuant to the foregoing provisions of this Section
3.2(b) in redemption of the interests therein of the Lucent Pension Plans as
promptly as prudently practicable. Such allocable share shall consist of
Lucent's allocable share of each class of assets in the AT&T Group Pension
Trust, unless AT&T and Lucent agree otherwise.
ARTICLE IV
DEFINED CONTRIBUTION PLANS
4.1 LTSPMEs AND RSPSPs.
(a) MANAGEMENT SAVINGS PLAN TRUSTS. Effective Immediately after the
Distribution Date, Lucent shall establish, or cause to be established, separate
trusts qualified under Code Section 401(a), exempt from taxation under Code
Section 501(a)(1), and forming part of the Lucent LTSPME and Lucent RSPSP, which
shall be participating trusts in the AT&T Management Savings Group Trust.
(b) ASSUMPTION OF LIABILITIES AND TRANSFER OF ASSETS. Effective
Immediately after the Distribution Date: (i) the Lucent LTSPME and the Lucent
RSPSP shall assume and be solely responsible for all Liabilities to or relating
to Transferred Individuals under the AT&T LTSPME and the AT&T RSPSP,
respectively; and (ii) AT&T shall cause
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<PAGE> 21
the accounts of the Transferred Individuals under the AT&T LTSPME and the AT&T
RSPSP which are held by their related trusts as of the Close of the Distribution
Date to be transferred to the Lucent LTSPME and the Lucent RSPSP, respectively,
and their related trusts, and Lucent shall cause such transferred accounts to be
accepted by such plans and trusts. Effective no later than Immediately after the
Distribution Date, Lucent shall use its reasonable best efforts to enter into
such agreements satisfactory to Lucent to accomplish such assumptions and
transfers, the maintenance of the necessary participant records, the appointment
of Fidelity Institutional Trust Company as initial trustee under the Lucent
LTSPME and the Lucent RSPSP, and the engagement of Fidelity Records Management
Company as initial recordkeeper under such plans.
4.2 LTSSPS AND LESOPS.
(a) OCCUPATIONAL SAVINGS PLAN TRUSTS. Effective Immediately
after the Distribution Date, Lucent shall establish, or cause to be established,
a separate trust, qualified in accordance with Code Section 401(a), exempt from
taxation under Code Section 501(a)(1), and forming part of the Lucent LTSSP,
which shall be a participating trust in the AT&T Occupational Savings Group
Trust.
(b) ASSUMPTION OF LTSSP LIABILITIES. Effective Immediately
after the Distribution Date: (i) the Lucent LTSSP shall assume and be solely
responsible for all Liabilities to or relating to Transferred Individuals under
the AT&T LTSSP, other than Liabilities referred to in Section 4.2(c); and (ii)
AT&T shall cause the accounts of the Transferred Individuals under the AT&T
LTSSP which are held by its related trust as of the Close of the Distribution
Date to be transferred to the Lucent LTSSP and its related trust, and Lucent
shall cause such transferred accounts to be accepted by such plans and trusts.
Effective no later than Immediately after the Distribution Date, Lucent shall
use its reasonable best efforts to enter into agreements satisfactory to Lucent
to accomplish such assumption and transfer, the maintenance of the necessary
participant records, the appointment of the then-current trustee under the AT&T
LTSSP as initial trustee under the Lucent LTSSP, and the engagement of the
then-current recordkeeper of the AT&T LTSSP as initial recordkeeper under such
plans.
(c) LEVERAGED STOCK OWNERSHIP PLAN.
(i) Effective Immediately after the Distribution
Date, Lucent shall establish, or cause to be established, a separate trust (the
"Lucent LESOP Trust"), qualified in accordance with Code Section 401(a), exempt
from taxation under Code Section 501(a), and forming part of the Lucent LTSSP.
(ii) Before the Distribution Date, AT&T and Lucent
shall use their reasonable best efforts to renegotiate the note agreement
between Bankers Trust Company, as trustee of the AT&T LESOP, and various lenders
dated March 9, 1990 (the "Existing Acquisition Loan") so that it is restructured
into two note agreements for two loans, the principal amount of one being
attributable to the accounts to be transferred to the Lucent LESOP Trust
pursuant to Section 4.2(c)(iii) (the "Lucent Acquisition Loan") and the
principal amount of the other being attributable to the accounts remaining in
the AT&T LESOP (the "AT&T Acquisition Loan"). The principal amount of the Lucent
Acquisition Loan shall be determined by multiplying the principal amount of the
Existing Acquisition Loan as of the Distribution Date by the fraction described
in Section 4.2(c)(iii). AT&T and Lucent shall use their reasonable best efforts
to cause the terms of the AT&T Acquisition Loan and the Lucent Acquisition Loan
to be as favorable to Lucent and AT&T, respectively, as the
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<PAGE> 22
terms of the Existing Acquisition Loan, and, to the extent permitted by
applicable law, including Code Section 133, the terms of the Lucent Acquisition
Loan to be no less favorable to Lucent and the Lucent LESOP Trust than the terms
of the AT&T Acquisition Loan are to AT&T and the AT&T LESOP Trust.
(iii) Effective Immediately after the Distribution
Date: (A) the Lucent LTSSP shall assume and be solely responsible for all
Liabilities to or relating to Transferred Individuals under the AT&T LTSSP that
relate to, arise out of or result from the AT&T LESOP; (B) AT&T shall cause the
accounts of the Transferred Individuals under the AT&T LTSSP which are held by
the AT&T LESOP Trust as of the Close of the Distribution Date to be transferred
to the Lucent LTSSP and the Lucent LESOP Trust; (C) if the Existing Acquisition
Loan has been restructured into, and subject to the terms of, the AT&T
Acquisition Loan and the Lucent Acquisition Loan, AT&T shall cause the trustee
of the AT&T LESOP Trust to transfer to the Lucent LESOP Trust a portion of the
assets held in the "Suspense Account" (as defined in Article 20 of the AT&T
LTSSP) attributable to the Transferred Individuals, determined by multiplying
the number of shares of AT&T Common Stock and the fair market value of any other
assets held in such suspense account as of the Close of the Distribution Date by
a fraction, the numerator of which is the amount deemed to be employer matching
contributions attributable to Lucent Individuals and other employees of Lucent
and the Lucent Entities for the latest calendar month that ends on or before the
Distribution Date, and the denominator of which is the total amount deemed to be
employer matching contributions for all participants in the AT&T LTSSP for such
calendar month; and (D) Lucent shall cause all accounts transferred pursuant to
clauses (B) and (C) to be accepted by such plan and trust. Effective no later
than Immediately after the Distribution Date, Lucent shall use its reasonable
best efforts to enter into agreements acceptable to Lucent to accomplish such
assumption and transfers, the maintenance of the necessary participant and
suspense account records, the appointment of Bankers Trust Company as initial
trustee of the Lucent LESOP Trust, and the engagement of the then-current
recordkeeper of the AT&T LESOP as initial recordkeeper of the Lucent LESOP.
(iv) The parties intend that, as the result of the
above-described transactions, after the Close of the Distribution Date, each of
them will be the sponsor of an "employee stock ownership plan" as defined in
Code Section 4975(e)(7), and that the AT&T Acquisition Loan and Lucent
Acquisition Loan will be exempt from the prohibited transaction rules of the
Code and ERISA pursuant to Code Section 4975(d)(3).
(v) The parties acknowledge that, as a result of the
transfer of assets described in Section 4.2(c)(iii) and the Distribution, both
the AT&T LESOP and the Lucent LESOP will, after the Close of the Distribution
Date, hold shares of both AT&T Common Stock and Lucent Common Stock. The parties
further acknowledge that applicable law generally prohibits such plans from
holding securities that are not "qualifying employer securities" within the
meaning of Code Section 409 for more than a reasonable time after the
Distribution Date unless the IRS grants an extension of time. Accordingly, AT&T
and Lucent shall each request the IRS to grant an extension of such holding
period as their financial advisors shall deem prudent to allow the AT&T LESOP to
dispose of the shares of Lucent Common Stock received by it as a result of the
Distribution and to allow the Lucent LESOP to dispose of the shares of AT&T
Common Stock it holds as a result of the transfer of accounts pursuant to
Section 4.2(c)(iii), and, in each case, to reinvest in qualifying employer
securities, in a manner consistent with the best interests of the LESOP
participants. In furtherance of such dispositions and reinvestments, AT&T and
Lucent shall take all actions necessary or appropriate to permit the exchange of
shares of Lucent Common Stock held by the AT&T LESOP Trust for shares of AT&T
Common Stock held by the Lucent
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<PAGE> 23
LESOP Trust, including the engagement of a fiduciary not affiliated with either
AT&T or Lucent to advise the parties regarding the time and manner (including
the exchange ratio) of such exchange. If the restructuring of the Existing
Acquisition Loan results in any prepayment or "make whole" penalty, or if the
interest rate payable pursuant to the Lucent Acquisition Loan exceeds the
interest rate payable pursuant to the AT&T Acquisition Loan or vice versa, then
Lucent and AT&T and their respective LESOPs shall bear the cost of such
penalties and the excess interest expense so incurred in proportion to the
relative initial principal amounts of the Lucent Acquisition Loan and the AT&T
Acquisition Loan, taking into account any tax benefits realized or tax
detriments suffered in connection therewith.
(vi) Notwithstanding the foregoing, if it is
determined by AT&T or Lucent before the Distribution Date that the restructuring
of the Existing Acquisition Loan is not practicable on commercially reasonable
terms and conditions, then, unless AT&T and Lucent agree otherwise, AT&T shall
terminate the AT&T LESOP and its related trust before the Distribution Date, and
shall direct the trustee of the AT&T LESOP trust to sell sufficient shares of
AT&T Common Stock held under the AT&T LESOP trust to repay the Existing
Acquisition Loan. Any remaining "Financed Shares" (as defined in the AT&T LESOP)
that are released after repayment of the loan and not the subject of any
subsequent refinancing shall be used by the Participating Companies to make
matching contributions with respect to periods before the Close of the
Distribution Date to the AT&T LTSSP in accordance with their obligations under
the AT&T LTSSP.
4.3 ESOPS.
(a) ESOP TRUST. Effective Immediately after the Distribution
Date, Lucent shall establish, or cause to be established, a separate trust (the
"Lucent ESOP Trust"), qualified in accordance with Code Section 401(a), exempt
from taxation under Code Section 501(a), and forming part of the Lucent ESOP.
(b) ASSUMPTION OF LIABILITIES AND TRANSFER OF ASSETS.
(i) Effective Immediately after the Distribution
Date, the Lucent ESOP shall assume and be solely responsible for all Liabilities
to or relating to Transferred Individuals under the AT&T ESOP, and AT&T shall
cause the accounts of the Transferred Individuals under the AT&T ESOP as of the
Close of the Distribution Date to be transferred to the Lucent ESOP and the
Lucent ESOP Trust, and Lucent shall cause such plan and trust to accept such
assets. Effective no later than Immediately after the Distribution Date, Lucent
shall use its reasonable best efforts to enter into agreements acceptable to
Lucent to accomplish such assumptions and transfers, the maintenance of the
necessary participant records, the appointment of Midlantic Bank as initial
trustee of the Lucent ESOP Trust and the engagement of American Transtech Inc.
as initial recordkeeper of the Lucent ESOP.
(ii) The parties acknowledge that, as a result of the
transfer of assets described in Section 4.3(b)(i) and the Distribution, both the
AT&T ESOP and the Lucent ESOP will, after the Distribution Date, hold shares of
both AT&T Common Stock and Lucent Common Stock and that, in order to continue to
qualify as employee stock ownership plans, each such plan will be required to
dispose of securities that are not qualifying employer securities and reinvest
in qualifying employer securities. The parties further acknowledge that
applicable law generally prohibits such plans from holding securities that are
not "qualifying employer securities" within the meaning of Code Section 409 for
more than a reasonable time after the Distribution Date unless the IRS grants an
extension of time. Accordingly, AT&T and Lucent shall each request the IRS to
grant an extension of such
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holding period as their financial advisors shall deem prudent to allow the AT&T
ESOP to dispose of the shares of Lucent Common Stock received by it as a result
of the Distribution and to allow the Lucent ESOP to dispose of the shares of
AT&T Common Stock it holds as a result of the transfer of accounts pursuant to
Section 4.3(b)(i), and, in each case, to reinvest in qualifying employer
securities, in a manner consistent with the best interests of the ESOP
participants. In furtherance of such dispositions and reinvestments, AT&T and
Lucent shall take all actions necessary or appropriate to permit the exchange of
shares of Lucent Common Stock held by the AT&T ESOP Trust for shares of AT&T
Common Stock held by the Lucent ESOP Trust, including the engagement of a
fiduciary not affiliated with either AT&T or Lucent to advise the parties
regarding the time and manner (including the exchange ratio) of such exchange.
ARTICLE V
HEALTH AND WELFARE PLANS
5.1 ESTABLISHMENT OF MIRROR HEALTH AND WELFARE PLAN TRUSTS. On or
before the Distribution Date, Lucent shall establish, or cause to be
established: (a) the Lucent Health Plans Benefit Trust, for the purpose of
funding claims, other than for post-retirement benefits, under the Lucent Health
Plans; (b) the Lucent Management VEBA, for the purpose of funding claims for
post-retirement benefits of employees not covered by any collective bargaining
agreement under the Lucent Health Plans; (c) the Lucent Union VEBA, for the
purpose of funding claims for post-retirement benefits under the Lucent Health
Plans of employees covered by a collective bargaining agreement; and (d) the
Lucent LTD VEBA, for the purpose of funding long-term disability and disability
pension benefits under the Lucent Health and Welfare Plans. Such trusts shall
meet the requirements of Code Sections 419, 419A, 501(a), and 501(c)(9).
Lucent shall use its reasonable best efforts to enter into agreements
satisfactory to Lucent for the appointment as initial trustee under each such
trust of the trustee of the corresponding AT&T trust.
5.2 ASSUMPTION OF HEALTH AND WELFARE PLAN LIABILITIES.
(a) Immediately after the Distribution Date, all Liabilities
to or relating to Transferred Individuals under the AT&T Health and Welfare
Plans shall cease to be Liabilities of the AT&T Health and Welfare Plans and
shall be assumed by the corresponding Lucent Health and Welfare Plans.
(b) Notwithstanding Section 5.2(a), all treatments which have
been pre-certified for or are being provided to a Transferred Individual as of
the Close of the Distribution Date shall be provided without interruption under
the appropriate AT&T Health and Welfare Plan until such treatment is concluded
or discontinued pursuant to applicable plan rules and limitations, but Lucent
shall continue to be responsible for all Liabilities relating to, arising out of
or resulting from such on-going treatments as of the Close of the Distribution
Date.
(c) Lucent shall assume, effective Immediately after the
Distribution Date, all Liabilities relating to, arising out of or resulting from
special commitments made by AT&T before the Close of the Distribution Date to
provide benefits to or with respect to Transferred Individuals for custodial
care or other services not covered by any AT&T Health and Welfare Plans (but
only if such special commitments were made with the prior written consent of the
Lucent Senior Vice President, Human Resources or his delegate, to
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the extent such commitments are made after the Participation Commencement Date).
Before the Close of the Distribution Date, AT&T shall transfer to Lucent copies
of all documentation, and a complete written description, of the terms of all
such special commitments to Transferred Individuals.
5.3 VEBA ASSET TRANSFERS. This Section 5.3 shall govern the transfer of
assets from the AT&T Health Trusts (other than the AT&T Health Plans Benefit
Trust) to the corresponding Lucent Health Trusts and from the AT&T LTD VEBA to
the Lucent LTD VEBA, except to the extent that Section 5.5 is applicable. As
soon as practicable after the Close of the Distribution Date, AT&T shall
determine the aggregate present value, as of the Close of the Distribution Date,
of the future benefit obligations of each AT&T Plan funded by a VEBA ("VEBA
Plans"), with respect to Transferred Individuals who are eligible to receive
benefits under the applicable VEBA Plan as of the Close of the Distribution Date
(and, in the case of any post-retirement health benefits, who have terminated
employment as of the Close of the Distribution Date). As soon as practicable
after such determination is made, there shall be transferred from each AT&T VEBA
to the corresponding Lucent VEBA an amount of assets having a fair market value
on the date of transfer equal to the amount determined by dividing such
aggregate present value of future benefit obligations for the applicable VEBA
Plans of Lucent by the aggregate of all such present values of all the
applicable VEBA Plans of AT&T and all the applicable VEBA Plans of Lucent,
multiplied by the fair market value of the assets of the AT&T VEBA on the date
of transfer, adjusted to take into account the extent to which AT&T and/or
Lucent has opted to forego reimbursement from the applicable VEBA of any benefit
obligation that was paid by AT&T or Lucent, as applicable, on or after the
Participation Commencement Date and before the Close of the Distribution Date.
5.4 TRANSFER OF RETIREMENT FUNDING ACCOUNT ASSETS. This Section 5.4
shall apply to AT&T Health and Welfare Plans with group term life insurance
policies that have RFAs maintained for the purpose of accumulating, through
employer contributions in advance of employee retirements, a fund to be used to
pay all or a portion of the costs for continuing life insurance protection for
employees after their retirement. As soon as practicable after the Close of the
Distribution Date, there shall be transferred to the corresponding RFA of Lucent
an amount of assets (determined by AT&T subject to audit by Coopers & Lybrand)
having a fair market value as of the Close of the Distribution Date equal to the
product of (a) the present value, as of the Close of the Distribution Date, of
the future benefit obligation with respect to Transferred Individuals to be
discharged from the RFA, divided by the present value of the future benefit
obligations with respect to all individuals whose benefits are to be discharged
from the RFA assets as of the Close of the Distribution Date times (b) the fair
market value of all RFA assets as of the Close of the Distribution Date. AT&T
and Lucent shall adopt, and shall use their reasonable best efforts to cause
their insurers to adopt, procedures to implement such asset transfers in a
reasonable and expeditious manner that is consistent with the underlying group
life insurance contracts and applicable legal requirements. Nothing in this
Agreement shall be interpreted to provide that any assets so transferred have
reverted to AT&T or Lucent.
5.5 VEBAs FUNDED WITH TRUST-OWNED LIFE INSURANCE. This Section 5.5
shall govern transfers of assets of AT&T VEBAs that are funded, in whole or in
part, with trust-owned life insurance policies.
(a) GENERAL PROVISIONS. As soon as practicable after the Close
of the Distribution Date, AT&T shall cause each such AT&T VEBA to transfer to
the corresponding Lucent VEBA such assets as are attributable to Transferred
Individuals who are eligible to
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receive post-retirement health benefits under the AT&T Health Plans with respect
to such AT&T VEBA; provided, that AT&T shall not be required to cause such
transfer to occur before AT&T has obtained appropriate rulings from regulatory
agencies indicating that the transfers do not contravene any statute,
regulation, or technical pronouncement.
(b) AT&T MANAGEMENT VEBA: TRUST-OWNED LIFE INSURANCE (VEBA).
To accomplish the transfers required by Section 5.5(a), all or a portion of the
Trust-Owned Life Insurance (VEBA) policies and any residual assets in the AT&T
Management VEBA shall be allocated between the trustee of the AT&T Management
VEBA, and the trustee of the Lucent Management VEBA, in accordance with the
following procedures.
(i) AT&T shall determine the extent to which the
assets of the AT&T Management VEBA are sufficient to satisfy all Liabilities to
or relating to Transferred Individuals who have terminated employment and are
eligible to receive post-retirement health benefits under the AT&T Health Plans
with respect to the AT&T Management VEBA as of the Close of the Distribution
Date.
(ii) AT&T shall instruct the trustee of the AT&T
Management VEBA to transfer one of the Trust-Owned Life Insurance (VEBA)
policies to the Lucent Management VEBA. AT&T shall determine which policy shall
be transferred based on the present values of relative post-retirement health
liabilities (benefit obligations) retained by AT&T and assumed by Lucent
pursuant to this Agreement, without regard to which entity employs the insured
individuals, provided, that before such transfer, AT&T shall instruct the
trustee of the AT&T Management VEBA to adjust and/or allocate the cash values
under the Trust-Owned Life Insurance (VEBA) policies such that the policy to be
transferred to the Lucent Management VEBA shall have a proportionate cash value
consistent with the proportion of post-retirement health liabilities (benefit
obligations) to be assumed by Lucent. Upon such assignment, the trustee of the
Lucent Management VEBA shall assume and be solely responsible for all
Liabilities relating to, arising out of or resulting from such policy, including
the payment of any premiums and any loan repayments required, and shall be
entitled to all benefits, under the policy.
(c) OTHER ASSET TRANSFERS. To accomplish the transfers
required by Section 5.5(a), a portion of the assets of the AT&T Management VEBA
(other than Trust-Owned Life Insurance (VEBA) policies) shall be transferred to
the Lucent Management VEBA to the extent necessary so that immediately after
such transfer and the transfer pursuant to Section 5.5(b), the ratio of the
assets of each such VEBA trust to the liabilities payable therefrom as described
in Section 5.5(b)(i), is equal.
(d) ADMINISTRATION. Lucent and AT&T shall share all
information necessary to determine when and whether any individuals insured by
the Trust-Owned Life Insurance (VEBA) policies owned by the trustees of the AT&T
Management VEBA and Lucent Management VEBA, respectively, are deceased, and as
otherwise necessary to administer their respective Management VEBAs.
5.6 CONTRIBUTIONS TO, INVESTMENTS OF AND DISTRIBUTIONS FROM VEBAS.
Before the Close of the Distribution Date, AT&T shall have sole authority to
direct the trustee of the AT&T Health Trusts and AT&T LTD VEBA as to the timing
and manner of any contributions to the AT&T Health Trusts and AT&T LTD VEBA, the
investment of any trust assets, and the distributions and/or transfers of trust
assets to AT&T, Lucent, any Participating Company in the trusts, any paying
agent, any successor trustee, or any other Person.
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5.7 VENDOR CONTRACTS.
(a) THIRD-PARTY ASO CONTRACTS.
(i) AT&T shall use its reasonable best efforts to
amend each administrative services only contract with a third-party
administrator that relates to any of the AT&T Health and Welfare Plans (an "ASO
Contract") in existence as of the date of this Agreement to permit Lucent to
participate in the terms and conditions of such ASO Contract from Immediately
after the Distribution Date until the expiration of the financial fee guarantees
in effect under such ASO Contract as of the Close of the Distribution Date. AT&T
shall use its reasonable best efforts to cause all ASO Contracts into which AT&T
enters after the date of this Agreement but before the Close of the Distribution
Date (including contracts with a subrogation vendor, a COBRA administration
vendor and a Disability 2000 vendor) to allow Lucent to participate in the terms
and conditions thereof effective Immediately after the Distribution Date on the
same basis as AT&T.
(ii) AT&T shall have the right to determine, and
shall promptly notify Lucent of, the manner in which Lucent's participation in
the terms and conditions of ASO Contracts as set forth above shall be
effectuated. The permissible ways in which Lucent's participation may be
effectuated include automatically making Lucent a party to the ASO Contracts or
obligating the third party to enter into a separate ASO Contract with Lucent
providing for the same terms and conditions as are contained in the ASO
Contracts to which AT&T is a party. Such terms and conditions shall include the
financial and termination provisions, performance standards, methodology,
auditing policies, quality measures, reporting requirements and target claims.
Lucent hereby authorizes AT&T to act on its behalf to extend to Lucent the terms
and conditions of the ASO Contracts. Lucent shall fully cooperate with AT&T in
such efforts, and Lucent shall not perform any act, including discussing any
alternative arrangements with any third party, that would prejudice AT&T's
efforts.
(iii) If AT&T determines that it will not be
successful in negotiating contract language that will permit compliance with
Sections 5.7(a)(i) and 5.7(a)(ii), AT&T shall so notify Lucent promptly, but in
no event later than July 20,1996, and after such notification, Lucent shall be
released from the restriction contained in the last sentence of Section
5.7(a)(ii). In such case, AT&T shall offer a contingency plan for the
administration of the portion of the Lucent Health and Welfare Plans affected by
the unavailability of such ASO Contract, including, if possible, an offer by the
third-party administrator under the relevant ASO Contract of its services under
a separate contract with Lucent, with terms and conditions as similar as
practicable to those of the ASO Contract with AT&T. Lucent shall, effective
Immediately after the Distribution Date, either adopt its own contingency plan
or the contingency plan established by AT&T for such arrangement.
(b) GROUP INSURANCE POLICIES.
(i) This Section 5.7(b) applies to group insurance
policies not subject to allocation or transfer pursuant to the foregoing
provisions of this Article V ("Group Insurance Policies").
(ii) AT&T shall use its reasonable best efforts to
amend each Group Insurance Policy in existence as of the date of this Agreement
for the provision or administration of benefits under the AT&T Health and
Welfare Plans to permit Lucent to
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participate in the terms and conditions of such policy from Immediately after
the Distribution Date until the expiration of the financial fee and rate
guarantees in effect under such Group Insurance Policy as of the Close of the
Distribution Date. AT&T shall use its reasonable best efforts to cause all Group
Insurance Policies into which AT&T enters or which AT&T renews after the date of
this Agreement but before the Close of the Distribution Date to allow Lucent to
participate in the terms and conditions thereof effective Immediately after the
Distribution Date on the same basis as AT&T.
(iii) Lucent's participation in the terms and
conditions of each such Group Insurance Policy shall be effectuated by
obligating the insurance company that issued such insurance policy to AT&T to
issue one or more separate policies to Lucent. Such terms and conditions shall
include the financial and termination provisions, performance standards and
target claims. Lucent hereby authorizes AT&T to act on its behalf to extend to
Lucent the terms and conditions of such Group Insurance Policies. Lucent shall
fully cooperate with AT&T in such efforts, and Lucent shall not perform any act,
including discussing any alternative arrangements with third parties, that would
prejudice AT&T's efforts.
(iv) If AT&T determines that it will not be
successful in negotiating policy provisions that will permit compliance with
Sections 5.7(b)(ii) and 5.7(b)(iii), AT&T shall so notify Lucent promptly, but
in no event later than July 20, 1996, and after such notification, Lucent shall
be released from the restriction contained in the last sentence of Section
5.7(b)(iii). In such case, AT&T shall use its reasonable best efforts to either
continue to cover Lucent under its Group Insurance Policies or procure a
separate policy for Lucent until Lucent has procured such separate insurance
policy or made other arrangements for replacement coverage, and Lucent shall
bear all costs incurred by AT&T to continue such coverage.
(c) HMO AGREEMENTS.
(i) Before the Distribution Date, AT&T shall use its
reasonable best efforts to amend all letter agreements with HMOs that provide
medical services under the AT&T Medical Plans for 1996 ("HMO Agreements") in
existence as of the date of this Agreement to permit Lucent to participate in
the terms and conditions of such HMO Agreements, in each case, from Immediately
after the Distribution Date until December 31, 1996. AT&T shall use its
reasonable best efforts to cause all HMO Agreements into which AT&T enters after
the date of this Agreement but before the Close of the Distribution Date to
allow Lucent to participate in the terms and conditions of such HMO Agreements
from Immediately after the Distribution Date until December 31, 1996 on the same
basis as AT&T.
(ii) AT&T shall have the right to determine, and
shall promptly notify Lucent of, the manner in which Lucent's participation in
the terms and conditions of all HMO Agreements as set forth above shall be
effectuated. The permissible ways in which Lucent's participation may be
effectuated include automatically making Lucent a party to the HMO Agreements or
obligating the HMOs to enter into letter agreements with Lucent which are
identical to the HMO Agreements. Such terms and conditions shall include the
financial and termination provisions of the HMO Agreements. Lucent hereby
authorizes AT&T to act on its behalf to extend to Lucent the terms and
conditions of the HMO Agreements. Lucent shall fully cooperate with AT&T in such
efforts, and Lucent shall not perform any act, including discussing any
alternative arrangements with any third-party, that would prejudice AT&T's
efforts.
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(iii) If AT&T determines that it will not be
successful in negotiating arrangements that will permit compliance with Sections
5.7(c)(i) and 5.7(c)(ii), AT&T shall so notify Lucent promptly, but no event
later than July 20, 1996, and after such notification, Lucent shall be released
from the restriction contained in the last sentence of Section 5.7(c)(ii). In
such case, Lucent shall enter into letter agreements with one or more HMOs to
provide benefits under the Lucent Medical Plans, at least through December 31,
1996, in the geographic area serviced by the HMOs covered by AT&T's notice. AT&T
shall, if requested by Lucent and permitted by the HMOs, arrange for the
continued provision under its HMO Agreements of medical services to Lucent
Medical Plan participants from Immediately after the Distribution Date through
December 31, 1996, and Lucent shall bear all costs incurred by AT&T to continue
such services.
(iv) Notwithstanding anything in this Article V to
the contrary, Lucent shall have the sole discretion to determine which HMOs to
offer to the participants in the Lucent Medical Plans for 1997 and subsequent
years, and all HMO Agreements in which Lucent participates pursuant to this
Section 5.7(c) shall provide Lucent with the right to discontinue its
participation effective January 1, 1997.
(d) EFFECT OF CHANGE IN RATES. AT&T and Lucent shall use their
reasonable best efforts to cause each of the insurance companies, HMOs,
point-of-service vendors and third-party administrators providing services and
benefits under the AT&T Health and Welfare Plans and the Lucent Health and
Welfare Plans to maintain the premium and/or administrative rates based on the
aggregate number of participants in both the AT&T Health and Welfare Plans and
the Lucent Health and Welfare Plans through the expiration of the financial fee
or rate guarantees in effect as of the Close of the Distribution Date under the
respective ASO Contracts, Group Insurance Policies, and HMO Agreements. To the
extent they are not successful in such efforts, AT&T and Lucent shall each bear
the revised premium or administrative rates attributable to the individuals
covered by their respective Health and Welfare Plans.
5.8 PROCEDURES FOR AMENDMENTS TO PLANS, PLAN DESIGNS, ADMINISTRATIVE
PRACTICES, AND VENDOR CONTRACTS.
(a) AMENDMENTS TO PLAN DOCUMENTS. From Immediately after the
Distribution Date through December 31, 1998, no amendment to any AT&T Health and
Welfare Plan or Lucent Health and Welfare Plan shall be effective unless the
party intending to amend its Health and Welfare Plan has: (i) given the other
party written notice of the intention to amend, accompanied by a copy of the
proposed amendment, at least 30 days in advance of the earlier of (A) the
proposed amendment effective date, or (B) the proposed amendment adoption date;
(ii) agreed to bear all of the costs of implementing the amendment incurred by
third-party administrators, insurance companies and other vendors and passed
through to one or both of the parties; and (iii) certified to the other party,
and provided to the other party the written concurrence of all third-party
administrators, insurance companies and other vendors providing services in
connection with such Plan, that (after taking into account the effect of clause
(ii)) the proposed amendment to the Health and Welfare Plan will have no
material adverse impact (financial, administrative or otherwise) on the
corresponding Health and Welfare Plan sponsored by the other party.
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(b) CHANGES IN VENDOR CONTRACTS, GROUP INSURANCE POLICIES,
PLAN DESIGN, AND ADMINISTRATION PRACTICES AND PROCEDURES.
(i) From Immediately after the Distribution Date
through the earlier of the expiration of the financial fee or rate guarantees in
effect as of the Close of the Distribution Date under the applicable ASO
Contract, Group Insurance Policy or HMO Agreement, and December 31, 1998,
neither AT&T nor Lucent shall materially modify, or take other action which
would have a material effect on, any of the following (each such modification, a
"Change") without complying with Section 5.8(b)(ii): (A) the termination date,
administration, or operation of (1) an ASO contract between AT&T or Lucent and a
third-party administrator, (2) a Group Insurance Policy issued to AT&T or
Lucent, or (3) an HMO Agreement with AT&T or Lucent, in each case, the material
terms and conditions of which contracts and policies are extended to Lucent or
to which Lucent becomes a party pursuant to Section 5.7; (B) the design of
either an AT&T Health and Welfare Plan or a Lucent Health and Welfare Plan; or
(C) the financing, operation, administration or delivery of benefits under
either an AT&T Health and Welfare Plan or a Lucent Health and Welfare Plan.
(ii) Neither AT&T nor Lucent shall make any Change
unless the party intending to make the Change has: (A) given the other party
written notice of the intention to make the Change, accompanied by a written
description of the Change, at least 180 days in advance of the proposed
effective date of the Change; (B) agreed to bear all of the costs of
implementing the Change which are incurred by all third-party administrators,
insurance companies, HMOs and other vendors and passed through to one or both of
the parties; and (C) certified to the other party, and provided to the other
party the written concurrence of each third-party administrator, insurance
company, HMO or other vendor associated with or performing services in
connection with the Health and Welfare Plan affected by the Change, that (after
taking into account the effect of clause (B)) the proposed Change will have no
material adverse impact (financial, administrative or otherwise) on the
corresponding Health and Welfare Plan sponsored by the other party.
(iii) SUBMISSION TO HEALTH, WELFARE AND LIFE
INSURANCE COMMITTEE. If AT&T or Lucent desires to make a Change that requires
compliance with, but cannot satisfy all of the conditions of, Section
5.8(b)(ii), the party desiring to make the Change may submit a written request
for approval of the Change, accompanied by a written description of the Change,
to the HWLI Committee. If such a request is made, the desired Change may be
implemented only after the Change is approved in writing by the HWLI Committee.
(c) EMPLOYEE CONTRIBUTIONS. Notwithstanding the provisions of
Sections 5.8(a) and 5.8(b), as of the first January 1 after the Distribution
Date, AT&T and Lucent shall each have the independent right, in its sole
discretion and without compliance with Sections 5.8(a) and 5.8(b), to increase
or decrease the amount of employee contributions under their respective Health
and Welfare Plans.
5.9 HEALTH, WELFARE AND LIFE INSURANCE COMMITTEE. From the date of this
Agreement through December 31, 1998, the management of the ASO Contracts, Group
Insurance Policies, and HMO Agreements and other vendor contracts that are
subject to Section 5.8 and the administration of the AT&T Health and Welfare
Plans and the Lucent Health and Welfare Plans associated therewith shall be
conducted under the supervision of the HWLI Committee. The HWLI Committee shall
be comprised of an equal number of representatives from AT&T and Lucent at the
District Manager or equivalent level, and shall provide
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strategic oversight and direction of the cohesive administration of the AT&T
Health and Welfare Plans and the Lucent Health and Welfare Plans. Issues that
cannot be resolved by the HWLI Committee shall be decided, at the request of
either party, by the Executive Oversight Committee comprised of the Lucent
Senior Vice President-Human Resources and the AT&T Senior Vice
President-Benefits and Compensation.
5.10 AT&T SICKNESS AND ACCIDENT DISABILITY, LONG TERM DISABILITY AND
PENSION DISABILITY BENEFITS.
(a) ADMINISTRATION OF AT&T SADBP CLAIMS. AT&T shall administer
claims incurred under the AT&T SADBP by Transferred Individuals, Lucent
Individuals and other employees and former employees of Lucent and the Lucent
Entities on or after the Participation Commencement Date but before the Close of
the Distribution Date, to the extent such claims are not administered by Lucent
pursuant to the terms of the AT&T SADBP as in effect on the date of this
Agreement. Any determination made or settlements entered into by AT&T with
respect to such claims shall be final and binding. If claims incurred before the
Close of the Distribution Date under the AT&T SADBP by Transferred Individuals,
Lucent Individuals and other employees and former employees of Lucent and the
Lucent Entities were administered by Lucent before the Close of the Distribution
Date, such claims shall continue to be administered by Lucent after the Close of
the Distribution Date, unless outsourced pursuant to Section 5.10(b). AT&T shall
transfer to Lucent, effective Immediately after the Distribution Date,
responsibility for administering all claims incurred by Transferred Individuals,
Lucent Individuals and other employees and former employees of Lucent and the
Lucent Entities before the Close of the Distribution Date that are administered
by AT&T as of the Close of the Distribution Date. Lucent shall administer such
claims in the same manner, and using the same methods and procedures, as AT&T
used in administering such claims. Lucent shall have sole discretionary
authority to make any necessary determinations with respect to such claims,
including entering into settlements with respect to such claims.
(b) OUTSOURCING OF CLAIMS. AT&T, pursuant to its Disability
2000 project or otherwise, shall have the right to engage a third-party
administrator or insurance company to administer ("outsource") claims incurred
under the AT&T SADBP that are being administered by AT&T pursuant to Section
5.10(a), claims incurred under the AT&T LTD Plans, and claims incurred under the
pension disability provisions of the AT&T Pension Plans, including claims
incurred by Transferred Individuals, Lucent Individuals and other employees and
former employees of Lucent and the Lucent Entities before the Close of the
Distribution Date. AT&T may determine the manner and extent of such outsourcing,
including the selection of one or more third-party administrators or insurance
companies and the ability to transfer the liability for such claims to one or
more independent insurance companies. AT&T shall promptly notify Lucent of its
intent to outsource such claims, and the material terms and condition of the
outsourcing, before the effective date thereof. Lucent shall have the right to
notify AT&T, within a reasonable period of time after Lucent receives AT&T's
notice of intent to outsource, of Lucent's desire to participate in the proposed
outsourcing. If Lucent gives such notice, all claims incurred by Transferred
Individuals, Lucent Individuals and other employees and former employees of
Lucent and the Lucent Entities before the Close of the Distribution Date that
are administered by Lucent pursuant to Section 5.10(a) shall be included in the
proposed outsourcing. In the event Lucent elects to participate in such
outsourcing, Lucent shall be bound by the terms and conditions thereof
(including all consequences of any transfer of liability) and to any
determinations and settlements entered into by the third-party administrator
pursuant thereto.
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5.11 POST-RETIREMENT HEALTH AND LIFE INSURANCE BENEFITS.
(a) As soon as practicable after the Distribution Date, AT&T
shall provide Lucent with a list of all Transferred Individuals who are, to the
best knowledge of AT&T, eligible to receive retiree medical or dental coverage
under the AT&T Health Plans as of the Distribution Date and/or post-retirement
life insurance coverage under the AT&T Group Life Program, and the type of
retiree medical or dental coverage and the level of life insurance coverage for
which they are eligible, as applicable.
(b) Effective Immediately after the Distribution Date, Lucent
shall (i) assume and continue through December 31, 1998 the company-sponsored
retiree care accounts provided under the AT&T Medical Expense Plan for Retired
Employees pursuant to collective bargaining agreements for all Transferred
Individuals under the Lucent Medical Expense Plan for Retired Employees and (ii)
honor and maintain all other-covered-charges buy-up lifetime maximum elections
made by Transferred Individuals under the AT&T Medical Expense Plan for Retired
Employees.
5.12 GROUP LIFE PROGRAMS. Effective as of the Close of the Distribution
Date, AT&T shall cause the insurance carrier that provides basic active life
insurance coverage, supplemental life insurance coverage, dependent life
insurance coverage, accidental life insurance coverage and the portion of the
post-retirement life insurance benefit which exceeds $50,000 per participant
under the AT&T Group Life Program to: (a) perform an experience rating; (b)
allocate the applicable premium stabilization reserves between AT&T and Lucent
on an actuarial basis; (c) allocate pending claim reserves based on actual
claims data; and (d) allocate unreported claim reserves based on expected claims
by coverage.
5.13 COBRA AND DIRECT PAY. Through the Close of the Distribution Date,
AT&T shall be responsible for administering compliance with the health care
continuation coverage requirements of COBRA and the AT&T Health and Welfare
Plans with respect to Transferred Individuals, Lucent Individuals and other
employees and former employees of Lucent and the Lucent Entities and
beneficiaries and dependents thereof and Lucent and the Lucent Entities shall be
responsible for filing all necessary employee change notices with respect to
their respective employees in accordance with applicable AT&T policies and
procedures. Effective Immediately after the Distribution Date, Lucent shall
solely be responsible for administering compliance with the health care
continuation coverage requirements of COBRA and the Lucent Health and Welfare
plans, and, with respect to Transferred Individuals, the AT&T Health and Welfare
Plans.
5.14 LEAVE OF ABSENCE PROGRAMS AND FMLA.
(a) Through the Close of the Distribution Date, AT&T shall be
responsible for administering compliance with the AT&T Leave of Absence Programs
and FMLA with respect to Lucent Individuals and all other employees of Lucent
and the Lucent Entities. Lucent and the Lucent Entities shall be responsible for
determining whether their respective employees are eligible for leave under the
AT&T Leave of Absence Programs and FMLA in accordance with such programs and
FMLA, respectively.
(b) Effective Immediately after the Distribution Date: (i)
Lucent shall adopt, and shall cause each Lucent Entity to adopt, leave of
absence programs which are substantially identical in all Material Features to
the AT&T Leave of Absence Programs as in effect on the Distribution Date; (ii)
Lucent shall honor, and shall cause each Lucent Entity to honor, all terms and
conditions of leaves of absence which have been granted to any
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Transferred Individual under an AT&T Leave of Absence Program or FMLA before the
Close of the Distribution Date by AT&T, Lucent, or a Lucent Entity, including
such leaves that are to commence after the Distribution Date; (iii) Lucent and
each Lucent Entity shall be solely responsible for administering leaves of
absence and compliance with FMLA with respect to their employees; and (iv)
Lucent and each Lucent Entity shall recognize all periods of service of
Transferred Individuals with AT&T or an AT&T Entity, as applicable, to the
extent such service is recognized by AT&T for the purpose of eligibility for
leave entitlement under the AT&T Leave of Absence Programs and FMLA; provided,
that no duplication of benefits shall be required by the foregoing.
(c) As soon as administratively possible after the Close of
the Distribution Date, AT&T shall provide to Lucent copies of all records
pertaining to the AT&T Leave of Absence Programs and FMLA with respect to all
Transferred Individuals to the extent such records have not been provided
previously to Lucent or a Lucent Entity.
5.15 AT&T WORKERS' COMPENSATION PROGRAM.
(a) ADMINISTRATION OF CLAIMS.
(i) Through the Close of the Distribution Date or
such earlier date as may be agreed by AT&T and Lucent, (A) AT&T shall continue
to be responsible for the administration of all claims that (1) are, or have
been, incurred under the AT&T WCP before the Close of the Distribution Date by
Transferred Individuals, Lucent Individuals and other employees and former
employees of Lucent and the Lucent Entities through the Close of the
Distribution Date ("Lucent WCP Claims") and (2) have been historically
administered by AT&T or its insurance company, and (B) Lucent shall continue to
be responsible for the administration of all Lucent WCP Claims that have been
historically administered by the Lucent Business.
(ii) Effective immediately after the Distribution
Date or such earlier date as may be agreed by AT&T and Lucent, (A) Lucent shall,
to the extent Legally Permissible (as defined below), be responsible for the
administration of all Lucent WCP Claims, whether those claims were previously
administered by AT&T or Lucent, and (B) AT&T shall be responsible for the
administration of all Lucent WCP Claims not administered by Lucent pursuant to
clause (A), whether previously administered by AT&T or Lucent and whether under
the self-insured or insured portion of the AT&T WCP. Any determination made, or
settlement entered into, by either party or its insurance company with respect
to Lucent WCP Claims for which it is administratively responsible shall be final
and binding upon the other party.
(iii) Each party shall fully cooperate with the other
with respect to the administration and reporting of Lucent WCP Claims, the
payment of Lucent WCP Claims determined to be payable, and the transfer of the
administration of any Lucent WCP Claims to the other party as determined under
Section 5.15(a)(ii). Either party shall have the right to "outsource" (i.e.,
transfer the administration of claims to a third party administrator or cause
claims to be paid through insurance) any and all Lucent WCP Claims for which it
is administratively responsible.
(iv) For purposes of this Section 5.15(a), "Legally
Permissible" shall be determined on a state-by-state basis, and shall mean that
administration of Lucent
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WCP Claims by Lucent both (A) is permissible under the applicable state's
workers' compensation laws (taking into account all relevant facts, including
that Lucent may have a self-insurance certificate in that state) and (B) would
not have a material adverse effect on AT&T's self-insurance certificate within
that state. If it is determined that, in a particular state, it is Legally
Permissible for Lucent to administer Lucent WCP Claims, then Lucent shall be
responsible for the administration of all Lucent WCP Claims incurred in that
state, whether previously administered by AT&T, Lucent, or an insurance company.
If it is determined that, in a particular state, it is not Legally Permissible
for Lucent to administer Lucent WCP Claims, then AT&T shall be responsible for
the administration of all Lucent WCP Claims incurred in that state, whether
previously administered by AT&T, Lucent, or an insurance company.
(b) SELF-INSURANCE STATUS.
(i) AT&T shall amend its certificates of
self-insurance with respect to workers' compensation and any applicable group
insurance policies to include Lucent until the Close of the Distribution Date,
and Lucent shall fully cooperate with AT&T in obtaining such amendments. All
costs incurred by AT&T in amending such certificates or group insurance
policies, including filing fees, adjustments of security and excess loss
policies and amendment of safety programs, shall be shared equally by AT&T and
Lucent. AT&T shall use its reasonable best efforts to obtain self-insurance
status for workers' compensation for Lucent effective Immediately after the
Distribution Date in each jurisdiction in which Lucent conducts business and in
which AT&T is self-insured, if AT&T determines that such status is beneficial to
Lucent. Lucent hereby authorizes AT&T to take all actions necessary and
appropriate on its behalf in order to obtain such self-insurance status.
(ii) AT&T shall also arrange a contingent insured or
other arrangement for payment of workers' compensation claims, into which Lucent
shall enter if and to the extent that AT&T fails to obtain self-insured status
for Lucent as provided in Section 5.15(b)(i), unless Lucent obtains another such
arrangement that is effective Immediately after the Distribution Date, in which
event Lucent shall reimburse AT&T for any expenses incurred by AT&T in procuring
such contingent arrangement.
(c) INSURANCE POLICY.
(i) In the event the workers' compensation insurance
policy that AT&T maintains under the AT&T WCP expires before the Distribution
Date, AT&T shall use its reasonable best efforts to renew such policy and to
cause the issuing insurance company to issue a separate policy to Lucent. If
AT&T is not able to cause such insurance company to issue such separate
insurance policy, Lucent shall use its reasonable best efforts to procure a
separate policy from another insurance company or to obtain self-insurance
status, and AT&T shall use its reasonable best efforts to continue to cover
Lucent under its renewed policy until the earlier of (A) the date on which
Lucent's application for such self-insurance status is approved or (B) the date
on which a separate insurance policy is procured. Lucent shall compensate AT&T
for all costs incurred by AT&T to continue such coverage. Any claims incurred by
Transferred Individuals after the Close of the Distribution Date that will be
covered under and during any such continuation of coverage shall be treated as
being incurred before the Close of the Distribution Date for purposes of
determining the party responsible for the administration of benefits.
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(ii) AT&T shall use its best effort to maintain the
premium rates for all workers' compensation insurance policies for both AT&T and
Lucent in effect for periods through the Close of the Distribution Date to be
based on the aggregate number of employees covered under the workers'
compensation insurance policies of both AT&T and Lucent. Any premiums due under
the separate workers' compensation insurance issued to Lucent shall be payable
by Lucent.
5.16 AMERICAN TRANSTECH INC. AND BENEFIT DIRECTIONS ENROLLMENT CENTER.
AT&T shall cause American Transtech Inc. to enter into an agreement with Lucent
for the provision of data and enrollment services and customer service for
enrollment and eligibility matters through the 1996 fall open enrollment period
using the Benefit Directions Enrollment Center (the "BDEC") and the Benefit
Direction System (the "BDS") database. Such services shall be provided by
American Transtech Inc. to Lucent on terms and conditions and at prices
comparable to those on which American Transtech Inc. provides similar services
to AT&T.
5.17 AT&T EMPLOYEE ASSISTANCE PROGRAM. Effective Immediately after the
Distribution Date, Lucent shall either (a) provide a centralized Lucent Employee
Assistance Program staff to provide case management services for chemical
dependency/substance abuse treatments to Transferred Individuals or (b) contract
with the mental health network vendor used by AT&T to provide such services. As
of the Close of the Distribution Date, the AT&T Employee Assistance Program
shall cease to have any responsibility to provide case management services for
any Transferred Individuals' chemical dependency/substance abuse treatments.
5.18 AT&T WORK AND FAMILY PROGRAM. Before the Close of the Distribution
Date, AT&T and Lucent shall use their reasonable best efforts to agree on the
manner in which the Work and Family Program, including the Family Care
Development Fund, will be jointly funded, operated and administered. Until an
agreement is reached, AT&T will have sole responsibility for determining the
1996 grant payments to be made under the occupational and management Family Care
Development Fund. After an agreement is reached, but no later than the Close of
the Distribution Date, Lucent will have sole discretion to determine whether and
at what rate to make payments for the Lucent Fund for Management Employees. In
addition, Lucent will have sole discretion for administering the Lucent Family
Development Fund Program, provided that it funds its proportionate share of the
grants required by the National AT&T/CWA/IBEW Memorandum of Understanding
executed by AT&T and the CWA and IBEW as of May 31, 1992 (the "1992 Collective
Bargaining Agreement") and the Collective Bargaining Agreement. The share will
be determined in accordance with a methodology agreed upon by AT&T and Lucent,
and if they fail to agree upon a methodology, Lucent's allocable share shall be
that portion of the total of such grants that bears the same relationship to
such total grants as the number of Lucent Individuals who are occupational
employees bears to total number of occupational employees of AT&T, the AT&T
Entities, Lucent and the Lucent Entities as of the Participation Commencement
Date. Until all of the foregoing obligations under the 1992 Collective
Bargaining Agreement and the Collective Bargaining Agreement have been
satisfied, Lucent will provide AT&T with quarterly reports of occupational
grants funded. Before the Close of the Distribution Date, AT&T shall use its
reasonable best efforts to cause its agreement with its Work and Family vendors
to permit Lucent to participate in the terms and conditions of such agreements
until the expiration of the agreements. These efforts shall substantially
conform to the guidelines set forth in Section 5.7(a) as if such agreements were
ASO Contracts.
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5.19 WORLD WIDE WEB. Before the Close of the Distribution Date, AT&T and
Lucent shall jointly continue to explore (including by participation in a
testing program) the feasibility of offering participants in their Plans on-line
computer access to the point-of-service provider directories, fee schedules,
enrollment and other benefit communication materials through the AT&T customized
Internet World Wide Web developed by AT&T Bell Laboratories and a third-party
vendor. Lucent shall have the right to offer Lucent Plan participants these
on-line computer services after the Distribution Date, provided that Lucent
exercises this right by giving written notice of its intent to do so to AT&T on
or before the Distribution Date. If the portion of AT&T Bell Laboratories
responsible for developing and maintaining the AT&T customized Internet World
Wide Web is transferred to Lucent pursuant to the Separation and Distribution
Agreement, AT&T shall have the right to use, and Lucent agrees to maintain, this
service pursuant to a contract entered into between AT&T and Lucent as soon as
practicable after the Close of the Distribution Date. If the portion of AT&T
Bell Laboratories responsible for developing and maintaining the AT&T customized
Internet World Wide Web remains with AT&T pursuant to the Separation and
Distribution Agreement, Lucent shall have the right to use, and AT&T agrees to
maintain, this service pursuant to a contract entered into between AT&T and
Lucent as soon as practicable after the Close of the Distribution Date.
5.20 UNEMPLOYMENT INSURANCE TAX MANAGEMENT PROGRAM.
(a) AT&T shall cause Lucent to be covered under the AT&T
Unemployment Insurance Tax Management Program from the Participation
Commencement Date through the Close of the Distribution Date. Lucent shall
reimburse AT&T for its allocable share of fees paid by AT&T to its unemployment
insurance tax management vendor for services rendered during such period. Lucent
shall cooperate with the unemployment insurance tax management vendor by
providing information in its possession that is necessary for administration of
the AT&T Unemployment Insurance Tax Management Program.
(b) Before the Distribution Date, AT&T shall use its
reasonable best efforts to cause its agreement with its unemployment insurance
tax management vendor and any successor thereto to permit Lucent to participate
in the terms and conditions of such agreements from Immediately after the
Distribution Date through June 30, 1997. These efforts shall substantially
conform to the guidelines set forth in Section 5.7(a) as if such agreements were
ASO Contracts. AT&T shall use its reasonable best efforts to cause such
agreements to provide that Lucent's participation shall include administration
of all unemployment compensation claims of Transferred Individuals, Lucent
Individuals and other employees and former employees of Lucent and the Lucent
Entities, regardless of whether such claims were filed before, on, or after the
Distribution Date.
5.21 POST-DISTRIBUTION TRANSITIONAL ARRANGEMENTS.
(a) CONTINUANCE OF ELECTIONS, CO-PAYMENTS AND MAXIMUM
BENEFITS.
(i) Lucent shall cause the Lucent Health and Welfare
Plans to recognize and maintain all coverage and contribution elections made by
Transferred Individuals under the AT&T Health and Welfare Plans and apply such
elections under the Lucent Health and Welfare Plans for the remainder of the
period or periods for which such elections are by their terms applicable. The
transfer or other movement of employment from AT&T to Lucent at any time before
the Close of the Distribution Date shall neither constitute nor be treated as a
"status change" under the AT&T Health and Welfare Plans or the Lucent Health and
Welfare Plans.
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(ii) Lucent shall cause the Lucent Health and Welfare
Plans to recognize and give credit for (A) all amounts applied to deductibles,
out-of-pocket maximums, and other applicable benefit coverage limits with
respect to which such expenses have been incurred by Transferred Individuals
under the AT&T Health and Welfare Plans for the remainder of the year in which
the Distribution occurs, and (B) all benefits paid to Transferred Individuals
under the AT&T Health and Welfare Plans for purposes of determining when such
persons have reached their lifetime maximum benefits under the Lucent Health and
Welfare Plans.
(iii) Lucent shall recognize and maintain through
December 31, 1998 all eligible populations covered by the AT&T Health and
Welfare Plans (as defined in the applicable AT&T Health and Welfare Plan
documents), including Class I and Class II dependents, term and temporary
employees, alternate benefit plan employees, and all categories of part-time
employees (which are fully and non-fully eligible for company contributions).
(iv) Lucent shall (A) provide coverage to Transferred
Individuals under the Lucent Group Life Program without the need to undergo a
physical examination or otherwise provide evidence of insurability, and (B)
recognize and maintain all irrevocable assignments and accelerated benefit
option elections made by Transferred Individuals under the AT&T Group Life
Program.
(b) ADMINISTRATION.
(i) COORDINATION OF BENEFITS FOR SPOUSES AND
DEPENDENTS. Effective as of the first January 1 that occurs on or after the
Distribution Date, Lucent shall cause the Lucent Health and Welfare Plans to
permit eligible Transferred Individuals to cover their lawful spouses as
dependents if such lawful spouses are active or retired AT&T employees. As of
the first January 1 that occurs on or after the Distribution Date, AT&T shall
cause the AT&T Health and Welfare Plans to permit eligible AT&T and AT&T Entity
employees to cover their lawful spouses as dependents if such lawful spouses are
active or retired Lucent employees. All benefits provided under either the
Lucent Health and Welfare Plans or the AT&T Health and Welfare Plans to a lawful
spouse dependent of the other company's plans shall be coordinated pursuant to
the terms and conditions of the applicable Health and Welfare Plans. Effective
as of January 1, 1997, eligible dependents of AT&T and Lucent lawful spouse
employees or lawful spouse retirees may be covered under both the Lucent Health
and Welfare Plans and the AT&T Health and Welfare Plans, and the benefits
provided under both plans shall be coordinated pursuant to the applicable terms
and conditions of the respective Health and Welfare Plans in effect as of such
date and thereafter as amended from time to time.
(ii) HCFA DATA MATCH. Immediately after the
Distribution Date, Lucent shall assume all Liabilities relating to, arising out
of or resulting from claims verified by AT&T or Lucent under the HCFA data match
reports that relate to Transferred Individuals. Lucent and AT&T shall share all
information necessary to verify HCFA data match reports regarding Transferred
Individuals. Lucent shall not change any employee identification numbers
assigned by AT&T without notifying AT&T of the change and the new Employee
Identification Number. To the extent that AT&T enters into any settlement
negotiations between its health plan carriers or claims administrators and HCFA
before the end of the Occupational Transition Period, Lucent shall have the
right to participate in such negotiations.
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(c) OTHER POST-DISTRIBUTION TRANSITIONAL RULES.
(i) AT&T HCRA PLAN. To the extent any Transferred
Individual contributed to an account under the AT&T HCRA Plan during the
calendar year that includes the Distribution Date, effective as of the Close of
the Distribution Date, AT&T shall transfer to the Lucent HCRA Plan the account
balances of Transferred Individuals for such calendar year under the AT&T HCRA
Plan, regardless of whether the account balance is positive or negative.
(ii) AT&T CHILD/ELDER CARE REIMBURSEMENT ACCOUNT
PLAN. To the extent any Transferred Individual contributed to the AT&T CECRA
Plan during the calendar year that includes the Distribution Date, AT&T shall
transfer the account balances of Transferred Individuals for such calendar year
in the AT&T CECRA Plan to the Lucent CECRA Plan.
(iii) POST-RETIREMENT MEDICAL PLAN. Pursuant to Code
SectionSection 401(h) and 420, Lucent shall comply with all cost maintenance
period requirements and benefit maintenance period requirements that are
applicable to post-retirement health benefits under the Lucent Health Plans for
any pension asset transfers pursuant to Code Section 420 by or on behalf of AT&T
for qualified current retiree health liabilities (as defined under Code Section
420). With respect to any pension asset transfers pursuant to Code Section 420,
Lucent shall obtain AT&T's prior written approval before amending any Lucent
Health Plan with respect to the provision of post-retirement health benefits
during the cost maintenance or benefit maintenance periods to which the AT&T
Health Plans are subject pursuant to Code Section 420. No pension asset transfer
pursuant to Code Section 420 shall be made after the date hereof and before the
Close of the Distribution Date unless Lucent and AT&T so agree.
(iv) HEALTH AND WELFARE PLANS SUBROGATION RECOVERY.
After the Close of the Distribution Date, AT&T shall pay to Lucent or the Lucent
Health Trusts (as appropriate) any amounts AT&T recovers from time to time
through subrogation or otherwise for claims incurred by or reimbursed to any
Transferred Individual. If Lucent recovers any amounts through subrogation or
otherwise for claims incurred by or reimbursed to employees and former employees
of AT&T or an AT&T Entity and their respective beneficiaries and dependents
(other than Transferred Individuals), Lucent shall pay such amounts to AT&T or
the AT&T Health Trusts (as appropriate).
(v) EXCHANGE OF HISTORICAL DATA. Both AT&T and Lucent
shall have access to claims data configured on the Medical Information Data
Analysis System database (or archived, if applicable) and to eligibility data
configured on the eligibility database (or archived, if applicable) and to
disability, medical and demographic data configured on the Health Planning
Support System ("HPSS") database (or archived, if applicable) for all historical
periods beginning January 1, 1989, up to and including eligibility, incurred
claims and HPSS data for the calendar year that includes the Distribution Date,
for all vendors administering the AT&T Medical Plans and Lucent Medical Plans.
AT&T and Lucent shall cooperate in the collection of claims, eligibility and
HPSS data during the period from the first January 1 that occurs after the
Distribution Date through December 31, 1998, and share all such data. Both AT&T
and Lucent shall have the right to access and use eligibility, incurred claims,
and HPSS data for periods through December 31, 1998 for such purposes as each
determines.
5.22 APPLICATION OF ARTICLE V TO LUCENT ENTITIES. Any reference in this
Article V to "Lucent" shall include a reference to a Lucent Entity when and to
the extent Lucent has
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caused the Lucent Entity to (a) become a party to a vendor contract, group
insurance contract, or HMO letter agreement associated with a Lucent Health and
Welfare Plan, (b) become a self-insured entity for the purposes of one or more
Lucent Health and Welfare Plans, (c) assume all or a portion of the liabilities
or administrative responsibilities for benefits which arose before the Close of
the Distribution Date under an AT&T Health and Welfare Plan and which were
expressly assumed by Lucent pursuant to the terms of this Agreement, or (d) take
any other action, extend any coverage, assume any other liability or fulfill any
other responsibility that Lucent would otherwise be required to take under the
terms of this Article V, unless it is clear from the context that the particular
reference is not intended to include a Lucent Entity. In all such instances in
which a reference in this Article V to "Lucent" includes a reference to a Lucent
Entity, Lucent shall be responsible to AT&T for ensuring that the Lucent Entity
complies with the applicable terms of this Agreement and the Transferred
Individuals allocated to such Lucent Entity shall have the same rights and
entitlements to benefits under the applicable Lucent Health and Welfare Plans
that the Transferred Individual would have had if he or she had instead been
allocated to Lucent.
ARTICLE VI
EXECUTIVE BENEFITS AND NON-EMPLOYEE DIRECTOR BENEFITS
6.1 ASSUMPTION OF OBLIGATIONS. Effective Immediately after the
Distribution Date, Lucent and the Lucent Entities shall assume and be solely
responsible for all Liabilities to or relating to Transferred Individuals under
all AT&T Executive Benefit Plans, other than any Liabilities to or relating to
executives or former executives of NCR pursuant to separate agreements with such
executives entered into in connection with AT&T's acquisition of NCR.
6.2 CONSENTS AND NOTIFICATIONS. AT&T and Lucent shall use their
reasonable best efforts to obtain, or cause to be obtained, to the extent
necessary, the written consent of each Transferred Individual who is a party to
an Individual Agreement and/or a participant in any AT&T Executive Benefit Plan,
and of each Lucent Non-Employee Director who is a participant in any AT&T
Non-Employee Director Plan, to the treatment of such Individual Agreement,
Executive Benefit Plan and/or AT&T Non-Employee Director Plan, as applicable, in
accordance with this Article VI, including the assumption by Lucent and the
Lucent Entities, of sole responsibility for, and the release of AT&T and the
AT&T Entities from, all Liabilities thereunder; provided, that no failure to
seek or to obtain any such consent shall have any effect upon the obligations of
Lucent and the Lucent Entities with respect to such Liabilities.
6.3 AT&T SHORT TERM INCENTIVE PLAN. Lucent shall be responsible for
determining, with respect to all Awards that would otherwise be payable under
the AT&T Short Term Incentive Plan to Transferred Individuals for the 1996
performance year, (a) the extent to which established performance criteria (as
interpreted by Lucent, in its sole discretion, after taking into account the
effects of the IPO and the Distribution) have been met and (b) the payment level
for each Transferred Individual.
6.4 AT&T LONG TERM INCENTIVE PLANS. AT&T and Lucent shall use their
reasonable best efforts to take all actions necessary or appropriate so that
each outstanding Award granted under any AT&T Long Term Incentive Plan held by
any Transferred Individual shall be replaced as set forth in this Section 6.4
with an Award under the Lucent Long Term Incentive Plan.
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(a) TRANSFERRED INDIVIDUALS WHO ARE ACTIVE EMPLOYEES OF
LUCENT.
(i) STOCK OPTIONS. Lucent shall cause each Award
consisting of an AT&T Option that is outstanding as of the Close of the
Distribution Date (or, in the case of a Lucent Administrative Employee, such
later date as he or she becomes a Transferred Individual) and is held by a
Transferred Individual who, as of the Distribution Date (or, in the case of a
Lucent Administrative Employee, such later date as he or she becomes a
Transferred Individual), is an active employee of or on leave of absence from
Lucent or a Lucent Entity to be replaced, effective Immediately after the
Distribution Date, with a Lucent Option. Such Lucent Option shall provide for
the purchase of a number of shares of Lucent Common Stock equal to the number of
shares of AT&T Common Stock subject to such AT&T Option as of the Close of the
Distribution Date, multiplied by the Ratio, and then rounded down to the nearest
whole share. Lucent shall pay to the holder of such replacement Award, at the
time of such replacement, cash in lieu of any fractional share equal to the
product of (A) the fraction represented by such fractional share times (B) (1)
the excess of the Lucent Stock Value over (2) the per-share exercise price of
such AT&T Option as of the Close of the Distribution Date divided by the Ratio.
The per-share exercise price of such Lucent Option shall equal the per-share
exercise price of such AT&T Option as of the Close of the Distribution Date
divided by the Ratio. Each such Lucent Option shall otherwise have the same
terms and conditions as were applicable to the corresponding AT&T Option as of
the Close of the Distribution Date, except that references to AT&T and its
Affiliates shall be amended to refer to Lucent and its Affiliates.
(ii) PERFORMANCE SHARES AND STOCK UNITS. Lucent shall
cause each Award consisting of AT&T performance shares or AT&T stock units that
is outstanding as of the Close of the Distribution Date (or, in the case of a
Lucent Administrative Employee, such later date as he or she becomes a
Transferred Individual) and is held by a Transferred Individual who, as of the
Distribution Date (or, in the case of a Lucent Administrative Employee, such
later date as he or she becomes a Transferred Individual), is an active employee
of or on leave of absence from Lucent or a Lucent Entity to be replaced,
effective Immediately after the Distribution Date, with a new performance share
award or a new stock unit award, as the case may be, consisting of a number of
Lucent performance shares or Lucent stock units, as the case may be, equal to
the number of AT&T performance shares or AT&T stock units, as the case may be,
constituting such Award immediately before the Distribution Date, multiplied by
the Ratio, and then rounded down to the nearest whole share. Lucent shall pay to
the holder of such replacement Award, at the time of such replacement, cash in
lieu of any fractional share based on the Lucent Stock Value. Each such
replacement Award shall otherwise have the same terms and conditions as were
applicable to the corresponding AT&T Award as of the Close of the Distribution
Date, except that references to AT&T and its Affiliates shall be amended to
refer to Lucent and its Affiliates and dividend equivalent payments, if any,
shall be payable after the Close of the Distribution Date with reference to
dividends on Lucent Common Stock.
(iii) RESTRICTED STOCK AND RESTRICTED STOCK UNITS.
Lucent shall cause each Award that consists of non-vested restricted shares of
AT&T Common Stock or restricted stock units relating to shares of AT&T Common
Stock that is outstanding as of the Close of the Distribution Date (or, in the
case of a Lucent Administrative Employee, such later date as he or she becomes a
Transferred Individual) and is held by a Transferred Individual who, as of the
Close of the Distribution Date (or, in the case of a Lucent Administrative
Employee, such later date as he or she becomes a Transferred Individual), is an
active employee of or on leave of absence from Lucent or a Lucent Entity to be
replaced, effective Immediately after the Distribution Date, with a new Award
consisting of a number
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of non-vested restricted shares of Lucent Common Stock and/or restricted stock
units relating to shares of Lucent Common Stock equal to the number of
non-vested restricted shares or restricted stock units of AT&T Common Stock
constituting such Award as of the Close of the Distribution Date multiplied by
the Ratio, and then rounded down to the nearest whole share. Lucent shall pay to
the holder of such replacement Award, at the time of such replacement, cash in
lieu of any fractional share based on the Lucent Stock Value. Each such
replacement Award shall otherwise have the same terms and conditions as were
applicable to the corresponding AT&T Award as of the Close of the Distribution
Date, except that references to AT&T and its Affiliates shall be amended to
refer to Lucent and its Affiliates and dividend equivalent payments, if any,
shall be payable after the Distribution Date with reference to dividends on
Lucent Common Stock.
(iv) SPECIAL PAYMENT. On the thirtieth day following
the Distribution Date, AT&T shall pay to Lucent an amount in cash equal to the
excess, if any, of (a) the Gross Value of the Assumed Stock Awards over (b)
seven percent (7%) of the Aggregate Lucent Stock Value.
(b) TRANSFERRED INDIVIDUALS WHO ARE NOT ACTIVE EMPLOYEES OF
LUCENT. Each outstanding Award that is held by a Transferred Individual who, as
of the Close of the Distribution Date (or, in the case of a Lucent
Administrative Employee, such later date as he or she becomes a Transferred
Individual), is not an active employee of or on leave of absence from Lucent or
a Lucent Entity shall remain outstanding Immediately after the Distribution Date
in accordance with its terms as applicable as of the Close of the Distribution
Date, subject to such adjustments as may be applicable to outstanding Awards
held by individuals who remain active employees of or on leave of absence from
AT&T or an AT&T Entity after the Distribution Date.
6.5 AT&T SENIOR MANAGEMENT INCENTIVE AWARD DEFERRAL PLAN. Each
Transferred Individual who has a deferred AT&T share unit account under the AT&T
Deferral Plan shall be permitted an irrevocable election to have the share units
in such account converted to their cash value and transferred to the cash
account under the AT&T Deferral Plan, which election shall be made in accordance
with procedures established by AT&T, in its sole discretion, before and
effective as of the Close of the Distribution Date. Immediately after the
Distribution Date, the balance of any Transferred Individual in either an AT&T
share unit account or a cash account under the AT&T Deferral Plan as of the
Close of the Distribution Date shall be transferred to a Lucent share unit
account or cash account, respectively, under the Lucent Deferral Plan, with a
number of Lucent share units equal to the number of AT&T share units under the
AT&T Deferral Plan as of the Close of the Distribution Date multiplied by the
Ratio.
6.6 NON-EMPLOYEE DIRECTOR BENEFITS.
(a) NON-EMPLOYEE DIRECTOR PLANS. As of the Closing Date,
Lucent shall assume and be solely responsible for all Liabilities under the AT&T
Non-Employee Director Plans to or relating to Lucent Non-Employee Directors.
(b) DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS.
Each Lucent Non-Employee Director who has a deferred AT&T share unit account
under the AT&T Deferred Compensation Plan for Non-Employee Directors shall be
permitted an irrevocable election to have the share units in such account
converted to their cash value and
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transferred to the cash account under the AT&T Deferred Compensation Plan for
Non-Employee Directors, which election shall be made in accordance with
procedures established by AT&T, in its sole discretion, before and effective as
of the Closing Date. As of the Closing Date, the balance of any Lucent
Non-Employee Director in either an AT&T share unit account or a cash account
under the AT&T Deferred Compensation Plan for Non-Employee Directors shall be
transferred to a Lucent share unit account or cash account, respectively, under
the Lucent Deferred Compensation Plan for Non-Employee Directors, with a number
of Lucent share units equal to the number of AT&T share units under the AT&T
Deferred Compensation Plan for Non-Employee Directors as of the Closing Date
multiplied by the amount obtained by dividing (A) the average of the daily high
and low per-share prices of the AT&T Common Stock as listed on the NYSE during
each of the five trading days Immediately after the Closing Date, by (B) the
average of the daily high and low per-share prices of the Lucent Common Stock as
listed on the NYSE during each of the five trading days Immediately after the
Closing Date.
6.7 NON-COMPETITION GUIDELINES.
(a) AT&T NON-COMPETITION GUIDELINE. Effective as of the Close
of the Distribution Date, AT&T shall cause the AT&T Non-Competition Guideline to
be amended to provide that until the end of the eighteenth calendar month that
ends after the Close of the Distribution Date, employment by Lucent or a Lucent
Entity shall not be a violation of the guideline.
(b) LUCENT NON-COMPETITION GUIDELINE. Effective Immediately
after the Distribution Date, Lucent shall adopt a non-competition guideline,
applicable to employees of Lucent and the Lucent Entities who are similarly
situated to those employees of AT&T and the AT&T Entities who are subject to the
AT&T Non-Competition Guideline, which guideline shall expressly provide that
until the end of the eighteenth calendar month that ends after the Close of the
Distribution Date, employment by AT&T shall not constitute a violation of the
guideline.
(c) CONFIDENTIALITY AND PROPRIETARY INFORMATION. No provision
of the Separation and Distribution Agreement shall be deemed to release any
individual for any violation of the AT&T Non-Competition Guideline or any
agreement or policy pertaining to confidential or proprietary information of
AT&T or any of its Affiliates, or otherwise relieve any individual of his or her
obligations under such Guideline or any such agreement or policy.
6.8 RABBI TRUST AND CORPORATE-OWNED LIFE INSURANCE.
(a) ESTABLISHMENT OF MIRROR RABBI TRUST. Effective no later
than Immediately after the Distribution Date, Lucent shall establish, or cause
to be established, the Lucent Rabbi Trust as a grantor trust subject to Code
SectionSection 671 et seq., which shall be substantially identical in all
Material Features to the AT&T Rabbi Trust, other than the definitions of the
terms "potential change in control" and "change in control." Lucent shall
appoint as trustee under the Lucent Rabbi Trust the then-current trustee of the
AT&T Rabbi Trust.
(b) FUNDING OF LUCENT RABBI TRUST.
(i) As of the earlier of the Close of the
Distribution Date and the date when assets are first transferred or contributed
to the Lucent Rabbi Trust (the "Rabbi
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Trust Determination Date"), AT&T shall determine the amount of the liabilities
under the AT&T Executive Benefits Plans (other than the AT&T Senior Management
Incentive Award Deferral Plan) that are payable from the AT&T Rabbi Trust. AT&T
shall then cause the trustee of the AT&T Rabbi Trust to transfer to the trustee
of the Lucent Rabbi Trust (A) the most recently purchased trust-owned life
insurance policy held by the AT&T Rabbi Trust if more than one such policy is
then so held (regardless of which entity employs the insured individuals), and
(B) if AT&T, in its sole discretion, so determines, all cash then held in the
AT&T Rabbi Trust that is not invested in trust-owned life insurance. If AT&T
determines (or projects) that immediately after such transfer the ratio of the
value of the assets in the Lucent Rabbi Trust to the liabilities under the
Lucent Executive Benefit Plans (other than the Lucent Senior Management
Incentive Award Deferral Plan) that are payable from the Lucent Rabbi Trust will
be less than the ratio of the value of the assets in the AT&T Rabbi Trust
(before the allocation of assets to the Lucent Rabbi Trust) to the liabilities
under the AT&T Executive Benefit Plans (other than the AT&T Senior Management
Incentive Award Deferral Plan) (before the allocation of liabilities to the
Lucent Rabbi Trust), then Lucent shall make an additional contribution to the
Lucent Rabbi Trust from its general assets in cash, simultaneously with the
transfer of assets from the AT&T Rabbi Trust to the Lucent Rabbi Trust, in an
amount such that, immediately following the transfer of assets from the AT&T
Rabbi Trust to the Lucent Rabbi Trust, the ratio of the value of the assets in
the Lucent Rabbi Trust to the liabilities under the Lucent Executive Benefit
Plans (other than the Lucent Senior Management Incentive Award Deferral Plan)
will immediately thereafter be equal to the ratio of assets to liabilities under
the AT&T Rabbi Trust (other than liabilities associated with the AT&T Senior
Management Incentive Award Deferral Plan) immediately before the allocation of
assets and liabilities to the Lucent Rabbi Trust. For purposes of this Section
6.8(b)(i), liabilities shall be determined based upon the "Full Funding Amount"
as defined in Section 2.5 of the AT&T Rabbi Trust.
(ii) As of the Rabbi Trust Determination Date, Lucent
and AT&T shall identify the Transferred Individuals and other individuals
insured by trust-owned life insurance polices held by the trustee of the AT&T
Rabbi Trust and (after any transfers described in Section 6.8(b)(i)) the trustee
of the Lucent Rabbi Trust, and shall share (and shall cause the trustees of
their respective Rabbi Trusts to share) such information as may be necessary for
each to determine when and whether such individuals are deceased.
(c) CORPORATE-OWNED LIFE INSURANCE. Lucent and AT&T shall take
all actions, including creating any trust arrangements necessary to replicate
the manner in which AT&T has heretofore held such policies, and executing or
accepting delivery of any assignments reasonably requested by either party or
any insurance company insuring one or more lives under the Corporate-Owned Life
Insurance, as may be necessary or appropriate in order to assign those policies
insuring Transferred Individuals to Lucent, effective Immediately after the
Distribution Date. If a Corporate-Owned Life Insurance Policy is so assigned to
Lucent, Lucent shall assume and be solely responsible for all Liabilities, and
shall be entitled to all benefits, thereunder, effective as of the earlier of
(i) the Close of the Distribution Date and (ii) the date of such assignment.
AT&T and Lucent shall continue, liquidate and/or administer such Corporate-Owned
Life Insurance Policies on terms and conditions agreed to by AT&T and Lucent.
Lucent and AT&T shall share all information that may be necessary to identify
the individuals insured by the Corporate-Owned Life Insurance policies owned by
AT&T and Lucent and to determine when and whether such individuals are deceased.
6.9 AT&T SPLIT DOLLAR LIFE INSURANCE. AT&T and Lucent shall take all
actions necessary or appropriate to assign to Lucent, AT&T's rights and
interests in the Split Dollar
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Life Insurance policies under the Senior Management Individual Life Insurance
Program and the Senior Management Basic Life Insurance Program issued by
Metropolitan Life Insurance Company, Hartford Life Insurance Company, and
Confederation Life Insurance Company (or their successors in interest, including
Pacific Mutual Life Insurance Company), and any additional split dollar life
insurance program that may be implemented by AT&T before the Close of the
Distribution Date, with respect to Transferred Individuals, effective
Immediately after the Distribution Date, and under the AT&T Non-Employee
Director Plans with respect to AT&T Non-Employee Directors who become Lucent
Non-Employee Directors, effective as of the Closing Date (such policies, the
"Assigned Split Dollar Policies"). Such actions shall include Lucent's
acceptance of any collateral assignments, policy endorsements or such other
documentation executed by or on behalf of Transferred Individuals and Lucent
Non-Employee Directors, or any trustee of any trust to which such individual's
policy rights or incidents of ownership under the Assigned Split Dollar Policies
have been assigned, and Lucent's entering into such agreements as may be
necessary to fulfill any obligations of AT&T to any insurance company or
insurance agent or broker under the Assigned Split Dollar Policies. From and
after the date of the assignment of any Assigned Split Dollar Policy to Lucent,
Lucent shall assume and be solely responsible for all Liabilities, and shall be
entitled to all benefits, of AT&T under such policy and under the Senior
Management Life Insurance Program, the Senior Management Basic Life Insurance
Program, the AT&T Non-Employee Director Plans and any additional split dollar
life insurance program that may be implemented by AT&T before the Close of the
Distribution Date, as the case may be, with respect to such policies, and any
related agreements entered into by Transferred Individuals or Lucent
Non-Employee Directors.
ARTICLE VII
MISCELLANEOUS BENEFITS
7.1 TRANSFER OF STOCK PURCHASE PLAN RECORDKEEPING ACCOUNTS. If the AT&T
Stock Purchase Plan is in effect as of the Close of the Distribution Date, AT&T
shall cause the recordkeeping accounts under the AT&T Stock Purchase Plan of all
Transferred Individuals to be transferred, as of the Close of the Distribution
Date or as soon as practicable thereafter, to, and Lucent shall cause the
accounts to be accepted by, the recordkeeper for the Lucent Stock Purchase Plan.
Lucent shall use its reasonable best efforts to enter into agreements
satisfactory to Lucent with the recordkeeper of the AT&T Stock Purchase Plan to
ensure the transfer and maintenance of the participant records. Through the end
of the Occupational Transition Period, Lucent shall use a recordkeeper and an
enrollment vendor under the Lucent Stock Purchase Plan compatible with the
recordkeeper and enrollment vendor under the AT&T Stock Purchase Plan.
7.2 CONCESSION TELEPHONE SERVICE. Effective Immediately after the
Distribution Date through June 30, 1998, Lucent shall continue to provide a
concession telephone service program for Transferred Individuals who are then
retired or who retire on or before June 30, 1998, which shall be substantially
identical in all Material Features to the corresponding AT&T concession
telephone service program (provided, that Lucent shall only reimburse or pay for
long-distance services provided by AT&T to such Transferred Individuals).
7.3 SERVICE ANNIVERSARY AND RETIREMENT AWARD PROGRAM.
(a) Before the Close of the Distribution Date, AT&T shall use
its reasonable best efforts to amend the service anniversary merchandise vendor
contract in existence as of
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the date of this Agreement and related to the AT&T Service Anniversary and
Retirement Award Program to permit Lucent and the Lucent Entities to participate
in the terms and conditions of such contract effective Immediately after the
Distribution Date. These efforts shall substantially conform with the guidelines
set forth in Section 5.7(a) as if the service anniversary merchandise vendor
contract were an ASO Contract.
(b) Lucent and the Lucent Entities may provide to their
employees service anniversary merchandise bearing the name and/or logo of AT&T
ordered by AT&T before the date of this Agreement and delivered under the Lucent
Service Anniversary and Retirement Award Program to Transferred Individuals,
Lucent Individuals and other employees and former employees of Lucent and the
Lucent Entities whose service anniversary occurs on or before December 31, 1996,
subject to the terms and conditions of any separate agreement between AT&T and
Lucent regarding the use of the corporate names, logos, service marks and other
intellectual property of AT&T and an AT&T Entity. No service anniversary
merchandise bearing the corporate name and/or logo of AT&T shall be delivered to
any Transferred Individuals, Lucent Individuals or other employees and former
employees of Lucent and the Lucent Entities with respect to a service
anniversary on or after January 1, 1997, without the express written consent of
AT&T.
7.4 SHARES FOR GROWTH PROGRAM. Effective Immediately after the
Distribution Date, Lucent shall assume and be solely responsible for all
Liabilities relating to, arising out of or resulting from awards to Transferred
Individuals under the Shares for Growth Program provided for in the Collective
Bargaining Agreement. Awards to Transferred Individuals payable after the Close
of the Distribution Date shall be made in shares of Lucent Common Stock rather
than shares of AT&T Common Stock, and in determining the number of shares of
Lucent Common Stock Transferred Individuals will receive for such awards, the
August 1995 reference price for a share of Lucent Common Stock shall be
calculated by dividing the August 1995 reference price for a share of AT&T
Common Stock as set forth in the Collective Bargaining Agreement by the Ratio.
7.5 THEODORE N. VAIL AWARD TRUST ASSETS. Lucent shall have the option
to continue to offer the Theodore N. Vail Memorial Fund Awards program to its
employees after the Close of the Distribution Date, provided that it exercises
this option by giving written notice of its intent to AT&T before the Close of
the Distribution Date. If Lucent elects to offer the Theodore N. Vail Awards
program, and it is determined by AT&T to be legally permissible to transfer
assets from the AT&T Theodore N. Vail Awards trust to a trust established by
Lucent for purposes of the Lucent Theodore N. Vail Awards program, AT&T shall
transfer from the AT&T Theodore N. Vail Awards trust to such trust established
by Lucent assets determined by AT&T to have a fair market value that bears the
same relationship to the fair market value of the total assets in such AT&T
trust as the number of Transferred Individuals bears to the total number of
employees and former employees of AT&T, the AT&T Entities, Lucent and the Lucent
Entities as of the Close of the Distribution Date. AT&T shall have the sole
discretion to determine whether such assets will be transferred to the Lucent
trust in the form of AT&T Stock or cash or a combination thereof.
7.6 1996 MANAGEMENT INCENTIVE COMPENSATION PAYMENTS. Effective
Immediately after the Distribution Date, Lucent shall be responsible for
determining, with respect to company performance awards, unit performance
awards, and merit awards that would otherwise be payable under AT&T's management
compensation program to Transferred Individuals for the 1996 performance year,
(a) the extent to which established performance criteria (as interpreted by
Lucent, in its sole discretion, after taking into account the effects
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of the IPO and the Distribution) have been met and (b) the payment level for
each Transferred Individual.
ARTICLE VIII
GENERAL AND ADMINISTRATIVE
8.1 PAYMENT OF 1996 ADMINISTRATIVE COSTS AND EXPENSES.
(a) SHARED COSTS. The estimated budget for 1996 for AT&T's
Benefits and Compensation organization is set forth on Schedule VII. AT&T and
Lucent shall each be responsible for their allocable share of such budgeted
costs as set forth on Schedule VII. Lucent shall pay to AT&T one-twelfth of its
allocable share of such budgeted costs each month during 1996. AT&T shall
provide, as soon as practicable after the date of this Agreement, such
information as may reasonably be requested by Lucent concerning the
determination of such budgeted costs.
(b) ADDITIONAL UNANTICIPATED EXPENSES. If there are additional
expenses not anticipated in the 1996 budget for AT&T's Benefits and Compensation
organization, then Lucent shall pay to AT&T one-half of such unanticipated
expenses, but only to the extent that the additional expenses are (i) reasonable
and necessary and (ii) incurred as a direct result of, and solely for the
purpose of, the normal administration (as currently projected for 1996) of the
AT&T Plans and the Lucent Plans during 1996. If any unanticipated expenses are
incurred at the request of Lucent or a Lucent Entity, they shall be the sole
responsibility of Lucent. Any other unanticipated expenses shall be the sole
responsibility of AT&T.
(c) ADMINISTRATIVE PERSONNEL. A schedule of the individuals
employed in AT&T's Benefits and Compensation organization who have been
designated to become employees of Lucent or a Lucent Entity (the "Lucent
Administrative Employees") has been agreed to by Lucent and AT&T. The Lucent
Administrative Employees shall remain on AT&T's payroll until December 31, 1996
unless AT&T and Lucent agree to a different date. If AT&T and Lucent elect that
the Lucent Administrative Employees be placed on the Lucent payroll before
January 1, 1997, then Lucent's direct cost with respect to the Lucent
Administrative Employees (including salary and loading for benefit related
charges) for each month after they leave AT&T's payroll shall be subtracted from
the monthly amount payable by Lucent in accordance with Section 8.1(a). Such
individuals shall become Transferred Individuals when they are placed on the
payroll of Lucent or a Lucent Entity if such date is after the Close of the
Distribution Date. Regardless of whether the Lucent Administrative Employees are
on the payroll of AT&T or Lucent or a Lucent Entity, they shall be subject to
the supervision of AT&T's Senior Vice President, Benefits and Compensation, or
his delegates, through December 31, 1996.
(d) POST-DISTRIBUTION ADMINISTRATION IN 1996. From the
Distribution Date through December 31, 1996, AT&T's Senior Vice President,
Benefits and Compensation, and his staff (including the Lucent Administrative
Employees) shall have full authority and responsibility to administer the Lucent
Plans to the same extent as if AT&T's Senior Vice President, Benefits and
Compensation, and his staff were employees of Lucent or a Lucent Entity.
Notwithstanding the foregoing, Lucent shall retain all fiduciary responsibility
for the administration of the Lucent Plans and, subject to the need to conform
the administration of the AT&T Plans and the Lucent Plans during 1996, Lucent
shall have the right to
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direct AT&T's Senior Vice President, Benefits and
Compensation, in the manner in which it intends the Lucent Plans to be
administered.
8.2 PAYMENT OF LIABILITIES, PLAN EXPENSES AND RELATED MATTERS.
(a) ACTUARIAL AND ACCOUNTING METHODOLOGIES AND ASSUMPTIONS.
For purposes of this Agreement, unless specifically indicated otherwise: (i) all
actuarial methodologies and assumptions used for a particular Plan shall (except
to the extent otherwise determined by AT&T and Lucent to be reasonable or
necessary) be substantially the same as those used in the actuarial valuation of
that Plan used to determine minimum funding requirements under ERISA Section 302
and Code Section 412 for 1996, or, if such Plan is not subject to such minimum
funding requirements, used to determine AT&T's deductible contributions under
Code Section 419A or, if such Plan is not subject to Code Section 419A, the
assumptions used to prepare AT&T's audited financial statements for 1996, as the
case may be; and (ii) the value of plan assets shall be the value established
for purposes of audited financial statements of the relevant plan or trust for
the period ending on the date as of which the valuation is to be made. Lucent
Liabilities relating to, arising out of or resulting from the status of Lucent
and the Lucent Entities as Participating Companies in AT&T Plans, as provided
for in Section 2.2 and all accruals relating thereto shall be determined by AT&T
using actuarial assumptions and methodologies (including with respect to
demographics, medical trends and other relevant factors) determined by AT&T in a
manner consistent with AT&T's practice as in effect on the Participation
Commencement Date and in conformance with the generally accepted actuarial
principles promulgated by the American Academy of Actuaries, the Code, ERISA,
and/or generally accepted accounting principles, as applicable, in each case as
interpreted by AT&T consistent with past practice. Except as otherwise
contemplated by this Agreement or as required by law, all determinations as to
the amount or valuation of any assets of or relating to any AT&T Plan (whether
or not such assets are being transferred to a Lucent Plan) shall be made
pursuant to procedures to be established by the parties before the Closing Date.
(b) PAYMENT OF LIABILITIES; DETERMINATION OF EMPLOYEE STATUS.
Lucent shall pay directly, or reimburse AT&T promptly for, all Liabilities
assumed by it pursuant to this Agreement, including all compensation payable to
Lucent Individuals and Transferred Individuals for services rendered while in
the employ of AT&T or an AT&T Entity before becoming a Lucent Individual or
Transferred Individual, respectively (to the extent not charged for pursuant to
Section 8.1 or another Ancillary Agreement). To the extent the amount of such
Liabilities is not yet determinable because the status of individuals as Lucent
Individuals or Transferred Individuals is not yet determined, except as
otherwise specified herein or in another Ancillary Agreement with respect to
particular Liabilities, Lucent shall make such payments or reimbursements based
upon AT&T's reasonable estimates of the amounts thereof, and when such status is
determined, Lucent shall make additional reimbursements or payments, or AT&T
shall reimburse Lucent, to the extent necessary to reflect the actual amount of
such Liabilities. In determining the number of individuals in any particular
group of employees described in this Agreement (such as "Transferred Individuals
and Lucent Individuals"), no individual shall be counted twice (even if, for
example, he or she is both a Lucent Individual and a Transferred Individual).
Determinations of what entity employs or employed a particular individual shall
be made by reference to the applicable legal entity and/or other appropriate
accounting code, to the extent possible.
(c) CONTRIBUTIONS TO TRUSTS. Lucent shall pay its share of any
contributions made to any trust maintained in connection with an AT&T Plan with
respect to any
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period while Lucent or a Lucent Entity is a Participating Company in that AT&T
Plan; provided, however, that Lucent shall not be required to contribute to the
AT&T Rabbi Trust after the date of this Agreement. Lucent's share of any
contributions to the AT&T Health Benefits Trust shall be determined based on
AT&T's reasonable estimate of the claims under the AT&T Plans funded through
such trust that are paid to or for the benefit of Lucent Individuals and other
employees and former employees of Lucent and the Lucent Entities, Transferred
Individuals and beneficiaries and dependents thereof, until a cash benefit
payment procedure for daily check presentments separately to Lucent and the
Lucent Entities for such claims is implemented, after which Lucent's share of
such contributions shall be determined based upon such procedure. Lucent's share
of any contributions to any other such trust shall be determined by AT&T by
computing separate contribution amounts for AT&T and Lucent, as if Lucent and
the Lucent Entities were not Affiliates of AT&T and the AT&T Entities, but
followed the same funding policy and used the same funding assumptions as AT&T
and the AT&T Entities with respect to such trust; provided, that if the sum of
the amounts so determined is less than or exceeds the total contribution to be
made to such trust in accordance with such funding policy as applied to AT&T,
the AT&T Entities, Lucent and the Lucent Entities as a group, then Lucent's
share of such contribution shall be determined by increasing or reducing both
such amounts, as applicable, proportionately so as to eliminate such difference.
(d) PARTICIPANT CONTRIBUTIONS; SETTLEMENTS, REFUNDS, AND
SIMILAR PAYMENTS. Until such time as a cash benefit payment procedure is
implemented pursuant to which the participant contributions made under any AT&T
Health and Welfare Plan made by Lucent Individuals, Transferred Individuals and
other employees and former employees of Lucent and the Lucent Entities and
beneficiaries and dependents thereof can be specifically identified as such, for
purposes of determining the Lucent Liabilities associated with such Plan, such
individuals shall be deemed to have made such contributions in an amount that
bears the same relationship to the total contributions by all participants to
such Plan as the number of such individuals who are participants in such Plan
bears to the total number of participants in such Plan. If AT&T or an AT&T
Entity receives any amount that represents an offset to or reduction of any
Liability relating to, arising out of or resulting from any AT&T Plan (including
any amount received in settlement of a dispute regarding the amount of benefits
payable under such Plan and any refund of premiums paid to an insurer of
benefits under such Plan) with respect to a period before the Close of the
Distribution Date, then except to the extent Section 5.21(c)(iv) is applicable,
AT&T shall pay to Lucent a portion of such amount that bears the same
relationship to the total of such amount as the number of Lucent Individuals,
Transferred Individuals and other employees and former employees of Lucent and
the Lucent Entities who were participants in such Plan during the period to
which such amount relates bears to the total number of participants in such
Plan.
(e) ADMINISTRATIVE EXPENSES NOT CHARGEABLE TO A TRUST. To the
extent not charged for pursuant to Section 8.1 or another Ancillary Agreement or
the ASA Agreement and to the extent not chargeable to a trust established in
connection with an AT&T Plan, Lucent shall be responsible, through either direct
payment from its own cash or reimbursement of AT&T from its own cash, for the
following expenses in the administration of the AT&T Plans while Lucent or a
Lucent Entity is a Participating Company in such Plans (and except as expressly
provided below, Lucent's allocable share of the following administrative
expenses shall be that portion of the total such expenses that bears the same
relationship to such total expenses as the number of Lucent Individuals,
Transferred Individuals and other employees and former employees of Lucent and
the Lucent Entities who are participants in the applicable Plan bears to total
number of participants in
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such Plan): (i) the costs incurred in the administration of the AT&T Pension
Plans and other Plans providing benefits to retired individuals, including the
cost of managing any trust assets and performing actuarial calculations (which
shall be shared equally between Lucent and AT&T); (ii) the recordkeeping costs
(including expenses in development and operation of the daily valuation
recordkeeping system for the AT&T LTSSP) and other costs incurred in the
administration of the AT&T Savings Plans (including expenses in employee
communications materials for the AT&T Savings Plans and consultant and other
out-of-pocket fees and expenses generally related to the design or
administration of the AT&T Savings Plans); (iii) the fees paid to benefit
delivery vendors under AT&T Health and Welfare Plans; (iv) COBRA administrative
costs (of which Lucent's allocable share shall be that portion of the total such
costs that bears the same relationship to such total costs as the number of
Lucent Individuals, Transferred Individuals and other employees and former
employees of Lucent and the Lucent Entities and beneficiaries and dependents
thereof who are participants in the applicable Plan bears to total number of
participants in such Plan); (v) the cost of administrative services for the
Family Care Development Fund and other Work and Family programs; (vi) the costs
incurred in the administration of the AT&T Executive Benefits Plans, including
payments made to insurance agents and brokers (such as the agents and brokers
who administer corporate-owned life insurance and trust-owned life insurance
programs), and payments made to vendors (such as the vendor(s) who administer
the AT&T Senior Management Financial Counseling Program); (vii) the expenses
incurred in establishing the AT&T Stock Purchase Plan and its recordkeeping
system; (viii) the consultant and other out-of-pocket fees and expenses
(including accounting, actuarial, consulting, and legal fees, and photocopying,
printing, and similar expenses) generally related to the design or
administration of the AT&T Plans (which shall be shared equally between Lucent
and AT&T); (ix) the payments for administration of the AT&T Rabbi Trust and for
actuarial and legal work in connection with the AT&T Rabbi Trust (which shall be
shared equally between Lucent and AT&T); and (x) the payments for the management
of the assets of the AT&T Rabbi Trust (which shall be prorated between Lucent
and AT&T based on relative value of Lucent's and AT&T's share of the liabilities
funded by AT&T Rabbi Trust assets with respect to AT&T and Lucent Executives as
reflected in the IPO Registration Statement).
(f) STOCK AWARD CHARGEBACKS. Lucent shall pay AT&T the
following amounts: (i) with respect to each AT&T Option that is exercised by a
Lucent Individual or another employee of Lucent or a Lucent Entity at any time
after the Closing Date, the Spread on such Option; (ii) with respect to each
purchase of AT&T Common Stock pursuant to the AT&T Stock Purchase Plan by a
Lucent Individual or another employee of Lucent or a Lucent Entity at any time
after the Closing Date, the Spread with respect to such purchase; (iii) with
respect to the vesting or delivery at any time after the Closing Date of shares
of AT&T Common Stock pursuant to an Award (other than an AT&T Option) held by a
Lucent Individual or another employee of Lucent or a Lucent Entity, the Value of
such AT&T Common Stock on the date of such vesting or delivery. AT&T shall bill
Lucent for such amounts from time to time (but only after the exercise,
purchase, vesting or delivery that gives rise to the obligation to make any such
payment), and Lucent shall pay such amounts promptly after receipt of such
bills. The "Spread" on an Option or with respect to a purchase pursuant to the
AT&T Stock Purchase Plan means the excess, if any, of the Value of the purchased
shares on the date of exercise of such Option or the date of such purchase, as
applicable, over the price paid for such shares. The "Value" of a share of AT&T
Common Stock on a given date means the average of the high and the low per-share
prices of the AT&T Common Stock as listed on the NYSE on such date, or if there
is no trading on the NYSE on such date, on the most recent previous date on
which such trading takes place.
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8.3 1984 AT&T UNFUNDED DIVESTITURE REIMBURSEMENT AGREEMENTS. In order
to permit AT&T to continue to honor any obligations it may have for on-going
reimbursement costs payable periodically to the seven Regional Bell Holding
Companies and Bell Communications Research, Inc. in accordance with the
provisions of the Unfunded Cost Sharing Agreements, Lucent shall provide, on an
annual basis and in accordance with the schedule provided to Lucent by AT&T, at
no cost to AT&T, any information in its possession required to enable AT&T to
determine, validate, and reconcile the AT&T offset amounts specified in the
Unfunded Cost Sharing Agreements. Lucent shall also provide AT&T with
information in its possession to the extent requested by a party to an Unfunded
Cost Sharing Agreement pursuant to its rights thereunder to audit information
provided by Lucent to AT&T. If Lucent or any Lucent Entity grants an "ad hoc
pension increase" as defined in either of the Unfunded Cost Sharing Agreements,
as a result of which AT&T or any AT&T Entity is required to pay pursuant to
either or both of the Unfunded Cost Sharing Agreements any amounts in excess of
the amounts it would have been required to pay absent such ad hoc pension
increase, then Lucent shall reimburse AT&T for the amount of such excess, as and
when it is paid by AT&T or such AT&T Entity. The parties agree that any such ad
hoc increase made by Lucent or any Lucent Entity to the extent not in excess of
a prior ad hoc increase by AT&T or any AT&T Entity made after the date hereof
will not give rise to any reimbursement obligation pursuant to the foregoing
sentence, but an ad hoc increase made by Lucent or any Lucent Entity prior to
any ad hoc increase made by AT&T or any AT&T Entity will give rise to such
reimbursement obligation (with no reduction in such reimbursement obligation due
to the subsequent ad hoc increase by AT&T or any AT&T Entity). Except as
specifically provided in the preceding two sentences, the foregoing shall not be
deemed to give rise to any liability of Lucent under the Unfunded Cost Sharing
Agreements.
8.4 SHARING OF PARTICIPANT INFORMATION. AT&T and Lucent shall share,
AT&T shall cause each applicable AT&T Entity to share, and Lucent shall cause
each applicable Lucent Entity to share, with each other and their respective
agents and vendors (without obtaining releases) all participant information
necessary for the efficient and accurate administration of each of the AT&T
Plans and the Lucent Plans during the respective Transition Periods applicable
to such Plans, and with respect to each of the AT&T Health and Welfare Plans and
Lucent Health and Welfare Plans, any additional periods during which such Plan
is subject to the restrictions of Section 5.8. AT&T and Lucent and their
respective authorized agents shall, subject to applicable laws on
confidentiality, be given reasonable and timely access to, and may make copies
of, all information relating to the subjects of this Agreement in the custody of
the other party, to the extent necessary for such administration. Until the
Close of the Distribution Date, all participant information shall be provided in
the manner and medium applicable to Participating Companies in the AT&T Plans
generally, and thereafter until December 31, 1998, all participant information
shall be provided in a manner and medium that is compatible with the data
processing systems of AT&T as in effect of the Close of the Distribution Date,
unless otherwise agreed to by AT&T and Lucent.
8.5 REPORTING AND DISCLOSURE AND COMMUNICATIONS TO PARTICIPANTS. While
Lucent is a Participating Company in the AT&T Plans, Lucent shall take, and
shall cause each other applicable Lucent Entity to take, all actions necessary
or appropriate to facilitate the distribution of all AT&T Plan-related
communications and materials to employees, participants and beneficiaries,
including summary plan descriptions and related summaries of material
modification, summary annual reports, investment information, prospectuses,
notices and enrollment material for the Lucent Plans. Lucent shall pay AT&T the
cost relating to the copies of all such documents provided to Lucent, except to
the extent such costs are charged pursuant to Section 8.1 or pursuant to an
Ancillary Agreement or the ASA Agreement. Lucent shall assist, and Lucent shall
cause each other applicable Lucent Entity to assist, AT&T in complying with all
reporting and disclosure requirements of ERISA, including the preparation of
Form 5500 annual reports for the AT&T Plans, where applicable.
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8.6 NON-TERMINATION OF EMPLOYMENT; NO THIRD-PARTY BENEFICIARIES. No
provision of this Agreement or the Separation and Distribution Agreement shall
be construed to create any right, or accelerate entitlement, to any compensation
or benefit whatsoever on the part of any Lucent Individual, Transferred
Individual or other future, present or former employee of AT&T, an AT&T Entity,
Lucent, or a Lucent Entity under any AT&T Plan or Lucent Plan or otherwise.
Without limiting the generality of the foregoing: (i) neither the Distribution
nor the termination of the Participating Company status of Lucent or a Lucent
Entity shall cause any employee to be deemed to have incurred a termination of
employment which entitles such individual to the commencement of benefits under
any of the AT&T Plans, any of the Lucent Plans, or any of the Individual
Agreements; and (ii) except as expressly provided in this Agreement, nothing in
this Agreement shall preclude Lucent, at any time after the Close of the
Distribution Date, from amending, merging, modifying, terminating, eliminating,
reducing, or otherwise altering in any respect any Lucent Plan, any benefit
under any Plan or any trust, insurance policy or funding vehicle related to any
Lucent Plan.
8.7 PLAN AUDITS.
(a) AUDIT RIGHTS WITH RESPECT TO THE ALLOCATION OR TRANSFER OF
PLAN ASSETS. The allocation of Pension Plan assets and liabilities pursuant to
Section 3.2, the transfer of assets from AT&T VEBAs pursuant to Sections 5.3 and
5.5, the transfer of RFA assets pursuant to Section 5.4 and the transfer of
assets from the AT&T Rabbi Trust pursuant to Section 6.8 shall be audited on
behalf of both AT&T and Lucent by the consulting firm of Milliman & Robertson.
The scope of such audit shall be limited to the accuracy of the data and the
accuracy of the computation and adherence to the methodology specified in this
Agreement and except as set forth in the last sentence of this Section 8.7(a),
such audit shall not be binding on the parties. Milliman & Robertson shall
provide its report to both AT&T and Lucent. No other audit shall be conducted
with respect to the transfer or allocation of Plan assets. The costs of such
audit shall be shared equally by AT&T and Lucent, or, at each company's
discretion and to the extent allocable thereto, by their respective Pension
Plans. To the extent such audit recommends a change to the value of assets
allocated to a Lucent Plan of less than 0.25%, the original determination shall
be binding on the parties and shall not be subject to the dispute resolution
process provided under the Separation and Distribution Agreement. To the extent
such audit recommends such a change of 0.25% or more, any unresolved dispute
between the parties as to whether and how to make any change in response to such
recommendation shall be subject to the dispute resolution process provided under
the Separation and Distribution Agreement.
(b) AUDIT RIGHTS WITH RESPECT TO INFORMATION PROVIDED.
(i) Each of AT&T and Lucent, and their duly
authorized representatives, shall have the right to conduct audits with respect
to all information provided to it by the other party. The party conducting the
audit (the "Auditing Party") shall have the sole discretion to determine the
procedures and guidelines for conducting audits and the selection of audit
representatives under this Section 8.7(b); provided, that audits with respect to
the allocation or transfer of Plan assets and liabilities shall be subject only
to Section 8.7(a). The Auditing Party shall have the right to make copies of any
records at its expense, subject to the confidentiality provisions set forth in
the Separation and Distribution Agreement, which are incorporated by reference
herein. The party being audited shall provide the Auditing Party's
representatives with reasonable access during normal business hours to its
operations, computer systems and paper and electronic files, and
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provide workspace to its representatives. After any audit is completed, the
party being audited shall have the right to review a draft of the audit findings
and to comment on those findings in writing within five business days after
receiving such draft.
(ii) The Auditing Party's audit rights under this
Section 8.7(b) shall include the right to audit, or participate in an audit
facilitated by the party being audited, of any Subsidiaries and Affiliates of
the party being audited and of any benefit providers and third parties with whom
the party being audited has a relationship, or agents of such party, to the
extent any such persons are affected by or addressed in this Agreement
(collectively, the "Non-parties"). The party being audited shall, upon written
request from the Auditing Party, provide an individual (at the Auditing Party's
expense) to supervise any audit of a Non-party. The Auditing Party shall be
responsible for supplying, at the Auditing Party's expense, additional personnel
sufficient to complete the audit in a reasonably timely manner. The
responsibility of the party being audited shall be limited to providing, at the
Auditing Party's expense, a single individual at each audited site for purposes
of facilitating the audit.
(c) AUDITS REGARDING VENDOR CONTRACTS. From Immediately after
the Distribution Date through December 31, 1998, AT&T and Lucent and their duly
authorized representatives shall have the right to conduct joint audits with
respect to any vendor contracts that relate to both the AT&T Health and Welfare
Plans and the Lucent Health and Welfare Plans. The scope of such audits shall
encompass the review of all correspondence, account records, claim forms,
canceled drafts (unless retained by the bank), provider bills, medical records
submitted with claims, billing corrections, vendor's internal corrections of
previous errors and any other documents or instruments relating to the services
performed by the vendor under the applicable vendor contracts. AT&T and Lucent
shall agree on the performance standards, audit methodology, auditing policy and
quality measures and reporting requirements relating to the audits described in
this Section 8.7 and the manner in which costs incurred in connection with such
audits will be shared.
8.8 BENEFICIARY DESIGNATIONS. All beneficiary designations made by
Transferred Individuals for AT&T Plans shall be transferred to and be in full
force and effect under the corresponding Lucent Plans until such beneficiary
designations are replaced or revoked by the Transferred Individual who made the
beneficiary designation.
8.9 REQUESTS FOR IRS RULINGS AND DOL OPINIONS.
(a) COOPERATION. Lucent shall cooperate fully with AT&T on any
issue relating to the transactions contemplated by this Agreement for which AT&T
elects to seek a determination letter or private letter ruling from the IRS or
an advisory opinion from the DOL. AT&T shall cooperate fully with Lucent with
respect to any request for a determination letter or private letter ruling from
the IRS or advisory opinion from the DOL with respect to any of the Lucent Plans
relating to the transactions contemplated by this Agreement.
(b) APPLICATIONS. AT&T and Lucent shall make such applications
to regulatory agencies, including the IRS and DOL, as may be necessary to ensure
that any transfers of assets from the AT&T Health Trusts to the Lucent Health
Trusts and from the AT&T LTD VEBA to the Lucent LTD VEBA will neither (i) result
in any adverse tax, legal or fiduciary consequences to AT&T and Lucent, the AT&T
Health Trusts and the AT&T LTD VEBA, the Lucent Health Trusts and the Lucent LTD
VEBA, any participant therein or beneficiaries thereof, or any of AT&T Health
Trusts and the AT&T LTD
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<PAGE> 53
VEBA, any successor welfare benefit funds established by or on behalf of Lucent,
or the trustees of such trusts, nor (ii) contravene any statute, regulation or
technical pronouncement issued by any regulatory agency. Before the Close of the
Distribution Date, Lucent shall prepare all forms required to obtain favorable
tax-exempt determination letters from the IRS for the Lucent Health Trusts and
the Lucent LTD VEBA, and, if applicable, the Lucent Union VEBA. Lucent and AT&T
agree to cooperate with each other to fulfill any filing and/or regulatory
reporting obligations with respect to such transfers.
(c) LIFE INSURANCE. To the extent the transfer or allocation
of all or a portion of any life insurance policies results in any adverse tax or
legal consequences, including (i) any finding that such transfer results in the
creation of a modified endowment contract within the meaning of Code Section
7702A, a transfer for value within the meaning of Code Section 101(a), or a lack
of insurable interest for either AT&T or Lucent (or their respective trusts, if
any), or (ii) multiple claims for insurance proceeds, AT&T and Lucent shall take
such steps as may be necessary to contest any such finding and, to the extent of
any final determination that such adverse tax or legal consequences will result,
AT&T and Lucent shall make such further adjustments so as to place both parties
in the proportionate financial position that they each would have been in
relative to the other but for such adverse tax or legal consequences.
8.10 FIDUCIARY MATTERS.
(a) FIDUCIARY STATUS. AT&T and Lucent each acknowledges that
actions required to be taken pursuant to this Agreement may be subject to
fiduciary duties or standards of conduct under ERISA or other applicable law,
and no party shall be deemed to be in violation of this Agreement if it fails to
comply with any provisions hereof based upon its good faith determination that
to do so would violate such a fiduciary duty or standard.
(b) INDEPENDENT FIDUCIARY. Lucent shall retain a fiduciary
independent of AT&T to review and approve the types and value of the assets to
be transferred to the Lucent Plans from the AT&T Plans as described in Articles
III and IV of this Agreement to the extent that such Plans are subject to Part 4
of Title I of ERISA. The foregoing shall not prevent Lucent from engaging any
fiduciaries for any other purposes.
8.11 AGREEMENT WITH ACTUARIAL SCIENCES ASSOCIATES, INC. Lucent shall
enter into an agreement with Actuarial Sciences Associates, Inc. ("ASA"), in a
form substantially similar to Exhibit A. Within 60 days after the Distribution
Date, such agreement shall be presented for ratification by Lucent's Board of
Directors or its authorized delegate.
8.12 COLLECTIVE BARGAINING. To the extent any provision of this
Agreement is contrary to the provisions of the Collective Bargaining Agreement
or any other collective bargaining agreement to which AT&T or any Affiliate of
AT&T is a party, the terms of such collective bargaining agreement shall
prevail. Should any provisions of this Agreement be deemed to relate to a topic
determined by an appropriate authority to be a mandatory subject of collective
bargaining, AT&T or Lucent may be obligated to bargain with the union
representing affected employees concerning those subjects. Neither party will
agree to a modification of the Collective Bargaining Agreement without the
consent of the other. In the event a force surplus affecting members of a
bargaining unit in both AT&T or any AT&T Entity (on the one hand) and Lucent or
any Lucent Entity (on the other hand) directly results, due to the provisions of
the Collective Bargaining Agreement, in an
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<PAGE> 54
employee involuntarily leaving the payroll of the party not declaring the
surplus, then the party declaring the surplus shall bear the cost of any
severance payable to such employee.
8.13 CONSENT OF THIRD PARTIES. If any provision of this Agreement is
dependent on the consent of any third party (such as a vendor or a union) and
such consent is withheld, AT&T and Lucent shall use their reasonable best
efforts to implement the applicable provisions of this Agreement to the full
extent practicable. If any provision of this Agreement cannot be implemented due
to the failure of such third party to consent, AT&T and Lucent shall negotiate
in good faith to implement the provision in a mutually satisfactory manner. The
phrase "reasonable best efforts" as used herein shall not be construed to
require the incurrence of any non-routine or unreasonable expense or liability
or the waiver of any right.
8.14 POST-DISTRIBUTION BENEFIT DELIVERY/ADMINISTRATION. Lucent shall
continue to use the P2000 benefit administration system and a compatible pension
payment system, to administer the Lucent Pension Plans through the end of the
Management Transition Period.
8.15 QUIET PERIODS. Lucent shall take such action as is necessary to
ensure that participants in the Lucent LTSSP, the Lucent LTSPME, and the Lucent
RSPSP are notified that a quiet period will occur beginning on or about October
1, 1996, during which changes in investment direction with respect to
participants' accounts generally will not be permitted.
ARTICLE IX
MISCELLANEOUS
9.1 FOREIGN PLANS. As soon as practicable after the date of this
Agreement, AT&T and Lucent shall enter into an agreement regarding the treatment
of Foreign Plans consistent with the principles set forth in Exhibit B hereto.
9.2 RESOURCE LINK EMPLOYEES. The following individuals who are
employees of AT&T or an AT&T Entity as of the Close of the Distribution Date
shall become employees of Lucent or a Lucent Entity Immediately after the
Distribution Date, and shall be Transferred Individuals: (a) a maximum of 208
such individuals who, as of the Close of the Distribution Date, are on Resource
Link assignments to Lucent or a Lucent Entity as of that time, or whose most
recent Resource Link assignment before the Close of the Distribution Date was
with Lucent or a Lucent Entity; (b) a maximum of 48 additional individuals who
are, as of the Close of the Distribution Date, on Resource Link assignment to
common support functions or whose most recent Resource Link assignment before
the Close of the Distribution Date was to common support functions; and (c) term
employees who are, as of the Close of the Distribution Date, on Resource Link
assignments with Lucent or a Lucent Entity.
9.3 EFFECT IF DISTRIBUTION DOES NOT OCCUR. If the Distribution does not
occur, then all actions and events that are, under this Agreement, to be taken
or occur effective as of the Close of the Distribution Date, Immediately after
the Distribution Date, or otherwise in connection with the Distribution, shall
not be taken or occur except to the extent specifically agreed by Lucent and
AT&T.
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<PAGE> 55
9.4 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be deemed
or construed by the parties or any third party as creating the relationship of
principal and agent, partnership or joint venture between the parties, it being
understood and agreed that no provision contained herein, and no act of the
parties, shall be deemed to create any relationship between the parties other
than the relationship set forth herein.
9.5 AFFILIATES. Each of AT&T and Lucent shall cause to be performed,
and hereby guarantees the performance of, all actions, agreements and
obligations set forth in this Agreement to be performed by an AT&T Entity or a
Lucent Entity, respectively.
9.6 INCORPORATION OF SEPARATION AND DISTRIBUTION AGREEMENT PROVISIONS.
The following provisions of the Separation and Distribution Agreement are hereby
incorporated herein by reference, and unless otherwise expressly specified
herein, such provisions shall apply as if fully set forth herein (references in
this Section 9.6 to an "Article" or "Section" shall mean Articles or Sections of
the Separation and Distribution Agreement, and, except as expressly set forth
below, references in the material incorporated herein by reference shall be
references to the Separation and Distribution Agreement): Article V (relating to
Mutual Releases and Indemnification); Article VIII (relating to Exchange of
Information and Confidentiality); Article IX (relating to Arbitration and
Dispute Resolution); Article X (relating to Further Assurances and Additional
Covenants); Article XI (relating to Termination); and Article XII (relating to
Miscellaneous) other than Section 12.2 (relating to Governing Law).
9.7 GOVERNING LAW. To the extent not preempted by applicable federal
law, this Agreement shall be governed by, construed and interpreted in
accordance with the laws of the State of New York, irrespective of the choice of
laws principles of the State of New York, as to all matters, including matters
of validity, construction, effect, performance and remedies.
IN WITNESS WHEREOF, the parties have caused this Employee
Benefits Agreement to be duly executed as of the day and year first above
written.
AT&T CORP.
By: /s/
------------------------------
Name:
Title:
LUCENT TECHNOLOGIES INC.
By: /s/
------------------------------
Name:
Title:
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<PAGE> 1
Exhibit 10.3
GENERAL PURCHASE AGREEMENT
BETWEEN
AT&T CORP.
AND
LUCENT TECHNOLOGIES INC.
<PAGE> 2
GENERAL PURCHASE AGREEMENT
THIS GENERAL PURCHASE AGREEMENT (this "General Agreement" or
"Agreement"), dated as of February 1, 1996, is by and between Lucent
Technologies Inc. and AT&T on behalf of itself and Ordering Companies.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings assigned to them in Article I hereof.
WHEREAS, the Board of Directors of AT&T has determined that it
is in the best interests of AT&T and its shareholders to separate AT&T's
existing businesses into three independent businesses; and
WHEREAS, AT&T desires to purchase and license
telecommunications equipment, systems and services and Supplier is in the
business of engineering, furnishing and installing telecommunications systems
and equipment, constructing telecommunications networks, providing premises
equipment, and providing consulting and other services; and
WHEREAS, Lucent Technologies Inc. and AT&T wish to establish
the fundamental terms and conditions pursuant to which AT&T shall order, and
Lucent Technologies Inc. shall provide, such telecommunications equipment,
systems and services.
NOW, THEREFORE, the parties intending to be legally bound,
agree as follows:
PART 1
COMMON TERMS AND CONDITIONS
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, the following definitions
shall apply:
1.1 ACCEPTANCE means Ordering Company's acknowledgment that
Products and Services provided or installed by Supplier have met the Acceptance
Test. It is agreed that both parties will respond to their obligations regarding
completion of Acceptance in a prompt and expeditious manner. Unless Supplier
receives written notification indicating otherwise from Ordering Company,
Acceptance will be deemed to have occurred thirty (30) days after Supplier's
notice of its completion, unless a longer Acceptance Test Period has been agreed
to. Acceptance of a particular release of Software in the ITN or in the First
Field Application shall constitute Acceptance of all copies of such Software to
be provided Ordering Company, regardless of when each such copy of such Software
is installed on its Designated Processor.
<PAGE> 3
1.2 ACCEPTANCE DATE means the date on which Supplier's Product
or Software successfully completes the applicable Acceptance Test, or, unless
Supplier receives written notice indicating otherwise from Ordering Company,
thirty (30) days after Supplier's notice of completion, whichever occurs sooner.
1.3 ACCEPTANCE TEST means the test upon Supplier's Product or
Software agreed upon by the parties, which may be performed by or on behalf of
Ordering Company during the Acceptance Test Period to determine whether the
Product or Software meets the applicable Specifications.
1.4 ACCEPTANCE TEST PERIOD means the period of time in days,
agreed upon by the parties and specified in the applicable Order or Supplemental
Agreement, during which the Acceptance Test shall be completed. In the absence
of such agreement, the Acceptance Test Period shall conclude thirty (30) days
from delivery of the Product or Licensed Materials to Ordering Company.
1.5 ACTION as used in Section 5A.1(a), AGREEMENT TO ARBITRATE,
means any demand, action, suit, countersuit, arbitration, inquiry, proceeding or
investigation by or before any federal, state, local, foreign or international
Governmental Authority or any arbitration or mediation tribunal.
1.6 ACTIVE LICENSED SOFTWARE PRODUCT means an Application
Software Product that is actively embedded at Ordering Company sites and has
been the subject of some Product sales activity with any Ordering Company in the
previous three (3) years;
1.7 ADDITIONAL WORK means Work covered by a Change Order.
1.8 AFFILIATE of a party means a United States company or
other entity which is under common control with, controls, or is controlled by,
such party to this Agreement, as long as such control exists, where "control" is
defined as ownership greater than fifty percent (50%) of the equity or
beneficial interest of such entity or the right to elect or to appoint a
majority of the board of directors or other governing body of such entity.
1.9 AGREEMENT means this Agreement and any Work Orders or
Change Orders issued pursuant thereto.
1.10 AGREEMENT DOCUMENTS, as referred to in Article 11 means
this Agreement, any Special Conditions, Drawings, Specifications, Supplementary
Specifications which have been or will be mutually agreed upon.
1.11 APPLICATION FOR PAYMENT means a proforma completed work
summary with supporting documentation from Supplier to Ordering Company.
<PAGE> 4
1.12 APPLICABLE DEADLINE has the meaning set forth in Section
5A.3(b), DEMAND FOR ARBITRATION.
1.13 APPLICATION SOFTWARE means Software that operates on a
generally available computer system and serves a function other than controlling
the fundamental operation of the computer system on which it is loaded (i.e.,
does not serve as a computer operating system). Application Software excludes
all Software that is utilized by the 5ESS(R) Switch.
1.14 AR means Assistance Request. Defect AR is an Ordering
Company Assistance Request due to a failure of the Product to perform to
Specifications and requires a design change to resolve. Service AR is an
Ordering Company Assistance Request due to a non-defect system problem or to
answer a technical question.
1.15 ARBITRATION ACT means the United States Arbitration Act,
9 U.S.C. Sections 1-14, as the same may be amended from time to time.
1.16 ARBITRATION DEMAND DATE has the meaning set forth in
Section 5A.3(a), DEMAND FOR ARBITRATION.
1.17 ARBITRATION DEMAND NOTICE has the meaning set forth in
Section 5A.3(a), DEMAND FOR ARBITRATION.
1.18 ARM means Assistance Request Management.
1.19 AT&T means AT&T Corp., a New York corporation.
1.20 AT&T EH&S PRACTICES as referenced in Article 11 means
environmental, health and safety practices that AT&T promulgates for use in its
own domestic operations and which it has provided to Supplier in the manner by
which notices are provided.
1.21 BENEFICIAL OCCUPANCY means the utilization by Ordering
Company of Work constructed by Supplier before Final Acceptance.
1.22 BILL OF MATERIALS means the list of major material items
by quantity to be ordered for a Work Order, which is taken from the Drawings
after the Work Order is engineered.
1.23 CALL RECEIPT means the process of ensuring that the
Ordering Company Assistance Request is referred to the appropriate Supplier
technical support group responsible for resolution. This task involves answering
the telephone (or electronic inquiry), gathering pertinent Ordering Company and
technical data, determining the destination of the request for analysis to
ascertain if and how to bill Ordering Company for the Service being provided.
<PAGE> 5
1.24 CHANGE ORDER as referred to in Article 11 means a written
Order by Ordering Company on its Change Order Form requesting a change to the
Work, as approved by Supplier, e.g., to approve variations in quantity or method
of Work.
1.25 COMPLETION DATE means the date by which Supplier and
Ordering Company agree in writing that the Work is to be completed.
1.26 COMPLETION SCHEDULE means the schedule for completion of
the Work contained in a Work Order or another writing signed by the parties.
1.27 CONSULTATION SUPPORT means technical assistance delivered
by telephone, electronic mail and/or telefax from Supplier's location via the
Call Receipt function.
1.28 CONSTRUCTION DELAY is defined in Section 11.21, NOTICE OF
LABOR DISPUTES, below.
1.29 CPR, as used in Article 5A, means the Center for Public
Resources.
1.30 CUSTOM SOFTWARE as referred to in Article 9 means the
Source Code, Object Code and Related Documentation developed by Supplier solely
on behalf of Ordering Company and in which Ordering Company has an ownership
interest (up to 100%) as specified in a Supplemental Agreement.
1.31 CUSTOMER CONNECTIVITY means the project in which
Supplier, pursuant to a Supplemental Agreement, is building a Network for AT&T
in various states of the United States to provide local telephone service.
1.32 DEMOBILIZATION as referred to in Article 11 means
compensation to Supplier for labor, equipment and load associated with ceasing
an operation due to Construction Delay and moving to another site.
1.33 DESIGNATED PROCESSOR means the Product for which licenses
to Use Licensed Materials are initially granted.
1.34 DIFFERING SITE CONDITIONS means (1) subsurface or latent
physical conditions at the Site differing materially from those indicated in the
Agreement Documents, or (2) unknown physical conditions at the Site, differing
materially from those ordinarily encountered and generally recognized as
inherent in Work of the character provided for in Article 11 or (3) conditions
differing materially from those indicated in the Agreement Documents and found
to be archaeologically, historically or culturally sensitive.
1.35 DISCONTINUED AVAILABILITY (DA) means a Supplier issued
Discontinued Availability announcement, which is written notice to Ordering
Company that Supplier will cease
<PAGE> 6
production of a specific Product or technology. This notice will also specify
the last date that Supplier will accept an equipment order (EO) from Ordering
Company and a timeline for how long Supplier will continue maintenance support
for the specific Product or technology.
1.36 DRAWINGS means the approved plans, profiles, working
drawings, and supplemental drawings, or exact reproductions thereof, which show
the location, character, dimensions, and details of the Work to be done, except
for shop drawings provided by Supplier.
1.37 EFFECTIVE DATE means January 1, 1996.
1.38 ENGINEER as referred to in Article 10 means a designation
reserved for a person or organization working for Ordering Company assigned
and/or identified to perform engineering services, including but not limited to:
development of project requirements; creation of product design; preparation of
drawings, Specifications and bidding requirements; and provision of Services
during the construction phase of the project.
1.39 ENHANCEMENTS as referred to in Article 9 means new
releases of Software, Software improvements and Software upgrades.
1.40 EXPORT means, without limitation, physical shipment;
transmittal by any means (including electronic); oral, written, or visual
disclosure, either inside or outside the United States to a non-United States
national.
1.41 FIELD ORDER as referred to in Article 11 means a verbal
direction, confirmed by a Change Order, within the Scope of Work issued to
Supplier which interprets the Agreement Documents, excluding Article 11, or
authorizes minor variation in the Work from the requirements of the Agreement
Documents which Supplier agrees does not increase the unit prices but may change
the units that make up affected work.
1.42 FINAL ACCEPTANCE means a written Acceptance of the Work
signed by an authorized Ordering Company representative issued when all the Work
is acceptably completed and all items on the Punch List have been completed.
Punch List means the list of deficiencies to be corrected or completed as a
result of the final inspection of the Work.
1.43 FIRMWARE means a combination of (1) hardware and (2)
Software represented by a pattern of bits contained in such hardware.
1.44 FIRST FIELD APPLICATION shall mean the first installation
of Software in AT&T's live network.
1.45 FIT means physical size or mounting arrangement (e.g.,
electrical or mechanical connections).
<PAGE> 7
1.46 FORCE MAJEURE means fires, strikes, riots, embargoes,
explosions, earthquakes, floods, wars, water, the elements, labor disputes,
shortages of or inability to secure materials and/or transportation facilities,
non-regulatory acts or omissions of government carriers, suppliers or other
third parties, or other causes beyond a party's control whether or not similar
to the foregoing.
1.47 FORM means physical shape.
1.48 FUNCTION means product features.
1.49 GOVERNMENTAL AUTHORITY as used in Article 5A shall mean
any federal, state, local, foreign or international court, government,
department, commission, board, bureau, agency, official or other regulatory,
administrative or governmental authority.
1.50 HARDWARE DEPLOYMENT means the hardware fix, as the result
of a Product change notice, which is deployed pursuant to an Order or
Supplemental Agreement.
1.51 INFORMATION means information, whether or not patentable
or copyrightable, in written, oral, electronic or other tangible or intangible
forms, stored in any medium, including studies, reports, records, books,
contracts, instruments, surveys, discoveries, ideas, concepts, know-how,
techniques, designs, Specifications, drawings, blueprints, diagrams, models,
prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes,
computer programs or other software, marketing plans, customer names,
communications by or to attorneys (including attorney-client privileged
communications), memos and other materials prepared by attorneys or under their
direction (including attorney work product), and other technical, financial,
employee or business information or data.
1.52 INITIAL RESPONSE TIME means the time it takes for
Ordering Company to reach a Subject Matter Expert once Ordering Company contacts
Supplier Call Receipt group.
1.53 INSTALLATION COMPLETE DATE means the date on which a
Product or Software or System is installed by Supplier at the desired location
and, for Licensed Materials, is ready for Use by an Ordering Company.
1.54 INTELLECTUAL PROPERTY AGREEMENTS means the Patent License
Agreement, Patent Assignments, Patent Defensive Protection Agreements, Patent
Joint Ownership Agreement, Technology License Agreement, Technology Assignment
and Joint Ownership Agreement, (in each case, as defined in the Separation and
Distribution Agreement dated as of the date hereof by and among AT&T, NCR and
Supplier (the "Separation and Distribution Agreement")).
1.55 LICENSED MATERIALS means the Object Code and Related
Documentation wherein the parties may mutually agree to special terms and
conditions, such as field use
<PAGE> 8
restrictions, restrictions on use by third parties and the like as specified in
a Supplemental Agreement. In addition, Licensed Materials may include Source
Code but only if so specified in a Supplemental Agreement.
1.56 LUCENT TECHNOLOGIES means Lucent Technologies Inc., a
Delaware Corporation.
1.57 LUMP SUM PRICE means a price other than a Unit Price
agreed upon in writing by the parties for a specific item of Work prior to
scheduling of the item of Work.
1.58 MAJOR HOLIDAYS (or Company-designated day of observance)
New Years Day
President's Day (Massachusetts)
Patriot's Day (Massachusetts)
Memorial Day
Independence Day
Labor Day
Columbus Day (Massachusetts)
Thanksgiving Day
Day Following Thanksgiving
Christmas Eve (Massachusetts)
Christmas Day
1.59 MAKE READY COORDINATION as referred to in Article 10
means additional assistance offered by Supplier for compensation at agreed upon
rates.
1.60 MATURE SOFTWARE PRODUCT means an Application Software
Product that has not been the subject of any Product sales activity with any
Ordering Company within three (3) years.
1.61 MANAGEMENT NOTIFICATION means the internal Supplier
process that sets the minimum standards by which Supplier management will become
aware of a problem. The intent of escalating a problem is (a) to bring
additional resources together to resolve it, (b) to apprise management of the
situation, or (c) to acknowledge notification by contacting Ordering Company.
1.62 METHOD OF PROCEDURE (MOP) means a detailed, documented
methodology, as referenced in AT&T Practice 790-100-421AC, developed by the OSWF
(defined in 1.68), and its support departments, listing the Work to be performed
and the procedures to be followed for any construction, Software Product Update,
or maintenance activity near an AT&T plant.
<PAGE> 9
1.63 MODIFICATIONS as referred to in Article 9 means Ordering
Company additions to, deletions from or merges of Software with one or more
programs owned or licensed by Ordering Company that results in an updated or
otherwise modified software.
1.64 NCR means NCR Corporation (formerly named AT&T Global
Information Solutions Company), a Maryland corporation.
1.65 NEW SOFTWARE PRODUCT as referred to in Article 10 means
an Application Software Product initially licensed to Ordering Company after
execution of this Agreement.
1.66 OBJECT CODE means the fully compiled or assembled series
of instructions, written in machine language, ready to be loaded into the
computer, that guides the operation of the computer.
1.67 ON-SITE ASSISTANCE means technical assistance provided by
a Supplier's engineer at Ordering Company's site at Ordering Company's request,
and as agreed to by Supplier.
1.68 ON-SITE WORK FORCE (OSWF) means local Ordering Company
personnel responsible for the operation, maintenance, and protection of
operating plant.
1.69 ORDER means any written or electronic request, other than
a Supplemental Agreement, that is presented to Supplier by an Ordering Company
in accordance with the terms of this Agreement to purchase Products or Services
or to license Licensed Materials from Supplier.
1.70 ORDERING COMPANY means any one of (a) AT&T, (b) an
Affiliate, of AT&T (c) a United States entity at least twenty-five percent (25%)
of the ownership interest of which is owned directly or indirectly by AT&T; or
(d) a non-United States entity at least twenty five percent (25%) of the
ownership interest of which is owned directly or indirectly by AT&T and in which
the other party (or parties) in the non-United States entity is not a
telecommunications services provider(s). An Ordering Company must be designated
in writing by AT&T. Orders or Supplemental Agreements will be contractual
relationships between Ordering Company and Supplier and only Ordering Company
and Supplier shall have the respective rights and duties of buyer and seller
thereunder.
1.71 ORDERING COMPANY'S INFORMATION means certain material and
technical and business information, owned or controlled by Ordering Company or
any of its Affiliates, relating to the operation of Ordering Company's business
operations. The term also means and includes any associated information
developed prior to the effective date of this Agreement by the AT&T business
units and other organizations which compose Ordering Company, regardless of
whether such information was originally disclosed to Supplier in written or
other tangible form.
<PAGE> 10
1.72 ORDERING COMPANY NOTIFICATION BULLETINS mean the written
notices transmitted to Ordering Company that alert Ordering Company of potential
Product conditions or configurations which could have a negative affect on
Ordering Company operations.
1.73 ORDERING COMPANY REPRESENTATIVE means the person
representing Ordering Company responsible for overall coordination and
management of the project activities as designated in the Agreement. The
Ordering Company Representative is an employee of Ordering Company.
1.74 OTHERS means an entity other than Supplier that has been
contracted by Ordering Company to perform a portion of Work on a project.
1.75 PERFORMANCE METRICS as referred to in Article 10 means
Supplier's performance objectives regarding the manner in which it Responds,
Restores, and Resolves Ordering Company's request for Ordering Company Technical
Support called in through Supplier's Call Receipt function. Ordering Company
requests that do not go through Supplier's Call Receipt function are excluded
from the Performance Metrics.
1.76 PRICE means the price for the Work to be performed by
Supplier as set forth in the Work Order, Change Order, Supplemental Agreement or
other document(s) signed by the parties.
1.77 PROBLEM MANAGEMENT means the procedures and actions
performed or required to be performed by Supplier upon written or oral request
of Ordering Company to investigate and manage the resolution of a reported
condition in a manner that provides Ordering Company with a single interface.
1.78 PROBLEM RESOLUTION means the analysis of the technical
data to determine, at minimum, a short term resolution. Depending upon the
analysis results, the response to Ordering Company may be in the form of
technical advice, a procedure performed by Supplier support personnel, or a
software product update. Technical questions or inquiries regarding the
operation or use of the Product are also handled under this task.
1.79 PRODUCT means systems, equipment and parts thereof, but
the term does not mean Software whether or not such Software is part of
Firmware.
1.80 PROPOSAL means the proposal or bid prepared by Supplier,
making reference to this Agreement.
1.81 RELATED DOCUMENTATION as referred to in Article 9 and in
this Article 1 means materials useful in connection with Software, such as, but
not limited to, flow charts, logic
<PAGE> 11
diagrams, program descriptions, and Specifications. No Source Code versions of
Software are included in Related Documentation.
1.82 REMOBILIZATION as referred to in Article 11 means
compensation to Supplier for labor, equipment and load associated with returning
to an operation that was demobilized. See "Demobilization".
1.83 RESOLVE means that a permanent solution to the problem
has been provided. For service ARs, Resolution means that the question has been
answered to Ordering Company's satisfaction. For defect ARs, Resolution means
either that a final correction to the defect has been released to Ordering
Company or that Supplier has notified Ordering Company that the defect will not
be repaired.
1.84 RESOLVE TIME means elapsed time between the time Ordering
Company contacts Supplier through Supplier's Call Receipt function and the time
Ordering Company is supplied a permanent solution.
1.85 RESPOND means an engineer has contacted Ordering Company
regarding a particular Assistance Request.
1.86 RESTORE means that the Product or major feature of the
Product is temporarily operative, but a permanent resolution has not yet been
provided. Restore may mean that a software patch has been provided to
temporarily correct the problem, or a workaround has been implemented.
1.87 SCOPE OF WORK means the agreed upon scope of work set
forth in an executed Supplemental Agreement (e.g., for Customer Connectivity) or
Work Order. The Scope of Work may include: field and building surveys, route
planning, Make Ready Coordination, design engineering, material logistics, civil
construction, placing, splicing, Acceptance Testing, work print, as built and
OSP records generation, and project management.
1.88 SERVICE means the services provided by Supplier with
respect to or independent from Supplier's Products and Software and the
operation of Ordering Company's business including, but not limited to, any type
of: (1) professional services including architecture planning or design,
consulting, program management, system integration and testing/verification; (2)
network engineering services including preparation of equipment Specifications,
preparation and updating of office records, and data creation/data management
services; (3) installation and equipment removal; (4) outside plant
engineering/construction services and cable mining; (5) maintenance, repair,
exchange/replacement, customer technical support, help desk, and diagnostic
services; (6) software development; (7) initial site/new start, migration,
trials, provisioning, retrofitting and update/upgrade services; (8) training in
any form; (9) logistics (transportation, warehousing staging, etc.); and (10)
such other services as Supplier may offer and Ordering Company may purchase from
time to time.
<PAGE> 12
1.89 SERVICE PERFORMANCE REPORTS (SPR) means reports that
validate the agreed to Respond, Restore, and Resolve Ordering Company's request
for Ordering Company Technical Support.
1.90 SERVICE RESTORATION TIME means the elapsed time between
the time Ordering Company contacts Supplier through Supplier's Call Receipt
function and the time the system is restored to service.
1.91 SEVERITY LEVEL means the condition of the system when
Ordering Company makes an Assistance Request.
1.92 SEVERITY LEVEL ONE means the condition which exists when
the system is inoperative and Ordering Company's inability to use the Product
has a critical effect on Ordering Company's operations. The condition is
generally characterized by complete system failure and requires immediate
resolution or correction.
1.93 SEVERITY LEVEL TWO means the condition which exists when
the system is partially inoperative, but the system is still usable by Ordering
Company. The inoperative portion of the Product severely restricts Ordering
Company's operations but has a less critical effect than a Severity Level One
condition.
1.94 SEVERITY LEVEL THREE means the condition which exists
when the system is usable by Ordering Company, but with limited functions. The
condition is not critical to overall Ordering Company operations and does not
severely restrict such operations.
1.95 SEVERITY LEVEL FOUR means the condition which exists when
the system is usable and a means of circumventing the condition has been found.
This condition does not materially affect Ordering Company's operations.
1.96 SITE means all Work areas where any Work is required to
be performed as set forth in the Agreement Documents, excluding permanent
locations of Supplier and its suppliers and subcontractors.
1.97 SOFTWARE means a computer program consisting of a set of
logical instructions and tables of information which guide the functioning of a
central processing unit; such program may be contained in any medium whatsoever,
including hardware containing a pattern of bits representing such program, but
the term "Software" does not mean or include such medium.
1.98 SOFTWARE PRODUCT means the Software that Ordering Company
has been granted a license to use by Supplier.
<PAGE> 13
1.99 SOFTWARE PRODUCT DEFECT means an error condition that
causes the Software Product to fail to operate in compliance with Supplier's
documented Specifications available at time of Licensed Software Product sale.
1.100 SOFTWARE PRODUCT UPDATES means changes to the original
licensed Software Product and third party Software to correct defects or provide
accommodations not originally included in Supplier's documented Specifications
available at the time of the Software sale. Software Product Updates include
both corrections and accommodations requested by customers as well as
corrections and accommodations requested by other Ordering Companies. Software
Product Updates may be distributed through point issue releases on magnetic
media or Broadcast Warning Messages (BWM's), Software Updates (SU's), or other
on-line delivery mechanism.
1.101 SOURCE CODE means any version of Software incorporating
high-level or assembly language that generally is not directly executable by a
processor.
1.102 SPECIAL CONDITIONS means detailed provisions in the
Specifications referred to under Section 11.23, Application for Payment; Terms
of Payment, pursuant to which Supplier can petition AT&T for additional
compensation.
1.103 SPECIFICATIONS means the technical specifications for
particular Products, Software and Services of Supplier or its vendor furnished
hereunder.
1.104 SPECIFICATIONS OR STANDARDS as referred to in Article 11
means the Specifications for outside plant construction as agreed upon by the
parties for each project, Work Order, or Supplemental Agreement. (For Customer
Connectivity, the August 1992 Lightguide Cable Systems Outside Plant Standards
Handbook and the Specifications set forth in AT&T's standard construction
Specifications, each as amended and agreed by parties.) All projects, Work
Orders and Supplemental Agreements are subject in addition to the work practices
set forth in Section 11.18, ARCHAEOLOGICAL SITES; ENVIRONMENTAL PROTECTION.
1.105 START DATE means the date on which Supplier and AT&T
agree in a Work Order or in some other writing that the Work is due to begin.
1.106 SUBCONTRACTOR means a person or organization who has a
direct contract with Supplier.
1.107 SUPPLEMENTAL AGREEMENT means a contemporaneous or
subsequent purchase agreement between an Ordering Company and Supplier which
incorporates all of the terms of this Agreement.
<PAGE> 14
1.108 SUPPLEMENTARY SPECIFICATIONS means mutually agreed upon
Specifications which, by modifying or supplementing the Specifications, describe
conditions unique to a particular project.
1.109 SUPPLIER means Lucent Technologies Inc.
1.110 SUPPLIER'S INFORMATION means certain material and
technical or business information, owned or controlled by Supplier or any of its
Affiliates, relating to the operation of Products or Software, materials used in
the provision or manufacture of Products and Software, or relating to Supplier's
Services. The term also means and includes any part, component and associated
information developed prior to the effective date of this Agreement by the
business units and other organizations which compose Supplier, regardless of
whether such information was originally disclosed to AT&T or an Ordering Company
in written or other tangible form.
1.111 SUPPLIER'S MANUFACTURED PRODUCT means a Product
manufactured by Supplier or manufactured by an original equipment manufacturer
to Supplier's Specifications. Supplier's Manufactured Product includes Vendor
Items that are embedded in Products manufactured by Supplier.
1.112 SUPPORT SERVICES means Supplier's assistance at
Supplier's location analyzing the applicable Software or Hardware/Firmware
problem (as defined in the Order), remedying defects, and handling service calls
reported by Ordering Company through the Call Receipt function. Support Services
may be purchased by Ordering Company pursuant to the provisions set forth in
this Agreement.
1.113 SYSTEM means the integrated Products and Software as
described in associated Specifications.
1.114 UNIT ADJUSTING PRICE means a Price in the Work Order,
Change Order or Supplemental Agreement that compensates Supplier on a unit basis
for deviations from the defined scope of Work. The number of adjusting units
will subsequently be determined from the engineered Drawings or actual
occurrences as accepted by the Engineer.
1.115 UNIT PRICE means a Price in the Work Order or
Supplemental Agreement for a defined scope of Work on a unit basis. The number
of units will subsequently be determined from the engineered Drawings
1.116 UNITED STATES means the fifty (50) states, District of
Columbia, Puerto Rico and the United States territories.
1.117 USE with respect to Licensed Materials means loading the
Licensed Materials, or any portion thereof, into a processor for execution of
the instructions and tables contained in such Licensed Materials.
<PAGE> 15
1.118 VENDOR ITEM means a Product or partial assembly of
products furnished by Supplier, but not manufactured by Supplier but supplied
pursuant to its procurement specifications. An item ceases to be a Vendor Item
when it becomes embedded in a Supplier's Manufactured Product.
1.119 WARRANTY PERIOD means the period of time listed in the
respective Warranty clauses herein for Products, Licensed Materials or Services
which, unless otherwise stated, commences for Products and Licensed Materials on
the earlier of the date of shipment, or, if installed by Supplier, on the
Acceptance Date, and for Services, commences on the Acceptance Date of the
Service.
1.120 WORK is defined in Section 11.2, WORK; SUPPLIER;
MATERIALS; PERMITS; RAILROADS; SECURITY, below.
1.121 WORK ORDER means the specific Outside Plant Services
requested by Ordering Company pursuant to this Agreement. Work Order shall
contain the information set forth in Section 11.5, WORK ORDERS; CHANGES, below.
ARTICLE IA
NATURE OF AGREEMENT
1A.1 PURPOSE AND SCOPE OF THIS AGREEMENT. The purpose of this
Agreement is to permit Supplier to provide and Ordering Company to receive
Supplier's Products, Licensed Materials, and Services. This Agreement shall
govern all transactions pursuant to which Supplier provides Products, Licensed
Materials and Services to AT&T and Ordering Companies. AT&T and Supplier will
develop a template no later than June 30, 1996 for use when AT&T or Ordering
Company is ordering Products, Licensed Materials and Services from Supplier
pursuant to this Agreement for use outside the United States. This template will
be used as the starting point for Supplemental Agreements to address such
purchases and will address the additional country and customer-specific terms
and requirements with the particular transaction. This Agreement shall govern
Supplier's sale and licensing to Ordering Companies of Supplier's Products,
Licensed Materials and Services for Ordering Companies' internal business uses
only, and does not permit AT&T to resell or sublicense any Products, Licensed
Materials or Services provided hereunder as a distributor of same. However, this
Agreement, including any restrictions on use, resale and transfer is not
intended to prohibit Ordering Company from reselling or transferring Products
and Licensed Materials no longer needed for the operation of its business,
provided, that, in the case of Software, such transfers are made in accordance
with the provisions of Article 9. All terms and conditions governing resale or
sublicensing of Supplier's Products, Licensed Materials and Services as a
distributor shall be addressed in a separate agreement.
<PAGE> 16
This Agreement is organized in the following manner: Part 1 sets forth the
common terms and conditions that apply to all sales and licenses executed
pursuant to this Agreement, unless otherwise stated in Part 2. Part 2 sets forth
the additional terms and conditions which govern Supplier's provision of network
infrastructure Products, Licensed Materials and Services, other than such items
currently provided by Supplier's Business Communications Systems business unit,
previously known as "GBCS," ("BCS"). Part 3 sets forth the additional terms and
conditions which govern Supplier's provision of Products, Licensed Materials and
Services provided by BCS.
1A.2 STATEMENT OF ASPIRATIONS. In an effort to ensure that the
parties remain fully focused upon their shared objectives and aspirations, the
parties agree that the following principles shall govern their work together
during the term of this Agreement:
(a) Both parties want Lucent Technologies Inc. to provide AT&T
with Products, Licensed Materials and Services that confer significant offer
differentiation, premium value and operating cost reduction consistent with
AT&T's brand equity, and shall work together so that Lucent Technologies Inc.
may assist AT&T in this manner;
(b) The parties recognize that Supplier's pricing of Products,
Licensed Materials and Services must balance two fundamental requirements:
AT&T's requirement for the lowest possible operating costs and Supplier's
requirement for adequate return on and recovery of investment;
(c) The parties shall at all times take care to conduct
themselves with the highest integrity, to respect all individuals, and to obtain
the maximum benefits of a shared end user customer focus, effective teamwork and
the parties' innovativeness; and
(d) The parties desire to maintain a relationship that is
warm, open and mutually profitable.
1A.3 VOLUME COMMITMENT. (a) AT&T commits that the aggregate
amount paid by Ordering Companies (including AT&T Wireless Services Inc.) to
Supplier during the calendar years 1996, 1997, and 1998 for Products, Licensed
Materials, and Services, pursuant to this Agreement, any Supplemental Agreement,
any other agreement or otherwise, between an Ordering Company and Supplier for
Supplier's provision of Products, Licensed Materials or Services to an Ordering
Company, will total at least three billion dollars ($3,000,000,000). If that
commitment is not fulfilled by December 31, 1998, Supplier shall, in January
1999, bill AT&T a carrying charge equal to the shortfall at December 31, 1998,
multiplied by the Prime Rate (as defined in the Separation and Distribution
Agreement) plus two percent (2%). Thereafter, Supplier shall, each month, bill
AT&T a carrying charge equal to the shortfall, if any, at the end of the
preceding month, multiplied by 1/12 multiplied by the Prime Rate plus two
percent (2%). Such billing shall continue until the three billion dollar
($3,000,000,000) commitment is fulfilled. AT&T will pay these bills as set forth
in Section 3.2, INVOICES AND TERMS OF PAYMENT. The remedy in this Section 1A.3,
VOLUME COMMITMENT, is
<PAGE> 17
Supplier's exclusive remedy for AT&T's failure to fulfill the three billion
dollar ($3,000,000,000) volume commitment.
(b) AT&T expects, but does not commit, that Products, Licensed
Materials and Services in the amount of one billion three hundred million
dollars ($1,300,000,000), out of the three billion dollar($3,000,000) total
volume commitment, will be ordered in 1996. Therefore, the shortfall billing and
payment arrangement set forth in subparagraph (a) above does not apply to
failure to meet this expectation by the end of 1996.
(c) Prior to the Closing Date (as defined in the Separation
and Distribution Agreement), AT&T shall deliver to Supplier as advance payment
for purchases of Products, Services, Software, or Licensed Materials an amount
equal to five hundred million dollars ($500,000,000). Commencing on January 1,
1997, Supplier shall apply a portion of such amount as a credit against any
undisputed invoiced amounts due and payable to Supplier from AT&T or, if AT&T
shall so specify at any time, from any other Ordering Company, on or after
January 1, 1997, in full satisfaction of all obligations of AT&T or any such
Ordering Company then due in connection therewith. Supplier shall continue to so
apply such advance payment as a credit against such undisputed invoices until
fully applied.
1A.4 GOVERNING TERMS. (a) Current Order Performance: On the
Effective Date of this Agreement, Supplier shall be in the process of performing
several Ordering Company orders, some of which have not been the subject of
written Orders and purchase agreements. In addition, Supplier shall be following
many existing engineering, installation and maintenance practices and procedures
that have been developed mutually by Supplier and Ordering Company but have not
been completely documented. The parties intend that Supplier shall continue to
provide the same Products, Services and Licensed Materials which Supplier is
providing or has agreed to provide each Ordering Company (hereinafter "Pending
Orders") subject to the availability of third party components and provided that
Ordering Company shall retroactively compensate Supplier for any Products,
Licensed Materials and Services provided by Supplier without compensation at the
prices and rates set forth in any mutual agreements entered into. Such
retroactive compensation shall begin no earlier than the Effective Date and
shall be capped at twenty million dollars ($20,000,000) per month. Supplier
shall not be liable for any injury to Ordering Company that results from
Supplier's employees and/or contractors failure to be aware of practices and
procedures that had not, at the time of Supplier's actions, been reduced to
writing. Supplier and Ordering Company recognize that the existing practices and
procedures will need to be reevaluated in light of the restructure of AT&T. As
part of this reevaluation,
<PAGE> 18
Supplier and Ordering Company may decide to continue existing practices and
procedures or one party may notify the other that it wishes to change or
eliminate certain practices or procedures.
The parties agree to use their best efforts to identify any other Products,
Licensed Materials and Services provided by Supplier to Ordering Company that
require commercialization and to formalize such undocumented arrangements in a
commercially reasonable manner that is consistent with the terms and conditions
contained herein no later than March 31, 1996. The parties acknowledge that such
formalization and modification of those arrangements may result in changes in
the terms and conditions pursuant to which such items are provided. All
agreements will be reduced to writing which will govern transactions between
Supplier and all Ordering Companies, unless otherwise agreed to. If the parties
are unable to negotiate a satisfactory resolution, the dispute resolution
provisions of Article 5A herein shall apply. Services not currently performed by
Supplier are not covered under this Section 1A.4, GOVERNING TERMS, and will be
covered under separate Supplemental Agreements.
With respect to Pending Orders, this Agreement is incorporated by reference,
however, in the event of conflict between the terms and conditions of this
Agreement and the terms and conditions of Pending Orders, the terms and
conditions of Pending Orders shall prevail over the terms and conditions of this
Agreement until such time that the Pending Orders are formalized, terminated or
expired.
(b) Future Procurements: All future Orders and Supplemental
Agreements pursuant to which Supplier provides Products, Licensed Materials and
Services to AT&T Company shall be deemed to incorporate and be subject to the
terms and conditions of this Agreement, regardless of whether any such Order or
Supplemental Agreement expressly incorporates this Agreement by reference,
unless such Order or Supplemental Agreement expressly provides that it is not
subject to this Agreement. To the extent that any exhibit to this Agreement or
any document other than a Supplemental Agreement conflicts with the body of this
Agreement, the body of this Agreement shall prevail over such exhibit or other
document. To the extent that a Supplemental Agreement conflicts with this
General Purchase Agreement, the Supplemental Agreement shall prevail over the
body of this Agreement. To the extent that the Supplemental General Purchase
Agreement, No. LC3757D, conflicts with either or both of this Agreement and a
Supplemental Agreement, the Supplemental General Purchase Agreement shall
prevail over those other agreements.
1A.5 TERM OF AGREEMENT. This Agreement shall become effective
on the Effective Date and shall continue in effect for a period of five (5)
years. The term of this Agreement shall thereafter be automatically extended for
additional one (1) year periods unless either party provides the other party one
(1) year's prior written notice of its desire to permit this Agreement to expire
without further extension of its term, in which event this Agreement shall
expire on the day before this Agreement would otherwise be automatically
extended. The amendment or termination of this Agreement shall not affect the
obligations of an Ordering Company or Supplier under any then existing Order or
Supplemental Agreement issued under this Agreement.
<PAGE> 19
1A.6 TRANSITION PERIOD. Although all terms of this Agreement
are effective on the Effective Date, the parties recognize that complete
implementation of certain terms depends upon the development and deployment of
necessary practices and systems. Those terms include, but are not limited to:
- Section 2.1 - Orders
- Section 2.2 - Order Acceptance
- Section 2.6 - Order Cancellation and Holds
- Section 3.1 - Pricing
- Section 3.2 - Invoices and Terms of Payment
- Section 5.1 - Ordering Companies Remedies
- Section 5.2 - Supplier Performance
- Section 6.21 - Record Retention
- Section 8.16 - Planning Information for Orders for
Commercially Available Products
Both parties agree to use their reasonable best efforts to develop and deploy
those practices and systems underlying these and other terms as promptly as
possible, but not later than March 29, 1997. The inability of either party to
comply with any of these terms as a result of not having developed and deployed
such practices and systems prior to March 29, 1997, will not be construed a
breach of contract, provided, however, that if such Supplier's delay in
developing and deploying necessary practices and systems delays affording
Ordering Company the benefits of the Pricing Agreement, Supplier shall afford
those benefits to Ordering Company, as promptly as possible, retroactive to the
Effective Date.
1A.7 PURCHASES BY AT&T'S AFFILIATES. This Agreement shall
govern purchases from Supplier by AT&T, its Affiliates and Ordering Companies,
but shall not govern purchases by other entities.
1A.8 ADDITIONAL TECHNOLOGY RIGHTS. Supplemental Agreements may
provide, on a case-by-case basis, for Ordering Company's ownership (up to and
including 100% ownership) of specified intellectual property rights in
technology newly developed by Supplier solely on behalf of Ordering Company. In
the event technology is licensed by Supplier to Ordering Company, Supplier may
agree to grant Ordering Company (a) the right to make, have made, use, sell,
modify, offer for sale or import specified Products and provide specified
Services and (b) the title and intellectual property rights to certain
modifications and resulting derivative works made by Ordering Company.
<PAGE> 20
ARTICLE II
ORDERING AND DELIVERY
2.1 ORDERS. (a) All Orders, including electronic Orders, shall
contain the information necessary for Supplier to fill the Order. Such
information shall include, but not be limited to:
(i) Ordering Company's requested ship date or
requested complete date;
(ii) The date of the Order;
(iii) A reference to this Agreement, including its
contract number and any applicable firm price quote, Supplemental
Agreement, or other Supplier pricing information;
(iv) The Price of the item being purchased or
licensed or the means by which the Price is derived;
(v) A complete list of the Products, Licensed
Materials and Services requested, specifying, as applicable, quantity,
Supplier's model number, the type and periods of any maintenance or
consulting Service ordered (including Service Start Date, a description
of the Services to be provided and, if applicable, the items to be
maintained), Supplier's Specification number (by issue or generic
number), Telephone Equipment Order ("TEO") or other agreed upon
Specification or other Supplier identification;
(vi) The address or location to which Products or
Licensed Materials are to be delivered or the location where Services
are to be performed including a description, the serial number (if
available) and the location of any Designated Processor for which
Licensed Materials are being furnished; and
(vii) The address to which Supplier's invoice is to
be sent electronically.
(b) Unless otherwise agreed in writing, the planning intervals
for engineering, delivery and installation for commercially available Products
to be provided by Supplier shall be as set forth in Exhibit 2-1, which will be
updated quarterly by mutual agreement of the parties. These intervals are for
planning purposes only; Supplier's scheduled delivery and performance dates set
forth in (i) an accepted Order for Products; or (ii) for Licensed Material, or
an accepted Order or the appropriate Supplemental Agreement are firm commitments
and shall govern the parties' performance. Unless agreed otherwise in writing,
no provision, term or condition, or data on any Order or contained in any
document attached to or referenced in any Order, Supplemental
<PAGE> 21
Agreement, or any other subordinate document (such as a shipping release) shall
be binding, except data necessary for Supplier to fill the Order. Electronic
Orders shall be binding on Ordering Company notwithstanding the absence of a
signature. All schedules and requested dates are subject to Supplier's
concurrence.
(c) For construction Services, Ordering Company shall place
Orders at an agreed upon time period prior to the applicable construction start
date. In the event that Ordering Company is not ready to receive shipment on the
scheduled delivery date, Ordering Company shall reimburse Supplier for any
reasonable warehousing, handling, hoisting and idle time costs sustained during
the delay period.
2.2 ORDER ACCEPTANCE. All Orders are subject to acceptance by
Supplier. Supplier shall have twenty-one (21) business days in 1996 and
thereafter ten (10) business days after the receipt of the Order in which to
notify Ordering Company of those aspects of Ordering Company's Order which
Supplier is unable to accept and to provide Ordering Company Supplier's firm
schedule Completion Date for the Order. Failure to provide such notice within
that period shall be deemed acceptance of Order. Ordering Company or Supplier
may modify the terms or content of any Order if such changes are mutually agreed
to and documented in writing.
2.3 CHANGES IN ORDERING COMPANY'S ORDERS. Should Ordering
Company wish to obtain information sufficient to permit it to assess whether to
submit an Order adding, deducting or deviating from a prior Order (hereinafter a
"Change Information Request"), it shall request such information from Supplier
in writing. As promptly as reasonably possible after its receipt of a Change
Information Request, Supplier shall submit a proposal to Ordering Company which
includes any increases or decreases in Supplier's Price or changes in the
delivery or work schedule for the existing and new Orders necessitated by the
change. Unless Supplier receives an Order to implement such change from Ordering
Company within twenty-one (21) calendar days of Ordering Company's receipt of
Supplier's proposal, Ordering Company shall be deemed not to have authorized the
change and Supplier shall remain obligated to perform all previously ordered
work in accordance with (a) the governing Order (for Products) or (b) for
Licensed Material, the governing Order or appropriate Supplemental Agreement.
Changes by Ordering Company to an accepted Order shall be treated as a separate
Order only if such change materially affects Supplier's ability to meet its
obligations under the original Order, in which case any Price (or discount, if
applicable), shipment date or Services Completion Date provided by Supplier with
respect to such original Order shall be subject to change.
2.4 CHANGES IN PRODUCTS BY SUPPLIER. Any change that Supplier
proposes to the Product furnished hereunder and the documentation related
thereto would be subject to the Change Notice Process attached hereto as Exhibit
2-2.
<PAGE> 22
2.5 ORDER CANCELLATION AND HOLDS.
(a) CANCELLATION FOR CONVENIENCE.
(i) Ordering Company may, upon written notice to
Supplier, cancel an Order, provided that Ordering Company shall pay the
applicable fees, if any, set forth in Paragraphs (ii), (iii) and (iv)
below.
(ii) For those Products and Licensed Materials
canceled prior to shipment that are considered stock items, Ordering
Company agrees that it shall pay Supplier an Order cancellation fee
equal to fifteen percent (15%) of the Price or license fee for such
items.
(iii) For those Products and Licensed Materials
considered to be customized or non-stock items (1) not manufactured or
(2) manufactured but not yet accepted, Ordering Company shall pay a fee
based upon Supplier's incurred expenses (after adjustment for
recoveries and/or salvage value, if any), including, but not limited to
de-installation, transportation and associated general and
administrative expenses, plus a reasonable profit in the event that the
customized or non-stock items are not ultimately sold or licensed to
another party within ninety (90) days of cancellation, provided that
Supplier has made a reasonable attempt to sell or license such items.
(iv) If an Order for Services is canceled in whole or
in part after execution of such Order and prior to the scheduled
completion of such Services, Ordering Company agrees to pay Supplier
the fees due for Services provided (which fees, depending upon the
specific terms of the agreement, may be based on the applicable
periodic rates or equal to the percentage of the contracted project or
period that Supplier has completed multiplied by the total fee,
excluding expenses, for such project or period) and all expenses of any
type incurred for performing the Services prior to the date of
cancellation and any expenses Supplier may incur for terminating the
Services, including but not limited to:
(A) the cost of materials (less salvage
value, if any) which have been delivered to the work site prior to the
date of termination but which have not yet been incorporated into or
been consumed in performing the Services; plus
(B) the cost of undelivered materials (less
salvage value, if any) planned for use in performance of this Agreement
for which irrevocable Work Orders have been placed by Supplier prior to
the effective date of cancellation; plus
(C) the cost of any other capital
expenditure that has been incurred in order to perform the terminated
project and that cannot be re-applied by Supplier to provide other
Services; plus
<PAGE> 23
(D) the cost to Supplier of terminating and
settling any subcontracts.
(v) For purposes of this subparagraph (a), "salvage
value" shall include the proceeds of the sale of the material to
another Ordering Company and the costs Supplier avoids as a result of
its reapplying materials to meet other needs of Ordering Company, the
needs of other customers or its own internal needs within ninety (90)
days of Order cancellation. Supplier shall make reasonable efforts to
maximize salvage value. Upon written request, Supplier will
substantiate such avoided costs.
(b) HOLDS. Ordering Company may issue "holds" on Orders or
suspend performance under this Agreement, in whole or in part, upon written
notice to Supplier and shall compensate Supplier for any incremental expense
(including, but not limited to, warehousing, loss, damage and inventory carrying
costs) incurred. A hold automatically converts to an Order cancellation after
thirty (30) days.
(c) CANCELLATION FOR CAUSE. In the event Supplier shall be in
material breach or default of any of the terms, conditions, or covenants of any
Order or Supplemental Agreement and if such breach or default shall continue for
a period of forty-five (45) days in 1996 and thereafter thirty (30) days after
Supplier's receipt of notice thereof by Ordering Company, then, in addition to
the remedies specified in Section 5.1, ORDERING COMPANIES' REMEDIES, Ordering
Company shall have the right to cancel such Order or Supplemental Agreement,
except to the extent that Products, Licensed Materials or Services have
previously been provided pursuant to such Order or Supplemental Agreement.
(d) SURVIVAL. The obligations of this Section 2.5 shall
survive termination of this Agreement.
2.6 SHIPPING, PACKING AND DELIVERY. (a) Supplier shall, at no
additional charge, pack Products in accordance with its standard practices for
shipments to Ordering Company's locations. Unless instructed otherwise by
Ordering Company, Supplier shall (i) ship Orders as available, but not before
the customer requested ship date, (ii) ship to the destination designated in the
Order, (iii) mark all subordinate documents with the Order number, (iv) enclose
a packing memorandum with each shipment, and when more than one package is
shipped, identify the package containing the memorandum, and (v) mark Ordering
Company's Order number on all packages and shipping papers.
(b) Where, in order to meet Ordering Company's requests,
Supplier packs Products in other than its normal manner, Ordering Company shall
pay Supplier's additional charges for such packing. Absent written agreement
otherwise, Supplier will deliver Products and Licensed Materials to Ordering
Company FOB (free on board) the manufacturing, warehouse or Software
distribution facility of Supplier or its vendor.
<PAGE> 24
(c) Unless otherwise directed by Ordering Company, Supplier
shall (i) ship equipment from its nearest facility or that of its vendor capable
of filling the Order, (ii) use the lowest available rate from Ordering Company's
pre-selected designated carrier (rail, truck or freight forwarder), and (iii)
prepay transportation charges at cost as a separate item on Ordering Company's
invoice when the cost of transportation is to be borne by Ordering Company.
Ordering Company shall promptly pay to Supplier any prepaid transportation
charges. Supplier will provide to Ordering Company a transportation factor card
to be used for estimating transportation rates. Shipping and routing
instructions may be furnished or altered by Ordering Company in writing, subject
to additional charges, if applicable.
(d) Supplier agrees not to deliver Products prior to five (5)
business days before the agreed upon delivery date without Ordering Company's
prior written authorization.
2.7 TITLE AND RISK OF LOSS. Title to and risk of loss to
Products and risk of loss of Licensed Materials shall pass to Ordering Company
upon delivery to Ordering Company. For purposes of this clause, "delivery" shall
mean the point at which Supplier or Supplier's supplier or agent turns over
possession of the Product or Licensed Materials to Ordering Company, Ordering
Company's employee, Ordering Company's pre-selected designated carrier, Ordering
Company's warehouse, or other Ordering Company's agent and not necessarily the
final destination shown on the Order. Ordering Company shall notify Supplier
promptly of any claim with respect to loss which occurs while Supplier has the
risk of loss and shall cooperate in every reasonable way to facilitate the
settlement of any claim.
ARTICLE III
PRICES AND PAYMENT
3.1 PRICES. (a) To the extent Ordering Company's Order is
subject to a firm price quotation made by Supplier, prices, fees, and charges
("Prices") shall be as set forth in Supplier's firm price quotation or as
specified in the governing Supplemental Agreement. In all other cases, Prices
shall be as set forth in the Product Information Catalog Extraction System
("PRICES") which provides toll free access to Supplier's complete Product
listing or in ELIB (electronic library information bulletin) or its successor
and will be provided in electronic media. For firm price quotations, Prices
shall be valid for thirty (30) days from the date of the quotation. Prices shall
be applied based upon the date Supplier receives Ordering Company's Order. Both
parties will work together in the first quarter of 1996 to develop a plan for
the migration to PRICES.
(b) The database for pricing of all Standard Service Units
("SSU's") Products and Services is Service Unit Dictionary System ("SUDS").
(c) Where Supplier is not performing installation, all
expenses after shipment from Supplier's manufacturing or software distribution
facility shall be paid by Ordering Company. If Supplier pays any of such
expenses, they shall be borne by Ordering Company plus
<PAGE> 25
a fifteen percent (15%) administration fee. Supplier will not incur such
expenses unless it is requested to do so in writing by Ordering Company (which
request shall constitute Ordering Company's agreement to pay Supplier for such
expenses).
(d) Notwithstanding the foregoing, if Supplier is delayed from
completion of an Order due to any change requested by Ordering Company or as a
result of delay by Ordering Company in furnishing information or in performing
its obligations (including site preparation), Supplier's prices are subject to
change to the extent that Supplier incurs costs for such delay.
(e) Unless expressly stated in writing, Supplier's prices are
exclusive of charges for transportation and other related Services, and any
sales or other tax or duty which Supplier may be required to collect or pay upon
the ordered transaction. Supplier shall include these items as separate items in
its invoiced prices to Ordering Company. Ordering Company shall be responsible
for prepaid transportation paid by Supplier. Billable premium transportation
will be used only with Ordering Company's concurrence.
(f) Supplier may amend its pricing schedules once every six
(6) months by providing sixty (60) days' prior written notice. Unless the
parties agree otherwise in writing, Supplier's unaccepted firm price quotations
may be amended on ten (10) days' written notice. Such changes in Supplier's
pricing shall apply only to Orders received on or after the effective date of
such price changes.
(g) In addition to the applicable Price, reasonable expenses
for travel and living of Supplier's personnel while on travel assignments
outside the local area, approved by Ordering Company, shall be reimbursable.
Such approval may be written or oral and on an individual case basis or for a
category of such assignments. If oral approval is given, it shall be followed
with a written approval in ten (10) days. Supplier shall submit invoices for
reimbursable travel and living expenses promptly upon completion of the travel
events. Supplier shall list the travel and living charges as separate items on
each invoice. Supplier shall retain all records in accordance with IRS standards
of such charges for a period of not less than one (1) calendar year after the
expiration of the travel assignment. Upon reasonable request in the event of a
question, Supplier shall make such records available for inspection by Ordering
Company.
3.2 INVOICES AND TERMS OF PAYMENT.
(a) FOR CALENDAR YEAR 1996. Invoices and terms of payment
shall be mutually agreed to by both parties no later than March 1, 1996. The
intent is that both parties will plan a movement toward the terms of Section
3.2(b), INVOICES AND TERMS OF PAYMENT, and away from the current practice,
NS/NSD Payment and Invoicing Policy dated January 30, 1995. The principles for
1996 which the parties will strive to meet will include (i) the provision of a
single bill per order on last shipment; (ii) such bill shall not be submitted
manually; (iii) billing upon shipment for Products, Licensed Materials
(including transportation charges and taxes, if applicable) and Engineering,
except engineering Services associated with
<PAGE> 26
outside plant construction; (iv) billing for Installation upon Installation
Complete Date; and (v) implementation on or before April 1, 1996.
(b) AFTER 1996.
(i) Products, Licensed Materials (including
transportation charges and taxes, if applicable), and Engineering Services,
except engineering Services associated with outside plant construction, shall be
billed by Supplier when last shipment on an Order is made, or as soon thereafter
as practical;
(ii) Installation shall be billed upon Acceptance;
(iii) Engineering Services associated with outside
plant construction shall be billed as performed or, at Supplier's discretion, on
a monthly basis;
(iv) Consulting, design, outside plant construction,
system integration and program management Services shall be billed, as mutually
agreed to by the parties (1) on a progress basis based on the percentage of job
completed up to eighty-five percent of the charge or, (2) on a monthly basis.
Final billing for such Services will be invoiced when such Service is completed;
(v) Unless otherwise agreed to, Maintenance Services
shall be billed monthly, in advance. Supplier will work with Ordering Company to
minimize the number of bills Ordering Company receives each month for such
Services. If Ordering Company requests quarterly or annual invoicing, such
invoicing shall be rendered in advance of such Services;
(vi) Payment for generally available Licensed
Material is payable in full upon delivery to First Field Application; and
(vii) Software and/or other technology development
for small projects (i.e. less than or equal to fifteen million dollars
($15,000,000) and less than or equal to twelve (12) months) shall be billed as
follows: ten percent (10%) at commitment (i.e., signing of contract), forty
percent (40%) upon delivery of the Software to the Integrated Test Network (if
the Software will not be tested in the ITN, this forty percent (40%) payment
shall be due upon delivery to the First Field Application), and fifty percent
(50%) when Software is ready for deployment, or thirty (30) days after
Acceptance of the Software in the First Field Application, whichever occurs
sooner. Billing for Software and/or other technology development for projects
other than small projects as defined in the preceding sentence, shall be
determined on a case by case basis. The parties will conform the Supplemental
Agreements to this Section 3.4(b)(vii) by March 31, 1996.
(c) Ordering Company shall pay such invoiced amounts, less any
items known then to be disputed items, within thirty (30) days of the date of
Supplier's invoice. Ordering Company shall notify Supplier of any disputed
invoice within eighteen (18) months from the date of the invoice. Such notice of
dispute shall not excuse Ordering Company from
<PAGE> 27
timely payment of the undisputed portion(s) of any invoice containing a disputed
portion. Supplier may apply any credit which remains outstanding in favor of
Ordering Company to the oldest undisputed invoice which remains in Ordering
Company's account, unless directed otherwise by Ordering Company.
(d) Unless otherwise agreed, payment of all amounts contained
in this Agreement shall be made in United States dollars and invoices shall be
rendered in the same currency. Unless otherwise agreed to by Supplier and
Ordering Company, payments shall be made by electronic transfer to the account
and address indicated by Supplier and shall reference the invoice(s) to which
they relate.
(e) AT&T guarantees payment in United States dollars of the
obligations of Ordering Companies that are not Affiliates of AT&T on any Orders
placed pursuant to this Agreement. Payment shall be made by AT&T within thirty
(30) days after receipt of invoice of a guaranteed payment. Such invoice will
only be issued to AT&T after Supplier has made reasonable efforts to obtain
payment from Ordering Company. Ordering Companies that are Affiliates of AT&T
shall bear sole responsibility for the performance of their obligations
hereunder.
3.3 TAXES. (a) Ordering Company shall bear all taxes, levies,
duties and other similar charges (and any related interest and penalties),
however designated, (herein referred to as "Tax") imposed as a result of the
existence or operation of this Agreement, Order or any Supplemental Agreement,
including but not limited to any tax which Ordering Company is required to
withhold, collect or deduct from payments to Supplier, except (i) any tax
imposed upon Supplier in a jurisdiction outside the United States if such tax is
allowable as a credit against the United States income taxes of Supplier; and
(ii) any net income tax imposed upon Supplier by the United States or any
governmental entity within the United States proper (the fifty (50) states and
the District of Columbia including, but not limited to counties, municipalities
and other localities). In order for the exception contained in (i) to apply,
Ordering Company must furnish Supplier with such evidence as may be required by
United States taxing authorities to establish that such Tax has been paid, if
any, so Supplier may claim the credit.
(b) If Ordering Company is required to bear a tax pursuant to
paragraph (a) above, Ordering Company shall pay to Supplier or the appropriate
government entity or taxing authority, such Tax and other charges and any
additional amounts as are necessary to ensure that the net amounts received by
Supplier after all such payments or withholdings equal the amounts to which
Supplier is otherwise entitled under this Agreement as if such Tax or other
charges did not exist.
(c) If Ordering Company is exempt from any Tax, Ordering
Company shall provide Supplier with all required documentation necessary to
establish Ordering Company's exempt status. Ordering Company hereby agrees to
indemnify Supplier from any Tax, including penalties and interest, resulting
from Supplier's reliance on Ordering Company's claim of exempt status.
<PAGE> 28
(d) If Ordering Company disputes in good faith the
applicability of any Tax imposed as a result of the existence or operation of
this Agreement, Ordering Company, at its own expense and in its own name, may
contest the taxing jurisdiction of the disputed Tax. In the event the applicable
law requires that such contest must be taken in the name of Supplier only,
Supplier shall in good faith and with due diligence at Ordering Company's sole
expense contest the imposition of such Tax provided that (i) Supplier will not
be required to pursue such contest if the action will result in a lien against
Supplier for which Ordering Company has not adequately indemnified Supplier or
(ii) will result in a penalty being assessed against Supplier for which Ordering
Company has not adequately indemnified Supplier.
ARTICLE IV
INTELLECTUAL PROPERTY RIGHTS
4.1 USE OF INFORMATION. (a) All technical and business
Information disclosed by one party to the other subsequent to the execution of
this Agreement in whatever form recorded which is marked "proprietary" or
"confidential" or bears a legend or notice restricting its use, copying, or
dissemination or, if not in tangible form, is described as being proprietary or
confidential at the time of disclosure and is subsequently summarized in a
writing so marked and delivered to the receiving party within thirty (30) days
of disclosure to the receiving party shall remain the property of the furnishing
party. Similarly, all technical and business Information disclosed by one party
to the other party prior to the execution of this Agreement and described at the
time of disclosure by the furnishing party as being proprietary or confidential
or known by the party receiving disclosure of such Information to be proprietary
or confidential shall remain the property of the furnishing party (regardless of
whether it is ever recorded in tangible form).
(b) The furnishing party grants the receiving party the right
to use such Information only as follows: Such Information (i) shall not be
reproduced or copied, in whole or part, except for use as authorized in this
Agreement; and (ii) shall, together with any full or partial copies thereof, be
returned or destroyed when no longer needed. Supplier shall use Ordering
Company's Information only for the purpose of performing under this Agreement,
and Ordering Company shall use Supplier's Information only (i) to order
Products, Licensed Materials or Services; (ii) to evaluate Supplier's Products,
Licensed Materials or Services; or (iii) to install, operate and maintain the
particular Products or Licensed Materials for which such Information was
originally furnished. Unless the furnishing party consents in writing, such
Information, except for that part, if any, which was previously known to the
receiving party free of any confidential obligation, or which becomes generally
known to the public through acts not attributable to the receiving party, or
which a receiving party receives from a third party without restriction, or
which is independently developed by the receiving party, shall be held in
confidence by the receiving party. The receiving party may disclose such
Information to other persons, upon the furnishing party's prior written
authorization, but solely to perform acts which this clause expressly authorizes
the receiving party to perform itself and further provided that
<PAGE> 29
such other person agrees in writing (a copy of which writing will be provided to
the furnishing party at its request) to the same conditions respecting use of
Information contained in this clause and to any other reasonable conditions
requested by the furnishing party. The contents of this Agreement are
confidential and shall not be disclosed by either party to third parties,
without the prior written agreement of both parties hereto, except to the extent
required by applicable law, a court or regulatory agency of competent
jurisdiction.
(c) Each party shall be liable to the other for damages
resulting from violation of this Section 4.1. Those damages shall be unlimited
as to nature and limited as to amount to thirty million dollars ($30,000,000)
per occurrence.
4.2 INFRINGEMENT AND MISAPPROPRIATION. (a) In the event of any
claim, action, proceeding or suit by a third party against Ordering Company
alleging an infringement of any patent, copyright, trademark or misappropriation
of a trade secret recognized in any jurisdiction where an Ordering Company may
lawfully use or operate Products or Licensed Materials purchased hereunder, or
if by reason of the use, in accordance with Supplier's Specifications, in any
such jurisdiction of any Products or Licensed Materials furnished by Supplier to
an Ordering Company under this Agreement, Supplier, at its expense, shall defend
Ordering Company, subject to the conditions and exceptions stated in Paragraphs
(b), (c), (d), and (e) below. Supplier shall reimburse Ordering Company for all
costs, expenses or attorneys' fees incurred at Supplier's written request or
authorization, and shall indemnify Ordering Company against any liability
assessed against Ordering Company by final judgment on account of such
infringement or violation arising out of such use. In no event shall Supplier be
liable for Ordering Company's consequential damages.
(b) If Ordering Company's use is enjoined or in Supplier's
opinion is likely to be enjoined, Supplier shall, at its expense use its
reasonable best efforts, to either (i) replace the enjoined Product or Licensed
Materials furnished pursuant to this Agreement with a substitute free of any
infringement; (ii) modify it so that it will be free of the infringement; or
(iii) procure for Ordering Company a license or other right to use it. If none
of the foregoing options is achievable through reasonable best efforts, Supplier
shall remove the enjoined Product or Licensed Materials and refund or credit to
Ordering Company any amounts paid to Supplier therefor less a reasonable charge
for depreciation and any actual period of use by Ordering Company. In no event,
however, shall Supplier's liability under this Section 4.2(b) exceed the
amount(s) paid by Ordering Company to Supplier to purchase the Product or to
obtain the right to use the Licensed Materials which are alleged to violate the
rights described in Paragraph (a) above.
(c) Ordering Company shall give Supplier prompt written notice
of all such claims, actions, proceedings or suits alleging infringement or
violation and Supplier shall have full and complete authority to assume the sole
defense thereof, including appeals, and to settle same. Ordering Company shall,
upon Supplier's request and at Supplier's expense, furnish all information and
assistance available to Ordering Company and cooperate in every reasonable way
to facilitate the defense and/or settlement of any such claim, action,
proceeding or suit.
<PAGE> 30
(d) No undertaking of Supplier under this clause shall extend
to any such alleged infringement or violation to the extent that it: (i) solely
arises from adherence to design modifications, Specifications, drawings, or
written instructions which Supplier is directed by Ordering Company to follow
but only if such alleged infringement or misappropriation does not reside in
material of Supplier's origin, design or selection; or (ii) arises from
adherence to instructions to apply Ordering Company's trademark, trade name or
other company identification; or (iii) resides in equipment or Software which is
furnished by Ordering Company to Supplier for use under this Agreement; or (iv)
arises from use of the Product or Licensed Materials provided by Supplier in
combination with any item not furnished directly by Supplier; or (v) is based
upon modification made by Ordering Company of any Product or Licensed Materials;
or (vi) arises from use of any Product or Licensed Material in a manner for
which it was not designed. In the foregoing cases numbered (i) through (vi),
Ordering Company shall defend and save Supplier harmless, subject to the same
terms and conditions and exceptions stated above, with respect to Supplier's
rights and obligations under this clause.
(e) The liability of Supplier, AT&T and Ordering Company with
respect to any and all claims, actions, proceedings or suits by third parties
alleging infringement of patents, trademarks or copyrights or violation of trade
secrets or proprietary rights because of, or in connection with, any Products or
Licensed Materials furnished pursuant to this Agreement shall be limited to the
specific undertakings contained in this Section 4.2.
4.3 NO PATENT LICENSES. Nothing contained herein shall be
construed as conferring by implication, estoppel or otherwise any license or
right under any patent, except that which is essential to the use of the
Products and/or Licensed Materials as provided by Supplier, and provided however
that this Section 4.3 shall not limit or modify any of the rights and
obligations of the Intellectual Property Agreements or the Supplemental General
Purchase Agreement, No. LC3757D, both executed as of this date as Ancillary
Agreements to the Separation and Distribution Agreement. Supplier shall retain
all ownership rights in all intellectual property used or embodied in Supplier's
Products, Licensed Materials and Service unless otherwise expressed herein, or
in a Supplemental Agreement.
4.4 TRADEMARKS. (a) Subject to the provisions of the Brand
License Agreement, executed as of this date as an Ancillary Agreement to the
Separation and Distribution Agreement, each party shall have the right to use
Products and Licensed Materials which bear the other party's trademarks, trade
name, logos, trade devices, service marks, symbols, and codes, unless otherwise
directed by that party to remove such indicia.
(b) Except as provided in Section s 4.4 (a) above, each party
(including in the case of AT&T, each Ordering Company) shall not use in
advertising or otherwise, any of the other party's trade name, logo, trademark,
trade device, service mark, symbol, code or Specification, or any abbreviation,
contraction, or simulation thereof, without the prior written consent of such
party. Neither party shall claim any ownership therein, and any such usage shall
inure to the benefit of the party which owns such trade name, logo, trademark,
trade device, service mark, symbol, code or Specification.
<PAGE> 31
4.5 PROPRIETARY NOTICE. Ordering Company shall reproduce and
include any Supplier copyright or proprietary notice on all authorized copies of
Licensed Materials. Ordering Company shall also mark all media containing such
copies with a warning that the Licensed Materials are subject to restrictions
contained in an agreement between Supplier and AT&T and that such Licensed
Material are the property of Supplier.
ARTICLE V
RISK MANAGEMENT
5.1 ORDERING COMPANIES' REMEDIES.
(a) An Ordering Company's exclusive remedies and the entire liability
of Supplier, Supplier's Affiliates and their employees and agents, and their
vendors for any claim, loss, damage or expense of Ordering Company or any other
entity arising out of this Agreement or any Supplemental Agreement, or the use
or performance of any Product, Licensed Materials, or Services, whether in an
action for or arising out of breach of contract, warranty, tort, including
negligence, or strict liability, shall be as follows:
(i) For infringement -- the remedy set forth above in
Section 4.2, INFRINGEMENT AND MISAPPROPRIATION;
(ii) For breach of Section 4.1, USE OF INFORMATION,
the remedy set forth above in Section 4.1 (c)
(iii) For the performance or nonperformance of
Products, Software, and Services or claims that they do not conform to a
warranty--the remedy shall include those set forth in the applicable "warranty"
clause;
(iv) For third party claims against Ordering Company
for personal injury and property damage for which Supplier is held liable -- the
remedy afforded by the governing law;
(v) For tangible property damage to Ordering Company
caused by Supplier's negligence -- the amount of the direct damages; and
(vi) For Supplier's failure to deliver Products,
Licensed Materials or Services on Supplier's scheduled delivery date, if
Supplier fails to deliver such Products, Licensed Materials or Services (aa) in
1996 within forty-five (45) days from receipt of written notice from Ordering
Company to Supplier of its failure to deliver such Products, Licensed Materials
or Services on Supplier's scheduled delivery date and (ab) thereafter thirty
(30) days from receipt of such notice, the following remedies shall apply:
<PAGE> 32
(A) Ordering Company may cancel the Order
without incursion of cancellation fees; and,
(B) Ordering Company may request and
Supplier will reduce AT&T's volume purchase commitment by an amount equal to the
value of the Order. In addition, if a worldwide supply shortage exists, Ordering
Company may request and, upon such request, shall receive priority on allocation
of such delivered Products, Licensed Materials or Services in a shortage
condition based upon priority criteria agreed to between Supplier and its
affected customers established for the particular shortage condition.
(b) Notwithstanding any other provision of this Agreement and
except as provided in Section 5.1(a)(ii) above, ORDERING COMPANIES' REMEDIES,
Supplier, Supplier's Affiliates and their employees and agents, and their
vendors shall not be liable for any consequential damages in the nature of lost
profits, revenues or savings arising out of this Agreement, or the use or
performance of any Product, Licensed Materials, or Services, whether in an
action for or arising out of breach of contract, warranty, tort, including
negligence, or strict liability.
(c) Other than damages pursuant to Section 5.1(a)(ii) above,
ORDERING COMPANIES' REMEDIES, Supplier's total liability for incidental and/or
consequential damages and damages resulting from network outages which must be
reported by Ordering Company to the Federal Communications Commission in
accordance with its rules ("Network Outage(s)") shall not exceed ten million
dollars ($10,000,000) per occurrence with a total not to exceed of thirty
million dollars ($30,000,000) in any one year. This Section 5.1(c) shall survive
failure of an exclusive or limited remedy.
(d) Ordering Company shall give Supplier prompt written notice
of any claim. Any action or proceeding against Supplier must be brought within
thirty-six (36) months after the cause of action accrues.
(e) Supplier acknowledges that a Network Outage will cause
damage to AT&T in an amount impossible to ascertain. Supplier agrees to pay
AT&T, as liquidated damages and not as a penalty, the sum of one million dollars
($1,000,000) per occurrence in the event of a Network Outage caused solely by
Supplier in connection with network infrastructure equipment and one hundred
thousand dollars ($100,000) per occurrence in the event of a Network Outage
caused solely by Supplier in connection with BCS Products, whether or not by
breach of warranty and whether before, during or after any Warranty Period. With
respect to a Network Outage caused solely by Supplier in connection with network
infrastructure equipment, Supplier's total liability for damages for Network
Outages, including the liquidated damages described herein shall be one million
dollars ($1,000,000) per occurrence not to exceed the amount of three million
dollars ($3,000,000) for any calendar year, and Supplier's total liability for
damages for Network Outages for any three (3) year period of this Agreement,
including the liquidated damages described herein, shall be five million dollars
($5,000,000); provided that AT&T is meeting its obligations specified in Section
1A.3, VOLUME COMMITMENT, and the
<PAGE> 33
Pricing Agreement. With respect to Network Outages caused solely by Supplier in
connection with BCS Products, Supplier's total liability under this section
shall be one hundred thousand dollars ($100,000) per occurrence not to exceed
the amount of three hundred thousand dollars ($300,000) for any calendar year
,and Supplier's total liability for damages for Network Outages for any three
(3) year period of this Agreement, including the liquidated damages described
herein, shall be five hundred thousand dollars ($500,000); provided that AT&T is
meeting its obligations specified in Section 1A.3, VOLUME COMMITMENT, and the
Pricing Agreement. If, at any time during the term of this Agreement, AT&T fails
to meet its obligations specified in Section 1A.3, VOLUME COMMITMENT, and the
Pricing Agreement, it shall not be entitled to the remedy in this Section
5.1(e). Any damages paid by Supplier pursuant to this Subparagraph shall be
considered incidental and consequential damages subject to the limitations on
AT&T's right to recover same that are set forth in Section 5.1(c), ORDERING
COMPANIES' REMEDIES. At AT&T's option, AT&T may take all or part of the payment
as a credit against any invoice due or to become due to Supplier. The remedies
available to AT&T under Section 5.1, ORDERING COMPANIES' REMEDIES, and the
foregoing liquidated damages shall constitute AT&T's sole and exclusive remedy
for Network Outages caused to any extent by Supplier during the term of this
Agreement.
5.2 SUPPLIER PERFORMANCE. AT&T and Supplier will jointly
develop requirements for an annual Supplier Merit Award by December 1st of each
year for the following year. For 1996, the requirements are listed in Exhibit
5-1. The award program will provide that if Supplier meets or exceeds either
award performance criteria for receipt of a Supplier Merit Award, AT&T shall:
(a) increase its minimum volume purchase commitment
for the following year (if the volume purchase commitment in Section 1A.3,
VOLUME COMMITMENT, is in effect), by twenty million dollars ($20,000,000) for
achieving the on-time delivery criteria and ten million dollars ($10,000,000)
for achieving the FCC reportable incidents criteria or
(b) if a volume purchase commitment is not in effect,
increase its purchase or license of Supplier's Products, Licensed Materials and
Services for the following year by twenty million dollars ($20,000,000) for
achieving the on-time delivery criteria and ten million dollars ($10,000,000)
for achieving the FCC reportable incidents criteria. A public relations program
will be jointly developed and executed in support of this award program.
5.3 INSURANCE. Supplier shall maintain and cause Supplier's
subcontractors to maintain during the term of this Agreement: (a) Workers'
Compensation insurance as prescribed by the law of the state or nation in which
the work is performed, (b) employer's liability insurance with limits of at
least three hundred thousand dollars ($300,000) for each occurrence; (c)
comprehensive automobile liability insurance if the use of motor vehicles is
required, with limits of at least one million dollars ($1,000,000) combined
single limit for bodily injury and property damage for each occurrence, (d)
Comprehensive General Liability ("CGL") insurance, including Blanket Contractual
Liability and Broad Form Property damage, with limits of at least
<PAGE> 34
one million dollars ($1,000,000) combined single limit for personal injury and
property damage for each occurrence; and (e) if the furnishing to Ordering
Company (by sale or otherwise) of Products or material is involved, CGL
insurance endorsed to include products liability and completed operations
coverage in the amount of five million dollars ($5,000,000) for each occurrence.
If specifically requested by Ordering Company, Supplier's subcontractors shall
furnish, prior to the start of work, certificates or adequate proof of the
foregoing insurance, including copies of the endorsements and insurance
policies. Supplier's obligations to maintain insurance may be satisfied by
providing proof of self-insurance in a form satisfactory to Company.
ARTICLE VA
ARBITRATION; DISPUTE RESOLUTION
5A.1 AGREEMENT TO ARBITRATE. The procedures for discussion,
negotiation and arbitration set forth in this Article 5A shall apply to all
disputes, controversies or claims (whether sounding in contract, tort or
otherwise) that may arise out of or related to, or arise under or in connection
with this Agreement or any Supplemental Agreement, or the transactions
contemplated hereby or thereby (including all actions taken in furtherance of
the transactions contemplated hereby or thereby on or prior to the date hereof),
or the commercial or economic relationship of the parties relating hereto,
between the parties. Each party agrees that the procedures set forth in this
Article 5A shall be the sole and exclusive remedy in connection with any
dispute, controversy or claim relating to any of the foregoing matters and
irrevocably waives any right to commence any Action in or before any
Governmental Authority except as expressly provided in Section 5A.7(b), CERTAIN
ADDITIONAL MATTERS, and 5A.8, LIMITED COURT ACTIONS, below and except to the
extent provided under the Arbitration Act in the case of judicial review of
arbitration results or awards. Each party on behalf of itself irrevocably waives
any right to any trial by jury with respect to any such claim, controversy, or
dispute.
<PAGE> 35
5A.2 ESCALATION. (a) It is the intent of the parties to use
their respective reasonable best efforts to resolve expeditiously any dispute,
controversy or claim between or among them with respect to the matters covered
hereby that may arise from time to time on a mutually acceptable negotiated
basis. In furtherance of the foregoing, any party involved in a dispute,
controversy or claim may deliver a notice (an "Escalation Notice") demanding an
in person meeting involving representatives of the parties at a senior level of
management of the parties (or if the parties agree, of the appropriate strategic
business unit or division within such entity). A copy of any such Escalation
Notice shall be given to the General Counsel, or like officer or official, of
each party involved in the dispute, controversy or claim (which copy shall state
that it is an Escalation Notice pursuant to this Agreement). Any agenda,
location or procedures for such discussions or negotiations between the parties
may be established by the parties from time to time; provided, however, that the
parties shall use their reasonable best efforts to meet within thirty (30) days
of the Escalation Notice.
(b) The parties may, by mutual consent, retain a mediator to
aid the parties in their discussions and negotiations by informally providing
advice to the parties. Any opinion expressed by the mediator shall be strictly
advisory and shall not be binding on the parties, nor shall any opinion
expressed by the mediator be admissible in any arbitration proceedings. The
mediator may be chosen from a list of mediators previously selected by the
parties or by other agreement of the parties. Costs of the mediation shall be
borne equally by the parties involved in the matter, except that each party
shall be responsible for its own expenses. Mediation is not a prerequisite to a
demand for arbitration under Section 5A.3, DEMAND FOR ARBITRATION.
5A.3. DEMAND FOR ARBITRATION. (a) At any time after the first
to occur of (i) the date of the meeting actually held pursuant to the applicable
Escalation Notice or (ii) forty five (45) days after the delivery of an
Escalation Notice (as applicable, the "Arbitration Demand Date"), any party
involved in the dispute, controversy or claim (regardless of whether such party
delivered the Escalation Notice) may, unless the applicable deadline has
occurred, make a written demand (the "Arbitration Demand Notice") that the
dispute be resolved by binding arbitration, which Arbitration Demand Notice
shall be given in the manner set forth in Section 6.3, NOTICES. In the event
that any party shall deliver an Arbitration Demand Notice to another party, such
other party may itself deliver an Arbitration Demand Notice to such first party
with respect to any related dispute, controversy or claim with respect to which
the applicable deadline has not passed without the requirement of delivering an
Escalation Notice. No party may assert that the failure to resolve any matter
during any discussions or negotiation, the course of conduct during the
discussions or negotiations or the failure to agree on a mutually acceptable
time, agenda, location or procedures for the meeting, in each case, as
contemplated by Section 5A.2, ESCALATION, is prerequisite to a demand for
arbitration under this Section 5A.3. In the event that any party delivers an
Arbitration Demand Notice with respect to any dispute, controversy or claim that
is the subject of any then pending arbitration proceeding or of a previously
delivered Arbitration Demand Notice, all such disputes, controversies and claims
shall be resolved in the arbitration proceeding for which an Arbitration Demand
Notice was first delivered unless the
<PAGE> 36
arbitrator in his or her sole discretion determines that it is impracticable or
otherwise inadvisable to do so.
(b) Any Arbitration Demand Notice may be given until one year
and forty five (45) days after the later of the occurrence of the act or event
in the exercise of reasonable due diligence giving rise to the underlying claim
or the date on which such act or event was, or should have been, discovered by
the party asserting the claim (as applicable, and as it may in a particular case
be specifically extended by the parties in writing, the "Applicable Deadline").
Any discussions, negotiations or mediations between the parties pursuant to this
Agreement or otherwise will not toll the Applicable Deadline unless expressly
agreed in writing by the parties. Each of the parties agrees that if an
Arbitration Demand Notice with respect to a dispute, controversy or claim is not
given prior to the expiration of the Applicable Deadline, as between or among
the parties, such dispute, controversy or claim will be barred. Subject to
Section 5A.7 (d), CERTAIN ADDITIONAL MATTERS, and 5A.8, LIMITED COURT ACTIONS,
upon delivery of an Arbitration Demand Notice pursuant to Section 5A.3 (b) ,
DEMAND FOR ARBITRATION, prior to the Applicable Deadline, the dispute,
controversy or claim shall be decided by a sole arbitrator in accordance with
the rules set forth in this Article 5A.
5A.4. ARBITRATORS. (a) Within fifteen (15) days after a valid
Arbitration Demand Notice is given, the parties involved in the dispute,
controversy or claim referenced therein shall attempt to select a sole
arbitrator satisfactory to all such parties.
(b) In the event that such parties are not able to jointly
select a sole arbitrator within such fifteen (15) day period, such parties shall
each appoint an arbitrator (who need not be disinterested as to the parties or
the matter) within thirty (30) days after delivery of the Arbitration Demand
Notice. If one party appoints an arbitrator within such time period and the
other party or parties fail to appoint an arbitrator within such time period,
the arbitrator appointed by the one party shall be the sole arbitrator of the
matter.
(c) In the event that a sole arbitrator is not selected
pursuant to paragraph (a) or (b) above and, instead, two (2) or three (3)
arbitrators are selected pursuant to paragraph (b) above, the two or three
arbitrators will, within thirty (30) days after the appointment of the later of
them to be appointed, select an additional arbitrator who shall act as the sole
arbitrator of the dispute. After selection of such sole arbitrator, the initial
arbitrators shall have no further role with respect to the dispute. In the event
that the arbitrators so appointed do not, within thirty (30) days after the
appointment of the later of them to be appointed, agree on the selection of the
sole arbitrator, any party involved in such dispute may apply to CPR, New York,
New York, to select the sole arbitrator, which selection shall be made by such
organization within thirty (30) days after such application. Any arbitrator
selected pursuant to this paragraph (c) shall be disinterested with respect to
any of the parties and the matter and shall be reasonably competent in the
applicable subject matter.
(d) The sole arbitrator selected pursuant to paragraph (a),
(b) or (c) above will set a time for the hearing of the matter which will
commence no later than ninety (90) days after the
<PAGE> 37
date of appointment of the sole arbitrator pursuant to paragraph (a), (b) or (c)
above, and which hearing will be no longer than thirty (30) days (unless in the
judgment of the arbitrator the matter is unusually complex and sophisticated and
thereby requires a longer time, in which event such hearing shall be no longer
than ninety (90) days). The final decision of such arbitrator will be rendered
in writing to the parties not later than sixty (60) days after the last hearing
date, unless otherwise agreed by the parties in writing.
(e) The place of any arbitration hereunder will be New Jersey,
unless otherwise agreed by the parties.
5A.5 HEARINGS. Within the time period specified in Section
5A.4 (d), ARBITRATORS, the matter shall be presented to the arbitrator at a
hearing by means of written submissions of memoranda and verified witness
statements, filed simultaneously, and responses, if necessary in the judgment of
the arbitrator or both parties. If the arbitrator deems it to be essential to a
fair resolution of the dispute, live cross-examination or direct examination may
be permitted, but is not generally contemplated to be necessary. The arbitrator
shall actively manage the arbitration with a view to achieving a just, speedy
and cost-effective resolution of the dispute, claim or controversy. The
arbitrator may, in his discretion, set time and other limits on the presentation
of each party's case, its memoranda or other submissions, and refuse to receive
any proffered evidence, which the arbitrator, in his discretion, finds to be
cumulative, unnecessary, irrelevant or of low probative nature. Except as
otherwise set forth herein, any arbitration hereunder will be conducted in
accordance with the CPR Rules for Non-Administered Arbitration of Business
Disputes (except that the fee schedule of the CPR will not apply). Except as
expressly set forth in Section 5A.8(b), LIMITED COURT ACTIONS, the decision of
the arbitrator will be final and binding on the parties, and judgment therein
may be had and will be enforceable in any court having jurisdiction over the
parties. Arbitration awards will bear interest at an annual rate of the Prime
Rate Plus two percent (2%) per annum. To the extent that the provisions of this
Agreement and the prevailing rules of the CPR conflict, the provisions of this
Agreement shall govern.
5A.6 DISCOVERY AND CERTAIN OTHER MATTERS. (a) Any party
involved in the applicable dispute may request limited document production from
the other party or parties of specific and expressly relevant documents, with
the reasonable expenses of the producing party incurred in such production paid
by the requesting party. Any such discovery (which rights to documents shall be
substantially less than document discovery rights prevailing under the Federal
Rules of Civil Procedure) shall be conducted expeditiously and shall not cause
the hearing provided for in Section 5A.5, HEARINGS, to be adjourned except upon
consent of all parties involved in the applicable dispute or upon an
extraordinary showing of cause demonstrating that such adjournment is necessary
to permit discovery essential to a party to the proceeding. Depositions,
interrogatories or other forms of discovery (other than the document production
set forth above) shall not occur except with the consent of the parties involved
in the applicable dispute. Disputes concerning the scope of document production
and enforcement of the document production requests will be determined by
written agreement of the parties
<PAGE> 38
involved in the applicable dispute or, failing such agreement, will be referred
to the arbitrator for resolution. All discovery requests will be subject to the
parties' rights to claim any applicable privilege. The arbitrator will adopt
procedures to protect such rights and to maintain the confidential treatment of
the arbitration proceedings (except as may be required by law). Subject to the
foregoing, the arbitrator shall have the power to issue subpoenas to compel the
production of documents relevant to the dispute, controversy or claim.
(b) Except where contrary to the provisions set forth in this
Agreement or any Supplemental Agreement, the rules of the CPR for commercial
arbitration will be applied to all matters of procedure, including discovery.
The arbitrator shall have full power and authority to determine issues of
arbitrability but shall otherwise be limited to interpreting or continuing the
applicable provisions of this Agreement and will have no authority or power to
limit, expand, alter, amend, modify, revoke or suspend any condition or
provision of the Agreement; it being understood, however, the arbitrator will
have full authority to implement the provisions of this Agreement, and to
fashion appropriate remedies for breaches of this Agreement (including, other
than in the case of disputes, controversies or claims relating to, arising out
of or resulting from Patents (as such term is defined in the Patent License
Agreement), interim or permanent injunctive relief); provided that the
arbitrator shall not have (i) any authority in excess of the authority a court
having jurisdiction over the parties and the controversy or dispute would have
absent these arbitration provisions or (ii) any right or power to award punitive
damages. It is the intention of the parties that in rendering a decision, the
arbitrator give effect to the applicable provisions of this agreement and follow
applicable law (it being understood and agreed that this sentence shall not give
rise to a right of judicial review of the arbitrator's award).
(c) If a party fails or refuses to appear at and participate
in an arbitration hearing after due notice, the arbitrator may hear and
determine the controversy upon evidence produced by the appearing party.
(d) Arbitration costs will be borne equally by each party
involved in the matter, except that each party will be responsible for its own
attorneys fees and other costs, expenses, including the costs of witnesses
selected by such party.
5A.7. CERTAIN ADDITIONAL MATTERS. (a) Any arbitration award
shall be a bare award limited to a holding for or against a party and shall be
without findings as to facts, issues or conclusions of law (including with
respect to any matters relating to the validity or infringement of Patents) and
shall be without a statement of the reasoning on which the award rests, but must
be in adequate form so that a judgment of a court may be entered thereupon.
Judgment upon any arbitration award hereunder may be entered in any court having
jurisdiction thereof.
(b) Prior to the time at which an arbitrator is appointed
pursuant to Section 5A.4(c), ARBITRATORS, any party may seek one or more
temporary restraining orders in a
<PAGE> 39
court of competent jurisdiction if necessary in order to preserve and protect
the status quo. Neither the request for, nor grant or denial of, any such
temporary restraining order shall be deemed a waiver of the obligation to
arbitrate as set forth herein and the arbitrator may dissolve, continue or
modify any such order. Any such temporary restraining order shall remain in
effect until the first to occur of the expiration of the order in accordance
with its terms or the dissolution thereof by the arbitrator.
(c) Except as required by law, the parties shall hold, and
shall cause their respective officers, directors, employees, agents and other
representatives to hold, the existence, content and result of mediation or
arbitration in confidence in accordance with the provisions of Section 6.2 and
except as may be required in order to enforce any award. Each of the parties
shall request that any mediator or arbitrator comply with such confidentiality
requirement.
(d) In the event that at any time the sole arbitrator shall
fail to serve as an arbitrator for any reason, the parties shall select a new
arbitrator who shall be disinterested as to the parties and the matter in
accordance with the procedures set forth herein for the selection of the initial
arbitrator. The extent, if any, to which testimony previously given shall be
repeated or as to which the replacement arbitrator elects to rely on the
stenographic record (if there is one) of such testimony shall be determined by
the replacement arbitrator.
5A.8 LIMITED COURT ACTIONS. (a) Notwithstanding anything
herein to the contrary, in the event that any party reasonably determines the
amount of controversy in any dispute, controversy or claim (or any series of
related disputes, controversies or claims) under this Agreement is, or is
reasonably likely to be, in excess of one hundred million dollars ($100,000,000)
and if such party desires to commence an Action in lieu of complying with the
arbitration provisions of this Article, such party shall so state in its
Arbitration Demand Notice or by notice given to the other parties within twenty
(20) days after receipt of an Arbitration Demand Notice with respect thereto. If
the other parties to the arbitration do not agree that the amount in controversy
in such dispute, controversy or claim (or such series of related disputes,
controversies or claims) is, or is reasonably likely to be, in excess of one
hundred million dollars ($100,000,000), the arbitrator selected pursuant to
Section 5A.4, ARBITRATORS, hereof shall decide whether the amount in
controversies or claims) is, or is reasonably likely to be, in excess of one
hundred million dollars ($100,000,000). The arbitrator shall set a date that is
no later than ten (10) days after the date of his appointment for submissions by
the parties with respect to such issue. There shall not be any discovery in
connection with such issue. The arbitrator shall render his decision on such
issue within five (5) days of such date so set by the arbitrator. In the event
that the arbitrator determines that the amount in controversy in such dispute,
controversy or claim (or such series of related disputes, controversies or
claims) is, or is reasonably likely to be, in excess of one hundred million
dollars ($100,000,000), the provisions of Sections 5A.4(d), and (e),
ARBITRATORS, 5A.5, HEARINGS, 5A.6, DISCOVERY AND CERTAIN OTHER MATTERS, 5A.7,
CERTAIN ADDITIONAL MATTERS, and 5A.10, LAW GOVERNING ARBITRATION PROCEDURES,
hereof shall not apply and on or before (but, except as expressly set forth in
Section 5A.8(b), not after) the tenth (10th) business day after the date of
<PAGE> 40
such decision, any party to the arbitration may commence an Action with respect
to such dispute, controversy or claim (or such series of related disputes,
controversies or claims) in any court of competent jurisdiction. If the
arbitrator does not so determine, the provisions of this Article (including with
respect to time periods) shall apply as if no determinations were sought or made
pursuant to this Section 5A.8.
(b) In the event that an arbitration award in excess of one
hundred million dollars ($100,000,000.) is issued in any arbitration proceeding
commenced hereunder, any party may, within sixty (60) days after the date of
such award, submit the dispute, controversy or claim (or series of related
disputes, controversies or claims) giving rise thereto a court of competent
jurisdiction, regardless of whether such party or any other party sought to
commence an action in lieu of proceeding with arbitration in accordance with
Section 5A.8(a). In such event, the applicable court may, if it determines that
it would be advisable in connection with the matter, allow the parties to seek
additional discovery or to present additional evidence. Each party shall be
entitled to present arguments to the court with respect to whether any such
additional discovery or evidence shall be permitted and with respect to all
other matters relating to the applicable dispute, controversy or claim (or
series of related disputes, controversies or claims).
(c) No party shall raise as a defense the statute of
limitations if the applicable Arbitration Demand Notice was delivered on or
prior to the Applicable Deadline and, if applicable, the matter is submitted to
a court of competent jurisdiction within the sixty (60) day period specified in
Section 5A.8(b).
5A.9. CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise
agreed in writing, the parties will continue to provide service and honor all
other commitments under this Agreement during the course of dispute resolution
pursuant to the provisions of this Article 5A with respect to all matters not
subject to such dispute, controversy or claim.
5A.10. LAW GOVERNING ARBITRATION PROCEDURES. The
interpretation of the provisions of this Article 5A, only insofar as they relate
to the agreement to arbitrate and any procedures pursuant thereto shall be
governed by the Arbitration Act and other applicable federal law. In all other
respects, the interpretation of this Agreement shall be governed as set forth in
Section 6.19, GOVERNING LAW.
ARTICLE VI
MISCELLANEOUS
6.1 EXPORT CONTROL. The parties acknowledge that Products,
Licensed Materials and Information (including, but not limited to, Services and
training) provided under this Agreement are subject to U.S. export laws and
regulations, and any use or transfer of such Products and Information must be
authorized under those regulations. AT&T agrees that it will not use,
distribute, transfer, or transmit the Products, Licensed Materials or
Information (even if incorporated into other products) in violation of U.S.
export regulations. If requested by Supplier, AT&T shall sign written assurances
and other export-related documents as may be
<PAGE> 41
required for Supplier to comply with U.S. export regulations. This Section does
not grant AT&T any contractual right to Export Supplier's Products and Licensed
Materials. Such right shall only be granted expressly in an applicable
Supplemental Agreement.
6.2 PUBLICATION OF AGREEMENT. The parties shall treat the
provisions of this Agreement and any Supplemental Agreement or any Order
submitted hereunder as Information subject to the restrictions on use and
disclosure set forth in Section 4.1, USE OF INFORMATION, except as reasonably
necessary for performance hereunder (including enforcement of Supplier's
obligations under the Pricing Agreement and AT&T's obligations under Exhibit 1
thereto) and except to the extent disclosure may be required by applicable laws
or regulations, in which latter case, the party required to make such disclosure
shall promptly inform the other prior to such disclosure in sufficient time to
enable such other party to make known any objections it may have to such
disclosure. The party required to disclose information concerning this
Agreement, a Supplemental Agreement or Order to a third party in accordance with
the previous sentence shall take all reasonable steps to secure a protective
order or otherwise assure that the Agreement, Supplemental Agreement or Order
will be withheld from the public record.
6.3 NOTICES. All notices under this Agreement shall be in
writing (except where otherwise stated) by confirmed, facsimile, electronic mail
or similar communication, or by certified or registered mail. Within ten (10)
days following the Effective Date, the parties will exchange the names and
addresses to whom the notices should be sent. A notice shall be deemed to have
been given, if by electronic mail, facsimile or similar communication, on the
date it is sent, and, if by certified or registered mail, on the date it is
deposited postage prepaid. Communications may be made orally between the parties
when the nature of the communication does not require written notice. In the
event of a change of address, written notice of such change shall be given
promptly to the other party.
6.4 ORDERING COMPANY'S RESPONSIBILITY. (a) Ordering Company
shall, at no charge to Supplier, provide Supplier with notice of site conditions
known to Ordering Company and such electrical and environmental conditions,
technical information, data, technical support or assistance as may reasonably
be required by Supplier to fulfill its obligations under this Agreement, any
Supplemental Agreement or Order. If Ordering Company fails to provide the
required conditions, technical information, data, support or assistance,
Supplier shall be discharged from its obligations to perform hereunder for that
Order. Where Services are to be performed by Supplier in buildings owned or
controlled by Ordering Company, Ordering Company shall be responsible for
ensuring that the premises where the work is to be performed by Supplier are
accessible to Supplier and ready and suitable for the Services to be performed
in accordance with Supplier's reasonable site-preparation conditions
communicated in advance to Ordering Company. Such conditions include, but are
not limited to, (a) site readiness and (b) access to adequate storage space for
tools and other small items necessary for the work, working space, personal
facilities, heat, light, ventilation, telephone, electrical current, and
outlets, all provided within a reasonable distance of the area where the work is
to be performed, if available.
<PAGE> 42
(b) Supplier's representative shall have the right to inspect
the site prior to Service Start Date. If Ordering Company or its other vendors
or contractors fail to timely complete site readiness or if the work of Ordering
Company or its other vendors or contractors interferes with Supplier's
performance, the applicable Completion Date shall be extended as necessary to
compensate for such delay or interference and additional charges shall be
invoiced to recover the additional expenses incurred by Supplier as a result of
such failure or interference. Moreover, should Ordering Company fail to comply
with the reasonable site-preparation conditions after Supplier provides Ordering
Company notice, Supplier may perform such work or furnish such items and charge
Ordering Company for them in addition to the prices otherwise charged by
Supplier for such Services.
6.5 SUPPLIER'S RESPONSIBILITY. (a) Supplier shall become
acquainted with conditions governing the delivery, receipt and storage of
materials at the site of the work so that Supplier will not interfere with
Ordering Company's operations. For items other than those identified in Section
6.4, ORDERING COMPANY'S RESPONSIBILITY, above, storage space will not
necessarily be provided adjacent to the site of the work. Therefore, Supplier
shall be expected to select, uncrate, remove and transport materials from the
storage areas provided. Except to the extent that Supplier's property located on
Ordering Company's property is damaged or misappropriated by employees,
contractors or representatives of Ordering Company, Ordering Company is not
responsible for the safekeeping of such property. When Supplier's property
located on Ordering Company's property is damaged or misappropriated by
employees, contractors, or representatives of Ordering Company, Ordering Company
shall be liable to Supplier for such damage or misappropriation. Supplier shall
not stop, delay or interfere with Ordering Company's work schedule without the
prior approval of Ordering Company. Supplier shall provide and maintain
sufficient covering and take any other precautions necessary to protect Ordering
Company's stock, equipment and other property from damage due to Supplier's
performance of the work.
(b) Supplier recognizes that the continuity of Ordering
Company's telecommunications services is of paramount importance to Ordering
Company, and Supplier shall at all times exercise reasonable care to prevent
damage to Company's plant and shall not use any equipment or methods which
Ordering Company has informed Supplier, either in writing or through oral
directives at the work site, might endanger or interfere with its service.
6.6 EACH PARTY'S RESPONSIBILITY. Each party shall be entirely
responsible for all persons that it furnishes working in harmony with all others
when working on the other party's premises or those of Ordering Company's
customers. Services performed by either party or its other vendors or
contractors shall not interfere with the other party's performance of services.
6.7 ASSURANCE OF SUPPLY. (a) AT&T and Supplier will jointly
conduct regularly scheduled Life Cycle Management reviews for the purpose of
sharing information concerning current and future Product and support
requirements in order to permit both parties to make informed decisions
concerning such matters. AT&T's priority is to assure the ongoing
<PAGE> 43
growth and service capabilities of the network are satisfied. In order to ensure
the long term viability of the network, AT&T will have the option to request
sustained manufacturing service for all Products and components that are used in
the network.
(b) Supplier must provide written notification to AT&T
eighteen (18) months in advance of Supplier's intended date of DA of any Product
used in Ordering Company's network, or to substitute or replace such Product if
Form, Fit or Function is affected. Supplier will provide nine (9) months written
notice with regard to BCS Products not used in Order Company's network. If
Supplier's vendor terminates production of a Product and/or component of a
Product, Supplier will use reasonable efforts to provide the Products or
components or secure sources for such Products or components; provided however,
that Supplier reserves the right to provide a shorter notice in the event
suppliers of a Product or critical component terminates production or
maintenance of such items and no other sources for such items can be secured.
Within six (6) months of notification of DA, AT&T will provide written
notification to Supplier that it concurs with Supplier's decision or that it
intends to negotiate the terms, conditions and prices under which availability
shall be extended, provided that such Product and/or its components are
available to Supplier. Unless otherwise agreed to, the framework for that
agreement is that Supplier will be entitled to recover its costs of providing
continued availability, plus a reasonable profit. Software DA is governed by
Section 9.20, NOTIFICATION OF DISCONTINUED AVAILABILITY OF SOFTWARE.
6.8 PUBLICITY. Each party shall submit to the other a proposed
copy of all advertising wherein the name, trademark, code, Specification or
service mark of the other party or its Affiliates is mentioned. Neither party
shall publish or use such advertising without the other's prior written
approval, which consent shall not be unreasonably withheld or delayed.
6.9 RIGHT OF ACCESS/PERMITS AND APPROVALS. Each party shall
have the right to enter the premises of the other party during normal business
hours with respect to the performance of this Agreement, subject to all plant
rules and regulations, security regulations and procedures and U.S. Government
clearance requirements if applicable. No charge shall be made for such access.
Reasonable prior notification shall be given when access is required. Ordering
Company shall have the responsibility for obtaining all state, local and federal
approvals and permits prior to the commencement of the work. Any limitation of
or delay in providing timely access may result in a change of Supplier's
schedule for performing its obligations hereunder and additional charges to
recover additional expenses incurred by Supplier as a result of such limitations
or delays.
6.10 FORCE MAJEURE. Neither party shall be held responsible
for any delay or failure in performance to the extent that such delay or failure
is caused by a Force Majeure; provided, however, that Ordering Company shall not
be relieved by reason of such cause of its obligation to make payments to
Supplier. If any Force Majeure condition occurs, the party delayed or unable to
perform shall give prompt notice to the other party, stating the nature of the
Force Majeure condition and any action being taken to avoid or minimize its
effect. The party affected by the other's delay or inability to perform
(hereinafter the "Affected Party") may elect
<PAGE> 44
to: (a) suspend the applicable Supplemental Agreement or Order for the duration
of the Force Majeure condition and (i) only to the extent reasonably necessary
to maintain the normal operation of the Affected Party's business, buy, sell,
obtain or furnish elsewhere the Product, Licensed Material or Services to be
bought, sold, obtained or furnished thereunder (unless such sale or furnishing
is prohibited under this Agreement, a Supplemental Agreement or an Order, in
which event an Ordering Company experiencing a Force Majeure condition shall
bear Supplier's reasonable costs (including inventory costs) incurred awaiting
cessation of the Force Majeure condition) and, at the option of the Affected
Party, deduct from any commitment the quantity bought, sold, obtained or
furnished or for which commitments have been made elsewhere and (ii) once the
Force Majeure condition ceases, resume performance under the applicable
Supplemental Agreement or Order with an option in the Affected Party to extend
the period of such Supplemental Agreement or Order up to the length of time the
Force Majeure condition endured and/or (b) when the delay or nonperformance
continues for a period of at least thirty (30) days, terminate, at no charge and
without any liability, the applicable Supplemental Agreement or Order or the
part of it relating to Products or Licensed Material not already shipped, or
Services not already performed. Unless written notice is given within forty-five
(45) days after the Affected Party is notified of the Force Majeure condition,
option (a) shall be deemed selected. Nothing contained herein or elsewhere shall
impose any obligation on either party to settle any labor difficulty.
6.11 INDEPENDENT CONTRACTOR. All work performed by Supplier,
AT&T or an Ordering Company under this Agreement shall be performed as an
independent contractor and not as an agent of the other, and no persons
furnished by the performing party shall be considered the employees or agents of
the other. Each party is wholly responsible for withholding and payment of all
federal, state, and local income and other payroll taxes with respect to its
employees, including contributions from them as required by law.
6.12 RELEASES VOID. Neither party shall require releases or
waivers of any personal rights from representatives or employees of the other in
connection with visits to its premises, nor shall such parties plead such
releases or waivers in any action or proceeding.
6.13 SURVIVAL OF OBLIGATIONS. The rights and obligations of
the parties which by their nature would continue beyond the termination,
cancellation, or expiration of this Agreement, including, but not limited to
COMPLIANCE WITH LAW, TRADEMARKS, INFRINGEMENT AND MISAPPROPRIATION, INSURANCE,
RELEASES VOID, USE OF INFORMATION, CONTINUING PRODUCT SUPPORT - PARTS AND
SERVICE, PRODUCT WARRANTY, SOFTWARE WARRANTY, WARRANTY FOR SERVICES OTHER THAN
MAINTENANCE, MAINTENANCE SERVICE WARRANTY and WARRANTY, shall survive such
termination, cancellation or expiration.
6.14 GOVERNMENT CONTRACT PROVISIONS. Ordering Company shall
identify in a request for proposed Supplemental Agreement if a Product, Licensed
Material or Service to be provided by Supplier is intended for use under a
government contract and if government contract flowdown provisions shall apply
to such procurement, with identification of such flowdown
<PAGE> 45
provisions. In such a case, Supplier will advise AT&T if it will submit a
proposal, bid or accept an Order on such basis and, if so, it will address its
acceptance or compliance with the flowdown terms and conditions in its proposal,
bid or Supplemental Agreement. Orders placed in accordance with such proposal,
bid or Supplemental Agreement will be subject to the identified government
contract provisions as negotiated. If an Order or Supplemental Agreement fails
to specify the inclusion of government flowdown clauses or is issued by AT&T
without the prior identification of government contract use or flowdown clauses
as provided above, Supplier shall have the right to terminate such Order or
Supplemental Agreement and collect from Ordering Company charges for expenses
incurred until the effective date of such termination.
6.15 QUALITY SYSTEM AUDIT. (a) Supplier shall maintain a
compliant quality system that is subject to third party quality system audit
that shall include the following elements:
(i) Management Responsibility
(ii) Quality System Principles
(iii) Quality in Marketing
(iv) Quality in Specification/Design
(v) Quality in Procurement
(vi) Quality in Production
(vii) Control of Production
(viii) Product Verification
(ix) Control of Measuring and Test Equipment
(x) Non-conformity
(xi) Corrective Action
(xii) Handling and Post-production
(xiii) Quality Documentation and Records
(xiv) Use of Statistical Methods
(b) Such an audit shall assess the effectiveness and
documentation of the various elements that comprise a functioning quality
system. Supplier agrees that any deficiencies discovered in Supplier's quality
system as a result of the audit(s) shall be remedied by Supplier at Supplier's
expense.
6.16 ISO 9000. Supplier will undertake all reasonable actions
to become ISO 9000 registered. Certain vintage Products are exempt from this
Section. Such registration must be made by a third party registrar(s) accredited
in the following countries: United States or such other country as may be
designated in writing by AT&T or an Ordering Company.
6.17 UTILIZATION OF MINORITY AND WOMEN-OWNED BUSINESS
ENTERPRISES. It is AT&T's policy that minority and women-owned business
enterprises ("MWBE's) as defined in Exhibit 6-1 shall have the maximum
practicable opportunity to participate in the performance of contracts. Supplier
agrees to use its good faith efforts to utilize MWBE's to carry out this policy
to the fullest extent consistent with the efficient performance of its business
and this
<PAGE> 46
Agreement. In addition to these general conditions for MWBE support, provided
that Ordering Company will work with Supplier to seek out MWBE's and works with
Supplier in the development of opportunities for the use of MWBE's, Supplier
agrees to (a) work with Ordering Company to develop opportunities for the
utilization of MWBE's for first tier procurement of Supplier's Products,
Licensed Materials and Services by Ordering Company, (b) use its good faith
efforts to utilize MWBE's in support of this Agreement and strive to achieve the
portion of total expenditures for all Products, Licensed Materials and Services
purchased from Supplier equal to 5% of the value of Ordering Companies'
purchases of Products, Licensed Materials and Services from Supplier in 1996,
and strive to increase such percentage by 10% each of the following years of
this Agreement and (c) support Ordering Companies' state and regional goals for
MWBE and service-disabled veterans spending in California and other
states/regions as may be defined in the future. Supplier agrees to conduct a
program which will enable MWBE's to be considered fairly as subcontractors and
suppliers under this Agreement. Supplier shall submit to AT&T periodic reports
of work with known MWBE's in the form of Exhibit 6-1 in such manner and at such
time (not more than quarterly) as AT&T's representative may prescribe. Such
periodic reports shall state separately for MBE's and WBE's the subcontracted
work which is attributable to Ordering Companies. In instances where direct
correlation cannot be determined, such MWBE payments may be established by
Supplier comparing Ordering Company's payments to Supplier, in that period, to
total payments to Supplier from all of its customers, in that period, and then
arriving at Ordering Company's apportionment of such MWBE payments. Nothing in
this clause shall affect or diminish Supplier's obligations as set forth in the
assignment and subcontracting provisions.
6.18 ASSIGNABILITY. Except as provided in this clause, neither
party shall assign this Agreement or any right or interest under this Agreement,
nor delegate any work or obligation to be performed under this Agreement (an
"assignment") without the other party's prior written consent. Any attempted
assignment in contravention of this clause shall be void and ineffective.
Nothing shall preclude a party from employing a subcontractor in carrying out
its obligations under this Agreement; provided, however, that if Supplier uses a
subcontractor to perform a material service or obligation under this Agreement,
such use will be subject to AT&T's written consent. Supplier's use of such
subcontractor shall not release Supplier from its obligations under this
Agreement. Notwithstanding the foregoing, Supplier shall have the right to
assign this Agreement and to assign its rights under this Agreement, in whole or
in part, to any present or future Affiliate or to any entity which purchases
from Supplier the operating asset(s) utilized by Supplier to fulfill its
obligations hereunder, subject to AT&T's written consent, which consent shall
not be unreasonably withheld; provided, however, that in any such event Supplier
shall not be released from its obligations hereunder and shall indemnify, defend
and hold harmless each Ordering Company for all losses or damages arising in
connection therewith, including from any breach of this Agreement by such
assignee. The notice of assignment shall state the effective date thereof.
Following the effective date and to the extent of the assignment, Supplier shall
not be released from obligations. For purposes of this clause, the "Agreement"
includes this Agreement, each Supplemental Agreement, each Order and any other
subordinate agreement placed under this Agreement.
<PAGE> 47
6.19 GOVERNING LAW. Except as set forth in Section 5A.10, LAW
GOVERNING ARBITRATION PROCEDURES, this Agreement and, unless expressly provided
therein, each Supplemental Agreement, shall be governed by and construed and
interpreted in accordance with the laws of the State of New Jersey, irrespective
of the choice of laws principles of the State of New Jersey, as to all matter,
including matters of validity, construction, effect, performance and remedies.
6.20 COMPLIANCE WITH LAW. Each party shall comply at its own
expense with applicable laws, ordinances, regulations, codes, rules, guidelines,
orders, permits and approvals of any governmental body, including, but not
limited to, those relating to the environment, health, and safety. Each Party
agrees to indemnify, defend (at the other party's request) and save harmless the
other party, its Affiliates, its and their customers and each of their officers,
directors and employees from and against any losses, damages, claims, demands,
suits, liabilities, fines, penalties and expenses (including reasonable
attorney's fees) that arise out of or result from (i) failure to do so or (ii)
activity, duty or status of such party that triggers any obligation to
investigate or remediate environmental contamination.
6.21 RECORD RETENTION. Ordering Company agrees to keep true
and accurate records with regard to its use of Supplier's Licensed Material.
Supplier shall have the right to inspect such records at any reasonable time,
not more often than once each calendar year, upon reasonable notice in writing
to Ordering Company. Supplier shall bear the cost of such auditing.
6.22 NON-WAIVERS. The failure of either party at any time to
enforce any right or remedy available to it under this Agreement or otherwise
with respect to any breach or failure by the other party shall not be construed
to be a waiver of such right or remedy with respect to any other breach or
failure by the other party.
6.23 THIRD PARTY BENEFICIARIES. Except as otherwise provided
in Section 1A.7, PURCHASES BY AT&T'S AFFILIATES, of this Agreement or as
expressly provided in any Supplemental Agreement, the provisions of this
Agreement and each Supplemental Agreement are solely for the benefit of the
parties and are not intended to confer upon any person except the parties any
rights or remedies hereunder. There are no third party beneficiaries of this
Agreement or any Supplemental Agreement and neither this Agreement nor any
Supplemental Agreement shall provide any third person with any remedy, claim,
liability, reimbursement, claim of action or other right in excess of those
existing without reference to this Agreement or any Supplemental Agreement.
6.24 SEVERABILITY. If any provision of this Agreement or any
Supplemental Agreement or the application thereof to any person or circumstance
is determined by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions hereof or thereof, or the application of
such provision to persons or circumstances or in jurisdiction other than those
as to which it has been held invalid or unenforceable, shall remain in full
force and effect and shall in no way be affected, impaired or invalidated
thereby, so long as the economic
<PAGE> 48
or legal substance of the transactions contemplated hereby or thereby, as the
case may be, is not affected in any manner adverse to any party. Upon such
determination, the parties shall negotiate in good faith in an effort to agree
upon such a suitable and equitable provision to effect the original intent of
the parties.
6.25 HEADINGS. The article, section and paragraph headings
contained in this Agreement and in the Supplemental Agreements are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement or any Supplemental Agreement.
6.26 COUNTERPARTS. This Agreement and each Supplemental
Agreement may be executed in one or more counterparts, all of which shall be
considered one and the same agreement, and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other party.
6.27 AMENDMENTS. No provisions of this Agreement or any
Supplemental Agreement shall be deemed waived, amended, supplemented or modified
by any party, unless such waiver, amendment, supplement or modification is in
writing and signed by the authorized representative of the party against whom it
is sought to enforce such waiver, amendment, supplement or modification.
6.28 INTERPRETATION. Words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other genders as the context requires. The terms "hereof," "herein"
and "herewith" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement (or the applicable Supplemental Agreement)
as a whole (including all of the Schedules, Exhibits and Appendices hereto and
thereto) and not to any particular provision of this Agreement (or such
Supplemental Agreement). Article, Section, Exhibit, Schedule and Appendix
references are to the Articles, Sections, Exhibits, Schedules and Appendices to
this Agreement (or the applicable Supplemental Agreement) unless otherwise
specified. The word "including" and words of similar import when used in this
Agreement (or the applicable Supplemental Agreement) shall mean "including,
without limitation," unless the context otherwise requires or unless otherwise
specified. The word "or" shall not be exclusive.
6.29 ENTIRE AGREEMENT. The terms and conditions contained in
this General Purchase Agreement supersede all contemporaneous oral and all prior
oral or written quotations, communications, agreements and understandings
between the parties with respect to the subject matter hereof and constitute the
entire agreement between the parties with respect to such subject matter. The
preprinted terms and conditions on Ordering Company's purchase Orders and
Supplier's sales forms are deleted. The statements of Supplier's employees and
descriptions of Supplier's Products, Licensed Materials and Services do not
constitute warranties or other contractual obligations and shall not be relied
upon by any Ordering Company as such. Terms shall not be modified or amended
except by a writing signed by authorized representative of both parties.
<PAGE> 49
ARTICLE VII
PURPOSE AND ORGANIZATION OF PART II
7.1 PURPOSE AND SCOPE OF PART II. Part II sets forth the
specific additional terms and conditions pursuant to which Supplier shall
provide, and Ordering Company shall purchase or license, Supplier's Products,
Licensed Materials and Services that relate to the operation of
telecommunications network infrastructure. The terms and conditions of Ordering
Company's purchase and licensing of Products, Licensed Materials and Services
provided by Supplier's Global Business Communications Systems business unit are
set forth in Part III. A non-exclusive list of the specific Products, Licensed
Materials and Services is set forth in the Product Information Catalog
Extraction System ("PRICES") database. Supplier may at any time, and without
consent of Ordering Company, revise or otherwise amend that database solely to
add to it additional items offered by Supplier under Part II. Supplier shall
remove items from that database only in accordance with Section 6.7, ASSURANCE
OF SUPPLY. Failure of Supplier to list a Product or Service in that database
shall not preclude Supplier from providing such item pursuant to Part II.
7.2 ORGANIZATION OF PART II. Part II is organized as follows:
(a) Article 8 sets forth the additional terms and conditions
governing Supplier's provision of Products;
(b) Article 9 sets forth the additional terms and conditions
governing Supplier's licensing of Licensed Materials;
(c) Article 10 sets forth the additional terms and conditions
governing Supplier's provision of Engineering, Installation, Maintenance, and
other Miscellaneous Services;
(d) Article 11 sets forth the additional terms and conditions
governing Supplier's provision of Outside Plant Construction Services; and
(e) Article 12 sets forth the additional terms and conditions
governing Supplier's provision of Consulting Services.
ARTICLE VIII
PURCHASE OF PRODUCTS
8.1 GENERAL. The provisions of this Article 8 shall be
applicable to the purchase of Products from Supplier. If Software is also to be
licensed for use on a purchased Product, or if a Product is also to be
engineered or installed by Supplier, the provisions of Articles 9 and 10 shall
also be applicable.
<PAGE> 50
8.2 PRODUCT WARRANTY. (a) Supplier warrants to Ordering
Company only, that:
(i) As of the date title passes, Supplier will have
the right to sell, transfer, and assign such Products and the title
conveyed by Supplier shall be good and Products shall be delivered free
from any security interests or any other liens or encumbrances ;
(ii) Upon shipment or, if installed by Supplier upon
Acceptance, Supplier's Manufactured Products will be new (except if
manufactured discontinued, or with Ordering Company's approval), free
from defects in material, workmanship, and design (except to the extent
(A) designed, in whole or in part, by Ordering Company or persons
furnished by Ordering Company; or (B) such design defects are caused by
the presence in Supplier's Manufactured Product of substitute
components of Ordering Company's selection and not recommended by
Supplier), and will conform to Supplier's Specifications or any other
agreed-upon Specifications referenced in the Order for such Products;
and
(iii) With respect to Vendor Items, Supplier, to the
extent permitted, does hereby assign to Ordering Company the warranties
given to Supplier by its vendor of such Vendor Items. Such assignment
will be effective on the date of shipment of such Vendor Items. With
respect to Vendor Items recommended by Supplier in its Specifications
for which the Vendor's warranty cannot be assigned to Ordering Company,
or if assigned, less than sixty (60) days remain of the Vendor's
warranty at the time of assignment, Supplier warrants for sixty (60)
days from date of shipment or if installed by Supplier from Acceptance
that such Vendor's Items will be free from defects in material and
workmanship and will conform to Supplier's Specifications or any other
agreed-upon Specification referenced in the Order for such Products.
(iv) Neither inspection, Acceptance, nor payment
shall affect or reduce the term of any warranty.
(b) The Warranty Period for a Product is set forth in Exhibit
8-1. The Warranty Period for a Product or part thereof repaired under this
Warranty is the period indicated in Exhibit 8-1.
(c) If, under normal and proper use during the applicable
Warranty Period, a defect or nonconformity is identified in a Product furnished
by Supplier, Ordering Company shall notify Supplier in writing of such defect or
nonconformity promptly after Ordering Company discovers such defect or
nonconformity and follow Supplier's instructions regarding the return of
defective or nonconforming Product. With respect to a defect or nonconformity of
Products to Supplier's Specifications or any other agreed upon Specification
referenced in the Order for such Products, Supplier shall take the following
action promptly:
<PAGE> 51
(i) Within the first sixty (60) days after (aa)
installation completion of a Product, if Supplier has installed the
Product or (ab) delivery, if Supplier is not installing the Product, if
Ordering Company notifies Supplier of a defect or nonconformity of
Products to the Specifications, that does not appear to be curable
through repair or replacement within a reasonable time period, Ordering
Company will be entitled, at its option, to a refund of the Product's
purchase price and installation charges and the associated Licensed
Materials charges. Should Ordering Company seek such a refund, it will
provide Supplier such cooperation as necessary to enable Supplier to
remove the Product from Ordering Company's premises, if necessary. In
the event of such refund, Ordering Company may also return for credit
any other Products intended for use with the defective Product that
cannot be applied to another use by Ordering Company and may cancel,
without liability for cancellation charges, any pending Orders for such
Product.
(ii) After sixty (60) days from (aa) installation
completion of a Product, if Supplier has installed the Product or (ab)
delivery, if Supplier is not installing the Product, with respect to a
defect or nonconformity of Products to Supplier's Specifications,
Supplier shall take the following action promptly:
(A) Supplier, at its option, shall attempt
first to repair or replace such Product without charge or, if not
feasible, provide a refund or credit based on the original purchase
price, installation charges paid by Ordering Company if installed by
Supplier, and the associated Licensed Materials charges. Ordering
Company must return Product to Supplier for repair and replacement,
except as noted in Sections 8.2 (c) (ii) (B) and (C). In the event of
such refund, Ordering Company may also return for credit any other
Products intended for use with the defective Product that cannot be
applied to another use by Ordering Company and may cancel, without
liability for cancellation charges, any pending Orders for such
Product.
(B) Supplier, in the case of any service
affecting defect, shall either (1) repair such defect in the field
using best reasonable efforts to avoid any service interruption; or (2)
immediately replace the defective Product, Licensed Material, or
Service with a working replacement, at Supplier's expense, for the time
that it takes the original Product, Licensed Material, or Service to be
repaired. At Ordering Company's option, Ordering Company may elect to
retain the replacement Product, Licensed Material, or Service if
substitution of the original after repair could cause a further service
interruption. Where Supplier has elected to repair or replace a Product
(other than Cable and Wire Products) which has not been installed by
Supplier and Supplier ascertains that the Product is not readily
returnable by Ordering Company, Supplier will repair or replace the
Product at Ordering Company's site. For the purposes of Sections 8.2
(c) (ii) (B) and (C) and Section 8.2 (d), Cable and Wire Products shall
mean fiber optics and associated products and copper cable and
associated products, including, but not limited to, interbay cable,
closures, arrays, and mounts.
<PAGE> 52
(C) With respect to Cable and Wire Products
which Supplier has ascertained are not readily returnable for repair,
whether or not installed by Supplier, Supplier may elect to repair the
Cable and Wire Products at Ordering Company's site.
(d) If Supplier has elected to repair or replace a defective
Product, Ordering Company is responsible for removing and reinstalling the
Product and, in addition, for on-site repair or replacement of cable and wire
products, Ordering Company must make the Product accessible for repair or
replacement, and is responsible to restore the site.
(e) Products returned for repair or replacement will be
accepted by Supplier only in accordance with its instructions and procedures for
such returns. The transportation expense associated with returning such Product
to Supplier shall be borne by Ordering Company. Supplier shall pay the cost of
transportation of the repaired or replacing Product to the destination
designated by Ordering Company. The same Product or part shall not be returned
by Supplier to Ordering Company with the notation no-trouble-found (NTF) on more
than two (2) occasions. On the third occasion that a Product or part has been
classified by Supplier as NTF, the Product or part shall be returned to Supplier
and shall become Supplier's property. Supplier shall ship a new, refurbished, or
reconditioned replacement to Ordering Company for the returned Product or part
at no charge for that Product under warranty. For out of warranty Product,
Supplier shall ship a new, refurbished, or reconditioned replacement to Ordering
Company for the returned Product or part at Supplier's current negotiated price
for the production equipment element/component.
(f) The defective or nonconforming Products or parts which are
replaced shall become Supplier's property. Supplier may use either new,
remanufactured, reconditioned, refurbished, or functionally equivalent Products
or parts in the furnishing of repairs or replacements under this Agreement.
Unless otherwise agreed or unless unavailable, Supplier shall use new components
in the repair of Products.
(g) If a Product for which warranty Service is claimed is not
defective or is in conformance, Ordering Company shall pay Supplier's costs of
handling, inspecting, testing, and transporting, and, if applicable, reasonable
traveling and related expenses as referenced in Section 3.1 (g), PRICES.
(h) Supplier makes no warranty with respect to defective
conditions or nonconformities resulting from the following: Ordering Company
modifications, misuse, neglect, accident or abuse, improper wiring, repairing,
splicing, alteration, installation, storage or maintenance other than by
Supplier, use in a manner not in accordance with Supplier's or vendor's
Specifications or operating instructions or failure of Ordering Company to apply
previously applicable Supplier modifications and corrections which were
available without extra charges and which Ordering Company had had reasonable
opportunity to apply. In addition, Supplier makes no warranty with respect to
Products which have had their serial numbers or month and year of manufacture
removed or altered and with respect to expendable items, including, without
limitation, fuses, light bulbs, motor brushes, and the like.
<PAGE> 53
(i) THE FOREGOING PRODUCT WARRANTIES ARE EXCLUSIVE AND ARE IN
LIEU OF ALL OTHER EXPRESS AND IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, EXCEPT FOR
(a) TANGIBLE PROPERTY DAMAGE AND PERSONAL INJURY FOR WHICH SUPPLIER IS HELD
LIABLE AND (b) THE REMEDY PROVIDED IN SECTION 5.1(e), ORDERING COMPANIES'
REMEDIES, ORDERING COMPANY'S SOLE AND EXCLUSIVE REMEDY SHALL BE SUPPLIER'S
OBLIGATION TO REPAIR, REPLACE, CREDIT, OR REFUND AS SET FORTH ABOVE IN THIS
WARRANTY.
8.3 CONTINUING PRODUCT SUPPORT - PARTS AND SERVICES.
(a) In addition to repairs provided for under Product
Warranty, Supplier offers repair services and repair parts in accordance with
Supplier's repair and repair parts practices and mutually agreed upon terms and
conditions then in effect for Supplier's Manufactured Products furnished
pursuant to this Agreement. Such repair Services and repair parts shall be
available while Supplier is manufacturing or stocking such Products or repair
parts, and in any event for ten (10) years from Supplier's last shipment of a
host system to Ordering Company for Supplier's 5ESS Switch System, and five (5)
years or the duration of the period of the host system, whichever is longer, for
other 5ESS Switch Products sold to Ordering Company as an addition to an
existing 5ESS Switch System. The period for all other Supplier's Manufactured
Products is five (5) years after such Product's discontinued availability
effective date unless modified by Supplemental Agreements. Supplier may use
either new, remanufactured, reconditioned, refurbished, or functionally
equivalent Products or parts in the furnishing of repairs or replacements under
this Agreement.
(b) If after the agreed to support period Supplier is unable
to provide repair part(s) and/or repair service (s) and a functionally
equivalent replacement has not been designated, Supplier shall advise Ordering
Company, by written notice prior to such discontinuance to allow Ordering
Company to plan appropriately, and if Supplier is unable to identify another
source of supply for such repair part(s) and/or repair service(s), Supplier
shall provide Ordering Company, upon request, with nonexclusive licenses for
manufacturing drawings and Specifications of raw materials and components to the
extent Supplier can grant such licenses, so that Ordering Company will have
sufficient information to have manufactured, or obtain such Service or parts
from other sources. License terms for the foregoing manufacturing drawings,
Specifications, and related documentation, such as manufacturing shop
instructions, test programs and test instructions, including charges mutually
agreed to, will be in accordance with Supplier's licensing procedures then in
effect. In addition to the above licenses, if requested by Ordering Company,
Supplier shall provide, at mutually agreeable prices, all dedicated tools and
test beds necessary for Ordering Company to test such Products.
(c) With respect to Vendor Items, and subject to Section
1.118, VENDOR ITEMS, if during the agreed to support period, Supplier's vendor
terminates production of repair parts or repair services, Supplier will use
reasonable efforts to provide the repair parts or repair
<PAGE> 54
services or secure sources for such parts or services. However, if no other
sources or functionally equivalent replacement can be secured, Supplier shall
advise Ordering Company, by written notice prior to such discontinuance to allow
Ordering Company to plan appropriately. Supplier shall provide Ordering Company,
upon request, a detailed list of all commercially available parts and components
purchased by Supplier disclosing the part number, name and location of supplier,
and prices of the purchased items.
(d) With respect to Vendor Items and subject to Section 1.120
if after the agreed to support period, Supplier is unable to provide repair
part(s) and/or repair service(s) and a functionally equivalent replacement has
not been designated, Supplier shall advise Ordering Company, by written notice
prior to such discontinuance to allow Ordering Company to plan appropriately,
and if Supplier is unable to identify another source of supply for such repair
part(s) and/or repair service(s), Supplier shall provide Ordering Company, upon
request, a detailed list of all commercially available parts and components
purchased by Supplier disclosing the part number, name and location of supplier,
and prices of the purchased items.
8.4 TECHNICAL SUPPORT OF PRODUCTS. Supplier shall, in addition
to its obligations under Product Warranty, make available, at mutually agreeable
rates, ongoing technical support including, but not limited to the expertise to
identify, isolate, and resolve problems, that Supplier customarily provides to
its customers, including telephone assistance, field Service, and technical
consultation Service for Products provided under this Agreement for a period of
ten (10) years after Supplier's last shipment of a host system to Ordering
Company for Supplier's 5ESS Switch System, and five (5) years or the duration of
the period of the host system, whichever is longer, for other 5ESS Switch
Products sold to Ordering Company as an addition to an existing 5ESS Switch
System. The period for all other Supplier's Manufactured Products is five (5)
years after such Product's discontinued availability effective date unless
modified by Supplemental Agreements.
8.5 DOCUMENTATION. Supplier shall furnish to Ordering Company
at no additional charge and grant Ordering Company the right to use one copy of
the documentation for the Products provided hereunder for the purpose of
operating and maintaining such Products. Such documentation will be that
customarily provided by Supplier to its customers at no additional charge.
Supplier shall also furnish to Ordering Company the Application and Planning
Guide or a document similar to it. If Ordering Company wishes to perform its own
installation, Supplier, at an additional charge, if applicable, shall furnish to
Ordering Company and grant Ordering Company the right to use one copy of the
documentation for the Products provided hereunder for its evaluation and
installation purposes. The foregoing grant is subject to Section 4.1, USE OF
INFORMATION, and does not include the right to disclose the content of such
documents to persons other than employees of Ordering Company, its Affiliates,
representatives, or contractors who will be involved in the Work, provided,
however, that upon written agreement of Ordering Company to pay any applicable
licensing fee in accordance with ordinary commercial practices, persons with a
need to know in connection with installation of the specific Product shall be
allowed to use such documentation. Such documentation shall be
<PAGE> 55
provided prior to, included with, or shortly after the shipment of the Products
from Supplier to Ordering Company. Additional copies of the documentation are
available at mutually agreeable prices.
8.6 SPECIFICATIONS. Upon request, Supplier shall provide to
Ordering Company, at no charge, and grant Ordering Company the right to use a
copy of Supplier's available commercial Specifications applicable to Products
orderable hereunder for the purpose of operating and maintaining Products.
Additional copies are available at mutually agreeable prices. Supplier shall
also furnish to Ordering Company the Application and Planning Guide or a
document similar to it. If Ordering Company wishes to perform its own
installation, Supplier, at an additional charge if applicable, shall furnish to
Ordering Company and grant Ordering Company the right to use one copy of the
documentation for the Products provided hereunder for its evaluation and
installation purposes. The foregoing grant is subject to Section 4.1, USE OF
INFORMATION, and does not include the right to disclose the content of such
documents to persons other than employees of Ordering Company, its Affiliates,
representatives, or contractors who will be involved in the Work provided,
however, that upon written agreement of Ordering Company to pay any applicable
licensing fee in accordance with ordinary commercial practices, persons with a
need to know in connection with installation of the specific Product shall be
allowed to use such documentation.
8.7 EQUIPMENT TESTING.
(a) Supplier is responsible for the performance of standard
factory production tests in the absence of any other testing mutually agreed to
by the parties. Such tests shall be performed in accordance with Supplier's
normal testing and quality control procedures in order to insure that the
equipment provided hereunder meets all applicable Specifications. At the option
of Ordering Company, Supplier shall furnish a copy of its high level test and
quality control process descriptions to Ordering Company prior to initiating any
such testing and Ordering Company, at its expense and with Supplier's agreement,
may request in advance to witness any of the testing by giving prior notice to
Supplier. Such request must be received with sufficient advance notice that the
observation would not delay the completion of a test. Supplier also agrees to
maintain detailed records of all such tests and to provide Ordering Company, at
no charge, and if requested, with written results of these tests. Supplier
reserves the right to make changes to its test and quality control process
descriptions without prior notification to Ordering Company.
(b) In the event that the equipment fails to meet the
applicable Specifications and test requirements, Supplier shall make the
necessary adjustments or repairs and repeat the applicable tests. If, in the
opinion of Supplier, the failure rates experienced during these tests become
unsatisfactory, all shipments of like equipment to Ordering Company shall be
suspended unless otherwise authorized by Ordering Company in writing.
(c) If Supplier is unable or unwilling to correct, at
Supplier's expense, any failure to meet the applicable Specification and test
requirements found during testing provided
<PAGE> 56
hereunder within thirty (30) days of such discovery or such longer period as may
be mutually agreed upon, Ordering Company, at its option, shall be relieved of
all responsibilities under this Agreement with respect to such equipment or the
portion thereof which was not corrected.
8.8 ENVIRONMENTAL/RELIABILITY TESTING. Upon reasonable request
by Ordering Company and at a mutually agreeable charge, Supplier shall perform
environmental testing of the production equipment in accordance with Ordering
Company's Technical Reference-PUB 51001 entitled NETWORK EQUIPMENT-BUILDING
SYSTEM (NEBS) GENERAL EQUIPMENT REQUIREMENTS, Sections 3, 4, and 5 and
Bellcore's Technical Reference-TR-NWT-000063 entitled NETWORK EQUIPMENT-BUILDING
SYSTEM (NEBS) GENERIC EQUIPMENT REQUIREMENTS. Supplier agrees to report the test
results to Ordering Company. If such test results already exist, Supplier will
furnish test results to Ordering Company at no additional charge.
8.9 FAILURE MODE ANALYSIS OF FAILED COMPONENTS. Supplier shall
perform failure mode analysis on components of Products purchased by Ordering
Company with a persistent history of failure to determine the specific cause of
the component failure. The results of this analysis and planned corrective
action shall be provided to Ordering Company within fourteen (14) calendar days
of the completion of the analysis.
8.10 FLOOR PLAN DATA SHEETS. Supplier shall, at Ordering
Company's request, at a mutually agreeable price, and within a reasonable
timeframe after product design completion, deliver to Ordering Company a
completed Floor Plan Data (FPD) sheet, for equipment sold hereunder. Such FPD
sheets shall be prepared in accordance with the requirements of Technical
Reference 51005, dated December 1984, as amended from time to time.
8.11 MONTHLY ORDER AND SHIPMENT REPORTS. Supplier agrees to
render monthly Order and shipment reports at a mutually agreeable charge, if
applicable, on or before the fifteenth (15th) working day of the succeeding
month: (a) Monthly Order and shipment reports containing the information
required in a mutually agreeable format; (b) at the request of Ordering Company,
monthly summaries of actual shipping intervals achieved on material Ordered
under this Agreement; (c) at the request of Ordering Company, monthly repair
summaries on material including (i) number of units received for repair, (ii) a
breakdown of in-warranty repairs versus out-of-warranty repairs, (iii) summary
of all repairs for no trouble found, and (iv) number of units repaired within
same day, 24 hours, and one to seven days, and (d) at the request of Ordering
Company, monthly report identifying the number of units returned and repaired by
Supplier (RS&R Open Order Report).
8.12 RADIATION ASSISTANCE. If Product provided to Ordering
Company in compliance with applicable FCC rules are thought to provide
interference to others, Supplier shall provide to Ordering Company information
relating to methods of suppressing such interference at a mutually agreeable
price and Ordering Company shall pay the cost of suppressing such interference.
<PAGE> 57
8.13 MARKING. All material furnished under this Agreement
shall be marked for identification purposes in accordance with mutually agreed
upon marking specifications set forth in any Supplemental Agreement or Order
referencing this Agreement and as follows: (a) with Supplier's model/serial
number; and (b) with month and year of manufacture. In addition, Supplier agrees
to add any other reasonable identification which might be requested by Ordering
Company such as, but not limited to, distinctive marks conforming to Ordering
Company's Serialization Plan. Charges, if any, for such additional
identification marking shall be as agreed upon by Supplier and Ordering Company.
This clause does not reduce or modify Supplier's obligations under Section 4.4,
TRADEMARKS, included in this Agreement.
8.14 PERIODIC PRODUCT QUALIFICATION REVIEWS. Supplier shall
conduct periodic product qualification ("PPQ") reviews to ensure that the
Product continues to meet its design intent. The PPQ reviews are a Bellcore
requirement and results are reported to Bellcore. If requested, Supplier shall
provide to Ordering Company the results of such reviews.
8.15 MAINTENANCE/POST WARRANTY. Supplier may offer various
programs which provide services beyond the warranty repairs above. At Ordering
Company's option, Ordering Company may purchase these Repair Service and Return
("R/SAR"), Spares Exchange Service ("SES"), and other offerings at prices, terms
and conditions to be mutually agreed upon.
8.16 PLANNING INFORMATION FOR ORDERS FOR COMMERCIALLY
AVAILABLE PRODUCTS. (a) This planning information addresses the process for all
Orders of Supplier's commercially available Products. It is not applicable to
custom Products or special arrangements on such things as inventory or
manufacturing (i.e. any custom or legacy products requiring unique procedures,
such as NGLN, DDM1000, FT-Series G and projects such as Customer Connectivity).
Special Product or unique arrangements will require a Supplemental Agreement to
document the agreements made specifically for that Product or project only.
(b) Supplier and Ordering Company shall identify Products or
technologies that will require special arrangements and for which Supplemental
Agreements must be negotiated.
(c) Ordering Company will provide to Supplier on a monthly
basis via the Customer Demand Planning (CDP) mechanized system, a forecast of
Product requirements consisting of funded, unfunded, and a projection of
unforecasted demand. This forecast is considered unconstrained and will be
provided for a rolling twelve (12) months as well as an aggregate forecast for
the subsequent year. It will represent forecasted demand by fiscal month.
(d) A current listing of Products that are presently
forecasted by Network Services Division/Inventory Management ("NSD/IM") will be
mutually agreed upon and updated periodically as the scope of the forecasting
process changes. Forecasts furnished by Ordering Company will eventually
encompass all of the network Product requirements for Ordering Companies.
<PAGE> 58
(e) Orders will be placed within Supplier's planning interval
documented in Exhibit 2-1, Planning Intervals, to the extent possible, and will
constitute a commitment to buy. Ordering Company will compare the monthly
forecast with the semi-annual planning forecast being provided in April and
September, and will reconcile the two accordingly. In the future, if the
frequency of these forecasts changes, a similar reconciliation will be performed
on all Product elements that are provided in the planning forecasts. Ordering
Company and Supplier will review Ordering Company's forecasting accuracy
quarterly with the goal of obtaining 80% forecasting accuracy. Ordering Company
will work with Supplier to provide Product level requirements on a monthly basis
especially for those forecasts within the six (6) month window as part of the
rolling forecast.
(f) CUSTOMER DEMAND PLANNING (CDP). Should Ordering Company
request a programming change to the CDP system that would benefit external users
of the CDP system, Supplier shall make such modification at no cost to Ordering
Company. If Ordering Company has a request for a modification to the CDP system
that is specific to Ordering Company's needs, such modification to the system
shall be made at a cost mutually agreed upon by Ordering Company and Supplier.
Supplier shall provide Ordering Company with CDP system support via the
1-800-CDP-8845 Hotline at no cost to Ordering Company.
(g) METRICS. Ordering Company and Supplier agree to monitor
forecast accuracy on a monthly basis. Forecast accuracy measurements shall be
based upon a two month lead time for each forecasted item. CDP shall be the
vehicle for gathering data on forecast accuracy and shipping performance.
Ordering Company will monitor its forecasts and seek to achieve improvements in
accuracy as described in Exhibit 8-3. Supplier will monitor and seek to achieve
improvements on performance to customer requested completion date (CRCD), and
performance to published order intervals. This is an informal process and does
not imply penalty for non-performance. The 1996 metric goals are set forth in
Exhibit 8-3. Joint goals and metrics for future years will be mutually
negotiated for continuous improvement.
(h) FORECASTING PROCESS MONITORING. Forecasting Process
Performance Goals will be monitored on an ongoing basis by the Inventory
Management Process Management Team and the Forecasting Quality Improvement Team.
Additional meetings to review forecasting specifics may be scheduled as needed
by either Ordering Company or Supplier.
ARTICLE IX
SOFTWARE
9.1 GENERAL. (a) The provisions of this Article 9 apply to the
furnishing of Software by Supplier to Ordering Company pursuant to this
Agreement. Supplier's use of certain Licensed Materials may be restricted by
mutual agreement of the parties as specified in a Supplemental Agreement. The
ownership interests and rights of the parties in Custom Software, in addition to
the applicable rights set forth in this Article, shall be established on a
case-by-case basis in subsequent Supplemental Agreements.
<PAGE> 59
(b) To the extent that any provision set forth in this Article
conflicts with any provision set forth elsewhere in this Agreement, this Article
shall control.
(c) Software in this Article means both Custom Software and
Licensed Materials.
9.2 LICENSE. (a) Unless otherwise specified in a Supplemental
Agreement, upon delivery of Licensed Materials, Supplier grants to Ordering
Company a personal, nontransferable, and nonexclusive license pursuant to this
Agreement to use Licensed Materials at a site(s) or, in the case of a Designated
Processor, with either the Designated Processor or temporarily on any comparable
replacement if the Designated Processor becomes inoperative, until the
Designated Processor is restored to operational status. Ordering Company shall
use Licensed Materials only for its own internal business operations.
(b) Ordering Company shall not sublicense such Licensed
Materials, nor modify, decompile, or disassemble Licensed Material furnished
solely as object code to generate corresponding Source Code, provided, however,
that Ordering Company shall be authorized to sublicense Software in connection
with its rights in Section 1A.1, PURPOSE AND SCOPE OF THIS AGREEMENT, to dispose
of Products and Licensed Materials.
9.3 SOFTWARE. On the delivery date, Supplier shall furnish to
Ordering Company, at the fee specified in the Order or Supplemental Agreement,
at least the following basic items: (a) Object Code stored in a medium
compatible with the equipment described in Supplier's Specifications or the
applicable Supplemental Agreement, and identified in the Order; (b) user
documentation which Supplier normally furnishes to customers with the Licensed
Materials at no additional charge, and any user documentation specified in the
applicable Supplemental Agreement; (c) if not previously provided, the required
machine configuration; and (d) Source Code if licensed or furnished by
Supplier as part of the Software ordered hereunder.
9.4 ACCESS TO SOURCE CODE.
(a) With respect to Software which has not been the subject of
a notice of discontinued availability pursuant to Section 9.20, NOTIFICATION OF
DISCONTINUED AVAILABILITY OF SOFTWARE, if Supplier is declared bankrupt or
refuses to perform maintenance of the Software, or fails to provide for the
performance of maintenance of the Software to the extent that Ordering Company
is unable to use the Software for its intended purpose and perform maintenance,
then Supplier, or others acting on behalf of Supplier, shall furnish to Ordering
Company (under a suitable license agreement, if applicable), Supplier's then
existing Software Source Code, Software development programs, and associated
documentation for such standard version to the extent necessary for Ordering
Company to maintain and enhance for its own use the standard version of that
Software for which it has a perpetual, non-exclusive right to use.
<PAGE> 60
(b) If Ordering Company's use of the Software Source Code
provided pursuant to Section 9.4(a) involves use or copying of copyrighted
material or the practice of any invention covered by a patent, Supplier shall
not assert the copyright or patent against Ordering Company for use of the
Software Source Code as originally provided by Supplier.
9.5 RESTRICTIONS AND CONFIDENTIALITY. (a) Except for any part
of such Licensed Materials which is or becomes generally known to the public
through acts not attributable to Ordering Company, Ordering Company shall hold
such Licensed Materials in confidence, and shall not, without Supplier's prior
written consent, disclose, provide, or otherwise make available, in whole or in
part, any Licensed Materials to anyone, except to its employees having a
need-to-know . Ordering Company shall not copy Licensed Materials embodied in
Firmware. Ordering Company shall not make any copies of any other Licensed
Materials except as necessary in connection with the rights granted hereunder.
Ordering Company shall comply fully with the proprietary notice requirements set
forth in Section 4.1, USE OF INFORMATION, and the record keeping obligation of
Section 6.21, RECORD RETENTION.
(b) Ordering Company shall take appropriate action, by
instruction, by agreement, or otherwise, with all persons permitted access to
the Licensed Materials so as to enable Ordering Company to satisfy its
obligations under this Agreement.
(c) When the Licensed Materials are no longer needed by
Ordering Company, or if Ordering Company's license is canceled or terminated,
Ordering Company shall return all copies of such Licensed Materials to Supplier
or follow written disposition instructions provided by Supplier.
(d) Custom Software and Related Documentation shall be treated
as proprietary information of a party or parties in accordance with Section 4.1,
USE OF INFORMATION.
9.6 INSTALLATION OF SOFTWARE. (a) Where Ordering Company is
responsible for installation of Software, Supplier's sole responsibility is to
deliver the Software to Ordering Company on or before the scheduled Delivery
Date specified in the Order or Supplemental Agreement. However, if Supplier is
expressly responsible for such installation, Supplier shall deliver the Software
to Ordering Company in sufficient time for it to be installed on or before the
scheduled Installation Complete Date specified in the Order or Supplemental
Agreement, and Supplier shall complete its installation and associated testing
on or before such date.
(b) Where Ordering Company has assumed responsibility for the
installation of newly licensed Software, Supplier will, at Ordering Company's
request and without charge provide for the first such installation a reasonable
level of technical assistance, which may include on-site assistance, when
Ordering Company encounters installation difficulties. For all subsequent
installations of such Software by Ordering Company, unless otherwise stipulated
<PAGE> 61
under conditions of an Order or Supplement Agreement, Supplier reserves the
right to charge Ordering Company for any Ordering Company-requested assistance.
9.7 OPTIONAL SOFTWARE FEATURES. Licensed Materials provided to
Ordering Company under this Agreement may contain optional features which are
separately licensed and priced. Ordering Company agrees that such optional
features will not be activated without written authorization from Supplier and
Ordering Company's payment of the appropriate license fees. If, in spite of
Ordering Company's best effort to comply with this restriction, such features
are activated and used by Ordering Company, Ordering Company agrees to so notify
Supplier promptly and to pay Supplier the license fees for the activated
features, as well as the reasonable cost of money for the period in which such
features were activated.
9.8 CENTRALIZED MAINTENANCE. (a) Ordering Company may specify
in an Order or Supplemental Agreement that, for centralized maintenance
purposes, all Software changes, including Enhancements, provided by Supplier
shall be provided only to Ordering Company's Centralized Support Organization.
Supplier will, in that event, be responsive to maintenance requests which
Ordering Company's Centralized Support Organization issues. This Organization
will be responsible for Software application, initial Acceptance testing and
distribution of the Software to all licensed installations.
(b) Subject to payment of all applicable fees, Supplier grants
Ordering Company the right to transmit the Software by means of data links to
each licensed installation.
(c) Supplier grants to Ordering Company, at a fee to be
negotiated in a Supplemental Agreement, a license to use a copy of the Software
for centralized maintenance purposes only. Supplier shall provide this
maintenance copy of the Software in response to an Order requesting same. The
maintenance copy provided to Ordering Company's Centralized Support Organization
will be used only to perform systems or application support functions for
Ordering Company's application programmers.
9.9 ENHANCEMENTS. Supplier shall offer to Ordering Company
during the term of an Order or Supplemental Agreement, at an agreed upon charge,
if any, all Software Enhancements and Related Documentation, generally made
available by Supplier. All Enhancements provided to Ordering Company shall be
considered Software subject to the provisions of an Order or Supplemental
Agreement.
9.10 INTELLECTUAL PROPERTY RIGHTS. (a) Title to the Licensed
Material and to Intellectual property rights herein shall remain in Supplier or
Supplier's licenser, as applicable. Ordering Company shall have the right to
make the number of copies of the Licensed Materials solely for use as authorized
in an Order or Supplemental Agreement, and archival copies as appropriate.
Ordering Company however, shall not reproduce copies of the Licensed Materials
for the purpose of supplying it to others except individuals authorized herein.
<PAGE> 62
(b) All Licensed Material (whether or not part of Firmware)
furnished by Supplier, and all copies thereof made by Ordering Company,
including translations, compilations, and partial copies thereof, are, as
between Ordering Company and Supplier, solely the property of Supplier.
(c) Title to Custom Software shall be specified in the
applicable Supplemental Agreement.
9.11 TRAINING AND TECHNICAL SERVICE. Supplier shall provide:
(a) assistance and advice, as may be specifically requested by Ordering Company
necessary to assist in the testing and use of the Software under the terms and
conditions specified in the Order or Supplemental Agreement, and (b) at no
additional charge, any training as it normally provides without charge to other
customers.
9.12 MODIFICATIONS. In those instances where Source Code is
provided, Ordering Company may make Modifications to the Software as permitted
in a Supplemental Agreement. Ordering Company shall have all rights, title and
interest to any Modifications and resulting derivative works and the
Intellectual Property Rights in such Modifications or works. Moreover, unless
otherwise agreed by the parties, nothing shall limit Ordering Company's right to
reproduce and use the modified Software, provided however, any portion or aspect
of the modified Software which is licensed from Supplier shall continue to be
subject to all the provisions of the license, and nothing contained herein
grants to Ordering Company any rights to use the Software other than as recited
in the license.
9.13 REDESIGNATION OR TRANSFER OF DESIGNATED SITE OR COMPUTER.
(a) If Ordering Company's use of the Software is limited to a designated site or
a Designated Processor, the provisions of this clause shall apply. A
redesignation shall refer to the movement of Software to upgraded equipment. A
transfer shall refer to a temporary change of site of the Software.
(b) Without an additional charge or fee or any requirement for
any additional license, except where feature or size sensitive units are a
factor, Ordering Company may:
(i) Redesignate the site or Designated Processor at
which the Software will be used and shall notify Supplier of the new
site or Designated Processor and the effective date of the
redesignation; and
(ii) Concurrently operate the Software at another
site or Designated Processor for a period not to exceed three (3)
months for the purpose of redesignating the assigned using site.
(c) The license granted for a designated site or Designated
Processor may be transferred with notice to Supplier (within a reasonable time
after such transfer) and at no additional charge or fee to Ordering Company to a
backup computer if the designated site or
<PAGE> 63
Designated Processor is inoperative due to malfunction, due to performance of
preventive or remedial maintenance, due to engineering changes or due to changes
in features or model, until the designated site or Designated Processor is
restored to operative status and processing of the data already entered in the
backup computer has been completed. Supplier may charge Ordering Company for
services requested by Ordering Company in support of such relocation.
9.14 SOFTWARE ACCEPTANCE. (a) Upon installation completion of
the Software in the Integrated Test Network (ITN) or the First Field
Application, Ordering Company has the right to conduct an Acceptance Test.
Unless otherwise agreed by the parties, Ordering Company shall have an
Acceptance Test Period of thirty (30) consecutive calendar days to conduct this
test. The Software shall be deemed accepted by Ordering Company unless Ordering
Company notifies Supplier in writing to the contrary within the Acceptance Test
Period described above. If the Software fails the Acceptance Test during the
Acceptance Test Period, Supplier shall use its reasonable efforts to correct
each error to minimize the Acceptance delay, and the Acceptance Date shall be
extended on a day-to-day basis until the Software, as modified, is accepted.
Acceptance of a particular release of Software in the ITN or in the First Field
Application shall constitute Acceptance of all copies of such Software to be
provided Ordering Company, regardless of when each such copy of such Software is
installed on its Designated Processor.
(b) If Ordering Company elects in the Order not to perform
Acceptance Tests for any Software, the Acceptance Date for such Software shall
be the Delivery Date if not installed by Supplier or the Installation Complete
Date if installed by Supplier, as applicable.
(c) For an Acceptance Test conducted by Ordering Company on
newly licensed Software, Supplier will, at Ordering Company's request and
without charge, provide a reasonable level of technical assistance to Ordering
Company when difficulties are encountered by Ordering Company.
(d) In the event that Software has not passed the Acceptance
Test within six (6) months after the Delivery Date, at Ordering Company's
option, (i) Ordering Company shall return all copies of the Software to Supplier
and Supplier shall reimburse Ordering Company for any fees (e.g., license, R&D,
etc.) paid for such Software or (ii) if mutually agreed to by the parties,
Ordering Company may retain the Software at an equitable adjustment in the fees
as may be agreed to by the parties, in which case the Software shall be deemed
accepted.
9.15 SOFTWARE WARRANTY. (a) Supplier warrants to Ordering
Company all of the following:
(i) The Software will be free from significant
errors, will conform to and perform in accordance with the
Specifications. The media containing the Software will be free from
defects in material and workmanship. The Software will be compatible
with and may be used in conjunction with other Software and the
hardware as described in the Specifications.
<PAGE> 64
(ii) Work will be performed in accordance with
industry standards.
(iii) There are no copy protection or similar
mechanisms within the Software which will, either now or in the future,
interfere with the rights granted to Ordering Company.
(iv) Supplier has the right to grant the licenses as
granted herein, and has not done anything to interfere with the
exercise of Ordering Company's rights.
(v) At the time of delivery, to Supplier's knowledge,
the Software does not contain any malicious code, program, or other
internal component (e.g. computer virus, computer worm, computer time
bomb, or similar component), which could damage, destroy, or alter
Software, Firmware, or hardware or which could, in any manner, reveal,
damage, destroy, or alter any data or other information accessed
through or processed by the Software in any manner. Supplier shall
immediately advise Ordering Company, in writing, upon reasonable
suspicion or actual knowledge that the Software provided may result in
the harm described above.
(b) All warranties shall survive inspection, Acceptance and
payment.
(c) If, under normal and proper use during the applicable
Warranty Period specified in Exhibit 8-1 Software proves to have a defect which
materially affects its performance in accordance with the applicable
Specifications and Ordering Company notifies Supplier in writing of such defect
promptly after Ordering Company discovers such defect and follows Supplier's
instructions, if any, regarding return of defective Software, Supplier shall,
attempt first to either correct or replace such Software without charge, or if
correction or replacement is not feasible, provide a refund or credit based on
the original license fee. In addition, should a defect in Software prevent in
whole or in part the use of any Product(s) that cannot be applied to another use
by Ordering Company, Ordering Company may, at its election, also return such
Product(s) for a full refund.
(d) Software returned for correction or replacement will be
accepted by Supplier only in accordance with its instructions and procedures for
such returns. The transportation expense associated with returning such Software
to Supplier shall be borne by Ordering Company. Supplier shall pay the costs of
transportation of the corrected or replacing Software to the destination
designated by Ordering Company.
(e) If Software for which warranty Service is claimed is not
defective or nonconforming, Ordering Company shall pay Supplier's costs of
handling, inspecting, testing, and transporting and, if applicable, traveling
and related expenses.
(f) Supplier makes no warranty with respect to defective
conditions or nonconformities resulting from the following: modifications,
misuse, neglect, or accident; events outside Supplier's control; installation,
use of Software or Software maintenance in a
<PAGE> 65
manner not in accordance with Supplier's Specifications, operating instructions,
or license-to-use; or failure of Ordering Company to apply previously applicable
Supplier modifications and corrections. In addition, Supplier makes no warranty
with respect to defects related to Ordering Company's data base errors.
Moreover, no warranty is made that Software will run uninterrupted or error
free.
[/R]
(g) If any Software is lost or damaged during the Warranty
Period or such other time as Supplier maintains the Software as a generally
available product offering, while in the possession of Ordering Company,
Supplier will promptly replace the Software at the established charge for
providing the associated media unless such is provided by Ordering Company.
(h) If an Order specifies that Ordering Company's use of the
Software is limited to a designated site or a Designated Processor, the
provisions of this clause shall apply. If Ordering Company performs installation
and elects to perform applicable tests for any Software, the warranty for such
Software shall commence on the Delivery Date. If Supplier performs installation
of any Software, the Warranty for such Software shall commence upon installation
completion.
(i) If Software is purchased with a license for multiple sites
(e.g., unlimited replication rights, or limited multiple replication rights),
the warranty for such Software shall commence upon Acceptance by Ordering
Company in the ITN or in the First Field Application, as appropriate.
(j) Supplier warrants that installation of any new Software
will not shorten or lessen the warranty of existing Software.
(k) THE FOREGOING SOFTWARE WARRANTIES ARE EXCLUSIVE AND ARE IN
LIEU OF ALL OTHER EXPRESS AND IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR PARTICULAR PURPOSE. EXCEPT FOR (a)
TANGIBLE PROPERTY DAMAGE AND PERSONAL INJURY FOR WHICH SUPPLIER IS HELD LIABLE
AND (b) THE REMEDY PROVIDED IN SECTION 5.1(e), ORDERING COMPANIES' REMEDIES,
ORDERING COMPANY'S SOLE AND EXCLUSIVE REMEDY SHALL BE SUPPLIER'S OBLIGATION TO
CORRECT, REPLACE, CREDIT, OR REFUND AS SET FORTH ABOVE IN THIS WARRANTY.
9.16 CANCELLATION OF LICENSE. If Ordering Company fails to
comply with any of the material terms and conditions of this Agreement, Order or
Supplemental Agreement and such failure continues beyond ten (10) days after
receipt of written notice thereof by Ordering Company, the conditions of Article
5A, ARBITRATION; DISPUTE RESOLUTION shall apply. Supplier's cancellation of the
license at issue shall be tolled pending the outcome of the Dispute Resolution
process. Simultaneous with initial invocation of such process, Ordering Company
<PAGE> 66
shall deposit and have held in escrow, until such dispute is resolved, an amount
equal to the current market price of the license in question.
9.17 RELATED DOCUMENTATION. Supplier shall furnish to Ordering
Company, at no additional charge and grant Ordering Company the right to use one
copy of the Related Documentation for Software furnished by Supplier pursuant to
this Agreement for the sole purpose of operating and maintaining such Software.
Such Related Documentation will be that customarily provided by Supplier to its
customers for such Software, consistent with the vintage, options and feature of
the system on which it operates. Such Related Documentation shall be provided
prior to, included with, or shortly after provision of Software by Supplier to
Ordering Company. Additional copies of the Related Documentation are available
at prices set forth in Supplier's Price List.
9.18 ADDITIONAL RIGHTS IN LICENSED MATERIAL. (a) The
additional rights granted by Supplier to Ordering Company herein apply to 4ESS
Switch, 5ESS Switch, 2NCP, SLC2000, FT2000, DDM, and DACS Product families. Both
parties agree that these same rights may be extended to other Products by mutual
agreement and documented within a Supplemental Agreement.
(b) Ordering Company may transfer its right to use Licensed
Materials furnished under this Agreement without the payment of an additional
right-to-use fee by transferee, except where feature or size sensitive units are
a factor, but only under the following conditions:
(i) Such Licensed Materials shall be used only within
the country in which it is currently deployed, however, Supplier will
not unreasonably withhold its consent to use outside such country
provided the proprietary information associated with the use of the
Software can be adequately protected;
(ii) Except as otherwise provided in the Agreement,
the right to use such Licensed Material may be transferred, only
together with the Product with which Ordering Company has a right to
use such Licensed Material, and such right to use the Licensed Material
shall continue to be limited to use with such Product;
(iii) Before any such Licensed Material shall be
transferred, Ordering Company shall notify Supplier of such transfer
and the transferee shall have agreed in writing (a copy of which will
be provided to Supplier at its request) to keep such Licensed Material
in confidence and to corresponding conditions respecting use of
Licensed Materials as those imposed on Ordering Company; and
(iv) Within the country in which the Licensed
Material was originally deployed, the transferee shall have the same
right to Licensed Material warranty or
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Licensed Material maintenance for such Software as the transferor,
provided the transferee continues to pay the fees, if any, associated
with such Software or Software maintenance.
9.19 SOFTWARE MAINTENANCE SERVICE. Unless otherwise agreed by
Supplier in writing, maintenance Service for Software shall only be available
for (a) the version/generic that is current at the time that such Service is
ordered, (b) the immediately preceding version/generic, and (c) a
version/generic for which the term of warranty is still in effect. Ordering
Company will be notified in writing six (6) months in advance of maintenance
Service discontinuance for version/generics prior to the preceding
version/generic.
9.20 NOTIFICATION OF DISCONTINUED AVAILABILITY OF SOFTWARE.
Supplier shall notify Ordering Company at least one (1) year in advance of
discontinued availability of the last standard Software generic. For a minimum
of two (2) years after discontinued availability, Supplier will make available
to Ordering Company, Software Support Service or other mutually agreed upon
arrangements which afford Ordering Company reasonable continued use of the
Software. If Supplier refuses to provide Software Support Service beyond the
minimum two (2) year period, Supplier shall grant to Ordering Company a license
to use the Software Source Code under terms and conditions to be negotiated at
that time.
ARTICLE X
ENGINEERING, INSTALLATION, MAINTENANCE
AND OTHER MISCELLANEOUS SERVICES
10.1 GENERAL. The provisions of this Article X shall be
applicable to the furnishing by Supplier of Services other than Services
furnished pursuant to any other Article of this Agreement. Such services
include, but are not limited to (a) Engineering Services such as preparation of
equipment Specifications, preparation and updating of office records, and
preparation of a summary of material not specifically itemized in the Order (b)
Installation Services such as installation, equipment removal, and cable mining
(c) Maintenance Services, and (d) other Miscellaneous Services.
10.2 WARRANTY FOR SERVICES OTHER THAN MAINTENANCE SERVICES.
(a) Supplier warrants to Ordering Company that Services will be performed in a
professional manner and in accordance with Supplier's Specifications or those
referenced in the Order and with accepted practices in the community in which
such Services are performed, using material free from defects except where such
material is provided by Ordering Company. If the Services prove to be not so
performed and if Ordering Company notifies Supplier, with respect to
Engineering, Installation, or other Miscellaneous Services, within a six (6)
month period commencing on the date of completion of the Service, as identified
in writing by Supplier, Supplier, at its option, either will correct the defect
or nonconforming Service for which Supplier is responsible or render a full or
prorated refund or credit based on the original charge for the Services. After
the
<PAGE> 68
corrective action, Ordering Company shall have the right to inspect and accept
the corrective work done..
(b) Where Supplier performs Engineering or Installation
Services as part of a combined engineering, furnishing, and installation Order,
the six (6) month period referenced above shall commence on the date of Ordering
Company's Acceptance of Installation Service.
(c) THE FOREGOING SERVICES WARRANTIES ARE EXCLUSIVE AND ARE IN
LIEU OF ALL OTHER EXPRESS AND IMPLIED WARRANTIES INCLUDING, BUT NOT LIMITED TO,
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. EXCEPT FOR
(a) TANGIBLE PROPERTY DAMAGE AND PERSONAL INJURY FOR WHICH SUPPLIER IS HELD
LIABLE AND (b) THE REMEDY PROVIDED IN SECTION 5.1(e), ORDERING COMPANIES'
REMEDIES, ORDERING COMPANY'S SOLE AND EXCLUSIVE REMEDY SHALL BE SUPPLIER'S
OBLIGATION TO MAKE CORRECTIONS OR GIVE A CREDIT OR REFUND AS SET FORTH ABOVE IN
THIS WARRANTY.
A. ENGINEERING SERVICES
10.3 ORDERING. Engineering Services may be ordered separately
or in combination with Installation Services.
10.4 STANDARDS FOR ENGINEERING SERVICES. Supplier agrees to
perform Engineering Services in accordance with the engineering Standards
provided by and/or approved by Ordering Company.
10.5 STANDARDS FOR CENTRAL OFFICE RECORD SERVICES. (a)
Supplier agrees to perform central office records services in accordance with
central office records standards provided and/or approved by Ordering Company.
(b) Ordering Company will provide Computer Aided Drafting
(CAD) specifications, CAD drafting tools, standard drawing files and other
conventions, in order that all completed CAD drawings will comply with Ordering
Company's standards. Title to CAD specifications, tools, drawing files, and
other data supplied to Supplier by Ordering Company shall remain in Ordering
Company at all times both before and after the Work is done.
(c) Supplier shall be responsible for loss or damage to CAD
tools, drawing files, models, blueprints, and other materials in Supplier's
possession under this Agreement belonging to Ordering Company, and shall, if
requested, furnish Ordering Company with acceptable certificates of insurance
covering this risk.
(d) All project and/or Order specific CAD drawings,
specifications and engineering calculations shall be forwarded to Ordering
Company and become Ordering
<PAGE> 69
Company's exclusive property prior to final payment by Ordering Company on this
Agreement or an Order, unless otherwise agreed in writing by Ordering Company's
representative.
10.6 ENGINEERING INTELLECTUAL PROPERTY. All engineering
service outputs and final products, including but not limited to equipment
Specifications, office records, and material summaries, shall be the sole
property of Ordering Company. All tools, reference material, and proprietary
information used by Engineering Services to create or produce these outputs or
documents shall remain the sole property of Supplier.
B. INSTALLATION SERVICES
10.7 CONDITIONS OF INSTALLATION AND OTHER SERVICES PERFORMED
ON ORDERING COMPANY'S SITE. (a) ITEMS PROVIDED BY ORDERING COMPANY. Ordering
Company will be responsible for furnishing the following items (as required by
the conditions of the particular installation or other on-site Service,
hereinafter collectively referred to as the "Service") at no charge to Supplier
and these items will not be included in Supplier's price for the Services.
Should Supplier incur expense, subject to Ordering Company's preapproval, as a
result of Ordering Company's failure to provide any of these items, billing in
addition to the contract price will be rendered to and paid by Ordering Company.
In addition, if Ordering Company's failure to provide any of these items results
in delaying Supplier's performance, the affected Completion Date may be
extended.
(i) ACCESS TO BUILDING AND WORK SITE - Allow
employees of Supplier and its subcontractors controlled access to
premises and facilities at prearranged hours during the scheduled
Service or at such other times as are reasonably requested by Supplier.
The parties shall endeavor, to the extent practical, to agree on a
building and work site access schedule prior to the start of work.
Ordering Company shall obtain for Supplier's and its subcontractors'
employees any necessary identification and clearance credentials to
enable Supplier and its subcontractors to have access to the work site.
(ii) GENERAL BUILDING CONDITIONS - Take such action
as may be necessary to insure that the premises will be dry and free
from dust and Hazardous Materials, including but not limited to
asbestos, and in such condition as not to be injurious to Supplier's or
its subcontractors' employees or to the Products to be installed. Prior
to commencement of the Services and during the performance of the
Services, Ordering Company shall, if requested by Supplier, provide
Supplier with sufficient data to assist Supplier in evaluating the
environmental conditions at the work site (including the presence of
Hazardous Materials). Ordering Company is responsible for removing and
disposing of the Hazardous Materials, including but not limited to
asbestos, prior to commencement of the Services.
(iii) REPAIRS TO BUILDINGS - Prior to Service start
date, to the extent practical, make such alterations and repairs as are
necessary for proper installation of Products.
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(iv) OPENINGS IN BUILDINGS - Prior to Service start
date, furnish suitable openings in buildings to allow Products to be
placed in position, and provide necessary openings and ducts for cable
and conductors in floors and walls as designated on engineering
drawings furnished by Supplier with input provided by Ordering Company.
Supplier shall provide such drawings to Ordering Company in sufficient
time to meet project service dates. Ordering Company shall fireproof
(with steel covers) all paths throughout the building.
(v) ELECTRICAL CURRENT, HEAT, LIGHT, AND WATER -
Provide electrical current for charging storage batteries and for any
other necessary purposes with suitable terminals where work is to be
performed; provide temperature control and general illumination
(regular and emergency) in rooms in which work is to be performed or
Products stored, equivalent to that ordinarily furnished for similar
purposes in a working office; provide exit lights; provide water and
other necessary utilities for the proper execution of the Services. At
new locations without existing utilities Supplier may be requested in
writing, prior to start date, to provide utilities, subject to
negotiations with Ordering Company.
(vi) BUILDING EVACUATION - Prior to Services start
date, provide building evacuation plans in case of a fire or other
emergency.
(vii) CEILING INSERTS - Provide ceiling inserts as
required using Supplier's standard spacing arrangement for ceiling
support equipment.
(viii) MATERIAL FURNISHED BY ORDERING COMPANY - New
or used third party material furnished by Ordering Company shall be in
such condition that it requires no repair and no adjustment or test
effort in excess of that normal for new equipment. Ordering Company
assumes all responsibility for the proper functioning of such material.
Ordering Company shall also provide the necessary third party Product
information and, where possible and permitted, access to special third
party test equipment and tools, for Supplier to properly install such
material.
(ix) TOILET FACILITIES AND EYEWASH STATION - Provide
proper and easily accessible toilet facilities and supplies, such as
towels and soap, in buildings in which Services are in progress. Where
temporary facilities are required, Ordering Company will provide
suitable, portable facilities including supplies and custodial
Services. Provide emergency eyewash station in power room near battery
stands.
(x) FLOOR SPACE AND STORAGE FACILITIES - Supplier
will identify to Ordering Company its need for space to store materials
and tools necessary for the work. If adequate space in the building is
available, Ordering Company will license Supplier to use such space
reasonably adjacent to the work site for storage of material and tools
for near-term use. If such space is not available, the parties will
negotiate other arrangements, such as trailers or off-site warehouses,
to achieve the maximum practical
<PAGE> 71
economies. To the extent feasible, Ordering Company will permit
Supplier's personnel to use luncheon facilities in the building and
will license Supplier to use administrative space solely for the
purpose of the Work.
(xi) EASEMENTS, PERMITS, AND RIGHTS-OF-WAY - Prior to
Services start date, provide all rights-of-way, easements, licenses to
come upon land to perform the Services, permits and authority for
installation of Products and other material; permits for opening
sidewalks, streets, alleys, and highways; and construction and building
permits.
(xii) WATCH SERVICE - Provide normal security
necessary to prevent admission of unauthorized persons to building and
other areas where Installation Services are performed and to prevent
unauthorized removal of the Products and other materials. Supplier will
inform Ordering Company as to which storage facilities at the work site
Supplier will keep locked.
(xiii) USE OF AVAILABLE TESTING EQUIPMENT - Ordering
Company shall make available to Supplier the maintenance test
facilities which are imbedded in equipment to which the Product being
installed will be connected or added, and, if available, meters, test
sets, and other portable apparatus that is unique to the Product being
installed. Supplier's use of such test equipment shall not interfere
with Ordering Company's normal equipment maintenance functions.
(xiv) ACCESS TO EXISTING PLANT - Ordering Company
shall permit Supplier reasonable use of such portions of the existing
plant or equipment as are necessary for the proper completion of such
tests as require coordination with existing facilities. Such use shall
not interfere with Ordering Company's normal maintenance of equipment.
(xv) GROUNDS - Ordering Company shall provide access
to suitable and isolated building ground as required for Supplier's
standard grounding of equipment. Where installation is outside or in a
building under construction, Ordering Company shall also furnish
lightning protection ground.
(xvi) REQUIREMENTS FOR ORDERING COMPANY DESIGNED
CIRCUITS Ordering Company shall furnish information covering the proper
test and readjust requirements for apparatus and requirements for
circuit performance associated with circuits designed by Ordering
Company or standard circuits modified by Ordering Company's drawings.
(xvii) CLEARING EQUIPMENT FOR MODIFICATIONS -
Ordering Company shall remove, or transfer telecommunications traffic
on trunks and sundry working equipment, and make other arrangements
required to permit Supplier to modify existing equipment.
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(xviii) BATTERY ROOM VENTILATION - Ordering Company
shall provide the required ventilation for battery rooms or areas.
(xix) HOUSE SERVICE PANEL - Ordering Company shall
provide electric power from Ordering Company's Service panel to
Supplier's power board and shall run all leads between said Service
panel and power board.
(xx) THROUGH TESTS AND TRUNK TESTS - Ordering Company
shall make required through tests and trunk tests to other offices
after Supplier provides its notice of completion or notice of advanced
turnover.
(b) ITEMS TO BE FURNISHED BY SUPPLIER. The following items
will be furnished by Supplier (if required by the conditions of the particular
Service) and the price thereof is included in Supplier's price for Services:
(i) PROTECTION OF EQUIPMENT AND BUILDINGS - Supplier
shall provide protection for Ordering Company's equipment, network
integrity and buildings during the performance of the Services and in
accordance with Supplier's standard practices. Supplier shall make
every effort possible to prevent interruptions to network integrity.
(ii) METHOD OF PROCEDURE - Supplier shall prepare
detailed (MOP), as defined by Ordering Company before starting work.
Ordering Company shall review the MOP and any requested changes shall
be negotiated. Ordering Company shall give Supplier written acceptance
of the MOP prior to start of the work.
(iii) POWER CONDUIT - Supplier shall install power
conduit and wire as specified in Ordering Company's specifications.
(iv) FRAME AND AISLE LIGHTING - Supplier shall
install conduit, wire, fixtures, and other necessary material for frame
and aisle lighting as specified in Ordering Company's specification.
(v) TEMPORARY DAILY CLOSING & FIREPROOFING - Supplier
shall provide temporary daily closing for all occupied buildings, and
fireproof all openings that Supplier makes in any occupied building in
the course of providing the Services.
(vi) RESTORATION - Where it is necessary in the
performance of the Services to open sidewalks, driveways, curbing,
alleys, streets, or other property, Supplier shall restore said
property to at least its former condition.
(vii) TOOLS AND EQUIPMENT - Unless otherwise
specifically provided in this Agreement, Supplier shall provide all
labor, tools and equipment (the "tools") for performance of this
Agreement. Should Supplier actually use any tools provided by Ordering
Company, Supplier acknowledges that Supplier accepts the tools "as is,
where is". Supplier shall not, however, be responsible for
consequential damages in the nature
<PAGE> 73
of lost revenues, profits, or savings arising from Supplier's
non-negligent use of a defective tool. Supplier acknowledges that
Ordering Company has no responsibility for the condition or state of
repair of the tools and Supplier shall have risk of loss and damage to
such tools. Supplier agrees not to remove the tools from the work site
and to return the tools to Ordering Company upon completion of use, or
at such earlier time as Ordering Company may request, in the same
condition as when received by Supplier, reasonable wear and tear
excepted.
(viii) CLEAN UP - Supplier at all times, and at its
expense, shall keep the premise free from accumulation of waste
materials or rubbish caused by Supplier's operation. Upon completion of
the Work, Supplier shall, at its expense, as promptly as practical,
remove from the premises all of Supplier's implements, equipment,
tools, machines, surplus, and waste materials and debris. If Supplier
fails to clean up as provided herein, Ordering Company may do so and
charge the cost thereof to Supplier or deduct same from Ordering
Company's payment to Supplier.
(ix) SENSITIVE EQUIPMENT - Supplier will consider and
treat all Ordering Company equipment as sensitive equipment at the work
site (e.g., equipment sensitive to static electricity or light).
(x) HAZARDOUS MATERIALS CLEANUP - At the conclusion
of the Services, Supplier shall be responsible for the cleanup,
removal, and proper disposal of all Hazardous Materials introduced by
Supplier or its subcontractors to Ordering Company's premises.
(xi) The following items may be furnished by Supplier
if requested by Ordering Company. Prices associated with these
activities will be subject to negotiations and no such activities will
be furnished without prior written consent of Ordering Company:
(A) READJUSTING APPARATUS - Supplier may
provide readjustment (in excess of that normally required on new
apparatus) of apparatus associated with relocated or rewired circuits.
(B) RERUNNING CROSS-CONNECTIONS - Supplier
may rerun permanent cross-connections in accordance with revised
cross-connection lists furnished by Ordering Company's cross-connection
list.
(C) HANDLING, PACKING, TRANSPORTATION, AND
DISPOSITION OF REMOVED AND SURPLUS ORDERING COMPANY EQUIPMENT -
Supplier may pack, transport, and dispose of surplus and removed
Ordering Company equipment as agreed by the parties.
<PAGE> 74
(D) PREMIUM TIME ALLOWANCES AND NIGHT SHIFT
BONUSES - Supplier may have its Services personnel work premium time
and night shifts to the extent that Supplier may deem such to be
necessary to effect the required coordination of installing and testing
operations or other Services because of Ordering Company's
requirements.
(E) EMERGENCY LIGHTING SYSTEM - Supplier may
provide new emergency lighting system (other than the original ceiling
mounted stumble lighting) to satisfy illumination and safety needs of
Products of certain height.
10.8 ACCEPTANCE OF INSTALLATION. (a) At reasonable times
during the course of Supplier's installation, Ordering Company, at its request
may, or upon Supplier's request shall, inspect completed portions of such
installation. Upon Supplier's further request, and upon sufficient notice to
Ordering Company, Ordering Company shall observe Supplier's testing of the
Product being installed to determine that such testing and the test results are
in accordance with Supplier's Acceptance standards or Acceptance procedures. The
job shall be considered complete and ready for Acceptance by Ordering Company
when the Product has been installed and tested by Supplier in accordance with
its standard procedures, and Supplier represents such Product to be in working
order. Upon completion of the installation, Supplier will submit to Ordering
Company a written notice of completion or, if Ordering Company has elected
advance-turnover of subsystems, a written notice of completion of
advance-turnover.
(b) Ordering Company shall promptly make its final inspection
of substantial conformance with Supplier's specifications and do everything
necessary to expedite Acceptance of the job. Supplier will promptly correct any
defects for which it is responsible. The job will be considered as fully
accepted unless Supplier receives written notification to the contrary within
thirty (30) days after submitting the notice of completion.
(c) Acceptance shall be effective if executed in writing only
by an individual designated by Ordering Company in writing prior to installation
start date.
C. MAINTENANCE SERVICES
10.9 GENERAL SERVICE DESCRIPTION. Maintenance Services for
Products and Software include, but are not limited to, fixed-term Service and
time-and-material Service.
(a) Fixed-term Maintenance Service consists of procedures, as
determined by Supplier for particular Products and Software and for fixed
periods, to keep Products and Software operating materially in accordance with
their specifications. Such Service includes diagnostic Service using on-site or
remote techniques, as appropriate, to analyze a problem and prescribe remedial
action, and a mandatory escalation procedure to provide successively higher
levels of expertise. Fixed-term Maintenance Service will be rendered during the
Service hours selected by Ordering Company in accordance with the Level of
Service Specified in an Order
<PAGE> 75
from options offered by Supplier. At the time a Maintenance Service agreement is
established, Service Level Options will be mutually agreed to by parties.
(b) Each Order shall be for a minimum of one (1) year and
shall commence on the date set forth in the Order. Supplier will provide written
notification to Ordering Company ninety (90) days prior to Order expiration, and
Ordering Company shall notify Supplier sixty (60) days prior to expiration date
of their intention to renew an Order for a period of time at prices to be
negotiated.
(c) Time-and-material Service includes, on a call-by-call
basis and on the basis of Supplier service personnel availability, technical
assistance using on-site or remote techniques, as appropriate, to analyze a
problem, prescribe remedial action and, if ordered, make necessary repairs.
(i) TYPES OF SUPPORT SERVICES. The following Support
Services may be supplied to Ordering Company in accordance with the
Maintenance Level of Service
ordered.
(A) CALL RECEIPT AND ROUTING - Supplier will
provide a call receipt and routing function for use by Ordering
Company. Ordering Company may access twenty-four (24) hour a day, seven
(7) day a week telephone support for all Severity Level problems with
the dial-in number being specified in the Maintenance Service
Agreement. Requests may be made by electronic means as specified in the
Maintenance Service Agreement, and with the mutual acceptance of
Ordering Company and Supplier. Supplier will maintain an entitlement
database to determine Ordering Company entitlements (i.e., Service
Level) and how the call should be routed. Supplier will work problems
outside the ARM coverage period only at Ordering Company's expressed
request and Ordering Company will be billed at Supplier's time and
material rates.
(B) ASSISTANCE REQUEST DATABASE ACCESS -
Pursuant to a fixed-term Maintenance Order and subject to availability,
Ordering Company will be given access to automated trouble reporting
tools. Customized trouble reporting features are fee-based.
(C) CONSULTATIVE SUPPORT - Remote telephone
services include delivering technical assistance and advice for service
ARs reported by Ordering Company.
(D) THIRD PARTY SOFTWARE SUPPORT - If a
condition is caused by the Third Party Software covered in the Order,
Supplier shall be responsible for diagnosing and resolving Third Party
Software defects.
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(E) DIAGNOSTIC SUPPORT - Supplier shall support
Ordering Company in analyzing Ordering Company problems, including
isolation of defects to one of the following areas:
(1) Problems arising as a result of Products
or their associated materials or documentation; and
(2) Other problems not directly related to
Products, such as Ordering Company operations problems, data base
problems, as well as any other interfacing system problems.
(F) WORKING LOCATION - Supplier's working location is
remote from Product site. At Ordering Company's request, and as agreed
to by Supplier, Supplier will provide on-site assistance in resolving a
problem. Such assistance will be billed at a minimum of eight (8) hours
a day at the then current Supplier Time and Material (T&M) rate.
Reasonable travel and living expenses incurred by Supplier will also be
billed.
(G) SEVERITY LEVEL AND PRIORITIZATION - Supplier
shall perform Problem Resolution Management in accordance with the
Severity Level condition identified by Ordering Company. Severity Level
Definitions are further defined in Exhibit 10-1. The priority for
problem resolution will be based on the Severity Level of outstanding
reported conditions. Severity Level One (1) conditions will receive top
priority support. In the event that Ordering Company's notification of
a Severity Level One causes Supplier to redirect its efforts being
expended on a lower Severity Level condition, Supplier shall notify
Ordering Company that there will be a delay in correcting the lower
Severity Level condition.
(H) PROBLEM MANAGEMENT - Supplier shall perform
procedures and actions upon written or oral request of Ordering Company
to investigate and develop the resolution of a reported condition in a
manner that provides Ordering Company a single interface. This service
is performed only for Products covered under the Maintenance Service
Order.
(I) MANAGEMENT NOTIFICATION - Supplier will observe
the following escalation procedures:
(1) SEVERITY LEVEL ONE - In the event of a
Severity Level One condition that is still unrestored four (4) hours
after the condition is reported, Supplier will notify Supplier's
supervisory management or next level of expertise of the unrestored
condition. If the condition is still unrestored within eight (8) hours
after the condition is reported, the next higher level of Supplier
supervisory management or level of expertise will be notified of the
unresolved condition. Once the highest level of expertise is reached,
no further escalation will occur.
<PAGE> 77
(2) SEVERITY LEVEL TWO - In the event of a
Severity Level Two condition that is still unrestored twelve (12) hours
after the condition is reported, Supplier will notify Supplier's
supervisory management of the unrestored condition.
(J) SERVICE PERFORMANCE REPORTS (SPR) - Supplier will
provide quarterly reports of Supplier's performance against the
objectives stated in this Article 10.
(K) ORDERING COMPANY NOTIFICATION BULLETINS -
Supplier will provide Ordering Company Notification Bulletins to
Ordering Company on an as needed basis.
(L) ON-SITE ASSISTANCE - At Ordering Company's
request and as agreed to by Supplier, a Supplier's engineer may be
dispatched to Ordering Company's site for resolution of a problem. If
the problem is not caused by a Designated Processor covered by this
Agreement, On-Site Assistance will be billed at minimum of eight (8)
hours a day at the then current Supplier time and material (T&M) rate.
Reasonable travel and living expenses incurred by Supplier as
referenced in Section 3.1(g), PRICES, will also be billed.
(ii) PERFORMANCE METRICS & OBJECTIVES. (A) The Performance
Metrics described in this Section shall apply to Products and Licensed
Software covered under the Preferred and Standard Service Levels as
described in Section 10.9(c)(ii)(E) below. The problem must be
reproducible at either Supplier's location or on Ordering Company's
system verifiable by Supplier. The Severity Level of any problem shall
be determined by Ordering Company; however, if during resolution
Supplier determines that the Severity Level of the problem claimed by
Ordering Company to be inaccurate, the Severity Level may be changed by
Supplier upon mutual agreement with Ordering Company. Ordering Company
requests which do not go through Supplier's Call Receipt function will
be excluded from the Performance Metrics.
(B) Initial Response. During the term of a fixed-term
Maintenance Service Agreement, and upon expiration of any product
warranty, Supplier agrees to respond to Ordering Company's request for
Support Service called in through Supplier's Call Receipt function as
described in the table in Section 10.9 (c) (ii) (E), GENERAL SERVICE
DESCRIPTION, within sixty (60) minutes, twenty-four (24) hours a day,
seven (7) days a week, for all Severity Levels as reported in the
assistance request database. Response time will be validated through
the use of the Service Performance Report (SPR). Ordering Company
requests which do not go through Supplier's Call Receipt function will
be excluded from the Performance Metrics.
(C) Service Restoration for Service Levels One and
Two shall be mutually agreed to by Ordering Company and Supplier, and
documented in the
<PAGE> 78
Maintenance Service Agreement. Restoral time will be validated through
the use of the Service Performance Report (SPR).
(D) Resolution of Defect and Service Severity Levels
One through Four shall be mutually agreed to by Ordering Company and
Supplier, and documented in the Maintenance Service Agreement.
Resolution times will be validated through the use of the Service
Performance Report (SPR).
(E) The following table represents the Performance
Objectives for the Metrics listed in (B), (C), (D) above.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
COMMITMENTS
METRIC OBJECTIVE PREFERRED STANDARD
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Initial Response % 100% 95% 75%
- -------------------------------------------------------------------------------------------------
Restore Severity Level 1 AR 100% 95% 75%
- -------------------------------------------------------------------------------------------------
Restore Severity Level 2 AR 100% 95% 75%
- -------------------------------------------------------------------------------------------------
Resolve Service AR 100% 95% 75%
- -------------------------------------------------------------------------------------------------
Resolve Defect AR 100% 95% 75%
- -------------------------------------------------------------------------------------------------
</TABLE>
In addition, for 4ESS switch and 5ESS switch, the Switching Software Support
Plan (SSP), defines how the level of support changes with time upon the
introduction of new base releases. Exhibit 10-2 further explains the support
service that will be offered during each of the life cycle phases.
10.10 ELIGIBILITY FOR MAINTENANCE SERVICE. (a) Products and
Software furnished and installed by Supplier are eligible for Maintenance
Service without initial evaluation by Supplier provided the Service commences
not later than the end of the Warranty Period. Unless otherwise agreed by
Supplier in writing, Maintenance Service for Software shall only be available
for the generic that is current at the time that such Service is ordered and the
immediately preceding generic, as well as a generic where the term of warranty
is still in effect.
(b) In all other situations, the Products and Software shall
not be eligible for Maintenance Service until Supplier, at its option, has made
an initial evaluation to determine whether modifications are required to make
the Product or Software eligible. If, in Supplier's judgment, modifications are
required for this purpose, Supplier will provide a written estimate based on
standard rates to Ordering Company for making such modifications. Upon Ordering
Company's written Acceptance, Ordering Company will be billed at Supplier's then
standard rate for such evaluation and any such modifications furnished by
Supplier. Software will not be eligible for Maintenance Service unless Supplier
determines that the Software is in good working order in accordance with its
Specifications and can be maintained in such condition.
10.11 ORDERS FOR MAINTENANCE SERVICES. Ordering Company shall
place Orders for Maintenance Services, indicating the Level of Service to be
provided for each Product upon commencement of the Order. The Level of Service
chosen shall remain in effect without
<PAGE> 79
change for the contract period covered by the Order. All installations of each
Product and each release of Software must be served at the same Level of
Service.
10.12 PRICES. Sixty (60) days prior to the expiration of any
fixed-term Service Order, Supplier will, at Ordering Company's request, submit a
price for the renewal of the Service. Charges for time-and-material Maintenance
Service shall be determined at Supplier's applicable time and material rates in
effect at the time an Order for such Service is accepted and will be based on
the total work-hours (which includes travel time) expended on the job, and
actual travel expense. Such charges shall be based on a minimum number of hours.
10.13 PERIODS OF MAINTENANCE SERVICE. Maintenance Service will
be provided in accordance with the Level of Service specified in an Order.
10.14 MAINTENANCE SERVICE EXCLUSIONS. (a) Unless expressly
agreed by Supplier, Maintenance Services to be provided under this Article do
not include:
(i) Performing preventive maintenance;
(ii) Making corrections to user-defined reports;
(iii) Making Specification changes or performing
Services connected with relocation of the Product;
(iv) Service which is impractical for Supplier to
render because of changes not authorized by Supplier in the Designated
Product processor, hardware configuration, Supplier's Product or the
Product environment in which Supplier's Product operates; and
(v) Modification or replacement of Product, repair of
damage, or increase in Service time caused by:
(A) Failure to continually provide a
suitable operational environment with all facilities prescribed by the
applicable document including, but not limited to, the failure to
provide, or the failure of, adequate electrical power, air
conditioning, or humidity control;
(B) The use of the Product in a manner not
in accordance with its Specifications, operating instruction or
license-to-use;
(C) Accident; disaster, which shall include,
but not be limited to, fire, flood, earthquake, water, wind and
lightning; transportation; neglect or misuse; pest damage; or power
failures or surges from sources external to the Product;
(D) Modifications, maintenance, or repair
performed by a party other than Supplier;
<PAGE> 80
(E) The conversion from one Supplier
Software release to Supplier's subsequent Software Release, or the
failure of Ordering Company to apply previously applicable
modifications and corrections offered by Supplier;
(F) Attachment of unspecified or
non-approved products to the Product, including updates from
manufacturers of third party Software and Software not licensed by
Supplier, or Designated Processors that have not been certified by
Supplier, or failure of a processor or other equipment or software not
maintained by Supplier, or failure of removable or rotating storage
media.
(vi) Problem Management, as follows:
(A) Database Problems - If the condition is
mutually determined to be the result of corruption of the Software
Product data base, and such corruption is not the direct result of the
Product, the condition will be referred back to Ordering Company for
resolution. At Ordering Company's request, and at Supplier's option,
Supplier may prepare a proposal for billable corrective action to
correct Ordering Company's data base. However, if corruption is the
result of, or caused by another of Supplier's Products or Services,
Supplier shall initiate Problem Management regardless of whether such
Software Product is covered under an Order.
(B) Hardware/Firmware Problems - When a
condition has been isolated to a problem in hardware or Firmware not
covered under this Agreement, the condition will be referred back to
Ordering Company for disposition under whatever arrangements Ordering
Company may have for such hardware or Firmware.
(C) Other/Interfacing Problems - If the
condition is determined mutually to be caused by systems other than the
Products covered under the existing Order, including, but not limited
to, systems which interface with the Product, the condition will be
referred to Ordering Company for corrective action unless such other
system has been furnished by Supplier, in which case, Supplier shall
initiate Problem Management. However, if a defect is identified with
Software or Products covered by the Order which is documented or
advertised to interface or work with other systems, hardware, Products
or Software, Supplier shall conduct restoral and correction procedures
as required for a defect and not as Problem Resolution Management.
(D) Additional Services - Additional
services, including but not limited to custom feature development,
training, planning sessions, and other value-added services, are not
included in the fees paid under this Agreement. Such services may be
available through a Firm Price Quote (FPQ).
(b) At the request of Ordering Company, Supplier, at its
option, may perform Maintenance Services in the excluded conditions listed
above, at Supplier's rates and terms in effect at the time of such request.
<PAGE> 81
10.15 ORDERING COMPANY RESPONSIBILITIES. In addition to the
responsibilities specified in Section 6.4, ORDERING COMPANY'S RESPONSIBILITIES,
Ordering Company shall be responsible for:
(a) PROVIDING INFORMATION TO CALL RECEIPT. (i) Identification
of the condition and its isolation to a particular component of the system
believed to be Supplier's responsibility.
(ii) Collection of sufficient supporting
documentation from the Product or Software for inclusion in the AR
database.
(iii) Determination that there are no outstanding
conforming Software Product Updates that correct the condition.
(iv) The calling Ordering Company personnel shall
provide the following information, if applicable:
(A) Caller's name, Location, and Company;
(B) Call-back Telephone Number;
(C) Remote Dial Access to Ordering Company
System;
(D) System name and Location;
(E) Processor Location, Type, and Serial
Number, if available;
(F) Nature of the Question or Situation;
(G) The Calling Party's Alternate Contact;
(H) Description and History of Problem and
Efforts to Solve it by Ordering Company;
(I) Contract number or other proof of
coverage as requested by Supplier.
(b) PROVIDING PROBLEM DIAGNOSTIC MATERIALS. If Ordering
Company reports a condition, Ordering Company will be responsible for providing
adequate support material to enable the diagnosis of the condition. Such support
materials may include, but not be limited to, a description of the
circumstances, a dump of system logs or buffers, a listing of data base
contents, and console printouts as required by Supplier.
<PAGE> 82
(c) MAINTAINING THE PRODUCT OR SOFTWARE. (i) Make no
modifications other than those approved by Supplier. This includes updates from
manufacturers of third party Software or Designated Processors that have not
been validated by Supplier.
(ii) Install all Software Product Updates licensed by
Ordering Company under this Agreement within a reasonable time, unless
Ordering Company has previously notified Supplier of defects discovered
in the Software Product Update that make installation unfeasible.
(iii) Follow all Supplier's and relevant third party
Software or Designated Processor manufacturer's applicable
installation, operation, administration, and maintenance instructions.
(iv) Provide the proper environment and electrical
and telecommunications connections as specified by Supplier or the
relevant Designated Processor manufacturer.
(v) Maintain a back-up procedure external to the
Designated Processors sufficient to reconstruct lost or altered files,
data, or programs.
(vi) Install the appropriate Class A Change Notices
in a timely fashion as mutually agreed to by the parties.
(d) ASSISTING SUPPLIER PERSONNEL PROVIDING ON-SITE ASSISTANCE.
(i) Have an Ordering Company representative at the equipment location
during any on-site Supplier service activity. Ordering Company may be
subject to additional incurred time and material charges if Ordering
Company fails to have a representative at the equipment location at the
agreed time.
(ii) Provide adequate communication facilities and
work space for Supplier.
(iii) Provide the maintenance test facilities which
are embedded in equipment to which the product being installed will be
connected or added, and maintenance documentation sufficient for
maintenance of Products and Software not covered by this Agreement that
interface with the Products and Software covered under this Agreement.
(iv) Ensure that work done at the site by Ordering
Company does not interfere with Supplier's performance of On-Site
Assistance.
10.16 MAINTENANCE OF RELOCATED SOFTWARE. Software serviced
under this Agreement which is moved to another Designated Processor of Ordering
Company shall continue to be covered under this Agreement provided that Supplier
has received forty-five (45) days prior written notice of such relocation and,
if requested by Supplier, the parties have
<PAGE> 83
renegotiated the objective response time (the time within which Supplier shall
use reasonable efforts to respond to Ordering Company maintenance requests)
selected by Ordering Company in an Order. If Ordering Company requests Supplier
to relocate Software, Ordering Company shall be charged for all such work
performed by Supplier at the negotiated rates.
10.17 SOFTWARE PRODUCT UPDATE SERVICES. Pursuant to a
fixed-term Software Maintenance Service Order, Supplier agrees to provide the
Software Product Update Services in accordance with the following terms and
conditions:
(a) DEFECT REPORTING - Any defects found in the Software
Product may be reported by calling Supplier's Call Receipt function. A tracking
report will be entered into the AR tracking database and referred to Supplier's
technical support.
(b) SOFTWARE PRODUCT UPDATES - Supplier will correct defects
in the Software Product and third party Software in accordance with the support
Services as described in Exhibit 10-1. Supplier will correct defects as follows:
(i) Supplier may periodically provide Software
Product Updates to the Software to correct defect conditions. If
requested by Ordering Company, Supplier shall provide documentation to
enable Ordering Company to train Ordering Company's personnel in the
operation of the Software modified by such release. Supplier shall make
modifications to the documentation to clarify issues or items not clear
to Ordering Company, as required.
(ii) Fees paid in accordance with a Software
Maintenance Service Order cover only Product Updates made generally
available during the term covered by an Order. After expiration of the
term covered by an Order, Ordering Company is entitled to the next
scheduled Product Update, which may contain corrections for defects
reported during the term of an Order.
(iii) Due to the nature of Software, Software Product
Updates require all previous Software Product Updates for the
particular generic/software release as prerequisites. It may not be
possible to install any Software Product Updates unless all previous
Software Product Updates have been installed. These previous Software
Product Updates are available for an additional fee.
(iv) If the condition is isolated to the related
documentation for the Product or Software, the fix will be given to
Ordering Company as part of the defect correction or Product Update
procedure. Within two (2) years, a permanent fix will be published in
the following release of the related documentation.
(c) NOTIFICATION OF CORRECTIONS - Supplier agrees to notify
Ordering Company of the availability of a resolution or work-around to a defect
reported by Ordering Company.
<PAGE> 84
(d) ORDERING COMPANY CORRECTIVE MAINTENANCE RESPONSIBILITY -
Ordering Company agrees to install the corrections or replacements provided
under this Agreement within a reasonable period of time. Ordering Company's
failure to install emergency fixes, work-arounds, patches or releases will cause
the Software Product to be considered non-standard until all such fixes are
installed, unless Ordering Company has previously notified Supplier of problems
with such emergency fixes, work- arounds, patches or releases.
10.18 MAINTENANCE SERVICES WARRANTY. Supplier warrants to
Ordering Company that Maintenance Services will be performed in a professional
manner and in accordance with Supplier's specifications or those referenced in
an Order and with accepted practices in the community in which such Services are
performed, using material free from defects except where such material is
provided by Ordering Company. If the Services prove to be not so performed and
if Ordering Company notifies Supplier, within the period of time equal to the
repaired Product warranty period (Exhibit 8-1), of the Product being repaired,
or six (6) months, whichever is less, commencing on the date of Acceptance of
the Service, as identified in writing by Supplier, Supplier, at it's option,
either will correct the defect or nonconforming Service for which Supplier is
responsible or render a full or prorated refund or credit based on the original
charge for the Services. After the corrective action, Ordering Company shall
have the right to Acceptance of the corrective work done.
D. MISCELLANEOUS SERVICES
10.19 TRAINING. If requested by Ordering Company, Supplier
will, at mutually agreed to prices: (a) provide instructors and the necessary
instructional material of Supplier's standard format to train Ordering Company's
personnel in the installation, planning and practices, operation, maintenance,
and repair of material furnished under this Agreement with such classes to be
conducted at intervals and locations agreed upon by Supplier and Ordering
Company; or, (b) license Ordering Company to reproduce Supplier's copyrighted
training modules or manuals, covering those areas of interest outlined in (a) of
this clause, sufficient in detail and format, to allow Ordering Company to
develop and conduct its own training program.
10.20 INSTALLATION/CUTOVER ASSISTANCE. In the event Supplier
is not installing the material, and if requested by Ordering Company, Supplier
agrees to make available at the installation site, at a negotiated price plus
travel and living expenses, a field engineer to render installation and cutover
assistance as required by Ordering Company.
ARTICLE XI
OUTSIDE PLANT SERVICES
11.1 PURPOSE AND SCOPE OF THIS ARTICLE. The purpose of this
Article 11 is to set forth certain additional terms and conditions relating to
the provision of Outside Plant
<PAGE> 85
Services ("Services"). With respect to such Services, to the extent that any
provision set forth in this Article 11 conflicts with any provision set forth
elsewhere in this Agreement or in any project, Work Order or Field Order, this
Article 11 shall control. In the event of any conflict between this Article 11
and the Specifications, this Article 11 shall control. This Agreement shall not
affect or modify any agreements between the parties regarding Services currently
in the course of performance at the time of execution hereof; however, to the
extent that there are ambiguities or subject matters not addressed in such
agreements, this General Purchase Agreement shall apply.
11.2 WORK; SUPPLIER MATERIALS; PERMITS; RAILROADS; SECURITY.
(a) Supplier will provide, construct or install or arrange to
have provided, constructed or installed those Products and Services as specified
in the Work Order or Supplemental Agreement (such Products and Services
hereinafter referred to as "Work"). Work shall not consist of the tasks and
responsibilities, including supply of materials or performance of services to be
provided or performed by Ordering Company , as set forth in Section 11.4,
ORDERING COMPANY OBLIGATIONS, below.
(b) For materials to be furnished by Supplier, Supplier shall
assume full responsibility for furnishing materials of the quality and quantity
specified, and shall be responsible for the timely delivery of all materials
subject to the reasonable availability of such materials. Such materials shall
conform to the respective Specifications and shall be subject to the warranty
limitations set forth in Section 11.12, PRODUCT RELOCATION OR MODIFICATION,
below. Prior to purchasing a substitute product, Supplier shall submit a formal
written request to the Engineer for Acceptance. If requested by Engineer,
Supplier shall furnish manufacturer's shop drawings and specifications.
(c) Supplier shall obtain all permits, licenses and approvals
at its own expense other than Ordering Company Permits (as defined in Section
11.4, ORDERING COMPANY OBLIGATIONS, below) that are required for Supplier's
construction operations, including waste disposal. Supplier shall comply with
the requirements of all permits, licenses and approvals and shall, at all times,
keep a copy of the permits, licenses and approvals at the Site.
(d) If Sunday, holiday, or night Work is specifically called
for as a permit requirement, Supplier shall provide adequate personnel,
equipment, and supervision for the proper performance and control of the Work in
accordance with such requirement. For such Work, Supplier shall be entitled to
extra payment, unless such Work was specifically contemplated in the applicable
Work Order and included in the Price.
(e) Where Work is to be performed on railroad property,
Supplier shall cooperate with the railroad personnel in performance of the Work
and shall satisfy railroad requirements.
<PAGE> 86
(f) Supplier shall be responsible for all security affecting
the performance of its Work.
11.3 ORDERING COMPANY FURNISHED MATERIALS. (a) All material
furnished by Ordering Company shall be delivered to Supplier at storeyards or
other locations to be mutually agreed upon; and, Supplier shall have charge of,
and be responsible for, all the material upon and after its delivery to Supplier
and shall return to Ordering Company all the material not required for the
completion of the Work, excluding waste.
(b) Supplier shall replace all Ordering Company furnished
materials which are lost or damaged while in the custody of Supplier.
Replacement materials shall be of a type and quality substantially equal to the
original materials, acceptable to the Engineer, and shall be obtained promptly
to prevent delay of the Work.
(c) Supplier shall rehandle and reload, if required, all
Ordering Company furnished materials and equipment which have been rejected by
Supplier.
(d) Ordering Company shall reimburse Supplier for all its
material shipping and handling expenses associated with:
(i) The return and/or replacement of defective
Ordering Company provided materials.
(ii) The return of excess materials resulting from
the termination of an Order or a decrease in the quantities of
materials required to complete a Work Order for reasons other than
breach of contract or material non-performance by Supplier.
(iii) The return of materials provided by Ordering
Company in excess of those requested by Supplier in the Bill of
Materials.
(e) Unless expressly stated to the contrary, the Price does
not include costs for any Ordering Company furnished material nor does it
include any Supplier charges for re-engineering, reinstallation, modification,
or repair Services to Ordering Company furnished material. New or used material
(if any) furnished by Ordering Company shall be in such condition that it
requires no repair and no adjustment or test effort in excess of that normal for
new material. Ordering Company assumes all responsibility for the proper
functioning of such material under normal conditions of use and/or when properly
installed. Ordering Company shall also provide the necessary information for
Supplier to properly install such material.
11.4 ORDERING COMPANY OBLIGATIONS. (a) On or before the start
date, at its own expense, Ordering Company will complete or provide, or arrange
for the completion or provision, of all of the following "Ordering Company
Obligations" set forth or referred to in this Section 11.4, ORDERING COMPANY
OBLIGATIONS. Ordering Company shall fulfill all obligations applicable to
Ordering Company-owned or -controlled buildings set forth in
<PAGE> 87
Section 10.7, CONDITIONS OF INSTALLATION AND OTHER SERVICES PERFORMED ON
ORDERING COMPANY'S SITE, above, including but not limited to provision of
adequate Access to Building and Site, General Building Conditions, Repairs to
Buildings, Openings in Buildings, Floor Space and Storage Facilities and
Building Grounds. In addition to Ordering Company's obligations in the
Specifications, Ordering Company shall comply with the following:
(i) CONSULTANTS FOR SPECIAL SITES - Except as
otherwise provided in Section 11.18, ARCHAEOLOGICAL SITES;
ENVIRONMENTAL PROTECTION, Ordering Company shall provide, or, at
Ordering Company's option, shall authorize Supplier to provide, any
consultants for special considerations, including, but not limited to,
biologists to evaluate endangered species impacts or archaeologists to
evaluate historically sensitive sites and qualified experts to evaluate
environmentally hazardous conditions. In the event that Supplier
provides such consultants, Ordering Company shall reimburse Supplier
for such consultant costs on a Lump Sum Price basis; and
(ii) EASEMENTS, PERMITS, AND RIGHTS OF WAY - Unless
otherwise required by applicable ordinances, codes or statutes, any
necessary highway permits, construction permits, easements, joint-use
or right of way grants shall be obtained and paid for by Ordering
Company and Ordering Company shall file, or have filed, the necessary
papers (collectively, the "Ordering Company Permits"). Ordering Company
Permits and corresponding permit applications, if necessary, are
included in the Agreement Documents. If a permit is unavailable at the
time of issue of the Agreement Documents, the permit application only
will appear. Permits which are not available at the time of issue of
the Agreement Documents will be provided to Supplier prior to the Start
Date specified in each Work Order. When permits not listed in the
Agreement Documents are obtained by Ordering Company, a copy will be
provided to Supplier.
(iii) Railroad flagmen and/or inspectors required to
be on the Site as a condition of an easement permit or right of way or
other railroad requirement, will be provided by Ordering Company at no
cost to Supplier.
11.5 WORK ORDERS; CHANGES. (a) Ordering Company shall submit
Work Orders to Supplier utilizing Ordering Company's form. Each Work Order and
Field Order shall contain or refer to a document containing the information
necessary for Supplier to fulfill the Work Order, including, but not limited to,
the information called for by Section 2.1, ORDERS, above, a reference to this
Agreement, Special Conditions, a Start Date, Completion Date and a Completion
Schedule. If such work items have been mutually agreed upon in a writing signed
by the parties (e.g., a Supplemental Agreement or a previously issued Work
Order), then Supplier shall proceed to fulfill the Work Order (i.e., the Work
Order shall function as a notice by Ordering Company for Supplier to proceed
with the Work). If such items have not been agreed upon, Supplier may reject the
Work Order or propose changes to the Work Order. If the parties are unable to
agree, the Work Order shall be deemed abandoned.
<PAGE> 88
(b) Each Work Order and Field Order shall be subject to the
terms and conditions of this Agreement which shall control over any conflicting
provisions in such Work Order.
(c) Changes by Ordering Company to an accepted Work Order
shall be treated as a separate Work Order unless the parties expressly agree
otherwise. In addition, subject to Section 11.18, ARCHAEOLOGICAL SITES;
ENVIRONMENTAL PROTECTION, Supplier may identify additional changes to the Work
which must be performed due to certain conditions, as set forth in Section 11.8,
LOCAL CONDITIONS; DIFFERING SITE CONDITIONS below. If any such change affects
Supplier's ability to meet its obligations under the original Work Order, any
Price or Completion Date quoted by Supplier with respect to such original Work
Order is subject to change. All such changes must be approved in writing by
authorized representatives of both parties using Ordering Company's Form.
(d) Minor changes may be made by means of a Field Order.
11.6 PLANT PROTECTION; UNDERGROUND FACILITIES. (a) Supplier
shall adhere to the applicable MOP with respect to Ordering Company's
underground facilities.
(b) Ordering Company has made minimal efforts to identify
existing utilities by field surveys and utility records research. Existing
underground and aerial utilities within the construction limits of the Work are
indicated on the Drawings only to the extent information on such utilities has
been made available to, or discovered by, the Engineer in the performance of the
design work. Except to the extent that the information contains a material
misrepresentation of fact, the Engineer and Ordering Company expressly disclaim
all responsibility for the accuracy and completeness of the information
indicated. Supplier shall conduct its operations on the basis that underground
and aerial utilities may exist which are not indicated on the Drawings.
(c) Supplier shall be responsible for locating and
identifying, except for Ordering Company's facilities or structures, all
existing utilities or structures within the construction limits of Work and
elsewhere where Supplier's construction operations may subject the utilities or
structures to damage. This shall be done prior to the performance of the Work.
All information relative to the above shall be recorded and incorporated into
the records in a manner reasonably acceptable by the Engineer.
(d) For Ordering Company facilities or structures, Supplier
shall adhere to the "One Call" procedure, as set forth in the Specifications.
11.7 PROTECTION OF PUBLIC AND PUBLIC PROPERTY. Subject to any
more stringent requirements of Section 11.18, ARCHAEOLOGICAL SITES;
ENVIRONMENTAL PROTECTION, and Section 6.20, COMPLIANCE WITH LAW:
(a) Supplier shall in the performance of the Work exercise
reasonable measures to minimize inconvenience to the public and shall use its
reasonable efforts to preserve and protect
<PAGE> 89
all trees, shrubs, grass, or other vegetation on or adjacent to the right of way
or Site which do not unreasonably interfere with the Work. Unless otherwise
required by Ordering Company's Representative, Supplier shall restore all such
property which may be disturbed in the execution of its Work to its former
visible condition.
(b) In accordance with Supplier's standard procedures, all
pavement, surfacing, driveways, curbs, walks, buildings, utility poles, guy
wires, fences, and other surface structures affected by Supplier's Work,
together with all sod and shrubs in yards and parking areas, shall be
substantially restored to their original visible condition, whether within or
outside the easement. Supplier shall be responsible for (i) making reasonably
satisfactory and acceptable arrangements with the owner of, or the agency or
authority having jurisdiction over, the damaged property concerning its repair
or (ii) replacement, or payment of reasonable costs incurred in connection with
such damage caused by Supplier or its Subcontractors.
11.8 LOCAL CONDITIONS; DIFFERING SITE CONDITIONS. (a) Upon
execution of a Work Order, Supplier admits to being reasonably informed as to
the nature and locations of the Work set forth therein; provided, however, that
in all cases, except as otherwise provided in Section 11.18, ARCHAEOLOGICAL
SITES; ENVIRONMENTAL PROTECTION, Differing Site Conditions shall be the basis
for a Change Order and additional compensation as set forth below in this
Section 11.8.
(b) Delays, Additional Work, or extra costs may result from
Differing Site Conditions of which neither Ordering Company nor Supplier should
reasonably have had knowledge at the time of the effective date of the earlier
of the Supplemental Agreement, the Work Order and the Change Order. In such
case:
(i) Supplier shall, promptly and before Differing
Site Conditions are disturbed, notify the Engineer in writing by means
of the Ordering Company Change Order Form of such conditions;
(ii) After receiving notice from Supplier, the
Engineer shall promptly investigate the Differing Site Conditions, and,
if in his reasonable judgment, such conditions exist, the Ordering
Company Representative shall by means of a Change Order make an
equitable adjustment to the Price and the Completion Schedule, as
agreed by Supplier; and
(iii) No claim of Supplier for an equitable
adjustment because of Differing Site Conditions shall be allowed unless
written notice has been given as required.
11.9 OUTSIDE PLANT SERVICES SCHEDULING. Prior to the
pre-construction meeting, Supplier shall submit a detailed Outside Plant
Services Scheduling schedule as set forth in the Specifications. The Engineer,
Supplier and Ordering Company Representative shall hold
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weekly status meetings at mutually agreed upon times and places. Additional
coordination between the parties will be held on an as needed basis as set forth
in the Specifications.
11.10 INSPECTION AND CORRECTION OF DEFECTS; ACCEPTANCE. (a)
Ordering Company's Representative shall have free access to the Work performed
and materials furnished by Supplier under this Agreement for the purpose of
inspection thereof. Prior to the commencement of the Warranty Period (as defined
in Section 11.12, WARRANTY, below), Supplier shall upon receipt of written
request from Ordering Company's Representative, furnish sufficient labor and
facilities at Supplier's expense, to make an inspection of Work already
completed by uncovering and exposing the Work for inspection.
(b) If the inspection discloses that the Work reasonably
conforms to the applicable Specifications in all material respects, the cost to
Supplier of (i) uncovering and exposing the Work, and (ii) examining and
restoring of the Work shall be considered a Change Order and shall be paid for
by Ordering Company. In addition, if completion of the Work has been delayed
thereby, Supplier shall be granted a suitable extension of time and/or delay and
disruption compensation, as mutually determined by Ordering Company and
Supplier.
(c) If the inspection discloses that the Work does not conform
to the applicable Specifications in all material respects, Supplier shall not
have a basis for a Change Order and shall correct the Work at its own expense.
The Completion Date shall not be extended because of any delay caused by such
non-conforming Work.
(d) If Ordering Company notifies Supplier of a defect or
non-conformance during the progress of the Work or prior to Final Acceptance or
Beneficial Occupancy, Supplier will schedule the repair or replacement of such
Work within two (2) work days after receipt of written notice.
(e) Supplier may submit to Ordering Company a notice of
completion, placing Ordering Company on notice that the Work is complete and
ready for inspection. Ordering Company shall inspect the Work promptly and in no
event later than seven (7) business days after receipt of such notice. In the
event that Ordering Company does not inspect the Work within such time period,
Final Acceptance shall be deemed to have occurred with respect to such Work. If
the inspection results in a Punch List, Final Acceptance shall occur when the
Punch List is complete to Ordering Company's reasonable satisfaction. Again,
Supplier may submit a notice of completion regarding the Punch List and the same
procedure set forth above shall apply (i.e., Ordering Company shall inspect the
Work no later than seven (7) business days after receipt of such notice and
Final Acceptance shall be deemed if Ordering Company fails to inspect within
that time).
11.11 SUPERVISION; CONTROL OF WORK. (a) Supplier shall keep on
the Work site a competent Superintendent and any necessary assistants and all of
them shall be reasonably satisfactory to Ordering Company's Representative.
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(b) Supplier shall have full control and direction (i) over
the mode and manner of doing the Work, subject to Sections 6.20, COMPLIANCE WITH
LAWS, and 11.18, ARCHAEOLOGICAL SITES; ENVIRONMENTAL PROTECTION, and MOPS and
(ii) of its personnel employed on or about the Work.
11.12 WARRANTY.
(a) FOR PRODUCTS. The Warranty for Products is set forth in
Section 8.2, WARRANTY; the Warranty Period is set forth in Exhibit 8-1,
provided , however, that the Warranty Period begins on the earlier of
Final Acceptance of a completed Work Order or Beneficial Occupancy.
(b) FOR SERVICES. The warranty shall begin on the earlier of
Final Acceptance of a completed Work Order or Beneficial Occupancy and shall
extend for one (1) year (the "Warranty Period"). Supplier agrees to perform Work
in a professional manner; using competent and responsible personnel trained as
required by the most stringent of accepted industry practice, Supplier practice,
Section 6.20 COMPLIANCE WITH LAWS, and Applicable EH&S Requirements (Section
11.18 (c)); and in accordance with the Specifications or other agreed upon
specifications and in accordance with accepted practices in the community in
which the Work is performed using material free from defects except where such
material is provided by Ordering Company. If Work provided by Supplier proves
not to have been so performed, and if Ordering Company notifies Supplier in
writing to that effect within the Warranty Period, then Supplier shall, at its
option, correct any defects or render a full pro-rated refund or credit based on
the original charges for the Work.
(c) If the refund or option is not chosen and if, during the
Warranty Period, Ordering Company notifies Supplier of a defect covered under
paragraphs (a) and (b) above, then Supplier shall commence to repair or replace
such Work within seven (7) days after receipt of written notice. Notwithstanding
the above, if the refund or credit option is not chosen and if Ordering Company
notifies Supplier that the defective or non-conforming Work is of a critical
nature for network protection or for safety reasons, Supplier shall commence to
repair or replace the Work within twenty-four (24) hours after receipt of
written notice.
(d) The warranties provided in this Section 11.12 do not cover
repair for damages, malfunctions or service failures caused by: (i) actions of
any personnel not employed, directly or indirectly, by Supplier; (ii) Ordering
Company's failure to follow Supplier's installation, maintenance or operation
instructions; or (iii) a condition of Force Majeure.
(e) THE WARRANTIES STATED IN THIS SECTION 11.12 ARE EXCLUSIVE
AND ARE IN LIEU OF ALL OTHER EXPRESSED OR IMPLIED WARRANTIES, INCLUDING BUT NOT
LIMITED TO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
EXCEPT FOR (a) TANGIBLE PROPERTY DAMAGE AND PERSONAL INJURY FOR WHICH SUPPLIER
IS HELD LIABLE AND (b) THE REMEDY PROVIDED IN SECTION 5.1(e), ORDERING
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COMPANIES' REMEDIES, ORDERING COMPANY'S SOLE AND EXCLUSIVE REMEDY SHALL BE
SUPPLIER'S OBLIGATION TO REPAIR, REPLACE, MAKE CORRECTIONS OR REFUND AS SET
FORTH ABOVE IN THIS WARRANTY.
(f) PRODUCT RELOCATION OR MODIFICATION. Ordering Company shall
advise Supplier promptly of any change in location or modification to any
Product covered by warranty service under this Agreement. If such change, in
Supplier's opinion, creates a safety hazard or is likely to cause a malfunction,
Supplier may at Ordering Company's expense, correct the condition. If the
condition cannot be corrected to Supplier's reasonable satisfaction, Supplier
reserves the right to terminate without liability warranty service under this
Agreement for the products relocated and/or modified.
11.13 SAFETY; EMERGENCY. (a) Supplier shall be responsible for
the safety of the Work it performs; provided, however, that Supplier shall not
be responsible for any unsafe circumstance caused by Ordering Company or Others.
(b) Whenever, in the reasonable opinion of Ordering Company or
the Engineer, Supplier has not taken sufficient precautions for the safety of
the public or the protection of the Work or adjacent structures or property, and
whenever, in the reasonable opinion of Ordering Company or the Engineer, an
emergency has arisen and immediate action is considered necessary, then Ordering
Company, with prior notice to Supplier, may provide suitable protection by
causing Work to be done and material to be furnished and placed. To the extent
that Supplier is responsible for such emergency, the reasonable out-of-pocket
cost of such Work and material shall be borne by Supplier, and if the same is
not paid on presentation of the bills therefor, such costs may be deducted from
amounts due or to become due Supplier. The performance of such emergency Work
shall not relieve Supplier to the extent of its responsibility for damage which
may occur. Ordering Company shall make a good faith effort to contact and
utilize the services of Supplier to correct the emergency protection problem
prior to retaining the services of another contractor.
11.14 ENGINEER'S DRAWINGS AND SPECIFICATIONS. (a) Supplier
will be furnished a sufficient number of sets of Drawings including revisions
thereto and sufficient copies of the Specifications without charge. All Drawings
and Specifications shall be returned to the Engineer upon completion of the
Work. Supplier may retain sufficient copies to perform its Warranty
administration.
(b) The Drawings shall be signed by Ordering Company's
Representative and by Supplier.
(c) Supplier shall conduct a normal and customary check of all
dimensions, elevations, and quantities indicated on the Drawings and lists
furnished by the Engineer. If Suppliers discovers in the course of its work,
major discrepancies between the Drawings and the conditions at the site, errors
or omissions in the Drawings, and in the layout as given by stakes, points, or
instructions, Supplier shall notify the Engineer. Supplier will not be allowed
to take
<PAGE> 93
advantage of errors or omissions in the Drawings or other Agreement Documents.
Full instructions will be furnished by the Engineer should such error or
omission be discovered, and Supplier shall carry out such instructions as if
originally specified; provided, however, that in the event that such
instructions result in an increase in Supplier's costs or in a Construction
Delay (as defined in Section 11.20, CONSTRUCTION DELAY, below) in the Completion
Schedule, Supplier shall be entitled to reasonable compensation and, if
necessary, an extension in the Completion Schedule.
11.15 REFERENCE STANDARDS. Reference to the standards of any
technical society, organization, or association, or to codes of local or state
authorities, or AT&T EH&S Practices shall mean the latest standard, code,
Specification, or tentative standard adopted and published, unless specifically
stated otherwise. Since the Agreement will likely cover multiple years, except
as otherwise required by Section 6.20, COMPLIANCE WITH LAW, Supplier will be
given sufficient time to assess and comply with new standards, and to request
additional time and/or compensation for compliance.
11.16 RECORDS. Supplier shall maintain complete records
including, but not limited to all labor and equipment hours, material purchased,
and Work subcontracted to other parties. The records shall be maintained in
accordance with recognized commercial accounting practices and in such manner
that they may be readily audited. The records, including all supporting
documents, shall be available at all reasonable times for audit by Ordering
Company both during the contract period and for one year following the date of
final payment or until all disputes, if any, between Supplier and Ordering
Company have been finally resolved, whichever is later. Supplier shall also
maintain weekly sheets, showing all labor and equipment employed and material
received.
(a) Supplier shall maintain at the site where Work is being
performed or Supplier's local construction office a file of current copies of
all Drawings, Specifications, and other Agreement Documents and supplementary
data.
(b) Supplier shall create a timed and dated pictorial record
of the Site, including paths of ingress and egress, before and after Work is
performed for the purpose of precluding or settling claims.
11.17 UNFAVORABLE CONSTRUCTION CONDITIONS. (a) During periods
of unfavorable weather, wet or frozen grounds, or other unsuitable construction
conditions, Supplier shall confine its operations to Work which will not be
affected adversely thereby. No portion of the Work shall be constructed under
conditions which would adversely affect the quality or efficiency thereof,
unless special means or precautions are taken by Supplier to perform the Work in
a proper and satisfactory manner.
(b) If adverse weather conditions are encountered by Supplier
or its subcontractor(s) which are abnormal for the location and time of year for
which such claim is made, the construction schedule shall be extended by an
amount of time equal to the effect of
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such adverse weather. If adverse weather is the basis of a claim by Supplier for
additional time, such claim shall be documented by Supplier and include data
substantiating that weather conditions were abnormal for the period of time in
question and Supplier could not have been reasonably anticipated such adverse
weather and that such weather conditions had an adverse effect on the
construction schedule.
11.18 ARCHAEOLOGICAL SITES; ENVIRONMENTAL PROTECTION. (a)
Known archaeological, historical or cultural sites along the route will be
indicated on the Drawings by the Engineer.
(b) If archaeological, historical or cultural artifacts are
encountered during construction anywhere along the route, construction at that
location shall stop and the Engineer shall be promptly notified. Supplier shall
not harm or disturb such artifacts until instructed by Ordering Company or
Engineer as to how to proceed. If an extended delay is anticipated, Supplier may
elect to move to another location of Work. Notwithstanding anything to the
contrary herein, Demobilization and Remobilization or construction delay due to
unanticipated archaeological findings shall be a basis for extra payment.
Ordering Company shall be responsible for obtaining any necessary permits in
order to continue Work in the affected area.
(c) Ordering Company shall provide Supplier with AT&T EH&S
Practices, including updates. At the end of each calendar year, Ordering Company
shall provide Supplier a list of all AT&T EH&S Practices still in effect. AT&T
EH&S Practices shall be deemed applicable to the Work under a Work Order only
when provided to Supplier at or prior to the date of the Work Order. Supplier
shall at its own expense comply with the most stringent of: applicable
governmental laws, regulations, ordinances, rules, codes, orders, guidances,
permits, approvals; applicable easement or license conditions; applicable
Supplier EH&S practices; and applicable AT&T EH&S Practices (collectively
"Applicable EH&S Requirements").
(d) Supplier shall be deemed the generator of all waste
associated with the Work and shall dispose of that waste at its own expense as
set forth in Section 11.18(c), ARCHAELOGICAL SITES; ENVIRONMENTAL PROTECTION,
above. "Waste" shall include without limitation all hazardous and non-hazardous
substances and materials associated with the Work which are intended to be
discarded, scrapped, or recycled. It shall be presumed that all substances and
materials associated with the Work that are not incorporated into the Work
(including without limitation damaged components or tools, leftovers,
containers, garbage, scrap, residues or byproducts), except for substances and
materials that Supplier or Ordering Company intend to use in their original form
in connection with similar work, are waste.
(e) In the event conditions are discovered or created at or
near the site of the Work which may require (i) investigation or remediation or
(ii) unforeseen measures to protect the environment, health or safety
(collectively "Adverse EH&S Conditions"), the party discovering the condition
shall immediately notify the other party. The party in the best position to do
so (or, if the parties are equally situated, Supplier) will then immediately
take reasonable
<PAGE> 95
measures temporarily to contain or otherwise avoid exacerbation of or exposure
to the conditions. Unless Ordering Company affirmatively notifies Supplier
otherwise, Supplier shall also take such other actions as Applicable EH&S
Requirements prescribe.
(f) In the event Supplier's failure to comply with Section
11.18(c), ARCHAELOGICAL SITES; ENVIRONMENTAL PROTECTION, above or Supplier's
negligence or willful misconduct was a not insignificant cause of (i) the
Adverse EH&S Conditions or (ii) exacerbation of the Adverse EH&S Conditions,
Supplier shall indemnify and hold harmless Ordering Company and be responsible
for all costs associated with curing the Adverse EH&S Conditions. In all other
events Ordering Company shall indemnify and hold harmless Supplier from and be
responsible for all costs associated with curing the Adverse EH&S Conditions.
11.19 REPORTING DEFECTS. (a) If any part of Supplier's Work
depends, for its proper execution or results, upon the Work of any Others,
excepting Subcontractors, Supplier shall inspect and promptly report to Ordering
Company's Representative any defects in the Work that render it unsuitable for
the proper execution or results, and Supplier shall not proceed with that phase
of the Work until so authorized by Ordering Company's Representative. Ordering
Company may request and Supplier shall provide such reports in writing.
(b) Supplier shall be made aware of the delivery status of
Ordering Company furnished materials and of the progress of construction Work
being performed under separate contracts, in each case as informed by Ordering
Company pursuant to (c) below.
(c) Ordering Company will furnish information to Supplier
which may be available to it regarding the status of Ordering Company furnished
materials or construction Work being performed under separate contracts.
11.20 CONSTRUCTION DELAY. (a) Supplier will complete all Work
on or before the Completion Date unless either Ordering Company agrees to extend
that Date or Supplier is entitled to an extension pursuant to this Agreement.
(b) Ordering Company will perform all of its obligations,
including provision of labor and materials to be furnished by it in such a
manner so as not to delay the progress of the Work (such being a "Construction
Delay"), and in event of its failure to do so, thereby causing loss to Supplier
or as a result of one or more of the circumstances set forth in paragraph (c)
immediately below, Ordering Company agrees that it will compensate Supplier for
such loss and, if necessary, reschedule the Completion Date to a mutually agreed
upon date. Supplier agrees that if Supplier shall delay the progress of the Work
in breach of its obligations hereunder and such delay causes Ordering Company to
sustain a loss, then Supplier will reimburse Ordering Company for such loss,
subject to the limitation of Supplier's liability set forth in Article 5 of this
Agreement.
<PAGE> 96
(c) Notwithstanding anything to the contrary in this
Agreement, among the causes of "Construction Delay" for which Supplier shall be
compensated and the Completion Date shall be rescheduled pursuant to paragraph
(b) immediately above, are the following:
(i) Lack of Ordering Company Permits;
(ii) Lack of Ordering Company furnished material;
(iii) Work stoppage by landowner;
(iv) Work stoppage by permitting agency even though
Supplier has met the requirements of the relevant permits;
(v) Railroad company denying access to the
right-of-way or rail due to railroad's operations which regulate the
Work conditions;
(vi) Work stoppage by Ordering Company to implement
new requirements, including changes to the Completion Date or
Completion Schedule;
(vii) Waiting for the presence of the Ordering
Company Representative;
(viii) Defective or damaged Ordering Company
furnished material;
(ix) Special Service Precautions per the
Specifications; and
(x) Waiting for Engineer's written approval to
proceed due to the interference of other contractors.
(d) Delay time is payable by Ordering Company for Construction
Delay for the reasons set forth above, when Supplier is prevented from or
delayed in working on any contracted item that is available to Supplier.
Construction Delay time will begin after Supplier has been denied access to the
Work or Ordering Company has delayed the Work for an accumulated time in excess
of one (1) hour during a given normal working day.
(e) The term "accumulated time" shall include discontinuous
amounts of time and shall be applied to an entire crew. For example, a
four-person crew that incurred a forty five (45) minute Construction Delay due
to a permit problem and then later in the same working day incurred an
additional Construction Delay for another reason, would begin Construction Delay
time for the crew after fifteen (15) minutes of the second delay. If a crew is
into Construction Delay time at the end of a Work day and is prevented from
working on any contracted item available the next Work day and the condition
that caused the Construction Delay still exists, then Construction Delay time
shall continue without the requirement that it be in excess of one hour for the
second day.
<PAGE> 97
(f) If Supplier is forced to cease all or a portion of its
operations due to lack of right-of-way, by reason of injunction against Ordering
Company or other legal obstacles, or delay in Ordering Company-furnished
material deliveries, Ordering Company may request that Supplier move to another
site or to move off the project. At Ordering Company's request, Supplier shall
move from the portion of the project upon which he was previously engaged to
another point in the project designated by Ordering Company or to an Ordering
Company location completely off the project. Supplier shall at a later date
complete the Work left behind, when requested to do so by Ordering Company, and
such Work shall be done at prices specified in the Proposal plus Demobilization
and Remobilization.
11.21 NOTICE OF LABOR DISPUTES. Whenever Supplier has
knowledge that any labor dispute is delaying or threatens to delay the timely
performance of the Work, Supplier shall promptly give notice thereof to Ordering
Company. Supplier shall confirm the notice in writing within three (3) Work
days.
11.22 PERFORMANCE AND PAYMENT BOND. Ordering Company shall
have the right to require Supplier to furnish a bond for the full and faithful
performance of the Work and for the payment of all bills, debts and obligations
related to the Work. The bond shall be in such form, principal amount and with
such sureties as may be required by Ordering Company. Ordering Company shall
reimburse Supplier for the net premium on the bond upon receipt of the sureties'
bills to Supplier. Supplier agrees and represents that no amount for bond
premium is included in the contract price.
11.23 APPLICATION FOR PAYMENT; TERMS OF PAYMENT. (a) Supplier
shall render to Ordering Company Applications for Payment for an amount based
upon the quantities of Work in a Work Order which have been completed by
Supplier during the monthly invoicing period, unless billing is rendered sooner
pursuant to a written modification of this Section or for delay and disruption
compensation or Special Conditions accrued as provided for elsewhere in the
Agreement. Ordering Company shall promptly approve the Application for Payment
within ten (10) business days or notify Supplier of any disputed items in an
Application for Payment. If at the expiration of such ten business day period,
Supplier does not receive written approval or rejection from Ordering Company,
the Application for Payment shall be deemed approved.
(b) The method of measurement, basis of payment and conditions
under which payments for Special Conditions are made can be found in the
Specifications.
(c) For material furnished by Supplier, the same terms of
payment shall apply as the terms which apply for Services billed by Supplier.
For Material supplied by Ordering Company and ordered from Supplier pursuant to
another Article of this General Purchase Agreement (e.g., an Order for cable),
the terms of payment are set forth in such Article or elsewhere in this
Agreement.
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11.24 LIENS. If as a result of any act or omission of
Supplier, any lien is filed by a Subcontractor against Ordering Company,
Supplier shall cause the same to be discharged of record within forty-five (45)
days after receipt of written notice thereof from Ordering Company.
ARTICLE XII
CONSULTING SERVICES
12.1 GENERAL. The provisions of this Article 12 shall be
applicable to the furnishing by Supplier to Ordering Company of Consulting
Services. Software development is not a Consulting Service governed by this
Article; it is governed by Article 9 of this Agreement.
12.2 STATEMENT OF WORK. (a) From time to time hereafter,
Ordering Company may authorize Supplier to render to Ordering Company Consulting
Services and related work (hereinafter "Work") by submitting an Order to
Supplier or by entering into a Supplemental Agreement with Supplier. All Work
conducted by Supplier in response to such an Order or Supplemental Agreement
shall be considered Work under this Article, and the terms and conditions hereof
shall govern. Supplier shall render all the Services specified in the request
within the time allowed therein and shall meet all interim deadlines set by the
parties.
(b) Supplier agrees that all information provided to Ordering
Company pursuant to this Agreement will be collected, compiled and provided to
Ordering Company in a lawful and ethical manner. Supplier shall not provide to
Ordering Company any information which has been provided to Supplier under the
terms of a written or oral non-disclosure confidentiality agreement. Such
Information includes, but is not limited to, proprietary, confidential, or trade
secret Information of a party that was obtained by Supplier during Supplier's
prior employment by such party. In the performance of this Agreement, Supplier
shall not at any time: (i) misrepresent itself or its status to any third party;
(ii) provide a false or deliberately misleading reason for inquiries or the
collection of Information; (iii) misstate the nature of its relationship with
Ordering Company; or (iv) use any element of fraud, dishonesty or criminal
conduct in connection with its performance under this Agreement and the
provisions of this Section 12.2.
12.3 OWNERSHIP OF INFORMATION. (a) Ordering Company
acknowledges that Supplier expressly reserves and retains sole ownership in its
trademarks and all intellectual property, including its copyrighted materials
(report formats, creative materials, etc.) and unique inventing and research
systems and methodologies as utilized in performing work. None of the above may
be kept, copied or utilized by Ordering Company in any manner.
(b) Except as expressly set forth herein, nothing contained
herein shall be construed as conferring to either party by implication, estoppel
or otherwise any license or right under any patent, trademark, service mark,
trade dress, indicia of origin, copyright, mask work protection right, or any
other intellectual property right which is owned, controlled by or licensed to
either party.
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(c) The parties' respective ownership interests, up to and
including one hundred percent (100%), in and rights to use information used or
produced by Supplier to perform Consulting Services hereunder, other than those
specified above, shall be determined on a case by case basis in each Order or
Supplemental Agreement pursuant to which Ordering Company purchases Consulting
Services from Supplier.
12.4 EQUIPMENT SUPPLIER. Ordering Company warrants that no
current corporate policy, would give rise to Supplier or any of its Affiliated
Companies being disqualified, as a result of this Agreement or the work
performed under it, from bidding upon or being awarded a contract to supply
telecommunications or computer equipment, Software, or related Services to
Ordering Company.
12.5 ORDERING COMPANY'S RESPONSIBILITY. In addition to
Ordering Company's responsibilities specified in Section 6.4, ORDERING COMPANY'S
RESPONSIBILITY, Ordering Company shall, at no charge to Supplier, provide
Supplier with financial, operational and technical information, data, technical
support, personnel or assistance as may reasonably be required by Supplier to
fulfill its obligations under this Article.
12.6 WARRANTY. Supplier warrants to Ordering Company that
Services will be performed in a professional manner and in accordance with
Ordering Company's specifications or those referenced in the Order and shall be
in accordance with such requirements or restrictions as may be lawfully imposed
by governmental authority. If the Services prove to be not so performed and if
Ordering Company notifies Supplier within a thirty (30) day period, commencing
on the date of completion of the Service, at Ordering Company's option, Supplier
either will correct the nonconforming Service for which Supplier is responsible
or render a full or prorated refund or credit based on the original charge for
the Services.
ARTICLE XIII
PURPOSE AND ORGANIZATION OF PART III
13.1 PURPOSE AND SCOPE OF PART III. Part III sets forth the
specific additional terms and conditions pursuant to which the Business
Communications Systems unit of Supplier ("BCS") shall provide, and Ordering
Companies shall purchase or license, BCS Products, Licensed Materials (including
Software) and Services. The terms and conditions that shall govern BCS sales to
Ordering Companies shall be Part I and Part III of this Agreement, any
applicable Supplemental Agreement, the Pricing Agreement (LC3775D) or any other
governing agreement covering pricing, except that Sections 1.3 and 1.4 of the
Pricing Agreement shall govern in any event. With respect to BCS Products used
in conjunction with AT&T's Network, additional provisions may be negotiated on a
case-by-case basis and set forth in Supplemental Agreements or Orders.
13.2 ORGANIZATION OF PART III. Part III is organized as
follows:
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(a) Article 14 sets forth the additional terms and conditions
governing BCS's provision of Products;
(b) Article 15 sets forth the additional terms and conditions
governing BCS's licensing of Licensed Materials; and
(c) Article 16 sets forth the additional terms and conditions
governing BCS's provision of Maintenance, Installation and other Miscellaneous
Services.
13.3 ORDERS
(a) The term "Order" shall be defined as any Ordering Company
request to purchase Products, to receive a license to use Licensed Material or
to obtain Services. Such requests will be done on a BCS order form (e.g.,
Product Agreement, Service Agreement, Purchase/Service Agreement, Equipment
Supplement, Maintenance Supplement, or Change Order Form), Ordering Company's
Purchase Order Form or other mutually agreeable order form.
(b) Subject to Section 2.2, subsequent Orders for
modifications, additions or changes will become an integral part of this
Agreement when accepted by BCS.
(c) The Customer Contract Return Date is the date BCS must
receive from Ordering Company an executed Order. If this date is not met, BCS
may reschedule the Delivery Date and/or In-Service Date and BCS may, subject to
Ordering Company's consent, change the prices specified on the Order or
confirmation of such Order.
(d) When applicable for an Order, BCS and Ordering Company
will agree upon all dates and activities required to meet the scheduled Delivery
Date for Customer-installed Products, or the scheduled In-Service Date for
BCS-installed Products, and complete the Project Milestone and Responsibilities
document (a sample of which has been provided as Exhibit 13-1 of this Agreement,
which document shall be incorporated by reference into such Order under this
Agreement). The installation responsibilities of each party with respect to an
Order under this Agreement are described in Exhibit 13-2 of this Agreement,
which is incorporated into this Agreement.
(e) Subject to Section 2.2, Orders for modifications or
additions to the Products acquired hereunder placed after the Delivery Date or
In-Service Date (as applicable for said Product) will be governed by the terms
and conditions of this Agreement when the Order is accepted by BCS.
13.4 PRICE AND DISCOUNTS. Prices and discounts for BCS's
Products, Licensed Materials and Services shall be as shown in the AT&T-BCS
Pricing Agreement.
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13.5 BILLING AND PAYMENT
(a) This section overrides any inconsistent provisions in Part
1 and covers how BCS will invoice Ordering Company.
(b) For Products that BCS installs, BCS will bill Ordering
Company for the Product and installation charges on the In-Service Date, except
as provided in Section 14.4(b).
(c) For Ordering Company-installed Products, BCS will invoice
Ordering Company upon delivery.
(d) BCS will invoice recurring charges in advance.
(e) Payment of invoices is due within thirty (30) days of the
invoice date. Restrictive endorsements or other statements on checks will not
apply.
(f) If Ordering Company does not generally pay in a timely
fashion, the parties agree to review the billing and payment processes to
improve such processes.
13.6 HAZARDOUS MATERIAL. Ordering Company is responsible for
removal of any hazardous material (e.g., asbestos) or correction of any
hazardous condition that affects BCS's performance of Services. Services will be
delayed until Ordering Company removes or corrects any such hazardous condition
with no penalty to BCS.
13.7 IDENTIFICATION CREDENTIALS. Ordering Company may, at its
discretion, require BCS's employees and subcontractors to exhibit identification
credentials, which Ordering Company may issue, in order to gain access to
Ordering Company's premises for the performance of the work. If for any reason,
any of BCS's employees or subcontractors are no longer performing work, BCS
shall immediately inform Ordering Company's Representative in the speediest
manner possible. Notification shall be followed by the prompt delivery to
Ordering Company's Representative of the identification credentials involved or
a written statement of the reasons why the identification credentials cannot be
returned. Subject to Section 5.1 of this Agreement, BCS shall be liable for any
damage or loss sustained by Ordering Company if the identification credentials
are not returned to Ordering Company.
ARTICLE XIV
PURCHASE OF PRODUCTS
14.1 GENERAL. The provisions of this Article 14 shall be
applicable to the purchase of Products from BCS. If Software is also to be
licensed for use on a purchased Product, or if a Product is also to be
engineered or installed by BCS, the provisions of Articles 15 and 16 shall also
be applicable.
<PAGE> 102
14.2 CHANGE CONTROL DATE. The Change Control Date ("CCD") for
Orders, is a date shown on the Order or confirmation of the Order, and is the
last date BCS will be required to accept changes to the Products ordered for
delivery on the Delivery Date for Customer-installed Products or for
installation on the In-Service Date for BCS-installed Products. The CCD is the
date BCS accepts the Order or is deemed to have accepted it pursuant to Section
2.2, unless a different date is shown on the Order or confirmation of the Order.
Changes to the original Order received by BCS prior to the CCD must be approved
in writing by authorized representatives of both parties. Changes to an Order
received and accepted by BCS after the CCD will be treated as separate Orders
and may be delivered after the Delivery Date for Customer-installed Products or
may be installed after the In-Service Date for BCS-installed Products. The CCD
for Orders for modifications or additions addressed in this Section will be the
date BCS accepts the Order or is deemed to have accepted it pursuant to Section
2.2.
14.3 ORDERING COMPANY-INSTALLED PRODUCTS.
(a) The "Delivery Date" is the date BCS delivers the Products
to the Ordering Company's facility as specified in an Order or confirmation of
Order.
(b) BCS will make reasonable accommodations if Ordering
Company requests a delay in the originally scheduled Delivery Date if Ordering
Company gives BCS written notice prior to the CCD. If Ordering Company gives
notice of a request for a delay in the originally scheduled delivery date after
the CCD, requests more than one delay in the Delivery Date prior to the CCD, or
causes a delay in the Delivery Date as a result of Ordering Company's failure to
meet obligations under this Agreement, BCS may cancel the Order and bill
Ordering Company for cancellation charges as set forth in Part 1 of this GPA;
provided however, that BCS shall give Ordering Company fifteen (15) days written
notice of its intention to cancel the Order and to bill cancellation charges
pursuant to this Section and shall not cancel the Order if Ordering Company
accepts delivery prior to the expiration of such period. In addition, BCS's
notice shall include a reasonable estimate of the anticipated cancellation
charges. Notwithstanding the foregoing provisions of this Section 14.3(b),
Ordering Company may delay delivery one time for up to thirty (30) days,
provided Ordering Company has given BCS seven (7) business days' notice prior to
the scheduled ship date.
(c) Shipping charges may be adjusted if Ordering Company
changes the location for delivery.
14.4 BCS-INSTALLED PRODUCTS.
(a) This Section 14.4 overrides any inconsistent terms in Part
1 of this Agreement. For all BCS Products, if BCS installs such Products, BCS
will notify Ordering Company that the Product is installed in good working order
and complies with BCS's standard specifications and any other specifications
agreed to by the parties (the "In-Service Date"). For
<PAGE> 103
BCS's DEFINITYPBX and Multimedia Messaging and Response ("MM&R") Products, such
notice will be in writing and Ordering Company shall have ten (10) days
following the In-Service Date (the "Acceptance Period") to test the DEFINITY
and/or MM&R Product and to determine whether Ordering Company agrees with BCS
that such Product complies with the applicable specifications and warranties for
that Product. If Ordering Company does not notify BCS in writing during such
Acceptance Period of any non-conformities to the applicable product
specifications and warranties, the Product will be deemed accepted as of the
In-Service Date.
During the Acceptance Period, Ordering Company may conduct
appropriate tests and then shall either: (a) accept the Product -- by providing
written notice to BCS of that fact, in which case the Product will be deemed
accepted as of the In-Service Date; or (b) if non-conformities to the
specifications or warranties exist, so advise BCS in writing, specifying such
non-conformities. BCS shall promptly correct such non-conformities and notify
Ordering Company that they were corrected. The Product will be deemed accepted
by Ordering Company upon correction of the non-conformities specified in
Ordering Company's notice.
If BCS is unable to correct all of the significant
non-conformities described in Ordering Company's notice within thirty (30) days
of receipt of Ordering Company's notice, Ordering Company shall either: (a)
accept the Product, in which case BCS will be required to continue to correct
any outstanding non-conformity; or (b) Ordering Company may reject the Product
without any liability and BCS will refund all amounts paid to BCS for the
returned Product plus transportation charges from BCS' plant and return; or (c)
have the Product replaced by BCS as promptly as possible by giving Ordering
Company priority over other customers at no additional charge. If Ordering
Company elects to reject the Product, it must do so in writing and within a
reasonable time frame.
(b) BCS will make reasonable accommodations if Ordering
Company requests a delay in the originally scheduled In-Service Date if Ordering
Company gives BCS written notice prior to the CCD. If Ordering Company gives
notice of a request for delay in the originally scheduled In-Service Date after
the CCD, requests more than one delay in the In-Service Date prior to the CCD,
or causes a delay in the In-Service Date as a result of Ordering Company's
failure to meet its obligations (e.g., its obligations under Section 13.6) under
this Agreement, Ordering Company and BCS will mutually agree to either: (i)
deliver the Products and commence billing as of the originally scheduled
In-Service Date, in which case installation will be rescheduled at a mutually
agreeable time and additional installation charges may apply; or (ii) cancel the
Order and bill Ordering Company for cancellation charges as set forth in Part 1
of this GPA. Notwithstanding the foregoing provisions of this Section 14.4(b),
Ordering Company may delay delivery one time for up to thirty (30) days,
provided Ordering Company has given BCS seven (7) business days' notice prior to
the scheduled ship date.
(c) For BCS-installed Products, BCS will perform a site survey
to identify Ordering Company's specific installation requirements. If the site
survey cannot be performed prior to the execution of an Order, it will be
scheduled and conducted as soon as Ordering
<PAGE> 104
Company's facilities are available. Upon completion of the site survey, BCS will
identify and communicate to Ordering Company any additional charges that may
apply. If there were additional charges identified during the site survey,
Ordering Company may cancel the Order without incurring cancellation charges if
Ordering Company notifies BCS in writing within ten (10) days of Ordering
Company's receipt of the notice from BCS of the additional charges.
(d) Installation and shipping charges may be adjusted if
Ordering Company changes the installation location.
14.5 PRODUCT WARRANTY.
(a) BCS warrants that as of the date title passes, BCS will
have the right to sell, transfer and assign Products and the title conveyed
shall be good and Products shall be delivered free from any security interests
or any other liens or encumbrances.
(b) For purposes of Sections 14.5(b) through 14.5(g) only, the
term "Product" also includes the Product's associated Software. During the
warranty period, BCS warrants to Ordering Company that the Products furnished
shall conform to and perform in accordance with BCS's standard specifications or
documentation and any other mutually agreed specifications. In addition, BCS
warrants to Ordering Company that the Products shall be merchantable and free
from defects in design (except to the extent (i) designed by Ordering Company or
(ii) design defects are caused by the presence in BCS's Product of substitute
components of Ordering Company's selection not recommended by BCS), material and
workmanship. BCS also warrants that the Products will be new, remanufactured, or
refurbished, and that installation and other services will be performed in a
first-class workmanlike manner.
(c) The warranty period shall be specified on an Order or
confirmation of the Order and shall begin on the Delivery Date for Ordering
Company-installed Products or on the In-Service Date for BCS-installed Products.
However, for DEFINITY and/or MM&R Products, if in the course of acceptance tests
significant problems occur such that acceptance is delayed for more than ten
(10) days following Ordering Company's notice concerning such significant
problems, the warranty period shall commence upon acceptance. The warranty
period shall be one year if none is specified on the Order or confirmation of
the Order.
(d) (i) Replacement material shall be warranted as set forth
above in Section 14.5(b). Repaired material shall be warranted as set forth
above in Section 14.5(b) for the remainder of the original warranty period.
(ii) When BCS performs services under a
time-and-materials Order, replacement and repaired material, as well as
associated services, will be warranted for ninety (90) days from the date the
work is completed.
<PAGE> 105
(e) If a Product (including any associated
Installation Services) does not meet the above warranties during the warranty
period, Ordering Company shall promptly notify BCS. BCS shall take the following
action promptly:
(i) Within the first sixty (60) days of the warranty period, if
Ordering Company notifies BCS of a defect or non-conformity that does
not appear to be curable through repair or replacement within a
reasonable time period, Ordering Company will be entitled, at its
option, to a refund of the Product's purchase price and installation
charges upon return of the Product. Should Ordering Company seek such a
refund, it will provide BCS such cooperation as necessary to enable BCS
to remove the Product from Ordering Company's premises, if necessary.
Transportation costs and risk of loss or damage in transit shall be
borne by BCS. In the event of such a refund, Ordering Company may also
return for credit any other BCS Products intended for use with the
defective Product that cannot be applied to another use by Ordering
Company and may cancel, without liability for cancellation charges, any
pending Orders for such Products.
(ii) After sixty (60) days, BCS, at its option, shall attempt first to
repair or replace such Product without charge or, if not feasible,
refund the original purchase price and installation charges. In the
event of such refund, Ordering Company shall provide BCS such
cooperation as necessary to enable BCS to remove the Product from
Ordering Company's premises, if necessary. Transportation costs and
risk of loss or damage in transit shall be borne by BCS. In addition,
in the event of such refund, Ordering Company may also return for
credit any other BCS Products intended for use with the defective
Product that cannot be applied to another use by Ordering Company and
may cancel, without liability for cancellation charges, any pending
Orders for such Product.
(f) All warranties shall continue in full force and effect
notwithstanding transfer of title (except for title to their associated
Software) to the Products by Ordering Company, so long as Ordering Company or
its Affiliates shall remain the user of the Product. All warranties shall also
survive inspection, acceptance and payment.
(g) THE FOREGOING PRODUCT WARRANTIES ARE EXCLUSIVE AND ARE IN
LIEU OF ALL OTHER EXPRESS AND IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO
WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE. EXCEPT FOR (1) TANGIBLE PROPERTY
DAMAGE AND PERSONAL INJURY FOR WHICH BCS IS HELD LIABLE AND (2) THE REMEDY
PROVIDED IN SECTION 5.1(E), ORDERING COMPANY'S SOLE AND EXCLUSIVE REMEDY SHALL
BE BCS'S OBLIGATION TO REPAIR, REPLACE, CREDIT, OR REFUND AS SET FORTH ABOVE IN
THIS WARRANTY.
<PAGE> 106
(h) Certain additional warranties with respect to Software are
set forth in Section 15.8.
14.6 WARRANTY/POST-WARRANTY SERVICE EXCLUSIONS.
(a) EXCEPT AS STATED IN SECTION 14.5, BCS, ITS SUBSIDIARIES
AND THEIR AFFILIATES, SUBCONTRACTORS AND SUPPLIERS, MAKE NO WARRANTIES, EXPRESS
OR IMPLIED, AND SPECIFICALLY DISCLAIM ANY WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE.
(b) The warranty provided in Section 14.5 and post-warranty
service do not cover repair for damages or malfunctions caused by: (1) actions
of non-BCS personnel or the attachment to the Products of non-BCS furnished
equipment or Software; (2) Ordering Company's failure to follow BCS's
installation, operation or maintenance instructions, including Ordering
Company's failure to permit BCS timely remote access to Ordering Company's
Products; (3) failure of products not serviced by BCS; (4) abuse, misuse or
negligent acts of non-BCS personnel; or (5) Force Majeure conditions following
delivery. In addition, BCS is not obligated to provide warranty or post-warranty
service if Ordering Company modifies the Software. If Ordering Company requests,
BCS will perform repair or other services not covered by this Agreement to
Ordering Company's BCS Products at the mutually agreed to rates for such
service.
(c) Additional charges may apply if BCS incurs additional
costs in providing warranty or post-warranty services as a result of a
modification of Products. Unless otherwise agreed, BCS shall not be responsible
to provide warranty or post-warranty Maintenance Services, if Ordering Company
has moved a Product without notifying BCS.
(d) BCS DOES NOT WARRANT UNINTERRUPTED OR ERROR-FREE OPERATION
OF THE PRODUCTS AND BCS DOES NOT WARRANT THAT THE PRODUCTS WILL PREVENT, AND BCS
WILL NOT BE RESPONSIBLE FOR, UNAUTHORIZED USE (OR CHARGES FOR SUCH USE) OF
COMMON CARRIER TELECOMMUNICATION SERVICES OR FACILITIES ACCESSED THROUGH OR
CONNECTED TO PRODUCTS. ORDERING COMPANY MAY PURCHASE BCS'S TOLL FRAUD PROTECTION
PRODUCTS OR OFFERINGS (E.G., DEFINITY TOLL FRAUD INDEMNITY OFFER) IF IT CHOOSES
TO DO SO, PROVIDED BCS CONTINUES SUCH OFFERING.
14.7 DOCUMENTATION. BCS shall furnish to Ordering Company at
no additional charge and grant Ordering Company the right to use one copy of the
documentation for each unit of the Products provided hereunder. Such
documentation will be that customarily provided by BCS to its customers, for
that Product, at no additional charge. BCS shall also furnish to Ordering
Company the standard application and/or planning guide or a similar document, to
the extent BCS provides such a document for the Product. Such documentation
shall be provided
<PAGE> 107
prior to or included with the shipment of the Products from BCS to Ordering
Company. Additional copies of the documentation are available at mutually
agreeable prices.
14.8 SPECIFICATIONS. Upon request, BCS shall provide to
Ordering Company, at no charge, and grant Ordering Company the right to use and
reproduce a copy of BCS's available commercial Specifications applicable to
Products ordered hereunder. In addition, a copy of BCS's Specifications shall be
provided with each unit. Additional copies are available at mutually agreeable
prices.
14.9 REGISTRATION AND RADIATION STANDARDS. When a Product
furnished under this Part III is subject to Part 68, Part 15 or any other part
of the Federal Communications Commission's Rules and Regulations, as they may be
amended from time to time, (hereinafter "FCC Rules"), BCS warrants that such
Product complies with the registration, certification, type-acceptance and/or
verification standards of FCC Rules including, but not limited to, all labeling,
customer instruction requirements, and the suppression of radiation to specified
levels. BCS shall also establish periodic ongoing compliance re-testing and
follow a Quality Control program, to assure that Product shipped complies with
the applicable FCC Rules. BCS agrees to indemnify and save Ordering Company
harmless from any liability, claims, or demands (including costs, expenses and
reasonable attorney's fees on account thereof) that may be made because of BCS's
noncompliance with the applicable FCC Rules. BCS agrees to defend Ordering
Company, at Ordering Company's request, against such liability, claim or demand.
In addition, should Product which is subject to Part 15 of the FCC Rules, during
use generate harmful interference to radio communications, BCS shall provide to
Ordering Company information relating to methods of suppressing such
interference and pay the cost of suppressing such interference or, at the option
of Ordering Company, accept return of the Product and refund to Ordering Company
the price paid for the Product less a reasonable amount for depreciation, if
applicable. Nothing in this Section 14.9 shall be deemed to diminish or
otherwise limit BCS's obligations under any other Section of this Agreement.
14.10 MARKING. All BCS Product furnished under this Agreement
shall be marked for identification purposes in accordance with mutually agreed
upon marking specifications. Such specifications shall be set forth in a
Supplemental Agreement or Order. All such Product shall also be marked with
BCS's model/serial number. This Section 14.10 does not reduce or modify BCS's
obligations under Section 4.4, TRADEMARKS, of this Agreement.
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ARTICLE XV
SOFTWARE
15.1 GENERAL.
(a) The provisions of this Article 15 apply to the furnishing
of Software by BCS to Ordering Company pursuant to this Agreement. The ownership
interests and rights of the parties in Custom Software, in addition to the
applicable rights set forth in this Article, shall be established on a
case-by-case basis in subsequent Supplemental Agreements.
(b) To the extent that any provision set forth in this Article
conflicts with any provision set forth elsewhere in this Agreement, this Article
shall control.
(c) Software in this Article means both Custom Software and
Licensed Materials.
15.2 SOFTWARE LICENSE.
(a) BCS grants Ordering Company a personal, non-transferable
(except to the extent allowed in Section 15.2(d) below) and non-exclusive right
to use, in object code form, all Licensed Materials and related documentation
furnished under this Agreement. Title to and ownership of all Licensed Materials
shall remain with BCS or its suppliers. This grant shall be limited to use with
the equipment for which the Licensed Materials was obtained or, on a temporary
basis, on back-up equipment when the original equipment is inoperable. Use of
Licensed Materials on multiple processors is prohibited unless otherwise agreed
to in writing by BCS. Ordering Company will not reverse assemble, reverse
compile, disassemble or decompile the Licensed Materials to derive a source code
equivalent of the Licensed Materials. Ordering Company will take appropriate
action to instruct Ordering Company's employees and users of all Licensed
Materials of Ordering Company's obligations under this Section.
(b) Ordering Company may make a reasonable number of copies of
Licensed Materials, solely for the purpose of back-up or archival use. Any such
copy must contain the same copyright and other notices and markings that the
original Licensed Materials contains. Use of Licensed Materials on any equipment
other than that for which it was obtained or removal of Licensed Materials from
the United States or other country in which the Licensed Materials was
originally deployed (without written consent of BCS, which will not be
unreasonably withheld), or reverse assembly, reverse compilation, disassembly or
decompilation of the Licensed Materials to derive a source code equivalent shall
immediately and automatically terminate the license with respect to the
particular unit of the Licensed Materials. If Ordering Company commits any other
material breach of the Licensed Materials license, the conditions of Article 5A,
ARBITRATION; DISPUTE RESOLUTION shall apply. BCS's cancellation of the license
at issue shall be tolled pending the outcome of the Dispute Resolution process.
Simultaneous with initial invocation of
<PAGE> 109
such process, Ordering Company shall deposit and have held in escrow, until such
dispute is resolved, an amount equal to the current market price of the license
in question.
(c) BCS may provide Ordering Company with Software that bears
the logo or copyright of another company. If BCS provides such Software with a
"shrinkwrap" or other license from the other company, those terms apply rather
than the license terms in this Agreement. If Ordering Company requests, BCS will
give Ordering Company a copy of such other license terms before Ordering Company
orders the Software.
(d) If the equipment purchased hereunder is sold or assigned
to another party, BCS requires that the new owner or assignee execute a new
Licensed Materials license and pay the then current Licensed Materials license
fee, if any. Upon written request, BCS will grant the new owner or assignee of
the equipment the right to use any related Licensed Materials, provided the new
owner or assignee agrees, in writing, to BCS's terms and conditions and pays
BCS's then current Licensed Materials license fee. BCS shall seek to enforce its
rights in the first instance against the new owner or assignee. If the new owner
or assignee of the equipment refuses to execute a new Licensed Materials license
agreement or pay the applicable Licensed Materials license fee, or if the
equipment is no longer to be used by Ordering Company, Ordering Company shall
either return the Licensed Materials, together with any copies, or destroy the
Licensed Materials and all copies, and provide BCS with prompt written notice of
such destruction. Notwithstanding the preceding provisions of this Section
15.2(d), Ordering Company may transfer the Licensed Materials to another
Ordering Company in connection with a transfer of the associated equipment, and
BCS will not charge the new Ordering Company a Licensed Materials license fee
therefor.
15.3 SOFTWARE. On the delivery date, BCS shall furnish to
Ordering Company, at the fee specified in the Order or Supplemental Agreement,
at least the following basic items:
(a) Object Code stored in a medium compatible with the
equipment, as described in BCS's Specifications, the applicable Supplemental
Agreement or the Order;
(b) User documentation which BCS normally furnishes to
customers with the Licensed Materials at no additional charge, and any user
documentation specified in the applicable Supplemental Agreement; and
(c) If appropriate and if not previously provided, the
required machine configuration.
15.4 INSTALLATION OF SOFTWARE. Where Ordering Company is
responsible for installation of Software, BCS's sole responsibility is to
deliver the Software to Ordering Company on or before the scheduled Delivery
Date specified in the Order or Supplemental Agreement. However, if BCS is
responsible for such installation, BCS shall deliver the Software to Ordering
Company in sufficient time for it to be installed on or before the scheduled In-
<PAGE> 110
Service Date specified in the Order or Supplemental Agreement, and BCS shall
complete its installation and associated testing on or before such date.
15.5 CENTRALIZED MAINTENANCE. Ordering Company may specify in
an Order that, for centralized maintenance purposes, all Software changes,
including Enhancements, provided by BCS shall be provided only to the Ordering
Company's Centralized Support Organization. BCS will, in that event, be
responsive to maintenance requests which the Ordering Company's Centralized
Support Organization issues. This Organization will be responsible for Software
application, initial acceptance testing and distribution of the Software to all
licensed installations. BCS grants Ordering Company the right to transmit the
Software by means of data links from Ordering Company's Centralized Support
Organization to each licensed installation. BCS grants to Ordering Company, at
no additional fee, a license to use a copy of the Software for centralized
maintenance purposes only. BCS shall provide this maintenance copy of the
Software in response to an Order requesting same. The maintenance copy provided
to the Ordering Company's Centralized Support Organization will be used only to
perform systems or application support functions for the Ordering Company's
application programmers, except as provided hereinafter. If the maintenance copy
of the Software provided pursuant to this Section 15.5 or a copy thereof is
later incorporated by the Ordering Company's Centralized Support Organization
into a Ordering Company system or application support Software, Ordering Company
shall notify BCS and shall pay BCS the current applicable rate paid by Ordering
Company for use of the Software.
15.6 ENHANCEMENTS. BCS shall promptly furnish to Ordering
Company during the duration of the Order, at an agreed upon charge, if any, all
Software Enhancements and telephone technical assistance made available by BCS
to commercial customers and shall promptly provide to Ordering Company any
revisions to the basic Software items defined in Section 15.3 to reflect the
Enhancements. All Enhancements shall be considered Software subject to the
provisions of the Order. Ordering Company may incorporate the Enhancements into
the Software or continue using previous versions of the Software, at Ordering
Company's option. Ordering Company may, at any time and at its discretion,
discontinue maintenance of the Software. BCS shall not charge Ordering Company
for Quality Protection Plan Change Notices (QPPCNs) during the warranty period
or during any contracted-for post-warranty maintenance period. If the QPPCN is
required for warranty or post-warranty service, and Ordering Company elects not
to obtain the QPPCN, continuation of warranty or post-warranty service may be
subject to additional charges.
15.7 TRAINING AND TECHNICAL SERVICE. BCS shall provide such
assistance, advice and training at no additional charge, as it normally provides
without charge to other customers.
15.8 SOFTWARE WARRANTY. BCS warrants to Ordering Company all
of the following:
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(a) The Software will be free from significant errors, will
conform to and perform in accordance with the Specifications and will function
properly. The Media conveying the Software will be free from defects in material
and workmanship. The Software will be compatible with and may be used in
conjunction with other Software as described in the Specifications. If an Order
states that the Software is to be used in conjunction with certain BCS
equipment, the Software shall be compatible with that equipment. The foregoing
warranties extend to the future performance of the Software and shall continue
for one year except as otherwise specified in a Supplemental Agreement or Order.
(b) Software-related Work will be performed in a first-class,
workmanlike manner.
(c) With respect to BCS-developed Software, there are no copy
protection or similar mechanisms within the Software which will, either now or
in the future, interfere with the grants made in this Agreement or an Order .
With respect to non-BCS developed Software, BCS will use reasonable efforts to
insure that there are no copy protection or similar mechanisms within the
Software which will, either now or in the future, interfere with the grants made
in this Agreement or an Order.
(d) Ordering Company shall have quiet enjoyment of the
Software.
(e) As to Software for which BCS does not solely own all
intellectual property rights, BCS has full right, power and authority to license
the Software to Ordering Company as provided in this Agreement or an Order.
(f) If the Software, or any portion thereof, is or becomes
unusable, totally, or in any respect during the applicable warranty period, or
if the work fails to meet the warranties, BCS will reperform work, correct
errors, defects and nonconformities and restore the Software to conforming
condition free of significant errors at no cost to Ordering Company. Corrected
Software shall be warranted as set forth in this clause.
(g) The Software does not contain any malicious code, program,
or other internal component (e.g. computer virus, computer worm, computer time
bomb, or similar component), which could damage, destroy, or alter Software,
firmware, or hardware or which could, in any manner, reveal, damage, destroy, or
alter any data or other information accessed through or processed by the
Software in any manner. BCS shall immediately advise Ordering Company, in
writing, upon reasonable suspicion or actual knowledge that the Software
provided under this Agreement or an Order may result in the harm described
above.
(h) All warranties shall survive inspection, acceptance and
payment.
15.9 RELATED DOCUMENTATION. BCS shall furnish to Ordering
Company, at no additional charge, and grant Ordering Company the right to use
one copy of the related
<PAGE> 112
documentation for each unit of the Software furnished by BCS pursuant to this
Agreement for the sole purpose of operating and maintaining such Software. Such
related documentation will be that customarily provided by BCS to its customers
for such Software, consistent with the vintage, options and feature of the
system on which it operates. Such related documentation shall be provided prior
to or included with provision of Software by BCS to Ordering Company. Additional
copies of the related documentation are available at prices set forth in BCS's
Price List.
15.10 NOTIFICATION OF DISCONTINUED AVAILABILITY OF SOFTWARE.
BCS shall notify Ordering Company at least one (1) year in advance of
discontinued availability of the last standard Software generic. For a minimum
of two (2) years after discontinued availability, BCS will make available to
Ordering Company, Software support service which affords Ordering Company
reasonable continued use of the Software.
15.11 RISK OF LOSS. If any Software fixed in Media is lost,
damaged or made invalid during shipment, BCS will promptly replace the Software
and Media therefor at no additional charge to Ordering Company. If any Software
is lost or damaged while in the possession of Ordering Company, BCS will
promptly replace the Software at mutually agreed charges.
15.12 ACCESS TO SOURCE CODE
(a) If Supplier is declared bankrupt, and as a result of such
bankruptcy, BCS is unable to maintain Software so that Ordering Company is
unable to use the Software, then BCS shall furnish to Ordering Company (under a
suitable license agreement, if applicable) BCS's then existing Software Source
Code and associated documentation for the affected Product(s) for such standard
version only to the extent to allow Ordering Company to use solely for its
internal purposes such Software for which Ordering Company has a perpetual,
non-exclusive right to use.
(b) If Ordering Company's use of the Software Source Code
provided pursuant to Section 15.12(a) involves use or copying of copyrighted
material or the practice of any invention covered by a patent, Supplier shall
not assert the copyright or patent against Ordering Company for use of the
Software Source Code as originally provided by Supplier within the scope of the
rights granted in Section 15.12(a).
(c) The parties may negotiate additional rights for Ordering
Company to access particular Software Source Code on a case-by-case basis, as
set forth in a Supplemental Agreement or Order.
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ARTICLE XVI
MAINTENANCE, INSTALLATION
AND OTHER MISCELLANEOUS SERVICES
16.1 GENERAL. The provisions of this Article 16 shall be
applicable to the furnishing by BCS of Services other than Services furnished
pursuant to any other Article of this Agreement. Such services include, but are
not limited to Maintenance Services and other Miscellaneous Services.
16.2 POST-WARRANTY MAINTENANCE PERIOD. If Ordering Company
orders post-warranty service, it will commence on the expiration of the
applicable warranty period and will be provided for an initial term as specified
on the relevant Supplemental Agreement or Order. BCS shall provide Ordering
Company with written notice of pending expiration of applicable Maintenance
period, ninety (90) days prior to expiration.
16.3 MAINTENANCE SERVICES TERMINATION. BCS shall provide all
Maintenance Services required by this Agreement upon the provisions set forth in
this Agreement and in Orders placed by Ordering Company pursuant to this
Article. At any time, Ordering Company may terminate individual Orders for
Maintenance Services, provided Ordering Company gives at least sixty (60) days
prior written notice to BCS. If the charges for a terminated Order were paid
annually in advance, BCS shall promptly refund to Ordering Company the unused
prorate portion of the charges. Ordering Company and BCS agree to separately
address in Orders or Supplemental Agreements the appropriate notice provisions
and/or early termination charges for multi-year maintenance service periods.
16.4 POST-WARRANTY SERVICE.
(a). Post-warranty service includes preventive maintenance as
deemed appropriate by BCS and remedial maintenance, including replacement parts
required for Products used under normal operating conditions. BCS shall maintain
such Maintenance records, including records with respect to On-site Response
Time and Time to Repair, as it keeps in its normal course of business. Upon
request of Ordering Company, BCS shall provide a copy of such records to
Ordering Company.
(b) If Ordering Company subsequently obtains additional
Products similar to the Products covered under any Order issued pursuant to this
Part III of the GPA, or requests certification or connection of equipment
similar to the Products covered under any Order issued pursuant to this Part III
of the GPA, and co-locate those Products or equipment (the "Added Products")
with the existing ones, upon warranty expiration the Added Products will also be
covered for post-warranty service under this Part III of the GPA and Ordering
Company agrees to pay any applicable post-warranty service charges. Such charges
will be at the then current
<PAGE> 114
monthly rate and coverage will be the same as and coterminous with the coverage
for the existing Products.
16.5 WARRANTY AND POST-WARRANTY COVERAGE AND SUPPORT.
(a) PURCHASED OR REPLACEMENT PARTS MAY BE NEW, REMANUFACTURED
OR REFURBISHED and will be functionally equivalent to a new Product. Any removed
parts and/or Products will become the property of BCS.
(b) Warranty and post-warranty service coverage will be in
accordance with the option(s) Ordering Company has selected as identified on the
Order or confirmation of the Order. BCS's standard warranty and post-warranty
coverage will apply if none is specified. BCS's warranty and post-warranty
service coverage options, and Ordering Company's responsibilities, are described
in Exhibit 16-1 to this Part III of the GPA.
(c) Under BCS's warranty and post-warranty service, BCS is
responsible for damage to the Products (excluding loss or corruption of data
records) from power surges as long as Ordering Company has installed BCS
provided or approved electrical protection to the Products and the electrical
protection complies with the National Electrical Code and any applicable
federal, state and local laws.
(d) Warranty and post-warranty service exclusions are set
forth in Section 14.6(b) above.
16.6 CONTENTS OF MAINTENANCE ORDER. A Maintenance Order shall
contain the following:
(a) The incorporation by reference of this Agreement;
(b) A complete list of Equipment to be maintained specifying
quantity and type, description of Maintenance Services, duration of Order,
monthly or annual maintenance charges for each item of Equipment, total monthly
maintenance charges payable by Ordering Company and invoice address;
(c) The location at which the Equipment is to be maintained,
including floor, street, city and state; and
(d) Any other special terms agreed upon by both parties.
16.7 AUDIT. With the exception of any fixed basic monthly or
annual maintenance charge set forth in this Agreement or an Order, BCS shall
maintain complete, clear and accurate records of: (a) all hours of direct labor
employees engaged in work for which
<PAGE> 115
payment under this Agreement is to be computed on the basis of actual hours
worked, at a fixed rate per hour or other unit of time specified in this
Agreement; and (b) billable costs payable by Ordering Company under this
Agreement including a physical inventory, if applicable. These records shall be
maintained in accordance with generally accepted accounting principles so they
may be readily audited and shall be held until costs have been finally
determined under this Agreement and payment or final adjustment of payment, as
the case may be, has been made. BCS shall permit Ordering Company or Ordering
Company's representative to examine and audit these records and all supporting
records at all reasonable times. Audits shall be made not later than one
calendar year after the expiration or termination of an Order, and the
correctness of BCS's billing hereunder shall be determined from the results of
that audit. In making arrangements with a vendor for the furnishing of labor,
material or other items for which Ordering Company will be charged separately
from the fixed basic monthly maintenance charges as set forth in this Agreement
or the applicable Supplemental Agreement or Order, BCS shall require its vendor
to keep separate records, and make separate invoices, covering only what is so
supplied, so that no part of the records or invoices shall apply to jobs not
covered by this Agreement. In making payments to a vendor for labor, material or
other items for which Ordering Company will be charged separately from the fixed
basic monthly maintenance charges as set forth in this Agreement or the
applicable Supplemental Agreement or Order, BCS shall show its vendor's invoice
number and date on BCS 's payment advice, and no part of that payment shall
apply to other jobs not covered by this Agreement.
16.8 BREAKAGE, DISAPPEARANCE AND CONDITION. BCS shall take
whatever precautions BCS deems necessary or desirable (which do not violate
Ordering Company's plant rules or cause inconvenience or delay to Ordering
Company) regarding tools, equipment, and materials, whether or not owned by BCS,
which BCS causes to be brought to Ordering Company's premises. Ordering Company
shall have no responsibility for their care, safekeeping or operating condition.
Ordering Company shall not bear any cost or expense associated with their
breakage or disappearance unless resulting from Ordering Company's negligence.
16.9 CONTINGENCY. If BCS fails to perform the Maintenance
Services, Ordering Company may arrange for the performance of the Maintenance
Services by another party.
16.10 ELIGIBILITY FOR MAINTENANCE SERVICES. Equipment shall
automatically be eligible for Maintenance Services provided it shall have been
under Maintenance Service or warranty by BCS on the date of commencement of
Maintenance Services. Any other Equipment shall be inspected by BCS at mutually
agreed to charges to determine whether it is in good working order and can be
maintained in that condition. BCS shall notify Ordering Company in writing about
the eligibility of the Equipment. If the Equipment is not eligible, but can be
made eligible, Ordering Company may, at its expense, make or have made those
changes required to upgrade the Equipment to eligibility status.
<PAGE> 116
16.11 MAINTENANCE FACILITIES. Ordering Company shall provide
BCS with adequate storage space for spare parts and adequate working space,
including heat, light, ventilation, electric current and outlets for use by
BCS's maintenance personnel. These facilities shall be within a reasonable
distance of the Products to be serviced and shall be provided at no charge to
BCS. Ordering Company shall not be responsible for any damage to BCS's equipment
or materials stored on Ordering Company's premises unless the damage results
from Ordering Company's negligence.
16.12 PRECAUTIONS. BCS shall take care in all operations to
safeguard people as well as property and will strive to minimize interference
with or curtailment of Ordering Company or customer operations at the work site.
16.13 TECHNICAL INFORMATION, SOFTWARE AND PROGRAMMING AIDS.
BCS shall furnish to Ordering Company on the agreed-upon delivery date without
additional charge any technical information, programs, routines, subroutines,
documentation, or related material it has or may develop or modify, necessary
for the general use or maintenance of Products under post-warranty maintenance
service, which are normally so furnished to maintenance customers.
16.14 TITLE. Except as maybe set forth in an applicable
Supplemental Agreement or Order, title to replacement and repair parts and
components shall vest in Ordering Company upon installation on equipment owned
by Ordering Company. Any parts replaced shall become the property of BCS. Title
to enhancements and modifications and to intellectual property rights therein
shall remain in BCS.
16.15 TRAINING AND TECHNICAL SERVICE. BCS shall provide,
without additional charge to Ordering Company, the training and assistance as it
normally provides without charge to maintenance customers.
16.16 MAINTENANCE SERVICES WARRANTY. BCS warrants to Ordering
Company that the Maintenance Services shall be performed with promptness and
diligence, in a first-class, workmanlike manner in accordance with applicable
specifications and using material free from defects, and that the Product shall
function in good operating condition during the duration of the Maintenance
Order. All warranties shall survive inspection, acceptance and payment.
Maintenance Services (including replacement parts) not meeting the above
warranties will be corrected by BCS at no cost to Ordering Company or if BCS is
unable to do so within a reasonable period of time, then Ordering Company may
terminate the applicable maintenance Order with respect to that Product without
liability for cancellation charges. Whenever equipment, repair parts or
components under warranty are shipped for repair or replacement purposes, BCS
shall bear all costs, including but not limited to, costs of packing, rigging,
transportation and insurance. BCS shall also bear all risk of loss or damage
from the time the equipment, repair parts or components are removed from
Ordering Company's site until the equipment, repair parts or components are
returned to that site and installed by BCS.
<PAGE> 117
16.17 TECHNICAL SUPPORT OF PRODUCTS. With respect to the
DEFINITY Product Line, BCS shall, in addition to its obligations under Product
Warranty, make available, at mutually agreeable rates, ongoing technical support
including, but not limited to the expertise to identify, isolate, and resolve
problems, that BCS customarily provides, including telephone assistance, field
Service, and technical consultation Service for DEFINITY Products provided under
this Agreement for a period of the longer of (A) ten (10) years after
installation of the particular DEFINITY Product; or (B) five (5) years after
last shipment of such type of Product to Ordering Company. The period for BCS's
Multi-media Messaging and Response Product Line is five (5) years after such
Product's discontinued availability effective date unless modified by
Supplemental Agreements.
16.18 REPORTS. At Ordering Company's request, and subject to
mutually agreed charges, BCS will provide periodic or other reports in a
mutually agreeable format concerning such matters as billings for Products and
Services, time to repair and time for Order completion.
16.19 WARRANTY FOR SERVICES OTHER THAN MAINTENANCE SERVICES.
BCS warrants to Ordering Company that Services will be performed in a
professional manner and in accordance with BCS's Specifications or those
referenced in the Order and with accepted practices in the community in which
such Services are performed, using material free from defects except where such
material is provided by Ordering Company. If the Services prove to be not so
performed and if Ordering Company notifies BCS, with respect to other
Miscellaneous Services (e.g., Move, Change and Rearrangements), within a
mutually agreed to period commencing on the date of acceptance of the Service,
BCS, at its option, either will correct the defect or nonconforming Service for
which BCS is responsible or render a full or prorated refund or credit based on
the original charge for the Services. After the corrective action, Ordering
Company shall have the right to inspect and accept the corrective work done.
16.20 CONDITIONS OF INSTALLATION AND OTHER SERVICES PERFORMED
ON ORDERING COMPANY'S SITE.
(a) ITEMS PROVIDED BY ORDERING COMPANY. Ordering Company will
be responsible for furnishing the following items as required:
(i) OPENINGS IN BUILDINGS - Prior to Service start date,
furnish suitable openings in buildings to allow Products to be
placed in position, and provide necessary openings and ducts
for cable and conductors in floors and walls as designated on
engineering drawings furnished by BCS with input provided by
Ordering Company. BCS shall provide such drawings to Ordering
Company in sufficient time to meet project service dates.
Ordering Company shall fireproof (with steel covers) all paths
throughout the building.
(ii) BUILDING EVACUATION - Prior to Services start date,
provide building evacuation plans in case of a fire or other
emergency.
<PAGE> 118
(iii) CEILING INSERTS - Provide ceiling inserts as required
using BCS's standard spacing arrangement for ceiling support
equipment.
(iv) MATERIAL FURNISHED BY ORDERING COMPANY - New or used
third party material furnished by Ordering Company shall be in
such condition that it requires no repair and no adjustment or
test effort in excess of that normal for new equipment.
Ordering Company assumes all responsibility for the proper
functioning of such material. Ordering Company shall also
provide the necessary third party Product information and,
where possible and permitted, access to special third party
test equipment and tools, for BCS to properly install such
material.
(v) PERMITS - Prior to Services start date, Ordering Company
shall provide all licenses, permits, easements, right of ways
and authority for installation of Products and other material;
and construction and building permits.
(vi) USE OF AVAILABLE TESTING EQUIPMENT - Ordering Company
shall make available to BCS the maintenance test facilities
which are imbedded in equipment to which the Product being
installed will be connected or added, and, if available,
meters, test sets, and other portable apparatus that is unique
to the Product being installed. BCS's use of such test
equipment shall not interfere with the Ordering Company's
normal equipment maintenance functions.
(vii) GROUNDS - Ordering Company shall provide access to
suitable and isolated building ground as required for BCS's
standard grounding of equipment. Where installation is outside
or in a building under construction, Ordering Company shall
also furnish lightning protection ground.
(viii) CLEARING EQUIPMENT FOR MODIFICATIONS - Ordering Company
shall remove, or transfer telecommunications traffic on trunks
and sundry working equipment, and make other arrangements
required to permit BCS to modify existing equipment.
(ix) BATTERY ROOM VENTILATION - Ordering Company shall provide
the required ventilation for battery rooms or areas.
(xvii) HOUSE SERVICE PANEL - Ordering Company shall provide
electric power from the Ordering Company's Service panel to
BCS's power board and shall run all leads between said Service
panel and power board.
<PAGE> 119
(b) ITEMS TO BE FURNISHED BY BCS. The following items will be
furnished by BCS (if required by the conditions of the particular Service) and
the price thereof is included in BCS's price for Services:
(i) PROTECTION OF EQUIPMENT AND BUILDINGS - BCS shall follow
its standard practices in providing protection for Ordering
Company's equipment and buildings during the performance of
the Services.
(ii) WIRE CONDUIT - BCS shall install wire conduit as
specified in the Ordering Company's specifications.
(iii) WIRE FRAMING - BCS shall install wire conduit, fixtures,
and other necessary material for wire framing distribution as
specified in Ordering Company's specification.
(iv) TEMPORARY DAILY CLOSING AND FIREPROOFING - BCS shall
provide temporary daily closing for all occupied buildings,
and fireproof all openings that BCS makes in any occupied
building in the course of providing the Services.
(v) TOOLS AND EQUIPMENT - Unless otherwise specifically
provided in this Agreement, BCS shall provide all labor, tools
and equipment (the "tools") for performance of this Agreement.
Should BCS actually use any tools provided by Ordering
Company, BCS acknowledges that BCS accepts the tools "as is,
where is". BCS acknowledges that Ordering Company has no
responsibility for the condition or state of repair of the
tools and BCS shall have risk of loss and damage to such
tools. BCS agrees not to remove the tools from the work site
and to return the tools to Ordering Company upon completion of
use, or at such earlier time as Ordering Company may request,
in the same condition as when received by BCS, reasonable wear
and tear excepted.
(vi) CLEAN UP - BCS at all times, and at its expense, shall
keep the premise free from accumulation of waste materials or
rubbish caused by BCS's operation. Upon completion of the
work, BCS shall, at its expense, as promptly as practical,
remove from the premises all of BCS's implements, equipment,
tools, machines and surplus. In addition, BCS shall clean up
its waste materials and debris and dispose of same in
containers to be provided by Ordering Company. If BCS fails to
clean up as provided herein, Ordering Company may do so and
charge the cost thereof to BCS or deduct same from the
Ordering Company's payment to BCS, provided Ordering Company
has given prior notice to BCS and BCS has not commenced to
cure within twenty-four (24) hours.
(vii) HAZARDOUS MATERIALS CLEANUP - At the conclusion of the
Services, BCS shall be responsible for the cleanup, removal,
and proper disposal of all
<PAGE> 120
Hazardous Materials introduced by BCS or its sub-contractors
to Ordering Company's premises.
(viii) Subject to an additional charge, the following items
may be furnished by BCS if mutually agreed to:
(1) RERUNNING CROSS-CONNECTIONS - BCS may rerun
permanent cross-connections in accordance with
revised cross-connection lists furnished by the
Ordering Company's cross-connection list.
(2) HANDLING, PACKING, TRANSPORTATION, AND
DISPOSITION OF REMOVED AND SURPLUS ORDERING COMPANY
EQUIPMENT - BCS may pack, transport, and dispose of
surplus and removed Ordering Company equipment as
agreed by the parties.
(3) PREMIUM TIME ALLOWANCES AND NIGHT SHIFT BONUSES -
BCS may have its Services personnel work premium time
and night shifts to the extent that BCS may deem such
to be necessary to effect the required coordination
of installing and testing operations or other
Services because of Ordering Company's requirements.
16.21 TRAINING. If requested by Ordering Company, BCS will, at
mutually agreed prices: (a) provide instructors and the necessary instructional
material of BCS's standard format to train Ordering Company's personnel in the
installation, planning and practices, operation, maintenance, and repair of
material furnished under this Agreement with such classes to be conducted at
intervals and locations agreed upon by BCS and Ordering Company; or, (b) if
agreed to by BCS, license Ordering Company to reproduce BCS's copyrighted
training modules or manuals, covering those areas of interest outlined above in
this Section 16.21, sufficient in detail and format, to allow Ordering Company
to develop and conduct its own training program.
16.22 INSTALLATION/CUTOVER ASSISTANCE. In the event BCS is not
installing the material, and if requested by Ordering Company, BCS agrees to
make available at the installation site, at a negotiated price plus travel and
living expenses, a field engineer to render installation and cutover assistance
as required by Ordering Company.
ARTICLE XVII
EXHIBITS
17.1 LIST OF EXHIBITS. The following exhibits are incorporated
by reference and are part of this Part III of this Agreement:
<PAGE> 121
Exhibit 13-1 - Sample Project Milestones and Responsibilities
Exhibit 13-2 - Implementation Roles and Responsibilities for an Order
Exhibit 16-1 - Basic Service Description of Warranty Or Post Warranty
Service Coverage Offerings and Support Options For
Equipment And Licensed Material
Exhibit 16-2 - Dedicated Technician Service
<PAGE> 122
IN WITNESS WHEREOF, the parties have caused this General Purchase Agreement to
be executed by their duly authorized representatives on the date(s) indicated.
AT&T CORP. LUCENT TECHNOLOGIES INC.
By /s/ By /s/
------------------------------ ---------------------------
Name Name
----------------------------- -------------------------
Title Title
---------------------------- -----------------------
Date Date
----------------------------- ------------------------
<PAGE> 1
EXHIBIT 10.6
TAX SHARING AGREEMENT
BY AND AMONG
AT&T CORP.,
LUCENT TECHNOLOGIES INC.
AND
NCR CORPORATION
DATED AS OF
FEBRUARY 1, 1996
<PAGE> 2
TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT, dated as of February 1, 1996, is
by and among AT&T, Lucent and NCR. Capitalized terms used herein shall have the
respective meanings assigned to them in the Separation Agreement unless
otherwise defined in Article I hereof.
WHEREAS, AT&T, Lucent and NCR have executed the Separation
Agreement pursuant to which AT&T's existing businesses will be separated into
three independent businesses; and
WHEREAS, it is appropriate and desirable to set forth the
principles and responsibilities of the parties to this Agreement regarding
future Adjustments with respect to Taxes, Tax Contests and other related Tax
matters.
NOW, THEREFORE, the parties, intending to be legally bound,
agree as follows:
ARTICLE I
DEFINITIONS
For the purpose of this Agreement the following terms shall
have the following meanings:
1.1. ADJUSTMENT means the deemed increase or decrease in a
Tax, determined on an issue-by-issue or transaction-by-transaction basis, as
appropriate, and using the assumptions set forth in the next sentence, resulting
from an adjustment made or proposed by a Taxing Authority with respect to any
amount reflected or required to be reflected on any Return relating to such Tax.
For purposes of determining such deemed increase or decrease in a Tax, the
following assumptions will be used: (a) in the case of any income Tax, the
highest marginal Tax rate or, in the case of any other Tax, the highest
applicable Tax rate, in each case in effect with respect to that Tax for the
Taxable period or any portion of the Taxable period to which the adjustment
relates; and (b) such determination shall be made without regard to whether any
actual increase or decrease in such Tax will in fact be realized with respect to
the Return to which such adjustment relates.
1.2. AGREEMENT means this Tax Sharing Agreement, including any
schedules, exhibits and appendices attached hereto.
1.3. AT&T TAX ADJUSTMENT means, with respect to any Taxable
period or portion of a Taxable period, and as computed separately with respect
to each
<PAGE> 3
Tax, the net increase in each such Tax equal to the sum of all Adjustments made
pursuant to a Final Determination with respect to each such Tax for each such
Taxable period or portion of a Taxable period that are clearly attributable to
the AT&T Services Business; provided, however, that any Adjustment comprising a
Restructuring Adjustment shall not be considered in determining the amount of
any AT&T Tax Adjustment.
1.4. AT&T TAX BENEFIT means, with respect to any Taxable
period or portion of a Taxable period, and as computed separately with respect
to each Tax, the net decrease in each such Tax equal to the sum of all
Adjustments made pursuant to a Final Determination with respect to each such Tax
for each such Taxable period or portion of a Taxable period that are clearly
attributable to the AT&T Services Business; provided, however, that any
Adjustment comprising a Restructuring Adjustment shall not be considered in
determining the amount of any AT&T Tax Benefit.
1.5. CONSOLIDATION means, as appropriate, any Taxable period
or any portion of a Taxable period during which (a) one or more members of the
Lucent Group are members of an AT&T Consolidated Return; or (b) one or more
members of the NCR Group are members of an AT&T Consolidated Return.
1.6. CONSOLIDATED RETURN means, as appropriate, (a) for any
Taxable period or any portion of a Taxable period ending or deemed to end on or
prior to the Distribution Date, any consolidated or combined Return that
includes one or more members of the AT&T Group and/or one or more members of the
Lucent Group; and (b) for any Taxable period, or any portion of a Taxable
period, beginning or deemed to begin after the Distribution Date and ending or
deemed to end on or prior to the date of the NCR Distribution, any consolidated
or combined Return that includes one or more members of the AT&T Services Group
and/or one or more members of the NCR Group.
1.7. CONTROLLING PARTY means AT&T or any other member of the
AT&T Services Group, Lucent or any other member of the Lucent Group or NCR or
any other member of the NCR Group, as the case may be, that filed or, if no such
Return has been filed, was required to file, a Return that is the subject of any
Tax Contest, or any successor and/or assign of any of the foregoing; provided,
however, that in the case of any Consolidated Return, the Person that actually
filed such Consolidated Return (or any successor and/or assign of such Person)
will be the Controlling Party.
1.8. CORRELATIVE ADJUSTMENT means, in the case of an
Adjustment comprising either a Restructuring Adjustment or Non-Line of Business
Adjustment, the net present value of any future increases or decreases in a Tax
that would be realized, using the assumptions set forth in the next sentence, by
either AT&T or any other member of the AT&T Services Group, Lucent or any other
member of the Lucent Group or NCR or any other member of the NCR Group, as the
case may be, in one or more Taxable
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<PAGE> 4
periods (or any portion of a Taxable period) but only if such increases or
decreases (a) will take effect or begin to take effect in the Taxable period or
portion of a Taxable period immediately following the Taxable period or portion
of a Taxable period in which the Restructuring Adjustment or Non-Line of
Business Adjustment to such Tax was made; and (b) are a direct result of such an
Adjustment to that Tax in the immediately preceding Taxable period or portion of
such Taxable period. For purposes of determining the net present value of any
such future increases or decreases in a Tax, the following assumptions will be
used: (i) a discount rate equal to the sum of the Prime Rate as of the date of
the Final Determination relating to such Restructuring Adjustment or Non-Line of
Business Adjustment plus 3.5%; (ii) in the case of any income Tax, the highest
marginal Tax rate or, in the case of any other Tax, the highest applicable Tax
rate, in each case in effect with respect to that Tax for the Taxable period, or
portion of the Taxable period, in which the Restructuring Adjustment or Non-Line
of Business Adjustment was made; (iii) the depreciation, amortization or credit
rate or lives, if applicable, in effect for the Taxable period, or portion of
the Taxable period, in which the Restructuring Adjustment or Non-Line of
Business Adjustment was made; and (iv) such determination shall be made without
regard to whether any actual increases or decreases in such Tax will in fact be
realized with respect to the future Returns to which such Correlative Adjustment
relates.
1.9. DISPUTED ADJUSTMENT has the meaning set forth in Section
3.4(b) hereof.
1.10. FINAL DETERMINATION means (a) a decision, judgment,
decree or other order by any court of competent jurisdiction, which has become
final and is either no longer subject to appeal or for which a determination not
to appeal has been made; (b) a closing agreement made under Section 7121 of the
Code or any comparable foreign, state, local, municipal or other Taxing statute;
(c) a final disposition by any Taxing Authority of a claim for refund; or (d)
any other written agreement relating to an Adjustment between any Taxing
Authority and any Controlling Party the execution of which is final and
prohibits such Taxing Authority or the Controlling Party from seeking any
further legal or administrative remedies with respect to such Adjustment.
1.11. INDEPENDENT THIRD PARTY means a nationally recognized
law firm or any of the following accounting firms or their successors: Arthur
Andersen & Co.; Ernst & Young; KPMG Peat Marwick & Main; Deloitte & Touche;
Coopers & Lybrand; and Price Waterhouse & Co.
1.12. INDEMNIFIED PARTY has the meaning set forth in Section
4.1 hereof.
1.13. INDEMNIFYING PARTY has the meaning set forth in Section
4.1 hereof.
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<PAGE> 5
1.14. INITIAL DETERMINATION has the meaning set forth in
Section 3.5(b)(i) hereof.
1.15. INTERESTED PARTY means AT&T or any other member of the
AT&T Services Group, Lucent or any other member of the Lucent Group or NCR or
any other member of the NCR Group (including any successor and/or assign of any
of each of the foregoing), as the case may be, to the extent (a) such Person is
not the Controlling Party with respect to a Tax Contest; and (b) such Person (i)
may be liable for, or required to make, any indemnity payment, reimbursement or
other payment pursuant to the provisions of this Agreement with respect to such
Tax Contest; or (ii) may be entitled to receive any indemnity payment,
reimbursement or other payment pursuant to the provisions of this Agreement with
respect to such Tax Contest; provided, however, that in no event shall a member
of either the AT&T Services Group, the Lucent Group or the NCR Group, as the
case may be, be an Interested Party in a Tax Contest in which another member of
its Group is the Controlling Party with respect to the Tax Contest.
1.16. INTERESTED PARTY NOTICE has the meaning set forth in
Section 3.4(b) hereof.
1.17. LUCENT TAX ADJUSTMENT means, with respect to any Taxable
period or portion of a Taxable period, and as computed separately with respect
to each Tax, the net increase in each such Tax equal to the sum of all
Adjustments made pursuant to a Final Determination with respect to each such Tax
for each such Taxable period or portion of a Taxable period that are clearly
attributable to either the Lucent Assets or the Lucent Business; provided,
however, that any Adjustment comprising a Restructuring Adjustment shall not be
considered in determining the amount of any Lucent Tax Adjustment.
1.18. LUCENT TAX BENEFIT means, with respect to any Taxable
period or portion of a Taxable period, and as computed separately with respect
to each Tax, the net decrease in each such Tax equal to the sum of all
Adjustments made pursuant to a Final Determination with respect to each such Tax
for each such Taxable period or portion of a Taxable period that are clearly
attributable to either the Lucent Assets or the Lucent Business; provided,
however, that any Adjustment comprising a Restructuring Adjustment shall not be
considered in determining the amount of any Lucent Tax Benefit.
1.19. NCR TAX ADJUSTMENT means, with respect to any Taxable
period or portion of a Taxable period, and as computed separately with respect
to each Tax, the net increase in each such Tax equal to the sum of all
Adjustments made pursuant to a Final Determination with respect to each such Tax
for each such Taxable period or portion of a Taxable period that are clearly
attributable to the NCR Business; provided, however, that
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<PAGE> 6
any Adjustment comprising a Restructuring Adjustment shall not be considered in
determining the amount of any NCR Tax Adjustment.
1.20. NCR TAX BENEFIT means, with respect to any Taxable
period or portion of a Taxable period, and as computed separately with respect
to each Tax, the net decrease in each such Tax equal to the sum of all
Adjustments made pursuant to a Final Determination with respect to each such Tax
for each such Taxable period or portion of a Taxable period that are clearly
attributable to the NCR Business; provided, however, that any Adjustment
comprising a Restructuring Adjustment shall not be considered in determining the
amount of any NCR Tax Benefit.
1.21. NON-LINE OF BUSINESS ADJUSTMENT means, with respect to
any Taxable period or portion of a Taxable period, and as computed separately
with respect to each Tax, the net increase or decrease in each such Tax, as the
case may be, equal to the sum of all Adjustments made pursuant to a Final
Determination with respect to each such Tax for each such Taxable period or
portion of a Taxable period other than (a) any Restructuring Adjustments and any
Correlative Adjustment attributable to such Restructuring Adjustments; (b) any
Tax Adjustments; and (c) any Tax Benefits.
1.22. RESTRUCTURING ADJUSTMENT means, with respect to any
Taxable period or portion of a Taxable period, and as computed separately with
respect to each Tax, the net increase or decrease in each such Tax, as the case
may be, equal to the sum of all Adjustments made pursuant to a Final
Determination with respect to each such Tax for each Taxable period or portion
of a Taxable period that are attributable to, or as a result of, any
transactions undertaken to effectuate the separation of AT&T's existing
businesses into three independent businesses as contemplated under the
Separation Agreement including, but not limited to, any transactions undertaken
pursuant to or relating to the Separation, the IPO, the Distribution, the
Non-U.S. Plan, the merger of RMC with and into AT&T and the NCR Distribution.
1.23. RETURN means any return, report, form or similar
statement or document (including, without limitation, any related or supporting
information or schedule attached thereto and any information return, claim for
refund, amended return and declaration of estimated tax) that has been or is
required to be filed with any Taxing Authority or that has been or is required
to be furnished to any Taxing Authority in connection with the determination,
assessment or collection of any Taxes or the administration of any laws,
regulations or administrative requirements relating to any Taxes.
1.24. SEPARATE RETURN means any Return other than a
Consolidated Return.
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1.25. SEPARATION AGREEMENT means the Separation and
Distribution Agreement, dated the date hereof, by and among AT&T Corp., Lucent
Technologies Inc. and NCR Corporation.
1.26. SIGNIFICANT OBLIGATION means, in the case of an
Interested Party, and with respect to any Adjustment comprising either a
Restructuring Adjustment or Non-Line of Business Adjustment, either (a) a Shared
Percentage that is greater than or equal to 30%; or (b) an obligation to make or
right to receive any indemnity payment, reimbursement or other payment with
respect to any such Adjustment (including the effect of a Correlative Adjustment
relating thereto) pursuant to the terms of this Agreement that (i) in the case
of any federal income Tax is greater than $5 million, and (ii) in the case of
any other Tax is greater than $1 million.
1.27. TAX (and, with correlative meanings, "Taxes" and
"Taxable") means, without limitation, and as determined on a
jurisdiction-by-jurisdiction basis, each foreign or U.S. federal, state, local
or municipal income, alternative or add-on minimum, gross receipts, sales, use,
ad valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property or any other
tax, custom, tariff, impost, levy, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
penalty, addition to tax or additional amount related thereto, imposed by any
Taxing Authority.
1.28. TAX ADJUSTMENTS means any AT&T Tax Adjustment, any NCR
Tax Adjustment or any Lucent Tax Adjustment, as the case may be.
1.29. TAX BENEFITS means any AT&T Tax Benefit, any NCR Tax
Benefit or any Lucent Tax Benefit, as the case may be.
1.30. TAX CONTEST means, without limitation, any audit,
examination, claim, suit, action or other proceeding relating to Taxes in which
an Adjustment to Taxes may be proposed, collected or assessed and in respect of
which an indemnity payment, reimbursement or other payment may be sought under
this Agreement.
1.31. TAXING AUTHORITY means any Governmental Authority or any
subdivision, agency, commission or authority thereof, or any quasi-governmental
or private body having jurisdiction over the assessment, determination,
collection or other imposition of Taxes.
1.32. ULTIMATE DETERMINATION has the meaning set forth in
Section 3.5(b)(iii) hereof.
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ARTICLE II
TAX ADJUSTMENTS/BENEFITS
2.1 IN GENERAL. (a) In determining Lucent's liability and/or
obligation to make, or Lucent's right to receive, any indemnity payment,
reimbursement or other payment in respect of any Tax under this Agreement, any
Taxable period or portion of a Taxable period that includes the Distribution
Date shall be deemed to include and end on such Distribution Date and Lucent
shall have no liability and/or obligation to make, or right to receive, any
indemnity payment, reimbursement or other payment in respect of any Tax under
this Agreement with respect to any Taxable period or portion of a Taxable period
that begins or is deemed to begin after the Distribution Date.
(b) In determining NCR's liability and/or obligation to make,
or NCR's right to receive, any indemnity payment, reimbursement or other payment
in respect of any Tax under this Agreement, any Taxable period or portion of a
Taxable period that includes the date of the NCR Distribution shall be deemed to
include and end on such date and NCR shall have no liability and/or obligation
to make, or right to receive, any indemnity payment, reimbursement or other
payment under this Agreement in respect of any Tax with respect to any Taxable
period or portion of a Taxable period that begins or is deemed to begin after
the date of the NCR Distribution.
(c) Any Adjustment relating to or arising out of the
employment of employees or former employees the Liabilities with respect to
which are assumed by Lucent pursuant to Section 2.1(a) of the Employee Benefits
Agreement shall be deemed to be Adjustments that are clearly attributable to the
Lucent Business and shall be deemed to comprise a Lucent Tax Adjustment or
Lucent Tax Benefit, as the case may be. All other Adjustments relating to or
arising out of the employment of employees or former employees shall be deemed
to be Adjustments that are clearly attributable to the AT&T Services Business
and shall be deemed to comprise an AT&T Tax Adjustment or AT&T Tax Benefit, as
the case may be, except to the extent that such Adjustments arise out of or
relate to the employment of such individuals by NCR, in which case they shall be
deemed to be Adjustments that are clearly attributable to the NCR Business and
shall be deemed to comprise a NCR Tax Adjustment or NCR Tax Benefit, as the case
may be.
2.2. TAX ADJUSTMENTS AND BENEFITS. (a) Lucent shall be liable
for, and shall indemnify and hold harmless, subject to Section 3.4 and Section
3.5 hereof, any member of the AT&T Services Group and/or the NCR Group, as
appropriate, against any and all Lucent Tax Adjustments for any Taxable period
or portion of a Taxable period ending or deemed to end on or before the
Distribution Date, in each case with respect to any Return of any member of the
Lucent Group, the AT&T Services Group or the NCR Group. Lucent shall be entitled
to receive, and shall be paid, subject to Section 3.4 and Section 3.5 hereof,
(i) by AT&T, the amount of any Lucent Tax Benefits for any Taxable
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period or portion of a Taxable period ending or deemed to end on or before the
Distribution Date with respect to any Return of any member of the AT&T Services
Group; and/or (ii) by NCR, the amount of any Lucent Tax Benefits for any Taxable
period or portion of a Taxable period ending or deemed to end on or before the
Distribution Date with respect to any Return of any member of the NCR Group.
(b) AT&T shall be liable for, and shall indemnify and hold
harmless, as appropriate, and subject to Section 3.4 and Section 3.5 hereof, (i)
any member of the Lucent Group against any and all AT&T Tax Adjustments for any
Taxable period or portion of a Taxable period ending or deemed to end on or
before the Distribution Date; and/or (ii) any member of the NCR Group against
any and all AT&T Tax Adjustments for any Taxable period or portion of a Taxable
period ending or deemed to end on or before the date of the NCR Distribution, in
each case with respect to any Return of any member of the Lucent Group, the AT&T
Services Group or the NCR Group. AT&T shall be entitled to receive, and shall be
paid, subject to Section 3.4 and Section 3.5 hereof, (i) by Lucent, the amount
of any AT&T Tax Benefits for any Taxable period or portion of a Taxable period
ending or deemed to end on or before the Distribution Date with respect to any
Return of any member of the Lucent Group; and/or (ii) by NCR, the amount of any
AT&T Tax Benefits for any Taxable period or any portion of a Taxable period
ending or deemed to end on or before the date of the NCR Distribution with
respect to any Return of any member of the NCR Group.
(c) NCR shall be liable for, and shall indemnify and hold
harmless, as appropriate, and subject to Section 3.4 and Section 3.5 hereof, (i)
any member of the AT&T Services Group against any and all NCR Tax Adjustments
for any Taxable period or portion of a Taxable period ending or deemed to end on
or before the date of the NCR Distribution; and (ii) any member of the Lucent
Group against any and all NCR Tax Adjustments for any Taxable period or portion
of a Taxable period ending or deemed to end on or before the Distribution Date,
in each case with respect to any Return of any member of the Lucent Group, the
AT&T Services Group or the NCR Group. NCR shall be entitled to receive, and
shall be paid, subject to Section 3.4 and Section 3.5 hereof, (i) by AT&T, the
amount of any NCR Tax Benefits for any Taxable period or portion of a Taxable
period ending or deemed to end on the date of the NCR Distribution with respect
to any Return of any member of the AT&T Services Group; and/or (ii) by Lucent,
the amount of any NCR Tax Benefits for any Taxable period or portion of a
Taxable period ending or deemed to end on the Distribution Date with respect to
any Return of any member of the Lucent Group.
(d) Notwithstanding anything in this Section 2.2 to the
contrary, in the case of any Tax Adjustment or Tax Benefit for any Taxable
period ending or deemed to end on or before the Distribution Date relating to
any state, local, or municipal income or franchise Tax that is filed or required
to be filed on a separate, combined, consolidated or
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nexus consolidated Return basis, AT&T's, Lucent's and NCR's liability for,
and/or right to receive, the amount of any such Tax Adjustment or Benefit, as
the case may be, shall be determined on a jurisdiction-by-jurisdiction basis as
follows:
(i) Such Tax Adjustment or Tax Benefit, as the case may be,
shall be divided into five segments in proportion to AT&T's, Lucent's, NCR's,
Bell Laboratories' and Resource Management Corporation's relative contribution,
if any, to the apportionment factor relevant to such Tax Adjustment or Tax
Benefit, as the case may be, with each such segment being hereinafter referred
to as the "AT&T segment," the "Lucent segment," the "NCR segment," the "Bell
Labs segment" and the "RMC segment" for purposes of this Section 2.2(d). For
purposes of this Section 2.2(d), each of AT&T's, Lucent's, NCR's, Bell
Laboratories' and Resource Management Corporation's relative contribution, if
any, to an apportionment factor shall be determined (A) in a manner that is
consistent with the past practices of AT&T, Lucent, NCR and Resource Management
Corporation, as the case may be, that have been used in determining
apportionment factors; and (B) by taking into account and giving effect to all
Adjustments reflected in a Final Determination with respect to the relevant
state, local or municipal income or franchise Tax for the Taxable period or
portion thereof that is at issue.
(ii) NCR's liability for any state, local or municipal income
or franchise Tax Adjustment and/or right to receive any state, local or
municipal income or franchise Tax Benefit relating to each such separate,
combined, consolidated or nexus consolidated Return that is the subject of this
Section 2.2(d), if any, shall be equal to the amount of the NCR segment.
(iii) AT&T's liability for any state, local or municipal
income or franchise Tax Adjustment and/or right to receive any state, local or
municipal income or franchise Tax Benefit relating to each such separate,
combined, consolidated or nexus consolidated Return that is the subject of this
Section 2.2(d), if any, shall be equal to the sum of (A) the amount of the AT&T
segment; (B) four (4) percent of the amount of the Bell Labs segment; plus (C)
eighty (80) percent of the amount of the RMC segment.
(iv) Lucent's liability for any state, local or municipal
income or franchise Tax Adjustment and/or right to receive any state, local or
municipal income or franchise Tax Benefit relating to each such separate,
combined, consolidated or nexus consolidated Return that is the subject of this
Section 2.2(d), if any, shall be equal to the sum of (A) the amount of the
Lucent segment; (B) ninety-six (96) percent of the amount of the Bell Labs
segment; plus (C) twenty (20) percent of the amount of the RMC segment.
(v) Notwithstanding anything in this Section 2.2(d) to the
contrary, in the event that there is a Final Determination in a Tax Contest that
either (A) the filing of a state, local or municipal combined, consolidated or
nexus consolidated income or
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franchise Tax Return of which NCR or any member of the NCR Group is a part is
disallowed by the relevant state, local or municipal Taxing Authority; or (B)
any preacquisition losses of NCR or any member of the NCR Group claimed on a
state, local or municipal combined, consolidated or nexus consolidated income or
franchise Tax Return are disallowed by the relevant state, local or municipal
Taxing Authority, then NCR shall reimburse AT&T for the amount of any benefits
received by NCR or any member of the NCR Group pursuant to the provisions of the
State and Local Income Tax Allocation Agreement dated February 1, 1996, for the
utilization of any member of the NCR Group's losses in any such combined,
consolidated or nexus consolidated Return, with the amount of such reimbursement
paid to AT&T (x) then being further allocated between AT&T and Lucent in
proportion to each of the AT&T segment and the Lucent segment, respectively,
relating to each such combined, consolidated or nexus consolidated Return; and
(y) AT&T reimbursing Lucent for the amount so allocated to Lucent pursuant to
clause (x) of this Section 2.2(d)(v).
(vi) Notwithstanding anything in this Section 2.2(d) to the
contrary, in the event that there is a Final Determination in a Tax Contest that
any Tax credit claimed on any state, local or municipal income or franchise Tax
Return is disallowed by the relevant state, local or municipal Taxing Authority,
then (A) the total Tax liability owed to such state, local or municipal Taxing
Authority, as the case may be, determined without such disallowed Tax credit for
the relevant Taxable period, shall be allocated among the AT&T, Lucent and NCR
consistent with the provisions of this Section 2.2(d); and (B) each of AT&T,
Lucent and NCR shall be liable for and/or entitled to receive an amount equal to
the difference between the amount allocated to it under clause (A) above and the
amount it has previously paid with respect to such Tax liability.
(e) Notwithstanding anything in this Section 2.2 to the
contrary, in the case of any Tax Adjustment or Tax Benefit for any Taxable
period, or portion of a Taxable period, beginning or deemed to begin after the
Distribution Date and ending or deemed to end on or prior to the date of the NCR
Distribution, relating to any state, local, or municipal income or franchise Tax
that is filed or required to be filed on a separate, combined, consolidated or
nexus consolidated Return basis, AT&T's and NCR's liability for, and/or right to
receive, the amount of any such Tax Adjustment or Tax Benefit, as the case may
be, shall be determined, on a jurisdiction-by-jurisdiction basis, by allocating
the amount of any such Tax Adjustment or Tax Benefit between AT&T and NCR in
proportion to each of AT&T's and NCR's respective contribution, if any, to the
apportionment factor relevant to such Tax Adjustment or Tax Benefit. AT&T and
NCR shall each be liable for and/or be entitled to receive its respective share
of any Tax Adjustment or Tax Benefit, as the case may be, as allocated to it in
the preceding sentence.
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2.3. RESTRUCTURING ADJUSTMENTS. (a) Lucent shall be liable
for, and shall indemnify and hold harmless, as appropriate, any member of the
AT&T Services Group and/or the NCR Group against Lucent's share, as determined
in Section 2.3(d) below, of any Restructuring Adjustment the amount of which
increases a Tax for any Taxable period or portion of a Taxable period ending or
deemed to end on or before the Distribution Date, in each case with respect to
any Return of any member of the Lucent Group, the AT&T Services Group or the NCR
Group. Lucent shall be entitled to receive, and shall be paid (i) by AT&T,
Lucent's share, as determined in Section 2.3(d) below, of any Restructuring
Adjustment the amount of which decreases a Tax for any Taxable period or portion
of a Taxable period ending or deemed to end on or before the Distribution Date
with respect to any Return of any member of the AT&T Services Group; and/or (ii)
by NCR, Lucent's share, as determined in Section 2.3(d) below, of any
Restructuring Adjustment the amount of which decreases a Tax for any Taxable
period or portion of a Taxable period ending or deemed to end on or before the
Distribution Date with respect to any Return of any member of the NCR Group.
(b) AT&T shall be liable for, and shall indemnify and hold
harmless, as appropriate, (i) any member of the Lucent Group against AT&T's
share, as determined in Section 2.3(d) below, of any Restructuring Adjustment
the amount of which increases a Tax for any Taxable period or portion of a
Taxable period ending or deemed to end on or before the Distribution Date; and
(ii) any member of the NCR Group against AT&T's share, as determined in Section
2.3(d) below, of any Restructuring Adjustment the amount of which increases a
Tax for any Taxable period or portion of a Taxable period ending or deemed to
end on or before the date of the NCR Distribution, in each case with respect to
any Return of any member of the Lucent Group, the AT&T Services Group or the NCR
Group. AT&T shall be entitled to receive, and shall be paid (i) by Lucent,
AT&T's share, as determined in Section 2.3(d) below, of any Restructuring
Adjustment the amount of which decreases a Tax for any Taxable period or portion
of a Taxable period ending or deemed to end on or before the Distribution Date
with respect to any Return of any member of the Lucent Group; and/or (ii) by
NCR, AT&T's share, as determined in Section 2.3(d) below, of any Restructuring
Adjustment the amount of which decreases a Tax for any Taxable period or portion
of a Taxable period ending or deemed to end on or before the date of the NCR
Distribution with respect to any Return of any member of the NCR Group.
(c) NCR shall be liable for, and shall indemnify and hold
harmless, as appropriate, (i) any member of the Lucent Group against NCR's
share, as determined in Section 2.3(d) below, of any Restructuring Adjustment
the amount of which increases a Tax for any Taxable period or portion of a
Taxable period ending or deemed to end on or before the Distribution Date; and
(ii) any member of the AT&T Services Group against NCR's share, as determined in
Section 2.3(d) below, of any Restructuring Adjustment the amount of which
increases a Tax for any Taxable period or portion of a Taxable period
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ending or deemed to end on or before the date of the NCR Distribution, in each
case with respect to any Return of any member of the Lucent Group, the AT&T
Services Group or the NCR Group. NCR shall be entitled to receive, and shall be
paid (i) by Lucent, NCR's share, as determined in Section 2.3(d) below, of any
Restructuring Adjustment the amount of which decreases a Tax for any Taxable
period or portion of a Taxable period ending or deemed to end on or before the
Distribution Date with respect to any Return of any member of the Lucent Group;
and/or (ii) by AT&T, NCR's share, as determined in Section 2.3(d) below, of any
Restructuring Adjustment the amount of which decreases a Tax for any Taxable
period or portion of a Taxable period ending or deemed to end on or before the
date of the NCR Distribution with respect to any Return of any member of the
AT&T Services Group.
(d) AT&T, Lucent and NCR shall share the amount of any
Restructuring Adjustment if, and to the extent, each such party is liable for
and/or has an obligation to make, or has the right to receive, as the case may
be, any indemnity payment, reimbursement or other payment with respect to such
Restructuring Adjustment under this Agreement, in proportion to the Shared AT&T
Percentage, the Shared Lucent Percentage and the Shared NCR Percentage,
respectively; provided, however, that in the event that there is any Correlative
Adjustment with respect to any such Restructuring Adjustment, then AT&T, Lucent
and NCR shall share such Restructuring Adjustment in the following manner in
order to ensure that the party or parties that will bear the burden or inure to
the benefit of the Correlative Adjustment in the future will share the
Restructuring Adjustment in proportion to each of their respective Shared
Percentages after giving effect to such Correlative Adjustment:
(i) first, the amount of any such Restructuring Adjustment
shall be increased or decreased, as appropriate, by the amount of the
Correlative Adjustment, the net amount resulting from such increase or decrease
being hereinafter referred to as the "Net Restructuring Adjustment" for purposes
of this Section 2.3(d);
(ii) second, the Net Restructuring Adjustment shall be
allocated among AT&T, Lucent and NCR in proportion to the Shared AT&T
Percentage, the Shared Lucent Percentage and the Shared NCR Percentage,
respectively, to the extent each such party is liable for and/or has an
obligation to make, or has the right to receive, as the case may be, any
indemnity payment, reimbursement or other payment with respect to such
Restructuring Adjustment under this Agreement; and
(iii) finally, with respect to a party to which a Correlative
Adjustment is attributable, that party's share of the Net Restructuring
Adjustment as allocated pursuant to paragraph (ii) of this Section 2.3(d) will
be increased or decreased, as appropriate, by the amount, if any, of the
Correlative Adjustment that is attributable to such party in order to arrive at
such party's share of the Restructuring Adjustment.
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Notwithstanding any other provision of this Agreement or the Separation
Agreement to the contrary, in the case of any Adjustment comprising a
Restructuring Adjustment that relates to the Distribution and arises as a result
of the acquisition of all or a portion of the Lucent stock and/or its assets by
any means whatsoever by any Person other than an Affiliate of Lucent following
such Distribution, then the Shared Lucent Percentage with respect to such
Adjustment shall be 100% and each of the Shared AT&T Percentage and the Shared
NCR Percentage shall be 0%.
(e) Following the determination of a party's share of a
Restructuring Adjustment pursuant to Section 2.3(d) above, and subject to
Section 3.4 and 3.5 hereof, the Controlling Party that controls the Tax Contest
to which such Restructuring Adjustment relates shall (i) be entitled to
reimbursement from AT&T, Lucent and/or NCR, as the case may be, for each of
their respective shares, if any, of any Restructuring Adjustment the amount of
which increases a Tax; and (ii) reimburse AT&T, Lucent or NCR, as the case may
be, for each of their respective shares, if any, of any Restructuring Adjustment
the amount of which decreases a Tax.
2.4. NON-LINE OF BUSINESS ADJUSTMENTS. (a) Lucent shall be
liable for, and shall indemnify and hold harmless, as appropriate, any member of
the AT&T Services Group and/or the NCR Group against Lucent's share, as
determined in Section 2.4(d) below, of any Non-Line of Business Adjustment the
amount of which increases a Tax for any Taxable period or portion of a Taxable
period ending or deemed to end on or before the Distribution Date, in each case
with respect to any Return of any member of the Lucent Group, the AT&T Services
Group or the NCR Group. Lucent shall be entitled to receive, and shall be paid
(i) by AT&T, Lucent's share, as determined in Section 2.4(d) below, of any
Non-Line of Business Adjustment the amount of which decreases a Tax for any
Taxable period or portion of a Taxable period ending or deemed to end on or
before the Distribution Date with respect to any Return of any member of the
AT&T Services Group; and/or (ii) by NCR, Lucent's share, as determined in
Section 2.4(d) below, of any Non-Line of Business Adjustment the amount of which
decreases a Tax for any Taxable period or portion of a Taxable period ending or
deemed to end on or before the Distribution Date with respect to any Return of
any member of the NCR Group.
(b) AT&T shall be liable for, and shall indemnify and hold
harmless, as appropriate, (i) any member of the Lucent Group against AT&T's
share, as determined in Section 2.4(d) below, of any Non-Line of Business
Adjustment the amount of which increases a Tax for any Taxable period or portion
of a Taxable period ending or deemed to end on or before the Distribution Date;
and (ii) any member of the NCR Group against AT&T's share, as determined in
Section 2.4(d) below, of any Non-Line of Business Adjustment the amount of which
increases a Tax for any Taxable period or portion of a Taxable period ending or
deemed to end on or before the date of the NCR Distribution, in
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each case with respect to any Return of any member of the Lucent Group, the AT&T
Services Group or the NCR Group. AT&T shall be entitled to receive, and shall be
paid (i) by Lucent, AT&T's share, as determined in Section 2.4(d) below, of any
Non-Line of Business Adjustment the amount of which decreases a Tax for any
Taxable period or portion of a Taxable period ending or deemed to end on or
before the Distribution Date with respect to any Return of any member of the
Lucent Group; and/or (ii) by NCR, AT&T's share, as determined in Section 2.4(d)
below, of any Non-Line of Business Adjustment the amount of which decreases a
Tax for any Taxable period or portion of a Taxable period ending or deemed to
end on or before the date of the NCR Distribution with respect to any Return of
any member of the NCR Group.
(c) NCR shall be liable for, and shall indemnify and hold
harmless, as appropriate, (i) any member of the Lucent Group against NCR's
share, as determined in Section 2.4(d) below, of any Non-Line of Business
Adjustment the amount of which increases a Tax for any Taxable period or portion
of a Taxable period ending or deemed to end on or before the Distribution Date;
and (ii) any member of the AT&T Services Group against NCR's share, as
determined in Section 2.4(d) below, of any Non-Line of Business Adjustment the
amount of which increases a Tax for any Taxable period or portion of a Taxable
period ending or deemed to end on or before the date of the NCR Distribution, in
each case with respect to any Return of any member of the Lucent Group, the AT&T
Services Group or the NCR Group. NCR shall be entitled to receive, and shall be
paid (i) by Lucent, NCR's share, as determined in Section 2.4(d) below, of any
Non-Line of Business Adjustment the amount of which decreases a Tax for any
Taxable period or portion of a Taxable period ending or deemed to end on or
before the Distribution Date with respect to any Return of any member of the
Lucent Group; and/or (ii) by AT&T, NCR's share, as determined in Section 2.4(d)
below, of any Non-Line of Business Adjustment the amount of which decreases a
Tax for any Taxable period or portion of a Taxable period ending or deemed to
end on or before the date of the NCR Distribution with respect to any Return of
any member of the AT&T Services Group.
(d) AT&T, Lucent and NCR shall share the amount of any
Non-Line of Business Adjustment if, and to the extent, each such party is liable
for and/or has an obligation to make, or has the right to receive, as the case
may be, any indemnity payment, reimbursement or other payment with respect to
such Non-Line of Business Adjustment under this Agreement, in proportion to the
Shared AT&T Percentage, the Shared Lucent Percentage and the Shared NCR
Percentage, respectively; provided, however, that in the event that there is any
Correlative Adjustment with respect to any such Non-Line of Business Adjustment,
then AT&T, Lucent and NCR shall share such Non-Line of Business Adjustment in
the following manner in order to ensure that the party or parties that will bear
the burden or inure to the benefit of the Correlative Adjustment in the future
will share the Non-Line of Business Adjustment in proportion to each of their
respective Shared Percentages after giving effect to such Correlative
Adjustment:
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(i) first, the amount of any such Non-Line of Business
Adjustment shall be increased or decreased, as appropriate, by the amount of the
Correlative Adjustment, the net amount resulting from such increase or decrease
being hereinafter referred to as the "Net Non-Line of Business Adjustment" for
purposes of this Section 2.4(d);
(ii) second, the Net Non-Line of Business Adjustment shall be
allocated among AT&T, Lucent and NCR in proportion to the Shared AT&T
Percentage, the Shared Lucent Percentage and the Shared NCR Percentage,
respectively, to the extent each such party is liable for and/or has an
obligation to make, or has the right to receive, as the case may be, any
indemnity payment, reimbursement or other payment with respect to such Non-Line
of Business Adjustment under this Agreement; and
(iii) finally, with respect to a party to which a Correlative
Adjustment is attributable, that party's share of the Net Non-Line of Business
Adjustment as allocated pursuant to paragraph (ii) of this Section 2.4(d) will
be increased or decreased, as appropriate, by the amount, if any, of the
Correlative Adjustment that is attributable to such party in order to arrive at
such party's share of the Non-Line of Business Adjustment.
(e) Following the determination of a party's share of a
Non-Line of Business Adjustment pursuant to Section 2.4(d) above, and subject to
Section 3.4 and 3.5 hereof, the Controlling Party that controls the Tax Contest
to which such Non-Line of Business Adjustment relates shall (i) be entitled to
reimbursement from AT&T, Lucent and/or NCR, as the case may be, for each of
their respective shares, if any, of any Non-Line of Business Adjustment the
amount of which increases a Tax; and (ii) reimburse AT&T, Lucent or NCR, as the
case may be, for each of their respective shares, if any, of any Non-Line of
Business Adjustment the amount of which decreases a Tax.
ARTICLE III
TAX CONTESTS
3.1. NOTIFICATION OF TAX CONTESTS. The Controlling Party shall
promptly notify all Interested Parties of (a) the commencement of any Tax
Contest pursuant to which such Interested Parties may be required to make or
entitled to receive an indemnity payment, reimbursement or other payment under
this Agreement; and (b) as required and specified in Section 3.4 hereof, any
Final Determination made with respect to any Tax Contest pursuant to which such
Interested Parties may be required to make or entitled to receive any indemnity
payment, reimbursement or other payment under this Agreement. The failure of a
Controlling Party to promptly notify any Interested Party as specified in the
preceding sentence shall not relieve any such Interested Party of any liability
and/or obligation which it may have to the Controlling Party under this
Agreement
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except to the extent that the Interested Party was prejudiced by such failure,
and in no event shall such failure relieve the Interested Party from any other
liability or obligation which it may have to such Controlling Party.
3.2. TAX CONTEST SETTLEMENT RIGHTS. The Controlling Party
shall have the sole right to contest, litigate, compromise and settle any
Adjustment that is made or proposed in a Tax Contest without obtaining the prior
consent of any Interested Party; provided, however, that, unless waived by the
parties in writing, the Controlling Party shall, in connection with any proposed
or assessed Adjustment in a Tax Contest for which an Interested Party may be
required to make or entitled to receive an indemnity payment, reimbursement or
other payment under this Agreement (a) keep all such Interested Parties informed
in a timely manner of all actions taken or proposed to be taken by the
Controlling Party; and (b) provide all such Interested Parties with copies of
any correspondence or filings submitted to any Taxing Authority or judicial
authority, in each case in connection with any contest, litigation, compromise
or settlement relating to any such Adjustment in a Tax Contest. The failure of a
Controlling Party to take any action as specified in the preceding sentence with
respect to an Interested Party shall not relieve any such Interested Party of
any liability and/or obligation which it may have to the Controlling Party under
this Agreement except to the extent that the Interested Party was prejudiced by
such failure, and in no event shall such failure relieve the Interested Party
from any other liability or obligation which it may have to such Controlling
Party. The Controlling Party may, in its sole discretion, take into account any
suggestions made by an Interested Party with respect to any such contest,
litigation, compromise or settlement of any Adjustment in a Tax Contest. All
costs of any Tax Contest are to be borne by the Controlling Party; provided,
however, that (x) any costs related to an Interested Party's attendance at any
meeting with a Taxing Authority or hearing or proceeding before any judicial
authority pursuant to Section 3.3 hereof, and (y) the costs of any legal or
other representatives retained by an Interested Party in connection with any Tax
Contest that is subject to the provisions of this Agreement, shall be borne by
such Interested Party.
3.3. TAX CONTEST PARTICIPATION. (a) Unless waived by the
parties in writing, the Controlling Party shall provide an Interested Party with
written notice reasonably in advance of, and such Interested Party shall have
the right to attend, any formally scheduled meetings with Taxing Authorities or
hearings or proceedings before any judicial authorities in connection with any
contest, litigation, compromise or settlement of any proposed or assessed
Adjustment comprising any Tax Adjustment or Tax Benefit that is the subject of
any Tax Contest pursuant to which such Interested Party may be required to make
or entitled to receive an indemnity payment, reimbursement or other payment
under this Agreement. In addition, unless waived by the parties in writing, the
Controlling Party shall provide each such Interested Party with draft copies of
any correspondence or filings to be submitted to any Taxing Authority or
judicial authority with respect to such Adjustments for such Interested Party's
review and comment. The
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Controlling Party shall provide such draft copies reasonably in advance of the
date that they are to be submitted to the Taxing Authority or judicial authority
and the Interested Party shall provide its comments, if any, with respect
thereto within in a reasonable time before such submission. The failure of a
Controlling Party to provide any notice, correspondence or filing as specified
in this Section 3.3(a) to an Interested Party shall not relieve any such
Interested Party of any liability and/or obligation which it may have to the
Controlling Party under this Agreement except to the extent that the Interested
Party was prejudiced by such failure, and in no event shall such failure relieve
the Interested Party from any other liability or obligation which it may have to
such Controlling Party.
(b) Unless waived by the parties in writing, the Controlling
Party shall provide an Interested Party with written notice reasonably in
advance of, and such Interested Party shall have the right to attend, any
formally scheduled meetings with Taxing Authorities or hearings or proceedings
before any judicial authorities in connection with any contest, litigation,
compromise or settlement of any proposed or assessed Adjustment comprising any
Restructuring Adjustment or Non-Line of Business Adjustment that is the subject
of any Tax Contest pursuant to which such Interested Party may be required to
make or entitled to receive an indemnity payment, reimbursement or other payment
under this Agreement, but only if the Interested Party bears, or in the good
faith judgment of the Controlling Party, may bear, a Significant Obligation with
respect to such Adjustment; provided, however, that the Controlling Party may,
in its sole discretion, permit an Interested Party that does not bear, or
potentially bear, such a Significant Obligation with respect to such an
Adjustment comprising a Restructuring Adjustment or Non-Line of Business
Adjustment to attend any such meetings, hearings or proceedings that relate to
such Adjustment. In addition, unless waived by the parties in writing, the
Controlling Party shall provide each such Interested Party with draft copies of
any correspondence or filings to be submitted to any Taxing Authority or
judicial authority with respect to such Adjustments for such Interested Party's
review and comment. The Controlling Party shall provide such draft copies
reasonably in advance of the date that they are to be submitted to the Taxing
Authority or judicial authority and the Interested Party shall provide its
comments, if any, with respect thereto within in a reasonable time before such
submission. The failure of a Controlling Party to provide any notice,
correspondence or filing as specified in this Section 3.3(b) to an Interested
Party shall not relieve any such Interested Party of any liability and/or
obligation which it may have to the Controlling Party under this Agreement
except to the extent that the Interested Party was prejudiced by such failure,
and in no event shall such failure relieve the Interested Party from any other
liability or obligation which it may have to such Controlling Party.
3.4. TAX CONTEST WAIVER. (a) The Controlling Party shall
promptly provide written notice, sent postage prepaid by United States mail,
certified mail, return receipt requested, to all Interested Parties in a Tax
Contest (i) that a Final Determination has been made with respect to such Tax
Contest; and (ii) enumerating the amount of the
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Interested Party's share of each Adjustment reflected in such Final
Determination of the Tax Contest for which such Interested Party may be required
to make or entitled to receive an indemnity payment, reimbursement or other
payment under this Agreement.
(b) Within ninety (90) days after an Interested Party receives
the notice described in Section 3.4(a) hereof from the Controlling Party, such
Interested Party shall execute a written statement giving notice to the
Controlling Party (i) that the Interested Party agrees with each Adjustment (and
its share thereof) enumerated in the notice described in Section 3.4(a) hereof
except with respect to those Adjustments (and/or its shares thereof) that, in
the good faith judgment of the Interested Party, it disagrees with and has
specifically enumerated its disagreement with, including the amount of such
disagreement, in the statement (each such disagreed Adjustment (and/or share
thereof) hereinafter referred to as a "Disputed Adjustment"); and (ii) that the
Interested Party thereby waives it right to a determination by an Independent
Third Party pursuant to the provisions of Section 3.5 hereof with respect to all
Adjustments to which it agrees with its share (this statement hereinafter
referred to as the "Interested Party Notice"). The failure of an Interested
Party to provide the Interested Party Notice to the Controlling Party within the
ninety (90) day period specified in the preceding sentence shall be deemed to
indicate that such Interested Party agrees with its share of all Adjustments
enumerated in the notice described in Section 3.4(a) hereof and that such
Interested Party waives it right to a determination by an Independent Third
Party with respect to all such Adjustments (and its shares thereof) pursuant to
Section 3.5 hereof.
(c) During the ninety (90) day period immediately following
the Controlling Party's receipt of the Interested Party Notice described in
Section 3.4(b) above, the Controlling Party and the Interested Party shall in
good faith confer with each other to resolve any disagreement over each Disputed
Adjustment that was specifically enumerated in such Interested Party Notice. At
the end of the ninety (90) day period specified in the preceding sentence,
unless otherwise extended in writing by the mutual consent of the parties, the
Interested Party shall be deemed to agree with all Disputed Adjustments that
were specifically enumerated in the Interested Party Notice and waive its right
to a determination by an Independent Third Party pursuant to Section 3.5 hereof
with respect to all such Disputed Adjustments unless, and to the extent, that at
any time during such ninety (90) day (or extended) period, either the
Controlling Party or the Interested Party has given the other party written
notice that it is seeking a determination by an Independent Third Party pursuant
to Section 3.5 hereof regarding the propriety of any such Disputed Adjustment.
(d) Notwithstanding anything in this Agreement to the
contrary, an Interested Party that does not have a Significant Obligation with
respect to an Adjustment comprising either a Restructuring Adjustment or
Non-Line of Business Adjustment has no right to a determination by an
Independent Third Party under section 3.5 hereof with
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respect to any such Adjustment comprising a Restructuring Adjustment or Non-Line
of Business Adjustment.
3.5. TAX CONTEST DISPUTE RESOLUTION. (a) In the event that
either a Controlling Party or an Interested Party has given the other party
written notice as required in Section 3.4(c) hereof that it is seeking a
determination by an Independent Third Party pursuant to this Section 3.5 with
respect to any Disputed Adjustment that was enumerated in an Interested Party
Notice, then the parties shall, within ten (10) days after a party has received
such notice, jointly select an Independent Third Party to make such
determination. In the event that the parties cannot jointly agree on an
Independent Third Party to make such determination within such ten (10) day
period, then the Controlling Party and the Interested Party shall each
immediately select an Independent Third Party and the Independent Third Parties
so selected by the parties shall jointly select, within ten (10) days of their
selection, another Independent Third Party to make such determination.
(b) In making its determination as to the propriety of any
Disputed Adjustment, the Independent Third Party selected pursuant to Section
3.5(a) above shall assume that the Interested Party is not required or entitled
under applicable law to be a member of any Consolidated Return. In addition, the
Independent Third Party shall make its determination according to the following
procedure:
(i) The Independent Third Party shall first analyze each
Disputed Adjustment for which a determination is sought pursuant to this Section
3.5 on a stand alone basis to determine whether the actual outcome reached with
respect to such Disputed Adjustment as reflected in the Final Determination of
the Tax Contest was fair and appropriate taking into account the following
exclusive criteria: (A) the facts relating to such Adjustment; (B) the
applicable law, if any, with respect to such Adjustment; (C) the position of the
applicable Taxing Authority with respect to compromise, settlement or litigation
of such Adjustment; (D) the strength of the factual and legal arguments made by
the Controlling Party in reaching the outcome with respect to such Adjustment as
reflected in the Final Determination of the Tax Contest; and (E) the strength of
the factual and legal arguments being made by the Interested Party for the
alternative outcome being asserted by such Interested Party (including the
availability of facts, information and documentation to support such alternative
outcome). Based on this analysis, the Independent Third Party shall determine
what is the fair and appropriate outcome (hereinafter referred to as the
"Initial Determination") with respect to each such Disputed Adjustment.
(ii) The Interested Party shall not be entitled to
modification of its share of a Disputed Adjustment under this Section 3.5 if, as
the case may be, either (A) the amount that would be paid by the Interested
Party under the Initial Determination with respect to such Disputed Adjustment
is 80% or more than the amount that would be paid by the
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Interested Party with respect to such Disputed Adjustment under the actual
outcome reached with respect to such Disputed Adjustment; or (B) the amount that
would be received by the Interested Party under the Initial Determination with
respect to such Disputed Adjustment is 120% or less than the amount that the
Interested Party would receive with respect to such Disputed Adjustment under
the actual outcome reached with respected to such Disputed Adjustment. The
Independent Third Party will provide notice to the Controlling Party and the
Interested Party in the event the Interested Party is not entitled to
modification of its share of the Disputed Adjustment pursuant to this paragraph
(ii).
(iii) If the modification of an Interested Party's share of a
Disputed Adjustment under this Section 3.5 is not prohibited pursuant to
paragraph (ii) above, then the Independent Third Party shall determine what is
the fair and appropriate outcome (hereinafter referred to as the "Ultimate
Determination") to the Interested Party with respect to such Disputed Adjustment
in the context of the entire Tax Contest as it relates to the Interested Party.
In making this determination, the Independent Third Party shall consider the
Disputed Adjustment as if it were raised in an independent audit of the
Interested Party by the appropriate Taxing Authority and the Independent Third
Party shall take into account and give appropriate weight in its sole discretion
to the following exclusive criteria: (A) the strength of the legal and factual
support for other potential, non-frivolous Adjustments with respect to matters
that were actually raised and contested by the applicable Taxing Authority in
the Tax Contest for which the Interested Party could have been liable under this
Agreement but which were eliminated or reduced as a result of the Controlling
Party agreeing to the Disputed Adjustment as reflected in the Final
Determination of the Tax Contest; (B) the effect of the actual outcome reached
with respect to the Disputed Adjustment on other Taxable periods and on other
positions taken or proposed to be taken in Returns filed or proposed to be filed
by the Interested Party; (C) the realistic possibility of avoiding examination
of potential, non-frivolous issues for which the Interested Party could be
liable under this Agreement and that were contemporaneously identified in
writings by the party or parties during the course of the Tax Contest but which
had not been raised and contested by the applicable Taxing Authority in the Tax
Contest; and (D) the benefits to the Interested Party in reaching a Final
Determination, and the strategy and rationale with respect to the Interested
Party's Disputed Adjustment that the Controlling Party had for agreeing to such
Disputed Adjustment in reaching the Final Determination, in each case that were
contemporaneously identified in writings by the party or parties during the
course of the Tax Contest.
(iv) The Interested Party shall only be entitled to
modification of its share of a Disputed Adjustment under this Section 3.5 if, as
the case may be, either (A) the amount that would be paid by the Interested
Party under the Ultimate Determination with respect to such Disputed Adjustment
is less than 80% of the amount that would be paid by
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the Interested Party with respect to such Disputed Adjustment under the actual
outcome reached with respect to such Disputed Adjustment; or (B) the amount that
would be received by the Interested Party under the Ultimate Determination with
respect to such Disputed Adjustment is more than 120% of the amount that the
Interested Party would receive with respect to such Disputed Adjustment under
the actual outcome reached with respected to such Disputed Adjustment. If an
Interested Party is entitled to modification of its share of any Disputed
Adjustment under the preceding sentence, the amount the Interested Party is
entitled to receive, or is required to pay, as the case may be, with respect to
such Disputed Adjustment shall be equal to the amount of the Ultimate
Determination of such Disputed Adjustment. The Independent Third Party will
provide notice to the Controlling Party and the Interested Party stating whether
the Interested Party is entitled to modification of its share of the Disputed
Adjustment pursuant to this paragraph (iv) and, if the Interested Party is
entitled to such modification, the amount as determined in the preceding
sentence that the Interested Party is entitled to receive from, or required to
pay to, the Controlling Party with respect to such Disputed Adjustment.
(c) Any determination made or notice given by an Independent
Third Party pursuant to this Section 3.5 shall be (i) in writing; (ii) made
within sixty (60) days following the selection of the Independent Third Party as
set forth in Section 3.5(a) of this Agreement unless such period is otherwise
extended by the mutual consent of the parties; and (iii) final and binding upon
the parties. The costs of any Independent Third Party retained pursuant to this
Section 3.5 shall be shared equally by the parties. The Controlling Party and
the Interested Party shall provide the Independent Third Party jointly selected
pursuant to Section 3.5(a) hereof with such information or documentation as may
be appropriate or necessary in order for such Independent Third Party to make
the determination requested of it. Upon issuance of an Independent Third Party's
notice under Section 3.5(b)(ii) or Section 3.5(b)(iv) hereof, the Controlling
Party or the Interested Party, as the case may be, shall pay as specified in
Article IV of this Agreement, the amount, if any, of the Disputed Adjustment to
the appropriate party.
ARTICLE IV
PROCEDURE AND PAYMENT
4.1. PROCEDURE. (a) If an Interested Party has any liability
and/or obligation to make, or the right to receive, any indemnity payment,
reimbursement or other payment with respect to an Adjustment under this
Agreement for which it does not have a right to a determination by an
Independent Third Party under Section 3.5 hereof, then the amount of such
Adjustment shall be immediately due and payable upon receipt by the Interested
Party of a notice of Final Determination of a Tax Contest as required and
specified in Section 3.4(a) hereof.
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(b) If after (i) notice of a Final Determination of a Tax
Contest as required and specified in Section 3.4(a) hereof has been given by a
Controlling Party to an Interested Party; and (ii) the Interested Party
receiving such notice has either:
(A) failed to provide the Interested Party Notice specified in
Section 3.4(b) hereof within the ninety (90) day period set forth in Section
3.4(b);
(B) provided the Interested Party Notice specified in Section
3.4(b) hereof within the ninety (90) day period specified in Section 3.4(b)
agreeing to all Adjustments (and the Interested Party's share of all such
Adjustments) and waiving the right to an Independent Third Party determination
pursuant to Section 3.5 hereof with respect to all such Adjustments (and the
Interested Party's share of such Adjustments);
(C) provided the Interested Party Notice specified in Section
3.4(b) hereof within the ninety (90) day period specified in Section 3.4(b)
agreeing with some, but not all, Adjustments (and the Interested Party's share
of such agreed Adjustments) and waiving the right to an Independent Third Party
Determination pursuant to Section 3.5 hereof with respect to all such agreed
Adjustments (and the Interested Party's share of such Adjustments); or
(D) provided the Interested Party Notice specified in Section
3.4(b) hereof within the ninety (90) day period specified in Section 3.4(b)
specifically enumerating the Disputed Adjustments to which it does not agree and
for which the notice specified in either Section 3.5(b)(ii) or Section
3.5(b)(iv) hereof relating to any such Disputed Adjustment has been given by an
Independent Third Party,
then the amount of any Adjustment agreed to or deemed to be agreed to by the
Interested Party, or for which an Independent Third Party notice has been given
pursuant to either Section 3.5(b)(ii) or Section 3.5(b)(iv) hereof, as set forth
in each of clauses (A), (B, (C) or (D) above, shall be immediately due and
payable.
(c) Any Person entitled to any indemnification, reimbursement
or other payment under this Agreement with respect to the amount of any
Adjustment that has become immediately due and payable under this Section 4.1
(the "Indemnified Party") shall notify in writing the Person against whom such
indemnification, reimbursement or other payment is sought (the "Indemnifying
Party") of its right to and the amount of such indemnification, reimbursement or
other payment; provided, however, that the failure to notify the Indemnifying
Party shall not relieve the Indemnifying Party from any liability and/or
obligation which it may have to an Indemnified Party on account of the
provisions contained in this Agreement except to the extent that the
Indemnifying Party was prejudiced by such failure, and in no event shall such
failure relieve the Indemnifying Party from any other liability or obligation
which it may have to such Indemnified Party. The
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Indemnifying Party shall make such indemnity payment, reimbursement or other
payment to the Indemnified Party within thirty (30) days of the receipt of the
written notice specified in the preceding sentence; provided, however, that, in
the case of any Final Determination of a Tax Contest involving a state, local or
municipal Tax in which the Indemnifying Party is also the Controlling Party with
respect to such Tax Contest and, as Controlling Party, is entitled to receive an
overall net refund from the applicable state, local or municipal Taxing
Authority with respect to such state, local or municipal Tax, then the
Indemnifying Party shall be required to make such indemnity payment,
reimbursement or other payment to the Indemnified Party within thirty (30) days
from the date the Indemnifying Party actually receives payment of or obtains the
benefit of the net refund due from the applicable state, local or municipal
Taxing Authority.
4.2. PAYMENT. Any indemnity payment, reimbursement or other
payment required to be made pursuant to this Agreement by an Indemnifying Party
to an Indemnified Party shall be made, at the option of the Indemnifying Party,
by (a) certified check payable to the order of the Indemnified Party; or (b)
wire transfer of immediately available funds to such bank and/or other account
of the Indemnified Party as from time to time the Indemnified Party shall have
directed the Indemnifying Party, in writing.
4.3. INTEREST. Any indemnity payment, reimbursement or other
payment required to be made by an Interested Party pursuant to this Agreement
shall bear interest at the Prime Rate plus 2%, per annum, from the date such
Interested Party receives the notice of Final Determination made with respect to
a Tax Contest as provided in Section 3.4(a) hereof. Any indemnity payment,
reimbursement or other payment required to be made by a Controlling Party to an
Interested Party pursuant to this Agreement shall bear interest at the Prime
Rate plus 2%, per annum, from a date thirty (30) days after the date of a Final
Determination made with respect to a Tax Contest; provided, however, that, in
the case of any Final Determination of a Tax Contest involving a state, local or
municipal Tax in which the Controlling Party is entitled to receive an overall
net refund from the applicable state, local or municipal Taxing Authority with
respect to such state, local or municipal Tax, such indemnity payment,
reimbursement or other payment to be made by the Controlling Party shall bear
interest at the Prime Rate plus 2%, per annum, from the date the Controlling
Party actually receives payment of or obtains the benefit of the net refund due
from the applicable state, local or municipal Taxing Authority.
ARTICLE V
OTHER TAX MATTERS
5.1. TAX POLICIES AND PROCEDURES DURING CONSOLIDATION. It is
understood and agreed that during Consolidation:
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(a) Members of the Lucent Group and members of the NCR Group,
respectively, shall each adopt and follow the Tax policies and procedures that
have been established by AT&T and communicated to Lucent and NCR unless, AT&T
shall otherwise consent, as provided herein. In the event that a member of the
Lucent Group and/or the NCR Group desires to adopt and follow a Tax policy or
procedure that is different from that established by AT&T, Lucent and/or NCR, as
the case may be, shall, in writing, (i) request AT&T's consent to do so; and
(ii) provide AT&T with the reasons for the request to adopt and follow such
different Tax policy or procedure. If AT&T determines in its good faith judgment
that it would be reasonable and appropriate from the perspective of the AT&T
Services Group for such member of the Lucent Group and/or the NCR Group to adopt
and follow such different Tax policy or procedure, AT&T shall provide its
written consent thereto.
(b) AT&T shall provide to Lucent and NCR timely written notice
of any material proposed change in established Tax policies or procedures.
(c) AT&T shall establish all Return positions and make all Tax
elections relating to a Consolidated Return. Members of the Lucent Group and
members of the NCR Group shall take such Consolidated Return positions and make
such Tax elections relating to a Consolidated Return as may be taken or made by
AT&T, or as reasonably requested by AT&T to be taken or made by any member of
the Lucent Group and/or any member of the NCR Group, as the case may be, unless
AT&T shall otherwise consent, as provided herein. In the event that Lucent
and/or NCR determines that it would be reasonable and appropriate for any member
of the Lucent Group or any member of the NCR Group, respectively, to take
positions or make elections relating to a Consolidated Return that are different
from those taken or made by AT&T (or reasonably requested by AT&T of any member
of the Lucent Group or any member of the NCR Group), Lucent and/or NCR, as the
case may be, shall, in writing, (i) request AT&T's consent to do so; and (ii)
provide AT&T with the reasons for the request to take such different positions
or make such different elections. If AT&T determines in its good faith judgment
that it would be reasonable and appropriate from the perspective of the AT&T
Services Group for such member of the Lucent Group and/or the NCR Group to take
such different positions or make such different elections, AT&T shall provide
its written consent thereto.
5.2. COOPERATION. Except as otherwise provided in this
Agreement, and without limiting the provisions contained in Article VIII of the
Separation Agreement which are incorporated herein by reference pursuant to
Section 6.3(a) hereof, each member of the AT&T Services Group, the Lucent Group
and/or the NCR Group, as the case may be, shall, at their own expense, cooperate
with each other in the filing of, or any Tax Contest relating to, any Return and
any other matters relating to Taxes and, in connection therewith, shall (i)
maintain appropriate books and records for any and all Taxable periods or any
portion of a Taxable period that may be required by AT&T's
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record retention policies; (ii) provide to each other such information as may be
necessary or useful in the filing of, or any Tax Contest relating to, any such
Return; (iii) execute and deliver such consents, elections, powers of attorney
and other documents that may be required or appropriate for the proper filing of
any such Return or in conjunction with any Tax Contest relating to any such
Return; and (iv) make available for responding to inquiries of any other party
or any Taxing Authority, appropriate employees and officers of and advisors
retained by any member of the AT&T Services Group, the Lucent Group, or the NCR
Group, as the case may be.
5.3. FILING OF RETURNS. The Person that would be the
Controlling Party with respect to any Tax Contest relating to a Return for which
any indemnity payment, reimbursement or other payment may be sought under this
Agreement shall (a) prepare and file, or cause to be prepared and filed, any
such Return within the time prescribed for filing such Return (including all
extensions of time for filing); and (b) shall timely pay, or cause to be timely
paid, the amount of any Tax shown to be due and owing on any such Return;
provided, however, that in the case of Taxes which are Liabilities of Lucent
pursuant to Section 2.3(a)(ii) of the Separation Agreement, if AT&T or any other
member of the AT&T Group is required pursuant to this Agreement to file such
Return and pay the Taxes shown as due thereon, Lucent will pay to AT&T, in
advance of the date on which AT&T must pay such Taxes, an amount equal to the
amount of such Taxes which are Liabilities of Lucent. Such Person shall bear all
costs associated with preparing and filing, or causing to be prepared and filed,
any such Return. Except as provided in Section 5.1(c) hereof (relating to
Consolidated Returns), such Person shall establish all Return positions and make
all Tax elections relating to such Returns.
ARTICLE VI
MISCELLANEOUS
6.1. GOVERNING LAW. To the extent not preempted by any
applicable foreign or U.S. federal, state, or local Tax law, this Agreement
shall be governed by and construed and interpreted in accordance with the laws
of the State of New York, irrespective of the choice of laws principles of the
State of New York, as to all matters, including matters of validity,
construction, effect, performance and remedies.
6.2. AFFILIATES. Each of the parties hereto shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Affiliate of such party;
provided, however, that for purposes of the foregoing, no Person shall be
considered an Affiliate of a party if such Person is a member of another party's
Group.
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6.3. INCORPORATION OF SEPARATION AGREEMENT PROVISIONS. The
following provisions of the Separation Agreement are hereby incorporated herein
by reference, and unless otherwise expressly specified herein, such provisions
shall apply as if they are fully set forth herein (references in this Section
6.3 to an "Article" shall mean Articles of the Separation Agreement):
(a) Article VIII (relating to Exchange of Information and
Confidentiality); and
(b) Article XII (relating to Miscellaneous Provisions, except
as otherwise specified herein).
6.4. NOTICES. Except for any notice or other communication
required to be given by a Controlling Party under this Agreement, AT&T, Lucent
and NCR (or any other Person delegated in writing by each of the foregoing)
shall serve as the single point of contact to receive or give any notice or
other communication required or permitted to be given to any member of each of
their respective Groups under this Agreement. Unless specifically provided
otherwise in this Agreement, all notices or other communications under this
Agreement shall be in writing and shall deemed to be duly given when (a)
delivered in person; or (b) sent by facsimile; or (c) deposited in the United
States mail, postage prepaid and sent certified mail, return receipt requested;
or (d) deposited in private express mail, postage prepaid, addressed as follows:
If to any member of the AT&T Services Group, to:
AT&T Corp.
412 Mt. Kemble Avenue
Morristown, New Jersey 07960
Attn: Vice President - Taxes and Tax Counsel
Facsimile: (201) 644-6823
If to any member of the Lucent Group, to:
Lucent Technologies Inc.
600 Mountain Avenue
Murray Hill, New Jersey 07974
Attn: Vice President - Taxes and Tax Counsel
Facsimile:
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<PAGE> 28
If to any member of the NCR Group, to:
NCR Corporation
1700 S. Patterson Blvd.
Dayton, Ohio 45479
Attn: Assistant Vice President & Director, Corporate Taxes
Facsimile: (513) 445-6935
Any party may, by written notice to the other parties, change the address to
which such notices are to be given.
6.5. CONFLICTING OR INCONSISTENT PROVISIONS. In the event that
any provision or term of this Agreement conflicts or is inconsistent with any
provision or term of any other agreement between or among AT&T or any other
member of the AT&T Group, Lucent or any other member of the Lucent Group and/or
NCR or any other member of the NCR Group, as the case may be, which is in effect
on or prior to the date hereof, the provision or term of this Agreement shall
control and apply and the provision or term of any other agreement shall, to the
extent of such conflict or inconsistency, be inoperative and inapplicable.
6.6. DURATION. Notwithstanding anything in this Agreement or
the Separation Agreement to the contrary, the provisions of this Agreement shall
survive for the full period of all applicable statutes of limitations (giving
effect to any waiver, mitigation or extension thereof).
6.7. AMENDMENT. Without limiting the provisions contained in
Article XII of the Separation Agreement which are incorporated herein by
reference pursuant to Section 6.3(b) hereof, the parties hereto agree that any
waiver, amendment, supplement or modification of this Agreement that solely
relates to and affects only two of the three parties hereto shall not require
the consent of the third party hereto. Without limiting the foregoing, effective
immediately on notice to Lucent, without any further action required by any
member of the Lucent Group, AT&T may assume any Liability of any member of the
NCR Group and all members of the NCR Group shall thereupon automatically be
released therefrom.
6.8. TAX ALLOCATION AGREEMENTS. Lucent hereby assumes and
agrees faithfully to perform and fulfill all obligations and other Liabilities
of any member of the Lucent Group under the Federal Tax Allocation Agreement and
the State and Local Income Tax Allocation Agreement, in accordance with each of
their respective terms.
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IN WITNESS WHEREOF, the parties hereto have caused this Tax
Sharing Agreement to be executed by their duly authorized representatives.
AT&T CORP.
By: /s/
-----------------------------
Name:
Title:
LUCENT TECHNOLOGIES INC.
By: /s/
-----------------------------
Name:
Title:
NCR CORPORATION
By: /s/
-----------------------------
Name:
Title:
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<PAGE> 1
Exhibit 10.7
PATENT LICENSE AGREEMENT
AMONG
AT&T CORP.
NCR CORPORATION
AND
LUCENT TECHNOLOGIES INC.
EFFECTIVE AS OF , 1996
<PAGE> 2
PATENT LICENSE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS ............................................................ 2
1.1 AT&T's Limited Patents. .................................................. 2
1.2 AT&T's Patents .......................................................... 2
1.3 AT&T's Specified Patents.. ............................................... 3
1.4 Foreign Affiliate.. ...................................................... 3
1.5 Limited Period. .......................................................... 3
1.6 NCR's Limited Patents. ................................................... 3
1.7 NCR's Patents.. .......................................................... 3
1.8 Lucent's Limited Patents ................................................. 4
1.9 Lucent's Patents.. ....................................................... 4
1.10 Lucent's Specified Patents ............................................... 4
1.11 Related Companies of AT&T.. .............................................. 4
1.12 Related Companies of NCR.. ............................................... 5
1.13 Related Companies of Lucent. ............................................. 5
ARTICLE II GRANTS OF LICENSES.. .................................................. 5
2.1 Grants to AT&T.. ........................................................ 5
2.2 Grants to NCR.. ......................................................... 6
2.3 Grants to Lucent. ....................................................... 7
2.4 Duration and Extent.. ................................................... 8
2.5 Scope. .................................................................. 8
2.6 Exclusions of Patents ................................................... 11
2.7 Filings of Patent Applications.. ........................................ 11
2.8 Joint Inventions ........................................................ 11
2.9 Sales to the United States Government ................................... 12
2.10 Licensing of certain identified patents of AT&T necessary to implement
an adopted standard. .................................................... 12
2.11 Lucent licensing of designated parties at AT&T's request................. 12
ARTICLE III TERMINATION .......................................................... 16
3.1 Voluntary Termination. .................................................. 16
3.2 Survival ................................................................ 16
3.3 Change of Control of or Certain Acquisitions by NCR...................... 16
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV MISCELLANEOUS PROVISIONS ...................................... 16
4.1 Disclaimer ....................................................... 16
4.2 Nonassignability ................................................. 16
4.3 Addresses ........................................................ 17
4.4 Choice of Law .................................................... 17
4.5 Integration ...................................................... 17
4.6 Outside the United States ........................................ 17
4.7 Arbitration and Dispute Resolution ............................... 18
4.8 Amendments and Changes ........................................... 18
Exhibit A List of Retained AT&T Patents and Patent Applications........ 21
Exhibit B List of Patents Assigned to NCR by AT&T...................... 26
Exhibit C List of AT&T's Specified Patents ............................ 28
Exhibit D List of Lucent's Specified Patents .......................... 34
.
Exhibit E List of Patents Referenced in Section 2.11(d)................ 38
</TABLE>
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<PAGE> 4
PATENT LICENSE AGREEMENT
This Agreement is effective as of __________, 1996, among AT&T CORP., a
New York corporation ("AT&T"), having an office at 32 Avenue of the Americas,
New York, New York 10013, NCR CORPORATION, a Maryland corporation ("NCR"),
having an office at 101 West Schantz Avenue, Dayton, Ohio 45479, and LUCENT
TECHNOLOGIES INC., a Delaware corporation ("Lucent"), having an office at 600
Mountain Avenue, Murray Hill, New Jersey 07974 (each hereinafter referred to as
a "Party"). Capitalized terms used herein and not otherwise defined shall have
the respective meanings assigned to them in Article I hereof or as assigned to
them in the Separation and Distribution Agreement (as defined below).
WHEREAS, the Board of Directors of AT&T has determined that it is in the
best interests of AT&T and its shareholders to separate AT&T's existing
businesses into three independent businesses; and
WHEREAS, as part of the foregoing AT&T, NCR and Lucent have entered into
a Separation and Distribution Agreement, dated as of February 1, 1996 (the
"Separation and Distribution Agreement") which provides, among other things, for
the Separation of the Lucent Assets and Lucent Liabilities, the IPO, the
Distribution and the execution and delivery of certain other agreements in order
to facilitate and provide for the foregoing; and
WHEREAS, as part of the foregoing, the Parties have assigned the patents
and patent applications owned or controlled by AT&T prior to the date hereof
among the three Parties; and
WHEREAS, the Parties desire to facilitate such transaction by exchanging
licenses among them under certain of the patents and patent applications owned
or controlled by them on or after the date hereof; and
WHEREAS, the Parties have entertained arm's-length patent cross-licensing
dialogues and negotiations between them assuming that the Parties were not
affiliated and that each Party was not previously licensed under inventions of
the other two Parties and their respective Related Companies; and
WHEREAS, AT&T desires to receive and NCR and Lucent, respectively, are
each willing to grant to AT&T certain patent licenses and rights under patents
owned by NCR and Lucent on or after the date hereof; and
<PAGE> 5
WHEREAS, NCR desires to receive and AT&T and Lucent, respectively, are
each willing to grant to NCR certain patent licenses and rights under patents
owned by AT&T and Lucent on or after the date hereof; and
WHEREAS, Lucent desires to receive and AT&T and NCR, respectively, are
each willing to grant to Lucent certain patent licenses and rights under patents
owned by AT&T and those patents owned by NCR on or after the date hereof.
NOW, THEREFORE, in consideration of the mutual promises of the Parties,
and of good and valuable consideration, it is agreed by and between the Parties
as follows:
ARTICLE I
DEFINITIONS
For the purpose of this Agreement the following terms in capital letters are
defined in this Article I and shall have the meaning specified herein:
1.1 AT&T'S LIMITED PATENTS means only those AT&T's Patents issued
on patent applications having an effective filing date on or before December 31,
1996.
1.2 AT&T'S PATENTS means:
(1) the patents listed in Exhibit "A" and all patents issuing on the
patent applications listed in Exhibit "A", as well as all their corresponding
foreign patents and patent applications, and all other patents and patent
applications jointly owned by AT&T under the respective Patent Assignments
executed as of this date; and
(2) every patent (including utility models but excluding design patents
and design registrations) issued in any country of the world which claims or is
otherwise directed to an invention disclosed in any patent application in that
country, or in any other country, having an effective filing date in the period
beginning on the date hereof and ending on the last day of the Limited Period,
but only if, at any time after the earliest filing of any such application
disclosing such invention and prior to the expiration of the Limited Period,
AT&T (or any company while a Related Company of AT&T)
(i) has ownership or control of any such patent or
application, or
(ii) otherwise has the right under such patent to grant
any licenses of the type and on terms herein granted
by AT&T.
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<PAGE> 6
Notwithstanding the foregoing, the term AT&T's Patents does not include NCR's
Patents or Lucent's Patents, other than those Lucent's Patents that are jointly
owned with AT&T under the Patent Assignments executed as of this date.
1.3 AT&T'S SPECIFIED PATENTS means those AT&T's Patents listed in
Exhibit "C" and all patents issuing on the patent applications listed in Exhibit
"C", as well as all their corresponding foreign patents and patent applications.
1.4 FOREIGN AFFILIATE of a company means a corporation or other
legal entity formed and doing business in any country other than the United
States, and in which the company, either directly or indirectly, holds, owns or
controls (i) at least forty percent (40%) of the equity or ownership interest in
such corporation or other legal entity or the maximum ownership interest allowed
by the foreign jurisdiction in which such corporation or other legal entity is
formed, whichever is lower; and (ii) sufficient voting rights required under
such foreign laws to enable the company to actively participate in the election
of directors or other managing authority and in the direction of the business
operations and strategies of such corporation or other legal entity; and (iii)
an active operational interest, not merely a passive investment interest, in
such corporation or other legal entity; but any such corporation or other legal
entity shall be deemed to be a Foreign Affiliate of such company only as long as
such ownership or ownership and control exists.
1.5 LIMITED PERIOD means the period commencing on the date
hereof and ending on December 31, 1999.
1.6 NCR'S LIMITED PATENTS means only those NCR's Patents issued on
patent applications having an effective filing date on or before December 31,
1996.
1.7 NCR'S PATENTS means:
(1) the patents listed in Exhibit "B" and all their corresponding foreign
patents and patent applications, and the patents and patent applications jointly
owned by NCR and Lucent under the Patent Assignment from Lucent to NCR executed
as of this date; and
(2) every patent (including utility models but excluding design patents
and design registrations) issued in any country of the world which claims or is
otherwise directed to an invention disclosed in any patent application in that
country or in any other country having an effective filing date on or before the
last day of the Limited Period, but only if, at any time after the earliest
filing of any such application disclosing such invention and prior to the
expiration of the Limited Period, NCR (or any company while a Related Company of
NCR)
(i) has ownership or control of any such patent or
application, or
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<PAGE> 7
(ii) otherwise has the right under such patent to grant
any licenses of the type and on the terms herein
granted by NCR.
1.8 LUCENT'S LIMITED PATENTS means only those Lucent's Patents
issued on patent applications having an effective filing date on or before
December 31, 1996.
1.9 LUCENT'S PATENTS means:
(1) all patents and patent applications previously owned respectively by
AT&T or NCR and owned by Lucent, either solely or jointly, under the respective
Patent Assignments executed as of this date, other than the patents and patent
applications listed in Exhibits "A" and "B", and all their corresponding foreign
patents and patent applications; and
(2) every patent (including utility models but excluding design patents
and design registrations) issued in any country of the world which claims or is
otherwise directed to an invention disclosed in any patent application in that
country or in any other country having an effective filing date in the period
beginning on the date hereof and ending on the last day of the Limited Period,
provided that, at any time after the earliest filing of any such application
disclosing such invention and prior to the expiration of the Limited Period,
Lucent (or any company while a Related Company of Lucent)
(i) has ownership or control of any such patent or
application, or
(ii) otherwise has the right under such patent to grant
any licenses of the type and on the terms herein
granted by Lucent.
1.10 LUCENT'S SPECIFIED PATENTS means only those Lucent's Patents
listed in Exhibit "D", as well as all their corresponding foreign patents.
1.11 RELATED COMPANIES OF AT&T means Subsidiaries of AT&T, for so
long as they remain Subsidiaries, and any other company so designated and agreed
to in a writing signed by AT&T and by NCR or Lucent, as applicable. Solely for
purposes of this definition, Lucent, its Subsidiaries, NCR and its Subsidiaries
shall be deemed not to be Related Companies of AT&T.
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<PAGE> 8
1.12 RELATED COMPANIES OF NCR means NCR's Subsidiaries as of the
Distribution Date, for so long as they remain NCR's Subsidiaries, and any other
company so designated and agreed to in a writing signed by NCR and by AT&T or
Lucent, as applicable. Solely for purposes of the definition of NCR's Patents,
Related Companies of NCR also shall include any and all Subsidiaries of NCR
acquired or formed after the Distribution Date.
1.13 RELATED COMPANIES OF LUCENT means Subsidiaries of Lucent, for
so long as they remain Subsidiaries, and any other company so designated and
agreed to in a writing signed by Lucent and by NCR or AT&T, as applicable.
ARTICLE II
GRANTS OF LICENSES
2.1 GRANTS TO AT&T. (a)(1) NCR grants to AT&T, under NCR's
Patents, personal, nonexclusive, royalty-free and non-transferable licenses to
make (but not have made other than as specified in Section 2.1(a)(2)), use,
lease, sell and import any and all products and services of the businesses in
which AT&T or any of its Related Companies or Foreign Affiliates is now or
hereafter engaged.
(a)(2)(A) NCR grants to AT&T, under NCR's Limited Patents,
personal, nonexclusive, royalty-free and non-transferable (except as specified
herein) licenses to have made any and all items (i) to be used by AT&T for
internal business purposes (as such business may be conducted from time to
time); or (ii) to be used in the provisioning of services to AT&T's customers;
or (iii) to be sold or furnished to end user customers by AT&T either directly
or indirectly; or (iv) to be sold or furnished to a Related Company of AT&T, any
Foreign Affiliate of AT&T, or any other legal entity in which AT&T continually
holds at least a ten percent (10%) equity interest. As an attribute to the
foregoing have made rights under NCR's Limited Patents, NCR grants to AT&T the
right to grant to AT&T's suppliers or vendors of any item to be furnished to
AT&T, the right to use processes and equipment under NCR's Limited Patents in
the design, manufacturing and testing of such items.
(a) (2)(B) The have made rights hereunder granted to AT&T to
resell, either directly or indirectly, any items made by others under the
provisions of Section 2.1(a)(2)(A)(iii) or (iv) above shall not be exercised in
a manner such that the exercise of the have made rights is a sham to sublicense
NCR's Limited Patents to a third party and not for bona fide AT&T business
purposes.
(b) (1) Lucent grants to AT&T, under Lucent's Limited Patents,
personal, nonexclusive, royalty-free and non-transferable licenses to make (but
not have made other than as specified in Section 2.1(b)(2)), use, lease, sell
and import any and all products and services of
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<PAGE> 9
the businesses in which AT&T or any of its Related Companies or Foreign
Affiliates is now or hereafter engaged.
(b)(2)(A) Lucent grants to AT&T, under Lucent's Limited Patents,
personal, nonexclusive, royalty-free and non-transferable (except as specified
herein) licenses to have made any and all items (i) to be used by AT&T for
internal business purposes (as such business may be conducted from time to
time); or (ii) to be used in the provisioning of services to AT&T's customers;
or (iii) to be sold or furnished to end user customers by AT&T, either directly
or indirectly; or (iv) to be sold or furnished to a Related Company of AT&T, any
Foreign Affiliate of AT&T or any other legal entity in which AT&T continually
holds at least a ten percent (10%) equity interest. As an attribute to the
foregoing have made rights under Lucent's Limited Patents, Lucent grants to AT&T
the right to grant to AT&T's suppliers or vendors of any item to be furnished to
AT&T the right to use processes and equipment under Lucent's Limited Patents in
the design, manufacturing and testing of such items.
(b)(2)(B) The have made rights hereunder granted to AT&T to
resell, either directly or indirectly, any items made by others under the
provisions of Section 2.1(b)(2)(A)(iii) or (iv) above shall not be exercised in
a manner such that the exercise of the have made rights is a sham to sublicense
Lucent's Limited Patents to a third party and not for bona fide AT&T business
purposes.
2.2 GRANTS TO NCR. (a)(1) AT&T grants to NCR, under AT&T's
Patents, personal, nonexclusive, royalty-free and non-transferable licenses to
make (but not have made other than as specified in Section 2.2(a)(2)), use,
lease, sell and import any and all products and services of the businesses in
which NCR or any of its Related Companies is now or hereafter engaged.
(a)(2) AT&T grants to NCR, under AT&T's Patents, personal,
nonexclusive, royalty-free and non-transferable (except as specified herein)
licenses to have made any and all items (i) to be used by NCR for internal
business purposes (as such business may be conducted from time to time); or (ii)
to be sold by NCR or incorporated into products of NCR; or (iii) to be used by
NCR in the engineering, installation and systems integration of NCR's products
for NCR's customers. As an attribute to the foregoing have made rights under
AT&T's Patents, AT&T grants to NCR the right to grant to NCR's suppliers or
vendors of any item to be furnished to NCR, the right to use processes and
equipment under AT&T's Patents in the design, manufacturing and testing of such
items. NCR's have made rights under AT&T's Patents to resell any item made by
others under this Section 2.2(a)(2) shall not be exercised in a manner such that
the exercise of the have made rights is a sham to sublicense AT&T's Patents to a
third party and not for bona fide NCR business purposes.
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<PAGE> 10
(b) (1) Lucent grants to NCR, under Lucent's Patents, personal,
nonexclusive and non-transferable licenses to make (but not have made other than
as specified in Section 2.2(b)(2)), use, lease, sell and import any or all
products and services of the businesses in which NCR or any of its Related
Companies is now or hereafter engaged.
(b)(2) Lucent grants to NCR, under Lucent's Patents, personal,
nonexclusive and non-transferable (except as specified herein) licenses to have
made any and all items (i) to be used by NCR for internal business purposes (as
such business may be conducted from time to time); or (ii) to be sold by NCR or
incorporated into products of NCR; or (iii) to be used by NCR in the
engineering, installation and systems integration of NCR's products for NCR's
customers. As an attribute to the foregoing have made rights under Lucent's
Patents, Lucent grants to NCR the right to grant to NCR's suppliers or vendors
of any item to be furnished to NCR the right to use processes and equipment
under Lucent's Patents in the design, manufacturing and testing of such items.
NCR's have made rights under Lucent's Patents to resell any item made by others
under this Section 2.2(b)(2) shall not be exercised in a manner such that the
exercise of the have made rights is a sham to sublicense Lucent's Patents to a
third party and not for bona fide NCR business purposes.
(b)(3) In consideration for the balance of Lucent's and NCR's
licenses and rights exchanged hereunder by Lucent and NCR, NCR shall pay to
Lucent a lump sum amount of six million one hundred twenty thousand U.S. dollars
($6,120,000) within sixty (60) days of execution of this Agreement by all
Parties. Neither such sum nor any portion thereof shall be refundable or
creditable to NCR.
2.3 GRANTS TO LUCENT. (a)(1) AT&T grants to Lucent, under AT&T's
Limited Patents, personal, nonexclusive, royalty-free and non-transferable
licenses to make (but not have made other than as specified in Section
2.3(a)(2)), use, lease, sell and import any and all products and services of the
businesses in which Lucent or any of its Related Companies or Foreign Affiliates
is now or hereafter engaged.
(a)(2) AT&T grants to Lucent, under AT&T's Limited Patents,
personal, nonexclusive, royalty-free and non-transferable (except as specified
herein) licenses to have made any and all items (i) to be used by Lucent for
internal business purposes (as such business may be conducted from time to
time); or (ii) to be sold by Lucent or incorporated into products of Lucent; or
(iii) to be used by Lucent in the engineering, installation and systems
integration of Lucent's products for Lucent's customers. As an attribute to the
foregoing have made rights under AT&T's Limited Patents, AT&T grants to Lucent
the right to grant to Lucent's suppliers or vendors of any item to be furnished
to Lucent the right to use processes and equipment under AT&T's Limited Patents
in the design, manufacturing and testing of such items. Lucent's have made
rights under AT&T's Limited Patents to resell any item made by others under this
Section 2.3(a)(2) shall not be exercised in a manner such that the exercise of
the have made rights is a
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<PAGE> 11
sham to sublicense AT&T's Limited Patents to a third party and not for bona fide
Lucent business purposes.
(b) (1) NCR grants to Lucent, under NCR's Patents, personal,
nonexclusive, royalty-free and non-transferable licenses to make (but not have
made other than as specified in Section 2.3(b)(2)), use, lease, sell and import
any and all products and services of the businesses in which Lucent or any of
its Related Companies or Foreign Affiliates is now or hereafter engaged.
(2) NCR grants to Lucent, under NCR's Patents, personal,
nonexclusive, royalty-free and non-transferable (except as specified herein)
licenses to have made any and all items (i) to be used by Lucent for internal
business purposes (as such business may be conducted from time to time); or (ii)
to be sold by Lucent or incorporated into products of Lucent; or (iii) to be
used by Lucent in the engineering, installation and systems integration of
Lucent's products for Lucent's customers. As an attribute to the foregoing have
made rights under NCR's Patents, NCR grants to Lucent the right to grant to
Lucent's suppliers or vendors of any item to be furnished to Lucent the right to
use processes and equipment under NCR's Patents in the design, manufacturing and
testing of such items. Lucent's have made rights under NCR's Patents to resell
any item made by others under this Section 2.3(b)(2) shall not be exercised in a
manner such that the exercise of the have made rights is a sham to sublicense
NCR's Patents to a third party and not for bona fide Lucent business purposes.
2.4 DURATION AND EXTENT. All licenses granted herein as to any
Party's patent or patents shall continue for the entire unexpired term of such
patent, but for patents falling within subsection (2) (ii) of the definition of
AT&T's Patents, NCR's Patents or Lucent's Patents, as the case may be, for as
much of such term as the grantor has the right to grant such licenses.
2.5 SCOPE. (a)(1)(A) The licenses granted herein to AT&T include
licenses to convey to any customer of AT&T, with respect to any product/service
furnished by AT&T, including any combination of products/services furnished by
AT&T, whether or not furnished at the same time to such customer, rights to use
such product/service as furnished by AT&T (whether or not as part of a larger
combination); provided, however, that no rights may be conveyed to customers
with respect to any invention which is directed to (i) a combination of such
product/service (as furnished) with any other item which is not a
product/service furnished by AT&T, or (ii) a method or process which is other
than the inherent use of such product/service itself (as furnished). As used in
this Section 2.5(a)(1)(A), the term "inherent use" means a use that would be
completely performed by a product/service as furnished by AT&T, or combination
of products/services as furnished by AT&T, without the need for any additional
product, service, development, modification or programming by AT&T's customer or
a third party.
(a)(1)(B) The licenses granted herein to NCR under AT&T's Patents include
licenses to convey to any customer of NCR, with respect to any product/service
furnished by NCR to such customer, rights to use such product/service as
furnished by NCR; provided, however, that no
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<PAGE> 12
rights may be conveyed to customers with respect to any invention which is
directed to (i) a combination of such product/service (as furnished) with any
other item, including another item previously or subsequently furnished by NCR,
or (ii) a method or process which is other than the inherent use of such
product/service itself (as furnished). As used in this Section 2.5(a)(1)(B), the
term "inherent use" means a use that would be completely performed by a
product/service as furnished by NCR without the need for any additional product,
service, development, modification or programming by NCR's customer or a third
party.
(a)(1)(C) The licenses granted herein to NCR under Lucent's Patents
include licenses to convey to any customer of NCR, with respect to any
product/service furnished by NCR (including any combination of products/services
furnished by NCR, whether or not furnished at the same time) to such customer,
rights to use such product/service as furnished by NCR (whether or not as part
of a larger combination); provided, however, that no rights may be conveyed to
customers with respect to any invention which is directed to (i) a combination
of such product/service (as furnished) with any other item which is not a
product/service furnished by NCR, or (ii) a method or process which is other
than the inherent use of such product/service itself (as furnished). As used in
this Section 2.5(a)(1)(C), the term "inherent use" means a use that would be
completely performed by a product/service as furnished by NCR (or combination of
products/services as furnished by NCR) without the need for any additional
product, service, development, modification or programming by NCR's customer or
a third party.
(a)(1)(D) The licenses granted herein to Lucent under AT&T's Limited
Patents include licenses to convey to any customer of Lucent, with respect to
any product/service furnished by Lucent to such customer, rights to use such
product/service as furnished by Lucent; provided, however, that no rights may be
conveyed to customers with respect to any invention which is directed to (i) a
combination of such product/service (as furnished) with any other item,
including another item previously or subsequently furnished by Lucent, or (ii) a
method or process which is other than the inherent use of such product/service
itself (as furnished). As used in this Section 2.5(a)(1)(D), the term "inherent
use" means a use that would be completely performed by a product/service as
furnished by Lucent without the need for any additional product, service,
development, modification or programming by Lucent's customer or a third party;
and the term "furnish" or "furnished" shall include the provision of an entire
system of products and services, including components obtained from third-party
vendors, so long as the entire system was or is sold or contracted for under a
stand alone agreement or single purchase order for such entire system, and
further provided that Lucent when furnishing the entire system is in direct
privity with the customer under the terms of such stand alone agreement or such
purchase order as to all components so furnished such that all representations
and warranties to the customer concerning the system and each of its relevant
components are provided by Lucent and not by the third-party vendor.
(a)(1)(E) In addition to those rights provided by Section 2.5(a)(1)(D),
the licenses granted herein to Lucent under AT&T's Specified Patents include
licenses to convey to any customer of Lucent, with respect to any
product/service furnished by Lucent (including any combination of
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<PAGE> 13
products/services furnished by Lucent, whether or not furnished at the same
time) to such customer, rights to use such product/service as furnished by
Lucent (whether or not as part of a larger combination); provided, however, that
no rights may be conveyed to customers with respect to any invention which is
directed to (i) a combination of such product/service (as furnished) with any
other item which is not a product/service furnished by Lucent, or (ii) a method
or process which is other than the inherent use of such product/service itself
(as furnished). As used in this Section 2.5(a)(1)(E), the term "inherent use"
means a use that would be completely performed by a product/service as furnished
by Lucent (or combination of products/services as furnished by Lucent) without
the need for any additional product, service, development, modification or
programming by Lucent's customer or a third party.
(a)(1)(F) The licenses granted herein to Lucent under NCR's Patents
include licenses to convey to any customer of Lucent, with respect to any
product/service furnished by Lucent (including any combination of
products/services furnished by Lucent, whether or not furnished at the same
time) to such customer, rights to use such product/service as furnished by
Lucent (whether or not as part of a larger combination); provided, however, that
no rights may be conveyed to customers with respect to any invention which is
directed to (i) a combination of such product/service (as furnished) with any
other item which is not a product/service furnished by Lucent, or (ii) a method
or process which is other than the inherent use of such product/service itself
(as furnished). As used in this Section 2.5(a)(1)(F), the term "inherent use"
means a use that would be completely performed by a product/service as furnished
by Lucent (or combination of products/services as furnished by Lucent) without
the need for any additional product, service, development, modification or
programming by Lucent's customer or a third party.
(a)(2)(A) The provision by one Party of certain pass-through rights under
any of the other Parties' Patents, as contemplated under Sections 2.5(a)(1)(A)
through (F), shall not be a sham to effect the sublicensing of a competitor of
the Party owning the respective patent subject to the pass through as opposed to
a pass through of necessary rights to permit the bona fide selling or
provisioning of products or services to customers of the Party that is directly
conveying the pass-through rights under the other Party's Patents.
(a)(2)(B) The exclusions numbered "(i)" and "(ii)" in each of Sections
2.5(a)(1)(B) through (F), as relevant, shall not apply to a replacing or
additional software or hardware product furnished by NCR or Lucent to a customer
for use in a hardware product previously furnished by NCR or Lucent,
respectively, but solely to the extent that such product is used in combination
only with such previously furnished hardware product.
(a)(3) The licenses granted herein to AT&T and to Lucent include an
additional limited right to extend patent sublicenses to any Person, solely to
the extent necessary for AT&T and Lucent, respectively, to fulfill any existing
patent licensing commitments or obligations to unaffiliated existing third party
licensees. Each Party to this Agreement hereby agrees and
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<PAGE> 14
confirms that the scope of such sublicenses shall not exceed these existing
commitments or obligations.
(b) Licenses granted herein are not to be construed either (i)
as consent by the grantor to any act which may be performed by the grantee,
except to the extent impacted by a patent licensed herein to the grantee, or
(ii) except as otherwise specifically provided under Sections 2.1(a)(2)(A),
2.1(b)(2)(A), 2.2(a)(2), 2.2(b)(2), 2.3(a)(2), 2.3(b)(2) and 2.5(a), a waiver of
a Party's (or any of its Related Companies') rights against any third party with
respect to any infringement.
(c) In addition to the limited sublicensing rights of AT&T and
Lucent specified in Section 2.5(a)(3), AT&T and Lucent may each grant
sublicenses to their respective Foreign Affiliates within the scope of their
respective licenses hereunder. The grant of each license hereunder to each Party
to this Agreement includes the right to grant sublicenses within the scope of
such license to a Party's Related Companies for so long as they remain its
Related Companies. Any such sublicense may be made effective retroactively, but
not prior to the effective date hereof, nor prior to the sublicensee's becoming
a Related Company of such Party.
2.6 EXCLUSIONS OF PATENTS. The licenses and rights granted
hereunder by AT&T to NCR or Lucent under AT&T's Patents do not include any
license or right under (a) any patents or patent applications first filed prior
to February 1, 1996 which patents or applications are (i) owned or controlled by
AT&T Wireless Services, Inc, ("AWS") or any of its Subsidiaries, and (ii)
related to the business of wireless telecommunications services; or (b) any
patents or patent applications first filed on or after February 1, 1996 and
covering inventions made by employees of AWS or by third parties other than AT&T
or any of its Subsidiaries, which patents and applications (i) are owned or
controlled by AWS or any of its Subsidiaries, and (ii) relate to the business of
wireless telecommunications services. With respect to all patents issued as of
February 1, 1996 to AWS and to any of its Subsidiaries, the foregoing shall not
limit NCR's or Lucent's ability to continue providing products and services
embodying inventions covered by such patents and provided by each as of the date
of this Agreement.
2.7 FILINGS OF PATENT APPLICATIONS. Each Party agrees to file
patent applications during 1996 and 1999 in a timely manner as determined by
generally accepted good patent filing practices and as though this Agreement
were not in existence between the Parties. The dispute resolution provisions of
Section 4.7 shall apply to any allegation by one Party that another Party hereto
has purposely delayed its patent filings primarily to avoid providing the
licenses and rights granted hereunder.
[/R]
2.8 JOINT INVENTIONS. (a) There are countries (not including the
United States) which require the express consent of all inventors or their
assignees to the grant of licenses or rights under patents issued in such
countries for joint inventions.
[/R]
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<PAGE> 15
(b) Each Party shall give such consent, or shall obtain such
consent from its Related Companies, its employees or employees of any of its
Related Companies, as required to make full and effective any such licenses and
rights respecting any joint invention granted to a grantee hereunder by such
Party and by another licensor of such grantee.
(c) Each Party shall take steps which are reasonable under the
circumstances to obtain from third parties whatever other consents are necessary
to make full and effective such licenses and rights respecting any joint
invention purported to be granted by it hereunder. If, in spite of such
reasonable steps, such Party is unable to obtain the requisite consents from
such third parties, the resulting inability of such Party to make full and
effective its purported grant of such licenses and rights shall not be
considered to be a breach of this Agreement.
2.9 SALES TO THE UNITED STATES GOVERNMENT. With respect to one
Party's bid or contract with the United States government, or any of its
component agencies, each of the other two Parties agrees to provide to such
first Party, on reasonable terms and conditions, including royalties, patent
licenses and rights under any and all of each of the other Parties' patents or
patent applications that are licensed hereunder. The scope of such patent
licenses and rights will be for the use of any and all products, services, or
combinations thereof sold to the United States government by such Party,
provided that use of the products or services is by the government, its
agencies, or employees, and not for use by or resell to other Persons or
governments.
2.10 LICENSING OF CERTAIN IDENTIFIED PATENTS OF AT&T NECESSARY TO
IMPLEMENT AN ADOPTED STANDARD. With respect to the following six (6) AT&T's
Limited Patents (U.S.4,383,332; 5,410,538; 5,420,851 and 5,442,625; and patents
issued on U.S. Patent Applications Serial Nos. 08/504,481 and 08/234,197), if,
at any time more than five (5) years after the Closing Date, an official
standards body or organization adopts a standard that requires the use of all or
a portion of the claims of any of these six (6) patents, and the standards body
or organization so directs, then AT&T will license those patents (on reasonable
terms, conditions and for a reasonable royalty, if any is permitted pursuant to
the standard) to third parties at the request and direction of Lucent, but only
to the extent of the claims and fields of use covered by the standard.
2.11 LUCENT LICENSING OF DESIGNATED PARTIES AT AT&T'S REQUEST.
(a) Whenever AT&T desires that a third party be licensed under one or more of
Lucent's Specified Patents, AT&T will notify Lucent in a writing which shall
contain the following:
(i) The name and address of the third party and whether any affiliated
companies of the third party are to be included in the license;
(ii) The specific Lucent's Specified Patents to be included in the
license;
(iii)The date by which a license is to be granted;
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<PAGE> 16
(iv) The scope of the license to be granted; and
(v) A rationale for the request to license such third party.
(b) Lucent, upon receipt of notification specified in
Section 2.11(a) will proceed as follows:
(i) If Lucent has any objection to the AT&T request, it will notify
AT&T in writing within ten (10) business days of its objection(s) and the
reasons therefor. Lucent and AT&T will then attempt to resolve the objection
and, if a resolution satisfactory to both parties is not achieved within ten
(10) additional business days, either AT&T or Lucent may submit the matter to
arbitration pursuant to Article IX of the Separation and Distribution Agreement
between the parties for resolution (without compliance with the escalation
provisions contemplated by Section 9.2 thereof or any waiting period related to
such escalation provisions); provided that the procedural provisions set forth
below shall apply in lieu of any conflicting provisions contained in Article IX
of the Separation and Distribution Agreement.
In submitting the matter to arbitration, a Party shall include all
documents which that Party needs to support its position in arbitration. The
other Party shall then have five (5) business days from the date it receives the
first Party's document to submit any and all documents which that Party needs to
support its position. Either Party may request a hearing to be conducted within
ten (10) business days from the conclusion of document submission. The
arbitrator shall render a ruling within a time period not to exceed two (2)
months from the date the matter is submitted to arbitration. In considering
whether an objection to a license is proper, the arbitrator shall consider all
relevant facts and positions offered by the Parties, including whether Lucent
has granted licenses to other companies with products comparable to those sold
or planned for sale by the third party and upon what terms such licenses were
granted, Lucent's competitive position in the relevant markets, any expressed
rationale for the request by AT&T, the impact of an adverse ruling against each
Party, and the reasonableness of the requested completion date. Should the
arbitrator rule in favor of AT&T, Lucent will have five (5) business days to
submit to the arbitrator a set of terms and conditions which Lucent would
propose be offered to the third party. AT&T shall have five (5) business days to
submit to the arbitrator its comments on Lucent's proposed terms and conditions
and may bring to the attention of the arbitrator any and all facts relevant to
the issue of appropriate terms and conditions of licensing the Lucent's
Specified Patents. The arbitrator, within five (5) business days, shall then
make a determination of an initial set of terms and conditions to be presented
to the third party by Lucent. Lucent shall present such terms and conditions to
the third party within three (3) business days of the arbitrator's
determination. If the arbitrator rules in favor of Lucent, or if the third party
is unwilling to accept the terms and conditions set by the arbitrator, Lucent
will have no obligation to license that third party and AT&T may not make a
similar request to license that third party for a period of one (1) year.
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<PAGE> 17
(ii) If Lucent has no objection to the request, it will attempt to
license the Lucent's Specified Patents selected by AT&T, within the period
referenced in Section 2.11(a)(iii), to the third party on reasonable terms and
conditions which may include a grantback license to Lucent. Such terms and
conditions will be established in accordance with ordinary practices in the
industry to which the patents pertain. Lucent's then normal licensing practices,
as measured by licenses granted to others of a scope similar to that referenced
in Section 2.11(b)(i) under such Lucent's Specified Patents, will be considered
as examples of such industry practices. If the third party is unwilling to
accept the terms and conditions of the license offered by Lucent (which terms
and conditions are other than those determined by the arbitrator) within the
time period referenced in Section 2.11(a)(iii), Lucent shall provide to AT&T
within five (5) business days a statement in writing as to why Lucent believes
that a license on the terms and conditions requested by the third party is not
advisable in its view. AT&T may then submit the matter to arbitration pursuant
to Article IX of the Separation and Distribution Agreement between the Parties
(modified as contemplated below) to determine whether different terms and
conditions should be offered to the third party.
In submitting the matter to arbitration, AT&T shall include all
documents which it needs to support its position. Lucent shall then have five
(5) business days to submit any and all documents which it needs to support its
position. In determining whether different terms and conditions should be
offered to the third party, the arbitrator shall consider all relevant facts and
positions offered by the Parties such as proposed terms and conditions,
including whether Lucent has granted licenses to other Persons with products
comparable to those sold or planned for sale by the third party and upon what
terms and conditions such licenses were granted, Lucent's competitive position
in the relevant markets, and any expressed rationale for such license by AT&T.
The arbitrator shall render a ruling within a time period not to exceed two (2)
months from the date AT&T submits the matter to arbitration. Should the
arbitrator rule that different terms and conditions should be offered to the
third party, Lucent shall, within three (3) business days, offer a license to
the third party on terms and conditions specified by the arbitrator. If the
arbitrator rules in favor of Lucent, or if the third party is unwilling to
accept the terms and conditions set by the arbitrator, Lucent will have no
obligation to license that third party and AT&T may not make a similar request
to license that third party for a period of one (1) year.
(c) With respect to requests by AT&T to grant licenses to
third parties under Lucent's Specified Patents, the number of such requests
shall be limited as follows:
(i) if the request is to grant a license to a third party for a product
and/or service developed by, with, or for AT&T, which product and/or service
results from either a specific custom development project or a specific joint
development project, then AT&T may request that up to eight (8) such licenses to
make, use and sell the developed products and/or services be granted in each
calendar year. In addition, for each of the eight (8) requested licenses in each
calendar year, AT&T may request that up to two (2) additional vendors be
licensed to make and sell such product and/or service (a total of three (3) such
vendors (an original and two (2) additional vendors) in the event AT&T develops
the product/service itself), provided that the
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<PAGE> 18
additional vendors must accept the identical terms and conditions entered into
with the original third party and provided further that no arbitration is
permitted with respect to such additional vendor requests.
(ii) if the request is to grant a license to a third party for products
and/or services other than specific products or services, developed by, with, or
for AT&T in a specific custom development project or a specific joint
development project, then AT&T may request up to five (5) licenses of this kind
be granted in each calendar year; and
(iii) if the request is to grant a license to a third party for
inventions implemented in software developed and created in whole or in part by
AT&T and furnished by AT&T to that third party for further distribution to end
user customers, then AT&T may request up to seven (7) licenses of this kind be
granted in each calendar year to such third parties:
The Parties agree, on an annual basis, to review the success and viability of
the licensing arrangement contemplated herein, with a view toward modifying the
current limits on license requests so as to meet the needs of both Parties.
Unless the Parties agree to modify the current limits, the current limits shall
remain in force.
(d) Lucent further agrees to license, from time to time, on
reasonable and non-discriminatory terms and conditions the eight (8) patents
listed in Exhibit E to members of an undersea telecommunication system
consortium, when necessary pursuant to terms established by the consortium for
participation by AT&T in the consortium and for use in the consortium project.
(e) Lucent shall be the sole recipient and beneficiary of any
and all royalties and grantback rights, if any, paid or provided under any
license agreement made pursuant to this Agreement.
(f) As soon as practical in advance of any dispute, the
Parties shall name an arbitrator who shall serve as a sitting sole arbitrator
for any and all arbitrations held pursuant to this Section 2.11. The Parties
shall use the arbitrator selection provisions of Article IX of the Separation
and Distribution Agreement to select the sitting sole arbitrator.
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ARTICLE III
TERMINATION
3.1 VOLUNTARY TERMINATION. By written notice to another Party,
each Party may voluntarily terminate all or a specified portion of the licenses
and rights granted to it hereunder by such other Party. Such notice shall
specify the effective date of such termination and shall clearly specify any
affected patent, invention, product or service.
3.2 SURVIVAL. (a) If a company ceases to be a Related Company of a
Party, licenses and rights granted to the other Parties hereunder with respect
to patents of such company on applications filed prior to the date of such
cessation shall not be affected by such cessation.
(b) Any voluntary termination of licenses and rights of a
Party under Section 3.1 shall not affect such Party's licenses, and rights with
respect to any licensed product made or service furnished prior to such
termination, and shall not affect the licenses and rights granted to the other
Parties hereunder.
3.3 CHANGE OF CONTROL OF OR CERTAIN ACQUISITIONS BY NCR. In the
event of a Change of Control of NCR, or in the event that NCR acquires any
Person that (i) competes with AT&T in the provision of telecommunications
services, or (ii) competes with Lucent in the provision of telecommunications
systems and equipment, or (iii) has a market value greater than fifty percent
(50%) of NCR's market value at the time of acquisition, then, all patent
licenses and rights granted to NCR hereunder shall extend only to a specific
annual volume of products and services which are of a kind comparable to those
offered by NCR prior to such Change of Control or acquisition. Such specific
volume of products and services shall not exceed the volume of corresponding
licensed products and services of NCR prior to such Change of Control or
acquisition.
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.1 DISCLAIMER. NO PARTY OR ANY OF ITS SUBSIDIARIES MAKES ANY
REPRESENTATIONS, EXTENDS ANY WARRANTIES OF ANY KIND, ASSUMES ANY RESPONSIBILITY
OR OBLIGATIONS WHATEVER, OR CONFERS ANY RIGHT BY IMPLICATION, ESTOPPEL OR
OTHERWISE, OTHER THAN THE LICENSES, RIGHTS AND WARRANTIES HEREIN EXPRESSLY
GRANTED.
4.2 NONASSIGNABILITY. The Parties hereto have entered into this
Agreement in contemplation of personal performance, each by the other, and
intend that the licenses and rights granted hereunder to a Party not be extended
to entities other than such Party's Related Companies (and only for so long as
any such Related Company remains a Related Company)
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<PAGE> 20
without the other Party's or Parties', as applicable, express written consent.
Neither this Agreement nor any licenses or rights hereunder shall be assignable
or transferable by any Party to any other Person, except as expressly permitted
hereunder, without the express written consent of the other Parties, provided
that such consent shall not be unreasonably withheld in the event of a proposed
assignment or transfer of those licenses and rights relevant to any portion of
any Party's business that is or is to be spun off or otherwise distributed to
such Party's shareholders.
4.3 ADDRESSES. The Parties agree that any notice or other
communication hereunder shall be given as set forth in Section 12.5 of the
Separation and Distribution Agreement.
4.4 CHOICE OF LAW. Except as otherwise provided in Section 9.9 of
the Separation and Distribution Agreement, this Agreement shall be governed by
and construed and interpreted in accordance with the laws of the State of New
York, irrespective of the choice of laws principles of the State of New York, as
to all matters, including matters of validity, construction, effect, performance
and remedies.
4.5 INTEGRATION. This Agreement sets forth the entire agreement
and understanding between the Parties as to the subject matter hereof and merges
all prior discussions between them. A Party shall not be bound by any
warranties, understandings or representations with respect to such subject
matter other than as expressly provided herein or in a writing signed with or
subsequent to execution hereof by an authorized representative of the Party to
be bound thereby.
4.6 OUTSIDE THE UNITED STATES. (a) There are countries in which
the owner of an invention is entitled to compensation, damages or other monetary
award for another's unlicensed manufacture, sale, lease, use or importation
involving such invention prior to the date of issuance of a patent for such
invention but on or after a certain earlier date, hereinafter referred to as the
invention's "protection commencement date" (e.g., the date of publication of
allowed claims or the date of publication or "laying open" of the filed patent
application). In some instances, other conditions precedent must also be
fulfilled (e.g., knowledge or actual notification of the filed patent
application). The Parties agree that (i) an invention which has a protection
commencement date in any such country may be used in such country pursuant to
the terms of this Agreement on and after any such date, and (ii) all such
conditions precedent are deemed satisfied by this Agreement.
(b) There may be countries in which a Party hereto may have, as a
consequence of this Agreement, rights against infringers of another Party's
patents licensed hereunder. Each Party hereby waives any such right it may have
by reason of such third party's infringement or alleged infringement of another
Party's patents.
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<PAGE> 21
(c) Each Party hereby agrees to register or cause to be
registered, to the extent that such Party reasonably determines that
registration or recordation is necessary under applicable law, and without
expense to the other Parties or any of their Related Companies, any agreements
wherein sublicenses are granted by it under the other Parties' patents licensed
hereunder. Each Party hereby waives any and all claims or defenses, arising by
virtue of the absence of such registration, that might otherwise limit or affect
its obligations to the other Parties.
4.7 ARBITRATION AND DISPUTE RESOLUTION. The Parties agree that the
procedures for discussion, negotiation and arbitration set forth in Article IX
of the Separation and Distribution Agreement, which Article IX is incorporated
herein by reference, shall apply to all disputes, controversies or claims that
may arise under or in connection with this Agreement, except as otherwise
provided in Section 2.11.
4.8 AMENDMENTS AND CHANGES. Subsequent to the execution of this
Agreement by all Parties, and solely to the extent that a change is desired by
and restricted to any two Parties without affecting the licenses and rights of
the third Party hereto, such two Parties may separately amend any provision of
this Agreement which governs the licenses and rights exchanged between them
without notifying, advising, consulting or requesting the concurrence of the
third Party hereto. Except as specifically provided herein, any other
modification affecting all three Parties shall require the written agreement and
signature of all the Parties.
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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed
in triplicate originals by its duly authorized representatives on the respective
dates entered below.
AT&T CORP.
By: /s/
-------------------------------
Title:
-------------------------------
Date:
-------------------------------
NCR CORPORATION
By: /s/
-------------------------------
Title:
-------------------------------
Date:
-------------------------------
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LUCENT TECHNOLOGIES INC.
By: /s/
-------------------------------
Title:
-------------------------------
Date:
-------------------------------
THIS AGREEMENT DOES NOT BIND OR OBLIGATE ANY PARTY
IN ANY MANNER UNLESS DULY EXECUTED BY AUTHORIZED
REPRESENTATIVES OF ALL PARTIES.
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<PAGE> 24
PORTIONS OF THE FOLLOWING EXHIBITS TO THE PATENT LICENSE AGREEMENT MARKED
"XXXXXX" HAVE BEEN REDACTED.
<PAGE> 25
EXHIBIT "A"
LIST OF RETAINED AT&T'S PATENTS
AND PATENT APPLICATIONS
<TABLE>
<S> <C> <C> <C>
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Baral 3-1-1-7-7-1-6-1-3-1 4932042
Atal 9Re Re32580 Brown 4-2-1-2-2-8-2-2-5-3 4939771
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Shepard 2 4953203
Mondello 4156104 Bhusri 1 4959849
Mearns 1 4162377 Daudelin 5 4959855
Weber 1 4191860 Brown 3-1-1-1-7-1-4-2 4972461
Jordan 1-2 4313035 Kordahi 5000619
Ash 1-1 4345116 Benyacar 1-1-2-1-1-1-1-1-1-1 5003584
Asmuth 1 4348554 Catron 3-1-5-2-3-2-1-1-2 5018191
Glance 7-9 4383332 Chang 5027110
Pecon 4388710 Catron 2-4-1-2-1-1 5033079
Boivie 1 4453217 Mollenauer 5035481
Wehr 4470115 Mollenauer 5039199
Johnson 4530051 Bauer 4-3-2-4-2 5056134
Anctil 4538881 Mansour 1-1 5058105
Pike 1 4555775 Mollenauer 5058974
Decker 4557556 Marcuse 5063559
Everhart 3-1 4578531 Farel 1-1 5067074
Anderson 4586186 Ash 5-2-1 5086460
Lee 1-1 4899373 Ash 6-3-7-1 5101451
Asmuth 3-1-1-1-1-1 4611094 Bergano 5111322
Asmuth 4 4611096 Desurvire 5117303
Fontenot 4616359 Ash 7-2 5130982
Anderson 4633464 Wegrzynowicz 1 5136636
Hayden 4653090 Kaplan 1 5163087
Ash 2-2 4669113 Brown 5 5164983
Gordon 4700339 Bergano 5173957
Frauenthal 1-1-1-3 4737983 Dowden 5-5-8-2-3-6-4-3-3 5181237
Fodale 2 4756020 Medamanna 1-1-4 5181238
Gordon, et al 4763191 Askew 1-1-1-4-1-2-4-2-2-1 5182744
Day 1 4763356 Sahni-3 5184345
Bauer 1-1-1-1 4776004 Chau 4-2-2-2-2-1 5187710
McNabb 1-1 4788718 Rosenberg 5191631
Else 2-2 4811378 Bowker, et al. 3-1-1 5195132
Binkerd et al 3-1-3-4 4827500 Gupta 1-1-1 5206899
Adl 4834479 Bowker 4 5206902
Franco 1 4893330 Pula 1 5208848
Bauer 1 (Eric) 4899377 Ramkumar 1 5212727
Johannes 4914655 Creswell 1-1-1-1-1-1-1-1 5222125
Kordahi 4914960 Flynn 1-1 5223699
Gillon 3-2-4 4922348 Funk 5226075
Scanlon 3 4922522 Bissell 1-1 5243645
Bauer 3-2-1-3-1 4930154 Heizer 5249290
</TABLE>
<PAGE> 26
<TABLE>
<S> <C> <C> <C>
Frey 9-22 5253288 Davitt 5392343
Blake 1-1 5270919 Ash 8-4-8-3 5392344
McNair 4 5276444 Otto 6 5392345
Papanicolaou 3-3 5278889 Fischell 1-1-2-1-5 5394463
Dabbaghi 2-2-8-2-5-2-2-3-8-6 5282243 Alger 5396542
Shaw 1 5283824 Entenmann 2-2-8-2-5-2-2-3-8-6 5403999
Zoccolillo 4 5287199 Pei 1 5406620
Atkins 1-2-3-2 5287403 McFarland 1-1 5408526
Kasday 5-1 (Vasile) 5289523 Roche 1-4 5410538
Levy 2-3 5291550 Bauer 5 (Eric) 5412808
Conn 2-3-2-2 5291551 Lee 5 5416835
Bergano 5309530 Seshadri 19-11-3 5420851
Bergano 5309535 Guzman 1 5420917
Friedes 4-2 5311572 Low 2-16-2 5420926
Friedes 7-1-7-1 5311583 Freeman 6-2-2-3 5428608
Penzias 8 5311594 Brady 1-1 5430782
Hou 1-1-1 5325421 Feit 1-1-1-3-3-4 5430791
Binns 1-2-2-2-2-2 5329308 Burd 2-2-1-2-4-1-4 5432845
Friedes 5-1-4-5 5329581 Fraser 16 5434914
Fraser 17-5-11 5329589 Cox 7-4 5434920
Brown 6-5-4-4-10-4-7-5 5333180 Isidoro 3-9 5440563
Doherty 1-1-1 5333184 Slusky 3 5440620
Gupta 2 5333186 Bergano 5440659
Bowker, et al. 5-2-2 5333195 Gitlin 33-9 5442625
Ananthanpillai 12 5333308 Blahut 30-2 5446490
Cole 5335224 Smith 2 5450123
Anderson 5343320 Amarant 3-2-3-2 5450477
Bergano 5345331 Alesio 1-10-2-3 5450479
D'Urso 1-1-1-1-1 5353335 Leung 3 5457408
Hou 2-2 5353336 Messina 5462389
Scobee 1 5353339 Bash 1-1-1-1 5463677
Gordon 5357364 Collins 2-1-1 5463683
Gupta 2-1-6 5357564 Gaechter 3-11-4 5463685
Gnauck 5365362 Chu 5463711
Chakravarti 1-1-1-1-1-1-1 5369695 Chiller 1-1-1 5465293
Campbell 1-1-1-1-3 5373550 Furman 3 5465295
D'Ambrogio 1-1-1-2-2 5375124 Mukherjee 1 5465387
Rosinski 1-2 5381467 Brown 2-2-4-2-2-3 5471877
Creswell 2-2-1-2 5384831 Mamyshev 3-32 5473458
Ahmad 1 5386467 Hansen 5-19 5473625
Bauer 7 (Eric) 5388257 Partridge 6 5473671
Freeman 2-1-3-1 5390232 Partridge 2 5473681
Casselman 2-2-2 5390243 D'Amato 1-2-1-1-2-4 5473677
Chang 1-3-13-2 5392336 La Porta 3-3 5473679
Rosenthal 3 5392342 Miller 6-5 5475746
</TABLE>
<PAGE> 27
<TABLE>
<S> <C>
Akinpelu 1-1-1 5475749
Eskildsen 1-6 5477368
Alesio 4 5481600
Griffiths 1-1-2-1 5481602
Gutierrez 1-1-2-5 5481603
Colbert 5 5485510
Allen 8-1 5485515
Atkins 2-4-6-4 5487107
Slusky 6 5487111
Kaplan 4-1-1 5488569
lyob 1-2-1-3-2-2 5448632
Bergano 10 5491576
Gupta 5-2-2-10 5506890
Billings 2-3-3 5506894
</TABLE>
<PAGE> 28
EXHIBIT B
LIST OF CERTAIN PATENTS ASSIGNED TO NCR BY AT&T
<TABLE>
<CAPTION>
NAME OF NAME OF
FIRST INVENTOR PATENT NUMBER FIRST INVENTOR PATENT NUMBER
<S> <C> <C> <C>
Ritchie 4135240 Auer 4725694
Pirz 4149242 Chang 4725834
Freeman 4195338 Waggner 4733823
Gabbe 4255796 Afshar 4734854
Christian 4279020 Welsch 4744023
Ahuja 4281381 Blanset 4744048
Draper 4295219 Blanset 4747040
Ahuja 4384323 Kumpati 4774661
Brown 4430526 Restrepo 4779088
Gabbe 4459658 Geis 4787759
York 4462077 Bogatin 4816811
Forson 4481577 Agrawal 4825354
Ahuja 4514728 Bishop 4849877
Durkee 4516140 Taska 4856091
Durkee 4538156 Beck 4893270
DeBruler 4539637 Lubachevsky 4901260
Alles 4542375 Bishop 4914653
Reddington 4554631 Agrawal 4930072
Linderman 4611280 Hopfield 4937872
Keverian 4613987 Huang 4943909
Bednar 4630196 Gansner 4953106
Teng 4642758 Clarey 4975829
Eng 4652733 Moshenberg 5020003
Aranguren 4674085 Chou 5020112
Grinn 4675808 Thompson 5020123
Zave 4685125 Krishnakumar 5067104
MacDonald 4697175 Denker 5067164
Goldstein 4698752 Selzer 5075843
Jacobs 4704675 Bishop 5093913
DiPiazza 4707689 Kiang 5101439
Kasday 4710760 Laggis 5109515
Fan 5111512 Huh 5396612
Bishop 5115505 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Holzmann 5129013
Piepho 5179707
Black 5184115
Civanlar 5187660
</TABLE>
<PAGE> 29
<TABLE>
<S> <C>
Kautz 5259067
McNair 5278905
</TABLE>
<PAGE> 30
EXHIBIT C
LIST OF AT&T'S SPECIFIED PATENTS
<TABLE>
<S> <C> <C>
1 Mondello 4156104
2 Jordan 1-2 4313035
3 Ash 1-1 4345116
4 Pecon 4388710
5 Anctil 4538881
6 Decker 4557556
7 Everhart 3-1 4578531
8 Anderson 4586186
9 Lee 1-1 4599373
10 Asmuth 4 4611096
11 Fontenot 4616359
12 Anderson 4633464
13 Ash 2-2 4669113
14 Gordon 4700339
15 Frauenthal 1-1-1-3 4737983
16 Gordon, et al. 4763191
17 Bauer 1-1-1-1 4776004
18 McNabb 1-1 4788718
19 Binkerd et al. 3-1-3-4 4827500
20 Adl 4834479
21 Franco 1 4893330
22 Bauer 1 (Eric) 4899377
23 Johannes 4914655
24 Kordahi 4914960
25 Gillon 3-2-4 4922348
26 Scanlon 3 4922522
27 Bauer 3-2-1-3-1 4930154
28 Baral 3-1-1-7-7-1-6-1-3-1 4932042
29 Brown 4-2-1-2-2-8-2-2-5-3 4939771
30 Shepard 2 4953203
31 Bhusri 1 4959849
32 Daudelin 5 4959855
33 Brown 3-1-1-1-7-1-4-2 4972461
34 Kordahi 5000619
35 Benyacar 1-1-2-1-1-1-1-1-1-1 5003584
36 Catron 3-1-5-2-3-2-1-1-2 5018191
37 Catron 2-4-1-2-1-1 5033079
38 Mollenauer 5035481
39 Mollenauer 5039199
40 Bauer 4-3-2-4-2 5056134
</TABLE>
<PAGE> 31
<TABLE>
<S> <C> <C>
41 Mansour 1-1 5058105
42 Mollenauer 5058974
43 Marcuse 5063559
44 Farel 1-1 5067074
45 Ash 5-2-1 5086460
46 Ash 6-3-7-1 5101451
47 Bergano 5111322
48 Desurvire 5117303
49 Ash 7-2 5130982
50 Wegrzynowicz 1 5136636
51 Kaplan 1 5163087
52 Brown 5 5164983
53 Bergano 5173957
54 Dowden 5-5-8-2-3-6-4-3-3 5181237
55 Medamanna 1-1-4 5181238
56 Askew 1-1-1-4-1-2-4-2-2-1 5182744
57 Sahni 3 5184345
58 Chau 4-2-2-2-2-1 5187710
59 Rosenberg 5191631
60 Bowker, et al. 3-1-1 5195132
61 Gupta 1-1-1 5206899
62 Bowker 4 5206902
63 Pula 1 5208848
64 Ramkumar 1 5212727
65 Creswell 1-1-1-1-1-1-1-1 5222125
66 Flynn 1-1 5223699
67 Funk 5226075
68 Bissell 1-1 5243645
69 Frey 9-22 5253288
70 Blake 1-1 5270919
71 McNair 4 5276444
72 Papanicolaou 3-3 5278889
73 Dabbaghi 2-2-8-2-5-2-2-3-8-6 5282243
74 Shaw 1 5283824
75 Zoccolillo 4 5287199
76 Atkins 1-2-3-2 5287403
77 Kasday 5-1 (Vasile) 5289523
78 Levy 2-3 5291550
79 Conn 2-3-2-2 5291551
80 Bergano 5309530
81 Bergano 5309535
82 Friedes 4-2 5311572
83 Friedes 7-1-7-1 5311583
84 Penzias 8 5311594
85 Hou 1-1-1 5325421
</TABLE>
<PAGE> 32
<TABLE>
<S> <C> <C>
86 Binns 1-2-2-2-2-2 5329308
87 Friedes 5-1-4-5 5329581
88 Fraser 17-5-11 5329589
89 Brown 6-5-4-4-10-4-7-5 5333180
90 Doherty 1-1-1 5333184
91 Gupta 2 5333186
92 Bowker, et al. 5-2-2 5333195
93 Ananthanpillai 2 5333308
94 Cole 5335224
95 Anderson 5343320
96 Bergano 5345331
97 D'Urso 1-1-1-1-1 5353335
98 Hou 2-2 5353336
99 Scobee 1 5353339
100 Gordon 5357364
101 Gupta 2-1-6 5357564
102 Gnauck 5365362
103 Chakravarti 1-1-1-1-1-1-1-1 5369695
104 Campbell 1-1-1-1-3 5373550
105 D'Ambrogio 1-1-1-2-2 5375124
106 Rosinski 1-2 5381467
107 Creswell 2-2-1-2 5384831
108 Ahmad 1 5386467
109 Bauer 7 (Eric) 5388257
110 Freeman 2-1-3-1 5390232
111 Casselman 2-2-2 5390243
112 Chang 1-3-13-2 5392336
113 Rosenthal 3 5392342
114 Davitt 5392343
115 Ash 8-4-8-3 5392344
116 Otto 6 5392345
117 Fischell 1-1-2-1-5 5394463
118 Alger 5396542
119 Entenmann 2-2-8-2-5-2-2-3-8-6 5403999
120 Pei 1 5406620
121 McFarland 1-1 5408526
122 Lee 5 5416835
123 Guzman 1 5420917
124 Freeman 6-2-2-3 5428608
125 Brady 1-1 5430782
126 Feit 1-1-1-3-3-4 5430791
127 Burd 2-2-1-2-4-1-4 5432845
128 Fraser 16 5434914
129 Cox 7-4 5434920
130 Isidoro 3-9 5440563
</TABLE>
<PAGE> 33
<TABLE>
<S> <C> <C>
131 Slusky 3 5440620
132 Bergano 5440659
133 Blahut 30-2 5446490
134 Smith 2 5450123
135 Amarant 3-2-3-2 5450477
136 Alesio 1-10-2-3 5450479
137 Messina 5462389
138 Collins 2-1-1 5463683
139 Gaechter 3-11-4 5463685
140 Furman 3 5465295
141 Iyob 1-2-1-3-2-2 5488632
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
</TABLE>
<PAGE> 34
Exhibit D
LIST OF LUCENT'S SPECIFIED PATENTS
<TABLE>
<CAPTION>
Case Name Pat/App Number
<S> <C>
Brandenburg 1 5040217
Dorward 1 5463641
Johnston 13 5285498
Johnston 14 5227788
Hall 4-25 5341457
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Johnston 23 5481614
Johnston 27-1 5488665
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Adelmann 2-2 4726019
Buhrke 6-4-3-7-1 5280470
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Caram 2-1-14 5163045
Eckberg 2-2-2-2 4769811
Eckberg 1-1-1-1 4769810
Franklin 3 4677616
Fraser 10 4821258
Fraser 14-4-1 5272697
Hahne 2-3-9 5014265
Kanakia 2 5309432
Hahne 4-10 5163046
Fraser 6 4499576
Leung 9-4 5103444
Leung 6-1-1 4905231
Punj 5-1 5150358
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Pirz 4-10-2-1 4348550 (RE32012)
Levinson 4-18-7 4587670 (RE33597)
Jayant 9-1 4617676
Juang 2-5-21-8 4783804
Church 1 4829580
Chen 2 5233660
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Ackenhusen 4 4847906
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Amitay 14 5371780
Amitay 15 5384826
Atal 13-1 4709390
</TABLE>
<PAGE> 35
<TABLE>
<S> <C>
Atal 15-1 4827517
Atal 16 4764963
Atal 7 4220819
Atal 8 4354057
Baker 1-1-2-1-1-1-1-1 4680786
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Benveniste 5345499
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Bi 1-1 5134709
Bicknell 1-2-1 4754479
Boccuzzi 3 5438592
Bollinger 1-1-1 5226071
Bronson 1-8-1-7 4797926
Bronson 2-9-1-1-2 4771465
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Chen 2 5233660
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Chen 7 5339384
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Cimini 7-4-3 5276730
Cosentino 1 5097499
Cyr 1-1-1 4974156
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Fuentes 3 5353333
Fuentes 5 5440613
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Gokcen 2-2-4 5125024
Goodman 7 4916691
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Grimes 65: 5479482
Grimes 66 5481590
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Ketchum 2-3-1 4899385
Ketchum 4 5313554
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Kroon 2 5450449
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Lee 1-1 4899373
Mailhot 1 5061924
Pirz 4-10-2-1 Re Re32012
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Regis 1-1 15442679
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Seshadri 11 5479448
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
</TABLE>
<PAGE> 36
<TABLE>
<S> <C>
Swaminathan 1 4956871
Thomson 6 5179626
Thomson 7 5023910
Thomson 9 4972490
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Weinman 1 5461379
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
</TABLE>
<PAGE> 37
Exhibit E
LIST OF PATENTS REFERENCED IN SECTION 2.11(d)
<TABLE>
<CAPTION>
Case Name U.S. Patent/Application Number
<S> <C>
Chraplyvy 6-1-5 5,225922
DiGiovanni 3-7 5,050949
DiGiovanni 4-21 5,058976
Giles 13-19 5,241414
Grubb 2 5,323404
Hasegawa 3 4,406516
Hasegawa 6-2 4,558921
Hasegawa 8-3-19 5,140656
</TABLE>
<PAGE> 1
Exhibit 10.8
TECHNOLOGY LICENSE AGREEMENT
among
AT&T CORP.
NCR CORPORATION
and
LUCENT TECHNOLOGIES INC.
Effective as of , 1996
<PAGE> 2
TECHNOLOGY LICENSE AGREEMENT
Table of Contents
ARTICLE I DEFINITIONS....................................................... 2
1.1 Applied Corporate Technology........................................ 2
1.2 AT&T's Network Technology........................................... 2
1.3 AT&T's Proprietary Feature.......................................... 2
1.4 AT&T's Restricted Technology....................................... 2
1.5 AT&T Services Business.............................................. 2
1.6 AT&T's Technology................................................... 2
1.7 AT&T's Wireless Services Technology................................. 2
1.8 Common Support Function Software.................................... 2
1.9 Copyrights.......................................................... 3
1.10 Corporate Technology................................................ 3
1.11 Enterprise Technology............................................... 3
1.12 Mask Works.......................................................... 3
1.13 NCR's Product Realization Technology................................ 3
1.14 NCR's Restricted Technology......................................... 3
1.15 NCR's Specified Technology.......................................... 3
1.16 NCR's Technology.................................................... 3
1.17 Lucent Business..................................................... 3
1.18 Lucent's Product Realization Technology............................. 4
1.19 Lucent's Restricted Technology...................................... 4
1.20 Lucent's Specified Technology....................................... 4
1.21 Lucent's Technology................................................. 4
1.22 Related Companies of AT&T........................................... 4
1.23 Related Companies of NCR............................................ 4
1.24 Related Companies of Lucent......................................... 4
1.25 Technology.......................................................... 4
ARTICLE II ACCESS AND USE OF ENTERPRISE TECHNOLOGY.......................... 5
2.1 Access to Enterprise Technology.................................... 5
2.2 Export Control..................................................... 5
2.3 AT&T's Rights to Use Enterprise Technology......................... 5
2.4 NCR's Rights to Use Enterprise Technology......................... 6
2.5 Lucent's Rights to Use Enterprise Technology...................... 7
2.6 Procurement........................................................ 8
2.7 Exclusion of AT&T's Wireless Services Technology................... 8
ARTICLE III TERMINATION..................................................... 8
3.1 Voluntary Termination.............................................. 8
3.2 Survival........................................................... 9
3.3 Change of Control of or Certain Acquisitions by NCR................ 9
<PAGE> 3
ARTICLE IV MISCELLANEOUS PROVISIONS......................................... 9
4.1 Agreement Prevails.................................................. 9
4.2 Nothing Construed................................................... 9
4.3 Disclaimer.......................................................... 9
4.4 No Patent Licenses.................................................. 9
4.5 Confidentiality..................................................... 9
4.6 Nonassignability................................................... 10
4.7 Addresses.......................................................... 10
4.8 Choice of Law...................................................... 10
4.9 Integration........................................................ 10
4.10 Arbitration and Dispute Resolution................................. 11
4.11 Amendments and Changes............................................. 11
Exhibit A List of AT&T's Network Technology................................ 14
Exhibit B List of AT&T's Proprietary Features.............................. 15
Exhibit C List of AT&T's Restricted Technology............................. 48
Exhibit D List of NCR's Product Realization Technology..................... 49
Exhibit E List of NCR's Restricted Technology.............................. 50
Exhibit F List of NCR's Specified Technology............................... 51
Exhibit G List of Lucent's Product Realization Technology.................. 52
Exhibit H List of Lucent's Restricted Technology........................... 53
Exhibit I List of Applied Corporate Technology............................. 54
<PAGE> 4
TECHNOLOGY LICENSE AGREEMENT
This Agreement is effective as of __________, 1996, among AT&T CORP., a
New York corporation ("AT&T"), having an office at 32 Avenue of the Americas,
New York, New York 10013, NCR CORPORATION, a Maryland corporation ("NCR"),
having an office at 101 West Schantz Avenue, Dayton, Ohio 45479, and LUCENT
TECHNOLOGIES INC., a Delaware corporation ("Lucent"), having an office at 600
Mountain Avenue, Murray Hill, New Jersey 07974 (each hereinafter referred to as
a "Party"). Capitalized terms used herein and not otherwise defined shall have
the respective meanings assigned to them in Article I hereof or as assigned to
them in the Separation and Distribution Agreement (as defined below).
WHEREAS, the Board of Directors of AT&T has determined that it is in the
best interests of AT&T and its shareholders to separate AT&T's existing
businesses into three independent businesses; and
WHEREAS, as part of the foregoing AT&T, NCR and Lucent have entered into
a Separation and Distribution Agreement, dated as of February 1, 1996 (the
"Separation and Distribution Agreement"), which provides, among other things,
for the Separation of the Lucent Assets and Lucent Liabilities, the IPO, the
Distribution and the execution and delivery of certain other agreements in order
to facilitate and provide for the foregoing; and
WHEREAS, AT&T desires to receive and NCR and Lucent, respectively, are
each willing to grant to AT&T certain rights to use technology which is owned by
NCR and Lucent, respectively, on or after the date hereof; and
WHEREAS, NCR desires to receive and AT&T and Lucent, respectively, are
each willing to grant to NCR certain rights to use technology retained and owned
by AT&T and technology owned by Lucent on or after the date hereof; and
WHEREAS, Lucent desires to receive and AT&T and NCR, respectively, are
each willing to grant to Lucent certain rights to use technology retained and
owned by AT&T and technology owned by NCR on or after the date hereof.
NOW, THEREFORE, in consideration of the mutual promises of the Parties,
and of good and valuable consideration, it is agreed by and between the Parties
as follows:
<PAGE> 5
ARTICLE I
DEFINITIONS
For the purpose of this Agreement the following terms in capital letters are
defined in this Article I and shall have the meaning specified herein:
1.1 APPLIED CORPORATE TECHNOLOGY means the Technology listed in
Exhibit "I". By separate Technology Assignment and Joint Ownership Agreement of
even date herewith, AT&T has assigned to Lucent and NCR equal undivided
one-third (1/3) interest in the Technology listed in Exhibit "I".
1.2 AT&T'S NETWORK TECHNOLOGY means Technology related to the
infrastructure of the AT&T Global Network as listed in Exhibit "A".
1.3 AT&T'S PROPRIETARY FEATURE means any AT&T network feature
currently committed and/or deployed as listed in Exhibit "B" which Lucent
exclusively provides to AT&T pursuant to a separate existing development or
procurement agreement between AT&T and Lucent.
1.4 AT&T'S RESTRICTED TECHNOLOGY means only those items of AT&T's
Technology listed in the attached Exhibit "C".
1.5 AT&T SERVICES BUSINESS shall have the meaning set forth in the
Separation and Distribution Agreement.
1.6 AT&T'S TECHNOLOGY means any and all portions of Enterprise
Technology existing as of the Closing Date, which were developed by or for, or
purchased by the AT&T Services Business. The term includes AT&T's Restricted
Technology, AT&T's Network Technology and AT&T's Wireless Services Technology
but shall not include Applied Corporate Technology, NCR's Technology, Lucent's
Technology, Common Support Function Software or Corporate Technology.
1.7 AT&T'S WIRELESS SERVICES TECHNOLOGY means all Technology
developed solely by or for the AT&T Wireless Services business, or by AT&T or a
third party for the AT&T Wireless Services business, without any substantial
involvement by Lucent or NCR and related to the business of AT&T Wireless
Services Inc., an AT&T Subsidiary, including both cellular and PCS technology,
both mobile and fixed.
1.8 COMMON SUPPORT FUNCTION SOFTWARE means those computer programs
in source and object code forms, including their respective associated
documentation, listed on Schedule "A" of the Technology Assignment and Joint
Ownership Agreement of even date herewith.
-2-
<PAGE> 6
1.9 COPYRIGHTS mean any original works of authorship fixed in any
tangible medium of expression as set forth in 17 U.S.C. Section 101 et. seq.
1.10 CORPORATE TECHNOLOGY means any and all portions of Enterprise
Technology other than Applied Corporate Technology, AT&T's Technology, NCR's
Technology, Lucent's Technology, and Common Support Function Software. The term
includes, but is not limited to, basic research. By separate Technology
Assignment and Joint Ownership Agreement of even date herewith, AT&T has
assigned to Lucent an equal undivided one-half (1/2) interest in Corporate
Technology.
1.11 ENTERPRISE TECHNOLOGY means any and all Technology existing
as of the Closing Date which is owned by, and was developed by or for, or
purchased by AT&T and its Subsidiaries, including any of its business units and
divisions. The term includes any and all Technology owned or controlled by any
of AT&T's Subsidiaries under which AT&T has the right to grant any of the
right-to-use licenses of the type and on the terms herein granted.
1.12 MASK WORKS means any mask work, registered or unregistered,
as defined in 17 U.S.C. Section 901.
1.13 NCR'S PRODUCT REALIZATION TECHNOLOGY means any and all
portions of NCR's Technology specifically related to the planning, design,
development and manufacture of NCR's products as listed in Exhibit "D".
1.14 NCR'S RESTRICTED TECHNOLOGY means only those items of NCR's
Technology listed in the attached Exhibit "E".
1.15 NCR'S SPECIFIED TECHNOLOGY means only those items of NCR's
Product Realization Technology newly developed by NCR for AT&T as listed in
Exhibit "F".
1.16 NCR'S TECHNOLOGY means any and all portions of Enterprise
Technology existing as of the Closing Date which is owned by NCR or any of its
Subsidiaries, or was developed by or for, or purchased by NCR or any of its
Subsidiaries, or any portion of Enterprise Technology assigned by AT&T to NCR
under a separate Technology Assignment. The term includes NCR's Restricted
Technology, NCR's Product Realization Technology and NCR's Specified Technology
but shall not include Applied Corporate Technology, AT&T's Technology, Lucent's
Technology, Corporate Technology or Common Support Function Software.
1.17 LUCENT BUSINESS shall have the meaning set forth in the
Separation and Distribution Agreement.
-3-
<PAGE> 7
1.18 LUCENT'S PRODUCT REALIZATION TECHNOLOGY means any and all
portions of Lucent's Technology specifically related to the planning, design,
development and manufacture of Lucent's products as listed in Exhibit "G".
1.19 LUCENT'S RESTRICTED TECHNOLOGY means only those items of
Lucent's Technology listed in the attached Exhibit "H".
1.20 LUCENT'S SPECIFIED TECHNOLOGY means only those items of
Lucent's Product Realization Technology which are specifically directed to any
AT&T's Proprietary Feature.
1.21 LUCENT'S TECHNOLOGY means any and all portions of Enterprise
Technology existing as of the Closing Date which were developed by or for, or
purchased by the Lucent Business. The term includes Lucent's Restricted
Technology, Lucent's Product Realization Technology and Lucent's Specified
Technology but shall not include Applied Corporate Technology, AT&T's
Technology, NCR's Technology, Common Support Function Software or Corporate
Technology.
1.22 RELATED COMPANIES OF AT&T means Subsidiaries of AT&T, only
for so long as they remain Subsidiaries, and any other company so designated and
agreed to in a writing signed by AT&T and by NCR or Lucent, as applicable.
Solely for purposes of this definition, Lucent, its Subsidiaries, NCR and its
Subsidiaries shall be deemed not to be Related Companies of AT&T.
1.23 RELATED COMPANIES OF NCR means NCR's Subsidiaries as of the
Distribution Date, only for so long as they remain NCR's Subsidiaries, and any
other company so designated and agreed to in a writing signed by NCR and by AT&T
or Lucent, as applicable.
1.24 RELATED COMPANIES OF LUCENT means Subsidiaries of Lucent,
only for so long as they remain Subsidiaries, and any other company so
designated and agreed to in a writing signed by Lucent and by NCR or AT&T, as
applicable.
1.25 TECHNOLOGY means any and all technical information, computer
or other apparatus programs, specifications, drawings, records, documentation,
works of authorship or other creative works, ideas, knowledge or data. The term
Technology includes Copyrights, Mask Works and any other intellectual property
right, but does not include any trademark, trade name, trade dress or service
mark, or any patent applications on inventions, discoveries or improvements, or
any patents that may be granted or have been granted thereon.
-4-
<PAGE> 8
ARTICLE II
ACCESS AND USE OF ENTERPRISE TECHNOLOGY
2.1 ACCESS TO ENTERPRISE TECHNOLOGY. During a period beginning on
the effective date hereof and ending on the Distribution Date, each Party shall
have the right to access and to copy any and all portions of the Enterprise
Technology in possession of any of the other two Parties. Such access and
copying shall be in accordance with a reasonable request and schedule to be
mutually agreed upon between the Party in possession of the Technology which is
requested and the requesting Party. All costs associated with the assembling,
copying and delivering of such Technology shall be borne by the requesting
Party. No later than March 1, 1996 AT&T and Lucent shall jointly establish a
mutually acceptable process for providing copies of AT&T's Network Technology in
Lucent's possession.
2.2 EXPORT CONTROL. Each Party agrees fully to comply with all
applicable Export Control laws, rules and regulations with respect to any and
all portions of Enterprise Technology owned by the other Party or Parties.
2.3 AT&T'S RIGHTS TO USE ENTERPRISE TECHNOLOGY. (a) Subject to the
restrictions specified in this Section 2.3, AT&T and its Related Companies shall
each have a personal, worldwide, nonexclusive, royalty-free, and
non-transferable right to use the Enterprise Technology for the businesses in
which AT&T or any of its Related Companies are now or hereafter engaged.
(b) Until January 1, 2002, neither AT&T nor any of its Related
Companies shall use without NCR's prior written consent any of NCR's Restricted
Technology for making or having others make for it any product of the kind made,
sold or developed by NCR or any of its Related Companies as of the Closing Date.
(c) Until January 1, 2002, neither AT&T nor any of its Related
Companies shall use without Lucent's written consent any of Lucent's Restricted
Technology for making or having others make for it any telecommunications
equipment of the kind made, sold or developed by Lucent or any of its Related
Companies as of the Closing Date.
(d) AT&T's right to use includes the right of AT&T and its Related
Companies to copy, modify and improve any portion of Enterprise Technology. No
right is granted hereunder to AT&T or its Related Companies to sublicense any of
NCR's Technology or Lucent's Technology to any third party.
(e) Notwithstanding any other provision, neither AT&T nor any of
its Related Companies shall have the right to access, copy or use, in whole or
in part, for any
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<PAGE> 9
purpose, any of NCR's Product Realization Technology or Lucent's Product
Realization Technology without the prior written consent of NCR or Lucent,
respectively.
2.4 NCR'S RIGHTS TO USE ENTERPRISE TECHNOLOGY. (a) Subject to the
restrictions specified in this Section 2.4 and in Section 2.7, NCR and its
Related Companies shall each have a personal, worldwide, nonexclusive,
royalty-free and non-transferable right to use the Enterprise Technology for the
businesses in which NCR or any of its Related Companies are now or hereafter
engaged.
(b) Until January 1, 2002, neither NCR nor any of its Related
Companies shall use without AT&T's prior written consent any of AT&T's
Restricted Technology to provide or to enable the provision by anyone of
services of the kind sold, offered or developed by AT&T or any of its Related
Companies as of the Closing Date.
(c) Until January 1, 2002, neither NCR nor any of its Related
Companies shall use without Lucent's written consent any of Lucent's Restricted
Technology for making or having others make for it any telecommunications
equipment of the kind made, sold or developed by Lucent or any of its Related
Companies as of the Closing Date.
(d) NCR's right to use includes the right of NCR and its Related
Companies to copy, modify and improve any portion of Enterprise Technology. No
right is granted hereunder to NCR or its Related Companies to sublicense any of
AT&T's Technology or Lucent's Technology or Common Support Function Software or
Corporate Technology to any third party.
(e) Until January 1, 2002, neither NCR nor any of its Related
Companies (i) shall use, in whole or in part, any NCR's Specified Technology in
connection with the development of substantially the same feature as any AT&T's
Proprietary Feature for customers other than AT&T, or (ii) shall provide copies
of or disclose any portion of NCR's Specified Technology to any such other
customers. Notwithstanding the above, the use prohibition associated with NCR's
Specified Technology will extend for a period of nine (9) years from first
deployment for that NCR's Specified Technology associated with any AT&T's
Proprietary Features which is committed but not yet deployed on the effective
date hereof.
(f) Notwithstanding any other provision, neither NCR nor any of
its Related Companies shall have the right to access, copy or use, in whole or
in part, for any purpose, any of AT&T's Network Technology or AT&T's Wireless
Services Technology, or any of Lucent's Product Realization Technology or
Lucent's Specified Technology, without the prior written consent of AT&T or
Lucent, respectively, and only to support work for or on behalf of AT&T or
Lucent, respectively.
2.5 LUCENT'S RIGHTS TO USE ENTERPRISE TECHNOLOGY. (a) Subject to
the restrictions specified in this Section 2.5 and in Section 2.7, Lucent and
its Related
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<PAGE> 10
Companies shall each have a personal, worldwide, nonexclusive, royalty-free and
non-transferable right to use the Enterprise Technology for the businesses in
which Lucent or any of its Related Companies are now or hereafter engaged.
(b) Until January 1, 2002, neither Lucent nor any of its Related
Companies shall use without AT&T's prior written consent any of AT&T's
Restricted Technology to provide or to enable the provision by anyone of
services of the kind sold, offered or developed by AT&T or any of its Related
Companies as of the Closing Date.
(c) Until January 1, 2002, neither Lucent nor any of its Related
Companies shall use without NCR's prior written consent any of NCR's Restricted
Technology for making or having others make for it products of the kind made,
sold or developed by NCR or any of its Related Companies as of the Closing Date.
(d) Lucent's right to use includes the right of Lucent and its
Related Companies to copy, modify and improve any portion of Enterprise
Technology. No right is granted hereunder to Lucent or its Related Companies to
sublicense any of AT&T's Technology or NCR's Technology to any third party.
(e) Notwithstanding any other provision, neither Lucent nor any of
its Related Companies shall have the right to access, copy or use, in whole or
in part, for any purpose, any of AT&T's Network Technology or AT&T's Wireless
Services Technology or NCR's Product Realization Technology, without the prior
written consent of AT&T or NCR, respectively, and only to support work for or on
behalf of AT&T or NCR, respectively.
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<PAGE> 11
2.6 PROCUREMENT. (a) As an attribute to each Party's rights to use
Enterprise Technology and subject to the restrictions specified in Sections 2.3,
2.4 and 2.5, each Party may disclose to any of its suppliers or prospective
suppliers only those portions of Enterprise Technology that are necessary for
the procurement by such Party of components, subsystems, subassemblies, products
and/or services of the businesses of such Party.
(b) Each Party agrees that it will not make any portion of
Enterprise Technology available to any such supplier or prospective supplier
except under procurement terms and conditions (including confidentiality, use
and disclosure restrictions) normally used by such Party to protect its own
proprietary information of a similar nature.
(c) The procurement rights granted hereunder to each one of the
Parties under this Section 2.6 shall not be exercised by one Party in a manner
such that the exercise of such one Party's procurement rights is a sham to
effect the licensing of another Party's Technology or any portion thereof, or of
the Enterprise Technology or any thereof, to a third party and not for bona fide
business purposes of such one Party.
(d) Each Party agrees that prior to the disclosure of any portion
of Enterprise Technology under this Section 2.6, all proprietary information of
the other two Parties shall be expunged. No later than March 1, 1996, the
Parties will agree on acceptable procedures to achieve such expungement.
2.7 EXCLUSION OF AT&T'S WIRELESS SERVICES TECHNOLOGY. The licenses
and rights to use Enterprise Technology granted hereunder to NCR or Lucent do
not include any license or right under any AT&T's Wireless Services Technology
existing as of the Closing Date. With respect to any such AT&T's Wireless
Services Technology in commercial use as of the Closing Date by AT&T Wireless
Services, Inc., the foregoing exclusion shall not limit NCR's or Lucent's
ability to continue providing products and services of the kind they each
provide as of the date of this Agreement.
ARTICLE III
TERMINATION
3.1 VOLUNTARY TERMINATION. By written notice to another Party,
each Party may voluntarily terminate all or a specified portion of the rights
granted to it hereunder. Such notice shall specify the effective date of such
termination and shall clearly specify the portion of the other Party's
Technology for which rights to use are being terminated.
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<PAGE> 12
3.2 SURVIVAL. Any voluntary termination of rights of a Party under
Section 3.1 shall not affect such Party's rights with respect to any use prior
to such termination, and shall not affect the rights of the other two Parties
hereunder.
3.3 CHANGE OF CONTROL OF OR CERTAIN ACQUISITIONS BY NCR. In the
event of a Change of Control of NCR or in the event that NCR acquires any Person
that (i) competes with AT&T in the provision of telecommunications services, or
(ii) competes with Lucent in the provision of telecommunications systems and
equipment, or (iii) has a market value greater than fifty percent (50%) of NCR's
market value at the time of such acquisition, then all rights granted to NCR
hereunder shall extend only to a specific annual volume of products which are of
a kind comparable to those offered by NCR prior to such Change of Control or
acquisition. Such specific volume of products shall not exceed the volume of
corresponding products of NCR prior to such Change of Control or acquisition.
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.1 AGREEMENT PREVAILS. This Agreement shall prevail in the event
of any conflicting terms or legends which may appear on any portion of the
Enterprise Technology.
4.2 NOTHING CONSTRUED. Neither the execution of this Agreement nor
anything in it or in the Enterprise Technology shall be construed as an
obligation upon any Party or its Related Companies to furnish to any other Party
or its Related Companies, any assistance of any kind whatsoever, or any
information other than the portion of Enterprise Technology requested pursuant
to Section 2.1, or to revise, supplement or elaborate upon the Enterprise
Technology.
4.3 DISCLAIMER. NO PARTY OR ANY OF ITS RELATED COMPANIES MAKES ANY
REPRESENTATIONS, EXTENDS ANY WARRANTIES OF ANY KIND, ASSUMES ANY RESPONSIBILITY
OR OBLIGATIONS WHATEVER, OR CONFERS ANY RIGHT BY IMPLICATION, ESTOPPEL OR
OTHERWISE, OTHER THAN THE RIGHTS AND WARRANTIES HEREIN EXPRESSLY GRANTED.
4.4 NO PATENT LICENSES. Nothing contained in this Agreement shall
be construed as conferring to any Party by implication, estoppel or otherwise
any license or right under any patent, whether or not the exercise of any right
herein granted necessarily employs an invention of any existing or later issued
patent.
4.5 CONFIDENTIALITY. The confidentiality obligations of each Party
under Article VIII of the Separation and Distribution Agreement shall apply to
such Party's handling and treatment of those portions of Enterprise Technology
in such Party's possession which are owned by any of the other Parties.
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<PAGE> 13
4.6 NONASSIGNABILITY. The Parties hereto have entered into this
Agreement in contemplation of personal performance, each by the other, and
intend that the rights granted hereunder to a Party not be extended to entities
other than such party's Related Companies (and only for so long as they remain
Related Companies) without the other Party's or Parties', as applicable, express
written consent. Neither this Agreement nor any rights hereunder shall be
assignable or transferable by any Party to any other Person, except as expressly
permitted hereunder, without the express written consent of the other Parties,
provided that such consent shall not be unreasonably withheld in the event of a
proposed assignment or transfer of those licenses and rights relevant to any
portion of any Party's business that is or is to be spun off or otherwise
distributed to such Party's shareholders.
4.7 ADDRESSES. The Parties agree that any notice or other
communication hereunder shall be given as set forth in Section 12.5 of the
Separation and Distribution Agreement.
4.8 CHOICE OF LAW. Except as otherwise provided in Section 9.9 of
the Separation and Distribution Agreement, this Agreement shall be governed by
and construed and interpreted in accordance with the laws of the State of New
York, irrespective of the choice of laws principles of the State of New York, as
to all matters, including matters of validity, construction, effect, performance
and remedies.
4.9 INTEGRATION. (a) Except as expressly provided hereunder, this
Agreement does not amend, cancel, terminate or replace any preexisting
agreements or arrangements between all three Parties, or any two Parties, or any
of their respective units, divisions or organizations of their respective
businesses before the AT&T's restructuring. Except as otherwise provided in the
Separation and Distribution Agreement, all terms and conditions under such
preexisting agreements or arrangements shall continue to apply as between the
Parties thereto in accordance with their respective terms and conditions.
(b) Except as otherwise provided in the Supplemental General
Purchase Agreement between AT&T and Lucent dated as of February 1, 1996 (which
supplemental agreement specifically relates to development and support for the
4ESS switch, Next Network Switch, and related products and development), this
Agreement sets forth the entire agreement and understanding between the Parties
as to the subject matter hereof and merges all prior discussions between them
other than preexisting agreements or arrangements as specified in Section
4.9(a). A Party shall not be bound by any warranties, understandings or
representations with respect to such subject matter other than as expressly
provided herein or in a writing signed with or subsequent to execution hereof by
an authorized representative of the Party to be bound thereby.
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<PAGE> 14
4.10 ARBITRATION AND DISPUTE RESOLUTION. The Parties agree that
the procedures for discussion, negotiation and arbitration set forth in Article
IX of the Separation and Distribution Agreement, which Article IX is
incorporated herein by reference, shall apply to all disputes, controversies or
claims that may arise under or in connection with this Agreement.
4.11 AMENDMENTS AND CHANGES. Subsequent to the execution of this
Agreement by all Parties, and solely to the extent that a change is desired by
and restricted to any two Parties without affecting the rights of the third
Party hereto, such two Parties may separately amend any provision of this
Agreement which governs the rights exchanged between them without notifying,
advising, consulting or requesting the concurrence of the third Party hereto.
Except as specifically provided herein, any other modification affecting all
three Parties shall require the written agreement and signature of all the
Parties.
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<PAGE> 15
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed
in triplicate originals by its duly authorized representatives on the respective
dates entered below.
AT&T CORP.
By: /s/
-------------------------------------
Title:
-------------------------------------
Date:
-------------------------------------
NCR CORPORATION
By: /s/
-------------------------------------
Title:
-------------------------------------
Date:
-------------------------------------
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<PAGE> 16
LUCENT TECHNOLOGIES INC.
By: /s/
-------------------------------------
Title:
-------------------------------------
Date:
-------------------------------------
THIS AGREEMENT DOES NOT BIND OR OBLIGATE ANY PARTY
IN ANY MANNER UNLESS DULY EXECUTED BY AUTHORIZED
REPRESENTATIVES OF ALL PARTIES.
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<PAGE> 17
Portions of the following exhibits to the Technology License Agreement marked
"XXXXXX" have been redacted.
<PAGE> 18
Exhibit A
LIST OF AT&T'S NETWORK TECHNOLOGY
Proprietary Information (whether created by AT&T, LUCENT or jointly) about the
infrastructure of AT&T's global network
- - office drawings
- - equipment assignment records
- - data and paper records
- - customer records
- - Information resident in network elements, for example, customer network
and speech data
- - AT&T generated FSD-like requirements documents
- - network/service architecture documents
- - network design documents
- - software/code listings developed by AT&T associated with infrastructure
- - network testing specifications
- - manufacturing specifications
- - service provisioning documents
- - installation and engineering handbooks other than those provided by LUCENT
with its products
- - performance analysis and engineering rules associated with the AT&T and
customer network
- - all memoranda document the planning, design and implementation of the
technology associated with AT&T services
Proprietary practices used for operating the AT&T global network
- - Maintenance practices
- - Engineering practices
- - Power/infrastructure practices
Technology developed by AT&T Services Business or by a third party for AT&T
Services Business, without any substantial involvement by LUCENT
<PAGE> 19
Exhibit B
LIST OF AT&T'S PROPRIETARY FEATURES
XXXXXX
<PAGE> 20
Exhibit C
LIST OF AT&T'S RESTRICTED TECHNOLOGY
Operation Support Systems and product realization developed by AT&T Services
Business
Technology owned by AT&T Services Business resulting from an agreement between
AT&T and XXXXXX related to feature development for XXXXXXXX
Technology owned by AT&T Services Business resulting from an agreement between
AT&T and XXXXX related to feature development for XXXXXXX
SSI-related Technology (excluding any LUCENT's Restricted Technology as set
forth in Exhibit H) retained by AT&T Services Business, including Technology
related to the following developments:
- - Undersea repeater assembly
- - Lightwave Terminating Unit for submarine applications
- - Nonrepeatered terminal equipment for submarine applications
- - Transmission terminal equipment for submarine applications
- - Submarine Lightwave Terminating Equipment
- - Lightwave Monitoring Equipment for submarine applications
- - System for Assembly, Laying and Testing submarine equipment and
subassemblies
<PAGE> 21
Exhibit D
LIST OF NCR'S PRODUCT REALIZATION TECHNOLOGY
Proprietary Information (whether created by NCR or jointly with LUCENT and/or
AT&T) relating to NCR product realization and support and that includes:
- - NCR generated functional specifications and similar requirements documents
- - product architecture docwnents
- - design documents
- - software/code listings developed by NCR associated with product
realization
- - testing specifications
- - engineering drawings
- - NCR practices
- - manufacturing specifications
- - ordering and pricing documents
- - installation and engineering handbooks
- - performance analysis and engineering rules
- - all memoranda documenting the planning, design and implementation of the
technology associated with NCR products
<PAGE> 22
Exhibit E
LIST OF NCR'S RESTRICTED TECHNOLOGY
NONE
<PAGE> 23
Exhibit F
LIST OF NCR'S SPECIFIED TECHNOLOGY
NONE
<PAGE> 24
Exhibit G
LIST OF LUCENT'S PRODUCT REALIZATION TECHNOLOGY
Proprietary Information (whether created by LUCENT or jointly with AT&T)
relating to LUCENT product realization and support and that consists of:
- - LUCENT generated FSD-like requirements documents
- - product/network element architecture documents
- - design documents
- - software/code listings developed by LUCENT associated
with product realization
- - testing specifications
- - drawings such as J, T, H, ED, NE, NJ, SD, NS, NT, ETC.
- - LUCENT practices
- - manufacturing specifications
- - ordering documents
- - installation and engineering handbooks
- - performance analysis and engineering rules
- - all memoranda documenting the planning, design and implementation of the
technology associated with LUCENT products
Product realizations developed by LUCENT for AT&T Proprietary Features
comprising but not limited to product design documents, such as circuit
diagrams, schematics, and source and object code.
Technology developed by LUCENT or by a third party for LUCENT, without any
substantial involvement by AT&T.
<PAGE> 25
EXHIBIT H
LIST OF LUCENT'S RESTRICTED TECHNOLOGY
LUCENT designates as LUCENT's Restricted Technology the unique component
adaptations and the unique component modifications (both, as opposed to the
component itself) which are used solely in the specific AT&T Submarine Systems,
Inc. ("SSI") equipment and SSI subassemblies listed below:
- - Undersea Repeater Assembly
- - Lightwave Terminating Unit for submarine applications
- - Nonrepeatered Terminal Equipment for submarine applications
- - Transmission Terminal Equipment for submarine applications
- - Submarine Licrhtwave Terminating Equipment
- - Lightwave Monitoring Equipment for submarine applications
- - System of Assembly, Laying and Testing submarine equipment and
subassemblies
<PAGE> 26
EXHIBIT I
LIST OF APPLIED CORPORATE TECHNOLOGY
- - Increment of Electronic Signage Technology jointly funded by NCR and Bell
Labs Research for Electronic Shelf Label retail applications. This
specifically excludes technology to provide broadband uplink capability,
caller ID, and tracking capability
- - Produce Identification Technology involving optical spectroscopy, gas
sampling and the associated identification algorithms
- - Increment of POS scanner technology (HW/SW) jointly funded by NCR and Bell
Labs Research to improve performance of scanners located in sunlight in
retail applications
- - Increment of movement detection technology jointly funded by NCR and Bell
Labs Research for tracking customers in retail establishments to determine
their shopping characteristics (e.g. where they lingered)
- - Increment of Management Discovery Tool (MDT) technology jointly funded by
NCR and Bell Labs Research
- - Increment of object storage technology that was jointly funded by NCR and
Bell Labs Research and resulted in becoming a part of NCR's
Moonbase/Prospector Multimedia Data Base
<PAGE> 1
Exhibit 10.13
LUCENT TECHNOLOGIES
OPERATING AGREEMENT
Dated as of __________________, 1996
Between
LUCENT TECHNOLOGIES, INC.
a Delaware corporation,
And
AT&T CAPITAL CORPORATION,
a Delaware corporation
- -1-
<PAGE> 2
LUCENT TECHNOLOGIES
OPERATING AGREEMENT
LUCENT TECHNOLOGIES OPERATING AGREEMENT dated as of ________________,
1996 (this "Agreement") between LUCENT TECHNOLOGIES INC. a Delaware corporation
(the "Company"), and AT&T CAPITAL CORPORATION, a Delaware corporation
("Capital").
W I T N E S S E T H:
WHEREAS, the Board of Directors of AT&T Corp.("AT&T") has determined
that it is in the best interest of AT&T to separate AT&T's existing businesses
into three independent businesses;
WHEREAS, as part of the foregoing, NCR Corporation ("NCR") and the
Company will enter into a Separation and Distribution Agreement with AT&T which
provides, among other things, for the separation of the Company assets and the
Company liabilities;
WHEREAS, in order to consummate a spin-off of the Company, (i) AT&T
will contribute or otherwise convey or cause to be conveyed the assets, or
certain assets, of the Divisions (as defined herein) to the Company, a recently
formed wholly-owned Subsidiary of AT&T, (ii) the Company will sell to the
public, pursuant to an initial public offering (the "IPO"), approximately 15% of
its common equity and (iii) in a separate transaction following the IPO, AT&T
will spin-off its entire interest in the Company to its shareholders (such
transactions are collectively referred to as the "Spin-Off Transactions");
WHEREAS, Capital entered into an Operating Agreement dated as of June
25, 1993 (as amended from time to time, the "AT&T Operating Agreement") with
AT&T;
WHEREAS, pursuant to Section 8.3 of the AT&T Operating Agreement,
Capital has requested AT&T to cause the Company to enter into a Comparable
Operating Agreement (as defined in Section 8.3 of the AT&T Operating Agreement)
relating to the businesses of the Divisions that is substantially similar in
scope and terms to the AT&T Operating Agreement;
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<PAGE> 3
WHEREAS, AT&T and Capital have entered into an Agreement dated as of
January 5, 1996 pursuant to which AT&T has agreed to use its best efforts to
cause the Company to enter into this Agreement by January 31, 1996 (but in any
event no later than the date required pursuant to Section 8.3 of the AT&T
Operating Agreement);
WHEREAS, it is the intention of the parties hereto that (i) this
Agreement constitute a Comparable Operating Agreement relating to the businesses
of the Divisions and (ii) this Agreement shall govern the relationship between
the Company and its Subsidiaries, on the one hand, and Capital and after the
consummation of the Spin-Off Transactions as to the matters set forth in this
Agreement;
NOW, THEREFORE, in consideration of the mutual promises herein set
forth and for other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, and subject to the conditions and upon the
terms hereof, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms will have the following
meanings, applicable both to the singular and the plural forms of the terms
defined:
"AAA" has the meaning ascribed thereto in Section 10.3(g).
"Acquired Entity" has the meaning ascribed thereto in Section 4.3.
"Acquired Entity Financing Source" has the meaning ascribed thereto in
Section 4.3.
"Active Service Area" has the meaning ascribed thereto in Section 8.5.
"Adjusted Financeable Product Sales" means, with respect to any
calendar year, the aggregate purchase price (net of any discounts) paid by
Customers, Authorized Dealers or the Capital Entities (or, with respect to
periods prior to March 31,
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<PAGE> 4
1993, Capital Holdings and its Subsidiaries) to the Company Entities, together
with any related sales taxes and installation and similar costs, for Financeable
Products sold by the Company Entities during such calendar year and each of the
two preceding calendar years. In the event that during any three-year period for
which Adjusted Financeable Product Sales is calculated, there has occurred a
disposition, termination or phase-out by any Company Entity of any significant
Financeable Product line, the Adjusted Financeable Product Sales amount with
respect to such three-year period shall be reduced by the amounts attributable
to sales of such Financeable Products during such three-year period and any
related sales taxes and installation and similar costs. In the event that during
any three-year period for which Adjusted Financeable Products Sales is
calculated, there has been introduced or has occurred a phase-in or an
acquisition by any Company Entity of any significant Financeable Product line,
the Adjusted Financeable Product Sales amount with respect to such three-year
period shall be adjusted such that the aggregate purchase price (net of
discounts) of and any related sales taxes and installation and similar costs for
such significant Financeable Product line shall be (x) with respect to each full
calendar year within such three-year period during which such Financeable
Product line has been sold by the Company Entities (each such year, a "Full
Sales Year"), the actual aggregate purchase price (net of discounts) of and any
related sales taxes and installation and similar costs for Financeable Products
constituting part of such Financeable Products line that are sold within such
Full Sales Year and (y) with respect to each calendar year within such
three-year period during or prior to which such Financeable Product line was
introduced, phased-in or acquired (each such year, a "Partial Sales Year"), an
assumed amount equal to the amount calculated pursuant to clause (x) above for
the first Full Sales Year following such Partial Sales Year. Notwithstanding the
foregoing, there shall be excluded from the foregoing calculations (i)
Financeable Product lines sold by AT&T Paradyne or Network Systems for which
AT&T Paradyne or Network Systems, as the case may be, provide financing pursuant
to Section 4.1(b) and (ii) Financeable Product lines the introduction, phase-in
or acquisition of which was effected in the calendar year with respect to which
Adjusted Financeable Products Sales is being calculated together with, in each
case, any related sales taxes and installation and similar costs. The foregoing
adjustments to Adjusted Financeable Product Sales for any period shall be
calculated on a basis that is consistent with
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<PAGE> 5
the basis on which adjustments to Adjusted Financing Amount for such period are
calculated.
"Adjusted Financing Amount" means, with respect to any calendar year,
the aggregate amount of Financings provided by the Capital Entities (or, with
respect to periods prior to March 31, 1993, Capital Holdings and its
Subsidiaries) for Financeable Products sold by the Company Entities during such
calendar year and each of the two preceding calendar years, together with the
aggregate amount of Financings of any related sales taxes and installation and
similar costs. In the event that during any three-year period for which Adjusted
Financing Amount is calculated, there has occurred a disposition, termination or
phase-out by any Company Entity of any significant Financeable Product line, the
Adjusted Financing Amount with respect to such three-year period shall be
reduced by the amount attributable to Financings of Financeable Products
constituting part of such Financeable Product line during such three-year period
or to Financings of any related sales taxes and installation and similar costs.
In the event that during any three-year period for which Adjusted Financing
Amount is calculated, there has been introduced or has occurred a phase-in or an
acquisition by any Company Entity of any significant Financeable Product line,
the Adjusted Financing Amount with respect to such three year period shall be
adjusted such that the amount of Financings for such significant Financeable
Product line shall be (x) with respect to each Full Sales Year (as defined in
the definition of "Adjusted Financeable Product Sales"), the aggregate amount of
such Financings (together with the aggregate amount of Financings of any related
sales tax and installation and similar costs) for Financeable Products
constituting part of such Financeable Product line that are sold within such
Full Sales Year and (y) with respect to any Partial Sales Year (as defined in
the definition of "Adjusted Financeable Product Sales"), an assumed amount equal
to the amount calculated pursuant to clause (x) above for the first Full Sales
Year following such Partial Sales Year. Notwithstanding the foregoing, there
shall be excluded from the foregoing calculations (i) Financings provided by the
Capital Entities for Financeable Product lines sold by AT&T Paradyne or Network
Systems for which AT&T Paradyne or Network Systems, as the case may be, provide
financing pursuant to Section 4.1(b) and (ii) Financings provided by the Capital
Entities for Financeable Products lines the introduction, phase-in or
acquisition of which was effected in the calendar year with respect to which
Adjusted Financing Amount is being calculated
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<PAGE> 6
together with, in each case, Financings of any related sales taxes and
installation and similar costs.
"Advisory Services" has the meaning ascribed thereto in Section 2.5.
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as applied to any Person, means the possession, directly or indirectly,
of the power to vote a majority of the securities having voting power for the
election of directors (or other Persons acting in similar capacities) of such
Person or otherwise to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities or
by contract or otherwise.
"After-Tax Basis" means, with respect to any payment to be received or
accrued by any Person, the amount of such payment supplemented by a further
payment or payments (which shall be payable either simultaneously with the
initial payment or, in the event that taxes resulting from the receipt or
accrual of such initial payment are not payable in the year of receipt or
accrual, at the time or times such taxes become payable) so that the sum of all
such initial and supplemental payments, after deduction of all taxes imposed by
any taxing authority (after taking into account any credits or deductions or
other tax benefits arising therefrom to the extent such are currently utilized)
resulting from the receipt or accrual of such payments (whether or not such
taxes are payable in the year of receipt or accrual) will be equal to the
initial payment to be so received or accrued.
"Agreement" has the meaning ascribed thereto in the preamble hereto, as
such agreement is amended and supplemented from time to time in accordance with
its terms.
"Alternative Ancillary Services" means Ancillary Services offered or
provided to the Company Entities, Customers or Authorized Dealers by an
Alternative Provider.
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"Alternative Financing Program" means a Financing program offered or
provided to the Company Entities, Customers or Authorized Dealers by an
Alternative Provider.
"Alternative Provider" means a Person (other than an Affiliate of the
Company or Capital) that offers financings or other services competitive with
Financings or Ancillary Services offered by the Capital Entities hereunder.
"Ancillary Services" means (i) the provision of property, casualty or
similar types of insurance with respect to Products, (ii) asset monitoring,
recovery and remarketing services of a type provided by the Capital Entities to
the Company Entities or their Customers or Authorized Dealers on or prior to the
date hereof and (iii) any other value-added services relating to Products or
Financings offered by the Capital Entities from time to time and agreed to by
the parties to be treated as Ancillary Services for purposes of this Agreement.
"AT&T" has the meaning ascribed thereto in the preamble.
"AT&T Entities" means AT&T and all Persons that constitute Subsidiaries
of AT&T (other than Subsidiaries that constitute Capital Entities) from time to
time.
"AT&T Microelectronics" means the SBU of AT&T commonly referred to as
"AT&T Microelectronics", a general description of the business of which
(including a description of its Products, customers and markets) is set forth on
Schedule A attached hereto and made a part hereof.
"AT&T Operating Agreement" has the meaning ascribed thereto in the
preamble.
"AT&T Paradyne" means AT&T Paradyne Corporation, a wholly-owned
Subsidiary of AT&T, a general description of the business of which (including a
description of its Products, customers and markets) is set forth on Schedule A
attached hereto and made a part hereof.
"Authorized Dealer" means any Person that is authorized or permitted by
any Company Entity to acquire Products directly from such Company Entity for
resale on a wholesale or retail basis.
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<PAGE> 8
"Business Day" means any day other than a Saturday, Sunday or other day
on which banking institutions in New Jersey are authorized or required by law to
be closed.
"Capital" means AT&T Capital Corporation, a Delaware corporation, and
its successors and permitted assigns.
"Capital Entities" means Capital and all Persons that constitute
Subsidiaries of Capital from time to time.
"Capital Entities' Financing Penetration Rate" means, as of the end of
any calendar year, the Adjusted Financing Amount for such year and the two
preceding calendar years expressed as a percentage of the Adjusted Financeable
Product Sales for such year and the two preceding calendar years.
"Capital Holdings" means AT&T Capital Holdings, Inc., a Delaware
corporation.
"Captive Financing Trigger Event" has the meaning ascribed thereto in
Section 4.2.
"Company" has the meaning ascribed thereto in the preamble.
"Company Entities" means the Company and all Persons that constitute
Subsidiaries of the Company from time to time; provided, however, in respect of
the business activities and performance of the Company Entities at any time
prior to the Spin-Off Date, "Company Entities" shall refer to the businesses and
assets of the Divisions.
"Company Responsibility" has the meaning ascribed thereto in Section
7.2(b).
"Comparable Operating Agreement" has the meaning ascribed thereto in
Section 8.3.
"Consumer Products" means the SBU of AT&T commonly referred to as
"Consumer Products", a general description of the business of which (including a
description of its Products, customers and markets) is set forth on Schedule A
attached hereto and made a part hereof.
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"Credit" means AT&T Credit Corporation, a Delaware corporation that is
a wholly-owned Subsidiary of Capital and was previously named "AT&T Captive
Finance, Inc.".
"Credit Holdings" means AT&T Credit Holdings, Inc., a Delaware
corporation that is a wholly-owned Subsidiary of Capital Holdings and was
previously named "AT&T Credit Corporation".
"Credit Receivables Agreement" means the Operating Agreement dated as
of January 1, 1985, among AT&T and Credit Holdings and certain of their
Affiliates, as such agreement is amended and supplemented from time to time in
accordance with its terms.
"Customer" means any Person that is an actual (or, if the context so
indicates, potential) acquirer or user of Products, other than an Authorized
Dealer.
"Customer Financing" means any direct or indirect financing of the
sale, lease or other furnishing of Products by any Company Entity (or Authorized
Dealer) to Customers, and will include, without limitation, (i) entering into
leases, secured loans, installment sales contracts or conditional sales
contracts directly with such Customers, (ii) the purchase or financing of
receivables arising from such sales, leases or other furnishings of Products by
any Company Entity (or Authorized Dealer), and (iii) the issuance of charge or
credit cards (such as Capital's Products Plus Card) primarily intended for the
financing of purchases of Products.
"Customer Outsourcing Program" means any program of the Company
Entities for the acquisition, maintenance and/or operation by the Company
Entities of telecommunications, computer, data and/or information networks or
operations for Customers under what is generally referred to in the industry as
an outsourcing or network management contract ("Outsourcing Contract") between
the applicable Customer and the applicable Company Entities, under which program
financing of the products and other equipment and software (which may include,
but are not necessarily limited to, Products) used in connection with the
Outsourcing Contract is provided by a financing source other than the internal
or budgeted funds of the Company Entities offering such program.
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"Dealer Financing" means any direct or indirect (i) financing of the
purchase or lease by Authorized Dealers of Products from the Company Entities
for resale or re-lease to Customers, including, without limitation, floor
planning loans and other forms of inventory financing and (ii) provision of
other types of secured loans to such Authorized Dealers.
"Divisions" means, collectively, AT&T Microelectronics, Network
Systems, AT&T Paradyne, Consumer Products, Global Business Communications
Systems and any other SBU of AT&T that becomes an SBU or a part of an SBU of the
Company or any of the Company's Subsidiaries in connection with the Spin-Off
Transactions. Any reference to a Division relating to a period after the
Spin-Off Date shall refer to the relevant SBU (or part of such SBU) of the
Company or the Company's Subsidiaries conducting the business of such Division
after the Spin-Off Date.
"Dollars" and "$" mean the lawful money of the United States.
"Financeable Products" means all Products (other than Products
constituting consumables or maintenance, service or similar contracts) sold by
the Company Entities to Customers or Authorized Dealers within the Active
Service Areas that (i) have been Financed by the Capital Entities or (ii) are
types of Products for which it is customary in the equipment finance industry
within the Active Service Areas for third-party, "non-captive" equipment
financing companies to provide Financing.
"Financed Products" means Products with respect to which Financing has
been provided.
"Finance Marketing Support" has the meaning ascribed thereto in Section
3.1(i).
"Financing" means Customer Financing, Dealer Financing or Outsource
Financing.
"First Tier Transfer of Control" means a transaction or series of
transactions that has the effect of reducing AT&T's direct or indirect ownership
interest of Capital's voting securities, such that Capital is no longer a
Subsidiary of AT&T.
"Global Business Communications Systems" means the SBU of AT&T commonly
referred to as "Global Business Communications Systems", a general description
of the business of which
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<PAGE> 11
(including a description of its Products, customers and markets) is set forth on
Schedule A attached hereto and made a part hereof.
"Information Support" has the meaning ascribed thereto in Section
3.1(v).
"Initial Term" has the meaning ascribed thereto in Section 11.1.
"IPO" has the meaning ascribed thereto in the preamble.
"Location Support" has the meaning ascribed thereto in Section
3.1(iii).
"Location Support Agreement" has the meaning ascribed thereto in
Section 3.1(iii).
"Network Systems" means the SBU of AT&T commonly referred to as
"Network Systems", a general description of the business of which (including a
description of its Products, customers and markets) is set forth on Schedule A
attached hereto and made a part hereof.
"Outsource Financing" means any direct or indirect financing
(including, without limitation, through secured loans and leases) of or with
respect to any Customer Outsourcing Program.
"Person" means any individual, partnership, joint venture, corporation,
trust, unincorporated organization, government (and any department or agency
thereof) or other entity.
"Personnel Support" has the meaning ascribed thereto in Section
3.1(ii).
"Products" means any products (including, without limitation, Software,
but not including any real estate) and related installation and maintenance
services provided, furnished, manufactured, sold or marketed, as the case may
be, by the Company Entities from time to time.
"Products Capacity" means the capacity of a Significant Products Entity
to manufacture, market or provide Products
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<PAGE> 12
(including, to the extent appropriate, the related manufacturing capacity,
distribution and marketing capacity and Product development and support
systems).
"Protocols and Procedures" has the meaning ascribed thereto in Section
5.1(a).
"Protocol Standards" has the meaning ascribed thereto in Section
5.1(a).
"Renewal Period" has the meaning ascribed thereto in Section 11.1.
"Sales Site" means any site, office or location from which any Company
Entity or SBU conducts the sale or marketing of Products.
"SBU" means a division of AT&T, prior to the Spin-Off Date, or of a
Company Entity, from and after the Spin-Off Date, involved in the manufacture,
sale, provision or marketing of Products, including, without limitation, each of
the Divisions.
"Significant Account" means a customer (which may be an Authorized
Dealer or a Customer) of a Company Entity (i) which has acquired Products with
an aggregate purchase price exceeding $10,000,000 in the most recent calendar
year or which can reasonably be expected to acquire Products with an aggregate
purchase price exceeding such amount in the current calendar year and (ii) has
been designated by such Company Entity as a "Significant Account" by written
notice to Capital.
"Significant Products Entity" means a Company Entity or SBU (x) which
is in the business of manufacturing, marketing or providing Products and (y)
which has annual sales revenues in excess of $200,000,000 for the calendar year
immediately preceding the calendar year during which the applicable transaction
referred to in Section 8.3 is proposed or effected.
"Software" means any intellectual property commonly or generically
known as software, together with related storage disks and instructional and
other documents, the acquisition or use of which by any Person is customarily
financed by the Capital Entities or relates to or is used in connection with
equipment financed by the Capital Entities.
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"Spin-Off Date" means the date of the consummation of the Spin-Off
Transactions.
"Spin-Off Transactions" has the meaning ascribed thereto in the
preamble.
"Standard Documents" means standardized forms of documents prepared
(and from time to time revised) by the Capital Entities in connection with the
offering of various types of Financings and Ancillary Services, including forms
of leases, loan agreements, security agreements, guarantees, financing
statements and other documents necessary or appropriate for the conducting of
the Capital Entities' business of providing Financing and Ancillary Services.
"Subsequent Transfers of Control" means any transaction or series of
events or transactions, in which Capital becomes a Subsidiary of any Person
other than the Person (or an Affiliate of the Person) which acquired Capital in
the First Tier Transfer of Control.
"Subsidiary" means, with respect to any Person, any other Person which
is directly or indirectly controlled by such Person. For purposes of this
definition, "control", as applied to any Person, means the possession, directly
or indirectly, of the power to vote a majority of the securities having voting
power for the election of directors (or other Persons acting in similar
capacities) of such Person or otherwise to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
"Systems Support" has the meaning ascribed thereto in Section 3.1(iv).
Unless the context indicates otherwise, references to Articles,
Sections and Schedule will refer to the corresponding articles and sections in
and schedule to this Agreement and references to the parties shall mean the
parties to this Agreement. Capitalized terms used herein without definition
(such as "Financed") that have correlative defined terms (such as "Financing")
will have a meaning correlative to the defined term. References to "consistent
with past practice" shall refer to the past practices of the Capital Entities
and the businesses of the Divisions prior to June 25, 1993.
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ARTICLE II
FINANCING RELATED SERVICES TO BE PROVIDED BY CAPITAL
Section 2.1. Financing Related Services - Objectives and Commitments.
(a) It is the mutual objective of the parties to this Agreement that Capital
will, during the term of this Agreement and within the Active Service Areas,
either directly or through its Subsidiaries:
(i) make available to Customers of the Company Entities and
Authorized Dealers appropriate forms of Customer Financings for the
purchase, lease or other acquisition of Products (such as, but not
necessarily including with respect to each type of Product, leases, secured
loans, installment sales contracts and conditional sales contracts), and
otherwise provide the Company Entities and Authorized Dealers with Customer
Financing in the form of purchases or financings of receivables arising
from the sale, lease or other furnishing by the Company Entities or
Authorized Dealers of Products to Customers; "(i) make available to
Customers of the Company Entities and Authorized Dealers appropriate forms
of Customer Financings for the purchase, lease or other acquisition of
Products (such as, but not necessarily including with respect to each type
of Product, leases, secured loans, installment sales contracts and
conditional sales contracts), and otherwise provide the Company Entities
and Authorized Dealers with Customer Financing in the form of purchases or
financings of receivables arising from the sale, lea" \l 2]
(ii) make available to Authorized Dealers appropriate forms of
Dealer Financing and make available to the Company Entities appropriate
forms of Outsource Financing; and
(iii) make available to the Company Entities, Customers and
Authorized Dealers, where appropriate, various types of Ancillary Services
offered from time to time by Capital and its Subsidiaries.
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In furtherance of the objectives described in paragraph (a) above,
Capital shall, during the term of this Agreement and within the Active Service
Areas, either directly or through its Subsidiaries:
(i) generally continue the Financing and Ancillary Services
programs under which Capital Holdings and its Subsidiaries (and, as
successors to the "captive" financing businesses thereof, Capital and its
Subsidiaries) have heretofore been providing Financings and Ancillary
Services to the Company Entities, Customers and Authorized Dealers (subject
to Capital's right to modify, revise or terminate particular programs as
appropriate to accommodate changes in market conditions or the marketing
requirements of the Company Entities, Customers and Authorized Dealers and
other relevant developments);
(ii) as the Company Entities introduce new Products, use its good
faith efforts, in cooperation with the Company, to modify existing or
devise new Financing and Ancillary Service programs, where appropriate, to
support the sale, lease or other furnishings of such Products;
(iii) make any new Ancillary Services offered by the Capital
Entities available to the Company Entities, Customers and Authorized
Dealers, as appropriate;
(iv) cooperate with the Company Entities and Authorized Dealers in
promoting and advertising the availability of the Financings and Ancillary
Services to Customers, including providing their sales and marketing
personnel with information with respect to such Financings and Ancillary
Services and by generally responding to inquiries made by Customers or the
employees of such Company Entities or Authorized Dealers with respect to
such Financings and Ancillary Services;
(v) jointly with the Company, establish and implement and, where
appropriate, revise from time to time Protocols and Procedures for the
furnishing of such Financings and Ancillary Services in accordance with the
provisions of Section 5.1;
prepare Standard Documents for use in connection with standardized
types of Financings and maintain the capacity
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to (A) modify such Standard Documents in order to document particular
Financings and Ancillary Services and (B) prepare appropriate documentation
for any customized Financings and Ancillary Services that Capital may offer
to particular Customers or Authorized Dealers pursuant to this Agreement;
(vii) cooperate with the Company Entities and Authorized Dealers
to facilitate Financings (including, where appropriate, extensions,
renewals or modifications of existing Financings) of replacements or
upgrades of Financed Products or additions of Products to previously
Financed Products (subject to adequate protection of the interests of the
Capital Entities in any Financings that would be affected thereby);
(viii) maintain the capacity to, and employ (or have ready access
to) personnel having the requisite financial, legal and other skills to,
respond to requests of Customers or Authorized Dealers with respect to
unusual, specialized or complex Financings and Ancillary Services;
(ix) endeavor to maintain good relations with Customers and
Authorized Dealers and, by offering courteous, efficient and informed
Financing services and Ancillary Services, promote and support the efforts
of the Company Entities and Authorized Dealers to sell, distribute and
market the Products;
(x) keep appropriate employees of the Capital Entities informed of
business developments at the Company Entities, the characteristics of
Products and their usages, developments of new Products, Product migration
and marketing strategies and the Product-related business plans of the
Company Entities by disseminating the information provided to the Capital
Entities by the Company Entities pursuant to Section 3.6;
(xi) generally keep informed of developments in the equipment
financing industry and of the development of new types of financings; and
at appropriate intervals, review the types of Financings and Ancillary
Services offered and provided for the Products, the types of Financings and
Ancillary Services requested by the Company Entities, Customers and
Authorized
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<PAGE> 17
Dealers and other available information so as to assess the responsiveness
of the Financings and Ancillary Services offered by the Capital Entities to
the financing and related needs of such Company Entities, Customers and
Authorized Dealers, and use its good faith efforts to develop new Financing
techniques or products and new types of Ancillary Services that would
enhance or facilitate the sale, lease or other furnishings of Products to
Customers and Authorized Dealers.
(c) In connection with the activities described in paragraph (b) above,
Capital shall, during the term of this Agreement and within the Active Service
Areas, either directly or through its Subsidiaries:
(i) employ and train appropriate personnel and maintain, adapt and
upgrade its telecommunications, information-processing and record-keeping
systems as it deems necessary or appropriate for the purpose of carrying
out such activities; and
(ii) obtain and maintain such franchises, licenses and permits as
it deems necessary or appropriate for the purpose of carrying out such
activities.
Section 2.2. Training of Company Personnel. The Capital Entities
shall, consistent with past practice, conduct training programs for attendance
by appropriate sales personnel employed by the Company Entities and Authorized
Dealers at which such individuals shall be trained in the proper documentation
of Financings, the techniques of using Financings and Ancillary Services offered
by the Capital Entities as sales tools and the particulars of such Financings
and Ancillary Services. The Capital Entities shall also provide appropriate
training and assistance, consistent with past practice, to the Company Entities'
operational and office support personnel with respect to the implementation of
the Protocols and Procedures (including, without limitation, processing of
applications for and documentation of Financings and Ancillary Services), the
electronic systems interfaces between the Company Entities' and Capital
Entities' computer systems and related matters.
Section 2.3. Providing the Company with Information as to Financings
and Finance Markets. The Capital Entities shall, consistent with past practice,
provide to the appropriate Company
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Entities on a periodic basis information concerning levels of applications for
and approvals of Financings and Ancillary Services, turn-around times for
processing applications for Financings and Ancillary Services, levels of
completed and outstanding Financings and, where requested, payment and
delinquency histories with respect to Financings and Ancillary Services, and
other appropriate information with respect to Financings and Ancillary Services
provided under this Agreement. Upon request and to the extent permitted by
applicable law, the Capital Entities shall also provide to the Company Entities
appropriate information within the possession or control of such Capital
Entities that is relevant to an analysis of the credit standing of any Customer
or Authorized Dealer that has directly or indirectly received or applied for
Financing or Ancillary Services from the Capital Entities. The Capital Entities
shall also provide to the Company Entities, (i) on a periodic basis, appropriate
information concerning competitive lease and other financing products and market
conditions for financing products, and (ii) on a regular and timely basis, the
development and marketing plans and strategies of the Capital Entities with
regard to Financings and Ancillary Services. The Capital Entities shall, in a
manner consistent with past practice, comply with all reasonable requests of the
Company Entities for information with respect to the Capital Entities' business
plans and results and programs for financings and ancillary services that are
relevant to the activities contemplated under this Agreement (whether or not
relating to the Active Service Areas).
Section 2.4. Subsidized and Guaranteed Financings and Ancillary
Services. In the event that any Company Entity at any time desires that a
Capital Entity provide a proposed Financing or Ancillary Service that has
previously been rejected by or is otherwise unacceptable to such Capital Entity
because of the level of credit, residual or other risk proposed to be borne by
such Capital Entity in the provision of such Financing or Ancillary Service, or
if any Company Entity at any time desires that a Capital Entity provide
Financing or an Ancillary Service to a Customer or Authorized Dealer at a yield
rate or price that is more favorable to such Customer or Authorized Dealer than
the rate or price such Capital Entity is otherwise willing to offer, Capital
shall use its best efforts to work out arrangements with such Company Entity
such that the Company might, directly or indirectly, (x) subsidize such
Financing or Ancillary Service (for instance, by agreeing to pay supplemental
rent, premiums or interest or accepting a greater than usual discount) and/or
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(y) provide credit support with respect to such Financing or Ancillary Service
(for instance, by guaranteeing payments due and/or the residual under a lease)
so as to permit such Capital Entity to offer such Financing or Ancillary Service
to the Customer or Authorized Dealer on the terms contemplated by such Company
Entity. Capital shall use its best efforts to (x) respond in a timely manner to
any proposal by any Company Entity with respect to the subsidization or
guarantee of any such Financing or Ancillary Service and (y) identify to the
Company Entities in advance, where it is reasonably practicable to do so, the
types of Financings and Ancillary Services that Capital would be willing to
provide on a subsidized or guaranteed basis. It is understood by Capital that
the provision by the Company of any guarantee or subsidy with respect to any
Financing or Ancillary Service is in the sole discretion of the Company.
Section 2.5. Advisory Services. Capital shall (to the extent it is
permitted to do so under applicable laws without the requirement of obtaining
regulatory approvals or licenses in addition to those the Capital Entities may
possess at the relevant time) use its good faith best efforts to provide, either
directly or through its Subsidiaries, the Company Entities with financial
advisory and syndication services ("Advisory Services") upon request in areas in
which the Capital Entities have expertise, such as the structuring of Financings
for certain Products not covered by the Capital Entities' general Financing
programs (e.g., switching systems marketed by the Company Entities in certain
less developed countries) and the arranging of securitizations of financial
assets (other than financial assets subject to Financings by Capital). Such
Advisory Services shall be provided by Capital pursuant to commercially
reasonable arrangements to be agreed upon by the Company and Capital and will
involve the payment to the relevant Capital Entities of advisory fees in an
amount to be agreed upon. The utilization by the Company Entities of the Capital
Entities for provision of such Advisory Services shall be in the sole discretion
of the Company Entities.
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The Capital Entities shall use their good faith efforts to provide
Financings and Ancillary Services for sales, leases and other furnishings of
Products by the Company Entities within the Active Service Areas, subject to
compliance with Capital's credit and documentation standards and the
availability of funding sources. However, the provisions of this Agreement are
not intended to and will not be interpreted so as to obligate or commit the
Capital Entities to provide Financings or Ancillary Services with respect to any
particular Company Entity, Customer, Authorized Dealer or Product, and the
Capital Entities will retain full discretion with respect to the circumstances
in which it will provide, and the terms of, such Financings and Ancillary
Services.
(e) Although the Capital Entities are entitled, in their discretion, to
modify or discontinue programs for Financings and Ancillary Services, the
Capital Entities shall, consistent with past practice, prior to discontinuing or
making a significant modification of any such program, inform the SBUs that
would be affected by such discontinuance or modification and use reasonable
efforts, in consultation with such SBUs, to minimize, as far as practicably
possible, any disruptive effect of such discontinuance or modification on such
SBU's sale, lease or other furnishings of Products.
Section 2.7. Alternative Financing and Recourse Arrangements. (a) The
Company Entities and Capital Entities may, in their discretion, choose to enter
into arrangements or programs from time to time with respect to Financings and
Ancillary Services that have terms and conditions that vary from those
contemplated in this Agreement. Any such alternative arrangements and programs
will not be construed to amend this Agreement, which may be amended solely in
accordance with the terms of Section 13.1. The parties further acknowledge and
agree that, except to the extent otherwise provided herein, (i) any recourse or
other similar arrangements with respect to Financings or Ancillary Services
(whether written or oral) in effect on the date of this Agreement between any
Capital Entity (as successor to Capital Holdings or any Subsidiary thereof or
otherwise), on the one hand, and any AT&T Entity, on the other hand, will remain
in effect in accordance with their terms and (ii) on the Spin-Off Date the
Company will succeed to the right, and assume the obligations, of the AT&T
Entities, in accordance with Section 8.1(a) (it being understood that no AT&T
Entity shall be released
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from its obligations under any such recourse or similar arrangements entered
into prior to the Spin-Off Date).
(b) The Company acknowledges and agrees, on behalf of itself and the
other Company Entities that are parties to the Credit Receivables Agreement, and
Capital acknowledges and agrees, on behalf of the Capital Entities that are
parties to the Credit Receivables Agreement, that (i) Credit has succeeded to
the rights and assumed the obligations of Credit Holdings in and under the
Credit Receivables Agreement, (ii) the Credit Receivables Agreement shall
continue in full force and effect except that (A) the term "Affiliates" (as such
term is used therein), as it applies to affiliates of the Company, shall include
all the Company Entities but shall not include the Capital Entities and (B) the
rights and obligations of Credit thereunder may be exercised or performed by any
Capital Entity and (iii) the terms and conditions of this Agreement shall apply
to the transactions contemplated in or effected pursuant to the Credit
Receivables Agreement to the extent that such terms and conditions are not
inconsistent with the terms and conditions of the Credit Receivables Agreement
and, to the extent of any such inconsistency, the terms and conditions set forth
in the Credit Receivables Agreement shall apply and be controlling with respect
to the transactions contemplated in or effected pursuant to the Credit
Receivables Agreement. Any disputes arising under the Credit Receivables
Agreement shall be resolved pursuant to the provisions of Article X.
ARTICLE III
PREFERRED PROVIDER STATUS
Section 3.1. Support of the Capital Entities. The Company agrees that
during the term of this Agreement the Company Entities shall, within the Active
Service Areas, in connection with the offering or provision of Financings or
Ancillary Services by the Capital Entities:
(i) promote the utilization by Customers and Authorized Dealers of
Customer Financings and Dealer Financings, as appropriate, and Ancillary
Services made available by the Capital Entities (which type of support is
described more fully in Section 3.4 and is referred to herein as "Finance
Marketing Support");
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<PAGE> 22
(ii) (A) support the efforts of the Capital Entities to make
available Customer Financings and Dealer Financings, as appropriate, and
Ancillary Services to Customers and Authorized Dealers and (B) consistent
with past practice, provide training to appropriate personnel employed by
the Capital Entities with respect to the Products and the sales and
marketing thereof (which type of support is described more fully in Section
3.5 and is referred to herein as "Personnel Support");
(iii) provide appropriate personnel of the Capital Entities with
office space at Sales Sites and appropriate office support services on the
terms and conditions set forth in Schedule B attached hereto and made a
part hereof (the "Location Support Agreement") (which type of support is
referred to herein as "Location Support");
(iv) permit and facilitate linkages between the Capital Entities'
and the Company Entities' computer and telecommunications systems for the
purpose of retrieving and transmitting between the systems information and
documentation in connection with the offering, documentation and monitoring
of Financings and Ancillary Services and otherwise facilitating the
efficient implementation of the relationships and activities contemplated
in this Agreement (which type of support is described more fully in Section
5.2 and is referred to herein as "Systems Support"); and
(v) provide to the Capital Entities information with respect
to the Company Entities' product development and marketing plans,
consistent with past practice, for the purposes of permitting the
Capital Entities to more effectively design appropriate programs for
Financings and Ancillary Services and to determine the likely residual
values of Products (which type of support is described more fully in
Section 3.6 and is referred to herein as "Information Support").
In addition to the foregoing, the Company Entities shall provide to the
Capital Entities such assistance as the Capital Entities may reasonably request
in order to facilitate the Capital Entities' financing activities relating to
the provision of Financings and Ancillary Services. Such assistance may include
matters such as structuring and documenting
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arrangements (including purchase, payment and invoicing arrangements) between
the Company Entities and the Capital Entities or between the Company Entities
and Customers and Authorized Dealers for purposes of facilitating receivables
financings, leases and other financing transactions effected by the Capital
Entities.
The Company Entities shall provide the Capital Entities with an
opportunity to propose a Financing program or Financings and, where applicable,
Ancillary Services, with respect to all sales, leases or other furnishings of
Products directly by Company Entities to Customers and Authorized Dealers and
all Customer Outsourcing Programs within the Active Service Areas. However, the
Company Entities shall have the right to utilize or promote an Alternative
Financing Program or Alternative Ancillary Services with respect to particular
sales, leases or other furnishings of Products or Customer Outsourcing Programs
subject to the following conditions:
(i) the Company Entities shall not utilize any Alternative
Financing Program or Alternative Ancillary Services if the Capital Entities
have offered to provide Financings or Ancillary Services on the same or
better terms, conditions and standards of service overall as those offered
by the Alternative Provider (it being understood, however, that the Company
Entities will not be obligated to provide the Capital Entities with a "last
look" with respect to the terms, conditions and standards of service
offered by such Alternative Provider, provided that they do not provide any
such Alternative Provider with information concerning the terms, conditions
and standards of service offered by the Capital Entities);
(ii) the Company Entities shall not provide to any such
Alternative Provider any benefits, inducements or information in connection
with any proposed Alternative Financing Program or Alternative Ancillary
Services unless the same or comparable benefits, inducements or information
have been offered or provided to the Capital Entities, and shall not give
any Alternative Provider preferential treatment in any respect with respect
to any Alternative Financing Program or Alternative Ancillary Services; and
(iii) the Company Entities shall not provide to any such
Alternative Provider, for purposes of facilitating or
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promoting any Alternative Financing Program or Alternative Ancillary
Services: (A) any confidential information with respect to any Products
(including, without limitation, information relating to Product development
and marketing plans, but excluding any specific technical information with
respect to the Products being financed necessary for the implementation of
the Alternative Financing Program), (B) any commitments to repurchase or
remarket Products, (C) the right to directly or indirectly provide
incentive compensation to any sales or other personnel employed by the
Company Entities, (D) any computer or other technological systems
interfaces between the Company Entities (on the one hand) and such
Alternative Provider (on the other hand) or (E) the opportunity or right to
base or locate any Alternative Provider personnel at any Sales Site.
(g) Except as provided in this Section 3.2, the Company Entities shall
not provide any support similar to the Finance Marketing Support, Location
Support or Systems Support to any Alternative Provider that provides or proposes
to provide, in any Active Service Area, Alternative Financing Programs or
Alternative Ancillary Services to the Company Entities, Customers or Authorized
Dealers.
(h) In the event that (i) the Capital Entities decline (or do not bid)
to provide, in any Active Service Area, any particular type of Financings or
Ancillary Services or Financings or Ancillary Services for any particular line
of new Products or Products for which the Capital Entities do not have programs
for the provision of Financings or Ancillary Services, in each such case on such
conditions and specifications as are communicated by a Company Entity to the
Capital Entities and any Alternative Provider, and (ii) such Company Entity
makes an arrangement with any such Alternative Provider to provide an
Alternative Financing Program or Alternative Ancillary Services with respect to
such particular type of Financings or Ancillary Services or Financings or
Ancillary Services for such particular line of Products on the conditions and
specifications so communicated to the Capital Entities and such Alternative
Provider, the provisions of paragraphs (a) and (b) above shall not apply solely
with respect to such Alternative Financing Program or Alternative Ancillary
Services. It is understood by the parties that the provisions of this paragraph
(c) are intended solely to permit the Company to extend the benefits set forth
in paragraphs (a) and (b) above to Alternative Providers in
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circumstances in which the Capital Entities do not provide or offer to provide
certain Financings or Ancillary Services.
(d) Notwithstanding the other provisions of this Article III, the
Company Entities may but shall not be required to provide to the Capital
Entities any (i) Finance Marketing Support in connection with any Customer
Outsourcing Program, (ii) Location Support or Systems Support in connection with
any Customer Outsourcing Program in addition to that currently provided by the
Company Entities, and (iii) Information Support in connection with any Customer
Outsourcing Program except that the Company Entities shall provide information
to the Capital Entities relating to the specific Products being Financed by the
Capital Entities in connection with any Customer Outsourcing Program. In
addition to the foregoing, the Company Entities may, in connection with any
Customer Outsourcing Program with any Customer, without providing a right to bid
thereon to the Capital Entities, (x) guarantee or assume the payment obligations
of such Customer under financings for products provided to such Customer by any
financing source that is unaffiliated to the Company Entities or Capital
Entities to the extent that such financings are in effect at the time that the
Company Entities enter into such Customer Outsourcing Program with such Customer
and (y) finance, through the financing program or arrangement in effect with
such alternative financing source, upgrades or add-ons to the products that have
been so financed through such alternative financing program or arrangement.
(e) In the event that a Company Entity reasonably believes that any
Financings and Ancillary Services provided by the Capital Entities at any Sales
Site are not being provided substantially and generally in accordance with the
applicable Protocols and Procedures, such Company Entity shall provide notice
thereof to the appropriate Capital Entities (which notice shall set forth in
reasonable detail the basis of such belief of the Company Entity). The Capital
Entities shall have 60 days after receipt of such notice to cure such
deficiencies and provide Financing and Ancillary Services substantially and
generally in accordance with the applicable Protocols and Procedures. If the
Capital Entities fail to cure such deficiencies within such 60 day period, the
Company Entities may, notwithstanding the provisions of Section 3.1 and this
Section 3.2, make arrangements with an Alternative Provider to provide at such
Sales Site Alternative Financing Programs and/or Alternative Ancillary Programs
of the type not being provided by the Capital
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Entities at such Sales Site substantially and generally in accordance with the
applicable Protocols and Procedures.
Section 3.3. Right to Choose Alternative Providers. Capital
acknowledges that Customers and Authorized Dealers are entitled to choose not to
Finance the acquisition or use of Products or to choose to make arrangements for
obtaining Financings for the acquisition or use of Products or Ancillary
Services from Alternative Providers. Capital further acknowledges that the
provisions of this Agreement (including the Company's commitment in Section 3.2
to promote the use of Financings and Ancillary Services offered by the Capital
Entities) do not require the Company Entities to condition the sale or
furnishing of Products on the choice by Customers or Authorized Dealers of
Financings or Ancillary Services offered by the Capital Entities or otherwise
require Customers or Authorized Dealers to utilize such Financings or Ancillary
Services. Nothing set forth in this Agreement will be construed so as to
prohibit any sales representative of any Company Entity from cooperating with a
Customer or Authorized Dealer in obtaining Financing or Ancillary Services from
an Alternative Provider where the Customer or Authorized Dealer has
independently decided not to obtain such Financing or Ancillary Services from
Capital; provided, however, that the ability of such Company Entities to
cooperate with such Alternative Provider will be subject to the limitations set
forth in Section 3.2(a) and Section 3.2(b).
Section 3.4. Finance Marketing Support. The Company Entities' sales
representatives engaged in the sale or marketing of Products of a type for which
the Capital Entities offer Customer Financings or Dealer Financings or Ancillary
Services shall be provided by the Company Entities with promotional and
informational literature concerning such Financings and Ancillary Services and,
where appropriate, Standard Documents that are in each case provided by the
Capital Entities to the Company Entities. Such sales representatives shall make
the Financing options offered by the Capital Entities known to Customers and
Authorized Dealers interested in Financing the purchase, lease or other
acquisition of Products and, where appropriate, shall make the Ancillary
Services offered by the Capital Entities known to such Customers and Authorized
Dealers. In addition, such sales representatives shall generally use their good
faith best efforts to promote the use of such Financings and Ancillary Services
by such Customers and Authorized Dealers.
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Section 3.5. Personnel Support. (a) Consistent with past practice, the
Company Entities shall, in a manner deemed appropriate by the Company in its
discretion, make available employees of such Company Entities with the requisite
position, knowledge, skill and experience to coordinate the Company Entities'
marketing and sales strategies with the Capital Entities' marketing and
Financing and Ancillary Services strategies, to coordinate the actual marketing
and sale of Products by such Company Entities with the offering and
documentation of Financings and Ancillary Services by the Capital Entities, to
receive and disseminate within each SBU within each such Company Entity and
provide timely responses to communications, requests and information from the
Capital Entities to such SBU, to coordinate cash management, accounting and
systems interfaces between the Company Entities and the Capital Entities and to
otherwise comply with such Company Entities' obligations to Capital hereunder.
(b) The Company Entities shall provide training to appropriate
personnel of the Capital Entities with respect to Products and their
characteristics and usages, the interrelationships among Product lines, the
potential for Product upgrades and add-ons, the products of other manufacturers
competitive with the Products, Product marketing and sales strategies and
similar technical or marketing matters that could be of use to such personnel in
designing and pricing appropriate types of Financings and Ancillary Services,
including the determination of appropriate residual values.
Section 3.6. Information Support. The Company Entities shall, in a
manner consistent with past practice, comply with all reasonable requests of the
Capital Entities for information with respect to the Company Entities' business
plans and results and Products that are relevant to the activities contemplated
under this Agreement (whether or not relating to the Active Service Areas).
Without limiting the foregoing, the Company Entities shall keep the Capital
Entities informed on a regular and timely basis of their Product development and
marketing plans and results to the extent relevant to the activities
contemplated under this Agreement. The Company Entities shall also provide the
Capital Entities appropriate information within the possession or control of
such Company Entities that is relevant to an analysis of the credit standing of
any Customer or Authorized Dealer proposed to directly or indirectly receive
Financing or Ancillary Services from the
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Capital Entities, and shall provide the Capital Entities such Product
information as may be useful in connection with the pricing of Financings and
Ancillary Services and the determination of appropriate residual values (such as
information as to Product remarketing prices, Product pricing analyses, Product
aging and replacement reports and analyses and Product migration strategies).
Section 3.7. Activities of the Company Entities. The "preferred
provider" rights and benefits conferred on the Capital Entities and the
obligations of the Company Entities under this Article III shall not be
applicable to or restrict or limit the rights of the Company Entities to engage
in Financing and Ancillary Service activities to the extent the Company Entities
are expressly permitted to engage in such activities pursuant to Article IV;
provided, however, that the Company Entities shall not transfer or assign
(except to other Company Entities) such rights to any other Person.
ARTICLE IV
NON-COMPETITION
In furtherance of the "preferred provider" status accorded by the
Company to the Capital Entities under Section 3.2, the Company covenants and
agrees that the Company shall not, and shall not permit the other Company
Entities to, directly or indirectly, at any time during the term of this
Agreement (whether as stockholder, principal, agent, independent contractor,
partner or otherwise) maintain an ownership interest in, manage, operate,
control or participate in a business involving (i) the Financing of Products or
the offering of Ancillary Services anywhere within any Active Service Area
(which activities the parties agree shall be deemed to be in direct competition
with the Capital Entities), or (ii) the financing of products or services
manufactured, sold, furnished provided or marketed by Persons that are not
Company Entities, or the offering of ancillary services similar to the Ancillary
Services with respect to such products or services, or the providing of secured
financing to any Person (whether or not such competition relates to the services
offered by the Capital Entities under this Agreement) anywhere within any Active
Service Area (it being acknowledged that the prohibited activities are not
limited to any particular region within the Active Service Areas because the
prohibited activities may be engaged in effectively in
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competition with the Capital Entities' business from any location within the
United States or within any other Active Service Area), except as provided in
paragraph (b) below and Section 4.2.
(j) Notwithstanding the provisions of paragraph (a) above:
(i) the Company Entities may acquire and own, individually or
collectively, in the aggregate, (A) except as provided in clause (ii)
below, not in excess of 5% of any class of stock of any financial
institution if such stock is publicly traded and listed on any national or
regional stock exchange or reported on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) and (B) ownership
interests in any company that has an equipment leasing subsidiary or
division to the extent that by ownership of such equity interests or
otherwise the Company Entities do not "control" (as described in the
definition of Subsidiary) such company, provided that the Company Entities
shall not assist such equipment leasing subsidiary or division in competing
with the Capital Entities and shall not provide such subsidiary or division
with any "preferred provider" rights of the type set forth in Section 3.2;
(ii) the Company Entities may acquire or establish and own a bank,
insurance company, savings and loan association or similar financial
institution that does not (or, following such acquisition, ceases to) offer
programs for equipment leasing or other types of equipment Financing with
respect to Products, asset remarketing or Finance-related equipment
insurance in connection with Products that compete with programs for such
services offered by the Capital Entities;
the Company Entities may issue credit cards; provided that the Company
Entities shall not use such credit cards to offer programs for equipment
leasing or other types of equipment Financing with respect to Products,
asset remarketing or Finance-related equipment insurance in connection with
Products that compete with programs for such services offered by the
Capital Entities (it being understood that for purposes of this clause
(iii) "Products" shall include Products (as defined in the AT&T Operating
Agreement or any Comparable Operating Agreement entered into
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pursuant to, and as defined in, the AT&T Operating Agreement);
(iv) the Company Entities may, in a manner consistent with past
practice (such past practice being more fully described on Schedule C
attached hereto and made a part hereof) or as otherwise agreed by the
Company and Capital from time to time, provide interim Financings for
Products in the form of sales-type leases, installment sales contracts or
conditional sales contracts to Customers or Authorized Dealers to Finance
the acquisition by them of Products; provided that the Company Entities
shall offer to the Capital Entities an opportunity to purchase the
receivables resulting from such Financings on terms consistent with past
practice and, where applicable, subject to the terms of the Credit
Receivables Agreement;
AT&T Paradyne may, consistent with past practice (such past
practice being more fully described on Schedule D attached hereto and made
a part hereof) provide Financings to its Customers and Authorized Dealers
in the form of sales-type leases, installment sales contracts or
conditional sales contracts and AT&T Paradyne may retain or sell the
interests in such Financings; provided that AT&T Paradyne shall, in
connection with any sale or other disposition of any interests in such
Financings or the related receivables, generally provide to Capital a right
of first refusal to purchase or otherwise acquire such interests and to
match any bids by other Persons for the purchase or other acquisition of
such interests, and, in the event that Capital makes a bid for such
purchase or other acquisition and the terms of such bid, taken as a whole,
are at least as favorable to AT&T Paradyne as the terms of any other bid,
taken as a whole, AT&T Paradyne shall sell or otherwise dispose of such
interests to Capital;
(vi) Network Systems and any Acquired Entity Financing Source (as
defined in Section 4.3(a) hereinbelow), for so long as such Acquired Entity
Financing Source is a Subsidiary of the Company or a division of any
Company Entity, may provide Financings and financial advisory and
syndication services with respect to equipment, systems and services of the
type traditionally manufactured or marketed by Network Systems as of June
25, 1993 (such equipment, systems and services being more fully described
on Schedule
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E attached hereto and made a part hereof) (together with equipment and
systems manufactured by other Persons that are integrated with equipment
manufactured and Financed by Network Systems) to Customers such as
telephone companies and other providers of communication services; provided
that Network Systems and such Acquired Entity Financing Source shall (A)
not retain any interests in such Financings other than interests in a
limited amount of such Financings and (B) provide the Capital Entities with
the same opportunities to bid on the provision of Financings and advisory
and syndication services as are provided to any unaffiliated financing
source anywhere in the world;
(vii) the Company Entities may, consistent with past practice
(such past practice being more fully described on Schedule F attached
hereto and made a part hereof), rent Products to Customers on a daily,
weekly, monthly or other periodic basis, or otherwise, with no obligation
to advise Capital or any Capital Entity;
(viii) the Company Entities may finance the sale or other
disposition of real estate owned by the Company Entities from time to time;
(ix) Acquired Entity Financing Sources may conduct the financing
activities that such entities are permitted to conduct under Section 4.3;
(x) the Company Entities may provide short-term trade credits to
Customers and Authorized Dealers in connection with the acquisition of
Products by such Customers and Authorized Dealers; and
(xi) the Company Entities may provide services to lessees
involving (A) inspection of leased equipment and analysis of related leases
with a view towards reducing ongoing lease expenses, (B) provision of
recommendations to reduce current and future costs related to equipment and
the related leases or (C) negotiation with lessors with respect to matters
such as credits for returned equipment, purchase by lessees of equipment
and consolidation of equipment leases.
It is the intent and understanding of the parties hereto that if, in
any action before any court, agency or
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tribunal legally empowered to enforce this Section 4.1, any term, restriction,
covenant or promise in this Section 4.1 is found to be invalid, illegal or
unenforceable, then such term, restriction, covenant or promise will be deemed
modified to the extent necessary to make it valid, legal or enforceable by such
court, agency or tribunal.
Section 4.2. Use of a Permitted Captive Financing Source. If at any
time a Captive Financing Trigger Event (as defined below) occurs, the Company
may, upon at least 120 days' prior notice to Capital given not later than 30
days after the date of the determination that such Captive Financing Trigger
Event exists, elect to (i) provide, or to cause another Company Entity to
provide Financings with respect to future sales, leases or other furnishings of
Products and related Ancillary Services and (ii) terminate the "preferred
provider" rights and benefits provided to the Capital Entities pursuant to
Section 3.2.
A "Captive Financing Trigger Event" shall be deemed to have occurred
if, and only if, the Capital Entities' Financing Penetration Rate as of the end
of any calendar year declines by ten (10) percentage points or more relative to
the Capital Entities' Financing Penetration Rate as of the end of the preceding
calendar year (for instance, the requirements of this clause (ii) shall be
satisfied for calendar year 1997 in the event that the Capital Entities'
Financing Penetration Rate for calendar year 1997 were 44% and the Capital
Entities' Financing Penetration Rate for calendar year 1996 were 55% since such
1996 Financing Penetration Rate would have exceeded such 1997 Financing
Penetration Rate by 11 percentage points); provided that any decline in such
Financing Penetration Rate as of the end of any calendar year that is
attributable to a breach or violation by a Company Entity or an employee of a
Company Entity of this Agreement (whether or not such breach or violation gives
rise to a right of termination of this Agreement) shall be excluded from the
calculation of such Capital Entities' Financing Penetration Rate. In comparing
the Capital Entities' Financing Penetration Rate for any two three-year periods,
the adjustments to the Adjusted Financing Amount and Adjusted Financeable
Product Sales contemplated in the definitions thereof for calculation of such
Capital Entities' Financing Penetration Rates shall be effected on a consistent
basis (for instance, if the Adjusted Financing Amount and Adjusted Financeable
Product Sales for calendar year 1997 are adjusted downwards to reflect a
phase-out in calendar year 1997 of a significant Products line, the
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Adjusted Financing Amount and Adjusted Financeable Products Sales for calendar
year 1996 shall also be correspondingly adjusted downwards as if the phase-out
of the significant Products line occurred in calendar year 1996).
The Company and Capital shall, as part of the Protocols and Procedures,
establish procedures and parameters for determining whether or not a Captive
Financing Trigger Event has occurred as of the end of any calendar year.
(k) In the event that the Company Entities at any time acquire equity
interests in or the assets of any Person or business (such entity or the entity
holding such acquired assets being sometimes referred to herein as an "Acquired
Entity") that thereby becomes a Subsidiary of the Company or a division of any
Company Entity and which engages, directly or through an Affiliate, in the
financing of products or services manufactured, marketed or provided by such
Acquired Entity (the division or Affiliate that provides such financing being
sometimes referred to herein as an "Acquired Entity Financing Source"), except
as described in Section 4.3(c) below, the Company shall use reasonable efforts
to facilitate one or more of the following transactions by Capital, in Capital's
discretion: (i) acquisition by Capital of the capital stock or substantially all
the assets of such Acquired Entity Financing Source for an amount equal to the
fair market value thereof (not to exceed the portion of the total consideration
paid by the Company Entities for the acquired equity interests or assets that is
allocable to such assets or stock of such Acquired Entity Financing Source);
(ii) acquisition by Capital of the capital stock or substantially all of the
assets of such Acquired Entity Financing Source, other than its portfolio of
existing financings, for an amount equal to the fair market value of such
acquired assets (subject to the same limiting principle as in the preceding
clause (i)) and execution by Capital of an exclusive agreement with such
Acquired Entity Financing Source for Capital to service such existing portfolio
(including any future additions to such portfolio) for a reasonable,
market-based fee; or (iii) without the acquisition of such capital stock or
assets or portfolio, the execution by Capital of an exclusive agreement with
such Acquired Entity Financing Source for Capital to service such portfolio
(including any future additions to such portfolio) for a reasonable,
market-based fee.
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(l) In the event that Capital does not acquire the capital stock or
substantially all the assets of any such Acquired Entity Financing Source as
provided in paragraph (a) above or Section 4.3(c) below, such Acquired Entity
Financing Source may, so long as it continues to be, or continues to be a
division or unit of, a direct or indirect Subsidiary of the Company, continue to
provide financing for: (A) products or related services manufactured, marketed,
furnished or provided by the related Acquired Entity as of the date of the
acquisition thereof by the Company Entities, together with any new generations
of such products or services (subject, however, to the limitations and
restrictions set forth in Section 4.1(b)(vi) above with respect to an Acquired
Entity Financing Source described in Section 4.3(c) below); provided, that such
products and services will nonetheless be deemed to be "Products" for the
purposes of this Agreement and Capital will also have a right to offer
Financings and Ancillary Services with respect to such Products in accordance
with the terms of Article III (except that the "preferred provider" provisions
of Section 3.2 shall not restrict the Company Entities from providing any rights
or benefits to such Acquired Entity Financing Source with respect to such
Products); and (B) products or related services manufactured, marketed or
provided by Persons that do not constitute Company Entities (subject, however,
to the limitations and restrictions set forth in Section 4.1(b)(vi) above with
respect to an Acquired Entity Financing Source described in Section 4.3(c)
below) so long as the scope and nature of such financing activities are
restricted to the scope and nature of such financing activities of such Acquired
Entity Financing Source as of the date of the acquisition thereof by the Company
Entities (it being understood and agreed that such Acquired Entity Financing
Source shall not provide Financings for Products (other than the Products
permitted to be Financed pursuant to clause (A) above) except to the extent that
such other Products are incorporated in or integral to the products and services
permitted to be financed pursuant to this clause (B) and which do not constitute
more than 40% of the value of such products or services and such Financings of
Products do not occur as a course of dealing with respect to any Customer or
Customer segment). At the request of either party, the parties shall set forth
in writing the specific scope, nature and extent of the financing activities of
any such Acquired Entity Financing Source that are permitted under the terms of
this Section 4.3.
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(c) Notwithstanding anything in Section 4.3(a) to the contrary, to the
extent an Acquired Entity Financing Source is engaged in the provision of
Financing and financial advisory and syndication services with respect to
equipment, systems, and services of the type traditionally manufactured or
marketed by Network Systems as of June 25, 1993, and as described on Schedule E
attached hereto, Capital shall have no right to require the Company to use
reasonable efforts to facilitate the transactions described in Section 4.3(a)(i)
or (ii) with respect to such Acquired Entity Financing Source; provided, that
the Company shall use reasonable efforts to facilitate, in Capital's discretion
(1) a transaction whereby Capital would acquire substantially all of such
Acquired Entity Financing Source's portfolio of existing financing for an amount
equal to the fair market value of such acquired assets (subject to the same
limiting principle in Section 4.3(a)(i))or (2) the same type of transaction
described in Section 4.3(a)(iii).
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ARTICLE V
PROTOCOLS AND PROCEDURES AND RELATED MATTERS
Section 5.1. Protocols and Procedures; Pilot Programs. (a) The Company
and Capital acknowledge that there are presently in effect certain protocols and
procedures governing certain aspects of the business relationship between the
Capital Entities (or their predecessors) and the Company Entities (collectively,
"Protocols and Procedures") that were agreed to between such Company Entities
and Capital Entities (or their predecessors) for the purposes of (A) on the one
hand, promoting efficiency in the identification, communication and processing
of requirements of Customers and Authorized Dealers for Financings and Ancillary
Services and the provision and monitoring of such Financings and Ancillary
Services and (B) on the other hand, improving the Capital Entities' Financing
Penetration Rate while maintaining the profitability to the Capital Entities of
the provision of Financings and Ancillary Services (the "Protocol Standards").
Such Protocols and Procedures will continue to remain in effect between the
appropriate Company Entities and Capital Entities, and the Company Entities and
Capital Entities shall conduct the activities contemplated in the Protocols and
Procedures to be conducted by the Company Entities and Capital Entities, as the
case may be, substantially and generally in accordance with the terms thereof
(it being understood that complete and consistent compliance by the parties with
the Protocols and Procedures is not practical). It is the intention of the
parties that the
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Protocols and Procedures will not supersede or modify the agreements of the
parties set forth in the Location Support Agreement or other written agreements
between the parties relating to the provision of products or services by one
party to the other party.
(b) The appropriate Company Entities and Capital Entities shall review
the Protocols and Procedures on a periodic basis to determine if it would be
appropriate or necessary to modify or supplement the Protocols and Procedures in
order for the Protocols and Procedures to comport more closely with the Protocol
Standards or for the Protocols and Procedures to take into account new types of
Financings or Ancillary Services or other changes in circumstances in a manner
consistent with the Protocol Standards. The appropriate Company Entities and
Capital Entities may also suggest modifications or supplements to the Protocols
and Procedures at any time and from time to time that are consistent with the
Protocol Standards. The Company Entities may, consistent with past practice, in
determining whether the Protocols and Procedures are to be modified or updated,
take into account relevant benchmarking and other methods of evaluating the
Financing programs offered by the Capital Entities whereunder such programs
would be compared to substantially similar (as to scope and nature) financing
programs offered by other financing sources for equipment and products that do
not constitute Products. Where applicable, the appropriate Company Entities and
Capital Entities shall, in any such circumstances, negotiate in good faith to
appropriately modify or supplement the Protocols and Procedures.
(c) The Capital Entities and the Company Entities shall, consistent
with past practice, cooperate with each other to institute pilot Financing
programs by the Capital Entities which are mutually satisfactory to the Company
Entities and the Capital Entities.
Section 5.2. Systems Interface. (a) The Company and Capital agree to
maintain in effect the existing telecommunications and computer linkages
(including, without limitation, telecommunications and computer linkages
relating to voice messaging, electronic written messaging, remote terminal
document retrieval, and data storage and retrieval) between the Company Entities
and Capital Entities that facilitate (x) the accessing by the Capital Entities
of information with respect to Customer and Authorized Dealer locations, Product
delivery,
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location, installation and servicing, SBU sales force performance and related
matters, (y) the accessing by the Company Entities and the SBUs of information
with respect to terms of or rates for Financings and Ancillary Services,
acceptance, billing and payment status and credit and collection information
and, to the extent such information is available to the Capital Entities,
information with respect to Customer and Authorized Dealer locations and Product
delivery, location, installation and servicing, and (z) the integration of funds
transfers between the Company Entities and Capital Entities with their
respective invoicing and accounting systems in connection with the provision by
the Capital Entities of Financings and Ancillary Services with respect to
Products.
(b) The appropriate Company Entities and Capital Entities shall review
the foregoing telecommunications and computer linkages on a periodic basis to
determine if it would be appropriate or necessary to improve, expand, modify or
supplement such linkages in order to comply with the Protocols and Procedures,
integrate more efficient technology, improve and expand data retrieval and usage
and improve the sales of Products and the utilization of Financings and
Ancillary Services offered by the Capital Entities or to take into account new
types of Financings or Ancillary Services or other changes in circumstances. The
appropriate Company Entities and Capital Entities may also suggest improvements,
expansions, modifications or supplements to such telecommunications and computer
linkages at any time and from time to time that are consistent with the
foregoing standards. If necessary or appropriate, the appropriate Company
Entities and Capital Entities shall, in any such circumstances, take appropriate
actions to effect such improvements, expansions, modifications or supplements to
such telecommunications and computer linkages.
(c) The Company Entities shall bear the costs of maintaining and
improving, expanding, modifying or supplementing the computer and
telecommunications systems owned by them and the costs of telecommunication and
other services utilized by them. The Capital Entities shall bear the costs of
maintaining and improving, expanding, modifying or supplementing the computer
and telecommunication systems owned by them and the costs of telecommunication
and other services utilized by them. The costs of designing and implementing the
interfaces between the Company Entities' and Capital Entities' computer and
telecommunications
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systems and the costs of related telecommunications and other services shall be
shared equally between the Company and Capital.
ARTICLE VI
REMARKETING OF PRODUCTS
Section 6.1. In General. (a) The Company Entities and the Capital
Entities and the SBUs shall, in a manner consistent with past practice but
subject to the terms hereof, coordinate their strategies with respect to the
disposition or re-lease (whether by extension of the existing lease or by a new
lease to a third party) of leased Products (whether at the end of the lease term
or upon the return or repossession of the leased Product prior to the end of
such term), with the objective of both maintaining the relevant Customers and
Authorized Dealers as purchasers and users of Products, on the one hand, and
protecting the Capital Entities' reasonable expectations concerning the
realization of profits from end of term residuals, on the other hand. Unless
otherwise agreed to by the Capital Entities in connection with particular
Financings or Financing programs, Capital will not be restricted in terms of its
right to sell, re-lease or otherwise dispose of returned or repossessed Products
(including Products that have been leased by or subject to security interests or
other claims in favor of any Capital Entity). Except as otherwise agreed in
writing, the Company Entities shall not be deemed to have represented or
warranted to the Capital Entities that the Capital Entities will obtain any
minimum proceeds or rate of return upon the resale, re-lease or other
disposition of returned or repossessed Products.
(b) The Company Entities and Capital Entities may from time to time
enter into agreements with respect to the disposition or re-lease of Products.
The Company acknowledges and agrees, on behalf of itself and the other Company
Entities parties thereto, and Capital acknowledges and agrees, on behalf of
itself and other Capital Entities parties thereto, that (i) Credit has succeeded
to the rights and assumed the obligations of Credit Holdings under each and any
agreement in effect on the date hereof between any AT&T Entity and Credit
Holdings with respect to the disposition or re-lease of Products and (ii) on the
Spin-Off Date the Company shall succeed to the rights and assume the obligations
of the AT&T Entities in accordance with Section 8.1(a) under each and any
agreement in effect on the date hereof between any AT&T Entity and any Capital
Entity with respect to the disposition or re-lease of Products shall remain
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in full force and effect (it being understood that no AT&T Entity shall be
released from its obligations under any such agreement entered into prior to the
Spin-Off Date). The terms and conditions of this Agreement shall apply to the
disposition or re-lease of any Products with respect to which an agreement of
the type referred to in this paragraph (b) is in effect at any time to the
extent that such terms and conditions are not inconsistent with the terms and
conditions of any such agreement and, to the extent of any such inconsistency,
the terms and conditions set forth in such agreement shall apply and be
controlling.
Section 6.2. Deinstallation, Refurbishment and Re-Certification of
Remarketed Products. In the event that any Product subject to a Financing is
returned to a Capital Entity (or the right to possession of such Product
otherwise reverts to a Capital Entity), at the request of such Capital Entity,
the Company shall cause the relevant Company Entity to deinstall, refurbish,
recertify, store and/or redeliver such Product in accordance with the reasonable
instructions of such Capital Entity. Such Capital Entity shall pay such Company
Entity for such services at the most competitive rates customarily charged by
such Company Entity to Authorized Dealers and other Product dealers for such
services. Nothing contained herein shall be construed as limiting in any way the
right of the Capital Entities to obtain any of the foregoing services from
Persons other than Company Entities.
Section 6.3. Rights to Use Software. The Company hereby grants, on
behalf of itself and any other applicable Company Entity, a license to the
Capital Entities to use any and all Software, which license shall with respect
to any such Software be effective automatically and immediately upon Financing
by the Capital Entities of such Software or any other Products in connection
with which such Software is to be used. Except as provided herein, the scope of
the license granted to the Capital Entities shall be consistent with the scope
of the license granted by the applicable Company Entity in its standard form of
license agreement with respect to such Software. The Capital Entities shall (i)
not be required to pay any license fee for such Software or otherwise comply
with the terms of any applicable license agreement for so long as the Capital
Entities are merely providing Financing for such Software or any related
Products or have foreclosed on or otherwise repossessed or re-acquired such
Software in connection with a default under or expiration or termination of the
related Financing but are not
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using such Software (except for purposes of testing or demonstrating such
Software in connection with any proposed disposition of such Software) and (ii)
be entitled to assign their license to any other Person, provided that if such
Person is not a Capital Entity and the applicable Company Entity's standard form
of license agreement for such Software requires the prior consent of a Company
Entity to assign such license, the Capital Entities shall assign such license
only upon execution and delivery by the assignee of the applicable Company
Entity's standard form of license agreement for such Software and agreement by
such assignee to pay, at the then-prevailing rate, any fees required to be paid
by a licensee of such Software to the applicable Company Entity pursuant to the
terms of such license agreement.
ARTICLE VII
CERTAIN ALLOCATIONS OF RISK; LITIGATION AND REPOSSESSION
(m) Unless otherwise agreed with respect to particular Financings or
Ancillary Services or programs with respect thereto, the Company and any other
appropriate Company Entity will be deemed to make the following representations,
warranties and covenants to Capital and any other appropriate Capital Entity
each time that a Capital Entity provides, extends or renews a Financing or
Ancillary Service with respect to a Product (to the extent such representations,
warranties or covenants are applicable to the particular Financing or Ancillary
Service):
(i) the appropriate Capital Entity will, upon payment of the
purchase price of any Product that is being Financed by such Capital Entity
pursuant to a lease or other arrangement in which such Capital Entity
retains title to the Product, receive (A) title to the Product (other than
Products constituting Software) free and clear of any lien or charge
thereon created by or through any Company Entity and (B) to the extent any
portion of such Product is not manufactured or developed by a Company
Entity and with respect to which a Company Entity has received a warranty
or indemnity from another Person, an assignment by such Company Entity of
any such applicable warranty, express or implied, and indemnity rights
applicable to such Product to the extent that such warranty and indemnity
rights are by their terms assignable (and if any such warranty or indemnity
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rights are not by their terms so assignable, such Company Entity will hold
any such warranty and indemnity rights for the benefit of such Capital
Entity and will, at the direction and expense of such Capital Entity, take
all such actions as such Capital Entity may reasonably request to enforce
all or any part of such warranty and indemnity rights);
(ii) neither any Company Entity nor any employees or agents of any
such Company Entity will knowingly participate in, or fail to disclose to
the appropriate Capital Entity any knowledge of, any fraudulent or illegal
act in connection with the Financing or Ancillary Service;
(iii) the Product Financed by the Capital Entity will be delivered
to the Customer or Authorized Dealer named in the applicable Financing
application and installed at the location indicated in the applicable
Financing application in accordance with such Company Entity's normal
operating practices and the terms of the contract with the Customer or
Authorized Dealer, and the appropriate Company Entity will honor all
express and implied warranties and agreements, representations and/or
assurances made by such Company Entity to any Customer or Authorized Dealer
with respect to any such Product; and
(iv) the Company Entities and their employees will not, without
the appropriate Capital Entity's express consent, make any representation,
warranty or covenant on behalf of such Capital Entity to a Customer or
Authorized Dealer with respect to the Financing, the Standard Documents or
other documents provided by the Capital Entities, the Ancillary Service or
the Financed Product.
(n) Unless otherwise agreed with respect to particular Financings,
Ancillary Services or programs with respect thereto, Capital and any other
appropriate Capital Entity will be deemed to make the following representations,
warranties and covenants to the Company and any other appropriate Company Entity
each time that a Capital Entity resells a Financed Product to a Company Entity
or a Capital Entity provides, extends or renews a Financing or Ancillary Service
with respect to a Product (to the extent such representations, warranties or
covenants are applicable to the particular Financing or Ancillary Service):
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(i) the appropriate Company Entity will, upon payment of the
purchase price of any Financed Product that is sold by the appropriate
Capital Entity to such Company Entity, receive (A) title to the Product
free and clear of any lien or charge thereon created by or through any
Capital Entity and (B) to the extent any portion of such Product is not
manufactured or developed by a Company Entity and with respect to which any
Capital Entity has received a warranty or indemnity from a Person other
than a Company Entity, an assignment by such Capital Entity of any such
applicable warranty, express or implied, and indemnity rights applicable to
such Product to the extent that such warranty and indemnity rights are by
their terms assignable (and if any such warranty or indemnity rights are
not by their terms so assignable, such Capital Entity will hold any such
warranty and indemnity rights for the benefit of such Company Entity and
will, at the direction and expense of such Company Entity, take all such
actions as such Company Entity reasonably will request to enforce all or
any part of such warranty and indemnity rights);
(ii) neither any Capital Entity nor any employees or agents of
such Capital Entity will knowingly participate in, or fail to disclose to
the appropriate Company Entity any knowledge of, any fraudulent or illegal
act in connection with the Financing or Ancillary Service; and
(iii) the Capital Entities and their employees will not, without
the appropriate Company Entity's express consent, make any representation,
warranty or covenant on behalf of a Company Entity to a Customer or
Authorized Dealer with respect to the Financing, Ancillary Service or
Financed Product.
The Capital Entities shall assume responsibility for and bear the risks
of delinquency, default and non-payment under any Financings provided by them
unless (i) the relevant Company Entity and the relevant Capital Entity agree or
have agreed otherwise, (ii) a Company Entity has provided the relevant Capital
Entity with a full or partial guaranty or indemnity pursuant to Section 2.4 or
Section 2.7, (iii) Capital is entitled to indemnification for such risks
pursuant to the terms of Article IX or (iv) such delinquency, default or
non-payment is attributable to a Company Responsibility, as defined below (in
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which event such risks will be borne in accordance with this Section 7.2).
(p) A "Company Responsibility" means a delinquency, default or
non-payment by a Customer or an Authorized Dealer under any Financing provided
by a Capital Entity of a Product in circumstances where such delinquency,
default or non-payment is a result of:
(i) failure by any Company Entity to deliver, install or service,
as the case may be, such Product in accordance with such Company Entity's
contractual or legal obligation to deliver, install or service such
Product;
(ii) failure of such Product to comply with any contractual
representation, warranty or covenant provided by any Company Entity with
respect to such Product or with any warranty applicable to such Product by
operation of law;
(iii) any offset or counterclaim by the relevant Customer or
Authorized Dealer against the amounts due by it under the Financing on the
basis of disputes between such Customer or Authorized Dealer and any
Company Entity (or on the basis of amounts owing by any Company Entity to
such Customer or Authorized Dealer) under any business dealings between
such Customer or Authorized Dealer and any Company Entity, whether or not
related to such Product or such Financing; or
(iv) breach or violation by any Company Entity or any employee of
a Company Entity of the provisions of Section 7.1(a) (whether or not such
breach or violation gives rise to a right of termination of this
Agreement).
In addition, a "Company Responsibility" will be deemed to exist if, as a matter
of law or equity, any Company Entity is found to be responsible for the
Customer's or Authorized Dealer's failure to honor its obligations under a
Financing or such Customer or Authorized Dealer is able to avail itself of a
defense to any claim asserted by the relevant Capital Entity with respect to
such Financing based on non-performance by any Company Entity of any obligations
of any such Company Entity (whether or not related to the Financed Product) or
any breach by a Company Entity of any warranty (at contract or at law) with
respect to any Product. The application of the term "Company
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Responsibility" is further described in the General Allocation of
Responsibilities set forth on Schedule G.
(q) The Company and Capital agree that in any situation in which there
arises the potential for a delinquency, default or non-payment with respect to a
Financing which may be a result of a Company Responsibility (including any such
situation in which a Customer or Authorized Dealer has refused to perform its
obligations thereunder based on the alleged existence of a circumstance that
would constitute a Company Responsibility), the billing, collection and
enforcement activities and any losses with respect to such Financing will be
allocated to the relevant Capital Entities or SBUs in accordance with the
General Allocation of Responsibilities set forth on Schedule G.
(d) The parties hereby acknowledge and agree that the provisions of
this Section 7.2 and Schedule G are intended to supersede the General Allocation
of Responsibilities dated as of August 5, 1988 and that such provisions will be
deemed to retroactively apply to any Financings currently subject to such
General Allocation of Responsibilities. In addition, the provisions of this
Section 7.2 and Schedule G shall apply to Financings provided at any time by any
Capital Entities, including Capital Entities to which the General Allocation of
Responsibilities of August 5, 1988 did not apply.
Section 7.3. Collection and Repossession Actions. Except as provided
in Sections 7.2 and 7.4, Capital will be entitled, in its discretion, to take
(or determine not to take) any and all actions to collect amounts due and unpaid
or otherwise enforce its rights upon the occurrence and continuation of a
default by a Customer or Authorized Dealer under a Financing including, without
limitation, to make demand for payment or performance, institute an action for
payment of amounts due or for specific performance, institute collection
proceedings, effect acceleration or termination of the Financing, foreclose upon
or take possession of security (which may include the Financed Product) provided
by or on behalf of the Customer or Authorized Dealer or enforce remedies to take
possession and control of the Product. In no event will the Capital Entities
engage in unlawful collection practices or refer matters for collection to any
collection agencies or attorneys who are known by the Capital Entities to engage
in unlawful collection practices.
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Section 7.4. Actions Against Significant Accounts. (a) Capital shall,
to the extent reasonable and practicable, provide advance notice to the relevant
SBUs of any legal proceeding or repossession action to be initiated by any
Capital Entity against a Significant Account. If circumstances require the
immediate commencement of such an action in order to reasonably protect the
interests of the Capital Entities under any Financing or Ancillary Service or in
the related Financed Products, the Capital Entities may take such action, but
shall notify the relevant SBUs of the situation as soon as practicable after
initiating such action.
(b) In the event that any Capital Entity initiates or proposes to
initiate any legal proceeding or repossession action against a Significant
Account, such Capital Entity shall delay or refrain from pursuing or initiating
such action in the event that the Company either (A) agrees to purchase, without
recourse or warranty (except as to title and as provided herein or otherwise
agreed), all of the interest of such Capital Entity in such Financing, Ancillary
Service and the related Financed Products for a purchase price calculated in
accordance with the General Allocation of Responsibilities set forth on Schedule
G or (B) gives such Capital Entity other legal undertakings reasonably
satisfactory to such Capital Entity to induce it to delay or refrain from taking
such action.
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ARTICLE VIII
SCOPE OF APPLICATION OF AGREEMENT
Section 8.1. Attribution of Actions of Subsidiaries to Their Parents.
(a) The Company agrees and acknowledges that the Company shall be responsible
for, and hereby guarantees, the due and punctual payment and performance, in
accordance with their terms, of the obligations hereunder applicable to any
Company Entity (other than the Company) or any SBU or division within any
Company Entity or in any other agreement or commitment (including, without
limitation, any lease agreement) of any such Company Entity or SBU or division
within any Company Entity entered into at any time and from time to time
(whether before or after the Spin-Off Date) with or for the benefit of any
Capital Entity or any strategic business unit or division within any Capital
Entity (it being understood that no AT&T Entity shall be released from any of
its obligations under the AT&T Operating Agreement). The Company further
acknowledges and agrees that the foregoing undertaking and guarantee shall
extend for the benefit of any permitted assignee of any Capital Entity's or such
strategic business unit's or division's rights and benefits with respect to any
such agreement or commitment and, if reasonably requested by Capital, the
Company shall affirm such undertaking and guarantee for the benefit of any such
assignee. Capital agrees that any obligation of the Company hereunder or
thereunder that is paid or performed by a Company Entity (other than the
Company) shall be deemed to be paid or performed, as the case may be, by the
Company. The Company hereby represents and warrants to Capital that it has the
requisite authority to commit and bind the other Company Entities to the
applicable terms of this Agreement.
(b) Capital agrees and acknowledges that Capital shall be responsible
for, and hereby guarantees, the due and punctual payment and performance, in
accordance with their terms, of the obligations hereunder applicable to any
Capital Entity (other than Capital) or any strategic business unit or division
of any Capital Entity or in any other agreement or commitment (including,
without limitation, any lease agreement) of such Capital Entity or any strategic
business unit or division within any Capital Entity entered into at any time and
from time to time (whether before or after the Spin-Off Date) with or for the
benefit of any Company Entity or SBU or division within any Company Entity.
Capital further acknowledges and agrees that the
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foregoing undertaking and guarantee shall extend to the benefit of any permitted
assignee of any Company Entity's, SBU's or division's rights and benefits with
respect to any such agreement or commitment and, if reasonably requested by the
Company, Capital shall affirm such undertaking and guarantee for the benefit of
any such assignee. The Company agrees that any obligation of Capital hereunder
or thereunder that is paid or performed by a Capital Entity (other than Capital)
shall be deemed to be paid or performed, as the case may be, by Capital. Capital
hereby represents and warrants to the Company that it has the requisite
authority to commit and bind the other Capital Entities to the applicable terms
of this Agreement.
(r) To the extent that the Company Entities presently have or hereafter
acquire equity interests in any joint venture or other Person that is not deemed
to be a "Subsidiary" for the purposes of this Agreement, the Company Entities
shall nonetheless use reasonable efforts, upon request of Capital, to assist
Capital in negotiating and entering into an agreement with such Person pursuant
to which Capital would become a "preferred provider" of financing for the
products and services sold, marketed or distributed by such Person and its
Subsidiaries (if any) in accordance with the terms and principles set forth in
Section 3.2.
(s) The Company agrees to provide Capital with reasonably prompt notice
of any acquisition by any Company Entity of any equity interest in any joint
venture or other Person to which the provisions of this Section 8.2 would apply
and to provide Capital with such information concerning such Person as Capital
may reasonably request.
Section 8.3. Sale, Public Offering or Spin-Off of a Significant
Products Entity. In the event that (x) any Company Entity at any time proposes
to (i) sell in a public offering or spin-off to its shareholders a controlling
block of the equity of any Significant Products Entity or (ii) sell, directly or
indirectly, in an assets or stock sale or through a merger or other form of
business combination, a Significant Products Entity or a major portion of the
Products Capacity thereof to one or more Persons in a negotiated transaction
(including a sale or transfer in connection with a transaction referred to in
Section 8.2) and (y) the effect of such transaction would be that such
Significant Products Entity or such major portion of the Products Capacity
thereof would no longer constitute or form a part of a
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"Company Entity" for the purposes of this Agreement, the Company shall:
(i) at the time that the Company formulates the general intention
to spin-off, offer publicly or seek potential purchasers for such
Significant Products Entity or portion of the Products Capacity thereof,
provide Capital with notice of such intention, and in connection with any
specific proposed spin-off, public offering or sale transaction, provide
Capital with notice of the same as far in advance of such sale as is
reasonably practicable in the circumstances; and
(ii) in the case of a spin-off or public offering, as a condition
precedent to the consummation of such transaction, if so requested by
Capital, first cause such Significant Products Entity or the entity holding
such portion of the Products Capacity thereof to be spun-off or offered
publicly to enter into an agreement with Capital under which Capital would
continue to provide Financing and Ancillary Services with respect to the
Products of such Significant Products Entity or other entity following such
spin-off or public offering that is substantially similar in scope and
terms to this Agreement and that has a term substantially equivalent to the
then remaining term of this Agreement (a "Comparable Operating Agreement");
(iii) in the case of a negotiated sale transaction (including a
sale or transfer in connection with a transaction referred to in Section
8.2), if so requested by Capital, use reasonable efforts to facilitate
negotiations between Capital and the purchasers of such Significant
Products Entity or major portion of the Products Capacity thereof (or an
appropriate Affiliate) with respect to the execution by such parties of a
Comparable Operating Agreement with respect to the Products of such
Significant Products Entity or major portion of the Products Capacity
thereof; and
(iv) whether or not the Capital Entities obtain any rights to
provide Financings or Ancillary Services in the circumstances contemplated
in this Section 8.3, reimburse the Capital Entities for any reasonable
costs and charges incurred by the Capital Entities in connection with any
reduction in the scope or nature of the Capital Entities'
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operations for the provision of Financings or Ancillary Services that
results from the sale or other disposition of any Significant Products
Entity or any major portion of the Products Capacity thereof (including,
without limitation, costs relating to severance or redeployment of
employees and costs relating to unutilized or underutilized real estate or
other assets); provided that to the extent that the incurrence of such
costs and expenses is reasonably determinable to be under Capital's
control, the Company shall be responsible for reimbursement thereof only to
the extent it has consented to the incurrence of such costs and expenses,
such consent not to be unreasonably withheld (an example of such costs and
expenses would be severance obligations incurred by Capital in connection
with a severance package specifically designed for employees that are
rendered redundant as a result of the sale or other disposition of any
Significant Products Entity or any major portion of the Products Capacity
thereof).
Section 8.4. New Products and Company Entities. Capital's commitments
with respect to the provision of Financings and Ancillary Services (including
those set forth in Article II), the Company's commitments to support Capital
(including those set forth in Articles III and IV) and the other provisions of
this Agreement shall apply to existing and future lines of Products and existing
and future Company Entities (including Acquired Entities that do not, at the
time of acquisition by the Company of such entities, own an Acquired Entity
Financing Source), subject in each case to the requirements of Article II and
Article III and the limitations and exceptions set forth in this Agreement
(including, without limitation, those set forth in Article IV and this Article
VIII).
Section 8.5. Geographic Scope of Agreement. (a) The Capital Entities
have the present capability to provide Financings and Ancillary Services with
respect to sales, leases or other furnishings of Products sold or marketed by
the Company Entities within the United States of America, Canada, France,
Germany and the United Kingdom (each an "Active Service Area"). As the Capital
Entities are able to expand their capabilities to provide such Financings or
Ancillary Services in other countries or regions (or specific markets
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therein) being served by the Company Entities, Capital may from time to time
request the Company that, and the Company may, in its sole discretion, decide to
agree that such countries or regions (or specific markets therein) be designated
as "Active Service Areas" with respect to the Company Entities generally or with
respect to one or more Company Entities or SBUs for purposes of this Agreement,
in which event the obligations of the parties hereunder shall apply with respect
to such countries or regions (or specific markets therein) to the same extent as
they would to any other Active Service Areas with respect to sales, leases or
other furnishings of Products by such Company Entities or SBUs within such
Active Service Areas.
(b) Without limiting the provisions of paragraph (a) above, in the
event that the Company Entities desire to provide, in connection with the
provision of Financings or Ancillary Services in any country or region that is
not an Active Service Area, to any Alternative Provider a "preferred provider"
status with respect to such Financings or Ancillary Services reasonably similar
to the "preferred provider" status provided to the Capital Entities pursuant to
Section 3.2, the Company Entities shall provide the Capital Entities with an
opportunity to bid to provide in such country or region the Financings or
Ancillary Services and any related programs proposed to be provided in such
country or region by such Alternative Provider. In the event that any such bid
by the Capital Entities, considered as a whole, is at least as favorable to the
Company Entities as the bid of any Alternative Provider, the Company Entities
shall accept the bid of the Capital Entities and the country or region in which
such Financings or Ancillary Services and any related programs are to be
provided shall for all purposes of this Agreement (including Article III and
Article IV) be considered to be an Active Service Area.
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ARTICLE IX
INDEMNIFICATION
Section 9.1. Capital Indemnity. Capital agrees to save, protect,
indemnify and hold harmless, on an After-Tax Basis, the Company Entities and the
employees, officers, directors, agents and representatives of each of the
foregoing from and against all liabilities, costs (including attorney's fees and
disbursements), claims and charges arising from or relating to: (i) the breach
by any Capital Entity of any representations, warranties or covenants of such
Capital Entity contained in or delivered pursuant to this Agreement or any other
agreement of any Capital Entity relating to Products, Financings or Ancillary
Services; or (ii) any violation by any Capital Entity or any employee or agent
thereof of any law applicable to the sale, lease or other furnishing of Products
or to any related Financings or Ancillary Services (including, without
limitation, any law relating to the reporting of or extension or denial of
credit, the collection of debt or the repossession or disposition of products);
provided that in the event that a Company Entity and a Capital Entity separately
agree to indemnification (or waiver thereof) with respect to a matter that would
otherwise be subject to indemnification pursuant to this Section 9.1, such other
agreement will apply with respect to such matter and this Section 9.1 will not
so apply. The foregoing indemnity shall not apply in respect of liabilities,
costs, claims or charges to the extent arising from or relating to (i) any
action, sufferance or omission by a Company Entity or an employee of a Company
Entity that is effected in bad faith or represents gross negligence or willful
misconduct, (ii) any action, sufferance or omission by a Capital Entity or
employee of a Capital Entity pursuant to the express instructions of a Company
Entity or employee of a Company Entity (in the case of such employee, if such
instructions are provided by such employee in his or her capacity as such) or
(iii) any breach or violation by a Company Entity or any employee of a Company
Entity of the provisions of this Agreement or any other applicable agreement
between a Company Entity and a Capital Entity (whether or not such breach or
violation gives rise to a right of termination of this Agreement or such other
agreement).
Section 9.2. Company Indemnity. The Company agrees to save, protect,
indemnify and hold harmless, on an After-Tax Basis, the Capital Entities and the
employees, officers, directors, agents and representatives of each of the
foregoing from and against all liabilities, costs (including attorney's
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fees and disbursements), claims and charges arising from or relating to: (i)
breach by any Company Entity of any representations, warranties or covenants of
such Company Entity contained in or delivered pursuant to this Agreement or any
other agreement of any Company Entity relating to Products, Financings or
Ancillary Services; (ii) any products, environmental or other similar liability
relating to the Products (such as claims for personal injury or property
damage); (iii) any misrepresentation made by any employee or agent of any
Company Entity to any Customer or Authorized Dealer as to the commitment of any
Capital Entity to provide any Financings or Ancillary Services to such Customer
or Authorized Dealer or the likely availability thereof; and (iv) any violation
by any Company Entity or any employee or agent thereof of any law applicable to
the sale, lease or other furnishing of Products or to any related Financings or
Ancillary Services; provided that in the event that any Company Entity and a
Capital Entity separately agree to indemnification (or waiver thereof) with
respect to a matter that would otherwise be subject to indemnification pursuant
to this Section 9.2, such other agreement will apply with respect to such matter
and this Section 9.2 will not so apply. To the extent that a Company Entity
performs its obligations under Section 7.2 with respect to an actual or
potential Company Responsibility, the Capital Entities and related indemnified
parties will not be separately entitled to indemnification under this Section
9.2 with respect to any loss or cost relating to such Company Responsibility
that would otherwise be indemnifiable under this Section 9.2. The foregoing
indemnity shall not apply in respect of liabilities, costs, claims or charges to
the extent arising from or relating to (i) any action, sufferance or omission by
a Capital Entity or an employee of a Capital Entity that is effected in bad
faith or represents gross negligence or willful misconduct, (ii) any action,
sufferance or omission by a Company Entity or employee of a Company Entity
pursuant to the express instructions of a Capital Entity or employee of a
Capital Entity (in the case of such employee, if such instructions are provided
by such employee in his or her capacity as such) or (iii) any breach or
violation by a Capital Entity or any employee of a Capital Entity of the
provisions of this Agreement or any other applicable agreement between a Company
Entity and a Capital Entity (whether or not such breach or violation gives rise
to a right of termination of this Agreement or such other agreement).
Section 9.3. Procedure. Each indemnified party under Section 9.1 or
Section 9.2 shall, promptly after receipt of
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notice of a claim or action against such indemnified party in respect of which
indemnity may be sought hereunder notify the indemnifying party in writing of
the claim or action; provided, that the failure to notify the indemnifying party
will not relieve it from any liability which it may have to an indemnified party
on account of the indemnity agreement contained in Section 9.1 or Section 9.2
unless, and only to the extent that, the indemnifying party was prejudiced by
such failure, and in no event will such failure relieve the indemnifying party
from any other liability which it may have to such indemnified party. If any
such claim or action shall be brought against an indemnified party, and it shall
have notified the indemnifying party thereof, the indemnifying party will be
entitled to participate therein, and, to the extent that it wishes, to assume
the defense thereof with counsel satisfactory to the indemnified party. After
notice from the indemnifying party to the indemnified party of its election to
assume the defense of any claim or action, the indemnifying party will not be
liable to the indemnified party under Section 9.1 or Section 9.2 for any legal
or other expenses subsequently incurred by the indemnified party in connection
with the defense thereof other than reasonable costs of investigation; provided,
that the indemnified party will have the right to employ separate counsel to
represent it if, in the reasonable judgment of such indemnified party, it is
advisable for it to be represented by separate counsel, and in such event the
fees and expenses of such separate counsel will be paid by such indemnified
party. The indemnifying party may not without the prior written consent of the
indemnified party agree to any settlement of any claim or action as the result
of which any remedy or relief, other than solely for monetary damages for which
the indemnifying party will be responsible hereunder, will be applied to or
against the indemnified party. In any action hereunder as to which the
indemnifying party has assumed the defense thereof with counsel satisfactory to
the indemnified party, the indemnified party will continue to be entitled to
participate in the defense thereof, with counsel of its own choice, but the
indemnifying party will not be obligated hereunder to reimburse the indemnified
party for the costs thereof.
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ARTICLE X
DISPUTE RESOLUTION
Section 10.1. Resolution of Disputes. Except as otherwise provided in
this Article X, the procedures for discussion, negotiation and arbitration set
forth in this Article X will apply to all disputes solely between the parties
under this Agreement; provided that arbitration will not apply or be required in
the case of any dispute challenging the validity of any provision of this
Agreement or any breach of the provisions of Section 4.1 unless the parties so
agree in writing.
Section 10.2. Resolution of Disputes Using Best Efforts. (a) The
parties hereto agree and acknowledge that (i) this Agreement is intended to
provide a flexible framework for a cooperative and mutually beneficial
arrangement for the provision of Financings and Ancillary Services by the
Capital Entities and the treatment by the Company Entities of Capital Entities
as the preferred providers of Financings and Ancillary Services to Customers and
Authorized Dealers and (ii) the parties shall use good faith best efforts to
resolve all differences and disputes between the parties with respect to the
matters covered hereby that may arise from time to time at the level of the
appropriate Capital Entity and Company Entity (or the appropriate SBU within
such Company Entity) and, to the extent resolution is not achieved at such
level, at the level of management of the Company and Capital. Consistent with
the foregoing principles, the parties shall not refer the resolution of such
differences and disputes to the arbitration proceedings specified herein except
to the extent that after good faith best efforts the parties cannot resolve such
differences and disputes without so escalating such resolution. Any agenda,
location or procedures for such discussions or negotiations between the parties
may be established by the parties from time to time or as the occasion warrants.
(b) The parties may, by mutual consent, retain a mediator to aid the
parties in their discussions and negotiations by informally providing advice to
the parties. Any opinion expressed by the mediator shall be strictly advisory
and shall not be binding on the parties, nor will any opinion expressed by the
mediator be admissible in any arbitration proceeding. The mediator may be chosen
from a list of mediators previously selected by the parties or by other
agreement of the parties.
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Costs of mediation shall be borne one-half by the Company and one-half by
Capital, except that each party shall be responsible for its own expenses.
Mediation is not a prerequisite to a demand for arbitration under Section 10.3.
If any dispute (other than a dispute which challenges the validity of
any provision of this Agreement and other than a breach of Section 4.1) referred
to the management of the Company and Capital has not been resolved within
forty-five (45) days after referral to such management, either party may demand
that the dispute be resolved by binding arbitration. Notice of the demand for
arbitration by one party will be given in writing to the other party to this
Agreement. Upon such demand, the dispute will be decided by a sole arbitrator in
accordance with the rules set forth in this Section 10.3.
(u) The parties shall attempt to select, within 15 days after such
notice of demand for arbitration is given, a sole arbitrator satisfactory to
both parties.
(v) In the event that the parties are not able to jointly select a sole
arbitrator within such 15 day period, the parties shall each appoint an
arbitrator within 30 days after provision of the notice referred to in paragraph
(a) above. If one party appoints an arbitrator within such time period and the
other party fails to appoint an arbitrator within such time period, the
arbitrator appointed by the one party shall be the sole arbitrator of the
dispute.
(w) In the event that a sole arbitrator is not selected pursuant to
paragraph (b) or (c) above, and, instead, two arbitrators are selected pursuant
to paragraph (c) above, the two arbitrators will, within thirty (30) days after
the appointment of the later of them to be appointed, select a third arbitrator
who will act as the sole arbitrator of the dispute. After selection of such sole
arbitrator, the two initial arbitrators shall have no further role with respect
to the dispute. In the event that the arbitrators so appointed do not, within
thirty (30) days after the appointment of the later of them to be appointed,
agree on the selection of the sole arbitrator, either party may apply to any
court having jurisdiction over the parties and the controversy to select the
sole arbitrator.
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(x) The sole arbitrator selected pursuant to paragraph (b), (c) or (d)
above will set a time for the hearing of the dispute which will not be later
than sixty (60) days after the date of appointment of the sole arbitrator
pursuant to paragraph (b), (c) or (d) above, and the final decision of such
arbitrator will be rendered in writing to the parties not later than sixty (60)
days after the last hearing date, unless otherwise agreed by the parties in
writing.
(y) The place of any arbitration hereunder will be New York, New York,
or at such other place as agreed to by the parties.
(z) Except as otherwise set forth herein, any arbitration hereunder
will be conducted in accordance with the rules of the American Arbitration
Association ("AAA") then prevailing, and the decision of the arbitrator will be
final and binding on the parties, and will be enforceable in any court having
jurisdiction over the parties. Compliance with the provisions of this Agreement
concerning arbitration of disputes is a condition precedent to the commencement
of any suit, action or proceeding in any federal, state or local court with
respect to any controversy or dispute under this Agreement, except a suit,
action or proceeding which challenges the validity of any provision of this
Agreement or a breach of Section 4.1.
(aa) Any party may send out requests to compel document production from
the other party. Disputes concerning the scope of document production and
enforcement of the document production requests will be determined by written
agreement of the parties or, failing such agreement, will be referred to the
arbitrator for resolution. All discovery requests will be subject to the
proprietary rights and rights of privilege of the parties, and the arbitrator
will adopt procedures to protect such rights. Except where contrary to the
provisions set forth in this Agreement, the rules of the AAA for commercial
arbitration will be applied to all matters of procedure, including discovery;
provided, however, that the arbitration will not be conducted under the auspices
of the AAA and the fee schedule of the AAA will not apply. The arbitrator may
obtain independent legal counsel to aid in his or her resolution of legal
questions presented in the course of arbitration, to the extent he or she
considers that such counsel is appropriate or necessary for a fair resolution of
the dispute, and to the extent that it is economical to do so considering
financial consequences of the
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dispute. The arbitrator will be limited to interpreting or construing the
applicable provisions of this Agreement, and will have no authority or power to
alter, amend, modify, revoke or suspend any condition or provision of this
Agreement; it being understood, however, that the arbitrator will have full
authority to implement the provisions of this Agreement, including provisions
requiring further agreement of the parties hereunder, and to fashion appropriate
remedies for breaches of this Agreement; provided that the arbitrator shall not
(i) have any authority in excess of the authority a court having jurisdiction
over the parties and the controversy or dispute would have absent these
arbitration provisions and (ii) have any right or power to award punitive
damages.
(bb) If a party fails or refuses to appear at and participate in an
arbitration hearing after due notice, the arbitrator may hear and determine the
controversy upon evidence produced by the appearing party.
(cc) Arbitration costs will be borne one-half by the Company and
one-half by Capital, except that each party will be responsible for its own
expenses and the costs of witnesses selected by such party.
Section 10.4. Continuity of Service and Performance. Unless otherwise
agreed in writing, the parties will continue to provide service and honor all
other commitments under this Agreement during the course of dispute resolution
pursuant to the provisions of this Article X.
Section 10.5. Disputes as to Sales Site Protocols and Procedures.
Notwithstanding the provisions of Section 10.3(c) and Section 10.3(d), if the
Company Entities and the Capital Entities have a dispute under Section 3.2(f)
regarding compliance by the Capital Entities with applicable Protocols and
Procedures with respect to any Financings or Ancillary Services provided at a
Sales Site (or whether the Capital Entities have cured any deficiencies within
the applicable period set forth in Section 3.2(e)), and the parties are not able
to agree upon the selection of the sole arbitrator pursuant to Section 10.3(b),
either party may immediately refer the matter to the AAA and request that the
AAA select an arbitrator within 15 days of such request, and such selection by
the AAA shall be binding upon both parties.
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ARTICLE XI
TERM AND TERMINATION
Section 11.1. Initial Term and Renewal. (a) Subject to Section 11.2,
this Agreement shall become effective on the Spin-Off Date and shall remain in
effect until, and shall terminate on, August 4, 2000 (the "Initial Term"). This
Agreement shall automatically be renewed and remain in effect for an indefinite
number of successive periods of two years (each such period, a "Renewal
Period"), the first such Renewal Period commencing upon the expiration of the
Initial Term and each successive Renewal Period commencing upon the expiration
of the preceding Renewal Period, unless either party elects not to extend the
term of this Agreement beyond the Initial Term or any Renewal Period by giving
the other party notice of such election at least one year prior to the
expiration of the Initial Term or Renewal Term then in effect (it being
understood that failure to give timely notice of non-renewal will be deemed to
constitute an election by the parties to renew the term of this Agreement as
provided herein).
(b) Prior to the Spin-Off Date, Capital shall have no obligation under
this Agreement to the Company, the Divisions or any AT&T Entity, it being
understood that the relationship between the Capital Entities and the Divisions
with respect to the subject matter hereof shall continue to be governed by the
AT&T Operating Agreement prior to the consummation of the Spin-Off Transactions.
This Agreement may be terminated in its entirety prior to the
expiration of the Initial Term or any Renewal Term in effect:
(i) at any time, by the mutual written consent of Capital and the
Company;
at the election of the Company (after the Spin-Off Date), by at
least 180 days' prior notice to Capital, in the event of a Subsequent
Transfer of Control unless (a) prior to any such transfer, Capital requests
the Company's approval thereof and (b) the Company consents to such
transfer (it being understood that such consent shall not be unreasonably
withheld or delayed);
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(iii) in the event one party (the "defaulting party") has
materially defaulted on its obligations under this Agreement, the other
party (the "non-defaulting party") may give notice of default to the
defaulting party and, in the event the defaulting party does not cure the
default within 60 days of such notice of default, the non-defaulting party
may, within 60 days after the expiration of such 60 day period, give notice
of termination to the defaulting party and specify in such notice the date
of termination of this Agreement (which date shall be a date not less than
30 days following the date of such termination notice), in which event this
Agreement shall terminate on the date specified in the termination notice;
(iv) at the election of the Company, by notice to Capital, in the
event that Capital commences a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its
debts under any bankruptcy or similar law or statute or makes an assignment
of its property or any substantial portion thereof for the benefit of
creditors and such proceeding or assignment is continuing or in effect at
the time of such notice;
(v) at the election of the Company, by notice to Capital, in the
event that there is commenced against Capital an involuntary proceeding
seeking to have Capital declared a bankrupt or seeking to have a receiver
appointed with respect to a substantial portion of its property which is
not dismissed within sixty (60) days of commencement, or there is entered
an order declaring Capital a bankrupt or appointing a receiver with respect
to a substantial portion of its property and such proceeding or order is
continuing or in effect at the time of such notice;
(vi) at the election of Capital, by notice to the Company, in the
event that the Company commences a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself
or its debts under any bankruptcy or similar law or statute or makes an
assignment of its property or any substantial portion thereof for the
benefit of creditors and such proceeding or assignment is continuing or in
effect at the time of such notice; or
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(vii) at the election of Capital, by notice to the Company, in the
event that there is commenced against the Company an involuntary proceeding
seeking to have the Company declared a bankrupt or seeking to have a
receiver appointed with respect to a substantial portion of its property
which is not dismissed within sixty (60) days of commencement, or there is
entered an order declaring the Company a bankrupt or appointing a receiver
with respect to a substantial portion of its property and such proceeding
or order is continuing or in effect at the time of such notice.
Notwithstanding anything in this Agreement to the contrary, it is specifically
understood and agreed that the Company shall not have any right to terminate
this Agreement because of the occurrence of a First Tier Transfer of Control.
Section 11.3. Effect of Termination. Upon the termination of this
Agreement as provided in this Article XI, all obligations of the parties hereto
with respect to any future Financings and Ancillary Services under this
Agreement will cease; provided, however, that the obligations of the parties set
forth herein as they relate to completed Financings and Ancillary Services
(including the obligations set forth in Articles II, III, V, VI, and VII) and
the provisions herein as to indemnification, dispute resolution, confidentiality
and miscellaneous matters (Articles IX, X, XII and XIII) will continue in full
force and effect.
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ARTICLE XII
CONFIDENTIALITY
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Capital and the Company each understand and agree that the terms of
this Agreement, including the schedule hereto, may be publicly disclosed,
including in any public filing made by the Company or Capital or any Affiliate
thereof with the Securities and Exchange Commission. However, Capital and the
Company each covenants and agrees that it shall, and shall cause its
Subsidiaries to, treat any information provided by any Company Entity to any
Capital Entity (in the case of Capital's obligations hereunder) or by any
Capital Entity to any Company Entity (in the case of the Company's obligations
hereunder) pursuant to this Agreement (including, without limitation, the
Protocols and Procedures or any proprietary information otherwise acquired
hereunder) as privileged and confidential and to hold such information and to
use it solely for purposes of this Agreement and will not, without the prior
consent of the other party hereto, disclose, or cause to be disclosed, such
information to any Person, except that any such information may be disclosed (a)
to Capital's or the Company's agents, directors, officers, employees,
representatives, accountants, counsel or special counsel who have a need to know
or have access to such information and who have been instructed or have a duty
to keep such information confidential in accordance with the terms hereof, (b)
to the Affiliates of Capital and the Company, and such Affiliates' agents,
directors, officers, employees, representatives, accountants, counsel or special
counsel who have a need to know or have access to such information and who have
been instructed or have a duty to keep such information confidential and to use
it in accordance with the terms hereof, (c) to such other Persons who are
reasonably deemed necessary by Capital and the Company, as the case may be, in
connection with the enforcement of their rights under this Agreement, (d) to the
extent required pursuant to applicable law or any governmental authority
(including, but not limited to, the National Association of Insurance
Commissioners, Internal Revenue Service auditors, state taxing or communications
authorities or federal or state judicial authorities), (e) to the extent
required or appropriate to be disclosed in response to a reasonable request by
rating agencies, underwriters, or creditors in connection with financing
transactions undertaken by Capital or the Company or their Affiliates, who agree
or are under a duty to hold such information confidential in accordance with the
terms hereof, (f) to the extent that prior to such disclosure, such information
is in the public domain (it being understood and agreed that any document or
information that is filed as a matter of public record with any state, federal
or foreign governmental authority
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or is generally available to the public at the time of disclosure (other than as
a result of disclosure by such Person) will for the purposes hereof be deemed to
be in the public domain) or (g) to Persons involved in potential acquisitions
of, mergers with, or purchase of all or substantially all of the assets of
Capital (or any other Capital Entity) or the Company (or any other Company
Entity) who, in each case, agree in writing to hold such information
confidential in accordance with the terms hereof. Capital and the Company
Entities will take such action as may be reasonably necessary to ensure that the
competitors of the other party do not acquire such information.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. Variation of Terms; Amendments. Any Capital Entity and
Company Entity may by mutual consent from time to time vary the terms of this
Agreement as it applies to such Capital Entity and either such Company Entity or
one or more SBUs within such Company Entity. In such event, such varied terms
will be deemed to amend this Agreement as it applies to such Capital Entity and
such Company Entity (or such SBUs) for such period of time as such variance is
agreed to by such Capital Entity and such Company Entity. Notwithstanding any
such variance, this Agreement will continue to apply to all other Capital
Entities and Company Entities (or, if applicable, all SBUs within the Company
Entity that consents to such variance that are not made subject to such
variance) as if such variance had not been effected. Notwithstanding the
foregoing, this Agreement cannot be amended or terminated orally, but only by a
writing duly executed by or on behalf of the parties hereto (or by the
applicable Company Entity and Capital Entity).
Section 13.2. No Partnership. Nothing contained in this Agreement will
be construed in any manner to constitute the creation of a partnership between
the Company Entities and the Capital Entities nor to characterize the Company
Entities and the Capital Entities as joint venturers. The Company Entities and
the Capital Entities will at all times be and remain independent contractors
with respect to the subject matter of this Agreement.
Section 13.3. Successors and Assigns; Third Parties. (a) This
Agreement will be binding upon and inure to the benefit of the parties hereto
and their successors and assigns.
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(b) Except as set forth in Article IX, nothing in this Agreement,
expressed or implied, is intended or will be construed to confer upon any Person
(including Customers and Authorized Dealers) other than the parties (and the
Company Entities and Capital Entities) and their successors and assigns any
right, remedy or claim under or by reason of this Agreement.
Section 13.4. Severability. If any provision of this Agreement or the
application of any such provision to any party or circumstances will be
determined by any court of competent jurisdiction or duly authorized arbitration
tribunal to be invalid, illegal or unenforceable to any extent, the remainder of
this Agreement or such provision or the application of such provision to such
party or circumstances, other than those to which it is so determined to be
invalid, illegal or unenforceable, will remain in full force and effect to the
fullest extent permitted by law and will not be affected thereby, unless such a
construction would be unreasonable.
Section 13.5. Notices. All notices, consents, deliveries, demands,
requests, approvals and other communications which are required or may be given
hereunder will be in writing and will be deemed to have been duly given if
personally delivered (including courier service), telecopied or mailed certified
first class mail, postage prepaid, addressed as follows:
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(a) if to the Company, to:
LUCENT TECHNOLOGIES INC.
Attn: General Counsel
At such address as is
specified by such
General Counsel from
time to time pursuant
to this Section 13.5
Telecopier Number: (to be specified by such
Confirmation Number: (to be specified by such
with a copy to:
the same address
Attn: Pamela Craven, Esq.
(b) If to Capital, to:
AT&T Capital Corporation
44 Whippany Road
Morristown, New Jersey 07960
Telecopier Number: 201-397-3220
Confirmation Number: 201-397-3187
Attention: Chairman and CEO
with a copy to:
AT&T Capital Corporation
44 Whippany Road
Morristown, New Jersey 07960
Telecopier Number: 201-397-3220
Confirmation Number: 201-397-3187
Attention: Senior Vice President, General
Section 13.6. Governing Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to the choice of law provisions of its conflicts of law rules.
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Section 13.7. Headings. The article headings and the section headings
and subheadings contained in this Agreement are intended solely for the
convenience of reference and will not affect in any manner the meaning or
interpretation of this Agreement.
Section 13.8. Counterparts. This Agreement may be executed in one or
more counterparts, each of which will be deemed an original instrument, but all
of which together will constitute one and the same agreement, and will become
binding when one or more counterparts have been executed and delivered by each
of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
LUCENT TECHNOLOGIES INC.
By:________________________
Name:
Title:
AT&T CAPITAL CORPORATION
By:________________________
Name:
Title:
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement on Form S-1 (File No.
333-00703) of our report dated January 25, 1996 (Note 14 is dated February 1,
1996), on our audits of the consolidated financial statements and financial
statement schedule of Lucent Technologies Inc. and subsidiaries. We also consent
to the reference to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York
April 1, 1996
